Vukile Property Fund Limited subscribes to impeccable ethical standards and the principles of corporate governance. The group’s corporate governance systems and practices are the platform from which sustainable value is created by meeting our objective to invest in properties with strong contractual cash flows for longterm sustainability, capital appreciation and growing income distributions for linked unitholders.

REGULATORY COMPLIANCE ENVIRONMENT
Vukile Property Fund Limited (“Vukile”) is a group incorporated in South Africa under the provisions of the Companies Act. The group operates in South Africa and Namibia and is listed on both the JSE Limited (“JSE”) and Namibian Stock Exchange (“NSX”).

APPLICATION OF KING III
The board of Vukile has considered the principles as contained within King III and strives to apply the principles in a manner that reflects our stature, market position and size. In line with the aforementioned, management, assisted by KPMG Advisory Services, is currently finalising a review of the board charter and the terms of reference of each board committee in line with King III.

Adoption of the revised charter and terms of reference is expected to take place in August 2011.

Although many of the principles contained in King III were applied during the year ending 31 March 2011, the board has identified the following focus areas for the year ending 31 March 2012:

THE BOARD
The board is collectively responsible to the group’s stakeholders for the long-term success of the group and for the overall strategic direction and control of the group. This responsibility is explicitly assigned to the board in its charter and, to some extent, in the company’s memorandum of incorporation (“MOI”).

The board exercises this control through the governance framework of the group which includes detailed reporting to the board and its committees, a system of internal controls and has approved a delegation of authority through an approval framework. The board discharges its responsibilities as contained within its charter.

SUMMARY OF BOARD CHARTER
The main functions of the board covered by the charter are:

• Determining the overall objectives of the group, developing the strategies to meet those objectives and monitoring performance.
• Balancing the interests of all stakeholders of the company.
• Determining and reviewing mandates and terms of reference of board committees.
• Appointing the CEO and delegating authority.
• Monitoring performance of the CEO and directors.
• Approving and reviewing company policies.
• Approving other major group activities, including staffing and remuneration policies, capital funding, the financial statements, acquisitions, sales and capital expenditure in terms of an approval framework approved by the board.
• Ensuring that a budgeting process exists and measuring actual performance against budgets.
• Taking ultimate responsibility for the adequacy of operational and financial systems as well as regulatory compliance.
• Any other non-financial issues that have not specifically been mandated to any sub-committee.

COMPOSITION AND APPOINTMENT OF DIRECTORS
The details of the directors appear on pages 12 to 13 of the integrated report.

Directors
At the date of this report, the board consists of 10 directors:

Chairman
AD (Anton) Botha

Executive directors
G (Gerhard) van Zyl (Chief executive officer)
MJ (Michael) Potts (Financial director)
HC (Ina) Lopion (Executive director: asset management)

Non-executive directors
HSC (Hendrik) Bester
PJ (Peter) Cook
JM (Mlungisi) Hlongwane
PS (Peter) Moyanga
MH (Mervyn) Serebro
UJ (Banus) van der Walt

Three of the seven non-executive directors have been determined by the board to be independent in accordance with the criteria of the JSE and King III. Messrs Botha, Cook, van der Walt and Hlongwane are not considered independent in accordance with the definitions contained in King III.

Messrs Botha, Cook and van der Walt hold various directorships within the Sanlam Group, currently the largest linked unitholder in Vukile. Mr Hlongwane holds an indirect interest of 14.6% in Lazarus Capital (Pty) Ltd (“Lazarus Capital”), Vukile’s BEE equity partner and currently the second largest linked unitholder in the group.

The board currently comprises 20% historically disadvantaged South Africans. In terms of the MOI, one-third of directors must retire at every annual general meeting and are eligible for re-election.

Chairman and lead independent director
The roles of the chairman and chief executive officer are separate and the office of the chairman is occupied by a non-executive director. Since Mr Botha is deemed not independent, due to his directorships held within the Sanlam Group, the board has appointed Mr Bester as lead independent director, in line with the recommendations of King III.

Chief executive
The board appoints the chief executive officer (“CEO”).

The appointment is made on the recommendation of the human resources and nomination committee.

During the year under review the current CEO, Mr van Zyl, indicated his intention to resign from this position by the earlier of 30 September 2011 or upon the appointment of a new CEO. On receipt of his resignation, the board initiated a process to find a successor for Mr van Zyl and, following the successful conclusion of this process, Laurence Rapp has been appointed as the new CEO effective from 1 August 2011.

Compulsory retirement age
During the year under review, the board extended the compulsory retirement age of non-executive directors from 65 to 70 in line with market practice.

INFORMATION AND PROFESSIONAL ADVICE
The directors are entitled to seek independent professional advice at the group’s expense concerning group affairs and have access to any information they may require in discharging their duties as directors. They also have unrestricted access to the services of the company secretary.

BOARD EVALUATION
An independent review of the composition, skills and performance of the board will be conducted during the year ending 31 March 2012.

DEALING IN GROUP SECURITIES
Directors, executives and senior employees are prohibited from dealing in Vukile’s securities during certain prescribed restricted periods. A formal securities dealings policy has been developed to ensure directors’ and employees’ compliance with the JSE Listing Requirements and the insider trading legislation in terms of the Securities Services Act.

DIRECTORS’ DECLARATIONS AND CONFLICT OF INTERESTS
Directors’ declarations of interests are tabled and circulated at every board meeting. All directors are encouraged to assess any potential conflict of interest and to bring such circumstances to the attention of the chairman.

COMPANY SECRETARY
Mr Johann Neethling is the company secretary and took office on 27 July 2010, after the resignation of the previous company secretary.

Director induction and training are part of the company secretary’s responsibilities. He is responsible to the board for ensuring the proper administration of board proceedings, including the preparation and circulation of board papers, drafting annual work plans, ensuring that feedback is provided to the board and board committees and preparing and circulating minutes of board and board committee meetings.

He provides practical support and guidance to the board and directors on their responsibilities within the prevailing regulatory and statutory environment.

BOARD MEETING ATTENDANCE
The board met seven times during the financial year. Four of these meetings were scheduled in advance and three were to deal with specific business. The attendance for each director appears at the bottom of the page.

KEY ACTIVITIES OF BOARD IN 2011
During the year, the board performed the following key activities, including the consideration and approval of:

• The annual financial statements, annual report, group property valuations and final distribution for the year ended 31 March 2010.
• The condensed financial statements, interim results, group property valuations and interim distribution for the six months ended 30 September 2010.
• The property valuation policy and methodology of group.
• The acquisition of the R541 million property portfolio.
• The new long term and short term incentive schemes, annual bonuses and salary increases for employees.
• The critical performance areas (“CPA”) of the Exco members.
• The information technology governance charter.
• The Competition Act policy.
• The re-financing of R462 million securitisation debt.
• The appointment of a new company secretary.
• The specific course of action in relation to a potential corporate action.
• Property sales in excess of R10 million.
• Leases with a value in excess of R15 million.

The board further initiated the following processes:

• A review of the board charter and various board committee terms of references.
• A review of the group’s risk management, compliance policy and dealing in company securities policies.
• The recruitment of a new CEO.

BOARD COMMITTEES
AUDIT AND RISK COMMITTEE
The report by the audit and risk committee (“AR committee”) is set out on pages 58 to 59 of the integrated report.

BOARD MEETING ATTENDANCE

		19 May 2010	(Special) 27 Jul 2010	31 Aug 2010	(Special) 20 Oct 2010	18 Nov 2010	(Special) 24 Feb 2011	17 Mar 2011
•	AD Botha	•	•	•	•	•	•	•
•	HSC Bester	•	•	•	•	•	•	•
•	PJ Cook	•	–	•	•	•	•	•
•	JM Hlongwane	•	•	•	•	•	•	•
•	HC Lopion	•	•	•	^	•	•	•
•	PS Moyanga	•	•	•	•	•	•	•
•	MJ Potts	•	•	•	^	•	•	•
•	MH Serebro	•	•	•	•	•	•	•
•	UJ van der Walt	•	•	–	•	•	•	•
•	G van Zyl	•	•	•	•	•	•	•
•	Indicates attendance.
– ^	Indicates absence with apology. Certain executive directors recused themselves at request of the chairman.

INVESTMENT COMMITTEE
Current members

• Mervyn Serebro (Chairman)
• Hendrik Bester
• Mlungisi Hlongwane
• Gerhard van Zyl
• Michael Potts

The investment committee is an important element of the board’s system to implement its winnowing strategy through acquisitions, disposals and redevelopment and refurbishments. The committee comprises two executive directors and three non-executive directors, of which two are independent.

Summary of terms of reference
The investment committee’s purpose and function is:

• To consider recommendations from management for acquisitions, capital expenditure or disposals.
• To authorise and approve such transactions and capital expenditure as fall within its approval mandate.
• To make recommendations to the board regarding transactions and capital expenditure that fall outside its approval mandate.

Investment committee attendance
The committee conducted all of its business on a roundrobin basis during the financial year.

Key activities of the investment committee in 2011
During the year the investment committee performed the following key activities:

• Review and recommendation to the board of the R541 million portfolio acquisition.
• Approval of the extensions to the Mala Plaza Shopping Centre in Malamulele.
• Approval of the new Cashbuild outlet and the contribution to the tenant installation cost for Fruit and Veg City at Hillfox Power Centre in Roodepoort.
• Approval of the purchase of the Giyani Plaza Retail Centre in Giyani.

INTERNAL CONTROL
It is the board’s responsibility to oversee the group’s system of internal control and to keep its effectiveness under review. The system is designed to provide reasonable assurance against material misstatement and  loss. The system of internal financial control is designed to provide assurances on the maintenance of proper accounting records and the reliability of financial information used within the business and for publication.

The internal control system includes a reasonable division of responsibility and the implementation of policies and procedures which are communicated throughout the group.

INTERNAL AUDIT
The group has outsourced its internal audit function to KPMG. Internal audit is responsible for assisting the board and management in maintaining an effective internal control environment by evaluating those controls continuously to determine whether they are adequately designed, operating efficiently and effectively and to recommend improvements.

EXTERNAL AUDIT
Grant Thornton is the external auditor of Vukile and its subsidiaries, including the Namibian subsidiaries. The independence of the external auditor is recognised, and annually reviewed, by the AR committee with the auditors. The external auditors attend all AR committee meetings and have unrestricted access to the chairman of the AR committee.

RISK MANAGEMENT REVIEW
OUR APPROACH
The group has formalised its approach to risk management in a formal policy. The strategic intent of our risk management policy is to create an environment in which risk management is applied at a consistent high level across the group, enabling management to take informed decisions, to achieve business objectives and maximise returns for linked unitholders.

Our risk management principles are based on the principles of King III and the Committee of Sponsoring Organisations of the Treadway Commission (“COSO”) Enterprise Risk Management Framework.

Our risk management process covers the following components:

• Business context: considering the internal and external factors driving our business.
• Internal environment: considering our relevant risk tolerances and appetite for risk.
• Objective setting: the group’s specific business objectives.
• Risk identification: the formal process to identify risks that may impact the objectives.
• Risk analysis: analysing the key risks in terms of impact and likelihood.
• Risk treatment: determining whether to treat, terminate, transfer or tolerate risks.
• Communication of information about key risks, significant risk incidents and emerging risks to the relevant forums.
• Monitoring: continuously monitoring risks and treatment actions.

OUR KEY RISKS
This section identifi es the key risks that may affect the group’s finances and operations: