ANNUAL REPORT 2012

Aligned for growth ALERT STEEL | Annual Report 2012

Contents OUR values

BUSINESS OVERVIEW • Integrity Corporate profile IFC • Respect Mission and values IFC Footprint 1 • Transparency Board of directors 2 Chairman’s and Chief Executive’s report 3 • Client-centricity Chief Financial Officer’s report 5 • Accountability Financial overview 7 Five year review 8 • Ubuntu Corporate governance statement 10 Risk management 15 • Thinking ahead Financial Statements Summarised financial statements 17 Our MISSION Summarised statement of comprehensive income 18 Summarised statement of financial position 19 Summarised statement of changes in equity 20 Summarised statement of cash flows 20 To be the market leader in our chosen Summarised segmental report 20 Notes to the summarised financial statements 21 areas with steel and steel related products, SHAREHOLDERS’ INFORMATION serving the people with knowledge and Shareholder analysis 31 integrity. Our people reflect who we serve. Share price graph 32 Shareholders’ diary 32 Notice of annual general meeting 33 CORPORATE PROFILE Memorandum of Incorporation 37 Form of proxy 39 Notes to the form of proxy 40 Corporate information IBC Group structure IBC Alert Steel is one of South Africa’s leading retailers of steel and steel related products and services to the construction, manufacturing and building industries. The company was established in 1979 and listed on the JSE’s AltX bourse on 1 March 2007 (AltX code: AET).

Alert Steel Holdings Limited Incorporated in the Republic of South Africa Registration number: 2003/005144/06 AltX code: AET ISIN: ZAE000092847

ANNUAL report for the year ended 30 June 2012 Business overview 1

2012 MOZAMBIQUE D AN IL 2 L AZ TA SW 11 U-NA Annual Report Annual 8 UL | ANGA 6 AZ ZIMBABWE 18 KW MAL 10 MPU 7 19 POPO M STEEL ALERT 17 LI ANA 4 1 TSW BO E Express 9 3 AT GAUTENG 13 12 EE ST FR 015 964 1707/8/9 Alert Steel Rustenburg Rustenburg Avenue, 23 Waterval 014 592 8762 Alert Steel Randfontein Street, Aureus, Randfontein 8 Volvo 011 412 2037/2025 Alert Steel Lephalale Service Centre Plot number 14, Rietspruit, Lephalale 071 685 6954 Alert Steel Polokwane Cnr Nikkel and Kobalt Streets, Superbia, Polokwane 015 292 2043/4 Alert Steel Shayandima (Thohoyandou) Stand No 3, Industrial Area, Shayandima, Thohoyandou Alert Alert Steel Zeerust Shop 1, Stand 59, 61 Church Street, Zeerust 125 378 0861 Alert Steel Mahikeng Cresent, 1st Street Industrial 41 James Watt 073 776 3988 Alert Steel Bela Bela 26 Sutter Road, Bela Bela 014 736 4887 Alert Steel Mankweng Stand no. 170, Makanyi Section, Mankweng 072 243 6505 Alert Steel Kwaggafontein Stand 4, Kwaggafontein C 071 642 6590 18 19 10 13 12 14 15 17 16 11 14 5 15 T 16 TH WES PE NOR CA CA RI N AF ER TH NOR d t y) L t teel (P lert S Alert Steel Tswane (Pty) Ltd Alert Steel Tswane Pretoria Cnr Engelbrecht and Lanham Streets, East Lynne, 012 800 0000 Alert Steel Pretoria Pretoria Cnr Engelbrecht and Lanham Streets, East Lynne, 012 800 0000 Alert Hub Pretoria Pretoria 12 Gompou Street, East Lynne, 012 800 0000 Alert Steel Burgersfort Dirk Winterbach Street, Section 8 Leeuvallei, Burgersfort 013 231 7187 Alert Steel Brits Deventer Street, Brits 21 Van 012 252 0773 Alert Steel Tshwane Shop 11 Lenchen Centre, Cnr Jakaranda and Hennopspark, Centurion Lenchen Avenues, 012 653 5607/8 Alert Steel Lichtenburg 6 Gerrit Maritz Street, Lichtenburg 018 632 5034 Alert Steel Louis Trichardt 1 Industria Street, Louis Trichardt 015 516 5736/7/8 Alert Steel Mokopane 33 Sussex Street, Mokopane 015 491 8984/5/6 Alert Steel Tzaneen 18 Koedoe Street, Industrial Area, Tzaneen 015 307 6612 Alert Steel Lephalale Joe Slovo Drive, Ext 16, Section 1, Onverwacht, Lephalale 014 763 6016 A 9 8 7 6 5 3 4 2 1 www.alertsteel.co.za National contact number: 0861 125 378 • Email: [email protected] • Alert Steel continuously pursues growth opportunities where the potential for improved returns can be optimisedAlert Steel continuously pursues growth and Limpopo, an experienced team With 21 operations in Gauteng, North West through its unique value proposition. meet the needs of its growing customer base. and a fleet of over 200 vehicles, the group is well-equipped to Footprint 2 ALERT STEEL | Annual Report 2012

Board of directors

EXECUTIVE DIRECTORS 1 Johan du Toit (47) Chief Executive Officer BCompt (Hons), CA(SA) Johan formed part of the restructuring team to implement the turnaround strategy at the Kelly Group and list that group in April 2007 on the JSE main board (April 2001 to December 2007). He recently assisted with the debt and business restructuring of RTT Group, previously known as The Fuel Logistics Group (August 2009 to December 2010).

2 Neil Cresswell (37) 1 Chief Financial Officer BCom, CA(SA) Neil is a chartered accountant with a wealth of experience across a broad spectrum of businesses. He has served as Chief Financial Officer and Financial Executive for various companies.

2 NON-EXECUTIVE DIRECTORS 3 Malcolm McCulloch (58) Non-Executive Chairman BCom (Hons), CA(SA) Malcolm, a chartered accountant, has more than 25 years’ experience in the construction, engineering and steel industries. He is currently a director of WBHO, Capital Africa Steel and Symo as well as Independent Non-Executive Deputy Chairman 3 of the Kelly Group and Chairman of Wilderness Holdings. He has also applied his extensive business knowledge in several business turnarounds in the past.

4 Wynand Schalekamp (63) Non-Executive Deputy Chairman BCom Marketing Wynand, an entrepreneur, established Alert Steel 31 years ago as a small one-man business operating from a garage. 4 Providing a variety of steel products to the building industry, he grew the business’s revenue to R1.1 billion.

5 Gwen Mahuma (41) Non-Executive Director BCom (Hons) Gwen is Group Executive Director of Capital Africa Steel, an investment vehicle with interests in the steel and concrete 5 sector. Previously, she was the Managing Director of DSI- Mandirk, a supplier of roof bolts to the mining industry. Her current directorships include Mahuma Investment Holding, CAS Enviro, Krost Shelving, 3Q Mahuma Concrete Joint Venture and Reyajala Womens’ Consortium.

6 Mitesh Patel (38) Independent Non-Executive Director BCom (Hons), CA(SA) 6 Mitesh is currently the Managing Partner and Chairperson of the national directorate of Nkonki Incorporated, a firm of chartered accountants registered with the Independent Regulatory Board of Auditors. His directorships include African Brick Centre, PSV Holding, Stratcorp Empowerment Investments and Stratcorp and Wearne. He is also the Chairman of Africa Cellular Towers.

7 Wessel van der Merwe (43) 7 Independent Non-Executive Director BCom (Hons), CA(SA) Wessel has been involved with Alert Steel since its initial listing and brings a wealth of experience and knowledge to the board. He has served as a member of the AltX Advisory Committee since 2007 and previously headed a corporate advisory business for more than 14 years. His directorships include Skinwell Holdings and Taste Holdings. ALERT STEEL | Annual Report 2012 ALERT STEEL | Annual Report 2012 3 B U SINESS OVERVIEW

Chairman’s and chief executive’s report

Despite the challenges of the year under review, Alert Steel achieved a marked improvement in its performance. The turnaround interventions initiated so far have had a demonstrable effect on all areas of the business but supply constraints and a deteriorating operating environment are hampering the company’s return to profitability.

Malcolm McCulloch, Chairman Johan du Toit, CEO

The effectiveness of the remedial measures is evident in the A senior analyst from Coface South Africa, a trade credit protection company’s results for the year to June 2012. Loss and headline solutions provider, noted that the number of plans passed for non- loss per share decreased sharply by 90% and 91% respectively residential buildings dropped by 22.8% from the fourth quarter last to -5.4 cents and -4.3 cents (2011: -54.5 cents and -47.3 cents). It year to the first quarter this year. The analyst attributes this decline closed the year with an increase in revenue of 12%, amounting to the oversupply of space in industrial, retail and office buildings, to R825 million (2011: R735 million), while gross profit grew noting that occupancy levels in major urban areas are around 80%, 22% to R170 million (2011: R139 million). Operating expenses, while those in smaller metropolitan areas are as low as 50%. meanwhile, decreased by 9% to R190 million (2011: R210 million). Review of operations The company also raised a further R30 million in capital in the form As a result of the disruptions at the steel mills, stock availability was of a specific issue of shares to shareholders, which was concluded intermittent, and this impacted on the year’s trading. Additionally, subsequent to the year-end, on 31 October 2012. This has been Alert Steel had to contend with two industry strike actions during done to ensure that the company has enough equity to see it the course of the review period which not only exacerbated supply through the remainder of the recovery plan. problems but impacted Alert Steel’s ability to fulfil its customers’ orders. Market overview It was noted in last year’s annual report that Alert Steel’s fortunes Stock supply was also affected by cash-flow constraints and Alert were not only dependent on the successful implementation of the Steel’s ability to pay suppliers within terms, but this problem was restructuring strategy but also on the health of the steel industry in resolved once the funds from the rights offer underwriters were South Africa, which in our view was in a state of decline. advanced in March and again, subsequent to the year-end, in October this year. All stock shortages were resolved in May this Unfortunately, the steel industry continued to struggle during year and we have since returned to normal trading terms with our the year under review with total South African steel production suppliers. decreasing by 22% from May 2011 to May 2012, according to the World Steel Association. This decline in local steel production is The branch network produced a mixed bag of results with certain attributed, in part, to the significant downtime experienced by the operations more affected than others. Our Limpopo businesses country’s mills, including a furnace failure at one of Arcellor Mittal’s suffered as a result of central government’s take-over of most plants as well as maintenance and upgrade work carried out by provincial government and municipal departments in that province, Evraz Steel & Vanadium. putting further strain on construction activities in the area. Gauteng and North West, which are also experiencing a lack of building Demand for steel and steel-related products has declined sharply projects, have seen a growth in steel retailing companies and this owing to the lack of new developments in the construction sector, development has increased competition fiercely while putting which accounts for about 60% of the total demand for steel. pressure on these operations’ margins and revenues. 4 ALERT STEEL | Annual Report 2012

Chairman’s and chief executive’s report (continued)

Revenue from the branch network was impacted by the company’s We have looked at the company’s cash flow position and strategy of returning to its core business of exclusively retailing requirements for the next six months and are satisfied that future steel and steel related products. DIY, building, plumbing and cash generated by our operations will be sufficient to cover our hardware materials accounted for 25% to 30% of the company’s interest payments, even under current trading conditions. There total revenues. We remain confident in this strategy and intend are enough cash resources to meet the company’s obligations as to regain this lost revenue through the introduction of new steel they fall due. Trade payables are being paid throughout the month product lines including fencing, special steel and roof sheeting. and no compromises have been made with any vendors.

A highlight of the year was being awarded a significant stake We have concluded that the company could continue as a going in a tender to supply carbon steel to Transnet’s facilities across concern provided that a number of critical objectives are met. the country. The tender went to Alert Steel Tshwane, which These are the successful implementation of various cost-cutting is 50% owned by Alert Steel Holdings, as well as joint bidders measures, the expansion of our express store network, and a Trident Steel and Mac Steel. In terms of the three-year contract, significant reduction in stock levels to free up cash. valued at R40 million a year, Alert Steel Tshwane will become the exclusive supplier of carbon steel to Transnet’s Koedoespoort Further restructuring measures and Germiston facilities, which amounts to approximately 11% Subsequent to the year-end, we early-settled nearly R25 million of the total contract. Trident Steel and Mac Steel will account owed to Capital Africa Steel, our largest shareholder. The loan for the rest. We believe the contract to be an affirmation of arose as a result of the acquisition of Alert Steel North West. It our capabilities in the market and we look forward to expending was settled by way of an issue of ordinary shares at a subscription considerable energy on Transnet in the new financial year to price of 2.8 cents per share. cement our reputation and track-record in handling large contracts such as this one. The early settlement will result in a significant interest saving for the company while also strengthening our balance sheet. Following the The biggest area of growth for the company has been in the company’s Alert Express containers and by the end of June 2012, early settlement, Nedbank has converted a further portion of our debt 27 of these converted shipping containers had been deployed. with them into shares, also at a subscription price of 2.8 cents per These mobile retail stores are strategically located near or within share. The amount to be converted by Nedbank was R6 million and rural communities, a sector which continues to show promising has, subsequent to the conversion, resulted in Nedbank holding no growth. The retail units are quick to deploy, cheap to operate, more than 19.9% of the shares in the company. generate attractive profit margins and we expect these containers to be major revenue-generators for the company going forward. We have consolidated every 100 Alert Steel shares into one share in order to reduce the authorised share capital of the company from A number of cost-cutting measures were implemented during 10 billion to 100 million shares. At the same time, we proposed an the year, which helped to substantially reduce fixed costs. These odd-lot offer to shareholders holding less than 100 shares after the measures included a major retrenchment programme and the share consolidation, by way of a specific repurchase. identification and closure of non-performing branches. The reduced cost base has helped to substantially lower our break-even levels All these proposals are intended to reduce administrative costs of and will significantly improve Alert Steel’s future performance. the company. Acquisitions and disposals Acknowledgements In September 2011, we acquired the balance of shares in Alert The significant improvement in the company’s results under very Steel Polokwane from Murray & Roberts Steel. This was done trying conditions is a tribute to the successful efforts of a number in order to give the company complete control of its operations of people, whom we would like to acknowledge here. in Limpopo. Likewise, the acquisition of all of the shares in Alert Steel North West, also in September 2011, was carried out so Firstly, our customers: they make everything possible and we that the company could regain its lost footprint in that province. would like to express our sincere appreciation for their custom and their loyalty. In April this year, the business of Steelmecca, a subsidiary of Capital Africa Steel, was acquired to establish a presence in Our personal thanks also goes to our colleagues on the board, Rustenburg, which has been identified as a potential target market whose enormous experience in the steel retailing industry gives for Alert Steel. context and direction to our strategic thinking. It is on this note that we say farewell to Owen Jevon, who resigned from the board We also closed down the non-performing Benrose, Wonderboom during the course of this year. We thank him for the support he and Klerksdorp branches since these no longer met our investment provided and the opportunities he created, and we wish him every criteria. The properties in Benrose and Klerksdorp were sold as success in the pursuit of his other interests. We also wish to were those in Lephalale and Wolmaranstad. thank Edwin Hewitt, who joined the board during the year and has Looking ahead subsequently resigned, for his contribution. The first three months of trading of the new financial year have remained very challenging and we do not expect market conditions The Alert Steel team’s management of the company has again been to improve for the rest of the year. In the light of these conditions, very prudent and effective. We thank them for their invaluable we reviewed Alert Steel’s business plan and based our forecast of contribution. Similarly, our thanks go to our staff members whose the company’s results to June 2013 on the assumption that there dedication and hard work were aptly demonstrated through their will be no improvement in the operating environment. own personal sacrifices during the strike actions.

We are still positive that the three-year restructuring plan is on Last but not least, we thank our shareholders for their continued track and we will continue to cut costs and improve efficiencies support. to ensure the long-term sustainability of the company. Even under this worst-case scenario, we expect to see an improvement on the 2012 year’s results.

The new business plan entails a further reduction in costs and improvement in efficiencies as well as an aggressive expansion of the Alert Express mobile retail units to offset the lost revenue from Malcolm McCulloch Johan du Toit the non-profitable discontinued branches. Chairman Chief Executive ALERT STEEL | Annual Report 2012 ALERT STEEL | Annual Report 2012 5 B U SINESS OVERVIEW

CHIEF FINANCIAL OFFICER’S REPORT

The current year was the first year of management’s three year turnaround plan. Although the group’s results were not where management was hoping they would be, they still reflect an improvement on the previous year. The turnaround has been hampered by poor trading conditions and labour unrest during the year, as well as restricted cash flow at certain times during the year. The group recorded a headline loss per share of 4.3 cents (2011 loss: 47.3 cents).

Neil Cresswell, Chief Financial Officer

Consolidated statement of comprehensive income Revenue increased by 12.1% to R824.6 million (2011: R735.5 million). This was driven by the following factors: The group acquired the remaining 50% of Alert Steel Polokwane (Pty) Ltd so the 2012 figure included 100% of Alert Steel Polokwane for nine months. The comparative figure only had 50% of Alert Steel Polokwane for the full 12 months. The introduction of new steel and steel related product lines, as well as the opening of new express stores also contributed to the increase in revenue.

Gross profit increased by 21.9% to R169.9 million (2011: R139.3 million) and gross profit percentage increased from 18.9% to 20.6%, mainly as a result of an increase in cash sales in the rural areas in both the branches and express stores.

Operating expenses were reduced by 9.3% to R190.8 million (2011: R210.4 million). This decrease was a result of the restructuring measures implemented by management, including branch closures and retrenchments. The full impact of the restructure on operating Property, plant and equipment expenses will only be seen in the 2013 financial year when there are Capital expenditure of R14.5 million (2011: R3.4 million) was incurred 12 months at the new cost base. to maintain operations while capital expenditure of R13.5 million As a result of the increase in sales and margin and the decrease in (2011: Rnil million) was incurred to expand operations. operating expenses, the loss before interest, tax, depreciation and impairments was reduced from R74.7 million to R20.1 million. The board has approved capital expenditure of R10.5 million for the 2013 financial year, mainly related to the company’s rural Depreciation, amortisation and impairments accounted for 3.4% of expansion strategy. revenue (2011: 4.1%). The current year figures included R14.3 million impairments on the group’s properties. The group performed an Trade and other receivables impairment test at 30 June 2012. The depressed market conditions The provision for impairment decreased slightly to R44.7 million in the construction and mining sectors, and losses sustained by (2011: R46.5 million). the group provided evidence that this testing was necessary. The investment properties disposed of after year-end were also impaired The trade and other receivables days’ revenue outstanding to their recoverable cost. Please refer to note 12 in the summarised decreased to 33 days (2011: 51 days). financial statements for further explanations of these impairments. The past due but not impaired trade receivables improved by The operations of RSC Polokwane and Alert Reinforcing were R7 million to R22 million (2011: R29 million). disposed of on 23 September 2011. The loss from these discontinued operations was R447 000 (2011: loss R4.2 million). Inventory Inventory increased to R154.5 million (2011: R111.3 million). Consolidated statement of financial Inventory days rose from 67 days to 85 days. The increase from position the acquisition of businesses was R35 million and the balance of the Goodwill AND intangible assets increase occurred mainly in April as a result of certain major suppliers Goodwill of R8.3 million arose on the acquisition of the remaining doing away with allocations of orders on some fast-flowing items and 50% of Alert Steel Polokwane and 100% of Alert Steel North West. releasing a lot of orders in one month. This situation is temporary Goodwill of R2.1 million on Alert Steel North West was impaired as and management has substantially reduced inventory levels in the these acquired branches were still loss-making by the end of the first few months subsequent to year-end, with further decreases in financial year. Please refer to note 15 of the summarised financial inventory levels expected during the remainder of the 2013 financial statements for further information on the impairment testing year. This is part of management’s strategy to free up further cash conducted. flow to finance its rural expansion. 6 ALERT STEEL | Annual Report 2012

CHIEF FINANCIAL OFFICER’S REPORT (continued)

The provision for impairments of inventory decreased to R4.5 million Current liabilities (2011: R9.2 million). Trade and other payables decreased to R159.9 million (2011: R170.1 million). The cost of sales days outstanding in trade and Cash AND cash equivalents other payables decreased to 88 days (2011: 103 days). The total cash inflow to the company for the year wasR90.6 million. The two rights offers generated a cash flow of R112.3 million and Onerous leases the bank advanced two long-term loans of R93.6 million as part The provision for onerous leases was reduced from R6.9 million in of the debt restructure. The total inflow from investing activities 2011 to R5.7 million in 2012, primarily due to the company utilising was R200.7 million. a property that was previously unused.

In terms of investing activities, the company utilised R28 million on Dividends capital expenditure and received R6 million on disposal of property, No dividends have been declared. plant and equipment. The company utilised R45 million acquiring businesses (refer to note 7 of the summarised financial statements) Net asset value and received R5 million on the disposal of businesses. The net asset value of the company was negative R2 million (2011: negative R43 million). The company raised an additional The cash utilised by operations was R48 million. This was R30 million of equity through a specific issue of shares on mainly driven by the loss before interest, tax, depreciation and 31 October 2012. This issue was carried out mainly to settle impairments of R20.1 million, net finance costs of R23.8 million the shareholder’s loan of R24 million. The net asset value would and the repayment of a provisional tax refund incorrectly received have been R28 million, had this specific issue taken place before of R8 million. The working capital utilisation remained fairly flat 30 June 2012. compared to the prior period. Going concern Share capital Management has addressed additional attention to the going During the year under review, two rights offers to shareholders concern risk, given the continued losses and low net asset value. were concluded. A total 1 515 million shares were issued in the first rights offer on 10 October 2011 and 2 321 million shares were Further steps have been taken to satisfy the board of directors that issued in the second rights offer on 30 June 2012. The total cash the business will continue as a going concern. Please refer to note 3 inflow from the rights offers was R112.3 million. of the summarised financial statements.

Loans and Borrowings Nedbank advanced two long-term loans to the company as part of the debt restructuring. The two loans for R70 million and R20 million are repayable over five years and two years respectively. This accounts for the increase in borrowings from R90.7 million in Neil Cresswell 2011 to R180.6 million in 2012. Chief Financial Officer ALERT STEEL | Annual Report 2012 ALERT STEEL | Annual Report 2012 7 B U SINESS OVERVIEW

FINANCIAL OVERVIEW for the year ended 30 June 2012

salient features

2008 2009 2010 2011 2012 Revenue (R000) 807 095 981 325 818 630 735 532 824 656 Comprehensive income 51 434 4 178 (98 974) (135 489) (72 991) Headline (loss) / earnings (R000) 51 492 2 644 (63 440) (117 664) (58 045) EBITDA (%) 10 3 (3) (10) (3) Market capitalisation (R000) 223 586 104 340 124 214 49 686 122 549 Net tangible asset value per share (cents) 58.7 54.9 29.9 (17.5) (0.2) Closing share price (cents) 90 42 50 20 3

REVENUE COMPREHENSIVE INCOME R000 R000

1 000 000 100 000 51 434 981 325

800 000 50 000 4 178 824 656 807 095 818 630

735 532 0

600 000 (72 991) (98 974)

400 000 -50 000 (135 489)

200 000 -100 000

0 -150 000 2008 2009 2010 2011 2012 2008 2009 2010 2011 2012

HEADLINE (LOSS) / EARNINGS EBITDA R000 %

60 000 10 10% 40 000 2 644.00 8

20 000 6 4 3%

0 (59 285.00) (63 439.60) 51 063.60 2 -20 000 0 -40 000 -2 (3%) (117 664.00) (3%) -60 000 -4

-80 000 -6 (10%)

-100 000 -8

-120 000 -10 2008 2009 2010 2011 2012 2008 2009 2010 2011 2012

MARKET CAPITALISATION NET TANGIBLE ASSET VALUE R000 Cents

250 000 60 58.7

50 54.9 200 000 223 586 40

30 150 000

20 29.9 124 214 122 549 (17.5)

100 000 (0.2)

49 686 10 104 340

0 50 000 -10

0 -20 2008 2009 2010 2011 2012 2008 2009 2010 2011 2012 8 ALERT STEEL | Annual Report 2012

five year review for the year ended 30 June 2012

Summarised statement of comprehensive income

R000 2008 2009 2010 2011 2012 Revenue 807 095 981 325 818 630 735 532 824 656 Gross profit 219 601 211 107 177 566 139 317 169 893 Other income 6 096 10 846 12 822 8 750 5 476 Operating costs (143 334) (192 225) (218 683) (210 403) (190 760) Restructure costs - - - (12 386) (4 747) EBITDA 82 363 29 728 (28 295) (74 722) (20 138) Impairments - - (35 324) (17 984) (16 353) Depreciation (5 339) (7 952) (8 891) (12 112) (12 063) (Loss) / profit before interest and taxation 77 024 21 776 (72 510) (104 818) (48 554) Net finance costs (4 055) (16 093) (18 673) (25 721) (23 850) (Loss) before taxation 72 969 5 683 (91 183) (130 539) (72 404) Taxation (21 535) (1 505) (2 247) (784) (140) (Loss) from continuing operations 51 434 4 178 (93 430) (131 323) (72 554) (Loss) from discontinued operations - - (5 544) (4 166) (447) (Loss) / profit for the period 51 434 4 178 (98 974) (135 489) (72 991) Headline (loss) / earnings reconciliation Loss / (profit) on disposal of property, plant and equipment 59 (11) 210 (24) 1 651 Loss arising on discontinuance of operations - - - - 1 428 Profit on sale of business - - - - (4 056) Losses arising from the impairment of goodwill - - 35 324 17 848 2 050 Losses arising from the impairment of property, plant and equipment - - - - 13 784 Losses arising from the impairment of investment property - - - - 519 Bargain price gain on acquisition of business - (1 523) - - (430) Headline (loss) / earnings 51 492 2 644 (63 440) (117 665) (58 045) Adjustment for: Interest (429) (666) (882) - - Fully diluted headline earnings 51 064 1 978 (64 322) (117 665) (58 045) Earnings per share Basic (loss) / earnings per share (cents) 20.8 1.8 (39.8) (54.5) (5.4) Fully diluted (loss) / earnings per share (cents) 20.0 1.5 (38.7) (52.9) (5.4) Headline (loss) / earnings per share (cents) 20.8 1.1 (25.5) (47.3) (4.3) Fully diluted headline (loss) / earnings per share (cents) 20.0 0.9 (25.1) (45.9) (4.3) Gross margin percentage 27% 22% 22% 19% 21% EBITDA percentage 10% 3% (3%) (10%) (2%) ALERT STEEL | Annual Report 2012 ALERT STEEL | Annual Report 2012 9 Bu siness overview

summarised statement of financial position

R000 2008 2009 2010 2011 2012 ASSETS Non-current assets 102 992 198 420 177 792 138 371 139 554 Investment property 5 991 5 991 5 855 6 447 Property, plant and equipment 51 716 134 486 152 933 132 516 126 887 Goodwill 48 594 54 665 17 848 - 6 220 Other financial assets 709 204 - - - Deferred taxation 1 972 3 074 1 019 - - Current assets 341 008 321 838 383 252 224 316 247 788 Inventories 194 499 152 622 196 680 111 323 154 497 Loans to joint venture 9 857 13 938 95 2 403 - Loans to director - - 5 427 - - Current tax receivable - 3 641 1 396 - - Trade and other receivables 129 285 142 149 167 917 105 084 75 938 Cash and cash equivalents 7 368 9 488 11 736 5 506 17 353 Assets held for sale - - - 20 187 14 497 Total assets 444 000 520 258 561 043 382 874 401 839

EQUITY AND LIABILITIES Share capital 125 211 125 211 127 577 127 577 239 853 Reserves 2 366 2 366 - - 1 980 Retained income 66 725 63 473 (35 501) (170 989) (243 981) Total shareholders’ funds 194 302 191 050 92 076 (43 412) (2 148) Non-current liabilities 11 582 64 607 80 188 79 925 70 597 Loans and borrowings 11 582 63 978 79 858 71 783 60 060 Onerous lease provision - - - 4 757 4 561 Straight-lining lease accrual - - - 3 384 5 566 Deferred taxation - 629 330 - 409 Current liabilities 238 116 264 601 388 780 333 073 331 672 Loans from joint ventures 1 485 3 260 16 006 - - Loans from director - - 1 419 - - Loans and borrowings 24 278 20 208 16 585 8 333 107 818 Onerous lease provision - - - 2 196 1 112 Straight-lining lease accrual - - - 241 1 475 Current tax payable 17 977 665 21 414 8 142 30 Trade and other payables 102 483 111 867 189 281 170 124 159 960 Provisions 1 737 457 65 - - Shareholder's loans - - - 30 365 24 224 Bank overdraft 90 156 128 144 144 010 113 672 37 053 Liabilities associated with disposal groups held for sale - - - 13 288 1 718 Total equity and liabilities 444 000 520 258 561 043 382 874 401 839 Number of ordinary shares in issue 248 429 248 429 248 429 248 429 4 084 951 Weighted average number of shares in issue 247 846 248 429 248 429 248 429 1 343 528 Diluted weighted average number of shares 255 466 256 029 256 029 256 029 1 351 128 Net asset value per share (cents) 78.2 76.9 37.1 (17.5) (0.1) Net tangible assets per share (cents) 58.7 54.9 29.9 (17.5) (0.2) 10 ALERT STEEL | Annual Report 2012

Corporate Governance Statement

Sound corporate governance is a vital ingredient in ensuring that adopted by the board. He conveys clear communication from all dealings and decisions of the business are done with honesty the board to executive management members. He is assisted and fairness. by CFO Neil Cresswell and an executive committee consisting of During a difficult trading year with major restructuring this remained strategic head office employees who take responsibility for the a vital element of the business. daily smooth running of the business. The CEO, CFO and the Every employee remains committed to act in line with the executive management team meet on a weekly basis collectively company’s values which include integrity, respect, transparency and more often on an individual basis in areas where more focus and accountability. are required. Statement of compliance Rotation of directors The new Companies Act came into effect on 1 May 2011, and the One-third of the directors are subject, by rotation, to retirement board proposes the adoption of the Memorandum of Incorporation and re-election at the annual general meeting in terms of the (MOI) as is described in the salient features and the notice of company’s MOI. annual general meeting. During the year under review, the board materially complied with Board meeting attendance King III recommendations as outlined in the code of corporate In terms of the board charter, the board meets at least quarterly, practices and conduct. All areas of improvement that have been and more frequently if circumstances or decisions require. They identified are being actively dealt with. furthermore confer through round robin deliberations when necessary. Board of directors Meetings are conducted in accordance with formal agendas and The board consists of five non-executive directors of which two annual work plans, ensuring that all substantive matters are properly are independent and two executive directors. Abridged curriculum addressed. Any director may request that additional matters be vitaes are provided on page 2. added to the agenda. Copies of board papers are circulated to All the directors are high merit objective individuals who collectively the directors well in advance of the meetings to ensure proper contribute a wide range of skills and knowledge to the decision preparation to enhance constructive and informed deliberations. making processes of the board and also ensure proper deliberation A representative from the company’s designated advisor attends of all matters requiring the board’s attention. the board meetings as required in terms of the JSE Listings There are two key tasks at the top of the business namely, the Requirements. running of the board and the executive responsibility for the Attendance by directors at board meetings during the reporting running of the day to day business. The CEO is responsible for period is provided on the next page. Due to the restructuring of the efficient daily operations of the business, while the chairman the company the amount of meetings held increased substantially. provides leadership to the board. Board processes Chairman Board charter The chairman of the board is Malcolm McCulloch, a non-executive The board charter is to set out specific responsibilities to be director. discharged by the board, and every member of the board, in Since Malcolm is not considered to be independent in terms of accordance with King III. The board charter has been reviewed King III, Mitesh Patel is the lead independent director (LID). during the past financial year to align the content thereof with the The chairman provides leadership and guidance to the board as a recommendations of King III and the Companies Act. whole and encourages proper deliberation of all matters requiring The objectives of the board charter are to ensure that all board the board’s attention. members are aware of their duties and responsibilities as board members and to ensure that the principles of good corporate Chief executive officer governance are applied in all their dealings in respect, and on CEO Johan du Toit ensures sound and efficient operation of the behalf, of the business. business as well as the implementation of all strategies and policies The board charter is reviewed on an annual basis.

In line with King III’s ‘comply or explain approach’ the board wishes to provide explanations to the following areas where the group does not fully apply with the principles of King III:

King III recommendation Alert Steel application

Integrated reporting and disclosure The board is cognisant of the King III requirement for integrated reporting and also that this is a journey. The current annual report has addressed some of the requirements for integrated reporting, including an overview of the business, disclosing the risks and opportunities and the strategic objectives. However, due to the business being in the first year of its turnaround and being in a constant state of change throughout this first year, the necessary KPIs and KRIs to measure the business against the strategic objectives have yet to be implemented. Management will aim to address this in the new financial year.

Regular performance evaluations of Performance evaluations had not been undertaken and will be done in the next financial year. the board, its committees and the individual directors

Independence evaluations should Every independent non-executive director has completed a King III checklist and signed a disclosure be performed by an independent in this regard. service provider

The chairman of the board is an In situations where the independence of the chairman is impaired, the lead independent director independent non-executive director performs the function as chairman of the board for as long as the situation exists.

Audit committee composition Only two of the three members are independent non-executive directors. The size of the board does consisting of three independent not warrant the appointment of another independent non-executive director. non-executive directors ALERT STEEL | Annual Report 2012 ALERT STEEL | Annual Report 2012 11 Bu siness overview

Roles and responsibilities of the board Appointments to the board are formal and transparent and a matter The duties of the board are comprehensively set out in the board for the board as a whole, and assisted where necessary by the charter and include the following matters which are specifically remuneration and nominations committee. reserved for board decisions: The board assesses the skills of the board from time to time to Approval of the group’s strategy and annual budget. ensure that it consists of the required competency levels to be Review the group’s performance. efficient and to provide strategic guidance to the business. Should the assessment indicate a lack of competency in a certain area, the Formulate the strategy and provide direction to the business. board considers the appointment of a director to fulfil this need. Approval of significant matters relating to finance. Approval of major capital expenditure or disposals, material Closed periods contracts, material acquisitions and developments. Closed periods are exercised from the date of the financial year-end Ensure sustainable leadership. until the company’s results are published on SENS. Additional closed The approval of the annual financial statements, the approval periods are enforced as required in terms of any corporate activity of the interim report, the valuation of unlisted investments, or when directors are in possession of price sensitive information. the declaration of dividends and the forfeiture of unclaimed Directors of the company and the company secretary, their dividends. associates or members or immediate family are not allowed to deal Monitoring of review of effectiveness of internal controls and directly or indirectly, at any time, in the securities of the company the risk management system. on the basis of unpublished price-sensitive information regarding Recommend amendments to the MOI of the company. the company’s business or affairs. These individuals are made Confirming the appointment, removal or replacement of the aware of restricted or closed periods for dealings and the provision external auditor of the company. of insider trading legislation. The approval of terms and conditions of any right issues, public offers, capital issues or issues of convertible Directors’ share dealings securities including share or convertible securities issued for The board has an approved trading policy in terms of which dealing acquisitions. in the group’s shares by directors and employees is prohibited Appointments to and removals from the board, including the during closed periods. appointment of the chairman, any deputy chairman, chief Directors may not deal in the company’s shares without first executive officer, executive directors, non-executive directors advising and obtaining clearance from the CEO and the CFO. The and the company secretary. CEO and CFO may not deal in the company’s shares without first Approval of nominations of alternate directors (if any). advising and obtaining clearance from the chairman of the board. In Determining and approval of board committee’s terms and the past financial year two non-executive directors of the company, reference. Wynand Schalekamp and Owen Jevon traded without the Monitoring activities of the executive management. necessary permission. The board considered these transgressions The board ensures that there is an appropriate balance of power in a very serious light and addressed it with the various individuals. and authority on the board so that no one director has unfettered The investigation by the JSE in this regard has also disclosed that powers of decision-making. the transgressions were not ascribed to the board’s negligence. Interest in contracts Changes to the board During the year ending 30 June 2012 none of the directors had a The following changes to the board of directors transpired during the significant interest in any contract or arrangement entered into by past financial year, mainly as a result of the restructuring of the group. the company or its subsidiaries, other than as disclosed in note 16 to The following changes to the board occurred during the 2012 the summarised financial statements. financial year: Directors are required to inform the board timeously of conflicts or Gwen Mahuma, Mitesh Patel and Wessel van der Merwe were potential conflicts of interest they may have in relation to particular appointed as non-executive directors on 1 October 2012. items of business. Directors are obliged to recuse themselves Rynhardt van Rooyen resigned at the AGM held on 7 December from discussions or decisions on matters in which they have a 2011. conflicting interest. Edwin Hewitt was appointed as non-executive director on 25 January 2012 and resigned on 5 November 2012. Board appointments Wynand Schalekamp became non-executive deputy chairman on In terms of the relevant policy, all board members are required 1 March 2012. to assist with the identification and nomination of potential board Owen Jevon resigned on 12 May 2012. candidates. All the above changes were announced on SENS.

Attendance of board meetings:

18 Jul 15 Aug 24 Oct 25 Jan 14 Feb 26 Mar 25 Jun 30 Jul 10 Oct Director 2011 2011 2012 2012 2012 2012 2012 2012 2012 MW McCulloch (chairman) X X X X X X X X X WF Schalekamp X X X X X X X X X J du Toit X X X X X X X X X E Hewitt (appointed on 25 Jan 2012 and resigned on 5 Nov 2012) X X X X X X MM Patel X X X X X X X WP van der Merwe X X X X X X X BS Mahuma X X X X X X X R van Rooyen (resigned on 7 Dec 2011) X X X OV Jevon (resigned on 21 May 2012) X X X X X X 12 ALERT STEEL | Annual Report 2012

Corporate Governance Statement (continued)

Board committees The audit committee has considered the adequacy of the Board committees currently comprise four sub-committees, group’s system of internal control and recommends the namely the audit committee, risk committee, remuneration and financial statements for approval by the board. nominations committee and social and ethics committee. The Review the effectiveness of the internal audit function. sub-committees have formally determined terms of reference, The attendance by members at the audit committee meetings is clearly agreed upon reporting procedures and written scope of provided below. authority which are reviewed on an annual basis and approved by the board. Risk committee The risk committee consists of a combination of executive Audit committee and non-executive directors. The risk committee is chaired by At the end of the financial year, the audit committee comprised the Wessel van der Merwe. Johan du Toit and Neil Cresswell are following three non-executive members: Mitesh Patel (chairman), the other members. Wessel van der Merwe and Gwen Mahuma. Two of these members The internal audit function has been outsourced to KPMG are independent. Services (Pty) Ltd (KPMG) and the work performed by the The board is satisfied that the members of the audit committee are internal audit function is in compliance with the International highly qualified individuals who on a collective basis have sufficient Federation of Accountants (IFAC) rules. qualifications and experience to fulfil its duties. The members of the The mission of the internal audit function is to provide committee are also permitted by the board to consult with specialists independent, objective assurance and consulting services when required. designed to add value and improve the company’s operations. The primary role of the audit committee is to ensure the integrity It helps the company accomplish its objectives by bringing a of the financial reporting, the audit process and that a sound systematic, disciplined approach to evaluate and improve the risk management and internal control system is maintained. In effectiveness of risk management, control, and governance pursuing these objectives the audit committee oversees relations processes. with the external auditors and reviews the effectiveness of the The scope of work of the internal audit function is to determine internal audit function. whether the company’s network of risk management, control, Although the board has delegated certain audit and financial functions to the audit committee, it remains accountable and and governance processes, as designed and represented responsible for the performance and affairs of the company. by management, is adequate and functioning in a manner to The minutes of the audit committee meeting are made available ensure: to the board. The chairman of the audit committee reports to the Risks are appropriately identified and managed. board at each board meeting. Interaction with the various governance groups occurs as The board is satisfied that the audit committee has complied with needed. its terms and references during the year under review. Significant financial, managerial, and operating information The CFO and the CEO attend all the meetings by invitation. The is accurate, reliable, and timely. JSE designated advisor attends all audit committee meetings in Employees’ actions are in compliance with policies, compliance with the JSE Listings Requirements. The external standards, procedures, and applicable laws and regulations. auditors attended the meetings and also have unrestricted access Resources are acquired economically, used efficiently, and to the chairman of the audit committee. adequately protected. The audit committee has carried out its functions in terms of the Programmes, plans, and objectives are achieved. JSE Listings Requirements by: Quality and continuous improvement are fostered in the Confirming the nomination of KPMG Inc. as the company’s organisation’s control process. auditors being satisfied that they are independent of the Significant legislative or regulatory issues impacting the company. organisation are recognised and addressed properly. Approving the terms of engagement and fees to be paid to the external auditors. Reviewing the means of safeguarding assets and, as Determining the nature and extent of any non-audit services appropriate, verifying the existence of assets. which the external auditors may provide to the company. Co-ordinating, combining and integrating the assurance Satisfying itself of the appropriateness of the expertise and provided by various parties (such as line management, experience of the company’s CFO, Neil Cresswell, and the internal and external assurance providers) pursuant to the company’s finance function. combined assurance model introduced by King III.

Attendance of audit committee meetings: 28 Jul 12 Oct 24 Oct 19 Mar 12 Jun 16 Oct Director 2011 2011 2011 2012 2012 2012 MM Patel (chairman) X X X X X WP van der Merwe X X X X X E Hewitt (appointed on 25 Jun 2012 and resigned on 5 Nov 2012) X BS Mahuma (appointed on 26 Nov 2012) N Cresswell As invitee X X X X X J du Toit As invitee X X X X X X R van Rooyen (chairman) (resigned on 7 Dec 2011) X X X OV Jevon (resigned on 21 May 2012) X X X X ALERT STEEL | Annual Report 2012 ALERT STEEL | Annual Report 2012 13 Bu siness overview

Opportunities for improving management control, profitability, Serve as standard for the evaluation of the successful and the organisation’s image are identified during these audits implementation of Alert’s remuneration policy and and communicated to the appropriate level of management and remuneration strategy. the risk committee chairman. The remuneration strategy of Alert is based on the following The risk committee has not formally met during the past central principles: financial year, although many consultations were performed Communication and confidentiality between management, the internal auditors and the chairman All information that is needed to take well-considered decisions of the risk committee. regarding remuneration shall be communicated frankly, while the confidentiality of the personal remuneration information of Remuneration and nominations individuals is to be respected. committee Non-discriminatory practices The committee consists of Malcolm McCulloch, Gwen Mahuma All remuneration policy directives and practices will be free of and Wessel van der Merwe and formally meets once a year and on unfair distinction, since unfair discrimination based on race, an ad hoc basis when necessary. gender, pregnancy, marital status, family responsibility, ethnic or The attendance by members at meetings is provided below. social origin, sexual orientation, age, disability, religion, HIV status, The role of the committee is to assist the board to ensure that conscience, convictions, political orientation, culture, language the company remunerates directors and executives fairly and and birth is unacceptable to Alert. However, fair distinction, responsibly; and the disclosure of directors and remuneration is based on performance, scarcity factors and skills will be applied. accurate, complete and transparent. Internal equity The committee performs amongst others the following functions: Alert endeavours to remunerate all staff fairly and consistently Oversees the establishment of a remuneration policy that will according to their role and individual value. The consistent promote the achievement of strategic objectives at all levels in application of the remuneration system throughout Alert is the company and encourages individual performance. encouraged. To ensure that there is equitable remuneration for Ensures that the remuneration policy is put to a non-binding equivalent work, the differential between the midpoint of each advisory vote at the general meeting of shareholders once grade and the top and bottom of the grade scale shall not be in every year. excess of 20% on either side of the midpoint. Reviews the outcomes of the implementation of the External parity remuneration policy on an annual basis. Alert continuously takes sectoral and national remuneration Ensures that the mix of fixed and variable pay, in cash, trends into consideration so as to position the organisation shares and other elements, meets the company’s needs and strategically in order to ensure competitive total remuneration strategic objectives. within the parameters of affordability, as far as is achievable and Satisfies itself as to the accuracy of recorded performance sustainable. measures that govern the vesting of incentives. Ensures that all benefits, including retirement benefits and Performance-driven remuneration other financial arrangements, are justified and correctly valued. Alert endeavours to strengthen the link between remuneration Considers the results of the evaluation of the performance of and performance by means of performance management systems the CEO and other executive directors, both as directors and as that make it possible to differentiate between excellent, average executives in determining remuneration. and below average performers. The remuneration system aims Regularly reviews incentive schemes to ensure continued to reward overall contribution rather than status or position. contribution to shareholder value and that these are Affordability administered in terms of the rules. In accordance with Alert’s business plan and strategy and in Advises on the remuneration of non-executive directors. consideration of the annual budgetary scope, certain limits are set with regard to remuneration and other human resource costs. Remuneration philosophy These serve as a guideline for what can be spent. The annual In order to ensure the integrity and legitimacy of the total adjustment in Alert’s remuneration account and the components of remuneration system, the development and implementation of the remuneration adjustments take place with due allowance for: related policies, programmes, practices and decisions is directed the necessity of competitive remuneration; by the main remuneration principles contained in the remuneration the available budget funds; policy. The philosophy consists mainly of principles, values and the inflation rate; and points of departure relating to remuneration at Alert. The values the need for structural adjustments with regard to the guide the remuneration strategy and are more lasting in nature, remuneration of individuals and occupational groups. while the objectives of the remuneration strategy will change as Alert’s business plan is amended. Remuneration components The aim of the remuneration philosophy is to: Basic remuneration Communicate the remuneration commitments and Norm determination: The current practice, according to which an expectations to the staff in an interactive manner. effort is made to compare basic remuneration with the median Strengthen the organisational culture and underlying values in the wholesale and retail market when decisions are taken, will of Alert. be continued. Fixed remuneration does not take into account Guide and facilitate the implementation plan for remuneration. the supply and demand of certain skills or candidates for specific Describe the manner in which Alert manages remuneration at job categories which may necessitate and dictate the number or the organisational level so that it is fair and consistent. extent of the deviations from the market midpoints.

Attendance of remuneration and nomination committee meetings: 7 Jul 12 Jun 25 Jun Director 2011 2012 2012 MM McCulloch (chairman) X X X BS Mahuma (appointed on 1 Oct 2012) X X WP van der Merwe (appointed on 1 Oct 2012) X X WF Schalekamp (resigned on 1 Mar 2012) X OV Jevon (resigned on 21 May 2012) X 14 ALERT STEEL | Annual Report 2012

Corporate Governance Statement (continued)

Long-term performance incentive structure Monitoring social and economic development in terms of goals The purpose of the long-term incentive scheme is to attract, including the United Nations Global, Compact Principles, the OECD retain, motivate and reward eligible employees who are to regarding corruption, Employment Equities Act, and B-BBEE. influence the performance of the group on a basis that align their Overseeing good corporate citizenship. interests with those of the group`s shareholders. Overseeing the environment, health and public safety. The principals are as follows: Overseeing consumer relationships including the company’s An incentive scheme is linked directly to quantitative and advertising, public relations, investor relations and compliance qualitative measurable including EBITDA as a base. with consumer protection laws. All incentive structures or awards shall be paid 50% on a Overseeing labour and employment. monthly basis and 50% will be kept as an once off payment annually (September), based on the year to date results of Company secretary the incentive structure while others be paid after the EBITDA The company secretary is Monika Pretorius. The board is comfortable rules have been applied. that she is sufficiently qualified and skilled to act in accordance The incentive structures will be implemented during each with and update directors in terms of the recommendations of the financial year and shall replace all existing merit, performance King III report and other relevant regulations and legislation. notches. Short-term incentive structure Prescribed officers The short-term incentive scheme is exclusively based on an Prescribed officers are those who exercise general control over individual’s critical performance and are linked to the company’s the whole or a significant portion of the business and activities of business strategy. This incentive can be achieved on a monthly basis. the company or regularly participate to a material degree in the Benefits exercise of general executive control over, and management of the The company offers numerous different forms of employee whole or a significant portion of, the business and activities of the benefits, primarily to full-time employees. These benefits are company. The company does not have any prescribed officers in reviewed and are managed certainly in accordance with the accordance with the above definition in the Companies Act, since group’s strategy to align human resource practices across all all controls of the company resides with the executive directors. divisions. Retirement funds – Alexander Forbes Provident Fund Relations with shareholders Alert became a participating employer in the Alexander Forbes The company adopts a proactive stance in timely dissemination of retirement fund with effect 1 July 2012. The employer member appropriate information to shareholders through the JSE Limited’s contributions to the fund are based on the following rates as SENS portal, electronic news releases where applicable and defined in the fund’s special rules: statutory publication of the company’s financial performance. The company’s website provides the latest and historical financial Contribution Member Employer and other information, including the financial reports. categories contribution contribution The board encourages shareholders to attend its annual general Category 1 5% 5% meeting, notice of which is contained in this annual report, where Category 2 7.5% 5% shareholders have the opportunity to put questions to the board, including the chairmen of the board committees. Category 3 10% 5% Shareholders are able to provide feedback to Alert Steel Holdings via the website www.alertsteel.co.za. Medical aid – Discovery Health Discovery Health offers a range of options to cater for all their member’s needs, from the Executive Plan, our plan for the high- Fraud and illegal acts income end of the market, to the Key Care Series, our plan for The board and executive management do not accept any illegal the low-income market. Each plan offers cover ranging from acts in the conduct of the business. The directors’ policy is to hospitalisation to cover for chronic medication, with many plans actively pursue and prosecute the perpetrators of fraudulent or offering day-to-day cover through the Medical Savings Account and other illegal activities, should they become aware of any such acts. Above Threshold Benefit. Insider trading Social and ethics committee No employee may deal, directly or indirectly, in company shares on The committee comprises Gwen Mahuma (chairman), Wessel van the basis of unpublished price-sensitive information regarding the der Merwe and the human resources executive, Callie Visagie. business or affairs of the business. The committee is tasked with: Making recommendations on the empowerment credentials of Going concern the group. Please refer to note 3 of the summarised financial statements for Monitoring the corporate social responsibilities of the group. discussion of going concern. ALERT STEEL | Annual Report 2012 ALERT STEEL | Annual Report 2012 15 B U SINESS OVERVIEW

risk management

Approach Setting policies on internal control based on the organisation’s The risk management policy that was established at the end of the risk profile, its ability to manage the risks identified and the previous financial year is still applicable. The objective of our risk cost / benefit of related controls. management policy is to assist management to make informed Seeking regular assurance that the system of internal control is decisions which will improve the organisation’s performance on effective in managing risks in accordance with the established decision making and planning, promote a more innovative, less risk organisation policies. averse culture in which the taking of calculated risks in pursuit of opportunities to benefit the organisation is encouraged and provide Alert Steel management a sound basis for integrated risk management and internal control as Management is accountable to the EXCO for designing, implementing components of good corporate governance. and monitoring the process of risk management and integrating it into Our risk management principles are based on the principles of the day-to-day activities of the organisation. King III. Risk analysis will form part of the organisation strategic planning, business planning and investment/project appraisal Risk committee procedures. Risk management will be founded on a risk-based The audit and risk committee will monitor the risk management approach to internal control which will be embedded into day to day process and will give the board quarterly feedback. The audit and operations of the organisation. Managers and staff at all levels will risk committee performs the following risk management functions: have the responsibility to identify, evaluate and manage or report Evaluating the internal processes for identifying, assessing, risks, and will be equipped to do so. We will foster a culture which monitoring and managing key risk areas. provides for spreading best practice, lessons learnt and expertise Detailing material financial and non-financial risk profiles. acquired from our risk management activities across the organisation Advising the effectiveness of the organisation’s implementation for the benefit of the entire organisation. of the risk management system, including advice that As in the prior year, a risk workshop was held during which the risk register was updated for changes in strategic risks applicable to the management have confirmed the proper operation of agreed business due to the changing environment in which the business risk mitigation strategies and controls. operates. Unfortunately during the current financial year, due to the significant focus given to the business’ going concern risk and the capital raising process, this process was not strictly adhered to. However, Responsibilities this will be addressed in the new financial year. Executive committee (EXCO) The total process of risk management which includes a related system of internal controls is the responsibility of the EXCO. Internal audit function Among other things they are responsible for: Internal audit is responsible to assist the organisation to accomplish Developing and communicating organisation policy and its objectives by bringing a systematic, disciplined approach to information about the risk management programme to all staff, evaluate and improve the effectiveness of risk management, and where appropriate to other stakeholders. control and governance processes. Defining the organisation’s risk tolerance (the overall level of exposure and nature of risks which are acceptable to the Key strategic risk organisation). The top strategic risks identified can be summarised as follows:

Risk Description Mitigation Strategy

Poor governance: The risk that poor and slow decisions are Board composition incorporating independent non-executive made by the board. Shareholders with significant influence have directors appointed directors to the board. There are differing priorities by Continuous interaction between the board and shareholders shareholders and board members which creates risks of incorrect decisions being made, slow decisions being made and this in turn leads to an increase in going concern risk.

Key supplier dependence: The risk that a key supplier’s failure to Centralised procurement performing demand analysis (fast deliver or perform could severely impact the business ability to flowing items) continue as a going concern. Some key suppliers account for a Approved facility with suppliers and credit insurance allocation significant portion of Alert Steel products procured. The business Regular meetings with the suppliers (at least monthly) has a limited product range based on current strategy of selling Evaluation of alternative suppliers only steel and steel related products. Facility constraints due to cash guarantees given to suppliers.

Going concern – solvency: The risk that the business has Conversion of shareholder loans into equity inadequate reserves to sustain the business through the current Cost management period of poor market conditions. Lack of appetite and ability from Constant communication of financial position with board, bank shareholders to inject further capital. Poor trading results due to and credit insurers poor market conditions. Monthly monitoring of budget vs actual

Going concern – liquidity: The risk that the business will not have Forecasting of stock requirements over a three month period enough cash resources to meet its obligations as they fall due. Delaying of orders in overstock situations Continuous cost control and reduction of fixed overheads Continuous communication with suppliers and credit insurers Rolling 12 week cash flow forecasting Monthly monitoring of budget vs actual 16 ALERT STEEL | Annual Report 2012

risk management (continued)

Risk Description Mitigation Strategy

Inability to pursue rural growth strategy: The risk that due to the Target locations identified and a roll-out plan is in place current depressed economic environment and the current cash Further reductions in monthly fixed costs will be implemented flow constraints, management will not have enough resources Reduction in working capital utilisation – reduction in inventory to pursue the rural growth strategy which is a key part of the levels turnaround plan. Less profitable branches have either been closed or disposed

Competitive procurement: The inability to purchase inventory Centralised procurement function at competitive prices due to not being able to achieve volumes Market research to identify potential partners to procure with in required for volume rebate structures. order to achieve necessary volumes to obtain rebates

Constraints by being listed: The risk that onerous listings Advisors are utilised to ensure JSE requirements are identified, requirements and inflexibility of regulations will hamper the monitored and controlled business turnaround plan. The business is in a position where Full time company secretary is utilised to provide management quick decisions need to be made and where necessary, the with all changes to regulations and monitor compliance business requires quick access to capital funding. Being listed Limited meetings with the JSE on concerns and issues where reduces the business agility as these processes take time which possible hampers management’s decision making and the turnaround plan. The JSE offers very limited support and understanding of these issues. Significant listing costs are unavoidable when corporate action is undertaken and this also hampers the turnaround. ALERT STEEL | Annual Report 2012 ALERT STEEL | Annual Report 2012 17

Summarised Financial Statements

These summarised financial statements are a summary of the consolidated financial statements for the year ended 30 June 2012 that were prepared by Neil Cresswell, Chief Financial Officer. FINANCIAL STATEMENTS

The consolidated financial statements have been audited in compliance with section 30 of the Companies Act (2008).

The consolidated financial statements for the year ended 30 June 2012 were published on 12 December 2012 and are available on the company website www.alertsteel.co.za. 18 ALERT STEEL | Annual Report 2012

Summarised STATEMENT OF COMPREHENSIVE INCOME for the year ended 30 June 2012

Restated June 2012 June 2011 R000 Notes 12 months 12 months Continuing operations Revenue 824 656 735 532 Cost of sales 5 (654 763) (596 215) Gross profit 169 893 139 317 Other income 5 476 8 750 Operating costs (190 760) (210 403) Restructure costs 5 (4 747) (12 386) Loss before interest, tax, depreciation and impairments (20 138) (74 722) Depreciation and amortisation (12 063) (12 112) Impairment of assets 14 (14 303) (136) Impairment of goodwill 15 (2 050) (17 848) Loss before interest and taxation (48 554) (104 818) Finance income 52 2 523 Finance costs (23 902) (28 244) Loss before taxation (72 404) (130 539) Taxation (140) (784) Loss from continuing operations (72 554) (131 323) Loss from discontinued operations 6 (447) (4 166) Total comprehensive income for the year (72 991) (135 489) Total comprehensive income attributable to: Equity holders of Alert Steel Holdings Ltd (72 991) (135 489) Weighted average shares in issue on which earnings are based (000) 1 343 528 248 429 Fully diluted weighted average shares in issue on which earnings are based (000) 1 351 128 256 029 Basic loss per share (cents) (5.4) (54.5) Continuing operations (5.4) (52.9) Discontinued operations - (1.6) Fully diluted loss per share (cents) (5.4) (52.9) HEADLINE EARNINGS Reconciliation of loss and headline loss for the year Loss attributable to ordinary shareholders (72 991) (135 489) Loss / (profit) on disposal of property, plant and equipment 1 651 (24) Loss arising on discontinuance of operations 1 428 - Profit on sale of business (4 056) - Losses arising from the impairment of goodwill 2 050 17 848 Losses arising from the impairment of property, plant and equipment 13 784 - Losses arising from the impairment of investment property 519 - Bargain price gain on acquisition of business (430) - Headline loss attributable to ordinary shareholders (58 045) (117 665) Headline loss per share (cents) (4.3) (47.3) Continuing operations (4.3) (45.4) Discontinued operations - (1.9) Fully diluted headline loss per share (cents) (4.3) (45.9) ALERT STEEL | Annual Report 2012 ALERT STEEL | Annual Report 2012 19

Summarised STATEMENT OF FINANCIAL POSITION at 30 June 2012

Reviewed Restated June 2012 June 2011 R000 Notes 12 months 12 months ASSETS Non-current assets 139 554 138 371 FINANCIAL STATEMENTS Investment property 6 447 5 855 Property, plant and equipment 13 126 887 132 516 Goodwill 15 6 220 - Current assets 247 788 224 316 Inventories 154 497 111 323 Loans to joint ventures - 2 403 Trade and other receivables 75 938 105 084 Cash and cash equivalents 17 353 5 506 Assets held for sale 14 497 20 187 Total assets 401 839 382 874 EQUITY AND LIABILITIES Total shareholders’ funds (2 148) (43 412) Non-current liabilities 70 597 79 925 Loans and borrowings 10 60 060 71 783 Onerous lease provision 11 4 561 4 757 Straight-lining lease accrual 12 5 566 3 384 Deferred tax 16 409 - Current liabilities 331 672 333 073 Loans and borrowings 10 107 818 8 333 Onerous lease provision 11 1 112 2 196 Straight-lining lease accrual 12 1 475 241 Current tax payable 30 8 142 Trade and other payables 159 960 170 124 Shareholders’ loans 24 224 30 365 Bank overdraft 37 053 113 672 Liabilities associated with disposal groups held for sale 1 718 13 288 Total equity and liabilities 401 839 382 874 Actual number of shares in issue (000) 4 084 951 248 429 Net asset value per share (cents) (0.1) (17.5) Net tangible asset value per share (cents) (0.2) (17.5) Net asset value per share is determined by dividing the total shareholders’ funds by the actual number of shares in issue at reporting date. Net tangible asset value per share is determined by dividing the total shareholders’ funds less goodwill by the actual number of shares in issue at reporting date. 20 ALERT STEEL | Annual Report 2012

Summarised STATEMENT OF CHANGES IN EQUITY for the year ended 30 June 2012

Reviewed Restated June 2012 June 2011 R000 Notes 12 months 12 months Balance at the beginning of the period (43 412) 92 076 Shares issued under rights offer 8 112 275 - Loss for the period under review as previously reported (72 991) (120 208) Prior period adjustment 4 - (15 280) Addition to share-based payment reserve 9 1 980 - Balance at the end of period (2 148) (43 412)

Summarised STATEMENT OF CASH FLOWS for the year ended 30 June 2012

Reviewed Restated June 2012 June 2011 R000 Notes 12 months 12 months Cash outflow from operating activities 17 (48 576) (13 594) Cash (outflow) / inflow from investing activities 17 (61 512) 22 020 Cash inflow from financing activities 17 200 724 13 513 Increase in cash and cash equivalents 90 636 21 939 Cash and cash equivalents beginning of period (110 336) (132 275) Classified as held for sale at year-end - 2 169 Cash and cash equivalents end of period (19 700) (108 167)

Summarised SEGMENTAL REPORT for the year ended 30 June 2012

Reviewed Restated June 2012 June 2011 R000 12 months 12 months STATEMENT OF COMPREHENSIVE INCOME Revenue Retail 825 693 735 532 825 693 735 532 Loss before interest, taxation, depreciation and amortisation Retail (20 138) (74 722) (20 138) (74 722) Depreciation Retail 12 063 12 112 12 063 12 112 STATEMENT OF FINANCIAL POSITION Reportable segment assets Retail 387 342 342 500 Assets held for sale 14 497 20 187 401 839 362 687 Reportable segment liabilities Retail 402 270 399 710 Liabilities associated with disposal groups held for sale 1 718 13 288 403 988 412 998 Reconciliation of segment assets Investment property 6 447 5 855 Property, plant and equipment 126 887 132 516 Goodwill 6 220 - Inventories 154 497 111 323 Loans to joint ventures - 2 403 Trade and other receivables 75 938 105 084 Cash and cash equivalents 17 353 5 506 387 342 362 687 Reconciliation of segment liabilities Other financial liabilities 180 593 90 695 Deferred tax 410 - Shareholders’ loans 24 224 30 365 Current tax payable 30 8 142 Trade and other payables 159 960 170 124 Bank overdraft 37 053 113 672 402 270 412 998 ALERT STEEL | Annual Report 2012 ALERT STEEL | Annual Report 2012 21

NOTES TO THE Summarised FINANCIAL STATEMENTS for the year ended 30 June 2012

1. Basis of PREPARATION These summarised financial statements have been prepared in accordance with the recognition and measurement requirements of IFRS, the presentation and disclosure requirements of IAS34 Interim Financial Reporting, the Companies Act 2008 and the AC500 standards as issued by the Accounting Practices Board. 2. Accounting policies FINANCIAL STATEMENTS The accounting policies applied by the group are consistent with those applied in the comparative financial periods. 3. going concern The group incurred a loss for the year ended 30 June 2012 of R73 million (2011: R135.5 million) and at that date, the group’s total liabilities exceeded its total assets by R2 million (2011: R43.4 million). Notwithstanding the loss for the year and the negative net asset value, there have been considerable improvements to the company’s financial performance and cash flows during the year, and its financial position at year-end. Market conditions were depressed for the last 3 months of the financial year. This trend has continued into the first few months of the new financial year and has been aggravated by strikes at the company and within the mining and transportation sectors. The directors’ view is that market conditions will remain depressed for the duration of the 2013 financial year. These conditions are hampering the directors’ turnaround plan and the group has not yet been profitable, despite the improvements in financial position, performance and cash flows described above. Consequently, the directors have given the going concern risk additional focus. The directors have taken the following steps in assessing the group’s ability to continue as a going concern: The directors have formulated a revised business plan and performed a reforecast of the group’s anticipated results to June 2013, given the current market conditions. In this plan, the directors have assumed that there will be no pick-up in trading conditions and they have planned further cost cuts in addition to the cuts that have been made during the 2012 financial year. These cost cuts will be implemented by the end of October 2012. In addition, the directors plan to replace the lost revenue from the non-profitable branches that were closed or disposed of during the 2012 financial year, with revenue from additional express stores to be opened before June 2013. This is in line with the directors’ rural retail strategy and these new stores will operate on the same model that the current express stores operate in that they will be high margin, low cost, cash only operations which will contribute toward covering the group’s overheads. The objective is to build the group’s base to be at least break even, if not profitable by the end of the 2013 financial year, even under the current depressed market conditions. The directors have also assessed the group’s cash flow requirements for the next 12 months. At present, even under the current market conditions, the earnings before tax, depreciation and amortisation is covering the interest burden. This means that the group is not losing cash, even though it is not profitable. The directors’ view is that the group will have enough cash resources to meet its obligations as they fall due. The additional express stores to be rolled out will be funded by planned reductions in inventory levels in the group. Although the inventory levels will be reduced, turnover levels will be maintained. In addition, the group has raised a further R30 million capital in the form of a specific issue of shares for cash to shareholders which was concluded on 31 October 2012. The net asset value of the group, had the specific issue of shares taken place on 30 June 2012, would have been R28 million. Whilst the group is technically solvent post the specific issue of shares, cash flow remains restricted. Trade payables are being paid throughout the month and no compromises have been made with any vendors. The directors have prepared their budgets and cash flow forecast based on reasonable and supportable assumptions. The assumptions that the directors have used include: The successful implementation of various initiatives to reduce costs to return the group to profitable operations. The successful roll-out of planned express stores to increase revenue and margins to return the group to profitable operations. The successful reduction in inventory levels to increase available cash resources. Given the directors’ assessment that the group will have sufficient cash resources to meet its obligations as they fall due, the financial statements have been prepared on the basis of accounting policies applicable to a going concern. This basis presumes that funds will be available to finance future operations and that the realisation of assets and settlement of liabilities and commitments will occur in the ordinary course of business. 4. Prior period adjuSTMENTS The following errors arose in the prior period due to a combination of accounting errors and circumstances beyond management’s control: 4.1 Onerous leases - there are three leases that were not identified as onerous in the previous financial period. The effect of this error in the June 2011 financial statements is an understatement of the lease liability of R6 953 061. 4.2 Lease straight-lining - there was an error in the determination of the liability for the straight-lining of operating leases. The effect of this error in the June 2011 financial statements is an understatement of the lease liability of R3 499 608. 4.3 Deconsolidation of subsidiary - Alert Steel is in dispute with the minority shareholder in Zimbabwe over the validity of its shareholding in this company. Consequently, due to the uncertainty over whether Alert Steel had control over this entity at June 2011, a prior year adjustment has been made to deconsolidate this subsidiary. The effect of the deconsolidation of Wire Well on the financial statements is as follows:

June 2011 R000 12 months Non-current assets (1 114) Current assets (6 201) Current liabilities 10 774 Gain on deconsolidation 3 459 Provision for doubtful debt (8 287) Net loss (4 828) 22 ALERT STEEL | Annual Report 2012

NOTES TO THE Summarised FINANCIAL STATEMENTS (continued)

4. Prior period adjustments (continued) The effect of all the prior year adjustments on the financial statements is as follows: Extract from statement of comprehensive income

Previously Deconsoli­ reported Lease dation of Restated June 2011 accrual Wire Well June 2011 R000 12 months adjustment adjustment 12 months Revenue 769 904 - (34 371) 735 533 Gross profit 135 055 - 4 263 139 318 Other income 8 750 - - 8 750 Goodwill impairment (17 848) - - (17 848) Operating costs (191 328) (10 452) (9 187) (210 967) Restructure costs (12 386) - - (12 386) Depreciation (11 396) - (289) (11 685) Loss before interest and taxation (89 153) (10 452) (5 213) (104 818) Net finance costs (25 720) - - (25 720) Loss before taxation (114 873) (10 452) (5 213) (130 538) Taxation (784) - - (784) Loss from continuing operations (115 657) (10 452) (5 213) (131 322) Loss from discontinued operations (4 166) - - (4 166) Loss for the year attributable to ordinary shareholders (119 823) (10 452) (5 213) (135 488) Effect of foreign currency translation (385) - 385 - Total comprehensive loss (120 208) (10 452) (4 828) (135 488) Basic loss per share (cents) (48.2) (4.3) (2.0) (54.5) Fully diluted loss per share (cents) (46.8) (4.2) (1.9) (52.9) Headline loss per share (cents) (41.0) (4.3) (2.0) (47.3) Fully diluted headline loss per share (cents) (39.8) (4.2) (1.9) (45.9) Extract from statement of financial position

Previously Deconsoli­ reported Lease dation of Restated June 2011 accrual Wire Well June 2011 R000 12 months adjustment adjustment 12 months ASSETS Non-current assets 139 485 - (1 114) 138 371 Current assets 238 803 - (14 488) 224 315 Assets held for sale 20 187 - - 20 187 Total assets 398 475 - (15 602) 382 873 EQUITY AND LIABILITIES Total shareholders’ funds (28 132) (10 452) (4 828) (43 412) Non-current liabilities 72 452 7 473 - 79 925 Current liabilities 340 867 2 979 (10 774) 333 072 Liabilities associated with disposal groups held for sale 13 288 - - 13 288 Total equity and liabilities 398 475 - (15 602) 382 873 5. Restructure costs Restructure costs are once off costs related to the restructure of the group as follows:

June 2012 June 2011 R000 12 months 12 months Restructure legal costs - 763 Restructure circular costs - 2 226 Branch closure and retrenchment costs 4 747 1 688 Establishment of risk management framework - 300 Settlement of onerous lease contracts - 5 307 Costs of revamping branches - 2 102 Total operating costs 4 747 12 386 Impairment of discontinued stock lines (included in cost of sales) - 6 983 Total once-off restructure costs 4 747 19 369 6. dISCONTINued operations The group has sold Alert Steel Reinforcing (Pty) Ltd and the Alert Steel Polokwane RSC division on 23 September 2011. The assets and liabilities of the disposal groups are set out below. The decision was made by the board to discontinue these operations as part of the strategy to return exclusively to steel retail. Alert Steel Reinforcing (Pty) Ltd and the Alert Steel Polokwane RSC division were sold as going concerns. The group disposed of its 50% interest in Terracotta Concepts (Pty) Ltd. The decision was made by the board to generate some cash inflow for the group from an asset that was not being utilised. Prior year comparatives include these same divisions as well as the Plumbing and North West divisions disposed of during the 2011 financial year.

Alert Steel Alert Steel Reinforcing Polokwane Terracotta R000 (Pty) Ltd RSC Concepts Total Profit and loss 2012 Revenue 5 037 2 796 - 7 833 Expenses (4 334) (2 405) - (6 739) Depreciation (56) (10) - (66) Finance charges (38) (10) - (48) Profit before taxation 609 371 - 980 Taxation - - - - Profit after taxation from discontinued operations 609 371 - 980 Loss arising on discontinuance of operations (397) (331) (699) (1 427) 212 40 (699) (447) ALERT STEEL | Annual Report 2012 ALERT STEEL | Annual Report 2012 23

6. dISCONTINued operations (continued)

Alert Steel Alert Steel Reinforcing Polokwane Terracotta Alert Steel R000 (Pty) Ltd RSC Concepts North West Total Profit and loss 2011 FINANCIAL STATEMENTS Revenue 11 308 21 234 22 837 56 518 111 897 Expenses (12 618) (21 073) (24 090) (57 190) (114 971) Loss on sale of property, plant and equipment - - (30) (418) (448) Depreciation (237) (105) (46) (328) (716) Interest received 95 120 - 1 274 1 489 Finance charges (266) (95) (194) (862) (1 417) (Loss) / profit before taxation (1 718) 81 (1 523) (1 006) (4 166) Taxation - - - - - (Loss) / profit after taxation from discontinued operations (1 718) 81 (1 523) (1 006) (4 166) Loss arising on discontinuance of operations - - - - (1 718) 81 (1 523) (1 006) (4 166) During June 2012, the following decisions were taken by the board: To dispose of investment properties and other properties that were not in use in order to free up cash flow for the company. This includes properties in Arrow Creek (Pty) Ltd, Born Free (Pty) Ltd and Xebura (Pty) Ltd. To close down its Benrose branch and to dispose of the property. The branch was not meeting the required performance targets and was not meeting the company’s rural retail strategic objectives. To dispose of its Klerksdorp branch. The branch was not meeting the required performance targets and was not meeting the company’s rural retail strategic objectives.

Arrow Creek Born Free Xebura Klerksdorp R000 (Pty) Ltd (Pty) Ltd (Pty) Ltd branch Total Disposal groups 2012 Assets held for sale Investment property 2 930 500 - - 3 430 Property, plant and equipment - - 3 500 - 3 500 Inventories - - - 4 255 4 255 Trade and other receivables - - - 3 311 3 311 2 930 500 3 500 7 566 14 496 Liabilities associated with assets held for sale Other financial liabilities 1 718 - - - 1 718 Had the decision to discontinue the above operations or dispose of the properties been taken on 30 June 2011, the comparative numbers would have been disclosed as follows:

Arrow Creek Born Free Xebura Klerksdorp R000 (Pty) Ltd (Pty) Ltd (Pty) Ltd branch Total Disposal groups 2011 Assets held for sale Investment property 3 399 550 - - 3 949 Property, plant and equipment - - 4 925 - 4 925 Inventories - - - - - Trade and other receivables - - - - - 3 399 550 4 925 - 8 874 Liabilities associated with assets held for sale Other financial liabilities 1 898 - - - 1 898

Alert Steel Alert Steel Reinforcing Polokwane R000 (Pty) Ltd RSC Total Reported disposal groups 2011 Assets held for sale Property, plant and equipment 4 258 741 4 999 Inventories 2 991 3 007 5 998 Trade and other receivables 5 602 3 588 9 190 12 851 7 336 20 187 Liabilities associated with assets held for sale Trade and other liabilities (3 553) (5 405) (8 958) Taxation prepaid 241 - 241 Bank overdraft (2 169) - (2 169) Loans from group companies (1 653) (750) (2 403) (7 134) (6 155) (13 289) 24 ALERT STEEL | Annual Report 2012

NOTES TO THE Summarised FINANCIAL STATEMENTS (continued)

6. dISCONTINued operations (continued)

R000 June 2012 June 2011 Cash effects of discontinued operations Cash flows from operating activities 4 389 18 388 Cash flows from investing activities 323 34 043 Cash flows from financing activities - 2 364 4 712 54 795 7. Acquisition of subsidiaries On 30 September 2011, the group acquired the remaining 50% shares in Alert Steel Polokwane (Pty) Ltd from Murray & Roberts Steel (Pty) Ltd and 100% of the shares in Alert Steel North West (Pty) Ltd from Capital Africa Steel (Pty) Ltd. The 50% shares in Alert Steel Polokwane was purchased in order to give the group control over the Limpopo retail branches. Alert Steel North West was purchased as these businesses had been stabilised and the group intended to regain the lost footprint in the North West province. The acquisition of the remaining 50% shares in Alert Steel Polokwane represents a change in control and hence, on consolidation, the existing 50% stake has been disposed of at fair value and the full 100% has been acquired and the assets capitalised at fair value. The fair value of the 50% was determined by utilising a discount rate of 20% when determining the net present value of the annuity stream of anticipated future cash flows. Although the Alert Steel group has not been profitable of late, Alert Steel Polokwane has been profitable historically and this is expected to continue for the foreseeable future. Therefore, it is reasonable that goodwill arose on this transaction. The acquisition of 100% of the shares in Alert Steel North West also created goodwill as the purchase consideration exceeded the net asset value. These branches made losses over the past few months due to the impact of the restructure. However, given the losses in these branches, management felt that it was appropriate to impair this goodwill to the extent that the goodwill could not be recovered. On 30 April 2012, the group acquired the business of Steelmecca (Pty) Ltd, a subsidiary of Capital Africa Steel (Pty) Ltd. This business was acquired to establish a presence in Rustenburg which was a target market for the company. There was a bargain price gain on the acquisition of R430 100 which is included in other income. The reason for the gain is that the business was acquired at a discount due to it being loss making.

Net effect Alert Steel Alert Steel of 50% Alert Steel Polokwane Polokwane Alert Steel North West Steelmecca 50% 100% Polokwane 100% business Net effect disposed acquired acquisition acquired acquired Identifiable assets acquired and liabilities assumed: Property, plant and equipment (1 799) 5 061 3 262 4 850 1 800 Inventories (19 089) 38 178 19 089 12 987 3 188 Trade and other receivables (21 936) 43 873 21 937 14 146 4 120 Cash and cash equivalents 17 (34) (17) (3 290) (928) Loans and borrowings 6 294 (11 459) (5 165) 938 - Deferred tax assets / liabilities - (409) (409) - - Trade and other payables 25 410 (51 219) (25 809) (10 537) (3 484) (11 103) 23 991 12 888 19 094 4 696 Fair value of business disposed / (purchase consideration) 15 159 (29 711) (14 552) (21 644) (4 266) Profit on disposal 4 056 - 4 056 - 430 Goodwill on acquisition - 5 720 5 720 2 550 -

Net effect of 50% Alert Steel Alert Steel North West Steelmecca Polokwane 100% business acquisition acquired acquired The considerations transferred comprise the following: Cash 14 552 - 4 266 Convertible shareholder’s loan - 21 644 - The loan is convertible into ordinary shares at the directors discretion after 24 months, but no later than 36 months. The number of shares shall be determined by dividing the loan balance by the net asset value per share of the Alert group. The loan bears interest at prime + 2%. The cash effect of these transactions is as follows: Consideration (14 552) (21 644) (4 266) Less cash equivalents acquired (17) (3 290) (928) Cash effect (14 569) (24 934) (5 194) Total Cash effect - - (44 697) The revenue and profit and loss of these businesses acquired since inception to 30 June 2012 are as follows: Revenue 226 106 71 838 3 425 Profit / (loss) 9 785 (5 671) 37 8. Rights offer On 10 October 2011, a rights offer was successfully concluded with the shareholders. 1 515 515 151 shares were issued at 3.3 cents per share. All shares were fully paid resulting in a cash inflow of R50 million. On 28 June 2012, a further rights offer was concluded with shareholders. A further 2 321 370 482 shares were issued at 2.8 cents per share. All shares were fully paid resulting in a cash inflow of R65 million. Shares issued 115 000 Rights issue expenses (2 725) Total cash inflow 112 275

ALERT STEEL | Annual Report 2012 ALERT STEEL | Annual Report 2012 25

9. Share-based payments On 1 July 2011, the group established a share option programme that entitles key management personnel to purchase shares in the group after 30 June 2014, provided the group achieves certain EBITDA targets and that the personnel are still employed by the group at that stage. The terms and conditions relating to these grants of the options are as follows; all options are to be settled by the physical delivery of shares:

No of FINANCIAL STATEMENTS instruments Vesting Employees entitled Grant date (000) conditions Group achieves EBITDA of between R55 million and Capital Africa Steel (Pty) Ltd 01/07/2011 118 181 R165 million over 3 years Group achieves EBITDA of between R55 million and JC Family Trust 01/07/2011 118 181 R165 million over 3 years WF / JC Family Trust 01/07/2011 39 394 3 years of service, group achieves EBITDA of between R55 million and R165 million over 3 years Executive Management 01/07/2011 118 181 3 years of service, group achieves EBITDA of between R55 million and R165 million over 3 years 393 937 The fair value of the services received in return for share options granted is based on the fair value of share options granted, measured using the Black-Sholes model. The following inputs were used in the measurement of the fair values at grant date of the share based payment plans:

Capital Africa JC WF / JC Executive Steel Family Trust Family Trust management Fair value at grant date 0.7c 0.7c 0.7c 0.7c Share price at grant date 3.3c 3.3c 3.3c 3.3c Exercise price 3.3c 3.3c 3.3c 3.3c Expected volatility 91.5% 91.5% 91.5% 91.5% Option life 3 years 3 years 3 years 3 years Expected dividends R0 R0 R0 R0 Risk free rate 7.4% 7.4% 7.4% 7.4% Expected volatility is estimated taking into account historic average share price volatility. 10. Loans and borrowings R000 June 2012 June 2011 Opening non-current liabilities 71 783 79 858 Opening current liabilities 8 333 16 452 80 116 96 310 New issues: Long-term loan 1 advanced by Nedbank 70 000 - Long-term loan 2 advanced by Nedbank 20 000 - Interest capitalised on loan 1 3 639 - Interest capitalised on Aquarella Bond 1 598 247 Classified as held for sale (1 718) - Repayments Mortgage bonds (2 118) (2 728) Finance lease liabilities (3 639) (13 713) 167 878 80 116 Closing non-current liabilities 60 060 71 783 Closing current liabilities 107 698 8 333 Long-term loan 1 was advanced by Nedbank on 10 October 2011 and is repayable in one instalment at the end of five years. The loan bears interest at prime less 2% and interest is capitalised on the loan for the first 12 months, repayable on the maturity date. Long-term loan 2 was advanced by Nedbank on 10 October 2011 and is repayable in 24 equal instalments commencing on 1 October 2012. The loan bears interest at prime less 2%. The group was in breach of its covenants with Nedbank as at 30 June 2012. These loans have therefore been classified as current. Subsequent to the financial year-end, the directors have renegotiated these covenants with Nedbank and the group is once again in compliance with the new covenants. 11. Onerous lease provision Restated R000 2012 2011 Provision for onerous leases 5 673 6 953 Provision for onerous leases relates to the premises for the Wonderboom plumbing operation that closed down and which is being sublet at a loss. Prior year also included a lease in Lephalale which was not being fully utilised by the group. This premises is now being fully utilised and this provision has been reversed. Non-current 4 561 4 757 Current 1 112 2 196 5 673 6 953 Opening balance 6 953 - (Utilised) / additions (40) 6 953 Reversals (1 240) - Closing balance 5 673 6 953 The unused amount reversed relates to a premises in Lephalale that was not being utilised at June 2011, but which the group has subsequently started utilising again. 26 ALERT STEEL | Annual Report 2012

NOTES TO THE Summarised FINANCIAL STATEMENTS (continued)

12. Straight-lining lease accrual Restated R000 2012 2011 Operating lease liability - straight-lining 7 041 3 625 This provision relates to various long term lease contracts which have escalation clauses. If the average rental over the life of the contract is determined, this liability represents the difference between what has been paid and the monthly average lease expense over the life of the contract. Non-current 5 566 3 384 Current 1 475 241 7 041 3 625 Opening balance 3 625 285 Additions 3 416 3 341 Reversals - - Closing balance 7 041 3 625 13. Property, plant and equipment R000 June 2012 June 2011 Reconciliation of non-current asset movements: Opening balance 132 516 152 933 Additions 27 951 3 435 Disposals (7 791) (1 673) Disposal of 50% of Alert Steel Polokwane (Pty) Ltd (1 799) - Acquisition of 100% of Alert Steel Polokwane (Pty) Ltd 5 061 - Acquisition of 100% of Alert Steel North West (Pty) Ltd 4 850 - Acquisition of the business of Steelmecca (Pty) Ltd 1 800 - Disposal of discontinued operations (4 907) (3 953) Deconsolidation of Wire Well Fencing - (1 114) Classified as held for sale (4 947) (5 000) Impairments of property, plant and equipment (13 784) - Depreciation (12 063) (12 112) Closing balance 126 887 132 516 14. Impairment of assets The group performed an impairment test at 30 June 2012. The depressed market conditions in the construction and mining sectors, and losses sustained by the group provided evidence that this testing was necessary. The group considered both value in use of cash generating units and the fair value less cost to sell of individual assets when performing the impairment test as required by IAS 36 Impairment of Assets. Corporate assets shared by cash generating units were allocated to cash generating units on a ratio of revenue generated by each cash generating unit in relation to the total revenue. The impairment testing revealed that value in use exceeded fair value less cost to sell. The values assigned to the key assumptions represent management’s assessment of future trends. The significant assumptions used for the valuation in use calculations are as follows:

2012 Budget period (approved by management) 3 years Terminal growth rate for extrapolation beyond budget period 4% Pre-tax discount rate 25.8% Which used the following inputs: Post-tax discount rate 20.8% Cost of equity 25.5% After-tax cost of debt 6.5% In calculating the cost of equity, a 5% additive small stock premium (based on the size of the business), as well as an alpha (a company-specific risk premium) of 3% based mainly on forecasting risk, was included. The capital structure used, was a debt equity ratio of 33%, based on the capital structure of market participants as required by International Financial Reporting Standards (IFRS). The terminal growth rate is based on a combination of the long-term inflation outlook, the expected long-term gross domestic product growth rate and other company specific factors.

2012 Average working capital operating cycle (days) over the three-year period 23 EBITDA compound annual growth rate over the 3 year forecast period 101.2% The following table shows the amount that the following four key assumptions are required to change individually in order for the estimated recoverable amount to equal to the carrying amount. Any adverse movement in one or more of the key assumptions would lead to a further impairment.

2012 Pre-tax discount rate (%) -1.1% Terminal growth rate (%) 1.5% Average working capital operating cycle (days) -5 EBITDA compound annual growth rate (%) 3.7% ALERT STEEL | Annual Report 2012 ALERT STEEL | Annual Report 2012 27

14. Impairment of assets (continued) The EBITDA growth is achieved by the effect of the cost reductions already implemented, as well as the roll out of Alert Express stores on a high margin, low cost model which contribute significantly to the EBITDA. Revenue growth year on year is moderate throughout the 3 year forecast. In determining the average working capital cycle, the cash sales to credit sales ratio was taken into consideration. Over the past year, the group has become more cash sales orientated and consequently, the working capital cycle has reduced dramatically. No further reductions FINANCIAL STATEMENTS have been forecast. This cycle would normally be 35 days, but it is low over the three years due to the anticipated reduction in inventory levels in year 1. The result of the impairment test is that a R12 million impairment loss is required which has been recorded as an impairment of land and buildings. Following the impairment, the recoverable amount equals the carrying amount. Impairment losses were not allocated to other asset classes as these other classes comprise working capital balances and had already been recorded at their recoverable amounts. Where impairment losses were recorded, the impairment was limited to the fair value less cost to sell of an individual asset. In the case of the Alert Steel Hub property, the fair value less cost to sell was assessed as R43 million by an independent valuator. The impairment loss is restricted to R12 million, given the value in use. The impairment loss was recorded in the retail segment. The impairment loss was recorded in the impairment of assets line item in the statement of comprehensive income. Formal impairment testing was not performed in this manner in the prior period as it is not practical to determine the impairment which would otherwise have been recorded in the prior period. All impairment losses have been recognised in the 2012 financial year. Prior period restatement is not possible as the turnaround management were new to the role. As a result, the appropriate discount rate was not sought in the prior period, budgets and forecasts were still being prepared and plans for the recapitalisation of the group and cost cutting were still underway. These budgets and forecast still had to be proven and management still had to take a number of corrective actions. 15. Goodwill There were three groups of cash generating units which had goodwill allocated to them, namely, retail stores in Gauteng, Limpopo and North West. This goodwill arose historically on acquisition of various businesses in these provincial geographical regions.

Accumulated Carrying R000 Cost impairment value 2012 Total 61 471 (55 251) 6 220 Retail stores - Gauteng 36 295 (36 295) - Retail stores - Limpopo 15 695 (9 975) 5 720 Retail stores - North West 9 481 (8 981) 500 2011 Total 53 202 (53 202) - Retail stores - Gauteng 36 295 (36 295) - Retail stores - Limpopo 9 975 (9 975) - Retail stores - North West 6 932 (6 932) -

Opening carrying Impairment Closing R000 value Additions loss carrying value Reconciliation of goodwill 2012 Total - 8 270 (2 050) 6 220 Retail stores - Gauteng - - - - Retail stores - Limpopo - 5 720 - 5 720 Retail stores - North West - 2 550 (2 050) 500 Reconciliation of goodwill 2011 Total 17 848 - (17 848) - Retail stores - Gauteng 7 873 - (7 873) - Retail stores - Limpopo 9 975 - (9 975) - Retail stores - North West - - - - The group performed its annual impairment test on the groups of cash generating units containing goodwill at 30 June 2012. The group considered both the value in use of cash generating units and the fair value less cost to sell of individual assets when performing the impairment test as required by IAS 36 Impairment of Assets. The recoverable amount of the two groups of cash generating units was based on its value in use. The values assigned to the key assumptions represent management’s assessment of future trends. Value in use was determined by discounting the future cash flows generated from the continuing use of the individual entities and was based on the following key assumptions:

2012 Limpopo North West Budget period (approved by management) 5 years 5 years Terminal growth rate for extrapolation beyond budget period. 4% 4% Pre-tax discount rate 25.8% 25.8% Which used the following inputs: Post-tax discount rate 20.8% 20.8% Cost of equity 25.5% 25.5% After-tax cost of debt 6.5% 6.5% In calculating the cost of equity, a 5% additive small stock premium (based on the size of the business), as well as an alpha (a company- specific risk premium) of 3% based mainly on forecasting risk, was included. The capital structure used, was a debt equity ratio of 33%, based on the capital structure of market participants as required by International Financial Reporting Standards (IFRS). The terminal growth rate is based on a combination of the long-term inflation outlook, the expected long-term gross domestic product growth rate and other company specific factors. 28 ALERT STEEL | Annual Report 2012

NOTES TO THE Summarised FINANCIAL STATEMENTS (continued)

16. dEFERREd tax R000 June 2012 June 2011 Reconciliation of deferred tax liability Balance at the beginning of year - 689 Originating temporary differences on property, plant and equipment (1 563) ( 150) Originating temporary difference arising on acquisition of property, plant and equipment in business combination 409 - Decrease in tax losses available for set off against future taxable income (52) (952) Originating temporary differences on provisions and accruals 3 135 5 242 Temporary differences on provisions and accruals not recognised (1 520) (4 829) Closing deferred tax liability 409 - 17. Notes to cash flow statement

Reviewed Restated June 2012 June 2011 R000 12 months 12 months Cash effects of operating activities Loss before taxation (72 851) (134 705) Adjustment for: Depreciation and amortisation 12 063 12 112 Loss / (profit) on sale of property, plant and equipment 1 651 (24) Profit on disposal of subsidiaries (4 056) - Bargain price gain on acquisition of business (430) - Loss on disposal of business 1 428 - Interest received (52) (2 523) Interest paid 23 902 28 244 Impairment of goodwill 2 050 17 848 Impairment of property, plant and equipment 13 784 136 Impairment of investment property 519 - Loss on deconsolidation of subsidiary - 4 828 Movements in provisions - (65) Lease accrual adjustment 2 137 10 453 Share based payment expense 1 980 - Working capital changes: Inventories (7 980) 55 003 Trade and other receivables 60 080 32 200 Trade and other payables (50 940) 831 Cash (utilised in) /generated from operations (16 715) 24 338 Interest received 52 2 523 Interest paid (23 902) (28 244) Taxation paid (8 011) (12 211) Cash utilised in operating activities (48 576) (13 594) Cash effects of investing activities Consideration paid on purchase of property, plant and equipment (27 951) (3 435) Proceeds on sale of property, plant and equipment 6 140 1 697 Loans repaid / (advanced) to joint ventures 2 (15 911) Cash effects on deconsolidation of subsidiary - (973) Repayments received on loans to directors - 5 427 Consideration paid on acquisition of business (44 697) - Proceeds on sale of business 4 994 35 215 Cash utilised in investing activities (61 512) 22 020 Cash effects of financing activities Repayment of other financial liabilities (1 428) (846) Repayments of bonds on properties (2 914) (1 143) Advances of bonds on properties 1 598 247 Repayments of instalment sale agreements (3 639) (13 691) Loans received from bank 93 639 - Loans received from shareholders 1 192 30 365 Repayment of directors’ loan - (1 419) Proceeds on rights issues 112 276 - Cash flows from financing activities 200 724 13 513 ALERT STEEL | Annual Report 2012 ALERT STEEL | Annual Report 2012 29

18. Related parties Relationships Entities controlled by directors Schallies Belegings (Pty) Ltd Paul Kruger Straat Beleggings 390 (Pty) Ltd Zeranza 26 (Pty) Ltd FINANCIAL STATEMENTS Icon suppliers (Pty) Ltd Capital Africa Steel (Pty) Ltd Reinforcing & Mesh Solutions, a division of Capital Africa Steel (Pty) Ltd Capital Star Steel (Pty) Ltd Steel Mecca (Pty) Ltd Gondwana Marketing (Pty) Ltd Buffelskom Boerdery (Pty) Ltd JC Family Trust Mahuma Investment Holdings (Pty) Ltd Shareholders with significant influence Capital Africa Steel (Pty) Ltd Close family of directors Novator (Pty) Ltd Directors WF Schalekamp J du Toit N Cresswell OV Jevon (resigned 18 May 2012) MW McCulloch R van Rooyen (resigned 7 December 2011) MM Patel E Hewitt (resigned 5 November 2011) W van der Merwe BS Mahuma

June 2012 June 2011 R000 12 months 12 months The following related party transactions were identified during the period: Rent paid to / (received from) related parties These transactions were done at arms length and are settled on 30 day payment terms Schallies Beleggings (Pty) Ltd 3 360 2 957 Paul Kruger Straat Beleggings 390 (Pty) Ltd 420 399 Zeranza 26 (Pty) Ltd 1 709 1 374 Icon suppliers (Pty) Ltd 23 25 Purchases from / (sales to) related parties These transactions were done at arms length and are settled on 30 day payment terms Capital Africa Steel (Pty) Ltd 8 250 - Reinforcing & Mesh Solutions, a division of Capital Africa Steel (Pty) Ltd 8 216 - Capital Star Steel (Pty) Ltd 327 - Novator (Pty) Ltd 1 463 1 419 Steel Mecca (Pty) Ltd (3 936) - Gondwana Marketing (Pty) Ltd (82) (1 298) Buffelskom Boerdery (Pty) Ltd (1 006) (528) Business combinations transactions Proceeds on disposal of Alert Steel North West operations to Capital Africa Steel – this transaction was settled R12 million in cash and R15 million was set-off against an outstanding trade debtor. - (27 000) Proceeds on disposal of Alert Plumbing division to Taboo Trading (Pty) Ltd – these proceeds were settled in cash. - (8 241) Consideration paid on acquisition of Alert Steel North West (Pty) Ltd – the loan bears interest at prime + 2% and is convertible into ordinary shares within 24 to 36 months at the discretion of the directors. 21 644 - Consideration paid on acquisition of the business of Steelmecca (Pty) Ltd – consideration was settled in cash. 4 266 - Amounts included in trade receivable / (trade payable) regarding related parties These amounts carry 30 day terms and no interest is applicable on outstanding amounts. Reinforcing & Mesh Solutions, a division of Capital Africa Steel (Pty) Ltd (608) - Schallies Beleggings (Pty) Ltd - 1 Capital Africa Steel (Pty) Ltd (1) - Novator (Pty) Ltd (58) (7) Icon suppliers (Pty) Ltd - 6 Gondwana Marketing (Pty) Ltd 1 - Buffelskom Boerdery (Pty) Ltd 2 - Steel Mecca (Pty) Ltd 24 - 30 ALERT STEEL | Annual Report 2012

NOTES TO THE Summarised FINANCIAL STATEMENTS (continued)

19. dIRECTORS emoluments Short-term employee benefits Termina- tion benefit Directors and Performance Retrenchment attendance R000 Basic salary bonus package fees Total 2012 Executive J du Toit 1 800 - - - 1 800 N Cresswell 1 200 - - - 1 200 WF Schalekamp 1 350 - 1 226 - 2 576 4 350 - 1 226 - 5 576 Non-executive MW McCulloch - - - 50 50 W van der Merwe - - - 91 91 MM Patel - - - 105 105 BS Mahuma - - - 98 98 R van Rooyen - - - 118 118 OV Jevon - - - 143 143 - - - 605 605

Short-term employee benefits Directors and Performance Travel attendance R000 Basic salary bonus allowance fees Total 2011 Executive J du Toit 450 - - - 450 N Cresswell 100 - - - 100 WW Mentz 638 - 108 - 746 WF Schalekamp 1 122 - - - 1 122 2 310 - 108 - 2 418 Non-executive R van Rooyen - - - 125 125 OV Jevon - - - 140 140 - - - 265 265 ALERT STEEL | Annual Report 2012 ALERT STEEL | Annual Report 2012 31

shareholder Analysis for the year ended 30 June 2012

Number of Number of Shareholder spread shareholders % shares % 1 - 1 000 shares 96 6.27 47 363 0.00 1 001 - 10 000 shares 458 29.90 2 262 617 0.06 10 001 - 100 000 shares 517 33.75 20 854 501 0.51 100 001 - 1 000 000 shares 346 22.58 119 653 852 2.92 1 000 001 shares and over 115 7.51 3 949 732 233 96.51 Total 1 532 100 4 092 550 566 100

Number of Number of Distribution of shareholders shareholders % shares % Banks 1 0.07 814 417 563 19.90 Brokers 1 0.07 1 861 0.00 S harehol d ers ’ information Closed corporations 27 1.76 15 969 741 0.39 Endowment funds 1 0.07 250 0.00 Individuals 1 369 89.36 458 291 046 11.20 Investment companies 3 0.20 24 293 180 0.59 Nominees and trusts 76 4.96 633 546 481 15.48 Other corporations 13 0.85 2 747 778 0.07 Private companies 37 2.42 2 132 035 945 52.10 Public companies 3 0.20 3 646 721 0.09 Share trust 1 0.07 7 600 000 0.19 Total 1 532 100 4 092 550 566 100

Number of Number of Public / non-public shareholders shareholders % shares % Non-public shareholders 6 0.39 2 334 732 854 57.05 Directors and associates of the company holdings 5 0.33 2 327 132 854 56.86 Share trusts 1 0.07 7 600 000 0.19 Public shareholders 1 526 99.61 1 757 817 712 42.95 Total 1 532 100 4 092 550 566 100

Number of Beneficial shareholders holding 5% or more shares % Capital Africa Steel (Pty) Ltd 1 578 936 022 38.58 Nedbank Corp Banking Cluster Brn 39 814 417 563 19.90 WF & JC Family Trust 603 820 428 14.69 Carlmac Steel (Pty) Ltd 250 145 390 6.11

2012 2011 Directors’ interest in shares Direct Indirect Direct Indirect WF Schalekamp 604 120 319 - 147 003 882 - MW McCulloch - 1 578 936 022 - 64 263 171 BS Mahuma - 4 490 636 - - WP van der Merwe - 142 001 143 - - 604 120 319 1 725 427 801 147 003 882 64 263 171 There has been no movement in the above directors’ interest in shares from year-end to the last practical date. 32 ALERT STEEL | Annual Report 2012

SHAREHOLDERS’ DIARY

Financial year-end 30 June Announcement of reviewed financial results 20 October 2012 Annual general meeting 15 January 2013 Announcement of interim financial results as on 31 December 2012 March 2013

SHARE PRICE GRAPH Alert Steel closing share price performance 1 March 2007 - 30 June 2012 AltX code: AET

Cents per share

250

200

150

100

10

0 2007 2008 2009 2010 2011 2012 ALERT STEEL | Annual Report 2012 ALERT STEEL | Annual Report 2012 33

NOTICE OF ANNUAL GENERAL MEETING

This notice of annual general meeting (AGM) contains important the allotment and issue of the shares must be made to persons information relating to the adoption of a new Memorandum of qualifying as public shareholders as defined in the Listings Incorporation (MOI). The complete MOI is available for inspection Requirements of the JSE; at the company’s registered office from the date of this notice of the shares which are the subject of the issue for cash must be annual general meeting until the date of the annual general meeting. of a class already in issue, or where this is not the case, must The salient features of the MOI are set out in Appendix 1 hereto. be limited to such shares or rights that are convertible into a If you are in any doubts to what action to take in regard to class already in issue; this notice, please consult your Central Securities Depositary that a paid press announcement giving full details, including the Participant (CSDP), broker, banker, accountant, attorney or other impact of the issue on net asset value, net tangible asset value, professional adviser immediately and refer the instruction set out earnings and headline earnings per share and if applicable, at the conclusion of this notice. diluted earnings and diluted headline earnings per share, be published after any issue representing, on a cumulative basis NOTICE OF ANNUAL GENERAL MEETING within one financial year, 5% of the number of shares in issue ALERT STEEL HOLDINGS LIMITED prior to the issue concerned; (Incorporated in the Republic of South Africa) that the issues in aggregate in any one financial year (including (Registration number 2003/005144/06) the number of any shares that may be issued in future arising JSE code: AET ISIN: ZAE000092847 out of the issue of options) shall not exceed 50% of the number (“Alert Steel” or “the company” or “the group”) of shares of the company’s issued ordinary share capital; and S harehol d ers ’ information that in determining the price at which an issue of shares for Notice is hereby given that the AGM of shareholders of Alert Steel cash will be made in terms of this authority, the maximum will be held at the offices of the company, cnr Engelbrecht and discount permitted shall be 10% of the weighted average Lanham Streets, East Lynne, Pretoria on Tuesday 15 January 2013 traded price of the ordinary shares on the JSE, measured over at 11:00 to present the annual financial statements to shareholders the 30 business days prior to the date that the price of the issue and to consider and, if deemed appropriate, pass the ordinary and is agreed between the company and the party subscribing for special resolutions listed below, with or without modification. the securities. The record date in terms of section 59 of the Companies Act for Ordinary resolution 6: Remuneration philosophy shareholders to be recorded in the register in order to be able to It is resolved, by way of a non-binding, advisory vote, that the attend, participate and vote at the AGM is 4 January 2013. remuneration philosophy of the company as set out on page 13 of the annual report, which includes a policy not to remunerate executive Presentation of annual financial statements directors for attendance at board and committee meetings but to To present the consolidated audited annual financial statements of rather remunerate them in terms of an employment contract, be and the company and its subsidiaries, incorporating the reports of the is hereby approved. auditors, the audit committee and the directors for the year ended Special resolution 1: Directors’ remuneration 30 June 2012. It is resolved, as a special resolution: that the company be and is hereby authorised to pay Resolutions for consideration and approval remuneration to its non-executive directors for their services Ordinary resolutions 1.1 to 1.2: Rotation and as non-executive directors, as contemplated in section 66 (8) appointment of directors and 66 (9) of the Companies Act of 2008; and 1.1: It is resolved that Malcolm McCulloch be and is hereby re- that the remuneration structure and amounts as set out below, appointed as a non-executive director of the company. be and are hereby approved from 1 July 2012 until such time 1.2: It is resolved that Wynand Schalekamp be and is hereby re- as rescinded or amended by shareholders by way of a special appointed as a non-executive director of the company. resolution : Ordinary resolutions 2.1 to 2.3: Appointment of audit Type of fee: committee 2.1: It is resolved that Matesh Patel be and is hereby appointed as Proposed fee Per annum / a member of the audit committee of the company. in 2013 (R) per meeting 2.2: It is resolved that Wessel van der Merwe be and is hereby Board appointed as a member of audit committee of the company. Chairman 150 000 per annum 2.3: It is resolved that Gwen Mahuma be and is hereby appointed Board member 120 000 per annum as a member of the audit committee of the company. Audit committee Ordinary resolution 3: Appointment of auditors Chairman 7 500 per meeting It is resolved, on recommendation of the audit committee, that Member 7 500 per meeting KPMG Inc. be and is hereby re-appointed as independent auditors Risk committee of the company, the designated auditor meeting the requirements Chairman 5 000 per meeting of section 90 (2) of the Companies Act 71 of 2008. Member 5 000 per meeting Ordinary resolution 4: Authority to issue shares Remunerations and It is resolved that the directors be and are hereby authorised to allot nominations committee and issue at their discretion the unissued but authorised ordinary Chairman 5 000 per meeting shares in the share capital of the company and/or grant options Member 5 000 per meeting to subscribe for the unissued shares, for such purposes and on Social and ethics such terms and conditions as they may determine, provided that committee such transaction(s) has/have been approved by the JSE Limited Chairman 5 000 per meeting (JSE), as and when required, and are subject to the JSE Listings Member 5 000 per meeting Requirements and the Companies Act and shareholders hereby Additional consultation fee per hour 1 000 per hour waive any pre-emptive rights thereto.” Ordinary resolution 5: Authority to issue shares for Special resolution 2: General authority to repurchase cash shares It is resolved that, in terms of the Listings Requirements of the It is resolved, as a special resolution, that the mandate given to JSE, the mandate given to the directors of the company in terms the company in terms of its MOI (or one of its wholly-owned of a general authority to issue securities for cash, as and when subsidiaries) providing authorisation, by way of a general approval, suitable opportunities arise, be renewed subject to the following to acquire the company’s own securities, upon such terms and conditions: conditions and in such amounts as the directors may from time that this authority shall only be valid until the next AGM of the to time decide, subject to the Listings Requirements of the JSE, company but shall not extend beyond 15 months from the date the Companies Act and the company’s MOI, be extended, subject of this meeting; to the following: 34 ALERT STEEL | Annual Report 2012

NOTICE OF ANNUAL GENERAL MEETING (continued)

this general authority be valid until the company’s next AGM, way of special resolution passed at a duly constituted AGM of the provided that it shall not extend beyond 15 (fifteen) months company.” from the date of passing of this special resolution (whichever Special resolution 4: Adoption of Memorandum of period is shorter); Incorporation the repurchase being effected through the order book operated It is resolved as a special resolution that a new MOI, as detailed by the JSE trading system, without any prior understanding or in the salient features thereof attached to this notice of AGM as arrangement between the company and the counterparty; Appendix 1, the complete MOI having been available for inspection repurchases may not be made at a price greater than 10% (ten at the company’s registered office from the date of notice of this percent) above the weighted average of the market value of AGM until the date of this AGM, which MOI will supersede the the ordinary shares for the 5 (five) business days immediately current Memorandum and Articles of Association of the company, preceding the date on which the transaction was effected; the complete MOI having been initialled by the chairman of this an announcement being published as soon as the company meeting for identification purposes and tabled at this meeting, be has repurchased ordinary shares constituting, on a cumulative and is hereby ratified and approved.” basis, 3% (three percent) of the initial number of ordinary Ordinary resolution 7: Signing authority shares, and for each 3% (three percent) in aggregate of the To authorise any one director or the secretary of the company to initial number of ordinary shares repurchased thereafter, do all such things and sign all such documents as are deemed containing full details of such repurchases; necessary to implement the resolutions set out in the notice the number of shares which may be acquired pursuant to this convening the AGM at which this ordinary resolution will be authority in any one financial year may not in the aggregate considered and approved at such meeting. exceed 20% (twenty percent) of the company’s issued share capital as at the date of passing of this special resolution or Additional information 10% of the company’s issued share capital in the case of an The following additional information, some of which may appear acquisition of shares in the company by a subsidiary of the elsewhere in the annual report, is provided in terms of the JSE company; Listings Requirements for purposes of the general authority to the company’s sponsor confirming the adequacy of the repurchase the company’s securities set out in special resolution company’s working capital for purposes of undertaking the number 2 above : repurchase of ordinary shares in writing to the JSE prior to the directors and management – page 2; company entering the market to proceed with the repurchase; major shareholders – page 31; the company and/or its subsidiaries not repurchasing securities directors’ interests in ordinary shares – page 31; and during a prohibited period as defined in the JSE Listings share capital of the company – page 31. Requirements, unless it has in place a repurchase programme where the dates and quantities of securities to be traded during Litigation statement the relevant period are fixed and full details of the programme The directors in office whose names appear on pages 2 of the have been disclosed in an announcement published on SENS annual report, are not aware of any legal or arbitration proceedings, prior to the commencement of the prohibited period; including any proceedings that are pending or threatened, that may at any point in time the company only appointing one agent to have, or have had, in the recent past, being at least the previous effect any repurchases on its behalf; and 12 (twelve) months from the date of this annual report, a material the board of directors passing a resolution that they authorised effect on the group’s financial position. the repurchase and that the company passed the solvency and liquidity test set out in section 4 of the Companies Act of 2008 Directors’ responsibility statement and that since the test was done there have been no material The directors in office, whose names appear on page 2 of the changes to the financial position of the group. annual report, collectively and individually accept full responsibility The directors of the company and its subsidairies will only utilise for the accuracy of the information pertaining to special resolution the general authority to purchase the company’s securities to the number 2 and certify that, to the best of their knowledge and belief, extent that they, having considered the effects of the maximum there are no facts that have been omitted which would make any repurchase permitted, are of the opinion that for a period of statement false or misleading, and that all reasonable enquiries to 12 (twelve) months after the date of the notice of the AGM and at ascertain such facts have been made and that the special resolution the actual date of the repurchase: contains all information required by the JSE Listings Requirements. the company and the group will be able, in the ordinary course of business, to pay its debts; Material changes the working capital of the company and the group will be Other than the facts and developments reported on in the annual adequate for ordinary business purposes; report, there have been no material changes in the affairs or financial the assets of the company and the group, fairly valued in position of the company and its subsidiaries since the company’s accordance with International Financial Reporting Standards, financial year-end and the date of signature of the annual report. will exceed the liabilities of the company and the group; the company’s and the group’s ordinary share capital and Directors’ intention regarding the general reserves will be adequate for ordinary business purposes; and authority to repurchase the company’s securities the directors have passed a resolution authorising the The directors have no specific intention, at present, for the repurchase, resolving that the company has satisfied the company to repurchase any of its securities but consider that such solvency and liquidity test as defined in the Companies Act and a general authority should be put in place should an opportunity resolving that since the solvency and liquidity test had been present itself to do so during the year which is in the best interests applied, there have been no material changes to the financial of the company and its shareholders. position of the group. Special resolution 3: Financial assistance to related Electronic participation and inter-related companies Should any shareholder of the company wish to participate in the It is resolved, by way of a special resolution, that the directors of AGM by way of electronic participation, that shareholder shall be the company be and are hereby authorised to provide financial obliged to make application in writing (including details as to how the assistance to all related and inter-related companies within the shareholder or its representative can be contacted) to so participate, Alert Steel group of companies, at such times and on such terms to the company secretary at the applicable address set out below at and conditions as the directors in their sole discretion deem fit least 5 (five) business days prior to the AGM in order for the company and subject to all relevant statutory and regulatory requirements secretary to arrange for the shareholder (and its representative) being met, such authority to remain in place until rescinded by to provide reasonably satisfactory identification to the transfer ALERT STEEL | Annual Report 2012 ALERT STEEL | Annual Report 2012 35

secretaries for the purposes of section 63 (1) of the Companies Ordinary resolutions 1.1 to 1.2: Rotation and Act and for the company secretary to provide the shareholder (or appointment of directors its representative) with details as to how to access any electronic In accordance with the company’s MOI, one third of the directors participation to be provided. The company reserves the right not to are required to retire at each AGM and may offer themselves for provide for electronic participation at the AGM in the event that it re-election. In addition, any person appointed to the board of determines that it is not practical to do so. The costs of accessing directors following the previous AGM is similarly required to retire any means of electronic participation provided by the company will and is eligible for re-election at the next AGM. be borne by the shareholder so accessing the electronic participation. The purpose of these resolutions is to elect, by way of separate resolutions, directors in the place of those retiring in accordance Proxies with the company’s MOI. The directors retiring are Malcolm Any shareholder holding shares in certificated form or recorded McCulloch and Wynand Schalekamp, both of whom being eligible on the company’s sub-register in electronic dematerialised form in offer them for re-election. ‘own name’ and entitled to attend, speak and vote at the meeting Brief biographical details of each of the above directors and the is entitled to appoint a proxy to attend, speak and on a poll vote in remaining members of the board are contained on page 2 of the his stead. A proxy need not be a member of the company. annual report of which this notice forms part. Proxy forms must be lodged at the offices of the transfer secretaries, Ordinary resolutions 2.1 to 2.3: Appointment of audit Computershare Investor Services (Pty) Ltd (70 Marshall Street, committee S harehol d ers ’ information cnr Sauer Street, Johannesburg; PO Box 61051, Marshalltown, In terms of section 94 (2) of the Companies Act 71 of 2008 (the 2107), by no later than 10h00 on Friday 11 January 2013 or they Act), a public company must at each AGM elect an audit committee may be handed to the chairperson of the AGM at any time prior comprising at least three members who are directors and who to the commencement of voting on the ordinary and special meet the criteria of section 94 (4) of the Act. Regulation 42 to the resolutions tabled at the AGM. Act specifies that one third of the members of the audit committee All beneficial owners whose shares have been dematerialised must have appropriate academic qualifications or experience in the through a Central Securities Depository Participant (CSDP) or broker areas as listed in the regulation. other than with ‘own name’ registration, must provide the CSDP The board of directors of the company is satisfied that the proposed or broker with their voting instructions in terms of their custody members of the audit committee meet all relevant requirements. agreement should they wish to vote at the AGM. Alternatively, Contrary to the recommendation contained in King III that the they may request the CSDP or broker to provide them with a letter chairman of the board should not be a member of the audit of representation, in terms of their custody agreements, should committee, the current composition of the board requires the they wish to attend the AGM. Shareholders and proxies of shareholders are advised that they chairman of the board to also be a member of the audit committee will be required to present reasonably satisfactory identification in in order to meet the statutory requirements for the composition order to attend or participate in the AGM as required in terms of of an audit committee appointed in terms of the Companies Act. section 63 (1) of the Companies Act of 2008. The purpose of these resolutions is to appoint, by way of separate resolutions, the following independent non-executive directors as Voting thresholds members of the audit committee: All ordinary resolutions are subject to a simple majority of votes, Mitesh Patel except for ordinary resolution number 5. In terms of the JSE Wessel van der Merwe Listings Requirements, the approval of a 75% majority of votes Gwen Mahuma of all shareholders, present or represented by proxy, is required to Ordinary resolution 3: Appointment of auditors approve ordinary resolution number 5. KPMG Inc has indicated its willingness to continue in office and The special resolutions must be supported by 75% or more of the resolution 3 proposes the re-appointment of that firm as the voting rights exercised. company’s auditors with effect from 1 July 2012. Section 90 (3) of the Companies Act 71 of 2008 (the Act) requires the designated Voting auditor to meet the criteria as set out in section 90 (2) of the Act. In terms of the JSE Listings Requirements any shares held by the The board of directors of the company is satisfied that both KPMG Alert Share Incentive Scheme will not have its votes at the AGM and the designated auditor meet relevant requirements. taken into account in determining the results of voting on ordinary Ordinary resolutions 4 and 5: Placement and issue of resolution number 5 and special resolution number 2. shares for cash In terms of the Companies Act 71 of 2008 (the Act), directors are By order of the board authorised to allot and issue the unissued shares of the company, unless otherwise provided in the company’s MOI or in instances M Pretorius as listed in section 41 of the Act. The JSE requires that the Company Secretary MOI should provide that shareholders in a general meeting may authorise the directors to issue unissued securities and/or grant Pretoria options to subscribe for unissued securities as the directors 6 December 2012 in their discretion think fit, provided that such transaction(s) has / have been approved by the JSE and are subject to the JSE Registered office Listings Requirements. In the absence of the MOI as contemplated Cnr Engelbrecht and Lanham Streets, East Lynne, Pretoria, 0186 in the Act, ordinary resolution 4 has been included to confirm (PO Box 29607, Sunnyside, 0132) directors’ authority to issue shares. Directors confirm that there is no specific intention to issue any shares, other than as part of and ANNUAL GENERAL MEETING – EXPLANATORY NOTES in terms of the rules of the company’s share incentive scheme, as Voting at the date of this notice. A 75% majority of the votes cast by shareholders present or Also, in terms of the JSE Listings Requirements, the authority to represented by proxy at the AGM must be cast in favour of special issue shares for cash as set out in ordinary resolution 5 requires resolutions for these to be approved. Ordinary resolutions are the approval of a 75% majority of the votes cast by shareholders approved by more than 50% of the votes cast by shareholders present or represented by proxy at the AGM for ordinary resolution present or represented by proxy. number 5 to become effective. Presentation of annual financial statements Ordinary resolution 6: Remuneration philosophy At the AGM, the directors must present the annual financial The King Report on Corporate Governance for South Africa, 2009 statements for the year ended 30 June 2012 to shareholders, together recommends that the remuneration philosophy of the company be with the reports of the directors, the audit and risk committee and the submitted to shareholders for consideration and for an advisory, auditors. These are contained within the annual report. non-binding vote to provide shareholders with an opportunity to 36 ALERT STEEL | Annual Report 2012

NOTICE OF ANNUAL GENERAL MEETING (continued)

indicate should they not be in support of the material provisions of 3. Except to the extent that the MOI of a company provides the remuneration philosophy and policy of the company. otherwise: Special resolution 1: Directors’ remuneration 3.1 a shareholder of the relevant company may appoint two In terms of section 66 (8) and section 66 (9) of the Companies or more persons concurrently as proxies, and may appoint Act 71 of 2008, companies may pay remuneration to directors for more than one proxy to exercise voting rights attached to their services as directors unless otherwise provided by the MOI different securities held by such shareholder; and on approval of shareholders by way of a special resolution. 3.2 a proxy may delegate his authority to act on behalf of a Executive directors are not specifically remunerated for their shareholder to another person, subject to any restriction services as directors but as employees of the company and as set out in the instrument appointing the proxy; and such, the resolution as included in the notice requests approval of 3.3 a copy of the instrument appointing a proxy must be the remuneration paid to non-executive directors for their services delivered to the company or to any other person on behalf as directors of the company. of the relevant company before the proxy exercises any Special resolution 2: General authority to repurchase rights of the shareholder at a shareholders’ meeting. shares 4. Irrespective of the form of instrument used to appoint a proxy, Section 48 of the Companies Act 71 of 2008 (the Act) authorises the appointment of the proxy is suspended at any time and to the extent that the shareholder who appointed that proxy the board of directors of a company to approve the acquisition of chooses to act directly and in person in the exercise of any its own shares subject to the provisions of section 48 and section rights as a shareholder of the relevant company. 46 having been met. In order to ensure compliance with the 5. Unless the proxy appointment expressly states otherwise, requirements of the Act, the Listing Requirements of the JSE and the appointment of a proxy is revocable. If the appointment the provisions of the MOI of the company, a special resolution is of a proxy is revocable, a shareholder may revoke the proxy proposed to provide authority to the company to repurchase its appointment by cancelling it in writing or making a later shares. inconsistent appointment of a proxy, and delivering a copy of Special resolution 3: Financial assistance to related the revocation instrument to the proxy and the company. and inter-related companies 6. The revocation of a proxy appointment constitutes a complete Section 45 (2) of the Companies Act 71 of 2008 (the Act) authorises and final cancellation of the proxy’s authority to act on behalf of the board to provide direct or indirect financial assistance to a the relevant shareholder as of the later of the date: (a) stated related or inter-related company, subject to subsections (3) and in the revocation instrument, if any; or (b) upon which the (4) of section 45 of the Act and unless otherwise provided in the revocation instrument is delivered to the proxy and the relevant company’s MOI. In terms of section 45 (3) of the Act, a special company as required in section 58 (4)(c)(ii) of the Act. resolution of shareholders is required in these instances. The 7. If the instrument appointing a proxy or proxies has been main purpose of the special resolution as set out in the notice of delivered to the relevant company, as long as that appointment the meeting is to approve the granting of inter-company loans, a remains in effect, any notice that is required by the Act or the recognised and well known practice, details of which are also set relevant company’s MOI to be delivered by such company to out in the notes to the annual financial statements. the shareholder, must be delivered by such company to the Special resolution 4: Adoption of MOI shareholder or to the proxy or proxies, if the shareholder has Following the implementation of the Companies Act 71 of 2008 directed the relevant company to do so in writing and paid any (the Act) on 1 May 2011, companies were afforded a two year reasonable fee charged by the company for doing so. 8. A proxy is entitled to exercise or abstain from exercising any period within which to align the provisions of its MOI with the voting right of the relevant shareholder without direction, provisions of the Act. The new MOI, the salient features of which except to the extent that the MOI or the instrument appointing are set out on pages 37 to 38 of the annual report, has been aligned the proxy provides otherwise. with the provisions of the Act while also complying with the JSE 9. If a company issues an invitation to shareholders to appoint Listings Requirements. one or more persons named by such company as a proxy or Ordinary resolution 7: Signing authority supplies a form of instrument for appointing a proxy: Authority is required to do all such things and sign all documents 9.1 such invitation must be sent to every shareholder who and take all such action as necessary to implement the resolutions is entitled to notice of the meeting at which the proxy is set out in the notice and approved at the AGM. It is proposed that intended to be exercised; the company secretary and/or director be authorised accordingly. 9.2 the invitation or form of instrument supplied by the relevant company must: (a) bear a reasonably prominent summary General of the rights established in section 58 of the Act; (b) contain Shareholders and proxies attending the AGM on behalf of adequate blank space, immediately preceding the name or shareholders are reminded that section 63 (1) of the Companies names of any person or persons named in it, to enable Act 71 of 2008 requires that reasonably satisfactory identification a shareholder to write in the name and, if so desired, an be presented in order for such shareholder or proxy to be allowed alternative name of a proxy chosen by such shareholder; to attend or participate in the meeting. and (c) provide adequate space for the shareholder to indicate whether the appointed proxy is to vote in favour or Summary of the rights established in terms of against the applicable resolution/s to be put at the relevant section 58 of the Act as required by section 58 (7)(b) meeting, or is to abstain from voting; 9.3 the company must not require that the proxy appointment For purposes of this summary, ‘shareholder’ shall have the meaning be made irrevocable; and ascribed thereto in the Act. 9.4 the proxy appointment remains valid only until the end of 1. At any time, a shareholder of a company is entitled to appoint the relevant meeting at which it was intended to be used, any individual, including an individual who is not a shareholder unless revoked as contemplated in section 58(5) of the Act. of that company, as a proxy, to participate in, speak and vote at a shareholders’ meeting on behalf of the shareholder or give Salient dates or withhold written consent on behalf of such shareholder in Last day to trade to be eligible relation to a decision contemplated in section 60 of the Act. to vote at the AGM Friday, 28 December 2012 2. A proxy appointment must be in writing, dated and signed by Record date for determining those the relevant shareholder, and such proxy appointment remains shareholders entitled to vote at the AGM Friday, 4 Januray 2013 valid for one year after the date upon which the proxy was Last day to lodge forms of proxy signed or any longer or shorter period expressly set out in the for the AGM by 10:00 on Friday, 11 January 2013 appointment, unless it is revoked in a manner contemplated in (or they may be handed to the chairman of the meeting at any time section 58 (4) (c) of the Act or expires earlier as contemplated prior to the commencement of voting on the resolutions tabled at in section 58 (8) (d) of the Act. the AGM). ALERT STEEL | Annual Report 2012 ALERT STEEL | Annual Report 2012 37

MEMORANDUM OF INCORPORATION: SALIENT FEATURES

The notice of the annual general meeting (AGM) as contained in If any amendment relates to the variation of any preferences, this annual report includes a special resolution for the approval of rights, limitations and other terms attaching to any other class of a new Memorandum of Incorporation (MOI) for the company by shares already in issue, that amendment will not be implemented shareholders. without a special resolution, taken by the holders of shares in A copy of the complete MOI is available for inspection at the that class at a separate meeting. In such instances, the holders company’s registered office, cnr Engelbrecht and Lanham Streets, of such shares will be allowed to vote at the meeting of ordinary East Lynne, Pretoria from the date of the notice of the AGM (i.e. shareholders subject to the JSE Listings Requirements. No Wednesday, 12 December 2012) until Tuesday, 15 January 2013, resolution of shareholders of the company shall be proposed or the date of the AGM. passed, unless a special resolution, of the holders of the shares The salient features of the MOI are set out below. Any reference to in that class, have approved the amendment. ‘the Act’ means the Companies Act, 71 of 2008. Preferences, rights, limitations or other terms of any class of shares of a listed company must not be varied and no resolution Unissued securities may be proposed to shareholders for rights to include such Unissued equity securities shall be offered to existing shareholders, variation in response to any objectively ascertainable external fact pro rata to their shareholdings, unless such securities are to be or facts as provided for in sections 37 (6) and 37 (7) of the Act. issued for an acquisition of assets. However, the shareholders in general meeting may authorise the directors to issue unissued securities, and/or grant options to subscribe for unissued Capitalisation issues S harehol d ers ’ information securities, as the directors in their discretion deem fit, provided Any capitalisation issue by the company shall at least be subject to that such corporate action(s) has/have been approved by the JSE the fulfilment of the requirements set out in section 47 of the Act. Limited (JSE) and are subject to the JSE Listings Requirements. Scrip dividend and cash dividend Transferability of securities and elections transfer of securities The grant of the right of election is not prohibited. Securities for which listing is sought must be fully paid up and freely transferable, unless otherwise required by statute. Payments to securities holders All authorities to sign transfer deeds granted by holders of Payments to securities holders are provided for in accordance with securities for the purpose of transferring securities that may the JSE Listings Requirements and capital shall not be repaid upon be lodged, produced or exhibited with or to the company at any the basis that it may be called up again. of its transfer offices shall, as between the company and the grantor of such authorities, be taken and deemed to continue Other corporate actions and remain in full force and effect, and the company may allow The following corporate actions are provided for, in accordance the same to be acted upon until such time as express notice in with the JSE Listings Requirements: writing of the revocation of the same shall have been given and Issue of shares for cash and options and convertible securities lodged at the company’s transfer offices at which the authority granted / issued for cash; was lodged, produced or exhibited. Even after the giving and lodging of such notices, the company shall be entitled to give Repurchase of securities; and effect to any instruments signed under the authority to sign, Alteration of share capital, authorised shares and rights and certified by any officer of the company, as being in order attaching to a class / es of shares. before the giving and lodging of such notice. Debt instruments Ratification of ultra vires acts The granting of special privileges to holders of debt instruments, The proposal of any resolution to shareholders in terms of sections such as attending and voting at general meetings and the 20 (2) and 20 (6) of the Act is prohibited in the event that such a appointment of directors, are prohibited. resolution would lead to the ratification of an Act that is contrary to the JSE Listings Requirements; unless otherwise agreed with Resolutions and meetings the JSE. Notice periods are as provided for in section 62 (1) of the Act. The passing of a special resolution is subject to the approval of at least Rules 75% of the votes cast by all equity securities holders present in The directors’ power to make, amend or appeal rules as person, or represented by proxy, at the general / annual general contemplated in Section 15 (3) of the Act is prohibited. meetings convened to approve such resolution. All shareholder meetings convened in terms of the JSE Listings Preferences, rights, limitations and Requirements shall be held ‘in person’ and not by means of a other share terms written resolution as is contemplated in section 60 of the Act. Securities in each class for which listing is applied rank pari There is no prohibition or restriction on the company from passu in respect of all rights. calling any meeting for the purposes of adhering to the JSE In the event of voting by poll, every holder of an ordinary share Listings Requirements. has one vote in respect of each share that he holds. Notices of general / annual general meetings are to be delivered The holders of securities, other than ordinary shares and any to each shareholder entitled to vote at such meeting and who special shares created for the purposes of black economic has elected to receive such documents. empowerment in terms of the BEE Act and BEE Codes, are Provision is made for delivering notices of meetings to the JSE not entitled to vote on any resolution taken by the company, at the same time as notices are sent to shareholders and must save for as permitted by the JSE Listings Requirements. In also be announced through SENS. instances that such shareholders are permitted to vote at The quorum at a general meeting is at least three shareholders general/annual general meetings, their votes do not carry any special rights or privileges and they are entitled to one vote entitled to attend and vote thereat. In addition, the quorum for each share that they hold, provided that their total voting requirements provided for in section 64 (1) of the Act will right at such a general/annual general meeting may not exceed be 25% in respect of the meeting. Once a quorum has 24.99% of the total voting rights of all shareholders at such been established, all the shareholders of the quorum must meeting. be present at the meeting to hear any matter that must be Any amendment to the MOI must be approved by a special considered at the meeting. resolution of ordinary shareholders, save where such an amendment is ordered by a court in terms of sections 16 (1) (a) Lien upon securities and 16 (4) of the Act. The company has no power to claim a lien on securities. 38 ALERT STEEL | Annual Report 2012

MEMORANDUM OF INCORPORATION: SALIENT FEATURES (continued)

Commission recommend eligibility, taking into account past performance and The company may not pay commission exceeding 10% to any contribution made. person in consideration for their subscribing or agreeing to The notice period to be allowed before the date of a general/ subscribe, whether absolutely or conditionally, for any securities of annual general meeting convened for the nomination of a new the company. director must be such as to give sufficient time, after the receipt of the notice, for nominations to reach the company’s office Record date from any part of the Republic of South Africa. Directors may The record date for all transactions is as set out in the JSE Listings be elected at a general meeting, provided the meeting is not Requirements. conducted in terms of section 60 of the Act. The directors shall be entitled to elect a chairman, deputy Directors chairman and/or any vice chairman and to determine the period The minimum number of directors is four. for which they, respectively, shall hold office. Where the quorum The board may appoint directors as an addition to the Board or to of directors is two, the chairman shall not be permitted to have fill a casual vacancy. a casting vote if only two directors are present at a meeting of The appointment of all directors is subject to shareholder approval directors. at any general / annual general meetings. Provision is made for the A decision that could be voted on at a meeting of the board appointment of alternate directors. of directors of a company may, instead, be adopted by written Should the number of directors fall below the minimum provided consent of a majority of the directors, given in person or by in the MOI, the remaining directors must, as soon as possible, electronic communication, provided that each director has and, in any event, not later than three months from the date received notice of the matter to be decided. Such resolution, that the number of directors falls below the minimum, fill the inserted in the minute book, shall be as valid and effective as if it vacancies or call a general meeting for the purpose of filling had been passed at a meeting of directors. Any such resolution the vacancies. A failure by the company to have the minimum may consist of several documents and shall be deemed to have number of directors during the three-month period does not limit been passed on the date on which it was signed by the last or negate the authority of the board of directors or invalidate director who signed it (unless a statement to the contrary is anything done by the board of directors or the company. After made in that resolution). the expiry of the three-month period, the remaining directors Life directorships and directorships for an indefinite period are shall only be permitted to act for the purpose of filling vacancies not permissible. or calling general meetings of shareholders. The board has the power to exercise all of the powers and A director may be employed in any other capacity in the company perform any of the functions of the Company, as set out in or as a director or employee of a company controlled by, or section 66 (1) of the Act and the powers of the board in this itself a major subsidiary of, the company and, in such event, his regard are not limited or restricted unless otherwise provided in appointment and remuneration in respect of such other office the MOI. shall be determined by a disinterested quorum of directors. The directors may be paid all their travelling and other expenses, Dividends properly and necessarily incurred by them in and about the The board of directors may declare dividends. business of the company, and in attending meetings of the Dividends are to be payable to shareholders registered as at a directors or of committees thereof; and, if any director is required date subsequent to the date of declaration or date of confirmation to perform extra services, to reside abroad or be specifically of the dividend, whichever is the later. occupied about the company’s business, he may be entitled to The company must hold all monies due to shareholders in receive such remuneration as is determined by a disinterested trust indefinitely, but subject to the laws of prescription. quorum of directors, which may be either in addition to or in Notwithstanding the afore going, unclaimed dividends may be substitution for any other remuneration payable. forfeited for the benefit of the company after a period of three At least one third of non-executive directors must retire at the years if so resolved by the board. company’s AGM (or other general meeting held on an annual basis), provided the meeting is not conducted in terms of Annual financial statements section 60 of the Act. These retiring members of the board A copy of the annual financial statements must be distributed to of directors may be re-elected, provided they are eligible. The shareholders at least 15 business days before the date of the AGM board of directors, through the nomination committee, should at which they will be considered. ALERT STEEL | Annual Report 2012 ALERT STEEL | Annual Report 2012 39

FORM OF PROXY

Form of proxy for the annual general meeting (AGM) of the company to be held at the company’s offices corner Engelbrecht and Lanham Streets, East Lynne, Pretoria on Tuesday 15 January 2013 at 11:00.

Only for use by certificated shareholders, nominee companies of Central Securities Depository Participants (CSDP), brokers’ nominee companies and shareholders who have dematerialised their shares and who have elected own-name registration and who wish to vote on the special and ordinary resolutions per the notice of the AGM to which this form is attached.

Shareholders who have dematerialised their shares through a CSDP or broker must not complete this form of proxy and must provide their CSDP or broker with their voting instructions, except for shareholders who elected own-name registration in the sub-register through a CSDP, which shareholders must complete this form of proxy and lodge it with Computershare Investor Services (Pty) Ltd.

Holders of dematerialised shares other than with own-name registration who wish to attend the AGM, must inform their CSDP or broker of such intention and request their CSDP or broker to issue them with the necessary letter of representation.

I/We ______(name in block letters of ______(address) Telephone numbers ______being the holders of ______ordinary shares in the company, do hereby appoint ______1 ______or failing him/her 2 ______or failing him/her 3 the chairperson of the AGM ______

as my / our proxy to act for me / us and on my / our behalf at the AGM of the company, or any adjournment thereof, which will be held for the purpose of considering and, if deemed fit, of passing, with or without modification, the ordinary and special resolutions as detailed in the notice of AGM, and to vote for and / or against the resolutions and / or abstain from voting in respect of the ordinary shares registered in my our name / s, in accordance with the following instructions:

Number of votes on a poll (one vote per ordinary share) In favour Against Abstain

Ordinary resolution 1.1: Re-election of Malcolm McCulloch as director

Ordinary resolution 1.2: Re-election of Wynand Schalekamp as director

Ordinary resolution 2.1: Election of Mitesh Patel as a member of the audit committee

Ordinary resolution 2.2: Election of Wessel van der Merwe as a member of the audit committee

Ordinary resolution 2.3: Election of Gwen Mahuma as a member of the audit committee

Ordinary resolution 3: Re-appointment of KPMG Inc. as external auditor

Ordinary resolution 4: Authority to issue unissued shares

Ordinary resolution 5: Authority to issue unissued shares for cash

Ordinary resolution 6: Sanctioning of the remuneration philosophy

Special resolution 1: Authorisation for the company to pay remuneration to its directors

Special resolution 2: Authority for the company to repurchase its own securities

Special resolution 3: Authority to provide financial assistance to related and inter-related companies

Special resolution 4: Adoption of MOI

Ordinary resolution 7: Authority to effect the resolutions

Signature ______signed at ______on ______2013

Assisted by ______(if applicable)

Please see notes on reverse.

ALERT STEEL HOLDINGS LIMITED (Incorporated in the Republic of South Africa) • (Registration number 2003/005144/06) JSE code: AET • ISIN: ZAE000092847 • (“Alert Steel” or “the company” or “the group”) 40 ALERT STEEL | Annual Report 2012

NOTES TO THE FORM OF PROXY

1. Each shareholder is entitled to appoint one or more proxies (none of whom need be a shareholder of the company) to attend, speak and vote in place of that shareholder at the AGM.

2. Shareholder(s) that are certificated or own-name dematerialised shareholders may insert the name of a proxy or the names of two alternative proxies of the member’s choice in the space / s provided, with or without deleting ‘the chairperson of the meeting’, but any such deletion must be initialled by the shareholder(s). The person whose name stands first on the form of proxy and who is present at the AGM will be entitled to act as proxy to the exclusion of those whose names follow. If no proxy is named on a lodged form of proxy, the chairperson shall be deemed to be appointed as the proxy.

3. A shareholder’s instructions to the proxy must be indicated by the insertion of the relevant number of votes exercisable by the shareholder in the appropriate box provided. Failure to comply with the above will be deemed to authorise the proxy, in the case of any proxy other than the chairperson, to vote or abstain from voting as deemed fit and in the case of the chairperson to vote in favour of the resolution.

4. A shareholder or his / her proxy is not obliged to use all the votes exercisable by the shareholders, but the total of the votes cast or abstained from may not exceed the total of the votes exercisable in respect of the shares held by the shareholder.

5. Forms of proxy must be lodged at or posted to Computershare Investor Services (Pty) Ltd, Ground Floor, 70 Marshall Street, Johannesburg, 2001 (PO Box 61051, Marshalltown, 2107) to be received no later than 48 hours prior to the meeting or they may be handed to the chairperson of the AGM at any time prior to the commencement of voting on the ordinary and special resolutions to be tabled at the AGM.

6. The completion and lodging of this form of proxy will not preclude the relevant shareholder from attending the AGM and speaking and voting in person thereat to the exclusion of any proxy appointed in terms hereof, should such shareholder wish to do so. Where there are joint holders of shares, the vote of the first joint holder who tenders a vote, as determined by the order in which the names stand in the register of members, will be accepted.

7. The chairperson of the AGM may reject or accept any form of proxy which is completed and / or received otherwise than in accordance with these notes, provided that, in respect of acceptances, the chairperson is satisfied as to the manner in which the shareholder concerned wishes to vote.

8. Documentary evidence establishing the authority of a person signing this form of proxy in a representative capacity must be attached to this form of proxy unless previously recorded by the company or Computershare Investor Services (Pty) Ltd or waived by the chairperson of the AGM.

ALERT STEEL HOLDINGS LIMITED (Incorporated in the Republic of South Africa) • (Registration number 2003/005144/06) JSE code: AET • ISIN: ZAE000092847 • (“Alert Steel” or “the company” or “the group”) ALERT STEEL | Annual Report 2012 ALERT STEEL | Annual Report 2012 IBC

Corporate information

Executive directors Auditors J du Toit N Cresswell KPMG Inc. 35 Empire Road, Parktown, 2193 Non-executive directors Private Bag 9, Parkview, 2122 MW McCulloch WF Schalekamp BS Mahuma MM Patel Company secretary and registered office WP van der Merwe M Pretorius Cnr Engelbrecht and Lanham Streets, East Lynne, Designated advisor Pretoria, 0186 Exchange Sponsors (2008) Proprietary Limited PO Box 29607, Sunnyside, 0132 Registration number 2008/019553/07 44A Boundary Road, Inanda, 2196 Attorneys PO Box 411216, Craighall, 2024 Prinsloo, Tindle and Andropoulous Inc. Registration number 1998/021593/21 Transfer secretaries First Floor Fricker Road, Computershare Investor Services (Pty) Ltd Illovo Boulevard, Illovo, Registration number 2004/003647/07 Johannesburg, 2196 Ground Floor, 70 Marshall Street, Johannesburg, 2001 PO Box 61051, Marshalltown, 2107 Corporate bankers Nedbank Limited Investor and media relations Registration number 1951/000009/06 du Plessis Associates, Helen McKane Nedbank Corporate, First Floor Central House, 40 Central Street,Houghton, 2198 F Block Nedbank Sandton, PO Box 87386, Houghton, 2041 135 Rivonia Road, Sandown, 2196 Email: [email protected] PO Box 1144, Johannesburg, 2000

ALERT STEEL HOLDINGS LIMITED

100% 100% ALERT STEEL CORPORATE SERVICES ALERT STEEL (PTY) LTD (PTY) LTD

Property owning entities 100% DUAL INTAKE Aquarella Alert Steel Pretoria INVESTMENTS 100% Investments 454 Alert Steel Burgersfort (Pty) Ltd 24 (PTY) LTD Alert Steel Brits Property owning entities Born Free Alert Steel Tshwane 100% Investments 661 (Pty) Ltd Alert Steel Polokwane Alert Steel Louis Trichardt Anchor Park 100% Investments 114 Alert Steel Mokopane (Pty) Ltd Alert Steel Tzaneen

Xebura Alert Steel Thohoyandou 100% Investments (Pty) Ltd Alert Steel Lephalale Alert Steel Rustenburg Arrow Creek Alert Steel Randfontein 100% Investments 117 (Pty) Ltd Alert Steel Lichtenburg

Designed and produced by du Plessis Associates www.alertsteel.co.za