Creating and sharing economic value

In this section, we examine the financial viability of Impahla Clothing as a business. We quantify and analyse the economic value we are adding,for our shareholders, for our internal stakeholders (i.e. its employees),and for our external stakeholders – suppliers and the roader economic community.

Distribution of value

Impahla Clothing’s gross profit grew by 40% to R31.9 million in the year under review (2013/14: R22.7 million). Following on our strategy of vertical integration and consequent expansion of services consisting of Apparel, Blanks branded, Printing and embroidery services, Socks and Fabrics) we have this year diversified our customer base and revenue streams. In total we generated R101.2 million (2013/14: R75.8 million) in revenue. The graphs below show how we generated and distributed this wealth.

Return on shareholder investment

Over the past year, we increased our total assets by 23% to R77.4 million, mainly due to a doubling in property, plant and equipment(from R10 million to R20 million) and R11.8 million represented by the investment in the Cell C Sharks Franchise sponsorshipcontract. We held R24.8 million (2013/14: R24.5 million) worth of stock at year-end.With the increase in assets accompanied by a healthy rise in net profit after interest and tax to R6.4 million (2013/14: R1.0 million), our return on total assets rose from 2.2% last year to 8.3%.

Equity in ownership and control of Impahla

Impahla’s ownership structure and shareholding is shown on page 3. Total black ownership, held by Lena Jansen, stands at 6.75%. We are investigating the possibility of introducing an employee share scheme for staff, especially for those who are prepared to live the values and take on the responsibilities of company ownership. We have made initial proposals to the IDC to assist with the funding of this initiative and hope that the scheme will be established by the start of the next reporting period.

Remuneration and employee equity

Despite reducing our workforce by 8%, we have increased non-director employee salary and wages by 11% to R31.2 million (2013: R28.2 million). However, considering the outstanding increase in turnover, this component reduced from 37% to 31% of the revenue generated.

With one of the highest Gini Coefficients in the world, South Africa has an unsustainably wide gap between the ‘haves’ and the ‘have nots’. Functioning within a global marketplace has its challenges however, and Impahla has little room to bargain for the price received, considering heavy competition from low-wage paying manufacturing regions.

Despite this challenge, Impahla’s remuneration packages, including salary, bonuses and incentives, are above average for the industry, and the company is registered with industrial councils and all other statutory bodies. In addition to adhering to standard wages enforced by the NBC, we have implemented bonus schemes and other forms of nonfinancial reward.

Waged employees have access to a retirement plan via the Cape Clothing provident fund and health plans through the NBC. These are managed externally by the NBC for the textile and clothing industry in South Africa. In total,Impahla contributed R2 million to these funds,51% of which was paid by us as the employer.

All employees are given opportunities to improve their income potential through personal development, demonstrating commitment to the Impahla team, and by showing leadership potential. One of company’s cornerstone policies is to promote from within, as described on page 39 under the section ‘Developing management capacity’.

Impahla does not permit any form of discrimination against employees, including racism, sexual harassment or the discrimination of persons with any form of disability. Our team is made up of 85% females and 94% non-whites (historically disadvantaged); both key performance indicators within the South African context. We have yet to employ any disabled people. Above is a graph illustrating Impahla’s demographic breakdown, segmented by race and gender.

It is vital to Impahla’s success that we appoint only suitably qualified, skilled candidates. Unfortunately, a shortage of skills in some population and gender groups limits

our opportunities to align with national demographics. We make continual efforts to train and develop candidates with the potential to learn. While Impahla alone cannot fix South Africa’s income disparity challenge, the company nonetheless commits to setting an example of employment equity and remuneration that we hope will positively influence the entire industry. Specifically, Impahla will continue to:

  • Ensure that wages, as set by the NBC, and benefits, as negotiated by the Cape Clothing Association (CCA) and SACTWU, are met or exceeded throughout operations.
  • Engage with employees to ensure that matters affecting their own economic sustainability are considered whenever possible and necessary.
  • Ensure that performance bonuses and opportunities for additional work (i.e.overtime) are offered in a manner that ensures that the entire Impahla team has a reasonable opportunity to share in the company’s economic success.
  • Engage with our clients to ensure that the true cost of production is factored into Impahla’s pricing negotiations, regardless of whether other manufacturers are less committed to paying fair wages for similar work.

External stakeholder equity

According to the dti’s framework for the broad-based black economic empowerment of the South African economy, companies are expected to assist in the empowerment of their business partners and the local community in which they have influence. This is defined by the dti as preferential procurement, enterprise development and socio-economic development.

Impahla measured its BBBEE performance for the third time this year. Our February 2014 assessment against the new and more stringent BBBEE codes revealed a score of only 21.14% and therefore a non-compliant BBBEE contributor rating. This year we have been provisionally assessed under the new BEE Codes at a Level 8. Impahla sees enterprise development, skills development and local procurement as the most needed areas of improvement, and its commitment to strengthening local suppliers is a key vision for Impahla. We are working towards achieving a Level 7 score next year.

Clothing industry and the NBC

We are committed to paying NBC wage rates. Where Impahla is subject to minimum wages that exceed R950 per week for machinists, foreign-owned factories in the Newcastle area of KwaZulu-Natal are threatening to relocate jobs out of South Africa if they cannot be permitted to pay less than R350 per week.

Their argument is that by placing factories in more rural areas, they should be allowed to pay substandard wages, regardless of whether or not their wage rates can be viewed as a living wage. The NBC continues to engage the industry with this difficult issue. Employers and the union annually negotiate minimum wage increases, and these are administered by the NBC, effective from 1st September each year. Currently in the Western Cape, clothing and textile manufacturers are permitted to pay below NBC rates only when taking on new and inexperienced staff, according to an agreement reached in 2011. The next wage negotiations are due in 2016.

We will continue to uphold our Code of Conduct specifically relating to human rights and employment practices and encourage the clothing industry to become more responsible, both on the supply and demand sides. We urge retail buyers to consider human rights issues when making their buying decisions. Our own experience indicates that responsible behaviour can bring efficiencies and opportunities to do business with world-class and international organisations.