Chairman's report

The following report represents the group’s first integrated annual report, which in line with the recommendations of King III includes both financial and non-financial performance measures for the year under review. A combination of these measures will enable a more informed view of the group’s ability to create and sustain value over time.

This is especially relevant for Buildmax given the significant challenges faced by the group, which were clearly delineated in the report to shareholders for the 2010 financial year. These were, in summary, that rising maintenance costs and a depressed equipment market brought on by the global economic crisis adversely impacted the Mining Services business, which had numerous low margin contracts. The slowdown in the construction industry further exacerbated this situation, which resulted in a concomitant decline in profitability for the Construction Materials business. Against this background the group faced significant pressure on cash flow, a rising debt to equity ratio and a banking sector that had adopted an extremely cautious approach in their lending practices as a result of the global financial crisis.

Significant improvements have been delivered for FY2011
The management team in this regard has shown great resilience and imagination in identifying and resolving the problems that the group was faced with during the 2010 financial year.

The outcome of the strategies adopted during the current financial year has resulted in a group that is substantially stronger, with a clearer view of future strategy than was the case 12 months ago. Details of these improvements are given in the CEO’s review, but to summarise, borrowings have been reduced through meeting scheduled monthly instalments funded from internal cash flows as well as the successful conclusion of a rights issue. In most cases improved contract rates have been negotiated and the plant fleet is in a considerably better condition as a result of significant investments in maintenance facilities and programmes.

The results for the year reflect the fact that these actions take time to filter through to the bottom line. Furthermore, heavy rains affected profitability during the last four months of the financial year. The group continues to dispose of equipment wherever possible and on repeating the impairment exercise carried out in previous years, found that further charges were necessary in relation to the fleet and goodwill and intangible assets. In addition, there was a further deterioration in the construction industry.

The outlook remains cautious
The global economy has shown some improvement. However, the recovery remains fragile and indebtedness for both households and government is a key problem for developed markets. While the confidence in banking systems have been substantially restored, banks remain cautious in their lending practices. This has considerable significance for Buildmax in that it affects both the group’s ability to acquire new equipment and to dispose of used equipment as potential buyers find it difficult to fund their needs.

Whilst the outlook remains cautious for companies exposed to this market the turnaround strategy that has been affected by management in streamlining the group, strengthening the balance sheet and focusing on opportunities that are less capital intensive going forward should enable the group to see through the cycle and in time deliver sustainable returns.

Improved governance standards implemented during the year
During the year, in line with the requirements of King III, the group strengthened the function of the Board and appointed an independent non-executive Chairman. There is a clear division between the roles of the Chairman and CEO.

An internal audit function has been established. The group’s internal audit function is managed by KPMG and provides independent and objective assurance regarding internal controls. The Audit Committee approves the audit plan and budget.
The Board also implemented an Authorities Framework Policy to ensure that:
• Capital expenditures and revenue commitments above a certain size require prior Board approval;
• Defined risks are submitted for Board approval;
• Contracts undertaken in the mining sector are submitted to the Board before final commitment is made; and
• Acquisition and disposal of business units are submitted for Board approval.

A Compliance Hotline was implemented. Employees and other stakeholders may raise possible business conduct issues anonymously. An external consultant independently manages the Compliance Hotline and all complaints are forwarded directly to the CEO for investigation and follow up.

During the year the Audit Committee appointed KPMG to assist the group in identifying risk, measuring its potential impact against a broad set of assumptions and initiating mitigating activities to reduce exposure to acceptable levels. The risks and mitigating actions have been reviewed by the Board.

Committed to sustainable business practice
The group is committed to building a sustainable and profitable business on the basis of:
• Protecting shareholders’ investments and providing acceptable financial returns and growth;

• Developing and providing products and services which offer value in terms of sound relationships, price, quality, safety and technology;

• Providing employees with good and safe conditions of employment and competitive terms, promoting the development and best use of talent and providing equal opportunity for all those who work for the company; and

• Conducting business as responsible corporate members of society and observing the laws of the countries in which we operate.

Appreciation
During the year the following Board members resigned: Herman Fourie, Paul de Klerk, Mark Matisonn, Raymond Munitz and Anil Maharaj.

On behalf of the group, I would like to thank them for their support and guidance. I also welcome Malcolm McCulloch and Graeme Montgomery who were appointed as non-executive directors on 12 January 2011 and 1 June 2011 respectively.

In conclusion, I would like to thank my fellow Board members, the management team, CEO, Terry Bantock and all the employees, contractors and suppliers of the group for their dedication and effort during a challenging year. I look forward to an improved year ahead.


Colin Wood
Chairman
22 August 2011