LETTER TO SHAREHOLDERS

INTRODUCTION

On behalf of the Remuneration Committee and the board, I am pleased to present the report on remuneration and remuneration policy for 2018.

KING IV™

This report on remuneration (“Report”) applies to the period 1 July 2017 to 30 June 2018 and complies with the provisions of King IV™ (copyright and trademarks are owned by the Institute of Directors in Southern Africa NPC and all of its rights are reserved).

As such, the Report will contain three major sections:

• Background statement
• Remuneration policy
• Implementation report

The Report should be read in conjunction with note 32 to the annual financial statements which forms part of this integrated report and contains a number of statutory disclosures on Clover’s remuneration.

COMPANY PERFORMANCE AND SALARY REVIEW

Despite a constrained and – in some instances worsening – macro environment impacted by increased unemployment, a contraction in GDP, rand volatility and ongoing price inflation driven by fuel and electricity increases, Clover produced record breaking financial results - on a normalised basis - during the year under review.

The provision for the impairment of the revolving credit facility to DFSA significantly impacted these results.

The Group’s strategy to unbundle the volume-driven side of Clover’s business and grow branded, value added products has nonetheless gained significant traction and continues to be implemented in a responsible and sustainable way while efficiency improvements remain a key management priority into the future.

Considering the Group’s overall performance, and the executive, management and staff’s ability to adjust to continuous improvements and innovations, the Remuneration Committee mandated PricewaterhouseCoopers to conduct an enterprise-wide remuneration benchmarking study during the reporting period.

Based on the findings of this report, staff in the Paterson C to E Bands were awarded individual increases in line with the benchmark with the overall target of limiting the total increase in the salary bill to 5% and taking into consideration that a potential higher percentage settlement will be reached with trade unions for Paterson A and B Band employees.

The Remuneration Committee subsequently mandated PricewaterhouseCoopers to conduct a formal benchmarking of executive remuneration (Paterson Band F) against a pre-selected peer group. The benchmarking report indicated that Clover’s executives’ guaranteed remuneration is at the upper quartile of the peer-group, with some executives earning at the median.

SHORT-TERM INCENTIVE (STI) BONUSES

Executives’ participation in STIs are dependent on profit growth and personal performance measures. The remuneration policy here, sets out the ratios that determine the level of participation.

Executives’ individual key performance indicators are approved annually by the Remuneration Committee and determined through the usual performance management process allocated to all qualifying staff in Paterson C5 to E band.

Performance indicators include areas such as investor relations, employment equity, successful completion of capital projects, mergers and acquisitions and rest of Africa, as well as the optimisation of the brand portfolio and increase of market shares through sales and distribution achievements.

In the prior financial year, the relevant profit targets to qualify for STI bonuses were not achieved and subsequently, no STI bonuses were paid out. In collaboration with the executives and considering the financial performance of the Group at the time, the Remuneration Committee also decided to not pay STI bonuses linked to key individual performance indicators, notwithstanding that a substantial part of these indicators were met during the prior year.

In the year under review executives did not qualify for STI bonuses relating to financial performance targets of the Group, but STI bonuses linked to key individual performance targets were met and paid.

STIs are self-funded since all bonuses are budgeted for in full before the profit target is approved annually by the Remuneration Committee.

LONG-TERM INCENTIVE (LTI) BONUSES

Vesting of the 7th allocation of Share Appreciation Rights (SAR)

Individual performance

The Remuneration Committee, with input from the Chief Executive, sets individual targets for each individual. Full vesting of the individual performance portion of the 7th allocation of SAR has been achieved for the year under review.

Financial performance

The Remuneration Committee can confirm that the financial performance conditions relating to the vesting of the 7th allocation of SAR has not been met and that subsequently no vesting will take place. It should be noted that the financial performance conditions relating to the vesting of the 6th  allocation of SAR was also not met previously. Thus, no vesting took place in the past two years.

Discontinuation of SAR and development of a new long-term incentive initiative

Clover’s SAR scheme has been in effect since 2008 and pre-dates the Company’s listing by two years. To align long-term incentives with shareholder objectives, industry best practice has evolved from schemes such as share appreciation rights to the awarding of full share options. The Remuneration Committee has appointed PricewaterhouseCoopers to research and recommend a new long-term incentive plan that takes these trends as well as other factors such as the relative illiquidity of the share and macro-impacts such as cyclicality into account. This incentive proposal will be communicated to shareholders for input and approval in due course.

Subsequently, the annual top-up issue of SAR which were supposed to be issued on 30 June 2018 were only allocated on 12 September 2018 but have not been accepted by the participants due to the Company being in a closed period. In accordance with the JSE Listings Requirements, a formal announcement will be released on the Stock Exchange News Service once the participants accept the allocation. The SAR was allocated in accordance with the SAR measures and targets set out here of this Report. This will be the final allocation in terms of the current SAR Plan although the plan will remain in place and may be used for other ad-hoc allocations required by the Remuneration Committee.

Conclusion

Clover’s restructuring has provided the foundation for further alignment of the Group’s performance with measures applied by the market. These measures will over time be aligned to evaluate management, and especially executive management’s performance and associated remuneration.

The implementation report, which forms part of the Report on Remuneration, provides a comprehensive overview on the implementation of guaranteed and variable remuneration.