CORPORATE GOVERNANCE

 

APPROACH TO EFFECTIVE GOVERNANCE

The board of directors (the Board) continues with its ongoing commitment to the highest standards of ethical and effective governance, resulting in sustainable organisational performance that creates long-term value for all stakeholders. The Board has adopted and applies the principles of the King IV™ Report on Corporate Governance for South Africa ("King IV™"), and fully endorses and cultivates the characteristics of integrity, competence, responsibility, accountability, fairness and transparency, as outlined in Principle 1 of King IV™.

The Board embraces the King IV™ outcomes of an ethical culture, effective control, good performance and legitimacy. The Tongaat Hulett King IV™ application disclosure is available here and includes detail of how each of the sixteen (16) principles have been applied and embedded into business practice. The company’s approach to corporate governance continues to reflect that governance is regarded by the Board as being more than a mere compliance exercise that measures basic compliance with King IV™, but rather confirms that best practice principles are effectively applied and embedded by the company in its daily activities, resulting in short and long-term value creation for all stakeholders. During the year, comprehensive work was done to update the Tongaat Hulett Corporate Governance Manual and Framework, to align the Board charter, committee terms of reference, codes of best practice and policies to King IV™.

This corporate governance report has been aligned to King IV™, the Companies Act 2008, the Listings Requirements of the JSE Limited (JSE), and other pertinent statutes and regulatory requirements guiding the Board’s and company’s conduct for the period under review. As the custodian and focal point of corporate governance as required in Principle 6 of King IV™, the Board presents this corporate governance report to all stakeholders.

BOARD OF DIRECTORS

 

Board Composition

Tongaat Hulett has a unitary Board structure, which at 31 March 2018 comprised nine non-executive and two executive directors, drawn from a broad spectrum of the business community. As per Principle 7 of King IV™, collectively, the directors possess a wide array of skills, knowledge, diversity and experience, and bring independent judgement to Board deliberations and decisions, with no one individual or group having unfettered powers of decision-making. The Board acknowledges that its demographic diversity (including race, gender, historically disadvantaged groups, age, regional diversity and nationality) promotes the consideration of various perspectives and thus enhances robust, balanced and effective discussions at the top tier of the organisation. The Board is sufficiently gender diverse, with five (5) out of eleven (11) directors on the Board being women, and has formally adopted a gender policy in accordance with the JSE Listings Requirements. The Board is also sufficiently race diverse, with seven (7) out of eleven (11) directors on the Board, being a majority of directors, representing previously disadvantaged groups. Given the importance that the Board places on gender and race diversity as evidenced in its current composition, the Tongaat Hulett Board is satisfied with how it applies the JSE Listings Requirements in this regard and is not contemplating any diversity targets at this stage. Furthermore, the Board is satisfied that its composition reflects the appropriate mix of knowledge, skills, experience, diversity and independence. The roles of the Non-Executive Chairman, CB Sibisi, and the Chief Executive Officer, PH Staude, are separate with a clear division of responsibilities.

Board and committee composition

Board of Directors  Board Committees 
Name  Year Appointed  Audit and Compliance  Remuneration  Nomination  Risk, SHE, Social and Ethics 
Non-Executive Directors                
CB Sibisi (Chairman) 2007     Member  Chairman    
SM Beesley*  2014  Member        Member 
F Jakoet*  2008  Member        Member 
J John (LID)**  2007  Chairman          
RP Kupara*  2009  Member          
TN Mgoduso  2010           Member 
N Mjoli-Mncube*  2008     Member  Member  Chairman 
SG Pretorius*  2011     Chairman  Member    
TA Salomão*  2015             
Executive Directors                
PH Staude (CEO) 1997           Member 
MH Munro  2003           Member 
* Independent non-executive directors
** Lead independent director 

The Chairman is not considered fully independent by virtue of his involvement in the company's BEE equity participation structure. Ms. J John, who is an independent non-executive director is the Lead Independent Director in situations where the Chairman is not independent.

BOARD CHARTER AND DELEGATED AUTHORITIES

The Board has an approved charter and an annual work plan that outline matters identified and reserved for its consideration. The charter records the Board’s objective to provide responsible business leadership with due regard to the interests of shareholders and other stakeholders, while reflecting a demonstrable concern for sustainability as a business opportunity that guides strategy formulation. It includes the Board’s responsibility to:

  • lead the company ethically and effectively;
  • govern the ethics of the company in a way that supports the establishment of an ethical culture;
  • ensure that the company is and is seen to be a responsible corporate citizen by having regard to not only the financial aspects of the business of the company but also the impact that business operations have on the environment and society within which it operates;
  • appreciate that the company’s core purpose, its risks and opportunities, strategy, business model, performance and sustainable development are all inseparable elements of the value creation process;
  • govern risk and information technology in a way that support the organisation in setting and achieving its strategic objectives;
  • serve as the focal point and custodian of corporate governance in the company;
  • comprise the appropriate balance of knowledge, skills, experience, diversity and independence for it to discharge its governance role and responsibilities objectively and effectively;
  • ensure that its arrangements for delegation within its own structures promote independent judgment, and assist with the balance of power and the effective discharge of its duties;
  • ensure that the evaluation of its own performance and that of its committees, its chair and its individual members, support continued improvement in its performance and effectiveness;
  • ensure that the appointment of, and delegation to management contribute to role clarity and the effective exercise of authority and responsibilities;
  • govern compliance with applicable laws and adopted non-binding rules, codes and standards in a way that supports the organisation being an ethical and a good corporate citizen;
  • ensure that the organisation remunerates fairly, responsibly and transparently, to promote the achievement of strategic objectives and positive outcomes in the short, medium and long term;
  • ensure that assurance services and functions enable an effective control environment, and that these support the integrity of information for internal decision-making and of the organisation’s external reports; and
  • in the execution of its governance role and responsibilities, the Board ensures that it adopts a stakeholder-inclusive approach that balances the needs, interests and expectations of material stakeholders in the best interests of the organisation over time.

The Board has mandated the following four committees, each with approved formal terms of reference, to support it in the execution of its governance responsibilities.

  • Audit and Compliance
  • Nomination
  • Remuneration
  • Risk, SHE, Social and Ethics

The Board has further delegated the authority to run the day-to-day affairs of the company to the Chief Executive Officer and other senior executives, as required by Principle 10 of King IV™. Levels of authority and materiality delegated to management are approved by the Board and clearly recorded in the Authorities Framework contained in the Corporate Governance Manual that is utilised by all operations within Tongaat Hulett. The Board is satisfied that it has discharged its responsibilities in accordance with its charter.

BOARD CHANGES AND ROTATION AT AGM

In accordance with the company’s memorandum of incorporation (MOI), directors are required to retire either by rotation at intervals of three years, or at the close of business of the next annual general meeting (AGM) after a director attains the age of seventy (70) years. Directors retiring by rotation who avail themselves may be re-elected at the AGM at which they retire. New directors may only hold office until the next AGM, where they will be required to retire and offer themselves for election. Retiring at the next AGM (on 8 August 2018) by rotation are MH Munro, TA Salomão and CB Sibisi, who being eligible and available, will seek re-election as directors. The MOI states that a director who has reached the mandatory retirement age of seventy (70) is required to retire at the AGM and may be re-elected by shareholders for a specific term as determined by shareholders in a specific ordinary resolution. This applies to the Chairman of the Remuneration Committee, SG Pretorius, who turned seventy (70) in 2018, and whose services, experience, knowledge, skills and wisdom the company wishes to retain for a further period of up to two (2) years. The Nomination Committee has assessed each of the retiring directors and the Board unanimously recommends their re-election. There were no new appointments to the Board during the period under review. There are no term contracts of service between any of the directors and the company or any of its operations.

BOARD INDUCTION AND DEVELOPMENT

On appointment, new directors have the benefit of induction activities aimed at broadening their understanding of the company and the markets within which it operates. The Company Secretary ensures that directors receive accurate, timely and clear information. The Chief Executive Officer and key executives hold detailed discussions with new directors on business performance, strategic objectives and key themes. This, together with business reports of prior Board and committee meetings, discussions with heads of operations accompanied by site visits of the mills, agriculture and development sites, provides new directors with sufficient exposure to the company’s operating dynamics. Directors are also encouraged to update their skills, knowledge and experience through participation in relevant programmes as deemed appropriate from time to time.

Board and committee meeting attendance for the year ended 31 March 2018

Director  Board  Audit and Compliance  Remuneration  Nomination  Risk, SHE, Social and Ethics 
CB Sibisi (Chairman)            
PH Staude (CEO)                 
SM Beesley             
F Jakoet             
J John                   
RP Kupara                   
TN Mgoduso                   
N Mjoli-Mncube       
MH Munro                   
SG Pretorius             
TA Salomão                         
A: Indicates the number of meetings held during the year while the director was a member of the Board and/or committee.
B: Indicates the number of meetings attended during the year while the director was a member of the Board and/or committee. 


BOARD EVALUATION

The Board endorses the requirements of Principle 9 of King IV™ that requires the Board to ensure that the evaluation of its own performance and that of its committees, its chair and individual members should support continued improvement in its performance and effectiveness. The formal self-evaluation process of the Board and its committees, the assessment of the Chairman’s performance by the Board and the assessment of the performance of individual directors by the Chairman, which are conducted at least every two (2) years, are an integral element of the Board’s activities to review and improve its performance continually. This evaluation process also includes assessing the independence of non-executive directors as envisaged in King IV™. Of the nine non-executive directors, seven (7) are considered independent, while two (2) are not considered independent by virtue of their involvement in the company’s black economic empowerment equity participation structure. In arriving at the conclusion of independence, the requirements of the Companies Act and King IV™ on independence are taken into account and consideration is given, among others, to whether the individual non-executive directors are sufficiently independent of the company so as to effectively carry out their responsibilities as directors, that they are independent in judgement and character, and that there are no instances of conflicts of interest in the form of contracts, relationships, share options, length of service or related party disclosures that could appear to affect independence. Four (4) of the directors, CB Sibisi, J John, F Jakoet and N Mjoli-Mncube have been with the company for a period longer than nine (9) years. In addition, CB Sibisi is not independent by virtue of his participation in the company’s black economic empowerment equity participation structure. The directors have been assessed by the Board in accordance with the requirements of King IV™ and were confirmed to be independent.

The Board has decided to conduct the next formal, externally facilitated evaluation process for the performance of the Board, its committees, the Chairman and members as a whole in 2018/19 and an overview of the results and remedial action taken, if applicable, will be disclosed accordingly. The Board is satisfied that its evaluation processes improve its performance and effectiveness.

The Board meets at least five (5) times a year, with special or additional meetings convened as circumstances dictate. Comprehensive documentation is prepared and distributed in advance of each meeting, with an opportunity to propose additional matters for discussion at meetings. Independent professional advice is available to directors in appropriate circumstances at the company’s expense.

EVALUATION OF COMPANY SECRETARY

All directors have access to relevant information and to the advice and services of the Company Secretary, MAC Mahlari, who holds BA and LLB qualifications, and has over ten (10) years' experience as a Company Secretary. She was appointed in December 2009. After assessing the Company Secretary as required by the JSE Listings Requirements, the Board concluded that Ms. Mahlari is suitably qualified, competent and meets the appropriate experience requirements to carry out the functions of Company Secretary of a public listed company. Ms. Mahlari is not a director of the company, nor does she enjoy any related or inter-related relationship with any of the directors or executives of the company that could give rise to a conflict of interest. The recommended best practices stipulated in King IV™, under Principle 10, on the arrangements for the provision of professional corporate governance services have been adequately provided to the Board.

 

BOARD COMMITTEE STRUCTURES AND RESPONSIBILITY

In compliance with Principle 8, the Board has ensured that its arrangements for delegation within its own structures promote independent judgment, and assist with balance of power and the effective discharge of its duties. The Board has reserved certain matters for its exclusive mandate (as set out above) and has approved and delegated authority for specific matters to various committees, all of which have formal terms of reference. Through transparency, disclosure, review and regular reporting by the committees, the Board is able to receive assurance that, inter alia, key risk and opportunity areas, operational, financial and non-financial aspects relevant to the company’s various businesses are monitored. The formal terms of reference and the delegated authority regarding each Board committee are set out in the Corporate Governance Manual, and are summarised below.

REMUNERATION COMMITTEE

The Remuneration Committee, which meets at least twice a year, is chaired by an independent non-executive director and comprises only non-executive directors. The current members are SG Pretorius (Chairman), CB Sibisi and N Mjoli-Mncube. PH Staude, as CEO, and relevant HR Executives, attend by invitation and MAC Mahlari is the secretary. The record of attendance is contained here.

The report of the Remuneration Committee, which outlines in detail the company’s remuneration policy and implementation report as required by Principle 14 of King IV™ commences here. The report also contains a summary of the responsibilities of the committee, as well as its key activities and focus areas for the period under review.

NOMINATION COMMITTEE

The Nomination Committee, which comprises only non-executive directors, meets as needed, and as required by the JSE Listings Requirements, is chaired by the Chairman of the Board. Its current members are CB Sibisi (Chairman), N Mjoli-Mncube and SG Pretorius. PH Staude, as CEO, attends by invitation and MAC Mahlari is the secretary. The committee’s terms of reference are summarised as follows:

  • Ensures that for Board appointments, a rigorous, fair and open nomination and appointment process is followed to provide a balance of appropriate skills, knowledge and experience in the boardroom and support strong corporate performance.
  • Makes recommendations to the Board on the size, composition and demographics of the Board, particularly in relation to the balance between executive, non-executive and independent directors.
  • Ensures that there is a diversity of experience, gender, race and backgrounds to create a cohesive, balanced and effective Board.
  • Ensures that there is a diversity policy at Board level that covers gender and race diversity, among others, as required by the JSE Listings Requirements.
  • Gives consideration to succession planning, and ensures that processes and plans are in place for orderly succession and for appointments to the Board and senior management.

During the period under review, one meeting was held where the Nomination Committee discussed the directors who would retire by rotation at the next AGM, and recommended the re-election of MH Munro, TA Salomão and CB Sibisi to the Board and AGM. The MOI states that a director who has reached the mandatory retirement age of seventy (70) is required to retire at the AGM and may be re-elected by shareholders for a specific term as determined by shareholders in a specific ordinary resolution. This applies to the Chairman of the Remuneration Committee, SG Pretorius, who turned seventy (70) in 2018, and whose services, experience, knowledge, skills and wisdom the company wishes to retain for a further period of up to two (2) years.

The committee also recommended the election of the Audit and Compliance Committee until the next AGM, comprising of J John, SM Beesley, F Jakoet and RP Kupara. The Nomination Committee considered this in detail and made the appropriate recommendation to the Board. In making the recommendations to the Board and ultimately the AGM, the Nomination Committee considered the current skills set of the Board as a collective, the relevant experience and expertise, the rotating directors, ensuring that the current skills set was sufficient to increase the Board’s effectiveness. In addition to skills and experience, the Nomination Committee also considered other demographic aspects of the Board, including nationality, race and gender. There were no external advisers or invitees to this meeting. The committee is satisfied that it has fulfilled its responsibilities in accordance with its terms of reference for the reporting period.

The committee also considered the JSE Listings Requirements in so far as they relate to race diversity. The committee considered and recommended for Board approval, a Diversity Policy at Board level that encompasses all forms of diversity, including in particular, race and gender diversity.

AUDIT AND COMPLIANCE COMMITTEE

The Audit and Compliance Committee is constituted as a statutory committee in respect of its duties prescribed by the Companies Act, and as a committee of the Board in respect of all additional duties assigned to it by the Board. The members of the committee were elected by the shareholders at the last AGM and include three non-executive directors of the Board, all of whom are independent and possess the necessary skills, knowledge and expertise to direct the committee constructively in the execution of its responsibilities. The current members are J John (Chairman), SM Beesley, F Jakoet and RP Kupara. The CEO, PH Staude, the CFO, MH Munro, the Head of Internal Audit, DK Young and representatives of the internal and external auditors attend by invitation. The Company Secretary, MAC Mahlari, is the secretary for this committee. The committee meets at least three times (3) a year. The statutory report of the Audit and Compliance Committee is here, and forms part of the annual financial statements.

The Audit and Compliance Committee’s terms of reference were aligned with King IV™, approved by the Board, and include the following objectives and responsibilities:

  • Assists the Board in discharging its duties relating to the safeguarding of assets, the operation of adequate systems and controls, the assessment of going concern status, ensuring that pertinent compliance and relevant risk management processes are in place, reviewing the work performed by the external auditors and the internal audit function, and to review interim financial information and annual financial statements which are provided to shareholders and other key stakeholders.
  • The committee provides a forum through which the external and internal auditors report to the Board. It is responsible for the appointment and review of internal and independent external auditors, the maintenance of a professional relationship with them, reviewing accounting principles, policies and practices adopted in the preparation of public financial information and examining documentation relating to the interim and annual financial statements.
  • In addition, it reviews procedures and policies of internal control, including internal financial controls and internal audit reports. The adequacy and capability of Tongaat Hulett’s external and internal audit functions are also subject to continuous review. The committee further considers the independence and objectivity of external auditors.
  • Management is focused on continuous improvements to systems of internal control. An external quality assurance review of the internal audit function was performed in 2018, which concluded that the Tongaat Hulett internal audit function "generally conforms" to the standards recommended by the Institute of Internal Auditors, which is the highest rating in terms of the standards of the Institute of Internal Auditors. The status of "generally conforms" continues to be applicable for a period of five (5) years from the date of validation in terms of the standards of the Institute of Internal Auditors.
  • The external and internal auditors have unrestricted access to members of the Audit and Compliance Committee and its Chairman at all times, ensuring that their independence is in no way impaired. Both the internal and external auditors have the opportunity of addressing the committee and its Chairman at each of the meetings without management being present. The Audit and Compliance Committee determines the purpose, authority and responsibility of the internal audit function in an Internal Audit Charter, which was recently updated in line with King IV™ and approved by the committee and the Board.
  • The charter sets out the terms of reference of Tongaat Hulett’s internal audit function, its reporting line to the Chairman of the committee, the working relationship with the Head of Internal Audit and the fact that the internal auditors have unrestricted company wide access to all functions, records, property and personnel. The committee also reviews the scope and coverage of the internal audit function. While the internal audit function has been outsourced to a professional firm of registered accountants and auditors, coordinated by the Head of Internal Audit, the company’s independent external auditors do not assist in the performance of any internal audit assignments.
  • The nature and extent of all non-audit services provided by the independent external auditors are approved and reviewed by the committee, to ensure compliance with the company’s policy on non-audit services.
  • The committee is also responsible for ensuring that the combined assurance model espoused in King IV™ is applied to provide a coordinated approach to all assurance activities. Tongaat Hulett has adopted a Combined Assurance Strategy and Plan that provides a framework for the various assurance providers to provide assurance to the Board, through the Audit and Compliance and Risk, SHE, Social and Ethics Committees, that all significant risks facing the company are adequately managed and that assurance activities are integrated and coordinated in the most efficient and proficient manner. The Combined Assurance Strategy and Plan is discussed further in the Risk Management Process section of the integrated annual report.
  • In line with Principle 12 of King IV™, the Board assumes responsibility for the governance of technology and information by setting direction for how technology and information should be approached and addressed in the company, and has delegated to the Audit and Compliance Committee the function of ensuring that technology and information are governed in a way that supports the organisation setting and achieving its strategic objectives, by amongst others, ensuring that direction is set for how technology and information should be approached and addressed in the organisation; and that management is delegated the responsibility of implementing and executing effective technology and information management. The company has an IT policy and charter that encapsulates current company ERP and Unified Communications developments and practices in line with recent technology upgrades. During the period under review, focus was on the recent migration of the organisation onto an integrated common platform and common business processes, resulting in standardised business processes and reporting across the organisation; the creation of common data management standards to support key business objectives; standardised platform and systems architecture to reduce support costs, leverage scale and reduce system downtime, and risks; and increased process efficiencies. Future areas of focus include a project that is currently underway to align the organisational structure across Tongaat Hulett with the new systems and business process architecture.
  • The committee’s focus on regulatory compliance, in line with Principle 13 of King IV™, is ongoing in line with the regular updates to the regulatory environment. The framework of high priority laws and regulations applicable to Tongaat Hulett’s operations has continued to be refined during the year with the aim of strengthening the culture of legal awareness and compliance. The Board approved an updated compliance policy in 2018, which confirms and firmly entrenches Tongaat Hulett’s commitment to compliance, through the combined efforts of various role players, to implement controls and processes to manage regulatory compliance across all operations. During the period under review, key areas of focus included ongoing assessment and review of legal, regulatory and corporate governance requirements and risks, and the identification of appropriate processes and interventions to enhance compliance with applicable legislation. No material infractions or fines have come to management’s attention during the period under review that indicates non-compliance with pertinent legislation and codes of good practice.
  • In order to ensure optimal performance and delivery of its mandate, the committee conducted an assessment of its performance during the previous reporting period, considering such factors as its composition and authority, the execution of its roles and responsibilities, its working relationship with both internal and external auditors and its statutory obligations towards the company and its shareholders. The outcome of the assessment process was positive, reflecting that the committee meets best practice, and is functioning effectively and efficiently. In 2018/19, the company will conduct an externally facilitated performance assessment, and an overview of the results and remedial action taken, will be reported accordingly.

Each major operational area has its own audit and compliance meeting processes which subscribe to the same company audit philosophies and reports and feeds into the Tongaat Hulett Audit and Compliance Committee.

Risk, Safety, Health, Environment (SHE), Social and Ethics Committee

The committee is constituted as a statutory committee in respect of its obligations prescribed by the Companies Act, and as a committee of the Board in respect of all additional duties assigned to it by the Board.

The committee, comprising non-executive and executive directors, is chaired by an independent non-executive director, and meets at least twice a year. Its current members are N Mjoli-Mncube (Chairman), PH Staude (CEO), F Jakoet, TN Mgoduso, SM Beesley and MH Munro (in his capacity as Chief Risk Officer). Various heads of operations and senior managers (responsible for SHE, broader sustainability aspects, SED, stakeholder engagement and ethics, amongst others) attend this meeting by invitation. MAC Mahlari is the secretary. The chairman of the committee reports to the Board on all matters discussed by the committee within its mandate as well as providing minutes of all its activities and decisions taken.

Primary responsibilities and objectives of the committee include:

  • monitoring the social and economic development activities of the company;
  • ensuring that the company is and is seen to be a responsible corporate citizen, in line with Principle 3 of King IV™;
  • ensuring that there are processes in place to monitor consumer relationships and general compliance with consumer protection laws;
  • monitoring the company’s standing relative to the United Nations Global Compact principles, the Organisation for Economic Cooperation and Development (OECD) recommendations regarding combating corruption and the International Labour Organisation Protocol on decent working conditions for employees, and the company’s contribution towards the education and development of employees;
  • ensuring that the company has implemented effective policies and plans for employee and public safety, health and environment that enhance the company’s ability to achieve its strategic objectives, including the impact of the company’s activities and products on the environment and society;
  • monitoring the social performance and ethical governance and practices of the company;
  • overseeing on behalf of the Board the total process of risk management and governance, including amongst others reviewing the implementation of the risk management strategy and policies by means of risk management systems and processes; and
  • ensuring that there is meaningful engagement with the company’s identified stakeholders.

The detailed report on measures taken to monitor corporate citizenship and how the company performed on its various projects relating to corporate citizenship is contained in the sustainability section of the integrated report.

During the previous reporting period, the committee carried out a self-evaluation of its performance. The results of the self-evaluation process reflected that the committee was satisfied with how it executed its responsibilities and fulfilled its mandate. The next performance evaluation will be facilitated externally by a service provider, and an overview of the results and remedial action taken, will be reported accordingly.

The Risk, SHE, Social and Ethics Committee presents its report to the shareholders as required by the Companies Act and recommended by King IV™, illustrating how it discharged its statutory responsibilities and acted in accordance with its terms of reference for the period to 31 March 2018:

1. Statutory duties

Social and economic development (SED)

Tongaat Hulett’s strategic goal is described as "value creation for all stakeholders through an all-inclusive approach to growth and development". It is within this context that the company’s SED initiatives are utilised to partner with government and society in various operational areas, to create shared value, particularly in communities most impacted by business activities.

The company’s key SED focus elements are in the area of, among others, healthcare - with communities in the rural areas benefiting most; food security projects; education initiatives as well as sports, arts and culture. During the period under review, the committee monitored the SED initiatives and contributions undertaken by the company, within the business objective of contributing to the creation of successful rural communities. This is in line with the company’s SED policy, which confirms the philosophy of constructively contributing towards building and enhancing the quality of life of the communities in the Southern African regions where the company operates.

The strategic importance of the company’s SED contribution and examples of recent achievements, particularly within the context of its relationship with private farmers, surrounding communities across all areas of operation and the link to the business’ various stakeholder relationships, can be found in the sustainability elements section of the integrated report, as well as in the CEO’s review.

The company is committed to economic sustainability and continues to assess its business approach to responsible strategic sourcing, empowerment and preferential procurement, taking into account employment equity, skills development and broad-based black economic empowerment (B-BBEE) within the Southern African context. The company is committed to meeting B-BBEE requirements in South Africa, and annually conducts a B-BBEE audit assessment through AQrate, an accredited institution. Further details on the company’s B-BBEE rating, scorecard performance and certificate are discussed in the sustainability report, available here.

Tongaat Hulett is a signatory to and participant of the United Nations Global Compact, a corporate citizen initiative espousing principles in the areas of human rights, labour, environment and anti-corruption. The company continues to adhere to the ten principles articulated in the Global Compact to promote sustainable development and good corporate citizenship through a set of values based on universally accepted principles. The committee is satisfied that the ten principles are receiving due and appropriate attention by the company on an ongoing basis.

Good corporate citizenship

During the period under review, the committee monitored the company’s standing and commitment in terms of being a responsible corporate citizen. This included the committee reviewing in great detail the company’s stakeholder value creation framework which is linked to the strategic objectives of the company. The framework covers inter alia, the company’s objective to assist with the development of small-scale private farmers, partnering with key stakeholders to progress renewable energy initiatives and creating successful rural communities within Tongaat Hulett’s cane catchment area.

The committee also assessed the company’s proactive stakeholder engagement interface and other processes in place that ensure that the appropriate communication strategy for each stakeholder grouping is identified and successfully implemented, thereby contributing to the maintenance and development of strong and effective stakeholder relationships.

Tongaat Hulett continues to be regarded as a responsible corporate citizen by demonstrating its commitment to philanthropic and empowerment initiatives and the committee is satisfied that this element continues to receive appropriate attention.

A full report of the stakeholder relationships, various initiatives led by the company and the positive impact on stakeholder engagement can be found under the social and relationship capital element of the sustainability report.

Safety, health and environment (SHE)

During the period under review, the committee performed its responsibility of overseeing the performance of the company against its set SHE targets and objectives, and considered various reports relating to SHE risks and opportunities that face the company.

The committee reviewed in detail all the fatality reports presented before it, whether work, non-work related, or third party. SHE initiatives and risk management protocols continue to receive key focus, with the CEO continuing to provide leadership and direction on strategic implementation of these initiatives not only within the company but extending the various programmes to include contractors, service providers and where applicable, surrounding communities.

The committee reviewed health management programmes including HIV/AIDS and TB management as well as malaria, noting that the company’s performance monitoring and measurement criteria are aligned with the World Health Organisation’s approach. The committee commended the company’s implementation of SANS 16001 that would ensure a systematic integrated approach to managing NCDs. In line with the company’s health strategic plan, three (3) pilot sites, including one in Zimbabwe, completed the Wellness and Disease Management System - SANS 16001 audit and were all recommended for certification. The company’s comprehensive safety programmes, employee and community focused health initiatives and environmental stewardship are covered in detail in the social capital and natural capital elements of the sustainability report.

Zero tolerance on child labour, forced and compulsory labour

The committee confirms that as a signatory to the Universal Declaration of Human Rights, the company is committed to supporting freedom of association and collective bargaining at its various operations.

The company also has a zero tolerance approach to child labour and inhumane treatment of employees, including any form of forced labour or physical punishment of employees.

The company commits to respect internationally recognised human rights expressed in the International Bill of Human Rights and by the International Labour Organisation. This includes a commitment to avoid causing or contributing towards adverse human rights impacts through business activities, and seeking to prevent or mitigate adverse human rights impacts that are directly linked to Tongaat Hulett operations, products or services by business relationships.

Tongaat Hulett confirms its commitment to ongoing transparent engagement with stakeholders in response to specific human rights concerns that may be raised from time to time. Reporting in accordance with the Global Reporting Initiative's (GRI) Standards is covered in the company’s integrated annual report.

Ethics governance

As a responsible and ethical corporate citizen, the company entrenches a culture of organisational integrity that supports an ethical corporate environment. The company is fully committed to ethical business practices and abides by a policy of fair dealing, honesty and integrity in the conduct of its business. During the year under review, the Code of Business Conduct and Ethics (discussed in more detail under ethics management and governance), was reviewed and updated. The Code embodies the strategic ethical mindset of the organisation and highlights key principles and values.

2. Terms of reference

The committee has adopted and operates within formal terms of reference that have recently been reviewed during the period under review and approved by the Board. The committee confirms that for the period, it discharged its duties and responsibilities in accordance with these updated terms of reference. The summary of the role of the committee is articulated here in the integrated annual report.

3. Duties assigned by the Board

During the period under review, the committee fulfilled its responsibilities assigned to it by the Board in accordance with its terms of reference. The committee assisted the Board to fulfill its risk governance role and SHE objectives by ensuring, among others, that the company has implemented effective policies and plans for risk and opportunity management, and SHE that enhance the company’s ability to achieve its strategic objectives.The committee also ensured that disclosures and communication between the Board and the Audit and Compliance Committee regarding risk management processes and activities pertaining to SHE, were comprehensive and adequately facilitated. While the committee had specific duties relating to risk governance, the role of the Audit and Compliance Committee was retained in terms of some aspects of risk management, including financial reporting risks, internal financial controls and fraud and IT risks relating to financial reporting.

4. Relationship with other Board committees

The committee acknowledges the link between certain of its responsibilities with those of other committees of the Board. Some of these include the relationship with the Audit and Compliance Committee, which retains the responsibility for risk management as it relates to financial reporting risks, internal financial controls and fraud and IT risks relating to financial reporting.

Further, the company’s standing on the recommendations espoused in the OECD regarding the prevention of corruption are reviewed and covered by the Audit and Compliance Committee which ensures that the company has adopted effective systems of internal control, has an independent external auditor, operates within an approved code of ethics, and has implemented whistle-blowing processes that support the non-victimisation of whistle-blowers, among others.

The company complies with the Employment Equity Act and has implemented appropriate policies that are based on the principle of creating equal opportunity for all within a diverse workforce with a substantial number of members of designated groups at all levels; supported by appropriate performance and talent management processes and activities, set recruitment targets, clear development and training programmes, and coaching and mentoring programmes among others. The human resources team drives these processes under the leadership of the CEO and reports to the Remuneration Committee, which reviews, assesses and endorses appropriate Employment Equity (EE) goals and targets. A detailed report on the company’s human resources approach, including the company’s efforts in accelerating employee transformation, appears in the sustainability elements of the integrated report.

5. Sustainability reporting

The committee reviewed and accepted the detailed sustainability report, noting the various themes of the report including social performance (social and relationship capital), environmental stewardship (natural capital) and human capital, manufactured capital and intellectual capital, as articulated in the International Integrated Reporting Framework. The committee reviewed the sustainability report as part of its role of assisting the Board to achieve better performance on sustainability matters, including the company’s contribution to the development of communities in which its activities are predominantly conducted, sponsorships and SED programmes, relationships with key stakeholders, and the impact of the company’s activities on the environment, employee health and public safety. As detailed above, the Audit and Compliance Committee has considered the sustainability and governance information as disclosed in the company’s integrated annual report to ensure its reliability and consistency with the annual financial statements. Various reports of the external assurance service providers to ensure that the information is reliable and consistent with the financial results and other operational information at the disposal of the committee, were also considered. The independence of the external assurance service provider for the sustainability report was also assessed and confirmed.

6. Effectiveness of committee and attendance

The committee had two meetings during the period under review as required by its terms of reference. The evaluation of the committee was conducted in 2017 and the Board is satisfied with the leadership provided by the committee Chairman and the diligence of its members. The record of attendance is contained here.

ETHICS MANAGEMENT AND PRACTICES


Code of Business Conduct and Ethics

In line with Principle 2 of King IV™, as the highest governing authority in the company, the Board governs the ethics of the company in a way that supports the establishment of an ethical culture. The Board is committed to conducting business ethically, and has delegated to management the responsibility to implement and execute appropriate codes and practices. The company operates within a formal Code of Business Conduct and Ethics (the Code), which was reviewed and updated in 2018, and approved by the Board. The Code was communicated and distributed to all employees across all levels in the company, and to suppliers. The Code is based on a fundamental belief that all business transactions should be legal and conducted beyond reproach in the spirit of honesty and fairness. The company has a zero tolerance approach to theft, fraud, corruption and any violation of the law or unethical business dealing by employees and suppliers. The Code also addresses conflict of interest situations and encourages employees to report any conflict or perceived conflict of interest situation. This may arise due to employees being offered and receiving gifts in return for favours, employees not being independent from business organisations having a contractual relationship or providing goods or services to Tongaat Hulett, and employees’ personal investments taking priority over transactions for the company and its clients.

Ethics management reporting and oversight

The Audit and Compliance Committee assists the Board in overseeing the consistent application of and compliance with the Code through reports compiled by the corporate security manager and reported to the committee by internal audit. Incidents of fraud, corruption or unethical practices that are reported or detected through management controls are formally investigated, followed by formal disciplinary processes. In severe instances, criminal proceedings are instituted. Management is strict in ensuring the implementation of the Code across all operations in a daily context. Compliance by directors, all employees and suppliers to the high moral, ethical and legal standards of the Code is mandatory, and if employees become aware of, or suspect, a contravention of the Code, they are urged to promptly and confidentially report it to the Company Secretary or senior officials at management level.

Key areas of focus during the reporting period included revising and updating the Code to include the CEO’s statement highlighting the company’s commitment to integrity, ethics and honest behaviour; commitment to ZERO HARM in SHE practices; commitment to respecting human rights and highlighting the importance of whistle-blowing and revitalising awareness on the Tip-Off Anonymous Service. Other enhancements to the Code included highlighting the company’s strong stance against intimidation, victimisation, retaliation or harassment of any stakeholders (including all employees, business partners and suppliers) who in good faith raise or report a concern that they reasonably believe is a violation of the Code or ethical behaviour.

Whistle-blowing service

As part of the fraud and corruption prevention approach, Tongaat Hulett has engaged the services of an independent whistle-blowing service provider to report on any unethical and unlawful behaviour or non-compliance with the Code. The anonymous independent whistle-blowing service is operational in South Africa, Zimbabwe, Botswana, Mozambique, Swaziland and Namibia. Continuous training and awareness are important aspects of a successful ethics management programme. Each centre has been provided with the official Deloitte/Tongaat Hulett Tip-Offs DVD describing the whistle-blowing process, plus stickers and posters which have also been translated into Portuguese for the Mozambique operations.

Measures taken to monitor organisational ethics include ongoing monitoring and reporting of fraudulent activities that are identified through the whistle-blowing service. Detailed reports are discussed at operational audit committee meetings, with significant reports submitted to and discussed in detail by the Audit and Compliance Committee meeting. The detailed reports, submitted by internal audit, highlight the nature of the violation of the Code, the detail of any financial loss if applicable, the root cause of the violation, the disciplinary action taken, and whether any criminal or civil action will be undertaken, as well as any possible recovery. During the period under review, there were no new significant fraudulent activities reported.

Risk management process

Tongaat Hulett’s approach to strategic risk management (and its integration with seeking and maximising the connected or related opportunities or the conversion of the risk into opportunity) is aligned with Principle 11 of King IV™ and is continuously evolving. The risk management framework is reviewed continuously and updated when relevant. The framework includes a focus on risk tolerance (ability to withstand or even survive the issue/event) and risk appetite (risk limits desired or risk level willing to be taken), which have been detailed previously and remain applicable.

The risk management process involves identifying, analysing and taking the appropriate action with regard to specific identified scenarios, the aggregation of a number of individual risks, interrelated and interconnected issues, strategic positioning issues, macro issues/global trends, relevant clusters of such topics and a focus on the whole situation. Essentially it is an aggregation of risk data, with a consensus view thereof and the appropriate response. It is particularly aimed at identifying risks that might become extreme/beyond tolerance, as well as risk items, with their potential impact, that are being classified as within tolerance but could be beyond appetite.

The aim of this risk management process is to support and complement the setting and achieving of strategic objectives. The process is embedded and integrated into the business activities of Tongaat Hulett, from strategic and business planning through to day-to-day management.

This integrated approach results in:

  • A thorough assessment of risks and opportunities emanating from the positioning and operation of Tongaat Hulett in the full extent of its broader spheres of influence and areas of engagement, leading to the appropriate and proactive strategic positioning and response to the potential risk/opportunity profile. This includes assessing risks (probability together with potential impact) and then focusing on both "mitigation" (reducing the probability and the potential impact) and shifting risks to "possibilities" and "opportunities".
  • The resultant business strategy and plans include providing an approach that allows the business to operate under conditions of volatility and to be able to work through and recover from potential "shocks".

The Board has consistently delegated to management the responsibility to implement and execute effective risk and opportunity management. Reporting to and engaging with the Board on these topics is clearly spelled out and integrated into the regular Board reports, Strategic Plans and Budget/Business Plans, together with specific other communication when required. This takes into account the "triple context" (i.e. economic, societal and natural environment contexts) relevant to Tongaat Hulett and the "six capitals".

In analysing the potential impact/consequence, a number of factors (financial; sustainability/environment/human; stakeholder; reputation; governance and compliance; and projects related) are considered. Using the relevant measures it is then determined if it is a high, medium or low impact/consequence (e.g. for a financial measure, a high impact could measure in the hundreds of millions of profit/cash flow). Likewise, in analysing the probability/possibility/likelihood, it is then assessed if it has a high, medium or low likelihood. Given the complex nature of many such strategic topics, one practical option is to complete the aforementioned ratings (impact/consequence and probability/possibility/likelihood) on the basis of a consensus view derived from the aggregated risk data in an executive review of the topic, with a reasonable calibration being important. The holistic rating of the risk issue (i.e. residual risk after mitigating actions and factors) would then classify it as extreme, substantial or tolerable. The assessment needs to take into account the actions and mitigation already underway or requiring to be undertaken.

An integration of risks and opportunity management, linked to strategy, is covered throughout the CEO’s review.

The Tongaat Hulett internal audit function, which is supported by its internal audit service provider, KPMG, has performed a review of the effectiveness of the company’s internal control environment, including its internal financial controls, and the effectiveness of its risk management process. The evaluation of the company’s risk management processes included a review undertaken by KPMG. It noted Tongaat Hulett’s positioning, for the review period, on the KPMG Risk Maturity Continuum as "integrated", which is the second highest level. The KPMG Risk Maturity Continuum has the levels of "weak-sustainable-mature-integrated-advanced" (order of maturity). Consequently, the company’s internal audit function has provided independent assurance to the Audit and Compliance and Risk, SHE, Social and Ethics Committees and the Board on the effectiveness of its risk management processes.

Company-wide systems of internal control exist in all key operations to manage and mitigate risks and a Combined Assurance Strategy and Plan has been implemented to further enhance the co-ordination of assurance activities. Tongaat Hulett’s Combined Assurance Plan provides a framework for the various assurance providers to work together to provide assurance to the Board, through the Audit and Compliance and Risk, SHE, Social and Ethics Committees, that all significant risks are adequately managed. The Plan consists of "three layers of defense", being management, functional oversight and independent assurance providers, wherein the assurance on the risk management and related controls for the company is reported.

Appropriate business continuity plans and resources have been identified in order to ensure the implementation of recovery procedures, where potential risks have been identified as having the possibility of constituting a disaster.

For the period under review, the Tongaat Hulett Board, assisted by the above-mentioned committees, is of the view that the internal control environment and the risk management processes in place for the company are effective.

ACCOUNTABILITY AND INTERNAL CONTROL

The directors are required by the Companies Act to maintain records and prepare financial statements, which fairly present the state of affairs of the company as at the end of the financial year and the results of its operations for that year, in conformity with International Financial Reporting Standards. The financial statements are the responsibility of the directors and it is the responsibility of the independent external auditors to report thereon.

To enable the directors to meet these responsibilities, standards have been set, including the application of the company’s Internal Control Framework. Tongaat Hulett Limited’s Internal Control Framework is based on the Committee of Sponsoring Organisations of the Treadway Commission (COSO) Integrated Framework, which has emerged as the leading framework that companies and auditors use to evaluate controls.

Systems of internal control are implemented to reduce the risk of error, loss or failure to achieve corporate objectives in a cost effective manner. These controls include the proper delegation of responsibilities within a clearly defined framework of prudent and effective accounting procedures and adequate segregation of duties. They are monitored throughout the company and all employees are required to maintain the highest ethical standards in ensuring that the company’s business practices are conducted in an appropriate manner, which is above reproach.

The company’s internal audit function operates independently in all operations to appraise and evaluate the effectiveness of the operational activities and the attendant business risks. Where necessary, recommendations are made for improvements in the systems of internal control and accounting practice based on internal audit plans and reports which take cognisance of relative degrees of risk of each function or aspect of business.

Comprehensive management reporting disciplines are in place, which include the preparation of annual budgets by all operating entities. The operating Boards approve individual operational budgets, while the company budget is reviewed and approved by the Tongaat Hulett Board. Monthly results and the financial status of the operations are reported against budgets and forecasts and compared to the results of the prior year. Profit projections and cash flow forecasts are regularly updated, taking into account various economic scenarios and working capital and borrowing levels are monitored on an ongoing basis.

OTHER GOVERNANCE ITEMS AND ASSERTIONS

THIRD-PARTY MANAGEMENT AND RELATED PARTY TRANSACTIONS

No part of the company’s business was managed during the year by any third-party in which any director had an interest.

The company has a process in place whereby the directors and key management have confirmed that, to the best of their knowledge, the information disclosed in Tongaat Hulett Limited’s annual financial statements fairly represents their shareholding in the company, both beneficial and indirect, interest in share options of the company and the compensation earned from the company for the financial year. In addition, the directors and key management have confirmed that all interests have been declared.

INSIDER TRADING

No director, officer or employee may deal either directly or indirectly in the company’s shares on the basis of unpublished price-sensitive information regarding its business or affairs. In addition, no director, officer or employee may trade in the company’s shares during closed periods. Closed periods are from the end of the interim and annual reporting periods to the announcement of financial and operating results for the respective periods, and while the company is under a cautionary announcement.

GOING CONCERN ASSERTION

The directors confirm that they are satisfied that the company has adequate strategic, financial and operational resources to continue its business for the foreseeable future. The basis upon which this assessment is made is recorded at the time of approval of the annual financial statements. The Board continues to adopt the going concern basis for preparing the financial statements.

RELATIONSHIP WITH STAKEHOLDERS

The Board endorses the elements of Principle 16 of King IV™ that states that in the execution of its governance roles and responsibilities, the Board should adopt a stakeholder-inclusive approach that balances the needs, interests and expectations of material stakeholders in the best interests of the organisation over time. For more detail on the company’s engagement with its wide range of important stakeholders, and key focus areas during the reporting period, please refer to the sustainability section of the integrated report.

The CEO, CFO and the Investor Relations and Communications Executive interface regularly with institutional investors on key strategic themes and the performance of the company, through various presentations and scheduled meetings as per the company’s investor relations programme. The current programme includes management conducting roadshows in South Africa, and internationally, in addition to its participation in selected conferences. Through the company’s website, a wide range of information is available to all shareholders and other stakeholders, including the integrated annual report, information on investor relations, and updates of the company’s activities and its many initiatives to promote stakeholder value creation and sustainability.

Tongaat Hulett remains committed to principles of transparency, and copies of presentations given to the investment community are available on the company’s website here. The company encourages the attendance of shareholders at AGMs and welcomes fruitful discussions and questions arising from the agenda and any additional issues of interest or concern to the shareholders.




REMUNERATION REPORT


Part 1: Background Statement

This remuneration report outlines the background, philosophy and policy and implementation details of the remuneration of executive directors, executive management, senior management, non-executive directors, and at a high level, other employees of Tongaat Hulett as proposed by the King IV™ report. Its development has considered appropriate and recommended practices from stakeholders including feedback from shareholders in relation to past AGMs in the non-binding advisory vote by shareholders, and in line with good corporate governance, the principles set out in this report have now been aligned as far as practical to King IV™.

The Remuneration Committee (Remco) is satisfied with the company's application of the requirements of King IV™ and the JSE Listings requirements. Furthermore, the Remco is satisfied that the remuneration policy has achieved its stated objectives. Ongoing enhancements to the company's remuneration policy and practices will continue to be assessed in future reporting periods.

Decisions relating to the remuneration policy and outcomes have been influenced by the various socio-economic dynamics in the countries in which the company operates.

Tongaat Hulett regularly conducts benchmarking studies to establish appropriate remuneration levels and practices to ensure fair, transparent and responsible remuneration for all staff including management. In the 2017/18 reporting period a remuneration consultancy, regarded as independent and objective by the Remco, was commissioned to conduct an internal and external competitiveness analysis focused on the South African operations using current guaranteed packages. The research concluded that there is a high degree of internal equity, with most employees being paid within acceptable salary ranges. The remuneration consultancy also undertook a review of the gender and race equity of current guaranteed packages across the different South African operations. Their research indicated that there are no significant employment equity remuneration issues.

Summary of remuneration activities by the Remuneration Committee during the 2017/18 reporting period


Factors which influenced remuneration decisions in 2017/18

  • Commercial trading conditions that impacted remuneration mandates, influenced decisions on the setting of performance conditions of the long-term incentives and resulted in the non-payment of short-term incentive annual bonuses to executive and senior management;
  • matters raised by shareholders, to seek appropriate approval of the 2017/18 remuneration report at the next AGM. The 2016/17 remuneration report was endorsed by 72,46 percent of shareholders at the AGM held on August 2017; further details and the outcomes of the engagements with dissenting shareholders is presented below;
  • the company's stated employment equity and localisation of skills objectives in Mozambique and Zimbabwe; and
  • creating shareholder value by aligning management with shareholders' interests and ensuring that executive management, senior management and middle management receive remuneration which is fair based on their performance.

Summary of main focus areas in 2017/18

The following issues were considered, engaged on, recommended or approved by the Remco and the Board for the 2017/18 reporting period:

  • cash package increases for the CEO, executives and senior managers;
  • short-term incentives (STI) (bonuses) for the CEO, executives and senior managers (zero bonuses were paid for the 2017/18 year);
  • long-term incentives (LTI) (share schemes) for the CEO, executives and senior managers;
  • performance conditions and performance targets for STI and LTI schemes;
  • proposal to shareholders on fees payable to non-executive directors;
  • succession plans and employment equity/localisation of skills; and
  • Remco terms of reference.

In addition to the above, the aforementioned independent external remuneration consultancy which was commissioned to research remuneration levels of the top executive team (CEO and direct reports) concluded that:

  • It was unnecessary to substantially change the current practices of top executive remuneration.
  • The company's current practice to err on the conservative side regarding future guaranteed pay increases was supported, in addition to exploring moderate improvements to STI and LTIs.
  • As a result, the Remco approved the addition of two bonus schemes for the 2017/18 reporting period, namely a STI bonus scheme capped at 70% (previously 65%) of an employee's cash package for the top executives who have an impact on the business results and the addition of a STI bonus scheme targeted at entry level management which is capped at 10% of cash pay.

Focus areas for 2018/19

The Remco has agreed to workshop the company's remuneration strategy and practices during the 2018/19 year in conjunction with independent remuneration consultants. The aim is to review the alignment of these remuneration strategies and practices with changing market needs, the requirements of King IV™ and the feedback received from shareholders in pursuit of best practice.

Minimum living wage

Tongaat Hulett is acutely aware of the income levels which impact the quality of life of the lower-level employees in the agricultural and manufacturing operations of the various countries in which it operates. At the same time, different socio-economic and labour dynamics present challenges to control operating costs, contain the total labour bill whilst striving to offer competitive salaries, and to preserve jobs as far as possible. Against this background and to improve the quality of life of its employees and maintain sound labour relations, Tongaat Hulett negotiates and sets the wage levels within known external parameters of remuneration as agreed with labour unions and offers in-kind benefits. To reinforce this, salary increments are also differentiated, with lower level employees' average percentage increases generally being higher than that of senior grade levels in the company.

Part 2: Overview of the remuneration policy

Remuneration philosophy 

The remuneration committee 

Key principles of the remuneration policy 

Elements of remuneration

Pay for performance

2018/19 Annual bonus scheme performance condition targets - financial and operational metrics

2018/19 Long-term incentive plans

Pay mix (R000)

Termination policy

Recruitment policy

Interest of the directors of the company in share capital

Non-executive directors' remuneration

Non-binding advisory vote on remuneration policy - Part 2

Remuneration philosophy

The objective of the remuneration philosophy is to align performance of company executives and fair reward with the company's commercial success and sustainability, simultaneously taking into account various stakeholders' perspectives and the affordability/cost to company.

The Remuneration Committee

Roles and responsibilities

The roles and responsibilities of the Remco are determined and approved by the Board, as explained in the corporate governance section of this integrated annual report, which deals with Board Committee structures and responsibilities. In accordance with its terms of reference the Remco's responsibilities are, inter alia, to:

  • Propose, review and administer the broad policy for executive management remuneration on behalf of the Board and the shareholders, in accordance with best corporate practice. It ensures alignment of the remuneration policy with the overall business strategy, desired company culture, shareholders' interests and the sustainable commercial well-being of the company.
  • Consider and make recommendations to the Board on the remuneration policy and on the quantum, structure and composition of remuneration packages of executive management and senior executives. It reviews general salary increases for management and the operation of the company's management incentive schemes. In addition, it oversees succession planning, retention, employment equity as well as localisation of skills in Mozambique and Zimbabwe.

The Remco meets at least twice a year and information relating to members and attendance has been presented here.

The remuneration report is available at www.tongaat.com/remco

Shareholder engagement

Where practical, the Remco continues to constructively engage with dissenting as well as other shareholders on matters related to disclosure, performance conditions and the structuring of remuneration packages.

A summary of the themes raised in the shareholder feedback and the corresponding actions taken in response thereto appears below.

In future, in the event that the Tongaat Hulett remuneration policy (as contained in part 2 of this report) or the remuneration implementation report (as contained in part 3 of this report) is voted against by 25% or more of voting rights exercised by shareholders, the Remco will take the following steps as a minimum:

  • An engagement process to ascertain the reasons for dissenting votes.
  • Appropriately addressing legitimate and reasonable objections raised, which may include amending the remuneration policy or clarifying or adjusting the remuneration governance and/or processes.
Shareholder feedback  Actions taken and/or response to feedback 
Additional disclosure requested on performance conditions - financial and non-financial targets/KPIs and ranges/thresholds compared to stretch.  Cognisance has been taken of this feedback and progress is disclosed in the current integrated annual report here
More detail is required on the structure of STI (annual bonus) and its context within the total remuneration package, including the quantum of variable pay compared to fixed pay.  Cognisance has been taken of this feedback and progress has been disclosed in the current integrated annual report here
Debate on the vesting scales of the Total Shareholder Return (TSR) component of the LTI, which has a 25% weighting in one of three share schemes.

Debate on the length of the vesting period of LTIs 

This is an ongoing consideration.


This is an ongoing consideration. 

Questions have been raised on the CEO's package.  Specific contextual responses have been provided in the direct engagement process. In 2016/17 and 2017/18 the CEO elected to receive a 0% cash package increase. 

Key principles of the remuneration policy

In designing a remuneration policy which is fair, transparent and responsible, Tongaat Hulett considered the following factors:

  • remuneration which motivates executive management to achieve Tongaat Hulett's business plan, business strategy and budgets;
  • remuneration which creates a strong, performance-oriented environment for executive management and all employees;
  • remuneration which rewards executives and all employees fairly based on their performance;
  • the creation of an environment which encourages decision making that ensures that remuneration of the executive management is fair and reasonable in the context of overall employees;
  • remuneration which attracts, motivates and aims to retain high-calibre talent while keeping within market benchmarked pay levels;
  • remuneration which drives the performance of executive management and ensures alignment between management and shareholder interests to create shareholder value; and
  • remuneration which promotes an ethical culture and responsible corporate citizenship.

Elements of remuneration

The remuneration structure at senior management level consists of:

Guaranteed package (fixed remuneration)

  • This is made up of cash payments for all employees and benefits which are offered at executive management level.

Variable pay

  • STI annual bonus schemes, which have set maximum levels;
  • LTIs in the form of awards under various employee share incentive schemes including the Share Appreciation Right Scheme (SARS), the Long-term Incentive Plan (LTIP), the Retention Long-term Incentive Plan (RLTIP) and Deferred Bonus Plan (DBP).

Pay for performance

The company subscribes to the principle of pay for performance. Remuneration is therefore designed as competitive packages which are benchmarked to the market median on an annual basis using independent external remuneration surveys. Remuneration is linked to individual performance so that as a general principle, good performers are remunerated in line with the market median, with high achievers and exceptional performers being rewarded towards the market upper quartile. This is achieved through a process of self and manager assessment against documented strategic and business performance targets and a general overall assessment (using a four-definition scale ranging from unsuccessful to exceptional). Cash pay increase guidelines are determined with reference to this assessment within an overall company performance rating distribution that approximates a normal distribution curve.

To achieve the goal of remunerating fairly according to individuals' performance, financial and non-financial targets have been set at each level; these being company-level targets, operating entity specific targets, and team and individual performance targets. All top executives' targets are predetermined and approved by the Remco and the Board, and performance is assessed at the end of each performance period for the short-term and long-term incentives, in respect of annual targets and multi-year, long-term incentive targets.

The following table sets out the elements of the company's remuneration design and how they link to company performance and strategy:

Remuneration element  Key features  Eligibility  Link to strategy 
Guaranteed pay  Guaranteed pay is fixed remuneration which comprises both a cash pay element and benefits. These benefits are inclusive of membership of an approved company pension fund (compulsory for all management levels), provision of subsidised medical aid, gratuity at retirement and death and disability insurance. Housing and car schemes for qualifying employees are provided in Mozambique, Zimbabwe and Swaziland. The guaranteed pay for executive management and senior management is reviewed annually by the Remco and the Board, and is set with reference to relevant external market data as well as the assessment of individual performance and the role/profile of each employee.  All employees  Attraction, recruitment and retention of talented executives and competent employees to drive business performance. 
STI:

Annual bonus scheme 

The primary purpose of the bonus schemes is to serve as a short-term incentive designed to provide executive, senior and middle management with the opportunity to earn an annual bonus.

It is based on a combination of the achievement of predetermined financial/operational targets and an assessment of the individual's overall general performance. The financial targets include measures of corporate and, where applicable, operational performance, and the non-financial (personal) targets include the achievement of individual and, where applicable, team performance, against predetermined objectives related to key business strategies and objectives, including non-financial KPIs.

The annual bonus scheme has a threshold financial target below which no bonuses are paid to executives and senior management.

All financial targets have an upper limit and a lower limit. When a lower limit is reached 25% of the amount attributable to that element is applicable and when the upper limit is reached or exceeded, 100% of the amount attributable to that element is applicable. If financial results are below the lower limit, zero points will be earned for the element concerned. 

From CEO to entry level management (latter effective 2017/18) To reward successful achievement of company targets and personal performance and to act as an attraction and retention mechanism.

The company uses such metrics as operating profit, headline earnings, cash flow and return on capital employed to reward executives and management. These are, inter alia, linked to the strategic objectives such as increases in sugar production, large land sales and sweating the milling assets. 

LTI:

SARS 

Participating employees are awarded the right to receive shares equal to the difference between the exercise price and the grant price, less income tax payable on such difference, once the right has vested. The employee therefore participates in the after-tax share price appreciation in the company. The extent of the vesting of the right is dependent on the achievement of performance conditions over a three-year performance period.  Executive management, senior management and qualifying professional employees  To strengthen the alignment of management with shareholder interests and assist in the attraction and retention of executive management. 
LTI:

LTIP

As amended at the AGM on 27 July 2010 to ensure compliance with Schedule 14 of the JSE Listings Requirements 

Annually, participating employees are granted conditional rights to shares (referred to as LTIPs). The extent of vesting of the rights are dependent on the achievement of performance conditions over a three-year performance period as set out in the table below on long term incentive plans.

Conditional retention awards (RLTIPs) can be granted under this LTIP, where a specific retention risk is identified, to assist with targeted key and high potential employee retention and talent management. These retention awards do not have performance conditions and vest after a four or five-year period whereby they are settled in shares. RLTIPs are a small quantum in relation to other share-based instruments 

Executive management, senior management and qualifying professional employees.

Targeted key and high potential employees for retention. 

To strengthen the alignment of management with shareholder interests and assist in the attraction and retention of qualifying executive management and senior managers who make a significant company impact. The company uses metrics such as operating profit, headline earnings, cash flow and return on capital to reward executives and management for increases in the strategic objectives of sugar production, large land sales and sweating the milling assets. 
LTI:

DBP 

Participating, selected executives purchase shares in the company with a portion of their after-tax bonus. These pledged shares are held in trust by a third-party administrator for a qualifying three-year period, after which the company awards the employee a number of shares in the company which matches those pledged shares released from trust, provided the executive has not resigned (matching awards).  CEO, CEO direct reports and selected executives  To ensure alignment with shareholder and management interests and to encourage achievement of strategic business objectives.

The company uses DBP awards to motivate the executive management to focus on driving sustainable share price growth. 

2018/19 ANNUAL BONUS SCHEME PERFORMANCE CONDITION TARGETS-FINANCIAL AND OPERATIONAL METRICS

Following the recommendation of the Remco and with the approval of the Tongaat Hulett Board, the operation of the annual bonus scheme for middle management and upwards for the 2018/19 year is as set out below. Below this level there is a guaranteed bonus of 10% of annual basic salary.

Short-term incentive: Annual Bonus Scheme 
Eligibility  CEO to entry level management 
Formula  The annual bonus is a cash payment at the end of the financial year, the value of which is determined according to a formulaic methodology. The formula is dependent on financial/operational and non-financial performance in the financial year, measured against pre-determined targets, expressed as a lower and upper limit/target. The outcomes of the financial/operational and non-financial performance are combined to assess the percentage of the maximum which each individual is eligible to receive. 
Gatekeeper  If Tongaat Hulett's headline earnings are below an agreed threshold, no bonuses will be payable in respect of all participation levels other than middle management (ie: the 10% to 20% schemes). Previously the gatekeeper provisions did not apply to management on the 30% scheme. 
Maximum value of bonus  The total amount of each individual's cash package which can be earned if the financial/operational upper limit performance conditions and specific non-financial performance KPIs are met is as follows: 
Level  Maximum as % of cash package   
CEO  80% 
CFO/Executive leadership  65% - 70% 
Senior management  30% - 50% 
Middle management  10% - 20% 
Elements of the annual bonus calculation  All executives are measured on financial and specific non-financial targets. For executives who perform an operational function, the financial component will also include operational targets.

Accordingly, the applicable weightings between the different elements are as follows (expressed in terms of the maximum): 

   Financial targets - corporate  Financial targets - operational  Non-financial targets  Maximum bonus 
Weighting %  65%  35%    
CEO  52%     28%  80% 
Corporate executives: top-tier  45%  None  25%  70% 
Corporate executives (operations): top-tier  29%  16%  25%  70% 
Financial performance measures  The performance conditions for the 2018/19 year include: 
Corporate  Operations 
Headline earnings  Operating profit 
Return on capital employed  Cash flow 
Cash flow    
Operational targets are set relative to each operation.

Relative to the expressed maxima, achievement of the lower/minimum level of performance will result in a 25% vesting for that measure, and achievement of the upper/maximum level of performance will result in a 100% vesting for that measure.

Minimum and maximum target levels of performance are set relative to budget and/or with reference to prior financial results, and aim to reward out-performance (reflected by the upper/maximum) and guard against remunerating for poor performance by setting lower/minimum performance levels.

The aim of the Remco is to set financial and operational targets in a manner where stretch/maximum level of performance represents the creation of shareholder value and strong performance against the strategic business outcomes. 

Individual performance and non-financial KPIs  Performance on an individual level is assessed relative to two aspects:

  • Pre-determined objectives relating to personal/team/operation.
  • General personal assessment.

The general personal assessment for top-tier executives is approved by the Remco, on recommendation of the CEO or Chairman of the Board as applicable, following formal performance discussions and evaluations.

Examples of non-financial KPIs include those relating to:

  • Safety, health and environmental targets.
  • Tongaat Hulett's strategic themes.
  • Sustainability themes.
  • Risk management themes.
  • Organisational effectiveness, capability and senior level capacity building including diversity/localisation and succession.
  • Objectives specific to the individual's area of focus. 
Changes to the 2018/19 STI annual bonus scheme  The performance conditions for middle management have been amended to include a cash flow element in addition to profit from operations.

The gatekeeper proviso will now also include management on the 30% scheme so that if Tongaat Hulett's headline earnings are below an agreed threshold, no bonuses will be payable in respect of all participation levels other than middle management (i.e. 10% - 20% schemes). 

2018/19 LONG-TERM INCENTIVE PLANS

Long-term incentive plans 
Brief description of plans  Tongaat Hulett currently operates three separate LTI plans, referred to as "the Plans":

  • Share Appreciation Right Scheme 2005 (SARS)
  • The Long-Term Incentive Plan 2005 (LTIP)
  • The Deferred Bonus Plan 2005 (DBP)

Under these Plans, executive management, senior management and qualifying professional employees of the company are awarded rights to receive shares in the company if certain performance conditions have been met (with the exception of Retention Shares), and in the case of the SARS, when the rights have been exercised.  

Eligibility and allocation levels  Executive management, senior management and qualifying professional employees

The Remco makes a judgement each year regarding the allocation split between instruments. The current practice is to allocate SARS and LTIPs on a 45/55 split. The DBP allocation is linked to the actual value of the prior year's STI, which is determined by the extent to which the performance conditions are satisfied and personal KPIs are achieved. 

Types of instruments  Annual awards under the LTIP take the form of conditional awards, SARS and Deferred Bonus Shares. These instruments are discussed in the table setting out the elements of the remuneration design and policy. 
Maximum individual limits  The rules of the Plans provide that the annual fair value of the CEO's and CFO's allocations should not exceed 1 times cash package, and the market value of SARS and LTIP at grant date should not exceed 2 times cash package and the value of the DBP allocation shall not exceed 30% of cash package. In addition, the total unvested allocation for each should not exceed 1,2 million shares. 
Performance measures and targets  For the awards that will be made in the upcoming year, the following performance conditions and periods are applicable:

LTIP awards will vest after a three-year period, and will be subject to:

  • Total Shareholder Return condition, weighted at 25%;
  • Return on Capital Employed condition, weighted at 25%;
  • Sugar Production condition, weighted at 25%; and
  • Operating Cash Flow, after working capital, after root planting and before capex condition, weighted at 25%.

The SARS will vest after a three-year period, subject to an increase in HEPS. The vesting will be on a sliding scale.

  • For 100% to vest the average HEPS over the three-year performance period needs to increase by the change in CPI over 3 years +6% and there will be 0% vesting if below the pre-determined threshold, with linear vesting in between.

Performance conditions governing the vesting of the scheme instruments are determined at the time each annual award is made. The performance targets are set each year for the instruments granted that year, taking into account the prevailing circumstances and conditions at that time and relative to targets that are intended to be challenging but achievable.

Targets are linked, where applicable, to the company's medium-term business plan, over three-year performance periods, with actual grants being set each year considering expected company performance, the job level and cash package of the participating employee, and appropriate benchmarks of the expected combined value of the awards. 

Company limits  The maximum number of treasury or issued capital shares that may be issued and allocated under the LTIP, SARS and DBP shall not exceed 13 000 000 shares, which would represent approximately 9,6% of the number of issued shares. The company is currently well below this limit in terms of what could potentially be issued and allocated. Furthermore, all settlements to date have been through a third-party acquiring shares in the market and delivering the shares to employees. 

Pay mix (R000)

* Guaranteed package
 
* On target performance assumed at 60% of maximum.
** Based on the average of the past 2 years awards. Indicative expected value on grant date.
 
* LTIP/DBP: Indicative expected value on grant date assuming the average allocation levels for the past 2 years and assuming full vesting.
SARS: Indicative expected value assuming the average allocation levels for the past 2 years, a share price growth of 18% p.a. and full vesting.
The share price growth was based on an estimated Cost of Equiy plus a premium based on upper quartile returns and market practice.

Termination policy

Executive management have contracts which define notice periods. In the event of a termination, the company has the discretion to allow the relevant employee to either work out their notice or to pay the guaranteed pay for the stipulated notice period in lieu of notice. For guaranteed pay, there are no contractually agreed upon balloon payments due on termination.

Furthermore, the various Plan rules clearly outline termination provisions under different circumstances, as set out below.

   Voluntary resignation, dismissal  Retirement, ill health disability  Retrenchment, death 
STI  Automatic forfeiture of award for current year.  Award is pro-rated.  Award is pro-rated. 
LTIP and RLTIP  All unvested awards shall be forfeited in their entirety and will lapse immediately on the date of termination  If the participant retires, falls ill or is disabled prior to the vesting date, they shall remain entitled to the same rights and obligations as if they remained employed by the company. Retention awards are forfeited in cases of early retirement.  A pro-rata portion of the award shall vest within 3 months or longer of retrenchment as the Remco determines. In determining thepro-rata portion, Remco considers the extent the performance conditions are satisfied and the proportion of performance period expired.

On the date of death, a pro-rata portion of the award shall vest and reflect the expired portion of the performance period. 

SARS  All unvested awards shall be forfeited in their entirety and will lapse immediately on the date of termination  If participants retire prior to the vesting date, they shall remain entitled to the same rights and obligations as if employed by the company.  A pro-rata portion of the award shall vest within 3 months or longer of retrenchment as the Remco determines. In determining the pro-rata portion, Remco considers the extent the performance conditions are satisfied and the proportion of performance period expired. On the date of death of a participant the executor may exercise the award within 1 year of death irrespective of the extent to which awards have vested or satisfaction of any performance condition. 
DBP  The participant will not be entitled to any matching awards on the vesting date.  If participants retire prior to the vesting date, they shall remain entitled to the same rights and obligations as if employed by the company.  Upon termination, a pro-rata portion of the participant's matching awards vests at date of termination. The portion of the matching award to vest will reflect the proportion of the pledge period that has expired at the date of termination of employment or date of death. 

Recruitment policy

When recruiting executive management, the company considers the size, nature and complexity of the role and the availability of the executive's skills in the market, and seeks to balance internal equity and external competitiveness when making an offer. Where applicable, the Remco may make conditional sign-on awards.

Interests of the directors of the company in share capital

The aggregate holdings as at 31 March 2018 of those directors of the company holding issued ordinary shares of the company are detailed here.

Non-executive directors' remuneration

Non-executive directors receive fees for their services as directors of the Board and all committees including its Remco, which includes an attendance fee component. The directors' fees are benchmarked against data obtained from the latest integrated annual reports of companies in the TSR peer group and external consultants. Directors' fees are recommended by the Remco, considered by the Board, and proposed to shareholders for approval at each AGM.

Non-executive directors do not participate in either short-term bonus schemes or long-term incentive share schemes of the company.

As required by the Companies Act, the remuneration of non-executive directors will be authorised by special resolution at the AGM and is set out here in the integrated annual report.

Non-binding advisory vote on Remuneration Policy - Part 2

This remuneration policy is subject to an advisory vote by shareholders at the forthcoming AGM.

Shareholders will also be requested to cast an advisory vote on the remuneration implementation report as contained in part 3 of this remuneration report.

Part 3: Implementation report

Financial information

Cash package adjustments

Short-term incentive: Annual bonus scheme awards for 2017/18

Long-term incentives

Single figure of remuneration (R000)

In this part of the report, details are provided of the remuneration paid to executive and non-executive directors for the financial year ended 31 March 2018. The Remco considers that these payments are in line with the company’s remuneration policy.

Financial information

The financial details relating to the directors and prescribed officers’ emoluments are disclosed here and here.

Cash package adjustments

In determining the cash package increases for the CEO and CFO in 2017/18, the Remco considered relevant market survey data from several independent consultancies. Periodically, including in 2017/18, executive remuneration is benchmarked against companies of comparable size and complexity with reference to market capitalisation, turnover, profitability, number of employees and sector.

In 2017/18 (and 2016/17), the CEO elected to receive a 0% increase. The Remco approved a 6,5% increase on cash pay for the CFO in 2017/18. In 2018/19 the Committee approved an increase to the cash pay of both the CEO and CFO of 7%.

Short-term incentive: annual bonus scheme awards for 2017/18

No bonuses were paid to the CEO, CFO, executives and senior management for the 2017/18 year due to the headline earnings threshold of R800 million not being met.

Long-term incentives

Awards made in 2017/18 financial period

SARS

Performance condition  Target/vesting potential 
HEPS  Growth of greater than CPI over 3 years +6% for 100% vesting and 0% if below the
pre-determined threshold of CPI over 3 years -6%, with linear vesting in between. 

The awards made during the year are disclosed in the Share Appreciation Right Scheme tables here and here.

LTIP

Performance condition  Target and potential vesting outcome 
TSR
(40% weighting)

Peer group: AECI Limited, Astral Foods Limited, AVI Limited, Clover Industries Limited, Crookes Brothers Limited, Nampak Limited, Omnia Holdings Limited, Oceana Group Limited, Pioneer Food Group Limited, RCL Foods Limited, Sappi Limited, and Tiger Brands Limited 

Three-year TSR vesting scale, smoothed using TSR data for the6 months preceding 31 March 2017 and the 6 months preceding31 March 2020, for a population of 12 other companies against which Tongaat Hulett competes, with a graduated vesting scale. 

ROCE

(40% weighting)

Below lower limit - 0% 
Lower limit - 30% 
Upper limit - 100% 
Between lower and upper limits - linear vesting 
Sugar Production
(20% weighting)
Between lower and upper limits: 30% - 100% 

The awards made during the year are disclosed in the Long-term Incentive Plan tables here and here.

LTI vesting outcomes

The awards that vested in 2017/18 were made in 2014 and the performance conditions (measured at 31 March 2017) and vesting outcome is reflected below:

SARS

Performance condition  Target  Vesting period  Vesting achieved in 2017/18 
HEPS  Growth of greater than CPI +6% over 3 years for 100% vesting and 0% if below the pre-determined threshold, with linear vesting in between.  3 years  Zero 

LTIP

Performance condition  Target  Vesting outcome  Achievement and vesting outcome in 2017/18 
TSR
(25% weighting)

Peer group: AECI Limited, Astral Foods Limited, AVI Limited, Bidvest Group Limited, Clover Industries Limited, Illovo Sugar Limited, Mondi Limited, Nampak Limited, Omnia Holdings Limited, Oceana Group Limited, Pioneer Food Group Limited, RCL Foods Limited, Sappi Limited, and Tiger Brands Limited 

Three-year TSR vesting scale for a population of 14 other companies against which Tongaat Hulett has competed. 
  • Positions 1 - 4
  • Positions 5 - 13 
100%

Linear 

Illovo Sugar Limited delisted in 2016 and was excluded from the peer group. The company ranked position 9 out of 14, resulting in a 50% vesting of the portionof the LTIP award linked to TSR.

The vesting outcome was 12,5% (50% x 25% weighting)

ROCE
(25% weighting)

Below lower limit  0% 

ROCE was 10,5%

The vesting outcome was zero 

Lower limit  12,9% = 30% 
Upper limit  15% = 100% 
Linear vesting in between 
Sugar production
(25% weighting)
Between 1,48 and
1,7 million tons sugar. 
30% to 100%  Linear vesting between these points  Sugar production was 1,056 million tons

The vesting outcome was zero 

Three-year large land deals
(25% weighting)
Between R300 - R 600 million  30% to 100%  Linear vesting between these points  Large land deals exceeded R600 million resulting in a 100% vesting of this portion of the LTIP

The vesting outcome was 25% (100% x 25%)

The overall LTIP vesting was thus 37,5%

Single figure of remuneration (R000)

   Cash package Retirement and medical aid Cash bonus1  LTI reflected 2,3,4,5 Total single figure remuneration
2018                
PH Staude  8 799  1 308  3 421  13 528 
MH Munro  5 197  779  1 260  7 236 
   13 996  2 087  4 681  20 764 
2017                
PH Staude  8 799  1 276  6 626  3 338  20 039 
MH Munro  4 880  727  2 884  1 306  9 797 
   13 679  2 003  9 510  4 644  29 836 
1. Bonuses are reported to match the performance and quantum earned to the applicable financial period.
2. The value of the SARS and LTIP awards made on 26 May 2014 with a performance period ending on 31 March 2017 is reflected in the 2017 single figure of remuneration. As the performance condition of the SARS was not met, it is reflected as zero. The LTIP is included at the 20 day VWAP of R128,39 as at 31 March 2017 and an achievement of performance conditions of 37,5%.
3. The value of the DBP award made on 6 June 2016 is reflected in the 2017 single figure of remuneration.
4. The value of the SARS and LTIP awards made on 28 May 2015 with a performance period ending on 31 March 2018 is reflected in the 2018 single figure of remuneration. As the performance condition of the SARS was not met, it is reflected as zero. The LTIP is included at the 20 day VWAP of R102,52 as at 31 March 2018 and an achievement of performance conditions of 27,03%.
5. The value of the DBP award made on 29 May 2017 is reflected in the 2018 single figure of remuneration.

Executive Directors’ Remuneration (R000)

Table of estimated fair values of the executive directors' unvested long-term incentive awards at year end.1

     PH Staude    MH Munro 
     31 March 2018  31 March 2017    31 March 2018  31 March 2017 
Share Appreciation Right Scheme 2             
31 May 2010       2 296       730 
31 May 2011       3 318    347  1 089 
29 May 2012       1 197       408 
28 May 2015       2 504       1 060 
6 June 2016    2 073  2 596    926  1 160 
29 May 2017    1 756       776    
                  
Long-term incentive plan 3             
26 May 2014       2 366       983 
28 May 2015    1 293  2 911    547  1 232 
6 June 2016    2 374  2 896    1 060  1 294 
29 May 2017    2 525       1 116    
                  
Deferred Bonus Plan 3             
26 May 2014       2 241       711 
28 May 2015    1 374  1 673    422  513 
30 May 2016    927  1 130    308  376 
29 May 2017    1 930       646    
                  
Total    14 252  25 128    6 148  9 556 

1. Depending on the vesting date, awards are included at the intrinsic value or an indicative fair value as at 31 March 2017 and 31 March 2018. These values are based on the 20 day VWAP as at the relevant year end and the estimated achievement of performance conditions.
2. SARS awards vest on the third anniversary of the grant date and lapse on the seventh anniversary of the grant date.
3. LTIP and DBP awards vest on the third anniversary of the grant date.

Further information pertaining to unvested awards, gains on awards vested during the year, award vesting dates and fair value of awards on the grant date, are detailed here.

Termination contracts and termination of office payments

There are no long-term contracts in place for executives and no termination of office payments were made during the 2017/18 year.

Non-executive director fees

The Remco recommended an increase in the non-executive director fees of 6,5% in 2017/18 which was approved at the 2017 AGM and has proposed an increase of 6% for 2018/19.

The details relating to the non-executive directors’ fees for the year ended 31 March 2018 are disclosed here.

Voting statement (Non-binding advisory vote on the implementation report)

This report is subject to an advisory vote by shareholders at the forthcoming AGM. Shareholders are requested to cast an advisory vote on the remuneration implementation report as contained in part 3 of this remuneration report.

Approval of remuneration report by the board of directors

This remuneration report was approved by the Board of directors of Tongaat Hulett on 24 May 2018.

DISCLOSURES ON REMUNERATION MATTERS

Further disclosures on remuneration matters

The table below sets out, for ease of reference, the relevant additional sections of the remuneration details of directors and officers, including share schemes and interest in share capital.

Executive directors' and officers' remuneration 

Non-executive directors' remuneration 

Declaration of full disclosure 

Interest of directors of the company in share capital 

Details of share schemes (including performance conditions)

Interest of executive directors of the company inshare-based instruments 

Special resolution setting out remuneration to be paid to directors for their services as directors of the company for the ensuing year 

Non-binding advisory vote on the remuneration policy 

Non-binding advisory vote on the implementation report 

DIRECTORS' AND PRESCRIBED OFFICERS' EMOLUMENTS AND INTERESTS'

Executive directors' remuneration (R000)

The executive directors' remuneration for the year ended 31 March 2018 was as follows:

Name  Cash
package
Cash bonus *^ Retirement and medical contributions Total
            
            
PH Staude  8 799  1 308  10 107 
MH Munro  5 197  779  5 976 
   13 996  2 087  16 083 

The executive directors' remuneration for the year ended 31 March 2017 was as follows: 

Name  Cash package  Cash bonus *  Retirement and medical contributions  Total 
            
PH Staude  8 799  6 626  1 276  16 701 
MH Munro  4 880  2 884  727  8 491 
   13 679  9 510  2 003  25 192 

* Bonuses are reported to match the performance and quantum earned to the applicable financial period. 
^ No bonuses were paid to the CEO and CFO in the 2017/18 year due to the headline earnings threshold of R800 million not being met. 

The requirement to include prescribed officers is covered by the above executive directors, as they exercise effective management and control. 

Details of the executive directors' share-based instruments granted and exercised (including the gain/value on settlement) are contained here

Non-executive directors' remuneration (R000)
   12 months to 31 March 2018  12 months to 31 March 2017 
Name  Fees  Other  Total  Fees  Other  Total 
                    
SM Beesley  366  441  807  334  339  673 
F Jakoet  385  319  704  363  300  663 
J John  385  377  762  363  356  719 
RP Kupara  354  188  542  363  178  541 
TN Mgoduso  354  130  484  363  123  486 
N Mjoli-Mncube  385  473  858  363  463  826 
SG Pretorius  385  324  709  363  417  780 
TA Salomao 354     354  363     363 
CB Sibisi  1 361  315  1 676  1 282  236  1 518 
   4 329  2 567  6 896  4 157  2 412  6 569 
 
In the table above, "Fees" relate to the services as directors on the board and "Other" relates to fees paid for services as committee members. 
 
Declaration of full disclosure             
Other than the remuneration disclosed in this note, which was paid by the company, no consideration was paid to or by any third-party, or by the company itself, in respect of services of the company's directors, as directors of the company, during the year ended 31 March 2018. 
 
Interest of directors of the company in share capital 
The aggregate holdings as at 31 March 2018 of those directors of the company holding issued ordinary shares of the company are detailed below. Holdings are direct and beneficial, except where indicated otherwise. 
                    
Name              2018  2017 
                    
Executive directors:                   
PH Staude              417 494  386 328 
MH Munro              150 460  138 136 
               567 954  524 464 

EMPLOYEE SHARE INCENTIVE SCHEMES 
Details of awards in terms of the company's share incentive schemes: 
Share Appreciation Right Scheme 2005 
Under the share appreciation right scheme, participating employees are awarded the right to receive shares equal to the difference between the exercise price and the grant price, less income tax payable on such difference. The employee therefore participates in the after-tax share price appreciation in the company. The vesting of the right is conditional on the achievement of Tongaat Hulett performance levels over a performance period. 
Expiring
seven years from 
Grant
price
Rand 
Fair
value
Rand 
Number of
rights
31 March 2017 
Granted  Exercised  Lapsed/
forfeited 
Number of
rights
31 March 2018 
                       
31 May 2010  97,49  20,00  458 767     458 767       
31 May 2011  90,42  17,50  691 771     299 813     391 958 
29 May 2012  110,21  21,73  792 889     3 007  5 132  784 750 
26 May 2014  121,93  23,96  1 525 312     7 188  1 518 124    
28 May 2015  128,54  23,68  1 687 368     7 818  36 946  1 642 604 
6 June 2016  113,41  28,06  1 536 084     7 218  34 595  1 494 271 
29 May 2017  115,85  25,28     1 460 996     9 682  1 451 314 
         6 692 191  1 460 996  783 811  1 604 479  5 764 897 
 
The estimated fair value costing of these outstanding share appreciation rights was determined using the binomial tree valuation model and non-market performance conditions, based on the following significant inputs: 
Strike price  The grant price, as noted above. 
Expected option life  80 months (assume contractual plus a leaving percentage of 5%). 
Risk-free interest rate  2017: 7,63% (2016: 8,51%, 2015: 7,96%, 2014: 7,78%, 2013: 6,73%, 2012: 7,26% and 2011: 7,95%). 
Expected volatility  Expected volatility of 25% for the 2017 award (2016: 29%, 2015: 22,51%, 2014: 27,57%, 2013: 28,34%, 2012: 28,51% and 2011: 30%) is based on historical volatility determined by the statistical analysis of daily share price movements over the past three years. 
Expected dividends  The measurement of the fair value of the share appreciation rights did not take into account dividends, as no dividend payment was expected. A continuous dividend yield of 2,6% was used for the 2017 award (2016, 2015, 2014, 2013 and 2012: 2,6% and 2011: 2,75%). 
Expected early exercise  Early exercise is taken into account on an expectation basis. 
Time constraints  Three years from grant date. 
Performance (vesting) conditions  An increase in headline earnings per ordinary share as determined by the Remuneration Committee. Retesting of the performance condition is not allowed. 
Non-market performance conditions  Growth in headline earnings per share. 
Market performance conditions  No market conditions. 
Weighted average remaining life: 
Expected  2017: 74 months, 2016: 62 months, 2015: 50 months, 2014: 26 months, 2013: 26 months, 2012: 14 months and 2011: 2 months. 
Contractual  84 months. 

Long Term Incentive Plan 2005 
Under the long term incentive plan participating employees are granted conditional awards. These awards are converted into shares on the achievement of performance conditions over a performance period. 
Expiring
three years from 
Grant price
Rand 
Fair value
Rand 
Number of
conditional awards
31 March 2017 
Granted  Settled  Lapsed/
forfeited 
Number of conditional awards
31 March 2018 
                       
26 May 2014  121,93  51,79  553 034     207 211  345 823    
28 May 2015  128,54  57,82  541 397     1 424  11 083  528 890 
6 June 2016  113,41  60,28  558 904     627  12 647  545 630 
29 May 2017  115,85  63,39     712 153     4 719  707 434 
         1 653 335  712 153  209 262  374 272  1 781 954 
The estimated fair value costing of these outstanding conditional share awards was determined using the Monte Carlo Simulation model and non-market performance conditions, based on the following significant inputs: 
Expected option life  34 months (assume contractual plus a leaving percentage of 5%). 
Expected dividends  The measurement of the fair value of the conditional share awards did not take into account dividends, as no dividend payment was expected. A continuous dividend yield of 2,6% was used for these awards. 
Time constraints  Three years from grant date. 
Performance (vesting) conditions  2017 award: 40% of the award will be subject to the TSR condition, 40% to the return on capital employed (ROCE) condition and 20% to a sugar production condition. No retesting of the performance conditions is allowed. 
2016 award: 25% of the award will be subject to the TSR condition, 25% to the ROCE condition, 25% to a sugar production condition and 25% will be subject to the land conversion cash generation condition. No retesting of the performance conditions is allowed. 
2015 award: 25% of the award will be subject to the TSR condition, 25% to the ROCE condition, 25% to a sugar production condition and 25% will be subject to the large land deals of the company condition. No retesting of the performance conditions is allowed. 
Non-market performance conditions  ROCE, sugar production and the large land deals conditions. 
Market performance conditions  Total shareholder return (TSR). 
Weighted average remaining life: 
Expected  2017: 26 months, 2016: 14 months and 2015: 2 months. 
Contractual  36 months. 

Long Term Incentive Plan 2005 - Retention Awards 
Under the long term incentive plan participating employees are granted conditional awards which are converted into shares after the required service period is completed. 
Awards expiring four years from grant date 
Expiring
four years from 
Grant price
Rand 
Fair value
Rand 
Number of
conditional awards
31 March 2017 
Granted  Settled  Lapsed/
forfeited 
Number of
conditional
awards
31 March 2018 
                       
29 May 2013  126,85  92,99  97 351     93 373  3 978    
26 May 2014  121,93  89,38  136 349     1 808  4 135  130 406 
28 May 2015  128,54  94,23  176 155     1 428  10 268  164 459 
6 June 2016  113,41  102,07  144 963     640  10 916  133 407 
29 May 2017  115,85  104,26     239 700        239 700 
2 January 2018  113,63  102,27     15 000        15 000 
         554 818  254 700  97 249  29 297  682 972 
                
The estimated fair value costing of these outstanding conditional share awards was based on the following significant inputs: 
Expected option life  46 months (assume contractual plus a leaving percentage of 5%). 
Expected dividends  The measurement of the fair value of the conditional share awards did not take into account dividends, as no dividend payment was expected. A continuous dividend yield of 2,6% was used. 
Time constraints  Four years from grant date. 
Performance (vesting) conditions  There are no performance (vesting) conditions other than the passage of time. 
Non-market performance conditions  No non-market conditions. 
Market performance conditions  No market conditions. 
Weighted average remaining life: 
Expected  2 January 2018: 45 months, 29 May 2017: 38 months, 2016: 26 months, 2015: 14 months and 2014: 2 months 
Contractual  48 months. 
Awards expiring five years from grant date 
Expiring
five years from 
Grant price
Rand 
Fair value
Rand 
Number of
conditional awards
31 March 2017 
Granted  Settled  Lapsed/
forfeited 
Number of
conditional
awards
31 March 2018 
                       
22 September 2017  108,39  95,01     15 000        15 000 
2 January 2018  113,63  99,61     15 000        15 000 
            30 000        30 000 
                       
The estimated fair value costing of these outstanding conditional share awards was based on the following significant inputs: 
Expected option life  57 months (assume contractual plus a leaving percentage of 5%). 
Expected dividends  The measurement of the fair value of the conditional share awards did not take into account dividends, as no dividend payment was expected. A continuous dividend yield of 2,6% was used. 
Time constraints  Five years from grant date. 
Performance (vesting) conditions  There are no performance (vesting) conditions other than the passage of time. 
Non-market performance conditions  No non-market conditions. 
Market performance conditions  No market conditions. 
Weighted average remaining life: 
Expected  2 January 2018: 57 months and 22 September 2017: 54 months. 
Contractual  60 months. 

Deferred Bonus Plan 2005 
Under the deferred bonus plan participating employees purchase shares in the company with a portion of their after-tax bonus. These pledged shares are held in trust by a third-party administrator for a qualifying period, after which the company awards the employee a number of shares in the company which matches those pledged shares which are then released from trust. 
              
Expiring
three years from 
Grant price
Rand 
Fair value
Rand 
Number of conditional awards 31 March 2017  Granted  Settled  Number of conditional awards 31 March 2018 
                    
26 May 2014  121,93  96,60  73 165     73 165    
25 May 2015  131,27  103,99  60 909        60 909 
30 May 2016  113,06  104,47  44 464        44 464 
29 May 2017  115,85  107,05     94 000     94 000 
         178 538  94 000  73 165  199 373 
              
The estimated fair value costing of the outstanding deferred bonus share awards was based on the following significant inputs: 
        
Expected option life  34 months (assume contractual plus a leaving percentage of 5%). 
Expected dividends  The measurement of the fair value of the deferred bonus shares did not take into account dividends, as no dividend payment was expected. A continuous dividend yield of 2,6% was used. 
Time constraints     Three years from grant date. 
Performance (vesting) conditions  There are no performance (vesting) conditions other than the passage of time. 
Non-market performance conditions  No non-market conditions. 
Market performance conditions  No market conditions. 
Weighted average remaining life: 
Expected  2017: 26 months, 2016: 14 months and 2015: 2 months. 
Contractual  36 months. 
                    
The deferred bonus shares were purchased by the participating employees on 30 May 2017 in respect of the 2017 award. (2016 award purchased 3 June 2016 and the 2015 award purchased 1 June 2015). 

Interest of executive directors of the company in share-based instruments
Share Appreciation Right Scheme 2005 
Name  Expiring
seven
years
from 
Grant
price
Rand 
Fair
value
Rand 
Number of
rights
31 March
2017 
Granted  Exercised  Lapsed  Number of rights
31 March
2018 
Performance condition
and time
constrained 
                                
PH Staude  31 May 2010  97,49  20,00  74 289     74 289          
   31 May 2011  90,42  17,50  87 397     87 397          
   29 May 2012  110,21  21,73  65 845           65 845    
   26 May 2014  121,93  23,96  115 081        115 081       
   28 May 2015  128,54  23,68  123 414           123 414  123 414 
   6 June 2016  113,41  28,06  111 172           111 172  111 172 
   29 May 2017  115,85  25,28  106 763        106 763  106 763 
            577 198  106 763  161 686  115 081  407 194  341 349 
                          
MH Munro  31 May 2010  97,49  20,00  23 638     23 638          
   31 May 2011  90,42  17,50  28 669           28 669    
   29 May 2012  110,21  21,73  22 439           22 439    
   26 May 2014  121,93  23,96  47 818        47 818       
   28 May 2015  128,54  23,68  52 248           52 248  52 248 
   6 June 2016  113,41  28,06  49 654           49 654  49 654 
   29 May 2017  115,85  25,28  47 177        47 177  47 177 
            224 466  47 177  23 638  47 818  200 187  149 079 
 
Long Term Incentive Plan 2005 
                  
Name  Expiring
three years
from 
Grant price
Rand 
Fair
value
Rand 
Number of
conditional
awards
31 March
2017 
Granted  Settled  Lapsed  Number of conditional
awards
31 March 2018 
Performance condition
and time
constrained 
PH Staude  26 May 2014  121,93  51,79  49 144     18 429  30 715       
   28 May 2015  128,54  57,82  46 660           46 660  46 660 
   6 June 2016  113,41  60,28  47 766           47 766  47 766 
   29 May 2017  115,85  63,39  52 041        52 041  52 041 
            143 570  52 041  18 429  30 715  146 467  146 467 
                          
MH Munro  26 May 2014  121,93  51,79  20 420     7 658  12 762       
   28 May 2015  128,54  57,82  19 753           19 753  19 753 
   6 June 2016  113,41  60,28  21 334           21 334  21 334 
   29 May 2017  115,85  63,39  22 996        22 996  22 996 
            61 507  22 996  7 658  12 762  64 083  64 083 

Deferred Bonus Plan 2005 
Name  Expiring
three
years
from 
Grant
price
Rand 
Fair
value
Rand 
Number of
conditional
awards
31 March
2017 
Granted  Delivered  Number of
conditional awards
31 March
2018 
Conditional
awards
time
constrained 
PH Staude  26 May 2014  121,93  96,60  17 451     17 451       
   25 May 2015  131,27  103,99  13 405        13 405  13 405 
   30 May 2016  113,06  104,47  9 301        9 301  9 301 
   29 May 2017  115,85  107,05     19 883     19 883  19 883 
            40 157  19 883  17 451  42 589  42 589 
                          
MH Munro  26 May 2014  121,93  96,60  5 539     5 539       
   25 May 2015  131,27  103,99  4 114        4 114  4 114 
   30 May 2016  113,06  104,47  3 092        3 092  3 092 
   29 May 2017  115,85  107,05     6 657     6 657  6 657 
            12 745  6 657  5 539  13 863  13 863 
 
The deferred bonus shares were purchased by the participating employees on 30 May 2017 in respect of the 2017 award. (2016 award purchased 3 June 2016 and the 2015 award purchased 1 June 2015). 
 
Executive directors' share incentive gain/value on settlement (R000)
The Executive directors' share incentive gain/value on settlement relates to Share Appreciation Rights which had previously vested and have now been exercised and settled and to the Long Term Incentive Plan and Deferred Bonus Plan which vested and were settled. 
               
Name  Share-based instrument    2018  2017 
               
PH Staude         
   Share Appreciation Rights    4 328  3 844 
   Long Term Incentive Plan    2 209  1 451 
   Deferred Bonus Plan    2 092  1 715 
          8 629  7 010 
               
MH Munro         
   Share Appreciation Rights    595  1 305 
   Long Term Incentive Plan    919  480 
   Deferred Bonus Plan    665  563 
          2 179  2 348 
          
The share awards were made and exercised at various times and the average share price for the period was R114,17 (2017: R122,68).