ANNUAL INTEGRATED REPORT 2016 SCOPE AND BOUNDARIES OF THIS REPORT SCOPE AND BOUNDARIES OF THIS REPORT ESTABLISHING MATERIALITY We are pleased to present our sixth annual integrated report, We define material issues as those which have the potential to which covers the year ended 30 June 2016. This report is mainly substantially impact our ability to create and sustain value for our aimed at providers of financial capital, being both our current and stakeholders. potential shareholders. In addition, we aim to inform all stakeholders The process we adopted to determine the issues material to our of our ability to create value over time. business and our stakeholders is aligned with our organisational Rand Merchant Investment Holdings Limited (RMI) is a listed decision-making processes and strategies. By applying the investment holding company with various investments in principle of materiality, we determined which issues could influence subsidiaries and associates. RMI consolidates entities where it the decisions, actions and performance of the group. exercises control over the financial and operating policies We describe our most material issues as our key priorities (subsidiaries) and equity accounts entities where it exercises and refer to pages 8 to 19 of this report, in which we significant influence (associates). describe the circumstances in which we operate, the key resources and relationships on which we depend, This report contains comprehensive information on our financial the key risks and opportunities we face and how our key performance, stakeholders, governance, material issues, risks and priorities can affect our ability to create and sustain opportunities and how these influence our strategic objectives. We value over time. show how we create value and how we will ensure that our value creation is sustainable. We also refer stakeholders to the annual FORWARD-LOOKING STATEMENTS integrated reports of our investee companies to gain a comprehensive understanding of these elements in their respective Certain statements in this annual integrated report may be businesses. regarded as forward-looking statements or forecasts. All forward- looking statements are based solely on the views and considerations CURRENT YEAR ENHANCEMENTS of the directors. These statements have not been reviewed and reported on by the group’s external auditor. We have refined the structure and flow of the information with a clear picture of the business model and value creation. We also RESPONSIBILITY FOR THIS ANNUAL INTEGRATED REPORT provide more detail of our updated investment strategy and strategic initiatives. This report was prepared by Schalk Human MCom (Acc), CA(SA) under the supervision of the chief executive and financial director, The PERFORMANCE AND OUTLOOK section, which starts Herman Bosman LLM, CFA. on page 20, provides a more detailed outlook of future plans and expectations, in addition to a critical The board is ultimately responsible for ensuring the integrity of the evaluation of our performance over the past year, both annual integrated report, assisted by the audit and risk committee at a group and major investee company level. and further supported by management, which convened and We examined our disclosure on governance and gave contracted the relevant skills and experience to undertake the attention to detailing the efforts of each of the board reporting process and provide management oversight. The board, committees. See the section OUR GOVERNANCE AND after applying its collective mind to the preparation and presentation SUSTAINABILITY, which starts on page 62. of the report, concluded that it was presented in accordance with the <IR> Framework and approved it for publication. REPORTING PRINCIPLES AND ASSURANCE We are committed to improving our reporting further and would This report is compiled and presented in accordance with the appreciate constructive feedback. Our contact details can be Listings Requirements of the JSE Limited (JSE Listings Requirements), found on the inside back cover. the King Code of Governance Principles for South Africa 2009 (King III) and the International Integrated Reporting Council’s (IIRC) International Integrated Reporting Framework (<IR> Framework). We have implemented the Framework as far as practical and our approach to integrated reporting will continue to evolve over time, in line with the Framework. Our ANNUAL FINANCIAL STATEMENTS, presented on pages 89 to 223, were prepared in accordance with International Financial Reporting Standards (IFRS) and the requirements of the Companies Act, 71 of 2008, as amended (Companies Act). We received external assurance from our auditor, PricewaterhouseCoopers Inc., on the fair presentation of these annual financial statements. See the INDEPENDENT AUDITOR’S REPORT on page 101. A summarised version of the annual financial statements is available as part of the results announcement on RMI’s website at www.rmih.co.za. CONTENTS ABOUT RMI 1 Key facts 1 RMI BELIEVES THAT THERE IS A STRONG Who we are 2 CORRELATION BETWEEN THE Our investments 4 INVESTMENT PROCESS AND THE Our business model 8 CREATION OF A PIECE OF ART. IN LINE Our strategy 10 WITH THIS, WE REGULARLY SUPPORT Engaging with our stakeholders 13 ARTISTS. WE SELECTED MANDY Managing our risks and opportunities 17 COPPES-MARTIN AS OUR ARTIST OF OUR PERFORMANCE AND OUTLOOK 20 THE YEAR. HER WORKS ARE FEATURED Chairman’s statement 20 ON THE RMI WEBSITE AND IN OUR Financial highlights 23 COMMUNICATION TO SHAREHOLDERS. Chief executive’s review 24 Key performance indicators 31 Financial review 32 Value-added statement 35 Portfolio overview 36 OUR GOVERNANCE AND SUSTAINABILITY 62 Corporate governance report 62 Directors charged with governance 66 Board committees 72 Audit and risk committee report 73 Directors’ affairs and governance committee report 75 Investment committee report 77 Nominations committee report 78 Remuneration committee report 79 Social, ethics and transformation committee report 81 King III gap analysis 84 King IV application register 85 ANNUAL FINANCIAL STATEMENTS 89 SHAREHOLDER INFORMATION 224 Shareholding 225 Performance on the JSE Limited 226 Shareholders’ diary 228 Notice of annual general meeting 229 Form of proxy 241 Administration IBC GUIDE TO WHERE MORE INFORMATION CAN BE FOUND This icon accompanies page number references of information contained elsewhere in this annual integrated report. This icon indicates information that can be accessed on the referenced website. ABOUT THE ARTIST MANDY COPPES-MARTIN Mandy works with specific fibres, threads and silks – which are woven and which weave through her drawings and sculptures – to take the viewer on a journey through traces of the past. “I am interested in working with notions of memory and the traces of life that exist beyond our stories. I began working with tree rings several years ago as I find them to be the most beautiful arrangements of natural life. Tree rings tell a story of events through mark making. They offer glimpses into the lost or forgotten stories of our natural environment.” She applies the traditional art of crocheting to paper thread and raw silk fibres to create forms and shapes that depict a life once lived, or an action once taken. Whether the resulting image is a depiction of an abstract mark of nature or an interpretation of a literal object, her art seeks to retrace the past and, in turn, create a new skeleton of memories. ABOUT RMI KEY FACTS Information as at 30 June 2016 JSE SHARE CODE FIRST LISTED MARKET CAPITALISATION RMI 7 March 2011 R61.2 billion (down 3% from 2015) TOTAL INCOME NORMALISED EARNINGS HEADLINE EARNINGS R14.1 billion R3 348 million R2 934 million (up 20% from 2015) (up 6% from 2015) (down 10% from 2015) CHAIRMAN GT Ferreira CHIEF EXECUTIVE SIGNIFICANT SHAREHOLDERS WEBSITE Herman Bosman Remgro 30% www.rmih.co.za Royal Bafokeng 15% HEAD OFFICE Allan Gray 8% Sandton, South Africa PIC 8% 1 WHO WE ARE RAND MERCHANT INVESTMENT HOLDINGS LIMITED (RMI) IS A JSE-LISTED INVESTMENT HOLDING COMPANY WITH AN INVESTMENT TEAM OF EXPERIENCED, ALTERNATIVE THINKING, FINANCIAL SERVICES SPECIALISTS WHO ACTIVELY PARTNER SMART AND INDUSTRY-CHANGING MANAGEMENT TEAMS BY BEING A SHAREHOLDER OF INFLUENCE. VALUE CREATION On 23 August 2016, RMI announced the sale of its investment in RMB Structured Insurance, excluding the stake in Truffle Capital Our primary objective is to create value for our shareholders by Proprietary Limited (Truffle), subject to regulatory approval. The optimising, diversifying and modernising our portfolio. We rely on a results of RMB Structured Insurance, excluding Truffle, are disclosed stable shareholder base. as a discontinued operation in the RMI group results. An analysis of major shareholders appears on page 225. Refer to page 6 for a brief description of each of our existing investments which had an impact on the results from continuing operations for the year ended THE RMI PORTFOLIO 30 June 2016. The portfolio is intended to evolve over time to increase in size and RMI’s investments include Discovery Limited (Discovery), MMI geographic diversity and ensure the balance between growth- Holdings Limited (MMI), OUTsurance Holdings Limited (OUTsurance), and return-focused investments. RMB-SI Investments Proprietary Limited (RMB Structured Insurance), RMI Investment Managers Group Proprietary Limited (RMI We invest, build and divest depending on market opportunities to Investment Managers) and Merchant Capital Advisory Services achieve our objectives of creating value and