Fast-track contracting specialist 2010 ANNUAL … Services (Pty) Ltd Protech Readymix (Pty) Ltd...

2010ANNUAL REPORT

Fast-track contracting specialistPROTECH

2010AN

NUAL

REPORT

Contents 2010 2 Financial highlights //

4 Board and executive committee //

5 Group structure // Protech has built its strong reputation on an ability to commence work within 24 to 48 hours after awarding of a contract and to complete work ahead of schedule – resulting in signifi cant cost savings to the client.

6 Focus areas //

8 Strategy at work // Protech is a bulk earthworks and civil engineering group that offers fast-track contracting.

14 Chairperson’s report // The group’s successful team culture and forward-looking approach to career paths and people development has clearly been key to its ability to strengthen its market position as an employer of choice.

18 Chief executive offi cer’s review // Against increasingly troubled global and local markets, it is extremely satisfying to be able to report on another strong result for Protech.

22 Chief fi nancial offi cer’s report // The fi nancial position of the group remains healthy, with the net asset value per share increasing by 32% to 85,6 cents per share.

26 Operational review // The group has three main business areas:

Contracting Geotechnical laboratory Readymix

34 Sustainability review // The group aims to be sensitive to the communities around its operations. It ensures that sites are clearly demarcated and that safety, health and environmental requirements are met to prevent any impact on communities.

36 Stakeholder engagement //

37 Economic value added statement //

38 Corporate governance //

42 Employee relations //

42 Transformation //

47 Safety, health, environment and quality // 50 Annual fi nancial statements //

99 Company fi nancial statements //

116 Notice of annual general meeting //

123 Form of proxy //

ibc Corporate information //

Against the backdrop of a global meltdown, the past year was one of the most challenging in Protech’s history. However, the group proved the resilience of its business model by limiting the decline in earnings per share and preventing signifi cant margin erosion.

Protech Annual Report 2010 1

Financial highlights

Results summary Revenue up 7% Operating margin

of 16% Earnings per share

down 18%

50% Areas of operations were more concentrated than usual

due to the group’s coal focus Exceptionally high rainfall was experienced in

certain areas – This disrupted operations and delayed start-ups on

new contracts

1. Excessive rainfall

20% There were substantial delays in contract awards

3. Public sector infrastructure spending paralysis

30% We indicated at the end of F2009 and again in the first

half of F2010 that markets would remain difficult – The recession’s negative impact was even more

pronounced in the second half of F2010 – Private and public infrastructure spending

was decimated – Competition increased significantly

2. Worsening market conditions

Results impacted by three main factors:

2

Salient financial information

2010 2009

GROUP SUMMARY (R MILLIONS)

Revenue 748,8 702,7 EBIT 118,6 156,0 Total assets 727,3 692,0 Total borrowings 264,6 274,4 Operating cash flow 104,5 142,9 Total number of employees – 28 February 1 398 1 375

ORDINARY SHARE PERFORMANCE (CENTS)

Basic earnings per share 20,9 25,6Headline earnings per share 20,2 26,0Operating cash flow per share 28,8 39,4Net tangible asset value per share – 28 February 75,8 55,0

FINANCIAL STATISTICS

Operating margin 15,8% 22,2%Attributable earnings on shareholders’ funds 27,7% 49,4%Interest cover (times) 5,2 5,2 Return on average assets 10,7% 15,7%

RATIOS

Net interest bearing debt:equity (%) 57,2% 73,6%Days receivable outstanding (days) – excluding retentions 73 74Current (times) 1,6 1,4


for the year ended 28 February 2010

Board and executive committee

Board of directors Executive committee

1. Dirk Ackerman Non-executive chairman

2. Mafahle MareletseIndependent non-executive director

3. Vincent Raseroka Non-executive director

4. Pieter van Tonder Non-executive director

5. Matsotso Vuso Independentnon-executive director

6. Gerald Chapman Executive director

7. Nellis Wolmarans Executive director

1 12 2

4 4

6 6

7

33

55

7 8

1. Gerald Chapman Chief executive offi cer

2. Nellis Wolmarans Chief fi nancialoffi cer

3. Julian Dovey Chief operatingoffi cer

4. John le Roux Managing director Protech Khuthele

5. Hardie Swanepoel Managing directorPela Plant and Impact Compaction

6. Chris Porter Commercial director Managing director SARTS

7. Dieter Rothman Managing director Protech Readymix

8. Martie Barwick HR director

4

Group structure

Protech Khuthele Holdings Limited

CONTRACTING GEOTECH

Protech Khuthele (Pty) Ltd

Pela Plant (Pty) Ltd

South African Road Testing Services

(Pty) Ltd

Protech Readymix (Pty) Ltd

READYMIX

Fast-track contracting specialist

Plant hire and

logistical services

Geotechnical laboratory and survey

services

Specialist impact

compaction

Supplier of concrete and

concrete pumping services

Impact Compaction (Pty) Ltd

The group has built a focused structure to ensure one-stop contracting ability, with several subsidiaries feeding services into the core of fast-track contracting.


Protech is a bulk earthworks and civil engineering group that offers fast-track contracting. Its business offering includes:

Bulk earthworks

Site clearance

Demolitions

Fast-track bulk earthworks

Basement excavation

Canal/river rehabilitation

Earthworks for commercial, industrial and retail developments

Crushing and screening

Roads and civil works

Road construction

Community infrastructure services

Dams and attenuation ponds

Airports and airfields

Harbour and reclamation works

Mining infrastructure

Earthworks

Topsoil and overburden removal

Rehabilitation

Slime dams

Dump reclamation

Materials handling

Contract mining

Plant hire and logistics Geotechnical laboratory and survey services

Impact compaction Readymix concrete and pumping services

6

Focus areas

Impact compaction solutions that is much faster and more cost-effective than historical methods

Readymix concrete that feeds into the core by providing concrete, when required

Ability to quickly shift sectors

The group’s flexible model enables it to anticipate market changes ahead of time and within three to six months shiftits focus from markets under pressure to growth or active markets. As promised six months ago, Protech continued to pro-actively shift towards the still-growing mining sector, away from the pressured private and public sectors.

Business model

Protech’s business model was created during the early ninetiesin a very depressed South African construction sector, with its business model focused on delivering in tough times.

During the years, the group has built a focused structure to ensure one-stop contracting ability, with several subsidiaries feeding services into the core of fast-track contracting.

These include:

Plant hire and logistics that support the group’s operations with quality plant

State-of-the-art laboratories that enhance the group’s fast-track ability through prompt soil testing

Strategy at work

The group’s fl exible model enables it to anticipate market changes ahead of time and within three to six monthsshift its focus from markets under pressure to growthor active markets.

Enhances fast-track ability through effi cient survey and testing

Enhances fast-track ability through cheapest, fastest compaction

Enhances fast-track ability through

quality plant

Concrete supplyto contracting, when required GEOTECH

FAST-TRACK

CONTRACTING

CIVILS AND

EARTHWORKS

IMPACT

COMPACTION

PLANT HIRE

AND LOGISTICS

READYMIX

8

During the year, it successfully increased the relative contribution of mining work to total group contracts from 46% to 50%.

Exposure to different sectors

Estimated relative contribution to group contracts (%) F2010 H1 2010 F2009

Private 10 8 27

Retail – – 8Industrial 1 – 9Commercial 9 8 10

Mining 50 48 46

Coal 49 47 36Platinum and iron ore 1 1 10

Public infrastructure 40 44 27

Roads and services 21 21 17Airports 19 23 10

Leading indicator of sector changes

The group is first on and first off site before construction operations start. This means that Protech is usually a leading indicator of what is happening in the construction industry in general and often experiences the negative downturn and upturn first.

Reputationally-based business

During its 21 years in existence, Protech has built a reputation of always delivering to the highest quality, offering a professional service, finding innovative solutions, especially to adverse conditions, and employing people with the highest standards and ethics. This has resulted in the group continually receiving repeat business and forming long-standing relationships with clients.

Margin headroom

The group has the ability to be on site within 24 to 48 hours after being awarded a contract. It also has an entrenched track record of finishing jobs early and never late. This has allowed the group to compete on reputation, not only price, which commands a higher margin. During the tough period under review, the group’s reputation still commanded a margin higher than its listed peers, which allowed some headroom.

Entrenched quality team

Protech has an extremely low staff turnover of below 2%, resulting in clients receiving consistent service from people they have built a relationship with. The current executive team has been together for over ten years, ensuring that there is cohesion in terms of the thinking, delivery and strategic planning of the business.

Efficient plant policy

The group operates only new plant. Plant is replaced every24 months, resulting in over 100% plant utilisation and no downtime for the client – a unique feature in the construction industry. The group also has excellent service level agreements in place. This ensures that if plant breaks down on site, a replace-ment is delivered within a few hours. The maintenance and warranty risk is also offset to suppliers for the entire period the plant is at Protech.

As plant is of very high quality, it is never a cash flow risk to the company. Furthermore, there is no risk of impairments or of non-delivery due to aged plant.

Our business model of having an internal company, Pela Plant, supplying the majority of equipment to our Contracting division


Strategy at work continued

Protech Khuthele reduces the cost of fleet hire being paid to external providers, thus keeping more cash and margin in-house.

Externally hired-in plant acts as our safety cushion as it allows us to quickly upscale or downscale plant as demand increases or slows. Our optimal hire-in level is 15%. During the year, our hired fleet represented 25% of our total fleet, which indicates that even in these competitive times, we had a healthy work-flow as our internal equipment could not satisfy our Contracting division’s demand.

In the coming year, we will focus on increasing our internal plant to progress closer to our target of 15% hired plant.

Blue-chip client base

The group services only blue-chip clients, resulting in a very low incidence of bad debt. The group has consistently maintained a percentage of bad debts of less than 0,1% of turnover.

Weak publicand privateconstruction

sector

ACTIONS TAKEN TO COUNTER MARKET VOLATILITY

This business model will continue to support relative earnings performance

Quickly shifted markets to mining

Reputation as ultra-efficient

fast-track specialists

Quality plant

Intelligent use of plant

Innovative solutions for clients

Margin manoeuvrability

Carefully chosen contracts

10

Resilient business model

Business model Delivery during year

Quality in-house fleet. Having a big in-house fleet reduced the cost of fleet hire being paid to external providers, thus keeping more cash and margin in-house

Hired-in plant provides buffer.

Ability to up- or downscale within 24 hours

Limited idle plant, with plant utilisation remaining above 100%

Hired-in plant at 25%

Plant policy protects against state of equipment market.

Demo-quality fleet by end of term

Our plant policy of replacing fleet every two years positioned us well during the year, as we could guarantee no downtime

Due to our established supplier agreements, we could change the mix of equipment quickly as we changed sectors to ensure a fleet able to deliver in the mining environment

Higher than average margin allows headroom.

Above-average margin provided headroom during tough times and extremerainfall, with margin remaining well above listed peers at 16%

Well entrenched risk policy and blue-chip clients.

Bad debts only 0,08% of revenue

Stringent cost control. Total cost increase contained to 8%

Progress against key objectives

Key indicator

Achieved

in 2010

Achieved

in 2009

Medium

term goal

Annualised return on shareholders’ funds 27,7% 49,4% 25 – 30%Annualised return on assets 10,7% 15,7% 10 – 15%Group operating margin 15,8% 22,2% 20%Net interest bearing debt:equity 57,2% 73,6% 50 – 80%Plant utilisation 102% 103% 100%Hired plant to owned plant 25% 30% 15%BBBEE Level 4 Level 7 Level 4CIDB rating Level 9 Level 9 Level 9


Strategy at work continued

Delivery on promises

Statements made six months ago Delivery

Further contract wins. Current work in progress is R1,1 billion, with 91% of this new contracts awarded since November 2009

Protech will continue to only pick quality, higher margin contracts in public infrastructure.

Public infrastructure exposure further decreased from 44% at interim time to 40% at year end

Protech will focus on mining to counter weak private and slow public sector roll out.

Short term focus on coal:

Pro-active and early shift into mining protected earnings decline and gave margin headroom

Focus remained on coal. Unfortunately, unexpected rainfall affected results

– Without excessive rainfall, strategy would have further limited earnings decline by at least 25%

65% of F2009 revenue already secured. Revenue increased by 7% since last year

12

Managing risk The group’s current main risks relating to its business are outlined below, as well as how it mitigates these risks.

Risk factors Mitigating factors

Under-utilisation of plant and plant standing idle

To mitigate the risk of plant not being utilised fully, the group follows a strategy of renting in a portion of its fleet from selected external plant hire operators. The rented portion of the fleet serves as a buffer in times of strong, as well as weak, demand for plant. Rented plant can be hired or returned within 24 hours.

Availability of financing facilities During the year, the group secured financing facilities of R467 million from large financiers. A credit rating is performed annually by an independent rating agency. In the most recent rating during November 2009, the group’s rating remained unchanged at a BBB investment grade.

Competition and pressure on rates

The group provides a specialised fast-track contracting solution to its clients. This work is generally less price sensitive than traditional construction-related work. The group’s higher than average margin also allows it more headroom on rates during tough times.

Depressed economy The group has the ability to shift focus between market sectors in three to six months, as indicated during the year with a strong shift to mining.

BBBEE rating A suitable BBBEE rating is essential to secure large contracts. The group is constantly striving to improve its BBBEE status through focused programmes, particularly in the areas of preferential procurement, enterprise development, skills development and socio-economic development projects. The group is a Level 4 contributor, as rated by Emex Trust.

Non-delivery by suppliers As a specialist fast-track contractor, it is imperative that the suppliers to the group are very efficient. The group therefore forms strategic alliances with suppliers and through continuous interaction with them, the efficiency of the supply chain is maintained.

Skills shortage The group follows a policy of training and development of employees on a continuous basis. The group also runs several learnership programmes and has its own mobile training unit. Staff turnover over the last five years has remained below 2%.

Poor health, safety and environmental policies

The group has stringent policies and procedures in place, with client audits and regular inspections. We also have an impeccable safety record, with our lost time injury frequency rate at a world-class 0,4.

Protech Annual Report 2010 13Protech Annual Report 2010 13

CHAIRPERSON’S REPORT

Protech, while strategically geared to cope with adverse conditions, was impactedby ongoing recessionary pressure and increased levels of competition, public sector spending paralysis and unprecedented weather patterns in key areas of our operations. However, as outlined in the CEO’s review, the team managed exceptionally well to limit the earnings decline.

14

Local contextWhile reports, such as the KPMG 2009 Global Construction Survey, indicate a largely positive global medium term construc-tion outlook, the South African context is more nuanced. The country experienced the full impact of the global meltdown a little later than the rest of the global system, and is thus still dealing with significant after-effects. In addition, growing positive sentiment within the local sector has been tempered by heightened levels of competition and concerns over spending paralysis in key areas, such as infrastructure development.

Within this context it has been heartening to see comments from the new Finance Minister, Pravin Gordhan, highlighting government’s awareness of the critical role its infrastructure development activity plays in buffering the impact of the recession. Given the severity of the recent downturn, the ability of government to address contract deferrals and postponements in its projected public sector infrastructure development spend will be key to the vitality of the sector as a whole.

Although our immediate focus will be on the mining sector, Protech is strategically and operationally alert and active in tender processes for attractive government infrastructure development contracts.

Protech has always enjoyed strong client relationships, under-pinned by an enviable record of fast-track delivery. In an increas-ingly competitive operating context, the quality of the group’s relationships and its on-site delivery will remain key to protect margin.

Macro contextThe potential recovery from the global meltdown remains tenuous. Despite the positive impact of significant government stimulus packages and some global upturn, several markets remain sluggish, and it looks likely that a full recovery fromthe extreme lows of 2008/2009 will take place only over a period of several years. As with many other industries, the global construction sector therefore remains in a fluid state, and effective risk management will be a key strategic focus for operators in all regions.

Particularly relevant from a South African perspective during the year was the collapse of key construction markets, such as Dubai, which resulted in several of our major players placing increased focus on South African activity, which consequently increased levels of competition.

The group’s core strategy of remaining fl exible to quickly shift into growth areas remained valid,

and has allowed us to emerge from a period of extreme

uncertainty with our reputation for fast-track delivery unshaken

and our fundamentals fi rmly in place.


Talent management

The management of Protech’s intellectual capital and human resources is a key factor supporting the group’s quality relation-ships. In line with global construction industry trends, Protech views its people as a major asset and point of advantage in a very competitive industry. The group continues to seek to build and nurture a dynamic, skilled team with the ability to exceed client expectations across all touch points. Key governance issues highlighted in the King III Report on Corporate Governance (such as training, skills development, health and safety) are therefore an ongoing point of focus within the group, carrying as they do the potential to positively impact on the group’s strength – its people.

Skills development remains a core point of focus for the group, with South Africa’s national transformation agenda an important reference point. The group offers more apprenticeships than most other industry players, which is also indicative of the importance it places on ensuring it has a talent pipeline in place to secure its market position over the long term. During the year, the group’s spend on skills development increased significantly.

Chairperson’s report continued

16

on the ground, for the incredible effort they have put in overthe year. We have a strong, talented and capable team in place, and, thanks to your efforts, we remain well placed to meet the challenges that lie ahead.

I would like to especially thank our CEO and his loyal and talented senior team for steering the group through these challenging times.

Dirk Ackerman

Chairperson

Governance

Strong governance standards are key to the group’s ability to operate effectively and to maintain the market position that has served it so well since inception. Protech therefore continues to focus on its ability to operate successfully in a competitive environment. This process involves a continuous review of the group’s governance processes, workflow and standards of operation, especially in the context of testing operating conditions.

Going forward

Protech remains committed to maintaining its robust financial resources and the strength of its blue-chip client base. These strategic pillars, in combination with our high plant utilisation rate and the ability to rapidly trade into growth segments, create a sound platform from which to maintain a robust business in variable conditions.

Appreciation

It has been a testing year, with the resilience of the Protech employees being put to the test. I would like to thank each and every person at Protech, from my board colleagues to the people

Given the severity of the recent downturn, the ability of government to address contract deferrals and postponements in its projected public sector infrastructure development spend will be key to the vitality of the sector as a whole.


We indicated at the 2009 year end and in our November interim results announcement that it would be difficult to maintainour high levels of historic growth during 2010. Nonetheless, the recession’s negative impact was even more powerful over the last six months, with unusually high rainfall levels across the group’s current operations exacerbating an already harsh operating context.

Earnings per share therefore decreased by 18,4% to 20,9 cents per share (2009: 25,6 cents per share). Although any declinein numbers is displeasing, we believe this was a solid performance given the context of extremely demanding conditions.

As previously outlined, Protech’s business model and strategy was developed to cater for challenging times, and was thus pivotal to the group’s ability to negotiate the period under review. As outlined in the Strategy Review on page 8, our unique model of having interlocking divisions in Contracting enabled us to ensure that most plant hire was an income and not an expense.

Our plant utilisation rate was not compromised and remained above 100%, reflecting the company’s ability to run efficient plant even in volatile conditions. This efficiency was achieved by rigidly sticking to our unique plant policy of replacing plant every 24 months. Our hired plant also continued to allow us to quickly upscale or downscale plant as demand increased or slowed.

During the year, the company did not waver from its strategic cornerstone of working for blue-chip clients and cherrypicking work. While margins did come under pressure, our group margin of 15,8% and our Contracting margin of 18,8% remain healthy and well above the average of our listed peers. Excluding Readymix, the group margin would have been 19,5%.

Protech has also stuck rigorously to its proven business model of anticipating market changes and pro-actively and quickly shifting focus from markets under pressure to growth or active markets. As promised at interim time, during the last six months we continued to further shift market emphasis to the still-growing mining sector, in particular coal.

The strategy of being one of the first in our peer group to focus on South African mining sector growth as an alternative to otherwise weak private and infrastructure markets served us well. However, the impact of increasing paralysis in public sector spend and the continued pressure experienced in the private

CHIEF EXECUTIVE OFFICER’S REVIEWThe civil engineering sector experienced remarkably diffi cult conditions, with the second half of the year being particularly tough. According to the South African Federation of Civil Engineering Contractors (SAFCEC), the cumulative number of tenders during calendar 2009 declined by 18% compared to 2008, with the second half of the year down 24% on the fi rst half. In addition, the total value of contracts awarded in 2009 compared to 2008 declined by 50%.

Protech’s business model and strategy was developed to cater for challenging times, and was

thus pivotal to the group’s ability to negotiate the period

under review.


our pipeline is spread across private, public infrastructure and mining sectors, the majority of contracts is focused around the mining sector as that is where we believe most of the growth will be coming from in the next 12 to 18 months.

Protech is extremely well positioned in the mining sector through established relationships and our reputation for fast-track and reliable contracting. Furthermore, we have a very flexible business model that allows us to adapt our strengths to different client requirements and sectors. For example, as competition has increased in all sectors, including our priority sector of mining, we have managed to broaden our service offering to now include both contract mining and turnkey solutions. We have solid expe-rience and the right equipment to offer a full solution to our clients.

Clearly, when the private sector, which offers the highest margin potential, recovers we will increase its exposure in the group to above the current 10% of contract revenue. In the meantime, we look to mining to enable the group to survive through the tough economic markets.

This ability to shift to where the growth can be found has allowed us to win R922 million of blue-chip mining contracts since November. In order to deliver on the signed contracts we have, in particular a three-year R340 million blue-chip mining contract, we will have to upscale by around 30 units from the current 300. In line with our strategy of optimising potential earnings, we have chosen to buy rather than hire in additional plant. It is not economical to hire plant over three years and it retains more cash in-house.

These actions, in combination with our other strategic initiatives as outlined in this report and the Strategy Review, will ensure that we pro-actively manage what is likely to remain a tough environment.

AppreciationIt is during difficult times that one sees the mettle of the people around you. This has certainly been true at Protech, with our teams stepping up to the mark throughout a challenging period.

sector, together with several large South African construction players returning to the local market following the collapse of global markets, resulted in a proliferation of larger competitors towards the end of the 2010 financial year in our chosen mining markets. This was exacerbated by a turnaround in weather expec-tations, with excessive rainfall experienced in certain areas of the country. This severely impacted the start of a number of contracts, as well as the flow of current contracts.

Mpumalanga, where the group had an unusual concentrationof work due to the growth in the coal sector, experienced1 120 mm rainfall in the fourth quarter compared to a 60-year average of 341 mm for the corresponding period. Although Protech has an undisputed reputation of working successfullyin very challenging conditions, the extreme rainfall recently experienced significantly affected the earthworks on contracts and our ability to generate sufficient profits from those contracts.

We have started to move into South African opportunities outside the coal-centred provinces, as well as establishing a presence in several southern African countries. We have successfully opened offices in Botswana, Zambia and Zimbabwe where we are actively evaluating opportunities. In line with our stringent risk policy, we will apply rigorous evaluation criteria to any African contract, including guaranteed payments and protection of assets.

OutlookWhile we expect the next year to remain extremely challenging, we start the 2011 financial year with 99% of our F2010 revenue already secured. We therefore have enough business locked in to enable us to be selective in terms of the margin levels of further business we take on.

We also have a solid pipeline until 2012 of R1,4 billion. R1,1 billion of contracts remain to be executed, with 91% of this repre-sen ting new contracts awarded since November 2009. Although

Chief executive officer’s review continued

20

R1,43 billion pipeline as at May 2010 runs to 2012

Categories of work

TotalRm

Realistic

expectation

Rm

Current work in progress – still to be executed 1 140 1 140

Category 1 – Recommended by professional team 170 ±130

Category 2 – Shortlisted (imminent)* 320 ±160#

Category 3 – Un-adjudicated bids 900 –

Realistic total – Current WIP + Category 1 + Category 2 ±1 430

* Note: Of the R300 million imminent work list at interim results, R263 million (88%) was secured.# Not included in pipeline.

We are not a group that believes in “can’t do”. We find the solution and we fight until we get it right. Nevertheless, this year threw many curveballs at us and I would like to take this opportunity to thank the whole Protech team, in particular my exco team members, for not letting go of our winning formula. Our staff turnover over the last five years has remained below 2%, indicating the commitment people continued to show to our business.

We would therefore not have been able to limit the earnings decline by as much as we did with any other team. Sincere thanks must go to each and every one of you.

My appreciation also goes to the board and our other stake-holders. Our clients, who have also faced tough times, continued

to believe in the Protech delivery model, and on behalf of the whole Protech team I thank you for your ongoing support.

While the coming year promises to be another interesting ride, I am confident that we have the right team in place to take up the challenge.

Gerald Chapman

Chief executive officer


The fi nancial position ofthe group remains healthy,

with the net asset valueper share increasing by 32%

to 85,6 cents per share(2009: 64,7 cents).

CHIEF FINANCIAL OFFICER’S REPORTAt the start of the fi nancial year we predicted that the economic volatility would make growth diffi cult and that margins would in all likelihood come under pressure. However, in spite of these trying market conditions, the group managed to achieve moderate revenue growth of 6,6%, whilst the decline in earnings was limited to 18,6%.

Delivery against financial measuresThe group uses a number of key financial indicators to measure its performance. The most significant of the key financial indicators and the group’s goals in terms of these indicators appear below:

Key measure Achieved 2010 Achieved 2009 Goal

Annualised return on shareholders’ funds 27,7% 49,4% 25 – 30%*Annualised return on assets 10,7% 15,7% 10 – 15%*Group operating margin 15,8% 22,2% 20,0%Net interest bearing debt:equity ratio 57,2% 73,6% 50 – 80%Cash generated to net income 138,3% 153,8% 100,0%

* Revised upwards since 2009 Annual Report.

The profitability indicators – return on shareholders’ funds and return on assets – are either within or close to our goal ranges, which bear testament to the group’s ability to maintain efficiency and profitability in tough trading conditions.

The current net interest bearing debt:equity ratio for the group is still fairly high, but we are comfortable with this level, as higher than normal gearing is in line with Protech’s plant policy of running new equipment. All long term interest bearing debt on the statement of financial position relates to asset-backed finance and the group generates sufficient cash to comfortably service this debt.


Statement of financial position

During the year under review, the group incurred capital expen-diture of R109 million (2009: R162 million) related to plant and machinery. The bulk of this capital expenditure was expensed to replace plant and equipment in accordance with Protech’s plant policy. The plant sold in the replacement process amounted to R74,7 million (2009: R32,8 million), resulting in net capital expenditure in respect of plant and machinery of R34,3 million (2009: R129,3 million).

Net asset value per share increased by 32,3% from 64,7 cents to 85,6 cents per share.

Interest bearing liabilities decreased by R9,8 million to R264,6 million (2009: R274,4 million) at the end of the period under review. The net debt:equity ratio of the group improved to 57% (2009: 74%) and is now comfortably close to the medium term target range set by the group.

Net working capital increased by R44,2 million to R121,2 million from the previous year’s net working capital of R77 million.

Statement of cash flows

Cash generated before working capital changes was 13,3% down to R153,8 million (2009: R177,4 million). However, when comparing cash generated by operations before working capital changes to EBIDTA, the ratio of cash generated to EBIDTA improved from 94% in F2009 to 95% in F2010. We therefore remain confident of our cash-generating ability.

Dividend

The group has declared a maiden dividend of 4 cents per share. This is a dividend policy of five times covered. Going forward, the group will pay an annual dividend.

Year under review

Statement of comprehensive income

Revenue increased by 6,6% to R748,8 million over that of the previous year. Revenue growth was entirely attributable to organic growth as no acquisitions were made during the period under review. The Contracting division contributed R640,2 million (2009: R589,2 million), which represents 83% (2009: 83%) of group revenue before inter-group eliminations.

Operating profit at R118,6 million was down by 24% over the prior year. This was largely due to the pressure on operating margin as a result of the general trading conditions, which was further exacerbated by the unusually high rainfall experienced in the latter part of the year under review. The group did, however, succeed in containing the increase in operating costs over the previous year to 8,3%.

The overall group operating margin for the year under review decreased to 15,8% (2009: 22,2%). The operating margin achieved by the Contracting division was 18,8%, which was achieved due to its ability to quickly shift focus between the sectors it operates in despite difficult markets and adverse trading conditions. The medium term operating margin target for the group of 20% remains unchanged and we are confident that this is a maintain-able margin in less volatile markets and in times when more normalised weather and rainfall patterns are experienced.

The group’s effective tax rate was 26,6% compared to 27,5% in 2009.

Group earnings for the period under review of R75,6 million were 18,6% lower than the previous financial year. Earnings per share for the year under review came to 20,9 cents per share, which was 18,4% lower than the earnings per share of the previous year. The headline earnings per share do not differ significantly from the earnings per share.

Chief financial officer’s report continued

24

Acknowledgement

I thank the entire Protech management team and the Protech finance team for the tireless work and effort in finalising our results and compiling this Annual Report.

Nellis Wolmarans

Chief financial officer


Operational review

The group’s contracting arm consists of interlocking divisions that offer plant and logistics and contract execution. These units operate in an integrated manner and give the group the ability to service clients across bulk earthworks, civil works and services, as well as mining-related infrastructure development. Contracting contributed 83% (2009: 83%) to group revenue and 102% (2009: 99%) to group operating profit.

CONTRACTING

Introduction

26

Our business model of having an internal company, Pela Plant, supplying the majority of equipment to Protech Khuthele again reduced the cost of fleet hire to external providers, thus keeping more cash in-house. Hired plant was at an average of 25%, which is slightly down from 2009, but still not close to our 15% target.

In line with Impact Compaction’s strategy of being a stand-alone operation, the reliance on Protech diminished even further, with 75% of its current business now coming from external clients. The group also delivered on its strategy of continuing to grow its exposure in the growth market of compaction through the creation of Ground Improvement Solutions (GIS). This will position Protech extremely well as it allows the group to offer ground improvement solutions and not only impact compaction.

Delivery on strategy

Protech has established itself as a unique fast-track operator, with a reputation of being able to compete in all disciplineswithin the earthworks and civil engineering industry. We form partnerships with our clients to ensure groundbreaking solutions, resulting in cost and time savings.

Against the tough market conditions during the year, Protech’s reputation assisted it to continue winning quality work, as well as extensions on existing contracts.

During the year, we once again did not waver from our policyof replacing plant after two years. This reputation for extreme efficiency served us particularly well in the recessionary envir on-ment, with several contract extensions from existing clients. Even against the harsh economic conditions, no plant stood idle.

2010 2009

Revenue (R’000) 640 235 589 218Operating profit (R’000) 120 137 148 834Operating margin 18,8% 25,3%Contribution to group operating profit 102% 99%

Operational review: Contracting continued

28

As outlined in the CEO’s review, our work in progress and pipeline remain strong.

Although this indicates that there will be a continued flow of contracts, we believe that conditions will remain difficult, with competition in the mining sector, slow public sector infrastructure roll out and a very gradual recovery in the private sector.

Against these factors, Contracting will continue to focus on working for blue-chip clients only, cherrypicking quality contracts and running a uniquely differentiated plant policy. Tough economic markets necessitate efficiency and Protech has an unrivalled reputation for never letting clients down. As indicated this year, in extreme conditions this protects against significant earnings decline.

As outlined in the CEO’s review, during the coming year, the group will expand its fleet to prevent the hire component from continuing to increase.

More competition in the mining sector could continue to pres-surise margins, but the sector has high barriers to entry due to strict mine health and safety criteria. Protech already meets these requirements. We also have higher efficiencies than peers, with an unprecedented average fleet age of one year compared to the industry’s six-year average, as well as a well-entrenched reputation with key mining players.

Ground Improvement Solutions is well positioned as a supplierof ground solutions and will be able to spearhead additional workfor Protech Khuthele. The integration process of joining Impact Compaction and Landpac has been completed, with a strong focus on continued client information around the new offering to take place over the next few months.

Year under review

Market overview

As outlined in the CEO’s review on page 19, the civil engineering sector experienced tough conditions, with the total value of contracts awarded in 2009 compared to 2008 declining by 50%.

The global economic conditions also resulted in increased compe tition in South Africa as several large construction players returned to the local market, especially to Protech’s chosen mining markets. The already-shrunken private sector also saw significantly more players competing for very limited contracts and the public infrastructure sector saw severe delays in spending.

All these challenges were exacerbated by extreme rainfall, as outlined in the CEO’s review.

Results overview

As promised at interim stage, to counter continued tough markets due to the recession, Protech Khuthele pro-actively shifted its focus to the still-growing mining sector, in particular coal. This strategy proved to be very prudent, as it assistedus in winning new contracts and extending existing contracts with increased scope. Contracts further extended were Douglas Middelburg Optimisation, Leeuwpan and Dorstfontein. The upgrading of the main run ways at the Waterkloof Air Force Base continued through the third quarter, with the first phase completed at the end of the quarter.

However, as many players in the market experienced, the extreme rainfall seen in several places in the country during the third and fourth quarters had a severe impact on the start of contracts, as well as on the flow of current contracts. Although a great deal of effort went into securing new anchor contracts against the completion or near completion of large contracts such as Goedgevonden, Gautrain and Waterkloof, roll out was severely hampered by the rainfall.

We have an undisputed reputation of working in very challenging conditions, but exceptional rainfall significantly affects the earth-works on contracts and the group’s ability to generate sufficient profits from those contracts. This, together with significantpre-contract investment on certain mining contracts in terms of induction, training and administration, impacted on operating profit and margin.

Even against all these factors, margin remained well above the average of our listed peers at 18,8%. Revenue for Contracting was up 9% to R640,2 million (2009: R589,2 million) and the operating margin declined by 26% to 18,8%.

Outlook

The group will continue to expand its South African footprint outside of the mining-concentrated areas and to grow its presence in several southern African countries to ensure a broader scope of possible contracts.


2010 2009

Revenue (R’000) 16 064 11 347Operating profit (R’000) 2 847 754Operating margin 17,7% 6,6%Contribution to group operating profit 2,4% 0,5%

SOUTH AFRICAN ROAD TESTING SERVICES

South African Road Testing Services (SARTS) offers survey and soil investigations, analysis and quality control and testing for associated earthworks, roadworks and impact compaction to contractors and consulting engineers. The Survey division sets out the position and levels of roads, platforms, excavations and trenches to be constructed. This is done with speed and accuracy, using the latest technology and equipment. The Soils Geotechnical division provides a quality control service during construction to ensure conformance to client specifi cations, as well as investigative analysis for soils and materials.

Operational review: GEOTECH continued

30

Results overview

SARTS delivered strong results. Revenue increased by 42% to R16,1 million and margin increased strongly to 17,7% as the costs that impacted this business last year in terms of its SANAS accreditation have now been fully absorbed. Furthermore, the increased revenue was spread over a relatively fixed cost base.

OutlookDuring the last two years, SARTS has invested heavily in its systems and employees to prepare for the SANAS accreditation. This has ensured that SARTS is now a world-class service provider in terms of its equipment and processes.

During the coming year, it will further expand its services to other material testing fields, such as concrete. It is confident of achieving its SANAS accreditation during the coming year without further expense, which will allow this business to service clients outside of the Protech stable.

Delivery on strategySARTS was established to offer a highly efficient service to Protech Khuthele to accelerate contract completion. The Survey division’s latest technology, equipment and systems ensure that potential errors are identified before any work is done, preventing expensive repeats.

During what was a challenging economic year for the group, SARTS’ rapid and reliable service allowed Protech Khutheleto continue delivering their fast-track contracting to clients.As Protech Khuthele focused increasingly on complex mining contracts, effective survey and analysis became even more critical.

The SANAS accreditation is in the final phase of the two- to three-year process. To date, the business’ quality management system has been approved and review documentation accepted. All required systems have been implemented and are operational. The final assessment is expected in the short term, after which accreditation should be achieved.

Year under review

Market overview

As outlined in Contracting, the recession resulted in continued pressure on companies and increased competition in Protech Khuthele’s areas of operation. As first-time delivery becomes even more crucial in difficult times, Protech Khuthele relied increasingly on SARTS to perform quality tests.


demanding sectors of commercial, industrial and infrastructure. The residential sector, which was 95% of the business upon acquisition, now only constitutes 6%, with 46% being infra-structure and public sector works and 48% commercial and industrial sectors.

During the year, the business also continued to increase its range of services, which allowed us to offer specialist solutions such as air-entrained, cellular lightweight, self-compacting and waterproof concrete. This resulted in Readymix winning certain high-specification contracts, which offered us some protection against margin corrosion in a heavily over-traded market.

Our fleet is replaced every 36 months, which ensures no downtime for clients. During the year, this continued to afford us a significant competitive edge.

In line with Protech’s vertical integration strategy, Readymix increased its supply to the group’s Contracting arm, with 6% of business being done in-house this year.

Delivery on strategy

Readymix has an aggressive first-to-market strategy, pro-actively procuring business through its sales team across the commercial, industrial, infrastructure and residential sectors. Over the last few years, the group has entrenched its reputation as the operator with the shortest lead times in the industry. During the year, our ability to deliver speedily resulted in us securing certain key clients and contracts against competitors, such as the K29 bridge for Paramount Construction, the Adcock Ingram factory for Steffanuti Stocks and the PPC Hercules expansion for Concor.

During the past year, we managed to further shift our focus and market prominence into the more active commercial, industrial and infrastructure sectors. Since Protech acquired Readymixin 2008, the business has implemented the Protech culture through a focus on systems and skills to ensure Readymix can quickly shift between sectors, including the more technically

2010 2009

Revenue (R’000) 113 049 108 127Operating (loss)/profit (R’000) (5 430) 977Operating margin (4,8)% 0,9%Contribution to group operating profit (4,6)% 0,6%

PROTECH READYMIX

Protech Readymix (Readymix) manufactures and delivers readymix concrete and concrete pumping services across all sectors. Clients include construction groups.

The company operates six dry batch plants, all situated in strategic locations. Each plant is supported by computer-controlled batching operations, assuring customers of precisely metered concrete to their specifi c requirements.

Operational review: READYMIX continued

32

ment focus on RDP housing. Through pro-active management, we ensured that payments remained strictly under control.

Results overview

Against very tough market dynamics, Readymix managed to sustain its market share through pro-actively driving sales and further entrenching its first-to-market reputation.

In line with this, volumes during the last three quarters were up year on year by 6%. However, the first quarter was negatively impacted by the Easter holidays and the elections, as wellas excessive rainfall. Volumes therefore declined by 4,5% year on year.

Revenue for the year increased by 4,6% to R113,0 million. As expected and indicated at interim time, margin remained under pressure and the business posted an operating loss of R5,4 million for the year.

OutlookThe new financial year started strongly, with a record March 2010 due to successes we had in procuring certain key specialist contracts towards the end of F2010. However, in line with historic trends, April was a poor trading month due to the Easter holidays. The next few months might also be unusually impacted by some spending impasse due to the 2010 FIFA World Cup.

As growth in commercial and industrial developments is closely linked to an uptick in residential recovery, we expect marketsto remain depressed for the foreseeable future. Against these conditions, we will continue to shift between sectors where the most growth can be extracted and where we can best position our specialist offerings.

As Readymix has been repositioned over the last two yearsinto a nimble and efficient operator with leading systemsand processes, we remain well placed to quickly tap into any market recovery.

All the improvements implemented during the year, together with continually reviewing supplier agreements and our quality and service levels, resulted in Readymix retaining its existing client base.

Year under review

Market overview

The readymix environment continued to be extremely challeng-ing, with significant over-trading and competition as players all compete for limited work.

Building plans were down during the fourth quarter by 32% compared to 2009 and the commercial and industrial sector –Readymix’s most active markets – remained sluggish. Non-residential building plans passed declined by 40% year on year from 2009 to 2010, with the construction value of residential buildings down by 43%.

Pressure on private developers and investors intensified asthe recession’s bite sharpened. Following the Competition Commission’s ban on reporting volumes across the regions, the last available statistics in October 2009 indicated that cement sales in the Gauteng region were down year on year by 23%.

As widely reported, government experienced both a paralysisin infrastructure spending, as well as increased payment issues in certain government departments. 28% of Readymix’s infra-structure spend was public sector works, with our main govern-


I am therefore very proud of the fact that during the year we once again delivered in terms of our unblemished track record, with no fatalities or disabling injuries. Our lost time injury frequency rate is world-class at 0.41, which pleasingly beat our goal of 0.6. Going forward, we have set a new target of 0.5, which we are confident we can meet.

Even in very volatile and challenging markets, we managed to stay focused on our employees and prevented any retrench-ments during the year.

We also did not waver from our focus of investing in the quality of our people, with our training spend increasing significantly from R2,6 million last year to R10 million this year. The increase was largely due to improvements implemented by our new skills development specialist with extensive experience in the field, as well as obtaining funding from various SETAs for a large portion of the spend.

We further improved our focus on managing the wellness of our people, with a permanent clinic opening at our premises to support our mobile clinic. During the year, the clinic evaluated 2 040 people. Our HIV/Aids voluntary counselling and testing programmes are also progressing, with 7% of employees having had their status tested.

As promised last year, we focused on improving transformation within the group and I am very pleased to report that we have now achieved a Level 4 status in terms of the Construction Sector charter.

The coming year promises to once again be a tough operating environment, but this will not stop us from continuing to spend time and money on making sure we remain the quality employer we have become over the 21 years of our existence.

Gerald Chapman

CEO

As we outlined in our report last year, the cornerstone of Protech’s culture is one of looking after people and ensuring their safety and wellbeing.

Gerald Chapman

SUSTAINABILITY REVIEW

34

SUSTAINABILITY REVIEW

Suppliers and sub-contractorsSupplier relationship management has become increasingly important for business success due to the prevailing economic climate and increased competition. In tough times, businesses continuously review their cost bases to control unforeseen price increases. At Protech the past year was no different. The pricing of goods and services were therefore carefully monitored and com-pared against alternative goods/services or suppliers. However, choosing quality suppliers was not compromised to ensure reliability of service, efficient back-up and adherence to safety, environmental and preferential procurement targets.

The performance of suppliers continued to be monitored regularly. Where necessary, feedback was provided to address any concerns or disputes.

During the year, key suppliers were involved in strategic planning initiatives to ensure pro-activity in terms of the existing and future operations. These initiatives not only benefit both parties financially, but also ensure that the best decisions are made.

Communities The group is actively involved in communities within its areas of operation and ensures that safety, health and environmental requirements are met to prevent any harm to surrounding communities.

During the year, the group continued to focus on a project close to its head office. Refilwe is a registered section 21 company that serves a disadvantaged community. The organisation focuses on childcare and community care programmes.

The group is also in the process of forming a partnership with the Gauteng Department of Health to make our mobile clinic available to them on a weekly basis to assist with primary healthcare and HIV/Aids awareness to rural communities within our areas of operation.

Introduction

Protech’s main stakeholders are:

Employees

Shareholders, analysts and media

Clients

Suppliers and sub-contractors

Communities

Employees

Our 1 398 employees are our main stakeholders. Even during these volatile markets, we are proud of the fact that we have not had to retrench any employees.

We have monthly toolbox talks where executive team members meet with all our permanent employees to keep communication channels open. We also have a monthly newsletter and sugges-tion boxes on sites to allow anonymous communication with head office.

The group has an incentive scheme in place for all our operators to reward employees for loyalty and responsibility.

We also ensure that we maintain our focus on respecting our employees as people, not just workers, which resulted in continued low staff turnover.

Shareholders, analysts and media

Protech pro-actively engages with these audiences through meetings, written communication and events, such as presen-tations and educational visits.

Both positive and negative news is communicated through the stock exchange news service, SENS.

During the year, the focus in terms of these audiences was continued education in terms of understanding the strategy of the group and how the group has weathered the recessionary environment.

Clients

The group‘s client base includes corporate institutions, government departments, parastatals, mining houses, large businesses, other contractors and private developers.

During the year, the focus remained on ensuring exceptional delivery to all our clients and on not wavering from our strategy of only working for blue-chip clients.

The group regularly meets with clients to identify their needs to ensure Protech always delivers above expectation.

Stakeholder engagement

36

Sustainability review continued

Economic value added statement

2010 2009

Sustainability indicator % (R’000) % (R’000)

Revenue 748 778 702 745 Less: purchased cost of goods and services (435 678) (378 016)

Value added 98 313 100 99 324 729 Other income 2 5 855 1 3 938

Wealth created 100 318 955 100 328 667

Employees 49 156 589 43 140 495Providers of funding 5 15 561 8 27 869 Government 8 27 407 11 35 207 Reinvested in the group 38 119 398 38 125 096

Wealth distribution 100 318 955 100 328 667

Number of employees* 1 398 1 375 Wealth created per employee (R) 228 151 239 031 Weighted average number of shares (’000) 362 500 362 500 Wealth created per share (R) 0,88 0,91

* Non-executive directors excluded.


The board’s information needs are reviewed regularly and appropriate procedures are in place to inform and brief board members prior to relevant meetings. The standard board agenda focuses on monitoring governance, strategy and performance, as well as imperatives dictated by the contents of the board charter.

The board is also conscious of the new Companies Act of 2008. The aim is to implement this during 2010, including the standard of conduct expected from directors and officers as includedin this Act. The board is satisfied that all directors are not only acutely aware of their duties to act in good faith, for a proper purpose, in the best interest of the company and with due care, skill and diligence, but that all directors at all times also act accordingly, as would be expected from a responsible director. Directors are permitted to seek independent advice in connection with their duties, as and when deemed necessary.

Declarations of interests are managed through a formal process that not only provides for general declarations to be circulated at every meeting of the board, but also for specific conflictsof interest to be declared as a standard item on the agenda of such meetings.

Board structure, composition and performance

At the date of this annual report, the board comprised seven directors. Two of these are independent non-executive directors, three non-executive directors and two executive directors.The board is chaired by Mr D Ackerman, a non-executive director. During the year under review, Mrs C Nkosi, a non-executive director, announced her resignation with effect from 6 October 2009.

The board reviews its composition on a continuous basis to consider its compliance with statutory requirements, as well as best practice recommendations, where appropriate. This is also done in support of the policy of balance of power and authority at board level.

The chairman, Mr Ackerman, is not an independent non-executive director, as recommended in the Code. The board will continue to evaluate this. Both the CEO and CFO are executive directors, as recommended in King III.

The following issues relating to the composition of the board are also currently under consideration:

The appointment of an additional independent non-executive director with the required skills and experience to also become a member of the audit and risk management committee

The appointment of a lead non-executive director, as recom-mended by King III, in view of the fact that the chairman is not classified as an independent non-executive director

There is a formal process in place for the nomination and appointment of directors to the board. This is driven by the

Protech Khuthele Holdings Limited is committed to the recom-mendations of the Code of Corporate Practices and Conduct (Code) as set out in the King Report on Corporate Governance for South Africa 2002 (King II).

The revision of King II, the King Report on Governance for South Africa 2009 (King III) became effective on 1 March 2010. As with King II, the board has expressed its intent to apply the principles of King III, where deemed relevant and appropriate, and to review the group’s corporate governance practices and processes to identify those principles that are not already being applied.

In particular, the principles of ethical leadership, as set out in Chapter 1 of King III, are welcomed and fully supported by both the board and leadership team in the group. Ethical conduct and behaviour, from the top down, has always been one of the fundamental values of the group.

In addition, King III has introduced a number of new concepts such as integrated reporting, IT governance and pro-active stakeholder engagement that will receive specific attentionand consideration to ensure implementation of processes and procedures that will add value and be in the best interests of the company and the group going forward.

Board of directors

The board is the focal point for the application of sound corporate governance principles. Accordingly, governance structures and practices have been designed by the board to empower it to fulfil its duties effectively. These structures and practices are transparent and designed to ensure the objectivity of board decisions, as well as the accountability of the board to all its stakeholders.

An annual work plan is in place and continuously monitored by the board to ensure that all matters that require board attention are dealt with annually. The work plan is based on the contentof the board charter that sets out the role and responsibilitiesof the board, as well as relevant governance procedures and expectations in respect of the contribution and participation of individual directors.

Strategic priorities, information needs and relevant risks have all been factored into board decision-making. The board retains full and effective control over the organisation and decisions on material matters are reserved for the board. A formal authority framework is in place and reviewed on an annual basis to ensure that it remains valid and relevant in view of the changing needs of the business and the environment in which it operates. The board is also involved in the process of agreeing the strategic direction of the business, based on a proposed strategy, as prepared and presented by the management team under the leadership of the CEO.

Corporate governance

38


Board committees

The board has two standing committees that are responsible for assisting the board in discharging its responsibilities. Each non-executive director is a member of one or more of these committees. Each committee acts according to clearly defined terms of reference approved by the board.

The committees, with its chairmen, are listed below:

Remuneration and nominations committee – D Ackerman

Audit and risk management committee – M Mareletse

Remuneration and nominations

committeeThe remuneration and nominations committee ensures that suitable candidates are identified and evaluated for appointment as directors and that the group’s remuneration practices are fair and reasonable and in the best interests of the group and all its stakeholders.

The committee comprises Messrs D Ackerman (chairman), M Mareletse and V Raseroka. The committee met three times during the year.

Terms of reference

The committee’s responsibilities include:

Remuneration and human resources

To develop remuneration policies and practices for executive directors, senior management and the group in general

To review and measure annual bonuses against individual and corporate performance targets, both financial and sus-tainability-related

To consider and recommend for approval by the board the remuneration of the chief executive and executive directors

To regularly review incentive schemes to ensure their con-tinued contribution to shareholder value

To approve salary increases for non-bargaining employees and mandates for negotiations with trade unions, where appropriate

To ensure adequate succession plans for the executive and senior management

To ensure adequate consideration of policies for the groupin respect of HIV/Aids management, skills development and employment equity

To ensure compliance to all statutory and best practice requirements regarding labour and industrial relations management

chairman, with the assistance of the remuneration and nominations

committee. The names of proposed candidates are thereafter

submitted to the board for a formal decision.

The performance of the board is assessed on an annual basis, as

per the board charter, and a self assessment was again followed

during the period under review. The assessment focused on the

aspects of structure, responsibilities, processes and culture. No

material concerns or areas of weakness were highlighted, although

a need for additional development of some of the directors, as well

as opportunities to discuss strategy and risk, were identified.

Board meetings

The board met four times during the year and all meetings were

convened by formal notice. Information is distributed in a timely

manner prior to board meetings to facilitate adequate preparation

for these meetings.

Board meeting attendance

May 09 Aug 09 Oct 09 Feb 10

D Ackerman † † † †G Chapman † † † †N Wolmarans † † † †M Mareletse † † † AM Vuso † # † AV Raseroka † † † †C Nkosi A † ** **P van Tonder † † † †

† Present A – Apology # – per teleconference * resigned 6 October 2009

Chairman and group chief executive

The roles of chairman and group chief executive are separate.

They operate under separate mandates issued by the board to

ensure a balance of power and authority.

The chairman, who is a non-executive director, presides over the

board, providing it with leadership and ensuring that all relevant

information and facts are placed before the board for decision.

The group chief executive is charged with the responsibility for the

ongoing operations of the group and its strategy. He recommends

the business plan and budgets to the board for consideration.

The group chief executive and the chairman are appointed by the

board. The board is responsible for the annual appraisal of the

chairman and the remuneration and nomination committee is

responsible for the annual appraisal of the group chief executive.

The remuneration and nomination committee assesses the

remuneration of the board, chairman and group chief executive

and is also responsible for succession planning of the board.


The terms of reference, as approved by the board, assist the members of the committee to understand their roles and to enable them to add value in discharging their duties.

Terms of reference

The committee’s responsibilities, based on both the relevant statu-tory requirements and governance recommendations, include:

Review the annual financial statements, accounting policies and reporting to stakeholders

Evaluate the company’s risks, the measures taken to mitigate those risks and the treatment of the residual risk

Ensure effective internal control in the company

Nominate the external auditor for appointment and the registered independent auditor after satisfying itself through enquiry that the external audit firm and the designated audit partner are independent, as defined in terms of the Com-panies Act of 1973 as amended

Determine the fees to be paid to the external auditor, as well as their terms of engagement

Ensure that the appointment of the external auditor complies with the provisions of the Companies Act of 1973 and any other legislation relating to the appointment of auditors

Evaluate the independence and effectiveness of the internal and external auditors

Approve a non-audit service policy, which determines the nature and extent of any non-audit services which the external auditor may provide to the company

Pre-approve any proposed contract with the external auditor for the provision of non-audit services to the company

Annually assess the appropriateness of the expertise and experience of the financial director, as required by the JSE Listings Requirements

Audit and risk management committee attendance

May 09 Oct 09 Feb 10

M Mareletse † † †M Vuso † # †

† Present # per teleconference

The committee is satisfied with the appropriateness of the expertise and experience of the chief financial officer. In addition, the committee is satisfied that the external auditor was inde-pendent for the year under review.

Share dealings

The group has a policy in terms of trading in company shares that requires directors and officers who could be expected to have access to price sensitive information, to be precluded from dealing in the group’s shares from the end of a particular financial reporting period to the actual publication of the results, both at interim and year end periods.

Board

Making recommendations on the composition of the board and board committees and to ensure that the board of directors consists of individuals who are equipped with the necessary skills to fulfil the role of a director in the company and make a meaningful contribution

To make recommendations to the board on the appointment of a lead independent director in the event of the chairman of the board not being an independent non-executive director

To identify and nominate candidates for the approval of the board to fill board vacancies, as and when they arise

To consider recommendations by management in relation to non-executive director remuneration for final recommen-dation by the board to shareholders

To initiate an annual, formal evaluation of the board and board committees

Remuneration and nominations committee attendance

May 09 Oct 09 Feb 10

D Ackerman † † †M Mareletse † A †V Raseroka † † †

† Present A – Apology

Non-executive directors receive a fee for their contribution to the board and its committees of which they are members. The level of fees for service as directors, additional fees for service on board committees, fees paid to independent advisors and the chairman’s fee are reviewed annually. The committee recommends fee structures to the board following research into trends in director remuneration for approval by shareholders at the annual general meeting.

Remuneration details of executive and non-executive directors for the year to 28 February 2010 are set out in note 29 to the consolidated financial statements and the proposed fee for F2011 is included on page 119 of this report.

Audit and risk management committee

The audit and risk management committee ensures the transparency and integrity of the group’s financial reporting, as well as the identification and mitigation of risks associated with the group’s business.

The composition of the committee is in line with the statutory requirements, as set out in the Companies Act of 1973 as amended. The committee comprises Messrs M Mareletse (chairman) and M Vuso. The committee met three times during the year. The committee operates under an approved terms of reference in accordance with King II, assisting the board to fulfil its corporate governance supervision responsibilities.

40


Company ethicsThe company has a Code of Ethics that was approved by the board during the year, as well as a whistle blowing policy.

Ethical behaviour and conduct is monitored throughout the group on a continuous basis. The Scamstop Fraud Hotline, an independent hotline service, was introduced during the year. The hotline acts as a tool to assist whistle blowers to anonymously report incidences of fraud, theft and any other dishonest or unethical behaviour. The hotline reports on all calls received through Grant Thornton to the chief financial officer. Appropriate disciplinary and legal action is taken for any form of dishonest conduct.

Going concernThe directors are of the opinion that the business will remain a going concern in the year ahead and information in this regard is contained in the statement of the responsibility of the directors in the annual financial statements.

To ensure that dealings are not carried out at a time when other price sensitive information may be known, directors and officers must at all times obtain permission from the chairman, group chief executive or group financial director before dealing in the shares of the company. Approved dealings in the company’s shares by directors are disclosed to the JSE Limited and published on the Stock Exchange News Service (SENS). All approved dealings are also reported to the regular meetings of the board.

Company secretary

The company secretary, Ms A van der Merwe, is responsible for ensuring group compliance with all applicable regulations and legislation. Her functions include regulatory compliance and close liaison with the company’s listings sponsor. Ms Van der Merwe has nearly 20 years’ experience as a corporate lawyer and company secretary, mostly in the listed environment, and is also a member of the King Committee. All directors have access to the company secretary, who also provides guidance to the board on its duties, responsibilities and powers, as well as corporate governance practices and procedures.

Risk management and internal audit

The board is responsible for ensuring that appropriate systems of internal control are maintained to safeguard all group assets and manage them effectively, as well as guaranteeing that losses arising from fraud and/or other illegal acts are minimised. Control systems are continually monitored and improved in accordance with generally accepted best practices.

The internal audit function is performed by Grant Thornton. They report to the audit and risk management committee to assist executive management and the committee in the effective dis-charge of their respective responsibilities through independent financial, internal control and operational systems reviews.

The group has a risk-based approach to internal audit, aimed at testing the integrity of controls to manage significant exposure. During the year under review, two audits were conducted by Grant Thornton, with the findings reported to the audit and risk management committee. Over the last two years these audits included an evaluation of sales and debtors, procurement, sub-contractors and payroll. Internal audit will continue to perform additional audits during F2011 as part of the revolving internal audit plan to review and test controls of key focus areas. The board is confident that major business risks are being identified and managed appropriately and that the risk management and internal control framework is operating effectively. Nothing has come to the attention of the board to indicate that any material breakdown in the functioning of the group’s internal controls and systems occurred during the year under review.


TransformationEmpowerment is a business imperative at Protech and we continue to support the South African government in its drive to level the playing fields and empower the previously disadvantaged through broad-based black economic empowerment and the seven elements of the Codes of Good Practice.

As indicated last year, the group focused on improving its Con-struction Sector Charter rating and is proud of the fact that we are now a Level 4 contributor. The largest improvements were seen in procurement and skills development.

Ownership The group entered into an ownership transaction in 2005 with the Tumsedi Share Trust and the Lidonga Women’s Group, as well as creating the Protech employee trust. The group is currently 30,1% held by black shareholders.

ManagementDuring the year, two Indian males and one Indian female were appointed to senior management positions, defined as technical associated professionals or professional levels. However, we are cognisant of the fact that our top management is not em-powered. We have therefore implemented a number of bursaries to train black employees to continue making the gap between top and senior management smaller. During the year, 27 black males were appointed to professionally qualified and middle management levels.

Maintaining a safe working environment and ensuring employee well being continues to be of paramount importance to management.

The overall staff turnover over the last five years, which includes wage and salaried employees and not fixed-term or labour broking employees, was below 2%.

During the year, we focused on extracting the benefits of significantly increased spend on training and learnership programmes. Rapid and ongoing advances in technology have created a workplace where some workers, such as labourers and drivers, are being replaced by higher skilled workers who can master increasing health and safety requirements and the complicated technology of leading machinery. Through focused training programmes, we succeeded in ensuring that some of the replacements were done with current employees. Where this could not be done, those employees were redeployed to other parts of the business.

Employee relations

SKILLS

DEVELOPMENT

PREFERENTIAL

PROCUREMENT

ENTERPRISE

DEVELOPMENT

EMPLOYMENT

EQUITY

SOCIO-ECONOMIC

DEVELOPMENTMANAGEMENTOWNERSHIP

BBBEE

42


Skills developmentProtech has a strong focus on skills development and has a number of skills development and education programmes in place. During this year, we evaluated our programmes in detail and significantly increased our spend on training and development, with spend up from last year’s R2,6 million to R10 million this year.

The increase was largely due to improvements implemented by our new skills development specialist with extensive experience in the field, as well as obtaining funding from various SETAs for a large portion of the spend.

Our skills development programmes are structured along:

Learnerships

Internal training programmes

Bursaries

Recognition of Prior Learning (RPL)

Continuous Professional Development (CPD)

Huge focus is placed on empowering black employees through skills development programmes. During the year, 98% of all training initiatives involved the training of black people.

The group is proud of the progression in its employment equity profile during the year and remains committed to continue improving on this going forward.

During the year, two Indian males and one Indian female were appointed to senior management positions. In terms of black males, 37 employees moved from skilled technical to professionally qualified positions.

Through a continued focus on training and development, 170 black males moved from unskilled to semi-skilled levels. Due to the nature of the construction industry, it is difficult to employ disabled people. However, Protech currently has nine disabled black males working for the group.

There is a huge scarcity in the civil engineering industry in terms of female representation and the group will continue to focus on female development.

Employment equity

Occupation levels Male Female Total

Black Coloured Indian White Black Coloured Indian White

Top management* 2 0 0 14 1 0 0 1 18

Senior management 12 2 3 33 0 0 2 3 55

Professionally qualified and experienced specialists and mid-management 65 4 1 30 0 0 0 10 110

Skilled technical and academically qualified workers, junior management, supervisors, foremen, and superintendents 62 4 0 9 1 0 0 3 79

Semi-skilled and discretionary decision-making 572 4 0 6 11 1 1 5 600

Unskilled and defined decision-making 524 0 0 0 17 0 0 0 541

Total 1 237 14 4 92 30 1 3 22 1 403

* Includes non-executive directors. These directors are not full-time employees of the group.


Learnerships

The group’s learnerships are focused on both internal employees, as well as people from disadvantaged communities in the group’s areas of operation.

During the year, Protech implemented 364 learnerships. A total of 99% were black learnerships, with 57% being black women.

We also piloted the National Certificate in Plant Operations NQF Level 2 learnership with 42 black learners, of which six were female. The learners were selected together with Refilwe, a section 21 company that serves a disadvantaged community in the Lanseria area, north of Johannesburg. Protech successfully found employment for 65% of the learners.

The group also ran a Business Practice NQF Level 1 learnership. A total of 294 learners were enrolled this year. All learners were black and 66% were female.

Internal training

The group’s culture is built on continuous development and training of employees. Training is often conducted in the group’s mobile training unit, which allows on-site training and minimal interruption to operations.

During the year, 606 employees were trained. 99% of trainees were black, with a particular focus on developing lower-level employees. The group also focused on health and safety training.

During the coming year, the focus will be placed on internal training at the lower levels of the occupational categories. This will include Adult Basic Education and Training and HIV/Aids training.

Bursaries

The group awarded 13 bursaries (both internally and externally) to black people, with 39% awarded to black females.

Our key internal bursary scheme focused on studies towards a Level 5 qualification in the area of safety, health and environ-mental management. Four of our black employees applied to further their careers in this field.

Our external bursaries were awarded to black students studying in the field of civil engineering. 66% of students were black females.

Transformation continued

44


Recognition of Prior Learning (RPL)

Protech adopted a developmental approach through Recognition of Prior Learning (RPL) by ensuring that people have skills that are portable. The Recognition of Prior Learning ensures people receive formal qualifications for vocational work experience. The RPL process entailed collecting evidence from within the workplace and compiling a portfolio of skills against a formal qualification on the National Qualification Framework, registered with the South African Qualifications Authority (SAQA).

During the year, two RPL programmes were piloted, which involved 86 people. These programmes pertained to:

Further Education and Training Certificate: Labour

Recruitment (NQF Level 4)

54 people participated in this programme. 61% of these people were black, of which 48% were females.

Modules covered during the labour recruitment RPL process:

Module 1: Marketing performance in the labour recruitment service industry

Module 2: Client relationship risk and CRM

Module 3: Legislative landscape in labour services

Module 4: Talent management: strategy and practice

Module 5: Information systems and communication

Module 6: Contingency planning in labour services

National Certificate: Management (NQF Level 3)

32 people participated in this programme. 100% of trainees were black, of which 44% were females.

Modules covered during the management RPL process:

Module 1: Organisational structure

Module 2: Junior management administrative processes

Module 3: Teamwork

Module 4: Health and personal management


Preferential procurement During the year, the group continued to improve our mechanisms to monitor and increase preferential procurement spending. The group used its supplier database as a starting point to:

Evaluate existing suppliers and their empowerment status

Identify suppliers whose BBBEE certificates had expired or who had not supplied a certificate previously to obtain the latest empowerment credentials

Liaise with new suppliers to obtain their empowerment credentials or, where necessary, verify their empowerment status

During 2010 49% (2009: 47%) of the group’s purchases were procured from black empowered organisations.

In the coming year, we will review our procurement strategy to ensure that preferential procurement contributes increasingly to the empowerment credentials of the group, as well as improving the competitive advantage of Protech within the industry.

Enterprise developmentProtech is committed to making a meaningful contribution to the industry in which it operates through our procurement and development strategies for sub-contractors from small, medium and micro enterprises (SMMEs). The majority of SMMEs are currently involved in the contracting operations within the group, with only a few of these enterprises providing services to the administration side of the business.

Ongoing support to SMMEs include assistance on improved record keeping, early settlement of accounts and financial and administration support.

In the coming year, Protech will review and formalise its strategy in terms of its involvement in the development of SMME suppliers. This will include setting up enterprise development agreements with carefully selected suppliers to ensure ongoing support and progress.

Socio-economic development (SED)SED is an important part of the group’s strategy. In line with the Codes of Good Practice, the group spends 1% of net profit after tax each year on SED initiatives.

During the year, the group continued to focus on a project close to its head office. Refilwe is a registered section 21 company that serves a disadvantaged community. The organisation focuses on childcare and community care programmes.

We spent almost R800 000 in this financial year, which included assistance with upgrading facilities, the creation of an indigenous nursery to ensure future financial independence for the com-munity, as well as continued support of school programmes.

The group’s learnership programme this year also included50 plant operators from this community. To date, 65% of the learners have been employed through Protech or at other con-struction companies. Six of the learners are black females who were employed as excavator operators.

To identify talent from our existing labour pool to train more plant operators, a training centre

will be opened in the coming year. Protech is currently

fi nalising accreditation with the Construction SETA

for this training.

Transformation continued

46


The main reason for the improvement this year was focused training programmes that increased understanding amongst employees that safety is a way of life.

Safety indicators

The group has been using a set of lag indicators to measure overall safety performances. During the year, we focused on improving the measurement of safety statistics and to introduce more leading indicators. We are planning to implement these leading indicators during the coming year. These will include:

Field visits and time spent on site by senior management

Observations

Internal audits

Inspections

Reporting and recording near misses

Incident analysis

IntroductionProtech is committed to providing a workplace that is safe, healthy and environmentally responsible. Our internal safety, health, environment and quality (SHEQ) system is in line with ISO 9001:2000, ISO 14001:2004 and OSHAS 18001:2007. Although the group applied for a formal rating in 2009, this was postponed until 2010 as the SHEQ system was revised to incorporate the group’s expanded activities of Readymix and Impact Compaction. The group’s new policy was issued in February 2010.

As Protech’s mining sector work increased strongly, the group is in the process of creating a separate system focused on specific mining requirements. This system has been implemented on some of the active mine contracts and we expect to roll out the system to the rest of our contracts during the coming year.

The group’s SHEQ system is mandatory on all sites and is used to enforce no harm to our employees, contractors, the environment and communities affected by our operations.

PolicyThe group’s policy is revised annually and endorsed by the chief executive officer. Copies of the policy are displayed at all sites.

AuditsPreliminary audits are done before commencement of any activities on a new contract. All sites are audited on a monthly basis to ensure compliance with SHEQ requirements. These audits are conducted internally by the regional safety officers who report to the group safety officer. External audits are conducted on a monthly basis by a number of clients to ensure Protech’s operations meet clients’ standards.

SafetyDuring F2009, we set a lost time injury frequency rate (LTIFR) target of 0,6. We pleasingly beat our goal by achieving an LTIFR of 0,41. This is an outstanding achievement and one we are very proud of. Going forward, we have revised our target to below 0,5.

Safety, health, environment and quality

Since inception 21 years ago, the group has maintained

an exceptional safety record, with no contract ever having been penalised or affected

due to failure to meet health and safety requirements.

During the year, we continued with our excellent track record, with no fatalities

or disabling injuries.

Injury frequency rate F2005 – F2009

Calendaryear

Average number ofemployees

Total man hours

workedFatal

accidentsDisabling

injuries

Minor accidents – non-LTI

Moderate accidents

– LTIReportable

injuriesFirst aid

cases

LTIR rate LTI*200 000/ man hours

2005 520 1 219 705 0 0 6 5 0 48 0,81992006 622 1 411 657 0 0 9 6 0 61 0,85012007 893 2 076 000 0 0 12 9 0 95 0,86712008 1 334 2 483 992 0 0 40 11 0 131 0,88572009 1 390 1 967 517 0 0 73 4 0 125 0,4066

LTIR = lost time injury rate


Risk management

One or more risk assessors are appointed on site to assistwith performing risk assessments and to develop safe operating procedures. A comprehensive system of identifying, recording and eliminating potentially dangerous acts or situations is imple-mented on all construction sites. A baseline risk assess ment is done at tender stage, which identifies contract risks and hazards. Issue-based risk assessments form part of the responsibility of sites.

The group’s safety team:

Removes all risks and hazards immediately and follows a less risky option

Follows procedures that prevent risks

Provides emergency equipment to be used in case of an accident, such as fire fighting equipment and first aid supplies

Prioritises attention given to risks that could affect the largest number of persons or could result in the most harm

Health

During the year, Protech moved to new offices to house all the group companies in one building. This provided the opportunity to have a permanent clinic on our premises. This clinic is sup-ported by a mobile clinic which provides the opportunity to do on-site assessments and minimise production losses. The clinic assists in provisionary healthcare and support for chronic health issues.

The aim is to conduct all medical fitness assessments at our clinic. The group is therefore in the process of achieving accre ditation from all our mining clients, which will ensure a very efficient system in terms of entry, annual and exit medical examinations.

During the year, a number of health training interventions were done, which included HIV/Aids training and lifestyle modification, including blood pressure monitoring, weight management and diet plans.

An electrocardiogram (ECG) machine was purchased, which is used during pre-placement and periodical medicals on all drivers and operators to establish if they suffer from any cardiac problems. This machine is also available in case of emergency to diagnose cardiac pathologies.

Medical surveillance

During the year, 2 040 medical surveillance interventions took place:

Pre-employment 1 582

Annual medicals 258

Exit 0

Audiometry/spirometry/keystone only 22

First aid injuries 12

Medical treatment cases sustained frominjury on duty 5

Possible noise-induced hearing loss cases under investigation 2

Temporarily unfit for duty due to vision problems, abnormal blood pressure and blood glucose, pulmonary tuberculosis 33

Follow-up and occupational medicalpractitioner consultations 126

Total 2 040

Primary healthcare

146 primary chronic healthcare consultations were conducted during the year:

Hypertension follow-up and treatment 132

Diabetes follow-up and treatment 13

Asthma follow-up and treatment 1

Preventative healthcare

Health training was provided to 362 employees from different levels within the group. Training included topics such as lifestyle modification, diet, exercise and stress management.

“E-pap”, an enriched porridge, was distributed to 200 employees, including underweight employees, immune-compromised em-ployees visiting the clinic and on request of site agents to give to their employees who were ill or in need of better nutrition.

Safety, health, environment and quality (SHEQ) continued

48


Reporting of environmental incidents are included in the group’s standard incident procedures. During the year, only one minor environmental incident was reported. A sub-contractor’s grader collided with a crane truck, damaging the diesel tank of the crane truck, resulting in 30 litres of diesel spilling on a tarred road. This was cleaned up immediately, resulting in no impact on the environment.

QualityThe group ensures compliance to quality by adopting clients’ quality specifications to prevent deviations in respect of the client’s quality management plan. The group’s blue-chip client base implements very stringent and diverse quality programmes, which the group has succeeded to meet in all instances.

HIV/Aids programme

The group implemented a voluntary counselling and testing (VCT) programme in 2008. During this year, 93 employees, representing 7% of our workforce, took part in VCT. The incidence of HIV/Aids was found to be low. We are planning to roll out an HCT (HIV counselling and testing) programme in F2011 in accordance with a current government initiative. Training will be given on site in conjunction with counselling and testing for HIV/Aids.

HIV/Aids training was conducted for 203 employees.

EnvironmentThe group’s environmental system is based on ISO 14001:2004. Apart from legislation and internal standards, the group adopts clients’ environmental requirements on site, including stringent standards in most sectors, especially in mining.

The group’s environmental system involves:

Pre-assessments on environmental hazards

Identifying hazards during construction processes

Implementing controls

Annual internal awareness training programmes

Environmentally-friendly materials that are used to clean our plant and equipment

Hazardous chemicals that are used within strict regulations

New plant that results in less noise and air pollution

Tier 3 emission-certified engines result in lower emissions

The disposal of waste only with approved certified service providers


Contents51 Responsibility of directors for the annual

financial statements //

51 Certificate by company secretary //

52 Independent auditor’s report //

53 Directors’ report //

54 Audit and risk management committee report //

56 Consolidated statement of financial position //

57 Consolidated statement of comprehensive income //

58 Consolidated statement of cash flows //

59 Consolidated statement of changes in equity //

60 Operational segmental reporting //

62 Accounting policies //

72 Notes to the consolidated financial statements //

ANNUAL FINANCIAL STATEMENTS

50



Responsibility of directors for the annual financial statements

accounting policies, supported by reasonable and prudent judgements.

The directors are of the opinion that the company and group have adequate resources to continue in operation for the foreseeable future and accordingly the financial statements have been prepared on a going concern basis.

It is the responsibility of the auditors to express an opinion on the financial statements. Their report to the members of the company and group is set out on page 52.

APPROVAL OF ANNUAL FINANCIAL STATEMENTS

The financial statements for the year ended 28 February 2010, set out on pages 53 to 114 were approved by the board of directors and are signed on its behalf by:

D Ackerman G Chapman

Chairman Chief executive officer

28 May 2010Lanseria

The directors are responsible for the preparation of financial statements that fairly present the state of affairs of the company and group at the end of the period and of the profit or loss for that period in conformity with International Financial Reporting Standards and in the manner required by the Companies Act in South Africa.

To enable the directors to meet these responsibilities the board and management set standards and management implements systems of internal controls, accounting and information systems.

The directors are responsible for the systems of internal control. These are designed to provide reasonable, if not absolute, assurance as to the reliability of the financial statements and to adequately safeguard, verify and maintain accountability of assets, and to prevent and detect material misstatement and loss. The systems are implemented and monitored by suitably trained personnel with an appropriate segregation of authority and duties. Nothing has come to the attention of the directors to indicate that any material breakdown in the functioning of these control procedures and systems has occurred during the year under review.

The annual financial statements have been prepared in accordance with the Companies Act, 1973, as amended, and International Financial Reporting Standards and are based on appropriate

In terms of section 268G(d) of the Companies Act of 1973, as amended, I hereby certify that the company has lodged with the Registrar of Companies all such returns as are required of a public company, in terms of the Companies Act, No 61 of 1973, as amended, and that all such returns are true, correct and up to date.

A van der Merwe

Company secretary

28 May 2010

Certificate by company secretary

52

Opinion

In our opinion, these financial statements present fairly, in all material respects, the consolidated and separate financial position of Protech Khuthele Holdings Limited as at 28 February 2010, and its consolidated and separate financial performance and consolidated and separate cash flows for the year then ended in accordance with International Financial Reporting Standards, and in the manner required by the Companies Act of South Africa.

Deloitte & Touche

Per Martin BiermanPartnerRegistered Auditor

28 May 2010

Building 2Deloitte PlaceThe WoodlandsWoodlands DriveWoodmead, Sandton

National executive: GG Gelink Chief Executive,AE Swiegers Chief Operating Officer, GM Pinnock

Audit, DL Kennedy Tax & Legal and Risk Advisory,L Geeringh Consulting, L Bam Corporate Finance,CR Beukman Finance, TJ Brown Clients & Markets,NT Mtoba Chairman of the Board, CR Qually Deputy Chairman of the Board.

A full list of partners and directors is available on request.

We have audited the group annual financial statements and annual financial statements of Protech Khuthele Holdings Limited, which comprise the consolidated and separate statements of financial position as at 28 February 2010, the consolidated and separate statements of comprehensive income, the consolidated and separate statements of changes in equity and consolidated and separate statements of cash flows for the year then ended, and a summary of significant accounting policies and other explanatory notes, the directors’ report and audit and risk management com-mittee report as set out on pages 53 to 114.

Directors’ responsibility for the financial statements

The company’s directors are responsible for the preparation and fair presentation of these financial statements in accordance with International Financial Reporting Standards, and in the manner required by the Companies Act of South Africa. This responsibility includes: designing, implementing and maintaining internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances.

Auditor’s responsibility

Our responsibility is to express an opinion on these financial state-ments based on our audit. We conducted our audit in accordance with International Standards on Auditing. Those Standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance whether the financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgement, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriate ness of accounting principles used and the reasonableness of accounting estimates made by the directors, as well as evaluating the overall financial statement presentation.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Independent auditor’s report

TO THE MEMBERS OF PROTECH KHUTHELE HOLDINGS LIMITED


Directors’ reportfor the year ended 28 February 2010

Interests of directors:

At 28 February 2010, the present directors of the company held direct and indirect beneficial and non-beneficial interest in 100 124 795 of the company’s issued ordinary shares. Details of the ordinary shares held per individual directors are listed below.

Beneficial Direct Indirect

D Ackerman 25 294 960 –V Raseroka 18 487 500P van Tonder 9 375 000 3 007 335G Chapman 40 000 000 –N Wolmarans 960 000 3 000 000

At the date of this report, these interests remain unchanged.

AUDITORS

Deloitte & Touche will continue in office in accordance with section 270 (2) of the Companies Act.

28 May 2010

The directors present their annual report which forms part of the audited annual financial statements of the Group for the year ended 28 February 2010.

NATURE OF BUSINESS

The group’s business operations revolves around construction and construction-related services, including contracting (fast-track bulk earthworks, plant hire and logistical services), geo technical laboratory and survey services and readymix concrete.

OPERATING RESULTS

The profit of the group for the year was R75,6 million (2009: R92,9 million) after taking into account taxation of R27,4 million (2009: R35,2 million).

Full details of the financial position and results of the group are set out in these financial statements.

The annual financial statements have been prepared in accordance with International Financial Reporting Standards.

SHARE CAPITAL

Full details of the authorised and issued capital of the company at 28 February 2010 are contained in note 9 of the financial statements.

DIVIDENDS

The company declared its maiden dividend of 4 cents per ordinary share in respect of the year ended 28 February 2010.

SUBSEQUENT EVENTS

The directors are not aware of any matter or circumstances arising since the end of the financial year, not otherwise dealt with in the annual financial statements, which significantly affect the financial position of the company or the results of its operations.

DIRECTORATE AND SECRETARY

During the year and at the date of this report, the directors of the company were:

Independent non-executive

M MareletseM Vuso

Non-executive

D Ackerman (chairman)C Nkosi (resigned 6 October 2009)V RaserokaP van Tonder

Executive

G Chapman (group chief executive)N Wolmarans (group financial director)

The company secretary is Mrs A van der Merwe.

54

The committee performed the following activities during the year under review:

Three meetings were held during the period under review. All committee members attended all meetings. The chief executive officer, chief financial officer, lead internal audit partner, lead audit partner and senior audit manager of the external auditors attend meetings of this committee by invitation. At each board meeting, the Chairperson reported on the activities and recommen dations made by the committee;

Received and reviewed reports from both internal and external auditors concerning the effectiveness of the internal control environment, systems and processes;

Considered the independence and objectivity of the external auditors and ensured that the scope of their additional services provided was not such that they could be seen to have impaired their independence;

Reviewed and recommended for adoption by the board such financial information which is publicly disclosed and included the annual financial statements for the year ended 28 February 2010 and the interim results for the six months ended 31 August 2009; and

Considered the effectiveness of internal audit, approved the audit plan for the year under review and monitored adherence of internal audit to the revolving audit plan.

The committee is of the opinion that the objectives of the committee were met during the year under review.

EXTERNAL AUDIT

The committee satisfied itself through enquiry that the external auditor of Protech Khuthele Holdings Limited is independent as defined by the Act;

Both audit and non-audit services by the external auditors were reviewed and pre-approved. Non-audit services are defined in the terms of reference of the committee and all non-audit services performed by the external auditors are approved in terms of the committee’s non-audit services policy. The nature and extent of the non-audit services are determined in the non-audit services policy;

The committee, in consultation with management, agreed the audit fee for the 2010 financial year. The fee is considered appropriate for the work as foreseen at the time. Audit fees are disclosed in note 21 of the financial statements; and

The committee reviewed the performance of the external auditors and nominated, for approval at the annual general meeting, Deloitte & Touche as the external auditor for the 2011 financial year, and Mr M Bierman as the designated lead auditor. This will be his fourth year as auditor of the company.

CHIEF FINANCIAL OFFICER

The committee has reviewed the performance, appropriateness and expertise of the chief financial officer, Mr N Wolmarans, and confirms his suitability for appointment as financial director in terms of the JSE Listings Requirements.

BACKGROUND

The audit and risk management committee (“the Committee”) is pleased to present this report on its activities during the financial year ended 28 February 2010 as recommended by the Corporate Laws Amendment Act, No 24 of 2006.

MEMBERSHIP

The committee is comprised of the following independent non- executive directors:

– M Mareletse (Chairman)– M Vuso

OBJECTIVE AND SCOPE

The main purpose of the audit and risk management committee is to review and report back to the board on all financial matters of the group. It also has the responsibility to encourage continuous improve ment of, and foster adherence to, the company’s policies, procedures, and practices at all levels. The committee should also provide for open communication among the independent auditor, financial and senior management and the board of directors.

The committee assists the board, inter alia, in:

Overseeing the integrity of the company’s financial statements and the company’s accounting and financial reporting processes and financial statement audits;

Overseeing the company’s compliance with legal and regulatory requirements;

Overseeing the registered public accounting firm’s (independent auditor’s) qualifications and independence;

Overseeing the performance of the company’s independent auditor and internal audit function; and

Overseeing the company’s systems of disclosure controls and procedures, internal controls over financial reporting, and compliance with ethical standards adopted by the company.

RISK MANAGEMENT

The total process of risk management is the responsibility of the board and the board ensures that management implements appropriate risk management processes and controls through the audit committee. Risk management is undertaken at executive committee level and reported to the committee;

Formalised risk management policies are in place within the group and these have been clearly communicated to all employees;

The committee regularly undertakes a review of the risk manage ment policies. The monitoring of the risk management policies is regularly disclosed to the committee and any deviation from risk management policies is communicated to and noted by the board; and

The total process of risk management includes a related system of internal controls. An annual risk assessment is performed at subsidiary level. This is then consolidated at group level and additional risks added.


Audit and risk management committee report


Deloitte & Touche, the external auditors, has provided stakeholders with an independent opinion on whether the annual financial statements for the year ended 28 February 2010 fairly present, in all material respects, the financial results for the year and the position of the company and the group at 28 February 2010.

M Mareletse

Audit and risk management committee chairman

28 May 2010

ANNUAL FINANCIAL STATEMENTS

The audit and risk management committee has evaluated the annual financial statements for the year ended 28 February 2010 and considers that they comply in all material aspects, with the requirements of the Companies Act 61 of 1973, as amended, and International Financial Reporting Standards. The committee has therefore recommended the annual financial statements for approval to the board. The board has subsequently approved the annual financial statements which will be open for discussion at the forthcoming annual general meeting.

56

at 28 February

Consolidated statement of financial position

2010 2009

Notes R’000 R’000

ASSETS

Non-current assets 412 130 393 143

Property, plant and equipment 1 373 659 354 172 Goodwill 2 33 549 33 549 Other intangible assets 3 1 762 1 817 Other financial assets 7 2 202 3 605 Deferred tax 13 958 –

Current assets 315 187 298 839

Inventory 4 8 536 16 946 Amounts due from contract customers 5 90 149 9 290 Trade and other receivables 6 122 183 163 088 Other financial assets 7 7 173 7 927 Bank balances and cash 8 87 146 101 588

Total assets 727 317 691 982

EQUITY AND LIABILITIES

Total equity 310 255 234 614

Share capital and share premium 9 228 598 228 598 Reserves 10 (123 943) (122 053)Retained earnings 205 600 128 069

Equity attributable to equity holders of the holding company 310 255 234 614Non-controlling interests 11 – –

Total liabilities 417 062 457 368

Non-current liabilities 223 113 235 566

Borrowings 12 165 481 186 517 Deferred tax 13 57 632 49 049

Current liabilities 193 949 221 802

Borrowings 12 99 100 87 839 Trade and other payables 14 81 087 88 629 Sub-contractor liabilities 15 6 928 9 704 Provisions 16 – 5 496 Current tax liabilities 6 834 30 134

Total equity and liabilities 727 317 691 982

SUPPLEMENTARY STATEMENT OF FINANCIAL

POSITION INFORMATION

Total number of shares in issue (’000) 362 500 362 500 Net asset value per share (cents) 85,6 64,7

Capital expenditure (’000)– Spent 109 185 162 102 – Commitments – authorised but unspent 143 294 128 302

Performance guarantees issued (’000) 82 432 49 210


for the year ended 28 February

2010 2009


Revenue 18 748 778 702 745 Cost of sales (414 588) (354 468)

Gross profit 334 190 348 277 Sundry income 5 855 3 938 Operating expenses (177 679) (164 043)

Earnings before depreciation, amortisation and interest 162 366 188 172 Depreciation 1 (43 597) (32 038)Amortisation of intangible assets 3 (215) (147)

Earnings before interest and taxation 118 554 155 987 Interest received 19 7 155 2 097 Interest paid 20 (22 716) (29 966)

Earnings before taxation 21 102 993 128 118 Taxation 22 (27 407) (35 207)

Earnings for the year 75 586 92 911

Other comprehensive income for the year, net of tax 55 –

Movement in foreign currency translation reserve 55 –

Total comprehensive income for the year 75 641 92 911

Earnings attributable to: 75 586 92 911

– Equity holders of the holding company 75 586 92 911 – Non-controlling interests 11 – –

Total comprehensive income attributable to:

– Equity shareholders of the company 75 641 92 911 – Non-controlling interests 11 – –

Total comprehensive income for the year 75 641 92 911

Earnings per share (cents)Basic earnings per share 23 20,9 25,6 Diluted earnings per share 23 20,9 25,6

Consolidated statement of comprehensive income

58


Consolidated statement of cash flows

2010 2009


Cash flows from operating activities 45 888 114 667

Cash receipts from customers 711 569 635 929 Cash paid to suppliers and employees (607 038) (492 999)

Cash generated by operations 26 104 531 142 930 Interest received 7 155 2 097 Interest paid (22 716) (29 966)Income taxes paid 27 (43 082) (394)

Cash flows from investing activities (46 747) (145 655)

Purchase of property, plant and equipment (109 025) (162 102)

– Replacement (86 331) (55 068)– Additions (22 694) (107 034)

Purchase of intangible assets (160) – Proceeds on disposal of property, plant and equipment 74 732 32 768 Assets acquired through acquisition 25.2 – (7 000)Movement in loan through acquisition 25.1 (11 625) – Increase in loans granted (669) (9 321)

Cash flows from financing activities (13 583) 39 338

Settlement of vendor liability 25.3 – (71 356)Increase in bank loans raised 12.2 – 62 200 Payments in terms of bank loans 12.2 (11 349) (8 146)Increase in borrowings related to instalment sale agreements 107 607 163 381 Payments in terms of instalment sale agreements (109 841) (106 741)

Net (decrease)/increase in cash and cash equivalents (14 442) 8 350 Cash and cash equivalents at the beginning of the year 101 588 93 238

Cash and cash equivalents at the end of the year 87 146 101 588

Cash and cash equivalents comprise of:Bank balances and cash 8 87 146 101 588



Share capital

Share premium

Common control

reserve

Foreign currency

trans-lation

reserve Retained earnings

Equity

attribut-

able to

the share-

holders

of the

company

Non-control-

ling interest

Total

equity

R’000 R’000 R’000 R’000 R’000 R’000 R’000 R’000

Balance at 29 February 2008 2 228 596 (122 053) – 35 158 141 703 – 141 703

Total comprehensive income for the year – – – – 92 911 92 911 – 92 911

Balance at 28 February 2009 2 228 596 (122 053) – 128 069 234 614 – 234 614

Realisation in respect of deregistered dormant subsidiaries* – – (1 945) – 1 945 – – –

Total comprehensive income for the year – – – 55 75 586 75 641 – 75 641

Balance at 28 February 2010 2 228 596 (123 998) 55 205 600 310 255 – 310 255

* The adjustment against the common control reserve relates to the deregistration of the dormant subsidiaries Protech Projects Holding (Pty) Ltd and Umvundla Investments No.2 (Pty) Ltd subsequent to year end.

Consolidated statement of changes in equity

60


Operational segmental reporting

SERVICES WITHIN EACH BUSINESS SEGMENT

In the reporting period to February 2009, the group had four major operating divisions – earthworks, plant hire, geotechnical laboratory and readymix. During 2010, management decided to combine the earthworks and plant hire divisions into one division, Contracting, as the Plant Hire division forms an integral part of the Earthworks division. The combination of these two divisions into one will also provide more meaningful reporting in terms of the Group's operating activities. Therefore the three divisions Contracting, Geotechnical Laboratory and Readymix are the basis on which the Group will report its operating segment information. The principal services and products of each of these divisions are as follows:

Contracting – bulk earthworks, roads and civil engineering contractors, plant hire, impact compaction and logistical services.

Geotechnical laboratory – geotechnical laboratory and surveying services.

Readymix – supplier of readymixed concrete and pumping services.

Segment revenue and segment result

Segment revenue Segment result

Year ended

28/02/2010

Year ended 28/02/20091

Year ended

28/02/2010


R’000 R’000 R’000 R’000

Contracting 640 235 589 218 120 137 148 834 Geotechnical Laboratory 16 064 11 347 2 847 754 Readymix 113 049 108 127 (5 430) 977

769 348 708 692 117 554 150 565 Corporate2 8 960 13 460 1 071 (5)Inter-group eliminations (29 530) (19 407) (71) 5 427

748 778 702 745

Operating profit 118 554 155 987 Net interest paid (15 561) (27 869)

Profit before tax 102 993 128 118 Taxation (27 407) (35 207)

Profit for the year 75 586 92 911

Segment revenue reported above represents revenue generated from external customers. Inter-segment sales amounted to R29,5 million (2009: R19,4 million). Segment result reported above represents operating profit per segment prior to taking interest into account.

The accounting policies of the reportable segments are the same as the group’s accounting policies.


Segment assets and liabilities

Segment assets Segment liabilities

Year ended

28/02/2010


Year ended

28/02/2010


R’000 R’000 R’000 R’000

Contracting 727 947 625 145 430 273 421 437Geotechnical Laboratory 6 489 5 102 2 036 2 649 Readymix 79 724 82 629 89 990 86 326

814 160 712 876 522 299 510 412 Corporate2 388 282 357 719 171 148 112 009 Inter-group eliminations (475 125) (378 613) (276 385) (165 053)

727 317 691 982 417 062 457 368

Other segment information

Depreciation and amortisation Additions to non-current assets

Year ended

28/02/2010


Year ended

28/02/2010


R’000 R’000 R’000 R’000

Contracting 38 405 27 157 106 034 165 967 Geotechnical Laboratory 1 007 521 2 686 1 482 Readymix 4 400 4 507 465 1 577 Corporate2 – – 25 681 –

43 812 32 185 134 866 169 026

1 Restated. 2 Corporate includes the transactions of the holding company.

Information about major customers

Included in revenues arising from Contracting income of R640,2 million (2009: R589,2 million) are revenues of approximately R302,8 million (2009: R210,5 million) which arose from Contracting income from two of the group’s largest customers.

Operating segments

The operating segments reported above form the basis on which internal reporting is structured for the chief decision-makers.

Therefore there are no differences in terms of the numbers reported to shareholders and management.

62

of the cost of that asset. The option of immediately expensing

these borrowing costs has been removed. The adoption of these

standards and interpretations had no material impact on the

financial statements of the group.

Standards and interpretations in issue not yet adopted

At the date of authorisation of these financial statements the

following interpretations were in issue but not yet effective:

IFRS 1: (Revised) First-time Adoption of International Financial

Reporting Standards (effective for accounting periods begin-

ning on or after 1 July 2009);

IFRS 1 & IAS 27: First-time Adoption of International and

Consolidated and Separate Financial Statements – Cost of

Investment in a Subsidiary, Jointly Controlled Entity or Associate

(amendments effective for accounting periods beginning on

or after 1 July 2009);

IFRS 2: (Amendment) Share-based Payments – Group Cash-

settled Share-based Payment Transactions (effective for

accounting periods beginning on or after 1 January 2010);

IFRS 3: (Revised) Business Combinations (financial years

commencing on or after 1 July 2009);

IFRS 9: Financial Instruments (effective for financial periods

beginning on or after 1 January 2013);

IAS 10: (Amendment) Events After the Reporting Period

(effective for financial periods beginning on or after 1 July 2009);

IAS 24: Related Party Disclosures (effective for financial periods


IAS 27: (Revised) Consolidated and Separate Financial State-

ments (effective for accounting periods beginning on or after

1 July 2009);

IAS 28: (Amendment) Investment in Associates (effective

for accounting periods beginning on or after 1 July 2009);

IAS 31: (Amendment) Interest in Joint Ventures (effective for

accounting periods beginning on or after 1 July 2009);

IAS 32: (Amendment) Financial Instruments – Presentation

(effective for financial periods beginning on or after

1 February 2010);

IAS 39: Financial Instruments – Recognition and Measurement

(effective for accounting periods beginning on or after

1 July 2009);

IFRIC 9 & IAS 39: Embedded Derivatives (New Interpretation)

(effective for financial years commencing on or after

30 June 2009);

IFRIC 14, IAS 19: The Limit on a Defined Benefit Asset,

Minimum funding requirements and their interaction (effec-

tive for financial periods beginning on or after 1 January 2011);

GENERAL INFORMATION

Protech Khuthele Holdings Limited (the Company) is a limited

company incorporated in South Africa. The addresses of its

registered office and principal place of business are disclosed in

the introduction to the annual report.

The company is the holding company of a number of subsidiary

companies principally engaged in Contracting (fast-track bulk

earthworks, plant hire and logistical services), Geotechnical

Laboratory and Survey Services and Readymix concrete.

ADOPTION OF NEW AND REVISED STATEMENTS

Standards and interpretations effective in the

current period

The following statements and interpretations became effective

in the current period:

IFRS 2: (Amendment) share-based Payments – Vesting Con di-

tions and Cancellations (effective on or after 1 January 2009);

IFRS 7: (Amendment) Financial Instruments: Disclosures –

Improving disclosures about Financial Instruments (effective

on or after 1 January 2009);

IFRS 8: Operating Segments (effective for accounting periods


IAS 1: (Revised) Presentation of Financial Statements (effective

for accounting periods beginning on or after 1 January 2009);

IAS 1: Presentation of Financial Statements: Puttable Financial

Instruments and Obligations Arising on Liquidation (effective

for accounting periods beginning on or after 1 January 2009);

IAS 23: (Amendment) Borrowing Costs (effective for accounting

periods beginning on or after 1 January 2009);

IAS 29: (Amendment) Financial Reporting in Hyperinflationary

Economies (effective for financial years commencing on or

after 1 January 2009);

IFRIC 13: Customer Loyalty Programmes (effective for account-

ing periods beginning on or after 1 July 2008);

IFRIC 15: Agreements for the Construction of Real Estate


1 January 2009); and

IFRIC 16: Hedges of a Net Investment in a Foreign Operation


1 October 2008).

Except for IAS 23: Borrowing Costs, the adoption of these

standards and interpretations has not led to any changes in the

group’s accounting policies. The amendment to IAS 23 requires

an entity to capitalise borrowing costs directly attributable to the

acquisition, construction or production of a qualifying asset as part


Accounting policies


of non-trading financial asset investments, financial assets and

financial liabilities held-for-trading, financial assets designated

as fair value through profit and loss and investment property.

Non-current assets and disposal groups held-for-sale, where

applicable, are stated at the lower of carrying amount and fair

value less costs to sell.

The preparation of financial statements requires the use of

estimates and assumptions that affect the reported amounts of

assets and liabilities, and disclosure of contingent assets and

liabilities at the date of the financial statements and the reported

amounts of revenues and expenses during the reporting period.

Although these estimates are based on management’s best

knowledge of current events and actions, actual results may

ultimately differ from those estimates.

The estimates and underlying assumptions are reviewed on an

ongoing basis. Revisions to accounting estimates are recognised

in the period in which the estimate is revised if the revision

affects only that period, or in the period of the revision and future

periods if the revision affects both current and future periods.

Business combinations

The IFRS on business combinations (IFRS 3) does not apply

to business combinations effected between parties that are

ultimately controlled by the same shareholders, otherwise known

as common control transactions. When Protech acquired its initial

operating subsidiaries on 1 July 2007 the company elected to

apply “predecessor accounting” as determined by the principles

generally accepted in the United States of America.

All other business combinations will be subject to the conditions

and recognition criteria as stipulated by IFRS 3: Business

Combinations.

Acquisitions of subsidiaries and businesses are accounted for

using the purchase method. The cost of the business combination

is measured as the aggregate of the fair values (at the date of

exchange) of assets given, liabilities incurred or assumed, and

equity instruments issued by the group in exchange for control of

the acquiree, plus any costs directly attributable to the business

combination. The acquiree’s identifiable assets, liabilities and

contingent liabilities that meet the conditions for recognition

under IFRS 3: Business Combinations are recognised at their fair

values at the acquisition date, except for non-current assets (or

disposal groups) that are classified as held for sale in accordance

with IFRS 5: Non-current Assets Held for Sale and Discontinued

Operations, which are recognised and measured at fair value

less costs to sell.

Goodwill arising on acquisition is recognised as an asset and

initially measured at cost, being the excess of the cost of the

business combination over the group’s interest in the net fair

IFRIC 16: (Amended) – Hedges of a Net Investment in a

Foreign Operation (effective for financial periods beginning

on or after 1 July 2009);

IFRIC 17: Distributions of Non-cash Assets to Owners (effective

for accounting periods beginning on or after 1 July 2009);

IFRIC 18: Transfers of Assets from Customers (effective for

accounting periods beginning on or after 1 July 2009);

IFRIC 19: Extinguishing Financial Liabilities with Equity Invest-

ments (effective for financial periods beginning on or after

1 July 2010);

AC 504, IAS 19: The Limit on a Defined Benefit Asset, Minimum

Funding Requirements and Their Interaction in the South

African Pension Fund Environment (effective for financial

periods beginning on or after 1 April 2009); and

Improvement Projects – Improvements to IFRS financial years

commencing on or after 1 January 2010.

The directors anticipate that all of the above standards and inter-

pretations will be adopted in the group’s financial statements for

the year in which they become effective and that the adoption

of those standards and interpretations will have no material

impact on the financial statements of the group in the period of

initial application.

SIGNIFICANT ACCOUNTING POLICIES

Statement of compliance

These consolidated financial statements are prepared in accord-

ance with IFRS and interpretations adopted by the International

Accounting Standards Board (IASB), the International Financial

Reporting Interpretations Committee (IFRIC) of the IASB and

the Companies Act in South Africa.

Basis of consolidation

The consolidated financial statements incorporate the financial

statements of the company and entities (including special

purpose entities) controlled by the company (its subsidiaries).

Control is achieved where the company has the power to govern

the financial and operating policies of an entity so as to obtain

benefits from its activities.

Where necessary, adjustments are made to the financial statements

of subsidiaries to bring their accounting policies into line with

those used by other members of the group.

All intra-group transactions, balances, income and expenses are

eliminated in full on consolidation.

Basis of preparation

These consolidated financial statements have been prepared

under the historical cost convention as modified by the revaluation

64

Monetary group assets and liabilities (being group loans, call

accounts, receivables and payables) denominated in foreign

currencies are translated into the functional currency at the mid-

rate of exchange ruling at the statement of financial position

date. Exchange differences arising on translation are credited to

or charged against income. Exchange differences arising, if any,

are recognised in other comprehensive income and accumulated

in equity (attributed to non-controlling interests as appropriate).

Foreign currency non-monetary items

Non-monetary items carried at fair value, denominated in foreign

currencies, are translated at the rates prevailing on the date when

the fair value was determined. Exchange differences arising on

translation are credited to or charged against income except for

differences arising on the translation of non-monetary items

in respect of which gains and losses are recognised directly in

equity. For such items, any exchange component of that gain or

loss is also recognised directly in equity.

Non-monetary items that are measured in terms of historical cost

in a foreign currency are translated at historical exchange rates.

Foreign entities

The results and financial position of foreign entities that have a

functional currency different from the presentation currency are

translated into the presentation currency as follows:

assets and liabilities, at rates of exchange ruling at the state-

ment of financial position date; and

income, expenditure and cash flow items at average rates.

All resulting exchange differences are reflected in equity as part

of the foreign currency translation reserve. On disposal of a

foreign entity, the cumulative translation differences relating to

that entity are recognised in the statement of comprehensive

income as part of the cumulative gain or loss on disposal.

Goodwill and fair value adjustments arising on the acquisition of

a foreign entity are treated as assets and liabilities of the foreign

entity and translated at the rates of exchange ruling at the

statement of financial position date.

Any exchange difference arising on an intra-group monetary item,

whether short term or long term, continues to be recognised

as income or expense since the monetary item represents a

commitment to convert one currency into another and exposes

the group to a gain or loss through currency fluctuations.

However, exchange differences arising on a monetary item

that, in substance, forms part of the group’s net investment in

a foreign entity, are classified as equity until the disposal of the

net investment at which time the cumulative amount of the

exchange differences that has been deferred and relates to that

value of the identifiable assets, liabilities and contingent liabilities

recognised. If, after reassessment, the group’s interest in the

net fair value of the acquiree’s identifiable assets, liabilities and

contingent liabilities exceeds the cost of the business combi-

nation, the excess is recognised immediately in profit or loss.

The interest of minority shareholders in the acquiree is initially

measured at the minority’s proportion of the net fair value of

the assets, liabilities and contingent liabilities recognised.

Interest in joint ventures

Joint ventures are contractual agreements whereby the company

and other parties undertake an economic activity that is subject

to joint control, that is when the strategic financial and operating

policy decisions relating to the activities require the unanimous

consent of the parties sharing control. These joint ventures may

take the form of jointly controlled operations such as construction

contracts, jointly controlled assets, jointly controlled partnerships

or companies.

Joint ventures are accounted for by means of the proportionate

consolidation method whereby the company’s share of the

assets, liabilities, income, expenses and cash flows of joint ventures

are included on a line by line basis in the financial statements.

Foreign currencies

Functional and presentation currency

Items included in the financial statements of each entity in the

group are measured using the currency that best reflects the

economic substance of the underlying events and circumstances

relevant to that entity (the functional currency). For the purpose

of the consolidated financial statements, the results and the

financial position of each entity are expressed in Rands, which

is the functional currency of the company and the presentation

currency for the consolidated financial statements.

Foreign currency transactions

In preparing the financial statements of the individual entities,

transactions in currencies other than the entity’s functional

currency (foreign currencies) are recorded at the rates of exchange

prevailing on the dates of the transactions.

Foreign currency monetary items

Monetary assets denominated in foreign currencies are translated

into the functional currency at the bid rate of exchange ruling

at the statement of financial position date. Exchange differences

arising on translation are credited to or charged against income.

Monetary liabilities denominated in foreign currencies are translated

into the functional currency at the offer rate of exchange ruling

at the statement of financial position date. Exchange differences

arising on translation are credited to or charged against income.


Accounting policies continued


Rendering of services

Revenue from services is recognised over the period during

which the services are rendered.

Construction contracts

Where the outcome of a construction contract can be reliably

measured, revenue and costs are recognised by reference to

the stage of completion of the contract at the statement of

financial position date, as measured by the surveys of work

performed. Variations in contract work, claims and incentive

payments are included to the extent that collection is probable

and the amounts can be reliably measured. Anticipated losses

to completion are immediately recognised as an expense in

contract costs.

Where the outcome of the long term construction contracts

cannot be estimated reliably, contract revenue is recognised to

the extent that the recoverability of incurred costs is probable.

When it is probable that total contract costs will exceed total

contract revenue, the expected loss is recognised as an expense

immediately.

Interest revenue

Interest is recognised on a time proportion basis, taking account

of the principal outstanding and the effective rate over the period

to maturity.

Borrowing costs

Borrowing costs incurred in respect of the acquisition or

manufacturing of qualifying assets, that require a substantial

period to prepare assets for their intended use, are capitalised

up to the date that the development of the asset is ready for its

intended use. Other borrowing costs are recognised in the

statement of comprehensive income as incurred.

Taxation

Income tax expense represents the sum of the tax currently

payable and deferred tax.

Current tax

The tax currently payable is based on taxable profit for the year.

Taxable profit differs from profit as reported in the statement

of comprehensive income because it excludes items of income

or expense that are taxable or deductible in other years and it

further excludes items that are never taxable or deductible. The

company’s liability for current tax is calculated using tax rates that

have been enacted or substantively enacted by the statement of

financial position date.

Deferred tax

Deferred tax is recognised on differences between the carrying

amounts of assets and liabilities in the financial statements and

foreign entity is recognised as income or expense in the same

period in which the gain or loss on disposal is recognised.

Goodwill

Goodwill arising on the acquisition of a subsidiary or a jointly

controlled entity represents the excess of the cost of acquisition

over the group’s interest in the net fair value of the identifiable

assets, liabilities and contingent liabilities of the subsidiary or jointly

controlled entity recognised at the date of acquisition. Goodwill

is initially recognised as an asset at cost and is subse quently

measured at cost less any accumulated impairment losses.

For the purpose of impairment testing, goodwill is allocated to

each of the group’s cash-generating units expected to benefit

from the synergies of the combination. Cash-generating units

to which goodwill has been allocated are tested for impairment

annually, or more frequently when there is an indication that the

unit may be impaired. If the recoverable amount of the cash-

generating unit is less than the carrying amount of the unit, the

impairment loss is allocated first to reduce the carrying amount

of any goodwill allocated to the unit and then pro rata to the

other assets of the unit, on the basis of the carrying amount of

each asset in the unit. An impairment loss recognised for

goodwill is not reversed in a subsequent period.

On disposal of a subsidiary or a jointly controlled entity, the

attributable amount of goodwill is included in the determination

of the profit or loss on disposal.

Revenue

Revenue is the aggregate of the external turnover of subsidiaries

and is measured at the fair value of the consideration received

or receivable and represents amounts receivable for goods and

services provided in the normal course of business, net of

rebates, discounts and sales-related taxes.

Sale of goods

Revenue from the sale of goods is recognised when all the

following conditions are satisfied:

the group has transferred to the buyer the significant risks

and rewards of ownership of the goods;

the group retains neither continuing managerial involvement

to the degree usually associated with ownership nor effective

control over the goods sold;

the amount of revenue can be measured reliably;

it is probable that the economic benefits associated with the

transaction will flow to the entity; and

the costs incurred or to be incurred in respect of the transaction

can be measured reliably.

66

also recognised directly in equity, or where they arise from the

initial accounting for a business combination. In the case of a

business combination, the tax effect is taken into account in

calculating goodwill or in determining the excess of the acquirer’s

interest in the net fair value of the acquiree’s identifiable assets,

liabilities and contingent liabilities over cost.

Property, plant and equipment

Property, plant and equipment are tangible assets that the group

holds for its own use or for rental to others and which the group

expects to use for more than one period. Property, plant and

equipment could be constructed by the group or purchased from

other entities. The consumption of property, plant and equipment

is reflected through a depreciation charge designed to reduce the

asset to its residual value over its useful life.

Measurement

All property, plant and equipment is stated at cost less accumulated

depreciation and accumulated impairment losses, except for land,

which is stated at cost less accumulated impairment losses.

Cost includes expenditure that is directly attributable to the

acquisition of the item.

Subsequent costs

Subsequent costs are included in an asset’s carrying value only

when it is probable that future economic benefits associated

with the item will flow to the group and the cost of the item can

be measured reliably. Day-to-day servicing costs are recognised

in the statement of comprehensive income in the year incurred.

Depreciation

Depreciation is calculated on the straight-line or units of production

basis at rates considered appropriate to reduce the carrying value

of each component of an asset to its estimated residual value

over its estimated useful life. The residual values and useful lives

of all items of property, plant and equipment are reviewed, and

adjusted if necessary, at each statement of financial position

date. Depreciation is charged to profit or loss.

Plant and machinery are depreciated according to a “units of

output method” over the estimated useful lives which is expressed

in distances travelled or hours of production. The estimated useful

lives of equipment are considered to be 500 000 km or 15 000

hours of production.

Properties consist of freehold land and buildings. The buildings

are classified as owner occupied property and is carried at cost

less accumulated depreciation other than land which is not

depreciated. Depreciation is calculated to write off the cost of

these properties over their expected useful lives on a straight-

line basis; generally, buildings are depreciated over 50 years.

Freehold land is not depreciated.

the corresponding tax bases used in the computation of taxable

profit, and is accounted for using the statement of financial

position liability method. Deferred tax liabilities are generally

recognised for all taxable temporary differences, and deferred

tax assets are generally recognised for all deductible temporary

differences to the extent that it is probable that taxable profits

will be available against which those deductible temporary

differences could be utilised. Such assets and liabilities are not

recognised if the temporary difference arises from goodwill or

from the initial recognition (other than in a business combination)

of other assets and liabilities in a transaction that affects neither

the taxable profit nor the accounting profit.

Deferred tax liabilities are recognised for taxable temporary

differences associated with interests in joint ventures, except

where the company is able to control the reversal of the temporary

difference and it is probable that the temporary difference will

not reverse in the foreseeable future. Deferred tax assets

arising from deductible temporary differences associated with

such investments and interests are only recognised to the

extent that it is probable that there will be sufficient taxable profits

against which to utilise the benefits of the temporary differences

and they are expected to be reversed in the foreseeable future.

The carrying amount of deferred tax assets is reviewed at each

statement of financial position date and reduced to the extent

that it is no longer probable that sufficient taxable profits will be

available to allow all or part of the asset to be recovered.

Deferred tax assets and liabilities are measured at the tax rates

that are expected to apply in the period in which the liability is

settled or the asset realised, based on tax rates (and tax laws) that

have been enacted or substantively enacted by the statement of

financial position date. The measurement of deferred tax liabilities

and assets reflects the tax consequences that would follow from

the manner in which the company expects, at the reporting date,

to recover or settle the carrying amount of its assets and liabilities.

Deferred tax assets and liabilities are offset when there is a

legally enforceable right to set off current tax assets against

current tax liabilities and when they relate to income taxes

levied by the same taxation authority and the company intends

to settle its current tax assets and liabilities on a net basis.

Secondary tax on companies (STC)

A liability for STC will be recognised when a dividend has been

declared that results in such STC becoming payable.

Current and deferred tax for the period

Current and deferred tax are recognised as an expense or

income in profit or loss, except when they relate to items

credited or debited directly to equity, in which case the tax is




the intangible asset from the date that they are available for use unless the useful lives are indefinite. Intangible assets with indefinite lives are tested annually for impairment.

The estimated life of the other categories of assets are set out below:

Technical drawings – 10 years

Impairment of tangible and intangible assets

excluding goodwill

At each statement of financial position date, the group reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). Where it is not possible to estimate the recoverable amount of an individual asset, the Group estimates the recoverable amount of the cash-generating unit to which the asset belongs. Where a reasonable and consistent basis of allocation can be identified, corporate assets are also allocated to individual cash-generating units, or otherwise they are allocated to the smallest group of cash-generating units for which a reasonable and consistent allocation basis can be identified.

Intangible assets with indefinite useful lives and intangible assets not yet available for use are tested for impairment annually, and whenever there is an indication that the asset may be impaired.

Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted.

If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (or cash-generating unit) is reduced to its recoverable amount. An impairment loss is recognised immediately in profit or loss, unless the relevant asset is carried at a revalued amount, in which case the impairment loss is treated as a revaluation decrease.

Inventories

Inventories comprise raw materials, consumables and work in progress. Inventories are valued at the lower of cost and net realisable value.

The cost of inventories is determined using the following cost formulas:

raw materials – first-in, first-out cost basis;

consumables – average cost; and

contract work in progress – actual cost.

The estimated lives of the other categories of assets are set out below:

Office equipment 2 – 6 yearsOther equipment 3 – 5 years

Depreciation commences when the asset is ready for its intended use and ceases when the asset is derecognised or classified as held-for-sale.

The useful life and residual value of each component is reviewed annually at year end and, if expectations differ from previous estimates, adjusted prospectively as a change in accounting estimate.

Gains or losses on disposal are determined by comparing the proceeds with the carrying amount of the asset.

ImpairmentsWhere the carrying value of an asset is greater than its estimated recoverable amount, an impairment provision is raised immediately to bring the carrying value in line with the recoverable amount.

RevaluationsProperty, plant and equipment are not revalued other than at acquisition of subsidiaries in terms of a business combination.

Intangible assets other than goodwill

An intangible asset is an identifiable, non-monetary asset that has no physical substance. An intangible asset is recognised when it is identifiable; the group has control over the asset; it is probable that economic benefits will flow to the group; and the cost of the asset can be measured reliably.

Intangible assets acquired separatelyIntangible assets acquired separately are reported at cost less accumulated amortisation and accumulated impairment losses. Amortisation is charged on a straight-line basis over their estimated useful lives. The estimated useful life and amortisation method are reviewed at the end of each annual reporting period, with the effect of any changes in estimate being accounted for on a prospective basis.

Intangible assets acquired in a business combinationIntangible assets acquired in a business combination are identified and recognised separately from goodwill where they satisfy the definition of an intangible asset and their fair values can be measured reliably. The cost of such intangible assets is their fair value at the acquisition date.

Subsequent to initial recognition, intangible assets acquired in a business combination are reported at cost less accumulated amortisation and accumulated impairment losses, on the same basis as intangible assets acquired separately.

Amortisation of intangible assetsAmortisation is charged to the statement of comprehensive income on a systematic basis over the estimated useful life of

68

Provisions

Provisions are recognised when the group has a present obligation

(legal or constructive) as a result of a past event, it is probable that

the group will be required to settle the obligation, and a reliable

estimate can be made of the amount of the obligation.

The amount recognised as a provision is the best estimate

of the consideration required to settle the present obligation at

the statement of financial position date, taking into account the

risks and uncertainties surrounding the obligation. Where a

provision is measured using the cash flows estimated to settle

the present obligation, its carrying amount is the present value

of those cash flows.

When some or all of the economic benefits required to settle a

provision are expected to be recovered from a third party, the

receivable is recognised as an asset if it is virtually certain that

reimbursement will be received and the amount of the receivable

can be measured reliably.

Onerous contracts

Present obligations arising under onerous contracts are recognised

and measured as provisions. An onerous contract is considered

to exist where the group has a contract under which the

unavoidable costs of meeting the obligations under the contract

exceed the economic benefits expected to be received under it.

Contingent liabilities acquired in a business combination

Contingent liabilities acquired in a business combination are initially

measured at fair value at the date of acquisition. At subsequent

reporting dates, such contingent liabilities are measured at the

higher of the amount that would be recognised in accordance with

IAS 37: Provisions, Contingent Liabilities and Contingent Assets

and the amount initially recognised less cumulative amortisation

recognised in accordance with IAS 18: Revenue.

Financial instruments

Classification

Financial assets and liabilities are recognised in the statement

of financial position when the group has become a party to the

contractual provisions of the instruments. Purchases and sales

of financial instruments are recognised on trade date, being the

date on which the group commits to purchase or sell the

instrument. Financial assets are initially measured at fair value

and are subsequently measured on the basis as set out below.

Financial assets

Investments are recognised and derecognised on trade date

where the purchase or sale of an investment is under contract

terms that require delivery of the investment within the timeframe

established by the market concerned, and are initially measured

at fair value, plus transaction costs, except for those financial

Net realisable value represents the estimated selling price in the

ordinary course of business less all estimated costs of completion

and costs to be incurred in marketing, selling and distribution.

Leases

Leases of property, plant and equipment where the group

substantially carries all the risks and rewards of ownership, are

classified as finance leases. Finance leases are capitalised. All

other leases are classified as operating leases. The classification

is based on the substance and financial reality of the whole

transaction rather than the legal form. Greater weight is therefore

given to those features which have a commercial effect in

practice. Leases of land and buildings are analysed separately

to determine whether each component is an operating or

finance lease.

Finance leases

At the commencement of the lease term, finance leases are

recognised as assets and liabilities in the statement of financial

position at an amount equal to the fair value of the leased asset

or, if lower, the present value of the minimum lease payments.

Any direct cost incurred in negotiating or arranging a lease is

added to the cost of the asset. The present value of the cost of

decommissioning, restoration or similar obligations relating to

the asset is also capitalised to the cost of the asset on initial

recognition. The discount rate used in calculating the present

value of minimum lease payments is the rate implicit in the lease.

Capitalised leased assets are accounted for as property, plant

and equipment. They are depreciated using the straight-line

or unit of production basis at rates considered appropriate to

reduce the carrying values over the estimated useful lives to

the estimated residual values. Where it is not certain that an

asset will be taken over by the group at the end of the lease,

the asset is depreciated over the shorter of the lease period and

the estimated useful life of the asset.

Finance lease payments are allocated between the lease finance

cost and the capital repayment using the effective interest rate

method. Lease finance costs are charged to operating costs as

they become due.

Operating leases

Operating lease payments are recognised in the statement of

comprehensive income on a straight-line basis over the lease

term. In negotiating a new or renewed operating lease, the

lessor may provide incentives for the group to enter into the

agreement, such as up front cash payments or an initial rent-

free period. These benefits are recognised as a reduction of the

rental expense over the lease term, on a straight-line basis.




Bank overdrafts are not offset against positive bank balances

unless a legally enforceable right of offset exists, and there is

an intention to settle the overdraft and realise the net cash

simultaneously, or to settle on a net basis.

All short term cash investments are invested with major financial

institutions in order to manage credit risk.

Financial liabilities and equity

Financial liabilities and equity are classified according to the

substance of the contractual arrangements entered into and the

definitions of a financial liability and an equity instrument. An equity

instrument is any contract that evidences a residual interest in the

assets of the group after deducting all of its liabilities.

Equity instruments

Equity instruments issued by the company are recognised at

the proceeds received, net of direct issue costs.

Non-trading financial liabilities

Non-trading financial liabilities are recognised at amortised cost.

Amortised cost represents the original debt less principal payments

made, the impact of discounting to net present value and

amortisations of related costs.

Trade payables

Trade payables are liabilities to pay for goods or services that

have been received or supplied and have been invoiced or

formally agreed with the supplier. Trade payables are initially

recognised at fair value, and are subsequently classified as non-

trading financial liabilities and carried at amortised cost using

the effective interest rate method.

Sub-contractor liabilities

Sub-contractor liabilities represent the actual unpaid liability owing

to sub-contractors for work performed, including retention monies

owed. Sub-contractor liabilities are initially recognised at fair value,

and are subsequently classified as non-trading financial liabilities

and carried at amortised cost using the effective interest rate

method.

Loans to (from) group companies

These include loans to and from holding companies, fellow

subsidiaries, subsidiaries, joint ventures and associates and are

recognised initially at fair value plus direct transaction costs.

Loans to group companies are classified as loans and receivables.

Loans from group companies are classified as financial liabilities

measured at amortised cost.

Bank overdrafts and borrowings

Bank overdrafts and borrowings are initially measured at fair

value, and are subsequently measured at amortised cost, using

the effective interest rate method. Any difference between the

assets classified as at fair value through profit or loss, which are

initially measured at fair value.

Financial assets for the group comprise of loans and receivables.

Loans and receivables

Loans and receivables are stated at amortised cost. Amortised

cost represents the original invoice amount less principal

repayments received, the impact of discounting to net present

value and a provision for impairment, where applicable.

The provision for impairment is established when there is objective

evidence that the group will not be able to collect all amounts

due according to the original terms of the loan or receivable.

When a loan has a fixed maturity date but carries no interest,

the carrying value reflects the time value of money, and the

loan is discounted to its net present value. The unwinding of

the discount is subsequently reflected in the statement of

comprehensive income as part of interest income.

Contract receivables and retentions

Contract receivables and retentions are initially recognised at fair

value, and are subsequently classified as loans and receivables

and measured at amortised cost using the effective interest

rate method. Retention receivables are shown at the net present

value of future cash flows.

Contract and retention receivables comprise amounts due in

respect of certified or approved certificates by the client or

consultant at the statement of financial position date for which

payment has not been received, and amounts held as retentions

on certified certificates at the statement of financial position date.

Trade receivables

Trade receivables are initially recognised at fair value, and are

subsequently classified as loans and receivables and measured

at amortised cost using the effective interest rate method.

The provision for impairment of trade receivables is established

when there is objective evidence that the group will not be

able to collect all amounts due in accordance with the original

terms of the credit given and includes an assessment of

recoverability based on historical trend analysis and events that

exist at the statement of financial position date. The amount of

the provision is the difference between the carrying value and

the present value of estimated future cash flows, discounted at

the effective interest rate computed at initial recognition.

Cash and cash equivalents

Cash and cash equivalents comprise cash on deposits and other

short term highly liquid investments readily convertible to a

known amount of cash and subject to an insignificant risk of

changes in value.

70

Inter-segment transfersSegment revenue, segment expenses and segment results include transfers between business segments and between geographical segments. Such transfers are accounted for at arm’s length prices. These transfers are eliminated on consolidation.

Segmental revenue and expensesAll segment revenue and expenses are directly attributable to the segments. Segment revenue and expenses are allocated to the business segments based on the nature of the business operations.

Segmental assetsAll operating assets used by a segment, principally property, plant and equipment, investments, inventories, contracts in progress, and receivables, net of allowances. Segment assets are allocated to the business segments based on the nature of the business operations.

Segmental liabilitiesAll operating liabilities of a segment, principally accounts payable, sub-contractor liabilities and external interest bearing borrowings.

Dividends

Dividends are accounted for on the date of declaration and are not accrued as a liability in the financial statements until declared.

Contingent liabilities

A contingent liability is a possible obligation that arises from past events and whose existence will be confirmed only by the occur-rence or non-occurrence of one or more uncertain future events not wholly within the control of the group, or a present obligation that arises from past events but is not recognised because it is not probable that an outflow of resources embodying economic benefits will be required to settle the obligation; or the amount of the obligation cannot be measured with sufficient reliability.

If the likelihood of an outflow of resources is remote, the possible obligation is neither a provision nor a contingent liability and no disclosure is made.

Contingent assets

A contingent asset is a possible asset that arises from past events and whose existence will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the group.

In the ordinary course of business, the group may pursue a claim against a sub-contractor or client.

proceeds (net of transaction costs) and the settlement or

redemption of borrowings is recognised over the term of the

borrowings in accordance with the company’s accounting policy

for borrowing costs.

Related party transactions

Related parties are considered to be related if one party has the

ability to control or jointly control the other party or exercise

significant influence over the other party in making financial

and operating decisions. Key management personnel are also

regarded as related parties. Key management personnel are

those persons having authority and responsibility for planning,

directing, and controlling the activities of the group, directly or

indirectly, including all executive and non-executive directors.

Related party transactions are those where a transfer of resources

or obligations between related parties occurs, regardless of

whether or not a price is charged.

Contracts in progress

Contracts in progress represent those costs recognised by the

stage of completion of the contract activity at the statement

of financial position date. Anticipated losses to completion are

deducted.

Advance payments received

Advance payments received are assessed on initial recognition

to determine whether it is probable that it will be repaid in cash

or another financial asset. In this instance, the advance payment

is classified as a non-trading financial liability that is carried

at amortised cost. If it is probable that the advance payment

will be repaid with goods or services, the liability is carried at

historic cost.

Segmental reporting

A business segment is a group of assets and operations engaged

in providing products or services that are subject to risks and

returns that are different from those of other business segments.

A geographical segment is engaged in providing products or

services within a particular economic environment that are subject

to risks and returns that are different from those of segments

operating in other economic environments.

The group’s operating segmental information is determined in

accordance with the nature of business. The group’s operations

are all based in southern Africa, hence no reporting is required

in terms of geographical location.




Key sources of estimation uncertainty

The following are the key assumptions concerning the future,

and other key sources of estimation uncertainty at the statement

of financial position date, that have a significant risk of causing

a material adjustment to the carrying amounts of assets and

liabilities within the next financial year.

Impairment of goodwill

Determining whether goodwill is impaired requires an estimation

of the value in use of the cash-generating units to which goodwill

has been allocated. The value in use calculation requires the

directors to estimate the future cash flows expected to arise

from the cash-generating unit and a suitable discount rate in

order to calculate present value.

The carrying amount of goodwill at the statement of financial

position date was R33,5 million.

Useful lives and residual values of property, plant

and equipment

The group reviews the estimated useful lives and residual values

of property, plant and equipment at the end of each annual

reporting period.

Such contingent assets are only recognised in the financial

statements where the realisation of income is virtually certain. If

the inflow of economic benefits is only probable, the contingent

asset is disclosed as a claim in favour of the group but not

recognised on the statement of financial position.

CRITICAL ACCOUNTING JUDGEMENTS AND KEY

SOURCES OF ESTIMATION UNCERTAINTY

In the application of the group’s accounting policies, the directors

are required to make judgements, estimates and assumptions

about the carrying amounts of assets and liabilities that are not

readily apparent from other sources. The estimates and associated

assumptions are based on historical experience and other factors

that are considered to be relevant. Actual results may differ

from these estimates.

The estimates and underlying assumptions are reviewed on an

ongoing basis. Revisions to accounting estimates are recognised

in the period in which the estimate is revised if the revision

affects only that period, or in the period of the revision and future

periods if the revision affects both current and future periods.

72


Notes to the consolidated financial statements

Plant and

machinery Property

Office

equipment

Other

equipment Total

R’000 R’000 R’000 R’000 R’000

1. PROPERTY, PLANT AND EQUIPMENT

Year ended 28 February 2010Cost or valuationAt 29 February 2008 261 721 5 000 4 014 2 321 273 056

Additions 157 616 – 2 564 1 922 162 102

Acquisition of subsidiary 4 960 – – – 4 960

Fair value adjustments (2 564) – (460) – (3 024)

Disposals – at cost (41 346) – (25) (26) (41 397)

At 28 February 2009 380 387 5 000 6 093 4 217 395 697

Additions 103 748 – 1 885 3 392 109 025

Acquisition of subsidiary – 25 681 – – 25 681

Disposals – at cost (89 204) – (8) (215) (89 427)

At 28 February 2010 394 931 30 681 7 970 7 394 440 976

Accumulated depreciationAt 29 February 2008 (14 144) – (1 021) (927) (16 092)

Disposals 6 592 – – 13 6 605

Depreciation charge (29 589) – (1 767) (682) (32 038)

At 28 February 2009 (37 141) – (2 788) (1 596) (41 525)

Disposals 17 709 – 5 91 17 805

Depreciation charge (40 151) – (2 113) (1 333) (43 597)

At 28 February 2010 (59 583) – (4 896) (2 838) (67 317)

Net book valueAt 28 February 2010 335 348 30 681 3 074 4 556 373 659

At 28 February 2009 343 246 5 000 3 305 2 621 354 172


1. PROPERTY, PLANT AND EQUIPMENT (continued)

During 2010, the group decided to combine certain categories of assets into four major categories to provide more meaning-ful reporting. The combination of these categories did not lead to any restatement of prior year statement of financial position numbers. The net book value of the categories as reported previously and at year end are as follows:

Reconciliation of net book value:

2009

R’000

Plant and machinery 343 246Property 5 000Office equipment 3 305

Furniture, fittings and site accommodation 1 498Office equipment 78Computer equipment 1 476Computer software 253

Other equipment 2 621

Small tools and equipment 2 312Communication equipment 309

354 172

1.1 Assets pledged as security

The group’s obligations under instalment sale liabilities (see note 12 Borrowings) are secured by the lessors’ title to the financed assets, which have a carrying amount of R317,4 million (2009: R320,9 million).

The term loan facility in note 12.2 is secured by a notarial bond of R30 million over fixed assets held by the Group.

1.2 Details of freehold land and fixed property

Protech Khuthele Properties (Pty) LtdThe property consists of Portion 180, a portion of portion 101, of the Farm De Kroon 444, North West Province.

The freehold land was valued at R5 million on 3 October 2007 by an independent professional valuer TL van der Linde to determine the fair value of the property. The comparable sales method of valuation has been followed in determining the market value of the property. The property has not been pledged as security.

Protech Khuthele Property Investments (Pty) LtdThe property consists of Portion 52, a portion of portion 22 of the Farm Bultfontein 533, Lanseria, Johannesburg.

The group has consolidated Protech Khuthele Property Investments (Pty) Ltd during 2010 as the board of the company is now effectively controlled by the group. Therefore the value of the property comprising freehold land and building costs has been capitalised during 2010, the total value of the property being R25,7 million. The property has been pledged as security for a loan at Investec Private Bank Limited (see note 12 Borrowings).

74


Notes to the consolidated financial statements continued

2010 2009

R’000 R’000

2. GOODWILL

CostBalance at the beginning of the year 33 549 16 045 Fair value adjustments – 17 504

Balance at the end of the year 33 549 33 549

Accumulated impairment lossesThere were no impairment losses recognised during the current year.

Business segmentationReadymix 33 549 33 549

Goodwill is not amortised but subject to an annual impairment test.

2.1 Annual test for impairment

The company acquired the Readymix business on 29 February 2008 through a business combination, hence a portion of the purchase price was recognised as goodwill. At year end, the directors assessed the recoverable amount of goodwill and believe that the profits to be generated over the next couple of years attributable to the acquired business will be sufficient to recover goodwill.

The key assumptions used in testing for impairment can be summarised as follows:

Earnings before interest, tax, depreciation and amortisation are used as the basis of the calculation as this equates roughly to cash generated by operations.

The average price increase per cubic metre was taken as 10% over the next five years with an average increase in sales volumes of 5% per annum.

The discount rate applied is indicative of the cost for capital of the cash-generating unit.

2.2 Allocation of goodwill to cash-generating units

Goodwill has been allocated for impairment testing purposes to the Readymix cash-generating unit.

The goodwill associated with the Readymix business arose when that business was acquired by the group on 29 February 2008. The directors are of the opinion that the business operations are performing in line with expectations. No impairment of goodwill is expected.

2.3 Goodwill arising on acquisition

Goodwill arose in the business combination because the cost of the combination included a control premium paid to acquire the Readymix businesses. In addition, the consideration paid for the combination effectively included amounts in relation to the benefit of expected synergies, revenue growth, future market development and the assembled workforce of the Readymix business. These benefits are not recognised separately from goodwill as the future economic benefits arising from them cannot be reliably measured.


2010 2009

R’000 R’000

3. INTANGIBLE ASSETS

Cost Balance at 1 March 1 964 – Acquisitions through business combinations (note 25) – 1 964 Additions 160 –

Balance at 28 February 2 124 1 964

Accumulated amortisation and impairmentBalance at 1 March (147) – Amortisation – current year (215) (147)

Balance at 28 February (362) (147)

Carrying amount

As at 28 February 1 762 1 817

The intangible asset recognised relates to technical drawings and the remaining useful life is estimated at 8,25 years (2009: 9,25 years).

4. INVENTORY

Inventories consist of:Raw materials 3 393 3 709 Consumables 5 143 3 627 Contract work in progress1 – 9 610

8 536 16 946

1. Contract work in progress disclosed in the current year under note 5.

The cost of inventories recognised as an expense during the year was R82,5 million (2009: R84,4 million).

Contract work in progress comprises of work completed but not yet certified and will be recognised as an expense in the following period.

5. CONTRACTS-IN-PROGRESS AND CONTRACT RECEIVABLES

Contracts-in-progress at the statement of financial position date:Construction costs incurred plus recognised profits 339 389 357 820 Less: progress billings (270 300) (348 530)

Amounts due from contract customers 69 089 9 290Contract work in progress 21 060 –

90 149 9 290

Recognised and included in the financial statements as amounts due:From customers under construction contracts 90 149 9 290

76



2010 2009

R’000 R’000

6. TRADE AND OTHER RECEIVABLES

Trade receivables 86 941 135 250 Less: allowance for bad debts (6 806) (5 435)

Net trade receivables 80 135 129 815

Retention receivables 41 611 30 820 Less: unearned finance income (3 518) (3 491)

Net retention receivables 38 093 27 329

VAT 2 048 2 643 Prepayments 112 700 Other receivables 1 795 2 601

122 183 163 088

Debtors have been ceded as security for loan and overdraft facilities (see note 17).

The directors consider that the carrying amount of the trade and other receivables approximate their fair value.

6.1 Trade receivables

Total trade receivables (net of allowances) held by the group at 28 February 2010 amounted to R80,1 million (2009: R129,8 million).

The average credit period on construction contracts is between 30 and 60 days. Retention receivables have an average ageing of 162 days. Where applicable, interest is charged on overdue trade receivables or retention amounts. The group has provided fully for certain trade receivables over 90 days, not paid to date, because these receivables have been assessed as not recoverable.

Before accepting any new customer, the group assesses the credit quality of each customer. Exposure to customers with a high percentage of the total trade receivables are constantly monitored. 76% (2009: 74%) of the trade receivables (excluding retention) are current. Of the trade receivables balance (excluding retention) at the end of the year, R39,9 million (2009: R94,9 million) are due from companies which individually make up more than 5% of the trade receivables. Of this amount, R28,9 million (2009: R72,8 million) have been paid up to 30 April 2010. At 30 April 2010, R55,1 million (2009: R97,2 million) was collected in respect of trade receivables subsequent to February 2010.

Included in the group’s trade receivable balance are debtors with a carrying amount of R27,6 million (2009: R60,1 million) which are past due for which the group has not provided as there has not been a significant change in credit quality and the amounts are still considered recoverable. At 30 April 2010, R18,6 million (2009: R45,2 million) of this amount was collected after February 2010. The group does not hold any collateral over these balances.


2010 2009

R’000 R’000

6. TRADE AND OTHER RECEIVABLES (continued)

6.1 Trade receivables (continued)Ageing of past due but not impaired30 – 60 days 15 148 16 511 60 – 90 days 3 113 21 475 over 90 days 9 355 22 080

Total 27 616 60 066

Movement in the allowance for doubtful debtsBalance at the beginning of the year 5 435 5 280 Impairment losses recognised on receivables 3 671 2 594 Amounts written off (2 300) (2 439)

Balance at the end of the year 6 806 5 435

In determining the recoverability of a trade receivable, the group considers each receivable which is past due individually. The concentration of credit risk is limited due to the customer base being large and unrelated. Accordingly, the directors believe that there is no further credit provision required in excess of the allowance for doubtful debts.

7. OTHER FINANCIAL ASSETS

Loans carried at amortised costLoans to entities: 6 101 8 297

– PPK Services (Pty) Ltd 51 51 – Lidonga Construction (Pty) Ltd 5 185 5 420 – Moon Plant & Construction (Pty) Ltd 585 – – Truload Hauliers (PVT) Ltd 115 – – Protech Khuthele Zambia Ltd 124 – – Majorshelf 63 (Pty) Ltd 41 – – Protech Khuthele Property Investments (Pty) Ltd – 2 826

Loans to trusts: 3 274 3 235

– Protech Khuthele BEE Trust 3 274 3 235

9 375 11 532 Less: non-current portion (2 202) (3 605)

7 173 7 927

Loans granted to companies, other than Lidonga Construction (Pty) Ltd, are unsecured, bear no interest and have no fixed terms of repayment. Loans granted to related parties are disclosed in note 30 Related parties.

The loan to Lidonga Construction (Pty) Ltd is secured by a notarial bond registered over the plant purchased. The current value of the plant is R3,5 million. The loan is payable over 36 months at the prime overdraft rate as charged by Absa Bank Limited.

The loans to trusts are interest free and unsecured. No fixed date for repayment has been set.

78



2010 2009

R’000 R’000

8. BANK BALANCES AND CASH

For the purposes of the statement of cash flows, cash and cash equivalents include cash on hand and in banks and investments in money market instruments. Cash and cash equivalents at the end of the financial year as shown in the statement of cash flows can be reconciled to the related items in the statement of financial position as follows:

Bank balances 86 351 101 468 Cash on hand 795 120

87 146 101 588

Cash and cash equivalents comprise bank balances and cash on hand. The carrying amount of these assets approximate their fair value.

9. SHARE CAPITAL AND PREMIUM

9.1 Issued capital

Authorised1 000 000 000 ordinary shares of R0,000005 5 5

Issued Share capital Share premium

2010 2009 2010 2009

R’000 R’000 R’000 R’000

22 September 2000 –* –* – –

23 May 200720 000 000 fully paid ordinary shares

– share split – – – – 41 869 362 fully paid ordinary shares –* –* – –

28 May 2007 288 130 638 fully paid ordinary shares 1 1 216 096 216 096

6 August 200712 500 000 fully paid ordinary shares –* –* 12 500 12 500

362 500 000 fully paid ordinary shares 2 2 228 596 228 596

The directors are authorised, by resolution of the shareholders until the forthcoming annual general meeting, to issue up to a maximum of 5% of the total number of issued ordinary shares for any purpose and upon such terms and conditions as they see fit.

20% of the issued share capital of the group are owned by employees through the Protech Khuthele BEE Trust.

* Amounts below R1 000.


2010 2009

R’000 R’000

10. RESERVES

Common control reserve (note 10.1) (123 998) (122 053)Foreign currency translation reserve (10.2) 55 –

(123 943) (122 053)

10.1 Common control reserve

Balance at the end of the year (122 053) (122 053)Realisation in respect of deregistered dormant subsidiaries* (1 945) –

Balance at the end of the year (123 998) (122 053)

This reserve is a result of predecessor accounting applied after the company acquired its subsidiaries in 2008 as detailed in the accounting policy note on Business Combinations. The difference between the consideration paid and the share capital (including share premium) of the acquired entities was recorded as a separate reserve in the statement of changes in equity (“the common control reserve”). As a result, no goodwill was recognised on acquisition.

1. Protech Projects Holding (Pty) Ltd and Umvundla Investments No.2 (Pty) Ltd were deregistered subsequent to February 2010, therefore the common control reserve was adjusted accordingly.

10.2 Foreign currency translation reserve

At beginning of the year – – Foreign currency translation movements 55 –

55 –

The foreign currency translation reserve is the result of exchange differences arising from the translation of the group’s foreign subsidiary companies to Rands, being the functional currency of the holding company.

11. NON-CONTROLLING INTERESTS

The Group has an interest in a company, Protech Power Corp (Pty) Ltd registered in Botswana. During 2010, the foreign company incurred minor losses which the group has funded.

12. BORROWINGS

Borrowings comprise of:

Secured at amortised costInstalment sale liabilities (note 12.1) 218 068 220 302 Interest bearing bank loans (note 12.2) 46 513 54 054

Total borrowings 264 581 274 356 Less: current portion of borrowings (99 100) (87 839)

Non-current portion of borrowings 165 481 186 517

80



Minimum instalment

sale payments

Present value of minimum

instalment sale payments

2010 2009 2010 2009

R’000 R’000 R’000 R’000

12. BORROWINGS (continued)

12.1 Instalment sale liabilities

Payable:Within 1 year 104 423 101 295 89 106 79 292 Within years 2 – 5 140 063 159 577 128 962 141 010 Later than 5 years – – – –

244 486 260 872 Less: future interest charges (26 418) (40 570)

218 068 220 302 218 068 220 302

Less: current portion (89 106) (79 292)

128 962 141 010

Minimum loan

repayments


loan repayments

2010 2009 2010 2009

R’000 R’000 R’000 R’000

12.2 Interest bearing bank loans

Payable:Within 1 year 13 896 14 392 9 994 8 547 Within years 2 – 5 42 354 50 488 36 519 38 699 Later than 5 years – 7 222 – 6 808

56 250 72 102 Less: future interest charges (9 737) (18 048)

46 513 54 054 46 513 54 054

Less: current portion (9 994) (8 547)

36 519 45 507



Instalment sale liabilities bear interest at rates ranging from 8,5% to 10,5% per annum.

The assets encumbered to secure the loans are detailed in note 1. Details of the company’s interest rate risk management policies are set out in note 24.

The interest bearing bank loans comprise the following facilities:

(a) Revolving loan – Absa Bank LimitedThe revolving loan facility of R32,2 million bears interest at prime minus 1% and is payable over 84 months. At 28 February 2010, there were 60 monthly instalments still payable. The facility is secured by cession of debtors and unlimited cross suretyship by group companies (refer to note 17).

(b) Term loan – Absa Bank LimitedThe term loan facility of R30 million bears interest at prime minus 1,5% and is payable over 60 months. At 28 February 2010, there were 36 monthly instalments still payable. The facility is secured by a notarial bond of R30 million over fixed assets held by Protech Readymix (Pty) Ltd and unlimited cross suretyship by group companies (refer to note 17).

(c) Loan – Investec Private Bank LimitedThe loan with Investec Private Bank Limited bears interest at prime minus 1,25% per annum. At 28 February 2010, there were 31 monthly instalments still payable with a final instalment of R2,8 million. The loan is secured by the fixed property of Protech Khuthele Property Investments (Pty) Ltd as detailed in note 1.

The fair values of these liabilities are equal to their carrying amount.

2010 2009

R’000 R’000

13. DEFERRED TAXATION

13.1 Deferred tax reconciliation

Balance at beginning of year 49 049 18 774 Adjustment to goodwill – 12 012 Timing differences during the year 7 625 18 263

Balance at end of year 56 674 49 049

Disclosed as:Deferred tax asset (958) – Deferred tax liability 57 632 49 049

56 674 49 049

13.2 Deferred tax liabilities/(assets)

2010

Opening

balance

Charged

to income

Closing

balance

R’000 R’000 R’000

Temporary differencesRetention debtors 7 652 3 015 10 667

Accelerated wear and tear 45 483 5 971 51 454

Leave pay and bonuses (1 538) (259) (1 797)

Doubtful debts (90) (425) (515)

Estimated tax losses (2 458) (677) (3 135)

49 049 7 625 56 674

82



13. DEFERRED TAXATION (continued)

2009

Opening balance

Charged to income

Charged to goodwill

Closing balance

R’000 R’000 R’000 R’000

Temporary differencesRetention debtors 7 212 440 – 7 652 Accelerated wear and tear 19 003 14 468 12 012 45 483 Timing differences on finance leases (1 265) 1 265 – – Leave pay and bonuses (5 082) 3 544 – (1 538)Doubtful debts (1 094) 1 004 – (90)Estimated tax losses – (2 458) – (2 458)

18 774 18 263 12 012 49 049

13.3 Taxation losses

At year end, the group had estimated taxation losses of R11,2 million available for offset against future profits. Future profits are expected hence a deferred taxation asset of R3,1 million has been recognised in respect of the losses. At year end the group had estimated unused taxation losses of R1,3 million for which no deferred tax asset has been raised.

2010 2009

R’000 R’000

14. TRADE AND OTHER PAYABLES

Trade payables 67 543 45 716 Accruals 4 347 37 479 Transfer from provisions – bonus and leave pay accrual 6 418 –

VAT payable 2 779 5 434

81 087 88 629

Trade and other payables comprise amounts outstanding for trade purchases and ongoing costs. Trade and other payables are normally settled within 30 days.

The directors consider that the carrying amount of the trade and other payables approximate their fair value.

Interest paid on outstanding balances varies from supplier to supplier. The group has financial risk management policies in place to ensure that all payables are paid within the credit timeframe.

15. SUB-CONTRACTOR LIABILITIES

Current sub-contractor liabilities 6 928 9 704

Contracts-in-progress and contract receivables include claims against clients in respect of sub-contractor liabilities. These liabilities are only settled when payment has been received from clients.

16. PROVISIONS

Bonus – 2 190 Leave pay – 3 306

– 5 496


16. PROVISIONS (continued)

Bonus Leave pay Total

R’000 R’000 R’000

Balance at 1 March 2008 16 894 1 418 18 312 Additional provisions recognised 21 851 4 299 26 150 Reductions arising from payments (36 555) (2 411) (38 966)

Balance at 1 March 2009 2 190 3 306 5 496 Additional provisions recognised 13 944 1 676 15 620 Reductions arising from payments (13 190) (1 508) (14 698)Transferred to trade and other payables¹ (2 944) (3 474) (6 418)

Balance at 28 February 2010 – – –

The provision for employee benefits represents annual leave, vested long service leave entitlements accrued and bonuses.

1. Bonus and leave pay accruals reclassified as trade and other payables.

2010 2009

R’000 R’000

17. NON-CASH TRANSACTIONS AND FINANCING FACILITIES

17.1 Non-cash investing and financing transactions

There were no such transactions during the current financial year.

17.2 Financing facilities

Secured bank overdraft facility– Facility 11 200 11 200 – Utilised – –

– Unutilised 11 200 11 200

The facilities above are secured as follows:– Cession of debtors– Limited surety of R3 million by each of the following entities: > Protech Khuthele (Pty) Ltd > Pela Plant (Pty) Ltd

– Unlimited cross suretyships, including cession of loan accounts by and between the following entities:

> Protech Khuthele Holdings Limited > Protech Khuthele (Pty) Ltd > Pela Plant (Pty) Ltd > South African Road Testing Services (Pty) Ltd > Protech Readymix (Pty) Ltd > Impact Compaction (Pty) Ltd > Protech Khuthele Properties (Pty) Ltd

Secured bank loan and instalment sale facilities– Facility 467 370 400 529 – Utilised (264 581) (274 356)

– Unutilised 202 789 126 173

84



17. NON-CASH TRANSACTIONS AND FINANCING FACILITIES (continued)

17.2 Financing facilities (continued)

The balances indicated above as being secured, are secured as follows:

Plant and equipment financed serve as security for the loan facilities utilised.

Suretyship has been provided for the above loans at each financial institution:

Absa Bank Limited – Unlimited cross suretyships, including cession of loan accounts by and between the following companies: Protech Khuthele Holdings Limited, Protech Khuthele (Pty) Ltd, Protech Readymix (Pty) Ltd and Pela Plant (Pty) Ltd.

WesBank – Unlimited suretyship, excluding cession of loan account dated 12/09/2007 by Protech Khuthele (Pty) Ltd, Umvundla Investments No.2 (Pty) Ltd, South African Road Testing Services (Pty) Ltd and Protech Projects Holding (Pty) Ltd.

Imperial Bank – Suretyship by Protech Khuthele Holdings Limited, Protech Khuthele (Pty) Ltd and South African Road Testing Services (Pty) Ltd, Protech Readymix (Pty) Ltd, Protech Khuthele Properties (Pty) Ltd, limited to R50 million per company.

Daimler Chrysler Financial Services South Africa (Pty) Ltd – Cross guarantees between Protech Khuthele (Pty) Ltd, Protech Projects Holding (Pty) Ltd and Pela Plant (Pty) Ltd.

2010 2009

R’000 R’000

Guarantee facilitiesTotal guarantee facilities in place 122 433 122 433 Current utilisation (82 432) (49 210)

Guarantee facilities not utilised 40 001 73 223

Of the current facilities utilised R36,4 million (2009: R22,9 million) relates to retention guarantees whilst the remaining portion of R46,0 million (2009: R26,3 million) relates to performance guarantees. Details are listed below:

AbsaGuarantee facility 2 433 2 433 Current utilisation – –


– Limited surety as per the overdraft facility

Guarantee Placings (Pty) LtdGuarantee facility 20 000 20 000 Current utilisation (1 336) (1 336)


Cross guarantees exist between the subsidiaries for the aforementioned facility.

SGI Guarantee Acceptances (Pty) LtdGuarantee facility 100 000 100 000 Current utilisation (81 096) (47 874)


– Limited surety by Protech Khuthele Holdings Limited for R60 million.


2010 2009

R’000 R’000

18. REVENUE

Revenue comprises:– Contract income 626 379 590 605 – Sale of goods 113 049 107 015 – Retentions 9 350 5 125

748 778 702 745

19. INVESTMENT REVENUE

Interest revenue:– Bank account 929 1 970 – Interest on outstanding amounts owed from retention debtors 2 107 – – Loans and receivables 4 119 127

7 155 2 097

Investment revenue earned on financial assets, analysed by category of asset, is as follows:

Loans and receivables (including cash and bank balances) 7 155 2 097

20. INTEREST PAID

Interest on outstanding amounts owed to suppliers 6 11 Interest paid on loans and other payables 1 302 – Interest on interest bearing borrowings 21 408 29 955

22 716 29 966

The weighted average rate paid on funds borrowed was 9,4% per annum (2009: 13,2%).

21. EARNINGS BEFORE TAXATION

The following items are included in profit before tax

Income:Profit on disposal of property, plant and equipment 3 110 –

Expenses:Auditors’ remuneration 1 742 1 473

– Audit services 1 300 1 180 – Non-audit services 442 293

Amortisation of intangible assets (note 3) 215 147 Depreciation (note 1) 43 597 32 038 Directors’ remuneration (note 29)– For management services 7 690 7 761 Employee costs 148 899 137 137Loss on disposal of property, plant and equipment – 2 024 Operating lease costs 519 336 Professional fees 1 959 1 241 Sub-contractor costs 17 500 16 925

86



2010 2009

R’000 R’000

22. INCOME TAXES

22.1 Income tax recognised in profit

Current tax expense 19 782 16 944

– Normal 19 192 16 563 – Capital gains tax 590 381

Deferred taxation 7 625 18 263

– Current year 7 625 18 263

27 407 35 207

The total charge for the year can be reconciled to the accounting profit as follows:Accounting profit 102 993 128 118

Income tax expense calculated at 28% (2009: 28%) 28 838 35 873

Permanent differences:Tax effect of income and expenses that are not taxable or deductiblein determining taxable profit (1 431) (666)

Income tax expense recognised in profit 27 407 35 207

Effective tax rate 26,6% 27,5%

The tax rate used for the 2010 reconciliation above is the corporate tax rate of 28% (2009: 28%) payable by corporate entities in South Africa on taxable profits under tax law in that jurisdiction. Taxation in other jurisdictions is calculated at rates prevailing in those relevant jurisdictions.

23. EARNINGS PER SHARE

Basic earnings per share (cents) 20,9 25,6

Diluted earnings per share (cents) 20,9 25,6

Headline earnings per share (cents) 20,2 26,0

23.1 Basic earnings per share

The earnings and weighted average number of ordinary shares used in the calculation of basic earnings per share are as follows:

EarningsEarnings for the year attributable to ordinary shareholders of the parent 75 586 92 911

Weighted average number of ordinary shares for the purposes of basic earnings per share (‘000) 362 500 362 500

23.2 Headline earnings per share

Earnings attributable to the equity holders of the company 75 586 92 911

Non-controlling interests – – Sub-total 75 586 92 911

Adjust for:Profit on disposal of assets (3 110) – Loss on disposal of assets – 2 024 Tax effect thereof 871 (567)

Headline earnings 73 347 94 368


24. FINANCIAL RISK MANAGEMENT

24.1 Capital risk management

The group manages its capital to ensure that entities in the group will be able to continue as going concerns while maximising the return to stakeholders through the optimisation of the debt and equity balances.

The capital structure of the group consists of debt, which includes the borrowings disclosed in note 12, cash and cash equivalents and equity attributable to equity holders of the parent, comprising issued capital, reserves and retained earnings as disclosed.

24.1.1 Gearing ratioThe group’s audit and risk management committee reviews the capital structure on a semi-annual basis. As part of this review, the committee considers the cost of capital and the risks associated with each class of capital.

2010 2009

R’000 R’000

The gearing ratio at the year end was as follows:

Net interest bearing debt:equityDebt 264 581 274 356 Cash and cash equivalents 87 146 101 588

Net debt 177 435 172 768

Equity 310 255 234 614

Net debt:equity ratio 57% 74%

(i) Debt comprises the long and short term borrowings as disclosed in note 12 Borrowings.

(ii) Equity includes all capital and reserves of the group.

24.2 Significant accounting policies

Details of the significant accounting policies and methods adopted, including the criteria for recognition, the basis of measure-ment and the basis on which income and expenses are recognised, in respect of each class of financial asset, financial liability and equity instrument are disclosed in the accounting policy notes to the financial statements.

88



24. FINANCIAL RISK MANAGEMENT (continued)

24.3 Financial instruments

The group does not trade in financial instruments but, in the normal course of operations, is exposed to currency, credit, interest and liquidity risk.

In order to manage these risks, the group may enter into transactions that make use of financial instruments. The group’s financial instruments consist mainly of deposits with banks, local money market instruments, short term investments, accounts receivable and payable and interest bearing borrowings.

2010 2009

R’000 R’000

Categories of financial instrumentsFinancial assetsLoans and receivables (including cash and cash equivalents) 308 853 285 498

Financial liabilitiesBorrowings – at amortised cost 264 581 274 356 Trade and other payables 81 087 87 129 Sub-contractor liabilities 6 928 9 704 Provisions – 5 496

352 596 376 685

The carrying amount reflected above represents the group’s maximum exposure to credit risk for such loans and receivables.

24.4 Financial risk management objectives

The group’s treasury function provides services to the business, co-ordinates access to domestic financial markets and monitors and manages the financial risks relating to the operations of the group. Operational and business risks are reviewed and addressed on a weekly basis. These risks include market risk (including currency risk, fair value interest rate risk and price risk), credit risk, liquidity risk and cash flow interest rate risk.

To mitigate medium to long term risks in terms of currency, interest rate and price risk, budgeting is performed up to twelve months in advance to ensure access to cash and financing facilities.

The group does not enter into or trade in financial instruments, including derivative financial instruments, for speculative purposes.

24.5 Foreign currency risk management

The group has an interest in an entity in Botswana, hence has an exposure to fluctuations in exchange rates.

Foreign currency sensitivityThe group is mainly exposed to the currency of Botswana (Pula). The following table details the group’s major foreign currency balances at year end and the sensitivity of a 1% decrease in the Rand against the relevant currencies. The sensitivity includes only foreign currency denominated monetary items and adjusts their translation at the period end for a change in foreign currency rates. A positive number indicates an increase in profit and other equity where the Rand weakens against the relevant currencies.

Assets Liabilities

2010 2009 2010 2009

R’000 R’000 R’000 R’000

Botswana Pula 223 – 402 –



24.5 Foreign currency risk management (continued)

2010 2009

R’000 R’000

The carrying amounts of significant financial assets are denominated in the following currencies:Bank balances and cashBotswana Pula 5 – South African Rand 87 141 101 588

87 146 101 588

Trade and other receivablesBotswana Pula 218 – South African Rand 121 965 163 088

122 183 163 088

The carrying amounts of significant financial liabilities are denominated in the following currencies:Trade and other payablesBotswana Pula 402 – South African Rand 80 685 88 629

81 087 88 629

24.6 Market risk

The group’s activities expose it primarily to the financial risks of changes in interest rates and liquidity.

24.7 Interest rate risk management

The group is exposed to interest rate risk as entities in the group borrow funds at floating interest rates. The risk is managed by the group by using an access deposit account for its instalment liabilities. By using an access deposit account excess cash is kept in this account to minimise the interest expense.

The group’s exposures to interest rates on financial assets and financial liabilities are detailed in the liquidity risk management section of this note.

24.7.1 Interest rate sensitivity analysisThe sensitivity analyses below have been determined based on the exposure to interest rates for both derivatives and non-derivative instruments at the statement of financial position date. For floating rate liabilities, the analyses are prepared assuming the amount of the liability outstanding at the statement of financial position date was outstanding for the whole year. A 100 basis point increase or decrease is used when reporting interest rate risk internally to key management personnel and represents management’s assessment of a reasonable and possible change in interest rates.

If interest rates had been 100 basis points higher/lower and all other variables were held constant, the group’s profit after tax for the year ended 28 February 2010 would decrease/increase by R1,9 million (2009: R2,0 million). This is attributable to the group’s exposure to interest rates on its variable rate borrowings.

24.8 Credit risk management

Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the group. The group prefers dealing with creditworthy counterparties only and obtaining sufficient collateral, where appropriate, as a means of mitigating the risk of financial loss from defaults. The group uses other publicly available financial information and its own trading records to rate its major customers. The group's exposure and the credit ratings of its counterparties are continuously monitored and the aggregate value of transactions concluded is spread amongst approved counterparties.

Trade receivables consist of a large number of customers spread across diverse industries. Credit risk is managed by performing credit checks on customers and setting of credit limits where necessary. Ongoing credit evaluation is performed on the financial condition of accounts receivable and, where appropriate, credit guarantee insurance cover is purchased.

Provision is made for specific bad debts and at year end, management believed that any material credit risk exposure was covered by credit guarantee or a bad debt provision.

The group deposits short term cash investments with major financial institutions.

The group has a significant credit risk exposure to a single counterparty where a substantial part of the fleet is financed.

90




24.9 Liquidity risk management

Ultimate responsibility for liquidity risk management rests with the board of directors, which has built an appropriate liquidity risk management framework for the management of the group’s short, medium and long term funding and liquidity management requirements. The group manages liquidity risk by maintaining adequate reserves, banking facilities and reserve borrowing facilities, by continuously monitoring forecast and actual cash flows and matching the maturity profiles of financial assets and liabilities. Included in note 17 is a listing of additional undrawn facilities that the group has at its disposal to further reduce liquidity risk.

24.9.1 Maturity profile of financial instrumentsThe maturity profile of the recognised financial instruments are summarised below. These profiles represent the undiscounted cash flows that are expected to occur in the future.

2010

Weighted

average

effective

interest

rate < 1 year year 1 to 5 Total

R’000 R’000 R’000

Financial assetsLoans and receivables 285 591 2 202 287 793

Financial liabilitiesInstalment sale liabilities 9,5% 104 423 140 063 244 486

Interest bearing bank loans 9,3% 13 896 42 354 56 250

Trade and other payables 81 087 – 81 087

Sub-contractor liabilities 6 928 – 6 928

206 334 182 417 388 751

The group has access to financing facilities, the total unused amount which is R202,8 million (2009: R126,2 million) (note 17) at the statement of financial position date. The group expects to meet its other obligations from operating cash flows.

The directors consider that the carrying amounts of financial assets and financial liabilities recorded at amortised cost in the financial statements approximate their fair values:

2010 2009

Carrying

amount

Fair

value

Carryingamount

Fairvalue

R’000 R’000 R’000 R’000

Financial assetsLoans and receivables 308 853 308 853 285 498 285 498

Financial liabilitiesInterest bearing borrowings – instalment sale liabilities 218 068 218 068 220 302 220 302 Interest bearing bank loans 46 513 46 513 54 054 54 054 Trade and other payables 81 087 81 087 88 629 88 629 Sub-contractor liabilities 6 928 6 928 9 704 9 704

352 596 352 596 372 689 372 689


25. ACQUISITION OF BUSINESSES

25.1 Subsidiaries acquired

Protech Khuthele Property Investments (Pty) Ltd The group does not own an equity stake in the company, however, the board of Protech Khuthele (Pty) Ltd has the power to govern the financial and operating policies via, inter alia, shareholder agreements and therefore has control. Consequently, the company was consolidated as a subsidiary on 28 February 2010.

2010

Book value

R’000

25.1.1 Analysis of assets and liabilities acquiredCurrent assets:VAT 1 014

Non-current assets:Property 25 681

Current liabilities:Interest bearing borrowings (393)

Non-current liabilities:Interest bearing borrowings (3 415)

Total net assets 22 887

These values represent the fair values of the assets and liabilities at statement of financial position date in terms of IFRS 3: Business Combinations.

25.1.2 Net cash outflow on acquisitionTotal net assets acquired 22 887

Loan account Protech Khuthele Holdings Limited (Company) (435)

Loan account Protech Khuthele (Pty) Ltd (22 452)

–

25.1.3 Movement in loan through acquisitionOpening balance of loan 2 826

Trade receivables 8 436

Loan balance 1 March 2009 11 262

Cash flow movement 11 625

22 887

92



2009

R’000

25. ACQUISITION OF BUSINESSES (continued)

25.2 Prior year acquisition

Impact Compaction (Pty) Ltd On 1 June 2008, the group acquired the assets and liabilities of Impact Compaction (Pty) Ltd.Details of the nets assets acquired and the goodwill are as follows:Purchase consideration:– cash paid 7 000 Fair value of net assets acquired (7 000)

Goodwill –

Final fair values at 01/06/08

R’000

The net assets acquired and the goodwill arising, are as follows:

Current assets Inventories 47 Prepayments 29

Non-current assetsProperty, plant and equipment 4 960 Intangible assets 1 964

Total assets acquired 7 000

Total purchase consideration 7 000


2010 2009

R’000 R’000

25. ACQUISITION OF BUSINESSES (continued)

25.2 Prior year acquisition (continued)Net cash outflow arising on acquisition:– Total purchase consideration – 7 000 – Settled through cash – (7 000)

Total vendor liability – –

Cash and cash equivalents acquired – –

25.3 Readymix acquisition

The purchase consideration of the Readymix business which was acquired on 29 February 2008 was settled as follows:Net cash outflow arising on acquisition:Balance at the beginning of the year – 71 356 Settled through debt raised – (62 200)Settled through cash – (9 156)

Balance at the end of the year – –

In 2009, the following fair value adjustments were recognised in terms of IFRS 3: Business Combinations:

Trade and other receivables – (630)Loans granted – (1 884)Property, plant and equipment (note 1) – (3 024)Deferred tax (note 13) – (12 012)Trade and other payables – (835)Short term loans – 881

– (17 504)Goodwill recognised (note 2) – 17 504

– –

94



2010 2009

R’000 R’000

26. CASH GENERATED BY OPERATIONS

Reconciliation of earnings before taxation to cash generated by operations:

Earnings before taxation 102 993 128 118

Adjusted for:Amortisation of intangible assets 215 147 (Profit)/loss on sale of plant and equipment (3 110) 2 024 Interest received (7 155) (2 097)Finance costs 22 716 29 966 Provisions (5 496) (12 816)Depreciation 43 597 32 038

Operating cash flow before working capital changes 153 760 177 380

Decrease/(increase) in inventories 8 410 (3 118)Increase in trade and other receivables (47 376) (70 754)(Decrease)/increase in trade and other payables (7 487) 38 616 (Decrease)/increase in subcontractor liabilities (2 776) 806

Cash generated by operations 104 531 142 930

27. INCOME TAXES PAID

Opening balance 30 134 13 584 Current year tax charge (excluding deferred tax) 19 782 16 944 Closing balance (6 834) (30 134)

Amount paid (43 082) (394)

28. OPERATING LEASE ARRANGEMENTS

28.1 General operating leases

Operating lease payments represent rentals payable for the rental of freehold land. These leases have varying terms, escalation clauses and renewal periods.

Operating lease costsOperating lease costs recognised in the statement of comprehensive income are set out in note 21.

Operating lease commitmentsThe future minimum lease payments under non-cancellable operating leases are:

Due within one year 393 363 Due between two and five years 807 1 200 Due thereafter – –

1 200 1 563


2010 2009

R’000 R’000

29. DIRECTORS’ EMOLUMENTS

29.1 Directors’ remuneration

Non-executive directors 1 320 775

– Directors’ fees 635 560 – Committee fees 685 215

Executive directors 6 370 6 986

– Salaries and benefits 3 812 3 178 – Incentive bonuses 558 3 808 – Other fees 2 000 –

Total directors’ emoluments 7 690 7 761

2010

Salaries

Incentive

bonuses

Retirement

and

medical

Other

fees Total

R’000 R’000 R’000 R’000 R’000

DirectorExecutiveG Chapman 2 090 334 64 2 0001 4 488

N Wolmarans 1 611 224 47 – 1 882

3 701 558 111 2 000 6 370

Directors’

fees

Committee

fees Total

R’000 R’000 R’000

Non-executiveD Ackerman 175 160 335

M Maraletse 100 150 250

C Nkosi2 60 20 80

V Raseroka 100 125 225

P van Tonder 100 125 225

M Vuso 100 105 205

635 685 1 320

Total emoluments 7 690

1. During 2010, Mr G Chapman received a retention bonus as approved by the remuneration and nominations committee.2. Mrs C Nkosi resigned with effect from 6 October 2009.

96



2009

SalariesIncentive bonuses

Retirement and

medicalOther

fees Total

R’000 R’000 R’000 R’000 R’000

29. DIRECTORS’ EMOLUMENTS (continued)

29.1 Directors’ remuneration (continued)DirectorExecutiveG Chapman 1 765 2 270 – – 4 035 N Wolmarans 1 413 1 538 – – 2 951

3 178 3 808 – – 6 986

Directors’ fees

Committee fees Total

R’000 R’000 R’000

Non-executiveD Ackerman 140 45 185 M Maraletse 120 65 185 C Nkosi 60 20 80 V Raseroka 60 35 95 P van Tonder 60 35 95 M Vuso 120 15 135

560 215 775

Total emoluments 7 761

The remuneration of directors is determined by the remuneration and nominations committee having regard to the performance of individuals and market trends.

Executive directors do not receive directors’ fees and the directors have service contracts with group companies.

Executive directors are subject to the company’s standard conditions of employment.

29.2 Interest of directors in contracts

A register detailing directors’ interests in the company is available for inspection at the company’s registered office.

29.3 Share purchases and sales by directors and director controlled entities

During 2010, no main board directors traded in any shares of the company.


30. RELATED PARTIES

30.1 Identity of related parties

Transactions between the company and its subsidiaries, which are related parties of the company, have been eliminated on consolidation and are not disclosed in this note. Details of transactions between the group and other related parties are disclosed below.

Directors of the companies stated below are involved with Protech Khuthele Holdings Limited:

– PPK Services (Pty) Ltd – Panamo Properties (Pty) Ltd– Circle Seven Plant (Pty) Ltd– Big Cedar Trading (Pty) Ltd– Millcliff Trading (Pty) Ltd– Straightprops 57 (Pty) Ltd– Protech Khuthele BEE Trust– Lidonga Construction (Pty) Ltd– Protech Khuthele Property Investments (Pty) Ltd– Majorshelf 63 (Pty) Ltd– Truload Hauliers (PVT) Ltd– Protech Khuthele Zambia Ltd

30.2 Related party transactions and balances

During the year, the company and its related parties, in the ordinary course of business, entered into various related party sale and purchase transactions. These transactions are no less favourable than those arranged with independent third parties.

Revenue Expenses

Amounts owed by

related parties

Amounts owed to

related parties

Year

ended

28/02/10

Year ended

28/02/09

Year

ended

28/02/10

Year ended

28/02/09

Year

ended

28/02/10

Year ended

28/02/09

Year

ended

28/02/10

Year ended

28/02/09

R’000 R’000 R’000 R’000 R’000 R’000 R’000 R’000

PPK Services (Pty) Ltd – – – – 51² 51² – 23 Circle Seven Plant (Pty) Ltd – 3 – 28 – – – 3273 Straightprops 57 (Pty) Ltd – 172 1 377 420 – 146¹ – 173 Protech Khuthele BEE Trust – – – – 3 274² 3 235² – – Lidonga Construction (Pty) Ltd 20 750 18 654 23 654 15 036 5 185² 9 6371&2 1293 3 3973 Majorshelf 63 (Pty) Ltd – – – – 41² – – – Protech Khuthele Property Investments (Pty) Ltd4 – – 480 480 – 2 8262 – – Truload Hauliers (PVT) Ltd – – – – 115² – – – Protech Khuthele Zambia Limited – – – – 124² – – –

20 750 18 829 25 511 15 964 8 790 15 895 129 3 743

The amounts outstanding are unsecured and will be settled in cash within the normal operating cycle of the company. No guarantees have been given or received except for Lidonga Construction (Pty) Ltd (see note 7).

All the abovementioned transactions were made on terms equivalent to those that prevail in arm’s length transactions.

1 . Details of these amounts are disclosed in note 6 Trade and other receivables.2 . Details of these amounts are disclosed in note 7 Other financial assets.3. Details of these amounts are disclosed in note 14 Trade and other payables.4 . Included as a subsidiary from 28 February 2010.

98



2010 2009

R’000 R’000

30. RELATED PARTIES (continued)

30.3 Compensation to key management personnel

The remuneration of directors and other key management personnel during the year was as follows:Short term benefits– Directors (note 29) 7 690 7 761 – Other key management personnel 10 632 14 682

18 322 22 443

The remuneration of directors and key management personnel is determined by the remuneration committee having regard to the performance of individuals and market trends.

Key management personnel relate to the executive management team of the group.

31. SUBSIDIARIES

Details of the company’s subsidiaries at 28 February 2010 are as follows:

Name of subsidiary

Place of

incorporation

Proportion

of

ownership

interests

Proportion

of voting

power held Principal activity

Protech Khuthele (Pty) Ltd South Africa 100% 100% Bulk and fast-track earthworks

Pela Plant ((Pty) Ltd South Africa 100% 100% Plant hire

Impact Compaction (Pty) Ltd South Africa 100% 100% Impact compaction services

South African Road Testing Services (Pty) Ltd South Africa 100% 100%

Geotechnical and Laboratory services

Protech Readymix (Pty) Ltd South Africa 100% 100% Ready mixed concrete

Protech Khuthele Properties (Pty) Ltd South Africa 100% 100% Property company

Umvundla Investments No.2 (Pty) Ltd1 South Africa 100% 100% Plant hire

Protech Projects Holding (Pty) Ltd1 South Africa 100% 100% Contracting

1 Deregistered subsequent to year end.

Although the group does not own more than half of the equity shares of the following companies, it has the power to govern the financial and operating policies via, inter alia, shareholder agreements and therefore has control. Consequently, the companies are consolidated as subsidiaries.

Name of subsidiary

Place of

incorporation

% direct

ownership Principal activity

Protech Power Corp (Pty) Ltd Botswana 49% Contracting

Protech Khuthele Property Investments (Pty) Ltd South Africa 0% Property company

32. EVENTS AFTER THE STATEMENT OF FINANCIAL POSITION DATE

The directors are not aware of any matter or circumstances arising since the end of the financial year, not otherwise dealt with in the annual financial statements, which significantly affect the financial position of the group or the results of its operations.


Contents100 Company statement of financial position //

101 Company statement of comprehensive income //

101 Company statement of changes in equity //

102 Company statement of cash flows //

103 Notes to the company fi nancial statements //

COMPANY FINANCIAL STATEMENTS

100

as at 28 February

Company statement of financial position

2010 2009


ASSETS

Non-current assets 239 906 266 732

Investment in subsidiaries 2 202 574 216 098 Other financial assets 3 35 306 49 112 Deferred tax 12 2 026 1 522

Current assets 155 840 139 243

Other financial assets 3 65 249 31 207 Trade and other receivables 4 6 415 8 583 Cash and cash equivalents 5 84 176 99 453

Total assets 395 746 405 975

EQUITY AND LIABILITIES

Total equity 231 500 228 853

Share capital 6 228 598 228 598 Retained earnings 2 902 255

Total liabilities 164 246 177 122

Non-current liabilities 33 104 45 507

Borrowings 7 33 104 45 507

Current liabilities 131 142 131 615

Borrowings 7 124 900 124 501 Trade and other payables 8 6 040 4 884 Current tax liabilities 202 2 230

Total equity and liabilities 395 746 405 975




Company statement of comprehensive income

Company statement of changes in equity

2010 2009


Revenue 9 8 880 13 460 Dividends received 9 15 393 – Operating expenses (7 892) (8 030)Other expenses (15 325) (5 436)Interest received 9 5 133 8 887 Interest paid 10 (3 800) (8 074)

Earnings before tax 11 2 389 807 Taxation credit/(charge) 12 258 (663)

Earnings for the year 2 647 144 Other comprehensive income – –

Total comprehensive income for the year 2 647 144

Share capital

Share premium

Retained earnings Total

R’000 R’000 R’000 R’000

Balance as at 29 February 2008 2 228 596 111 228 709 Comprehensive income for the year – – 144 144

Balance as at 28 February 2009 2 228 596 255 228 853 Comprehensive income for the year – – 2 647 2 647

Balance as at 28 February 2010 2 228 596 2 902 231 500

102


Company statement of cash flows

2010 2009


Cash flows from operating activities 18 763 2 547

Cash receipts from customers 11 047 4 880 Cash paid to suppliers and employees (6 736) (3 146)

Cash generated from operations 14 4 311 1 734 Finance costs paid (3 800) (8 074) Dividends received 15 393 – Interest received 5 133 8 887 Taxation paid (2 274) –

Cash flows from investing activities –* –*

Purchase of subsidiaries –* –*

Cash flows from financing activities (34 040) 13 584

Receipts from secured borrowings – 62 200 Payments in respect of secured borrowings (11 349) (8 146) Receipts from loans granted – 5 563 Payments of loans granted (22 037) (90 331) Loans from subsidiaries (654) 44 298

Net (decrease)/increase in cash and cash equivalents (15 277) 16 131 Cash and cash equivalents at the beginning of the year 99 453 83 322

Cash and cash equivalents at the end of the year 5 84 176 99 453

* Amount below R1 000.



2010 2009

R’000 R’000

1. ACCOUNTING POLICIES

The accounting policies are the same as the group’s and are set out on pages 62 to 71.

2. INVESTMENT IN SUBSIDIARIES

Reflected as non-current assetsShares at cost 202 574 216 098

– Protech Khuthele (Pty) Ltd 159 920 159 920 – Pela Plant (Pty) Ltd 38 276 38 276 – South African Road Testing Services (Pty) Ltd 4 378 4 378 – Umvundla Investments No.2 (Pty) Ltd –2 5 036 – Protech Projects Holding (Pty) Ltd –2 8 488 – Protech Readymix (Pty) Ltd –1 –1

– Protech Khuthele Properties (Pty) Ltd –1 –1

– Impact Compaction (Pty) Ltd –1 –1

– Protech Power Corp (Pty) Ltd –1 n/a

1. Amount below R1 000.2. Following the declaration of all the reserves in this company as dividends, the investment was impaired pending deregistration of the company,

which occurred after year end.

Investments in subsidiaries are accounted for at cost.

In terms of Protech’s group funding policy, subsidiaries are funded by way of equity from the holding company as well as long term interest free loans. These long term loans granted by the holding company are considered to form part of the permanent capital structure of the subsidiaries and therefore are not deemed to form part of the debt of the subsidiary. The loans are unsecured and there are no fixed terms of repayment.

Notes to the company financial statements

104


Notes to the company financial statements continued

3. OTHER FINANCIAL ASSETS

Current Non-current

28/02/10 28/02/09 28/02/10 28/02/09

R’000 R’000 R’000 R’000

Loans to companies

Non-interest bearing loans 59 902 26 281 – –

Unsecured – at amortised cost– Protech Khuthele Zambia Ltd 118 – – – – Truload Hauliers (PVT) Ltd 60 – – – – Umvundla Investments No.2 (Pty) Ltd 1 – – – – Protech Khuthele BEE (Pty) Ltd 1 – – – – Protech Khuthele BEE Trust 3 233 3 224 – – – Protech Khuthele (Pty) Ltd 17 331 – – – – PPK Labour Services (Pty) Ltd 50 50 – – – Protech Khuthele Property Investments (Pty) Ltd 435 435 – – – Impact Compaction (Pty) Ltd* 5 636 4 664 – – – Protech Khuthele Properties (Pty) Ltd 3 745 3 408 – – – Protech Readymix (Pty) Ltd* 29 292 14 500 – –

Impairment of loans (7 237) (5 436) – –

Interest bearing loans 12 584 10 362 35 306 49 112

Secured – at amortised cost– Lidonga Construction (Pty) Ltd 2 983 1 815 2 202 3 605

Unsecured – at amortised cost– Protech Readymix (Pty) Ltd (acquisition loan) 9 601 8 547 33 104 45 507

65 249 31 207 35 306 49 112

* These loans have been subordinated in favour of other providers of credit to the various companies. Impairment provisions have been provided against the investments held in these companies.

Loans to companies are unsecured and interest free. No fixed date of repayment has been set.

The loan to Lidonga Construction (Pty) Ltd is secured by plant to the value of R3,5 million and is payable over 36 months at the prime interest rate.

The acquisition loan to Protech Readymix (Pty) Ltd is payable in line with terms from Absa Bank Limited as per note 7.2.

Loans receivable comprises net amounts receivable after provision for impairment. The directors consider that the carrying amount of the loans receivable approximate their fair value.

Loans granted to related parties are disclosed in note 16 Related parties.


2010 2009

R’000 R’000

4. TRADE AND OTHER RECEIVABLES

Trade receivables 6 302 8 377 Other 113 206

6 415 8 583

The directors consider that the carrying amount of the trade and other receivables to approximate their fair value.

Trade receivables owing by related parties amount to R6,1 million (2009: R8,4 million) as disclosed in note 16 Related parties.

4.1 Trade receivables

Total trade receivables (net of allowances) held by the company at 28 February 2010 amounted to R6,3 million (2009: R8,4 million) which relate to receivables from group companies.

No interest is charged on the trade receivables.

5. CASH AND CASH EQUIVALENTS

For the purposes of the statement of cash flows, cash and cash equivalents include cash on hand and in banks and investments in money market instruments, net of outstanding bank overdrafts. Cash and cash equivalents at the end of the financial year as shown in the statement cash flows can be reconciled to the related items in the statement of financial position as follows:

Bank balances and cash 84 176 99 453

Cash and cash equivalents comprise bank balances and cash on hand. The carrying amount of these assets approximate their fair value.

6. SHARE CAPITAL

Ordinary share capitalIssued and fully paid

Authorised1 000 000 000 ordinary shares of R0,000005 5 5

106



6. SHARE CAPITAL (continued)Share capital Share premium

2010 2009 2010 2009

R’000 R’000 R’000 R’000

Issued and fully paid ordinary shares22 September 2000 –* –* – –

23 May 200720 000 0003 – – – – 41 869 3622 – – – –

28 May 2007288 130 6381 2 2 216 096 216 096

6 August 200712 500 0002 –* –* 12 500 12 500

362 500 000 shares in issue 2 2 228 596 228 596

1. Issued to acquire subsidiaries.2. Issued for cash.3. Share split of 200 000 to 1.

* Amount below R1 000.

2010 2009

R’000 R’000

Total share capital and premium 228 598 228 598

The directors are authorised, by resolution of the shareholders until the forthcoming annual general meeting, to issue up to a maximum of 5% of the total number of issued ordinary shares for any purpose and upon such terms and conditions as they see fit.

20% of the issued share capital of the group are owned by employees through the Protech Khuthele BEE Trust.


2010 2009

Current

Non-

current CurrentNon-

current

R’000 R’000 R’000 R’000

7. BORROWINGS

7.1 Non-interest bearing borrowings

Unsecured – at amortised costLoans from entities– Protech Khuthele (Pty) Ltd – – 43 474 – – Pela Plant (Pty) Ltd 114 907 – 54 761 – – Protech Projects Holding (Pty) Ltd – – 9 691 – – South African Road Testing Services (Pty) Ltd 392 – 1 268 – – Umvundla Investments No.2 (Pty) Ltd – – 6 760 –

115 299 – 115 954 –

The loans from entities are interest free and unsecured and have no fixed terms of repayment.

Loans received from entities are disclosed in note 16 Related parties.

7.2 Interest bearing borrowings

Secured – at amortised costLoan facilities from banksAbsa Bank Limited

Revolving loan facility 3 961 20 188 3 442 25 530 Term loan facility 5 640 12 916 5 105 19 977

9 601 33 104 8 547 45 507

The revolving loan facility bears interest at prime minus 1% and is payable over 84 months. There are 60 monthly instalments of R0,507 million (2009: R0,556 million) still payable. The facility is secured by cession of debtors and unlimited cross suretyship by group companies.

The term loan facility bears interest at prime minus 1,5% and is payable over 60 months. There are 36 monthly instalments of R0,590 million (2009: R0,644 million) still payable. The facility is secured by a notarial bond of R30 million over fixed assets held by Protech Readymix (Pty) Ltd and unlimited cross suretyship by group companies.

108




7.3 Obligations under loan facilities from banks

Loan facilities from banks relates to financing of the Readymix acquisition with finance terms of between 5 and 7 years. The company’s obligations under loan facilities are secured as stated in note 7.2.

Minimum loan

payments


loan payments

28/02/2010 28/02/2009 28/02/2010 28/02/2009

R’000 R’000 R’000 R’000

Not later than 1 year 13 167 14 392 9 601 8 547 Later than 1 year and not later than 5 years 38 507 50 488 33 104 38 699 Later than 5 years – 7 222 – 6 808

51 674 72 102 42 705 54 054 Less: future finance charges (8 969) (18 048) – –

Present value of minimum loan payments 42 705 54 054 42 705 54 054

Included in the financial statements as:Non-current borrowings (note 7.2) 33 104 45 507 Current borrowings (note 7.2) 9 601 8 547 Current borrowings (note 7.1) 115 299 115 954

158 004 170 008


2010 2009

R’000 R’000

8. TRADE AND OTHER PAYABLES

Trade payables 6 040 4 884

Trade and other payables comprise amounts outstanding for trade purchases and ongoing costs.

The directors consider that the carrying amount of the trade and other payables approximate their fair value.

Trade payables due to related parties of R0,3 million (2009: R2,0 million) are included in the above amount. These amounts are disclosed in note 16 Related parties.

9. REVENUE

Revenue comprises:– Management fees – inter-group 8 880 13 460 – Dividends received – inter-group 15 393 – – Interest received – inter-group 3 802 7 623 – Interest received – other 1 331 1 264

29 406 22 347

10. INTEREST PAID

– Banking institutions 3 797 7 758 – Other 3 316

3 800 8 074

11. PROFIT BEFORE TAX

The following items are included in profit before tax:

Income:Dividends received 15 393 –

Expenses:Directors’ remuneration– Other fees 1 320 775 Impairment of investments in subsidiaries 13 524 – Impairment of other financial assets 1 801 5 436

110



2010 2009

R’000 R’000

12. TAXATION

12.1 Income tax recognised in profit

Current tax expense 246 2 185 Deferred taxation– Current year (504) (1 522)

(258) 663

The total for the year can be reconciled to the accounting profit as follows:Accounting profit 2 389 807 Income tax expense calculated at 28% (2009: 28%) 669 226

Permanent differences:Tax effect of income and expenses that are not taxable or deductible in determining taxable profit (927) 437

Income tax recognised in profit (credit)/charge (258) 663

Effective tax rate (10,8%) 82,1%

12.2 Deferred tax

Balance at beginning of year (1 522) – Timing differences during the year (504) (1 522)

Balance at end of year (2 026) (1 522)

2010

Opening

balance

Credit to

income

Closing

balance

R’000 R’000 R’000

Temporary differencesImpairment on loans receivable (1 522) (504) (2 026)

(1 522) (504) (2 026)

2009

Opening balance

Credit toincome

Closing balance

R’000 R’000 R’000

Temporary differencesImpairment on loans receivable – (1 522) (1 522)

– (1 522) (1 522)


13. FINANCIAL RISK MANAGEMENT

13.1 Capital risk management

The company manages its capital to ensure that the company will be able to continue as a going concern while maximising the return to stakeholders through the optimisation of the debt and equity balance.

The capital structure of the company consists of debt, which includes loans to subsidiaries, cash and cash equivalents and equity, comprising issued capital, reserves and retained earnings as disclosed.

Short term borrowings pertain to the treasury loan from subsidiaries.

13.2 Significant accounting policies

Details of the significant accounting policies and methods adopted, including the criteria for recognition, the basis of measurement and the basis on which income and expenses are recognised, in respect of each class of financial asset, financial liability and equity instrument are disclosed in notes to the group financial statements.

2010 2009

R’000 R’000

13.3 Categories of financial instruments

Financial assetsLoans and receivables (including cash and cash equivalents) 191 146 188 355

Financial liabilitiesTrade and other payables 6 040 4 884 Borrowings 158 004 170 008

164 044 174 892

The carrying amount reflected above represents the company’s maximum exposure to credit risk for such loans and receivables.

13.4 Financial risk management objectives

The company does not enter into or trade financial instruments, including derivative financial instruments, for speculative purposes.

13.5 Market risk

The company’s activities do not expose it to major financial risks.

13.6 Interest rate risk management

The company is exposed to interest rate risk as it has loan facilities linked to floating interest rates. The risk is managed by the company by keeping excess cash in an access deposit account linked to these facilities to minimise the interest expense.

13.6.1 Interest rate sensitivity analysisThe sensitivity analyses below have been determined based on the exposure to interest rates for both derivatives and non-derivative instruments at the statement of financial position date. For floating rate liabilities, the analysis is prepared assuming the amount of liability outstanding at the statement of financial position date was outstanding for the whole year. A 100 basis point increase or decrease is used when reporting interest rate risk internally to key management personnel and represents management’s assessment of the reasonably possible change in interest rates.

If interest rates had been 100 basis points higher/lower and all other variables were held constant, the company’s profit for the year ended 28 February 2010 would decrease/increase by R0,3 million (2009: R0,5 million). This is mainly attributable to the company’s exposure to interest rates on its variable rate borrowings.

13.7 Credit risk management

The company does not have any credit risk as it has no debtors pertaining to the selling of goods and services. The company is the holding company of the group and fulfils a treasury function.

112




13.8 Liquidity risk management

Ultimate responsibility for liquidity risk management rests with the board of directors, which provides sufficient guidance for the management of the company’s short, medium and long term funding and liquidity management requirements.

13.8.1 Liquidity and interest risk tablesThe following tables detail the company’s remaining contractual maturity for its non-derivative financial liabilities. The tables have been drawn up based on the undiscounted cash flows of financial liabilities based on the earliest date on which the company can be required to pay. The table includes both interest and principal cash flows.

2010

Weighted

average

effective

interest rate < 1 year

1 – 5

years

5+

years Total

R’000 R’000 R’000 R’000

Interest bearing bank loans 9,3% 13 167 38 507 – 51 674

Trade and other payables 6 040 – – 6 040

Inter-group borrowings 115 299 – – 115 299

134 506 38 507 – 173 013

2009

Weightedaverage

effective interest rate < 1 year

1 – 5 years

5+ years Total

R’000 R’000 R’000 R’000

Interest bearing bank loans 12,8% 14 392 50 488 7 222 72 102 Trade and other payables 4 884 – – 4 884 Inter-group borrowings 115 954 – – 115 954

135 230 50 488 7 222 192 940

Loans to and from subsidiaries are interest free except for the acquisition loan to Protech Readymix (Pty) Ltd.

Except as detailed in the following table, the directors consider that the carrying amounts of financial assets and financial liabilities recorded at amortised cost in the financial statements approximate their fair values:

2010 2009

Carrying

amount

Fair

value

Carryingamount

Fairvalue

R’000 R’000 R’000 R’000

Financial assetsLoans and receivables (excluding cash and cash equivalents) 106 970 106 970 88 902 88 902

Financial liabilitiesTrade and other payables 6 040 6 040 4 884 4 884 Borrowings 158 004 158 004 170 008 170 008

164 044 164 044 174 892 174 892

Due to the short term nature of these instruments the current value approximates its fair value.


2010 2009

R’000 R’000

14. CASH GENERATED FROM OPERATIONS

Reconciliation of profit before taxation to cash generated from operations:Profit before taxation 2 389 807 Adjusted for:

Interest received (5 133) (8 887) Interest paid 3 800 8 074 Impairment of investment in subsidiaries 13 524 – Impairment of loans granted 1 801 5 436 Dividends received (15 393) –

Operating cash flow before working capital changes 988 5 430

Working capital changes:Increase in trade and other payables 1 156 4 884 Decrease/(increase) in trade and other receivables 2 167 (8 580)

Cash generated by operations 4 311 1 734

15. DIRECTORS’ EMOLUMENTS

At the date of this report the company had seven directors. Details of directors’ emoluments are set out in note 29 to the consolidated financial statements.

16. RELATED PARTIES

16.1 Identity of related parties

The company has a related party relationship with its subsidiaries (see note 2) and with its directors.

16.2 Related party transactions and balances

During the year, the company and its related parties, in the ordinary course of business, entered into various inter-group sale and purchase transactions. These transactions are no less favourable than those arranged with third parties.

Revenue Expenses

Year

ended

28/02/10

Year ended

28/02/09

Year

ended

28/02/10

Year ended

28/02/09

R’000 R’000 R’000 R’000

Pela Plant (Pty) Ltd 3 240 8 230 – – South African Road Testing Services (Pty) Ltd 648 696 – – Protech Khuthele (Pty) Ltd 4 992 4 534 480 480 Protech Readymix (Pty) Ltd 3 802 1 7 623 1 2 6144 3 961 4

Impact Compaction (Pty) Ltd – – (813)4 1 475 4

Lidonga Construction (Pty) Ltd – 312 1 – – Umvundla Investments No.2 (Pty) Ltd 5 703 2 – 5 036 3 – Protech Projects Holding (Pty) Ltd 9 690 2 – 8 488 3 –

28 075 21 395 15 805 5 916

1. Details of these amounts are disclosed in note 9 Revenue: Interest received.2. Details of these amounts are disclosed in note 9 Revenue: Dividends received.3. During the year, investments were impaired as set out in note 2.4. During the year, loans were impaired as set out in note 3.

114



16. RELATED PARTIES (continued)

16.2 Related party transactions and balances (continued)

Amounts owed by

related parties

Amounts owed to

related parties

28/02/10 28/02/09 28/02/10 28/02/09

R’000 R’000 R’000 R’000

Pela Plant (Pty) Ltd 1 847 1 5 689 1 114 907 4 54 761 4

South African Road Testing Services (Pty) Ltd 369 1 397 1 392 4 1 268 4

Protech Khuthele (Pty) Ltd 21 208 1&2 2 291 1 274 3 45 458 3&4

Protech Khuthele BEE Trust 3 233 2 3 224 2 – – Protech Khuthele BEE (Pty) Ltd 1 2 – 2 – – Protech Projects Holding (Pty) Ltd – – – 9 691 4

PPK Labour Services (Pty) Ltd 50 2 50 2 – – Lidonga Construction (Pty) Ltd 5 185 2 5 420 2 – – Protech Khuthele Property Investments (Pty) Ltd 435 2 435 2 – – Protech Khuthele Properties (Pty) Ltd 3 745 2 3 408 2 – – Umvundla Investments No.2 (Pty) Ltd 1 2 – – 6 760 4

Protech Khuthele Zambia Ltd 118 2 – 2 – – Truload Hauliers (PVT) Ltd 60 2 – 2 – – Impact Compaction (Pty) Ltd 5 636 2 4 664 2 – – Protech Readymix (Pty) Ltd 71 997 2 68 554 2 – –

113 885 94 132 115 573 117 938

The amounts outstanding are unsecured and will be settled in cash within the normal operating cycle of the company.

Apart from the loans to and from companies disclosed above there were no other loans to or from related parties.

1. Details of these amounts are disclosed in note 4 Trade and other receivables.2. Details of these amounts are disclosed in note 3 Other financial assets.3. Details of these amounts are disclosed in note 8 Trade and other payables.4. Details of these amounts are disclosed in note 7 Borrowings.


at 28 February

ANALYSIS OF SHAREHOLDINGS

Number of

members

% of all

members

Number of

shares held

% of shares

issued

Range 1 – 1 000 432 22,51 375 835 0,10 1 001 – 5 000 508 26,47 1 717 539 0,47 5 001 – 10 000 260 13,55 2 206 885 0,61 10 001 – 100 000 582 30,33 20 837 723 5,75 100 001 – 1 000 000 109 5,68 28 921 953 7,98 1 000 001 – and more 28 1,46 308 440 065 85,09

Totals 1 919 100,0 362 500 000 100,0

DISTRIBUTION OF SHAREHOLDERS BY CATEGORY

Number of

members

% of all

members

Number of

shares held

% of shares

issued

Trusts 113 5,89 211 562 401 58,36Investment funds 20 1,04 73 034 349 20,15Companies 30 1,56 28 087 516 7,75Retirement funds 6 0,31 8 537 577 2,36Individuals 1 666 86,82 36 233 020 10,00Other 48 2,50 2 966 971 0,82Close corporations 36 1,88 2 078 166 0,56

Totals 1 919 100,0 362 500 000 100,0

HOLDERS HOLDING 5% OR MORE OF SHARES IN ISSUE

Protech Khuthele BEE (Pty) Ltd 73 795 552 20,36GDC Business Trust 40 000 000 11,03Platinum/JMD Business Trust 32 735 667 9,03Stanlib 24 915 981 6,87METC Metlife Main Account 20 723 500 5,72Strategy Systems Consulting (Pty) Ltd 18 927 295 5,22Tumsedi Share Trust 18 487 500 5,10Peregrine 18 476 710 5,10

SHAREHOLDER SPREAD

Public 1 912 99,64 158 843 986 43,8

Non-public 7 0,36 203 656 014 56,2

Directors 5 0,26 100 124 795 27,6 Associates 1 0,05 32 735 667 9,0 BEE staff share trust 1 0,05 70 795 552 19,6

Totals 1 919 100,0 362 500 000 100,0

Shareholder information

116

Notice of annual general meeting

Protech Khuthele Holdings LimitedIncorporated in the Republic of South AfricaRegistration number 2000/024352/06JSE code: PKH ISIN: ZAE 000101986(“Protech” or “the company”)

Notice is hereby given that the third annual general meeting of shareholders of Protech will be held at the Hertford Country Hotel on Corner of the R512 to Lanseria and Elandsdrift Road on 23 August 2010 at 08h00 to conduct the following business:

ORDINARY RESOLUTION 1

To receive and adopt the consolidated audited annual financial statements of the company and its subsidiaries, incorporating the reports of the auditors, the audit committee and the directors for the year ended 28 February 2010.


To elect by way of separate resolutions directors in the placeof those retiring in accordance with the company’s articlesof association. The directors retiring are D Ackerman andP van Tonder, both of whom being eligible offer themselves for re-election.

An abbreviated curriculum vitae in respect of each director offering himself for re-election is contained in the explanatory notes to this notice.


To sanction the proposed remuneration payable to non-executive directors from 1 March 2010 as set out in the table contained in the explanatory notes to this notice.


To re-appoint Deloitte & Touche as independent auditors of the company for the ensuing year (the designated auditor beingMr M Bierman) and to authorise the directors to determinethe remuneration of the auditors for the past year’s audit as reflected in note 21 to the annual financial statements.


To approve that, subject to the provisions of the Companies Act, 61 of 1973, as amended (“the Act”) and the Listings Requirements of the JSE, the directors are authorised to allot and issue at their discretion the unissued but authorised ordinary shares in the share capital of the company for such purposes as they may determine.


To consider and, if deemed fit, to pass, with or without modifi-cation, the following ordinary resolution:

RESOLVED that, in terms of the Listings Requirements of the JSE Limited (“JSE”), the mandate given to the directors of the company in terms of a general authority to issue securities for cash, as and when suitable opportunities arise, be renewed subject to the following conditions:

that this authority shall only be valid until the next annual general meeting of the company but shall not extend beyond 15 months from the date of this meeting;

the allotment and issue of the shares must be made to persons qualifying as public shareholders as defined in the Listings Requirements of the JSE;

the shares which are the subject of the issue for cash must be of a class already in issue, or where this is not the case, must be limited to such shares or rights that are convertible into a class already in issue;

that a paid press announcement giving full details, including the impact of the issue on net asset value, net tangible asset value, earnings and headline earnings per share, be published after any issue representing, on a cumulative basis within one financial year, 5% of the number of shares in issue prior to the issue concerned;

that the issues in aggregate in any one financial year (including the number of any shares that may be issued in future arising out of the issue of options) shall not exceed 15% of the number of shares of the company’s issued ordinary share capital; and

that in determining the price at which an issue of shares for cash will be made in terms of this authority, the maximum discount permitted shall be 10% of the weighted average traded price of the ordinary shares on the JSE, measured over the 30 business days prior to the date that the price of the issue is agreed between the company and the party subscribing for the securities.

SPECIAL RESOLUTION 1

To consider and, if deemed fit, to pass, with or without modifi-cation, the following special resolution:

“RESOLVED, as a special resolution, that the mandate given to the company in terms of its Articles of Association (or one of its wholly-owned subsidiaries) providing authorisation, by way of a general approval, to acquire the company’s own securities, upon such terms and conditions and in such amounts as the directors may from time to time decide, but subject to the provisions of the Companies Act, 1973 (Act 61 of 1973), as amended (“the Act”) and the Listings Requirements of the JSE Limited (“the JSE’), be extended, subject to the following:

This general authority be valid until the company’s next annual general meeting, provided that it shall not extend beyond 15 (fifteen) months from the date of passing of this special resolution (whichever period is shorter);

the repurchase being implemented through the order book operated by the JSE trading system, without prior understanding or arrangement between the company and the counterparty;

repurchases may not be made at a price greater than 10% (ten percent) above the weighted average of the market value of the ordinary shares for the 5 (five) business days immediately preceding the date on which the transaction was effected;


Additional information

The following additional information, some of which may appear elsewhere in the annual report, is provided in terms of the JSE Listings Requirements for purposes of this general authority:

directors and management – page 4;

major shareholders – page 115;

directors’ interests in ordinary shares – page 53; and

share capital of the company – page 78.

Litigation statement

The directors in office whose names appear on page 4 ofthe Annual Report, are not aware of any legal or arbitration proceedings, including any proceedings that are pending or threatened, that may have, or have had, in the recent past, being at least the previous 12 (twelve) months from the date of this Annual Report, a material effect on the group’s financial position.

Directors’ responsibility statement

The directors in office, whose names appear on page 4 of the Annual Report, collectively and individually accept full responsibility for the accuracy of the information pertaining to this special resolution and certify that, to the best of their knowledge and belief, there are no facts that have been omitted which would make any statement false or misleading, and that all reasonable enquiries to ascertain such facts have been made and that the special resolution contains all information required by law and the JSE Listings Requirements.

Material changes

Other than the facts and developments reported on in the annual report, there have been no material changes in the affairs or financial position of the company and its subsidiaries since the company’s financial year end and the date of signature of the audit report.

Directors’ intention regarding the general authority to

repurchase the company’s shares

The directors have no specific intention, at present, for the company to repurchase any of its shares but consider that such a general authority should be put in place should an opportunity present itself to do so during the year which is in the best interests of the company and its shareholders.


“RESOLVED that the deed embodying The Protech Khuthele Holdings Limited 2010 Share Plan, a copy of which has been signed by the Chairman for identification purposes and tabled at the annual general meeting convened to consider, inter alia, this resolution be and is hereby approved.”

Details of The Protech Khuthele Holdings Limited 2010 Share Plan (“the Plan”) appear in Annexure A attached to this notice

an announcement being published as soon as the company has repurchased ordinary shares constituting, on a cumulative basis, 3% (three percent) of the initial number of ordinary shares, and for each 3% (three percent) in aggregate of the initial number of ordinary shares repurchased thereafter, containing full details of such repurchases;

the number of shares which may be acquired pursuant to this authority in any financial year (which commenced 1 March 2010) may not in the aggregate exceed 20% (twenty percent) of the company’s issued share capital as at the date of passing of this special resolution or 10% (ten percent) of the company’s issued share capital in the case of an acquisition of shares in the company by a subsidiary of the company;

the company’s sponsor confirming the adequacy of the company’s working capital for purposes of undertaking the repurchase of ordinary shares in writing to the JSE prior to the company entering the market to proceed with the repurchase;

the company and/or its subsidiaries not repurchasing securities during a prohibited period as defined in the JSE Listings Requirements, unless it has in place a repurchase programme where the dates and quantities of securities to be traded during the relevant period are fixed and full details of the programme have been disclosed in an announcement published on SENS prior to the commencement of the prohibited period; and

at any point in time the company only appointing one agent to effect any repurchases on its behalf.”

The directors, having considered the effects of the repurchase of the maximum number of ordinary shares in terms of the aforegoing general authority, are of the opinion that for a period of 12 (twelve) months after the date of the notice of the annual general meeting:

the company and the group will be able, in the ordinary course of business, to pay its debts;

the working capital of the company and the group will be adequate for ordinary business purposes;

the assets of the company and the group, fairly valued in accordance with International Financial Reporting Standards, will exceed the liabilities of the company and the group; and

the company’s and the group’s ordinary share capital and reserves will be adequate for ordinary business purposes.

Reason for and effect of special resolution number 1

The reason for this special resolution is to grant the directors of the company a general authority in terms of the Act and the Listings Requirements for the repurchase by the company (or by a subsidiary of the company) of the company’s shares.

The effect of this special resolution is to enable the company to repurchase its shares as and when required within the terms and conditions of this general authority.

118

of annual general meeting. In terms of the JSE Limited’s Listings Requirements, shares held by the Share Plan as well as treasury shares, will not have their votes at any general meeting taken into account for resolution approval purposes.


To authorise any one director or the secretary of the company to do all such things and sign all such documents as are deemed necessary to implement the resolutions set out in the notice convening the annual general meeting at which this ordinary resolution will be considered and approved at such meeting.

PROXIES

Any shareholder holding shares in certificated form or recorded on the company’s sub-register in electronic dematerialised form in “own name” and entitled to attend, speak and vote at the meeting is entitled to appoint a proxy to attend, speak and on a poll vote in his stead. A proxy need not be a member of the company.

Proxy forms must be lodged at the registered office of the company at Lanseria or at the offices of the transfer secretaries,

Notice of annual general meeting continued

Link Market Services South Africa (Pty) Ltd, by no later than 08:00 on Friday, 20 August 2010.

All beneficial owners whose shares have been dematerialised through a Central Securities Depository Participant (“CSDP”) or broker other than with “own name” registration, must provide the CSDP or broker with their voting instructions in terms of their custody agreement should they wish to vote at the annual general meeting. Alternatively, they may request the CSDP or broker to provide them with a letter of representation, in terms of their custody agreements, should they wish to attend the annual general meeting.

By order of the board

Annamarie van der Merwe

Company Secretary

Lanseria

28 May 2010


Dirk has served on numerous international and local advisory boards to governments and international organisations and has held office on the boards and executive structures of international industry organisations.

Pieter van TonderPieter brings a wealth of experience in mergers and acquisitions in various industries to the board of Protech. As a Chartered Accountant by profession, he gained extensive experience having spent seven years with a leading international accounting firm. During 1994, he started his commercial career joining the then BBR Security Group as financial manager to become the Group chief financial officer, shareholder and then regional managing director responsible for Gauteng, after being instrumental in the sale of BBR to Super Group. He, together with the board, grew the business organically and through an aggressive acquisition and merger strategy, built a substantial national business within the Super Group stable.

During early 2000 he accepted the position as the Group chief financial officer of the IQ Business Group, a dynamic, fast-growing, process-focused consulting business expanding rapidly in the local and international market. He accepted an appointment as a board member to that Group shortly thereafter and has served on various local and international boards in the United States, Australia and United Kingdom within the IQ Group.

ORDINARY RESOLUTION 1 – ADOPTION OF ANNUAL

FINANCIAL STATEMENTS

At the annual general meeting, the directors must present the annual financial statements for the year ended 28 February 2010 to shareholders, together with the reports of the directors, the audit and risk management committee and the auditors. These are contained within the Annual Report.

ORDINARY RESOLUTION 2 – RE-ELECTION OF DIRECTORS

In accordance with the company’s articles of association, one third of the non-executive directors are required to retire at each annual general meeting and may offer themselves for re-election. In addition, any person appointed to the board of directors following the previous annual general meeting is similarly required to retire and is eligible for re-election at the next annual general meeting.

The following directors are eligible for re-election:

Dirk AckermanPieter van Tonder

Brief biographical details of each of the above directors are set out hereunder:

Existing directors

Dirk AckermanDirk’s career as a chief executive officer has spanned the banking, financial services, property management and development, public utilities, IT and business consultancy industries. He has served on various boards of blue-chip listed and non-listed companies, both locally and internationally, in both the public and private sectors. A seasoned track record of business success and diversified career experience positions him ideally to provide leadership coaching and advice on strategic, operational and governance matters to the executives of companies on whose boards he serves.

Annual general meeting – explanatory notes

120

SPECIAL RESOLUTION 1

The board of directors believe that it is prudent to obtain a general authority from shareholders by way of a special resolution for a repurchase of the company’s shares, subject to the provisions of the JSE Listings Requirements as set out in the proposed resolution.

As this is a special resolution, the approval of 75% majority of the votes cast by shareholders present or represented by proxy at this annual general meeting is required for this resolution to become effective.


In accordance with Schedule 14 of the Listings Require ments of the JSE, the terms of the Plan are required to be approved by the passing of an ordinary resolution (requiring 75% majorityof votes cast in favour of such resolution) by equity securities holders present or represented by proxy at the annual general meeting to approve such resolution.


Authority is required to do all such things and sign all documents and take all such action as necessary to implement the resolutions set out in the notice and approved at the annual general meeting. It is proposed that the company secretary and/or director be authorised accordingly.

ORDINARY RESOLUTION 4 – AUDITORS

Deloitte & Touche has indicated its willingness to continue in office and resolution 4 proposes the re-appointment of that firm as the company’s auditors with effect from 1 March 2010 until the next annual general meeting. As required in terms of section 274(3) of the Companies Act of 1973, the name of the designated auditor, Mr Martin Bierman, forms part of the resolution. The resolution also gives authority to the directors to fix the auditors remuneration.

ORDINARY RESOLUTIONS 5 AND 6 – PLACEMENT AND

ISSUE OF SHARES

In terms of sections 221 and 222 of the Companies Act, No 61 of 1973, as amended, shareholders must approve the placement of the unissued shares under the control of the directors. The authority will be subject to the Companies Act, No 61 of 1973, as amended, and the JSE Listings Requirements.

In terms of the JSE Listings Requirements, the approval of a 75% majority of the votes cast by shareholders present or represented by proxy at this annual general meeting is required for ordinary resolution number 6 to become effective.

Notice of annual general meeting – explanatory notes continued

ORDINARY RESOLUTION 3 – PROPOSED REMUNERATION OF NON-EXECUTIVE DIRECTORS PAYABLE

FROM 1 MARCH 2010

Shareholders are requested to consider and if deemed appropriate, sanction the proposed remuneration payable to non-executive directors with effect from 1 March 2010 as set out in the table hereunder. Full particulars of all fees and remuneration for the past financial year are contained on page 95 of the Annual Report.

Category Current remuneration

Proposed remuneration

payable with effect from

1 March 2010 Note

Board

Chairman R175 000 annual retainer R175 000 annual retainer (1)R25 000 per meeting attended R25 000 per meeting attended (1)

Board member R100 000 annual retainer R100 000 annual retainer (1)R20 000 per meeting attended R20 000 per meeting attended (2)

Audit and risk management committee

Chairman R20 000 per meeting attended R20 000 per meeting attended (3)Committee member R15 000 per meeting attended R15 000 per meeting attended (4)

Remuneration and nomination committee

Chairman R20 000 per meeting attended R20 000 per meeting attended (5)Committee member R15 000 per meeting attended R15 000 per meeting attended (6)

Notes

1. It is proposed that the non-executive chairman of the board receives a fee calculated at approximately twice the total annual board fees payable to a board member, in addition to the other committee fees set out above.

2. The company holds minimum four board meetings during any 12-month period. 3. The audit and risk management committee chairmen receive a higher fee than the fee payable to non-executive directors who serve on the committees.4. The company holds three audit committee and three risk committee meetings during any 12-month period.5. The remuneration committee chairman receives a higher fee than the fee payable to non-executive directors who serve on the committee.6. The company holds two remuneration and nomination committee meetings during any 12-month period.


available to be settled in equal thirds on the 3rd, 4th and 5th anniversaries but need not be exercised until the 6th anniversary, at which time they must be exercised or they will lapse.

On settlement, the value accruing to participants will be the appreciation of Protech’s share price.

The appreciation may be calculated as the full appreciation in the share price, or that appreciation over and above a prescribed hurdle rate which may have been stipulated in the allocation letter.

Alternatively, vesting of share appreciation rights will be subject to a performance underpin that dictates the timing of vesting. Even if the appropriate anniversary is reached, but the performance underpin has not been met, then vesting will be delayed until such time as it is met.

The Board will specify for each allocation which of the two alternative performance criteria approach is to be invoked and how it is to be applied.

Performance Share Method

Annual conditional awards of performance shares will be made to executives. Performance shares will vest on the 3rd anniversary of their award, to the extent that the company has met specified performance criteria over the intervening period.

The Board will dictate the performance criteria for each award. However, the Board intends to commence implementation by targeting the company’s compounded annual growth rate (“CAGR”) in headline earnings per share (“HEPS”):

If Protech’s CAGR in HEPS over the three year period exactly equals “x”%, then the targeted number of performance shares in an award will vest.

If Protech’s CAGR in HEPS over the three year period is equal to or less than “y”%, then all performance shares in the award will lapse, and no performance shares will vest.

If Protech’s CAGR in HEPS over the three year period equals or exceeds “z”%, then two times the targeted number of performance shares in the award will vest.

If Protech’s performance over the three year period lies between any of the above points, then a prorated number of performance shares will vest.

“x”, “y” and “z” may be stipulated in absolute terms, or in comparative terms in relation to an index or a comparator group.

No retesting against the performance criteria will be allowed. Any performance shares which do not vest at the end of the three year period will lapse.

The Performance Share Method closely aligns the interests of shareholders and executives by rewarding superior share-holder and financial performance in the future.

1. PURPOSE

The purpose of the Protech Khuthele Holdings Limited 2010 Share Plan (“Share Plan”) is to attract, retain, motivate and reward executives and key managers who are able to influence the performance of Protech Khuthele Holdings Limited (“Protech”) on a basis which aligns their interests with those of the Company's shareowners.

2. INTRODUCTION

Deloitte & Touche has been asked to recommend an appropriate long term (share based) incentive plan which is in line with global best practice, and emerging South African practice, and which serves to reward the required attributes of shareholder alignment, retention of key talent and long-term, sustained performance.

Shareholders will be requested to approve the design and implementation of the Share Plan at the forthcoming Annual General Meeting of 23rd August, 2010.

The Share Plan will provide for the inclusion of a number of performance conditions, designed to align the interests of participants with those of Protech’s shareholders, and to reward company and individual performance, more so than merely the performance of the economy, or the mining and construction sectors in which the company operates.

3. GENERAL DESCRIPTION OF THE SHARE PLAN

Under the Share Plan executives and selected managers of the company will be offered annually a weighted combination from:

Allocations of share appreciation rights; and

Awards of performance shares.

Offers will be governed by Protech’s reward philosophy and strategy, in which (inter alia) the “expected value” of incentive reward is set for defined categories of executives and senior management.

Expected value is defined as the present value of the future reward outcome of an Allocation/Award, given the targeted future performance of the Company and of its share price. It should not be confused with the term “fair value” which is used when establishing the accounting cost for reflection in a company’s financial statements. Neither should it be confused with the term “face value” which is used to define the current value of the underlying share(s) at the time of allocation/award.

It is envisaged that the combined, weighted implementation of the above elements will allow Protech to remain competitive in share based incentives, reward long term sustainable company performance, act as a retention tool, and ensure that executives share a significant level of personal risk with the company’s shareholders.

Share Appreciation Right Method

Annual allocations of share appreciation rights will be made to executives and selected managers. They will be

Annexure A – Salient features of the Protech Khuthele Holdings Limited 2010 Share Plan

122

rights allocated, subject to any performance underpin having been met, will immediately vest and be settled.

If a participant ceases to be employed by reason of a fault termination, all share appreciation rights not previously settled shall be deemed to have been cancelled, unless the Board determines otherwise.

Performance Shares

If employment is terminated for no fault reasons, then the performance shares will be prorated for the time period until the termination date as if the target performance criteria had been met at date of termination, and then settled.

If employment is terminated for fault reasons, then the performance shares will be cancelled.

8. CHANGE OF CONTROL

“Change of Control” is defined as all circumstances where a party (or parties acting in concert), directly or indirectly, obtains:

beneficial ownership of the specified percentage of 35% or more of Protech’s issued Shares; or

control of the specified percentage or more of the voting rights at meetings of Protech; or

the right to control the management of Protech or the composition of the Board; or

the right to appoint or remove directors holding a majority of voting rights at Board meetings; or

the approval by Protech’s shareholders of, or the con-sum mation of, a merger or consolidation of Protech with any other business or entity, or upon a sale of the whole or a major part of Protech’s assets or undertaking.

If the Company undergoes a Change of Control after an allocation or award, then the rights of participants' under the Share Plan will continue and be accommodated on a basis which shall be determined by the Board to be fair and reasonable to participants.

9. IMPLEMENTATION POLICY FOR THE SHARE PLAN

Extensive debate and modelling is being undertaken to arrive at an implementation policy for the Share Plan.

The policy is to be created in order to provide a framework under which annual allocations/awards can be made to participants in their various Tier levels. The Remuneration Committee will be charged by the Board to take ownership of this policy and ensure that it is adopted.

Notwithstanding this, the discretion will always lie with management to motivate, and the Board to approve, either greater or lesser allocations/awards to deserving individuals. Additionally in the future, the Board may resolve to vary the weighting of the two elements of the Share Plan, to suit the strategic and operational imperatives of the company.

4. LIMITS OF THE SHARE PLAN

In order to minimise volatility in earnings dilution due to IFRS 2, and to promote tax neutrality for Protech, it is envisaged that rewards will be settled in shares, which shares will be purchased in the market, although Protech will retain the right to issue new Shares at its election. However, even should it elect so to do, the nature of the Plan is not as dilutive as a normal share option scheme. As a result, the maximum number of Shares that may need to be issued in settlement over a ten-year period is envisaged to be 43 500 000 Protech Shares representing approximately 12% of Protech’s currently issued ordinary Shares. The maximum number of Shares that may need to be issued in settlement to any one individual over a ten-year period will be 6 000 000 Protech Shares representing approximately 1.7% of Protech’s currently issued ordinary Shares. Protech may also elect to settle in cash rather than in shares.

5. ADMINISTRATION OF THE SHARE PLAN

The Board will ultimately be responsible for the administration of the Share Plan, but may delegate these functions to the remuneration Committee and/or the Secretary.

6. ELIGIBILITY

Any executive, manager or key staff member of Protech may be selected by the Board to be a participant in the Share Plan. It is envisaged that all executives and selected senior managers will receive on an annual basis, allocations in terms of the Share Appre ciation Right Method, and awards in terms of the Performance Share Method.

7. TERMINATION OF EMPLOYMENT

Termination of employment is based on the definition of no fault termination versus that of fault termination. No fault termination is the termination of employment of a participant by the company by reason of:

death;

injury, disability or ill health, in each case as certified by a qualified medical practitioner nominated by the company;

Dismissal based on Operational Requirements as contemplated in the LRA;

retirement on or after his retirement date;

the company by which he is employed ceasing to be a member of Protech;

mutual agreement; or

the undertaking in which he is employed being transferred to a transferee which is not a member of Protech.

Fault termination will be a dismissal for misconduct, poor performance or a resignation by the participant.

The following provisions will apply under circumstances of termination:

Share Appreciation Rights

If employment is terminated for no fault reasons prior to the settlement of share appreciation rights, all share appreciation

Annexure A – Salient features of the Protech Khuthele Holdings Limited 2010 Share Plan continued


Form of proxyPROTECH KHUTHELE HOLDINGS LIMITED(Incorporated in the Republic of South Africa)

(Registration number 2000/024352/06)(“Protech” or “the company”)

JSE share code: PKHISIN code: ZAE 000101986

To be completed by certificated shareholders and dematerialised

shareholders with “own name” registration only

For completion by registered members of Protech unable to attend the annual general meeting of the company to be held at the Hertford Country Hotel, Corner of the R512 to Lanseria and Elandsdrift Road on 23 August 2010, at 08h00 or at any adjournment thereof.

I/We

of (address)

being the holder/s of shares in the company, do hereby appoint:

1 or, failing him/her

2 or, failing him/her

the chairman of the annual general meeting, as my/our proxy to attend, speak and, on a poll, vote on my/our behalf at the annual general meeting of members to be held at the Hertford Country Hotel on 23 August 2010, at 08h00 or at any adjournment thereof, and to vote or abstain from voting as follows on the ordinary and special resolutions to be proposed at such meeting:

For Against Abstain

1. Ordinary resolution no 1: To adopt the 2010 audited group financial statements

2. Ordinary resolution no 2: To re-elect the directors required to retire in terms of the articles of association:

2.1 Mr D Ackerman

2.2 Mr P van Tonder

3. Ordinary resolution no 3: To approve the proposed non-executive directors’ fees payable from 1 March 2010

4. Ordinary resolution no 4: To approve the appointment of the external auditors and Mr M Bierman as the designated audit partner

5. Ordinary resolution no 5: To authorise directors to allot and issue unissued ordinary shares

6. Ordinary resolution no 6: To authorise directors to allot and issue unissued ordinary shares for cash

7. Special resolution no 1: To authorise directors to buy back the company’s shares

8. Ordinary resolution no 7: To approve the Protech Khuthele Holdings Limited Share Plan

9. Ordinary resolution no 8: To authorise implementation of all approved resolutions

Please indicate with an “X” in the appropriate spaces provided above how you wish your vote to be cast. If no indication is given, the proxy may vote or abstain as he/she sees fit.

Signed at this day of 2010

Signature

Assisted by me, where applicable (name and signature)

Please read the notes on the reverse side hereof


Heading (Adjust Box to fit)

124


Heading (Adjust Box to fit)

1. A form of proxy is only to be completed by those ordinary shareholders who are:

1.1 holding ordinary shares in certificated form; or

1.2 recorded on sub-register electronic form in ”own name”.

2. If you have already dematerialised your ordinary shares through a Central Securities Depository Participant (“CSDP”) or broker and wish to attend the annual general meeting, you must request your CSDP or broker to provide you with a Letter of Representation or you must instruct your CSDP or broker to vote by proxy on your behalf in terms of the agreement entered into between yourself and your CSDP or broker.

3. A member may insert the name of a proxy or the names of two alternative proxies of the member’s choice in the space. The person whose name stands first on the form of proxy and who is present at the annual general meeting of shareholders will be entitled to act to the exclusion of those whose names follow.

4. On a show of hands, a member of the company present in person or by proxy shall have one (1) vote irrespective of the number of shares he/she holds or represents, provided that a proxy shall, irrespective of the number of members he/she represents, have only one (1) vote. On a poll, a member who is present in person or represented by proxy shall be entitled to that proportion of the total votes in the company, which the aggregate amount of the nominal value of the shares held by him/her bears to the aggregate amount of the nominal value of all the shares issued by the company.

5. A member’s instructions to the proxy must be indicated by the insertion of the relevant numbers of votes exercisable by the member in the appropriate box provided. Failure to comply with the above will be deemed to authorise the proxy to vote or to abstain from voting at the annual general meeting as he/she deems fit in respect of all the member’s votes exercisable thereat. A member or the proxy is not obliged to use all the votes exercisable by the member or by the proxy, but the total of the votes cast and in respect of which abstention is recorded may not exceed the total of the votes exercisable by the member or by the proxy.

6. Forms of proxy must be lodged at, or posted to Link Market Services South Africa (Pty) Limited, to be received not later than 48 hours before the time fixed for the meeting (excluding Saturdays, Sundays and public holidays).

Contact details

Link Market Services South Africa (Pty) Limited 11 Diagonal Street Johannesburg, 2001

PO Box 4844 Johannesburg, 2000 www.linkmarketservices.co.za

Tel: +27 (0)11 630 0800 Fax: +27 (0)86 674 3330

7. The completion and lodging of this form of proxy will not preclude the relevant member from attending the annual general meeting and speaking and voting in person thereat to the exclusion of any proxy appointed in terms hereof.

8. Documentary evidence establishing the authority of a person signing this form of proxy in a representative capacity or other legal capacity must be attached to this form of proxy, unless previously recorded by the transfer secretaries or waived by the chairman of the annual general meeting.

9. Any alteration or correction made to this form of proxy must be initialled by the signatory/ies.

10. Notwithstanding the aforegoing, the chairman of the annual general meeting may waive any formalities that would otherwise be a prerequisite for a valid proxy.

11. If any shares are jointly held, all joint members must sign this form of proxy. If more than one of those members is present at the annual general meeting either in person or by proxy, the person whose name appears first in the register shall be entitled to vote.

Notes to proxy

Corporate information

DIRECTORS

Executive directors Date of ResignationGD ChapmanCJA Wolmarans

Non-executive directors

DA AckermanMSG MareletseC Nkosi 6 October 2009V RaserokaP van TonderM Vuso

AUDITORS

Deloitte & ToucheRegistered AuditorsBuildings 1 and 2, Deloitte Place, The WoodlandsWoodlands Drive, Woodmead, Sandton

Telephone: 011 806 5000Facsimile: 011 806 5111

COMMERCIAL BANKERS

Absa Corporate & Business Bank – Sandton11 Diagonal StreetNewtownJohannesburg2001

Telephone: 011 556 6209Facsimile: 011 566 6919

REGISTERED OFFICES

Cnr R512 to Lanseriaand Elandsdrift RoadLanseria 1748

Private Bag X6Lanseria 1748

2010www.pkh.co.za

PROTECH 2010 ANN

UAL REPORT

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