CORPORATE GOVERNANCE

 

APPROACH TO EFFECTIVE GOVERNANCE

The Board of Directors (the Board) recognises the inextricable link between effective governance, sustainable organisational performance and creating long-term value for all stakeholders.The Board is therefore committed to transparency, accountability, integrity and ethical leadership.

Tongaat Hulett continues to apply the principles of the King Report on Governance for South Africa and the King Code on Governance Principles 2009 (King III), and the recommendations relevant to its business. Tongaat Hulett’s King III compliance register is available here. It includes detail of how each principle has been applied and is reviewed on a regular basis to ensure that the disclosures are current and remain relevant. The company’s approach to corporate governance continues to reflect that governance is regarded by the Board not as a mere compliance exercise that measures basic compliance with King III, but rather confirms that best practice principles are effectively utilised and embedded by the company in its daily activities.

Tongaat Hulett has commenced with the process of ensuring compliance with King IV which is applicable from April 2017, and will disclose as such in the 2018 integrated annual report.

This corporate governance report has been aligned to King III, the Companies Act, 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.

BOARD OF DIRECTORS

 

Board Composition

Tongaat Hulett has a unitary Board structure, which at 31 March 2017 comprised nine non-executive and two executive directors, drawn from a broad spectrum of the business community. Collectively, the directors possess a wide array of skills, knowledge 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, historically disadvantaged groups, age 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 out of eleven directors on the Board being women, and has formally adopted a gender policy in accordance with the JSE Listings Requirements. The roles of the Non-Executive Chairman, CB Sibisi, and the Chief Executive Officer, PH Staude, are separate with a clear division of responsibilities. The Chairman is not considered fully independent by virtue of his involvement in the company's BEE equity participation structure. Ms John, who is an Independent Non-executive Director is the Lead Independent Director in situations where the Chairman is not independent.

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 

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. It records the Board’s objective to provide responsible business leadership with due regard to the interests of shareholders and other stakeholders, whilst reflecting a demonstrable concern for sustainability as a business opportunity that guides strategy formulation. It includes the Board’s responsibility to amongst others, approve strategy, business plans and budgets, provide effective leadership based on an ethical foundation, oversee governance of risk and information technology, ensure succession planning, approve annual results and review significant policies and governance frameworks. The charter also highlights the role of the Board as the custodian of corporate governance, and addresses the fiduciary duties and responsibilities of the board and directors.

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

  • Audit and Compliance
  • Remuneration
  • Nomination
  • 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. 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.

BOARD CHANGES AND ROTATION AT AGM

In accordance with the company’s memorandum of incorporation, 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 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 by rotation are SM Beesley, F Jakoet and TN Mgoduso, who being eligible and available, will seek re-election as directors. 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 of 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 EVALUATION

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 annually, are an integral element of the Board’s activities to review and improve its performance continually. During the period under review, this evaluation process included assessing the independence of non-executive directors as envisaged in King III. Of the nine non-executive directors, seven are considered independent, whilst two 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 III on independence are taken into account and consideration is given amongst 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. Two of the directors, CB Sibisi and J John, have been with the company for a period longer than 9 years (both directors have been on the Board for 10 years). CB Sibisi is not independent by virtue of his participation in the company’s black economic empowerment equity participation structure. J John has been assessed in accordance with the requirements of the King Code and was confirmed to be independent. The outcome of the Board evaluation process for the period under review has been positive.

The Board meets at least five times a year, with special or additional meetings convened as circumstances dictate. Comprehensive Board 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 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. Furthermore, the Board is satisfied that Ms Mahlari maintains an arm’s length relationship with the Board of directors. She 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.

Board and committee composition and attendance for the year ended 31 March 2017


Director  Board  Audit and Compliance  Remuneration  Nomination  Risk, SHE, Social and Ethics 
C B Sibisi (Chairman)        
PH Staude (CEO)            
S M Beesley*         
F Jakoet         
J John             
R 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.
* S M Beesley was appointed to the Audit and Compliance Committee on 26 May 2016. 

 

BOARD COMMITTEE STRUCTURES AND RESPONSIBILITY

In accordance with the Board charter, the Board has reserved certain matters for its exclusive mandate 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 committee are set out in the Corporate Governance Manual, and are summarised as set out 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 commences here.

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.
  • 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, the Nomination committee discussed the directors who would retire by rotation at the next AGM, and recommended the re-election of SM Beesley, F Jakoet and TN Mgoduso to the Board and AGM. 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. In making the recommendations to the Board and ultimately the AGM, the Nomination committee considered the current skills set on the Board as a collective, the relevant experience and expertise of 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, given that the company operates in six SADC countries.

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 Chief Executive Officer, PH Staude, the Chief Financial Officer, 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 a year.

The Audit and Compliance Committee’s terms of reference, which are aligned with King III and the Companies Act and approved by the Board, 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 2013, 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 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 is in line with King III 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, co-ordinated 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 III is applied to provide a co-ordinated 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 co-ordinated 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.
  • The committee’s focus on regulatory compliance 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 compliance policy confirms and firmly entrenches Tongaat Hulett’s commitment, through the combined efforts of various role players, to implement controls and processes to manage regulatory compliance across all operations. Management continuously assesses and reviews legal, regulatory and corporate governance requirements and risks, and identifies 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 for the period, considering such factors as its composition and authority, the execution of its role and responsibilities, its working relationship with both internal and external audit and its statutory obligations towards the company and its shareholders. The outcome of the assessment process has been positive, reflecting that the committee meets best practice, and is functioning effectively and efficiently.

Each major operational area has its own audit and compliance meeting processes which subscribe to the same company audit philosophies and reports and leads to the Tongaat Hulett Audit and Compliance Committee. The statutory report of the Audit and Compliance Committee is available here, and forms part of the annual financial statements.

RISK, 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, socio-economic development, 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 an active and socially committed corporate citizen;
  • 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 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 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;
  • ensuring that there is meaningful engagement with the company’s identified stakeholders.

During the period under review, 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 Risk, SHE, Social and Ethics Committee presents its report to the shareholders as required by the Companies Act and recommended by King III, illustrating how it discharged its statutory responsibilities and acted in accordance with its terms of reference for the period to 31 March 2017:

1. Statutory duties

Social and economic development

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 ten principles are receiving due and appropriate attention by the company on an ongoing basis. During the period under review, the committee monitored the socio-economic development initiatives 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 Socio-Economic Development Policy, which entrenches the philosophy of constructively contributing towards building and enhancing the quality of life of the communities in the Southern African regions where it operates. A full report of Tongaat Hulett’s focus on, and contribution to, social and economic development, particularly within the context of its relationship with private farmers, surrounding communities across all areas of operation and the link to the business’s various stakeholder relationships, can be found in the sustainability elements section of the integrated report.

The company is committed to economic sustainability and continues to assess its business approach to empowerment and preferential procurement, taking into account employment equity, skills development and broad-based black economic empowerment within the Southern African context. In South Africa, the company annually conducts a B-BBEE audit assessment and in its most recent audit, the company was categorised as a level three contributor. More information in this regard is contained in the sustainability report and included on the website.

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. The committee also assessed the company’s proactive stakeholder engagement interface and other processes in place which 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 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 safety, health and environment targets and objectives, and considered various reports relating to SHE risks and opportunities that could potentially face the company. Safety, health and environment practices continue to receive key management focus, with the CEO continuing to provide leadership and direction on strategic implementation of SHE initiatives, not only within the company, but extending the various SHE programmes to include contractors, service providers and where applicable, surrounding communities. 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.

Consumer relationships, product labelling and communication

Tongaat Hulett continues to adhere to consumer protection laws across all countries of operation. Appropriate systems and processes are in place to ensure successful consumer relationships, such as suitable terms of sale agreements, responsible marketing practices and material that comply with applicable requirements, packaging and labelling practices that reflect pertinent product information in compliance with labelling regulations, as well as the commercial conduct of the company to ensure compliance with these laws. Monitoring of these key issues continues at the various operations and instances of potential non-compliance will be addressed by the Audit and Compliance Committee. Through the establishment of customer care lines, operations are able to monitor customer relationships and any potential complaints that may arise.

Zero tolerance to child labour, forced and compulsory labour

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

Ethics

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. The Code of Business Conduct and Ethics (discussed in more detail below under ethics management and governance), 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 been approved by the Board. The committee confirms that for the period under review, it discharged its duties and responsibilities in accordance with these terms of reference. The summary of the role of the committee is as articulated on page 68 of this 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 and SHE objectives by ensuring, amongst others, that the company has implemented effective policies and plans for risk management, safety, health and environment 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 safety, health and environment were comprehensive and adequately facilitated. Whilst 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 inextricable 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 Organisation for Economic Cooperation and Development (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, amongst others.

The company has implemented employment equity 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 amongst others. The Human Resources Executive drives these processes under the leadership of the CEO and reports to the Remuneration Committee and the Board.

5. Sustainability reporting

The committee reviewed and accepted the detailed sustainability report contained in this integrated 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 socio-economic development (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. Attendance

The committee had two meetings during the period under review. The evaluation of the committee was conducted and the result of the assessment was positive. The record of attendance is contained here.

ETHICS MANAGEMENT AND PRACTICES


Code of Business Conduct and Ethics

The company operates within a formal Code of Business Conduct and Ethics, which has been reviewed and approved by the Board, communicated and distributed to all employees across all levels in the company. 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 on 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.

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. To this end, each centre has recently 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.

Information relating to a significant fraudulent activity previously reported in detail to the Audit and Compliance Committee meeting continues to be monitored. There were no new significant fraudulent activities reported during the period under review.

Risk management process

While the Board is ultimately responsible for risk management, company management has designed and implemented a risk management framework and has committed the company to a process of risk management that is aligned to King III and to the company’s corporate governance responsibilities. This commitment is reflected in management’s continued attention to the importance of effective risk management in ensuring that business objectives and strategies are met and that continued, sustained growth and profitability is achieved. The framework, which incorporates the risk management policy, strategy and plan, aims to ensure that risk management processes are embedded in critical business activities and functions, and that risks are undertaken in an informed manner and proactively managed in accordance with the business risk appetite. This includes identifying and taking advantage of opportunities as well as protecting intellectual capital and assets by mitigating adverse impacts of risk.

The risk management review process seeks to achieve the correct balance between the issues that are specific to, and appropriately managed in, an operational area and those issues that are significant enough or cross-cutting enough to be considered, and managed in an appropriate way, on a Tongaat Hulett-wide basis. This 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/global trends, relevant clusters of such topics and a focus on the whole situation. The approach to risk management includes being able to identify, describe and analyse risks at all levels throughout the organisation, with mitigating actions being implemented at the appropriate point of activity. The very significant, high impact risk areas and the related mitigating action plans are monitored at an executive level. Risks and mitigating actions are given relevant visibility at various appropriate forums throughout the organisation.

Tongaat Hulett has documented its approach towards Information and Communication Technology (ICT) in various documents such as the ICT governance framework (including the company’s policy and charter), disaster recovery plans, business continuity plans, acceptable use policy and a record of the approach to the protection and control of ICT documentation. The IT systems and application controls in the multiple computer systems in the various operations are, inter alia, subject to internal audit processes on an ongoing basis, integral to the audit of the overall control environment.

The current business environment is recognised as having many changing and challenging elements, particularly in the context of the volatile global economy and specific localised dynamics. Most of Tongaat Hulett’s business platforms and operational areas are not considered to be in a static, steady state. Consequently, rather than relying purely on periodic reviews, there is a continued and increasing adoption of a project management approach and use of project management skills in various management processes, including risk management. The ongoing, routine risk management processes are thus coupled with change management and specific, task-based, project-driven risk management initiatives.

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.

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 “intergrated", which is the second highest level. The KPMG Risk Maturity Continuum has the levels of "weak -sustainable-mature-intergrated-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.

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

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

RELATED PARTY TRANSACTIONS

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 in 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

For more detail on the company’s engagement with its wide range of important stakeholders, please refer to the sustainability section of this integrated report.

The Chief Executive Officer, Chief Financial Officer 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. 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

This remuneration report outlines the philosophy, policy and details of the reward elements for the remuneration of executive directors/officers, executives and non-executive directors of Tongaat Hulett. The reward philosophy has remained consistent with that previously approved at past annual general meetings (AGMs) in the non-binding advisory vote by shareholders, as required by King III. This will again be applied at the next AGM, in support of continued good governance. The remuneration report in future years will transition to King IV.

The Remuneration Committee

The roles and responsibilities of the Remuneration Committee were determined and approved by the Board, as explained in the corporate governance section of this integrated annual report, which deals with Board committees, structures and responsibilities. The committee, which meets at least twice a year, is chaired by an independent non-executive director and consists only of non-executive directors. The current members are SG Pretorius (Chairman), N Mjoli-Mncube and CB Sibisi. PH Staude, as CEO, and the HR Executive, attend by invitation and MAC Mahlari is the secretary.

The overall objective of the Remuneration Committee is to propose, review and administer the broad policy for executive and director remuneration on behalf of the Board and the shareholders, in accordance with best corporate practice. It ensures alignment of the remuneration strategy and policy with the overall business strategy, desired company culture, shareholders’ interests and the sustainable commercial well-being of the business.

The committee is also responsible for, among others, considering and making recommendations to the Board on the remuneration policy and on the quantum, structure and composition of remuneration packages of executive directors 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 and employment equity.

The major principles of the company’s remuneration philosophy and policies are set out below, together with the relevant details of the remuneration of directors, officers and executives.

Remuneration Philosophy and Policy

The objective of the remuneration policy 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. In developing the remuneration policy, the following factors were considered:

  • motivating executives to achieve Tongaat Hulett’s business plan, business strategy and budgets;
  • creating a strong, performance-orientated environment;
  • fair reward for performance;
  • alignment between employee and shareholder interests; and
  • attracting, motivating and retaining high-calibre talent and keeping within market benchmarked pay levels.

These reward elements are structured to allow for differentiated rewards for different roles and performance of executives, managers and employees, while attention is paid to the quantum of gaps between levels.

Rewards are linked to both individual performance and the performance of the company. From time to time, independent external surveys and comparisons are used to ensure that compensation is market related, while the total cost to company is taken into consideration to determine the quantum of overall pay. 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.

Performance targets include financial and non-financial targets, and are set at various levels; these being company-level targets, operating entity specific targets, and team and individual performance targets. All targets are predetermined and approved by the Remuneration Committee and the Board, and performance reviews are conducted at the end of each performance period for the various instruments, in respect of annual targets and multi-year, long-term incentive targets. The predetermined performance targets for short-term goals are explained in the sections below. For long-term targets, a variety of relevant and appropriate measures are used, as detailed in the section on share incentive schemes here.

To ensure alignment with shareholder expectations, the performance targets are set for both the short and long-term and focus executives on both the business plan and long-term strategic aspirations and achievements of the company. The pay elements comprise guaranteed pay including benefits, variable short-term incentives and long-term incentives, which are also utilised as retention instruments for selected and key individuals in the company.

EXECUTIVE REMUNERATION

The remuneration of executives is determined by taking into consideration market comparisons and an assessment of performance related to the achievement of documented performance targets. Strategic and business objectives, which are reviewed periodically, as well as a general assessment of performance, are taken into account.

The remuneration structure at senior management level consists of:

  • guaranteed pay
    • made up of cash package and benefits;
  • variable pay
    • short-term incentive bonus schemes, which have set maximum levels; and
    • long-term incentives in the form of employee share incentive schemes.

TOTAL REMUNERATION PACKAGE


GUARANTEED PAY

Basic Salary

The cash package of senior management is subject to annual review by the Remuneration Committee 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 executive.

Benefits

Membership of an approved company pension fund is compulsory for all senior management, and other benefits include the provision of medical aid, gratuity at retirement, and death and disability insurance, as well as housing and car schemes for qualifying employees in Mozambique, Zimbabwe and Swaziland operations.

VARIABLE PAY

Short-term incentive: annual bonus scheme

The primary purpose of the bonus scheme is to serve as a short-term incentive, which gives executives and senior managers the opportunity to earn an annual bonus based on the financial performance of Tongaat Hulett and the operations, as well as an element related to individual/team performance.

The short-term incentive annual bonus scheme is based on a combination of the achievement of predetermined targets, and an assessment of the individual's overall general performance. These targets include measures of corporate and, where applicable, operational performance, as well as the achievement of individual and, where applicable, team performance, against predetermined objectives related to key business strategies and objectives. The performance targets of the executive and senior management schemes in the 2016/17 year were made up of financial targets (ranging from 55% to 65%) and non-financial targets (ranging from 45% to 35%), which are strategic objectives and team targets. The targets and caps are reviewed annually.

There are various caps for the different levels of executives and employees, currently as follows:

Level of management  Cap as % of cash package 
 
Chief Executive  80% 
Executive leadership  65% 
Senior management  up to 50% 

Note: Zero bonus payments are made on these schemes if headline earnings are below a certain level (2016/17: R740 million). The same principle was applied in 2015/16 and will also be applied in 2017/18.

Financial targets for bonus scheme

All financial targets have an upper limit and a lower limit. If financial results are below the lower limit, zero points will be earned for the element concerned. If financial results exceed the upper limit, the full score related to the relevant element of the bonus will apply.

  • Headline earnings
  • Return on capital employed (ROCE)
  • Cash flow
  • Operating profit for operating areas

Refer to table on here for further detail on financial targets.

Long-term incentive: share schemes

The objective of the long-term share incentive schemes are to strengthen the alignment of shareholder and management interests and assist in the attraction, retention and appropriate reward of management.

The various instruments are the Share Appreciation Right Scheme 2005 (SARS), the Long-Term Incentive Plan 2005 (LTIP) and the Deferred Bonus Plan 2005 (DBP) (collectively referred to as “the Plans”). These share schemes were amended at the AGM on 27 July 2010 to ensure compliance with schedule 14 of the JSE Listings Requirements and, where appropriate, the King III Report.

In the 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.

In the LTIP, participating employees are granted conditional awards. These awards are converted into shares, depending on the achievement of performance conditions over a three-year performance period.

In the DBP, 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 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.

Bonus and Share Scheme Performance Condition Targets - Financial and Operational Metrics

Type of Scheme and Performance Condition  Description of Performance Condition  Percentage Actually Achieved for Bonus/Share Vesting Calculation 
    2016/17  2015/16 
 
Bonuses
(Note 1)
     
Headline Earnings  Specific target range (Rands) for 25% to 100% vesting and 0% if below the lower end of the target range. [The 2016/17 actual Headline Earnings of R982 million (i.e. a 45% growth in the prior year) exceeded the upper end of the range. The 2015/16 Headline Earnings were below the lower end of the range.]  100%  0% 
Return on Capital Employed (ROCE) Specific target range (Rands) for 25% to 100% vesting and 0% if below the lower end of the target range. [The 2016/17 actual ROCE of 10,5% (i.e. significantly increased from the 7,4% in the prior year) exceeded the upper end of the range. The 2015/16 ROCE was below the lower end of the range.]  100%  0% 
Cash Flow  Specific target range (Rands) for 25% to 100% vesting and 0% if below the lower end of the target range. [The 2016/17 actual cash flow before interest of
R2,026 billion (i.e. substantially above the R58 million in the prior year) resulted in 95% vesting on the range between upper and lower limits. The 2015/16 cash flow was below the lower end of the range.] 
95%  0% 
 
Share Schemes (SARS and LTIPS)
(Note 2)
   
Total Shareholder Return (TSR) -
25% of LTIP (Note 3)
14 preselected and relevant other listed companies that Tongaat Hulett "competed" against to determine vesting scale based on "position in the field".  10%  73% 
Return on Capital Employed (ROCE) - 25% of LTIP  Specific target range (%) for 30% to 100% vesting and 0% if below the lower end of the target range.  0%  0% 
Sugar Production Condition -
25% of LTIP 
Specific target range (%) for 30% to 100% vesting and 0% if below the lower end of the target range.  0%  32% 
Large Land Deals - 25% of LTIP (2015/16: Regulatory Framework for Electricity in South Africa) Specific target range (Rands) for 30% to 100% vesting and 0% if below the lower end of the target range.  100%  0% 
Headline Earnings per Share (HEPS) - SARS  Growth of greater than CPI + 6% over 3 years for 100% vesting and 0% if below the predetermined threshold.  0%  70% 
 
Share Scheme Performance Condition Targets which vest in 2017/18 through to the 2019/20 financial year
(Note 4 and Note 5)
Headline Earnings per Share (HEPS) Growth of greater than CPI + 6% over 3 years for 100% vesting and 0% if below the predetermined threshold. 
Total Shareholder Return
(TSR)
12 to 14 preselected and relevant other listed companies that Tongaat Hulett "competes" against to determine vesting scale based on "position in the field" (Note 3). 
Return on Capital Employed (ROCE) Specific target range (%) for 30% to 100% vesting and 0% if below the lower end of the target range. 
Sugar Production  Target quantum (annual tons of production) - range. 
Land Transaction Values  Specific range of various targets and values (Rands) for 30% to 100% vesting and 0% if below the lower end of the target range. 
 
Notes 
Note 1: Bonus amounts recorded for each year in this report relate to the performance of that year (while the amount is paid out after the year end and performance measures have been thoroughly assessed). At the executive/senior management level in the 2016/17 year, a range from 55% to 65% of the quantum of the bonus is calculated based on the predetermined financial performance measures (the remaining 45% to 35% being on individual personal performance assessments). This note reflects the performance measures at the consolidated level and for those managers who are based in an operation, then that operation's operating profit and cash flow are also used as measures on a similar basis, with a similar calibration. The weighting (within the portion subject to financial performance conditions) of the various performance conditions for the CEO and CFO was Headline Earnings: 45%; ROCE: 15%; Cash Flow: 40%. 
Note 2: In the period to 31 March 2017, the share incentive scheme awards vested in June 2016 and were based on the 2015/16 financial years' results and had the following performance conditions, as detailed in this table: LTIP had 25% dependent on TSR, 25% on sugar production, 25% on large land deals and 25% dependent on ROCE, while the Share Appreciation Rights were all dependent on HEPS growth. 
Note 3: For the TSR assessment of the awards that vested in 2016/17 (awarded in 2013), the population of companies that Tongaat Hulett "competed" against included: AECI, Astral Foods, AVI, Bidvest, Clover Industries Limited, Illovo Sugar, Mondi Limited, Nampak, Omnia Holdings Limited, Oceana Group, Pioneer Foods, RCL Foods Limited, Sappi Limited, Tiger Brands. Previous years also included Aveng, Group 5, PPC and WBHO. Future years, i.e. awards vesting in 2017/18 onwards includes a list of companies similar to the 2016/17 list above, with Crookes Brothers being included and Bidvest, Illovo and Mondi being excluded over time. 
Note 4: These are awards made from 2014 onwards, which vest in the financial years 2017/18 onwards and have the performance conditions, detailed in this table: LTIP's are dependent on 4 of these performance measures (25% each), which vary from year to year and SARS are all dependent on HEPS growth. 
Note 5: For the awards that will vest in the 2017/18 year, the performance conditions are based on the 2016/17 results and will result in the HEPS condition (SARS) - 0% vesting; ROCE condition (25% of LTIP) - 0% vesting; sugar production (25% of LTIP) – 0% vesting; land transactions (25% of LTIP) - 100% vesting and TSR (25% of LTIP) – 50% vesting. 
Note 6: Further details on specific targets are not disclosed due to commercial sensitivity. 

Under these share incentive schemes, senior management and professional employees of the company are awarded rights to receive shares in the company based on the value of these awards (after the deduction of employees' tax) if performance conditions have been met, the awards have vested and, in the case of the SARS, when the share appreciation rights have been exercised. These shares have a vesting period of three years. The quantum of instruments allocated each year is determined, inter alia, by taking into account the fair value cost of the instruments. The amendment in 2010 of the LTIP scheme also included the introduction of retention shares that may be awarded on the condition that the employee remains in the service of the company for four years after the award. The purpose of such awards of unconditional RLTIPs is to assist with targeted key and high potential employee retention. Retention shares are a small quantum in relation to other share-based instruments and are awarded by exception.

The accounting charges to the income statement required by IFRS 2 Share-based Payment are accounted for as equity-settled instruments. The costs associated with the settlement of awards under the share schemes qualify for a tax deduction by the company.

Indication of expected values of share scheme awards for Executive Directors – Chief Executive Officer and Chief Financial Officer 
The fair value (i.e. the expected value) of share scheme awards (SARS, LTIP and DBP) granted in 2016/17 and that vest after the three-year performance period, expressed as a percentage of cash package were:

  • Chief Executive Officer: 79%
  • Chief Financial Officer: 62%

Should the minimum level of performance conditions for SARS and LTIP not be achieved, then zero vests and after three years only the DBP portion would vest (i.e. the expected value of approximately 11% of cash package for the CEO and approximately 7% of cash package for the CFO).

Should the maximum level of performance conditions for SARS and LTIP be achieved, then the above expected value would be exceeded and the value of the vesting would depend on the share price appreciation. 

Details of the schemes and awards made up to 31 March 2017, after approval by the Remuneration Committee and the Board, are detailed on the following pages.

Performance conditions governing the vesting of the scheme instruments are set at the time of each annual award (refer to table here for further details) and currently relate to:

  • growth in earnings per share;
  • total shareholder return;
  • share price;
  • return on capital employed; and
  • strategic goals in areas such as sugar production and extracting value from land conversion.

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 the job level and cash package of the participating employee, their individual performance, and appropriate benchmarks of the expected combined value of the awards.

The King III Report refers to the application of company performance conditions to govern the vesting of awards under the Plans, and precludes the application of retesting. The application of company performance conditions has been applied since the approval of the plans. Awards thus have relevant performance conditions, do not provide for retesting, and apply the principle of graduated vesting as recommended by King III.

NON-EXECUTIVE DIRECTORS’ REMUNERATION

Non-executive directors receive fees for their services as directors of the Board and its committees and includes an attendance fee component. Directors’ fees are recommended by the Remuneration Committee, considered by the Board, and proposed to the shareholders for approval at each AGM.

Non-executive directors do not participate in short-term bonus schemes nor in long-term incentive share schemes.

As required by the Companies Act 2008 as amended, the remuneration of non-executive directors will be authorised by special resolution at the AGM and is set out here of the integrated annual report.

SUMMARY OF REMUNERATION COMMITTEE ACTIVITIES/DECISIONS DURING THE FINANCIAL YEAR

The main issues considered, engaged in, recommended or approved by the Remuneration Committee for 2017 were:

  • Cash package increases for CEO, executives and senior managers;
  • Short-term incentives (bonuses) for CEO and executives;
  • Long-term incentives (share schemes) for the CEO, executives and senior managers;
  • Performance conditions and performance targets for short-term incentives (bonuses) and long-term share schemes;
  • Proposal to shareholders on fees payable to non- executive directors;
  • Senior executive bench strength and succession planning, as well as talent management in the organisation;
  • Employment equity; and
  • Approval of the Remuneration Report in the 2017 integrated annual report, including the non-binding advisory vote being proposed to shareholders at the AGM.

DISCLOSURES ON REMUNERATION MATTERS

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

Remuneration disclosure
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 directors of the company in share-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 company’s remuneration policy
 

DIRECTORS’ AND PRESCRIBED OFFICERS’ EMOLUMENTS AND INTERESTS

Executive directors' remuneration (R000)

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 
 
The executive directors' remuneration for the year ended 31 March 2016 was as follows: 
         
Name  Cash package  Cash bonus  Retirement and medical contributions  Total 
         
PH Staude  8 799  2 772  1 240  12 811 
MH Munro  4 626  1 198  684  6 508 
  13 425  3 970  1 924  19 319 
         
The requirement to include prescribed officers is covered by the above executive directors, as they exercise effective management and control. 

* Bonuses are reported to match the performance and quantum earned to the applicable financial period. 
 
Executive directors' share incentive gains:         
      2017  2016 
         
PH Staude      7 010  3 662 
MH Munro      2 348  2 160 
      9 358  5 822 
         
Details of the executive directors' share-based instruments granted and exercised are contained here
 

Non-executive directors' remuneration (R000)

  12 months to 31 March 2017  12 months to 31 March 2016 
             
Name  Fees  Other  Total  Fees  Other  Total 
             
SM Beesley  334  339  673  345  153  498 
F Jakoet  363  300  663  345  285  630 
J John  363  356  719  317  337  654 
RP Kupara  363  178  541  345  169  514 
TN Mgoduso  363  123  486  319  116  435 
N Mjoli-Mncube  363  463  826  317  403  720 
SG Pretorius  363  417  780  345  286  631 
TA Salomão  363    363  285    285 
CB Sibisi  1 282  236  1 518  1 218  224  1 442 
  4 157  2 412  6 569  3 836  1 973  5 809 
             
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 2017. 
             
Interest of directors of the company in share capital 
 
The aggregate holdings as at 31 March 2017 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          2017  2016 
             
Executive directors:             
PH Staude          386 328  340 787 
MH Munro          138 136  122 935 
          524 464  463 722 
Non-executive director:             
F Jakoet          5 068 
             

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 2016 
Granted  Exercised  Lapsed/ 
forfeited 
Number of 
rights 
31 March 2017 
               
22 May 2009  75,06  12,54  501 334    501 334     
31 May 2010  97,49  20,00  641 207    182 440    458 767 
31 May 2011  90,42  17,50  758 863    67 092    691 771 
29 May 2012  110,21  21,73  899 909    101 582  5 438  792 889 
29 May 2013  126,85  24,30  1 375 555      1 375 555   
26 May 2014  121,93  23,96  1 576 335      51 023  1 525 312 
28 May 2015  128,54  23,68  1 745 458      58 090  1 687 368 
6 June 2016  113,41  28,06    1 582 792    46 708  1 536 084 
      7 498 661  1 582 792  852 448  1 536 814  6 692 191 
               
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  8,51% (2015: 7,96%; 2014: 7,78%, 2013: 6,73%, 2012: 7,26%, 2011: 7,95% and 2010: 7,71%). 
Expected volatility  Expected volatility of 29% (2015: 22,51%; 2014: 27,57%, 2013: 28,34%, 2012: 28,51%, 2011: 30% and 2010: 26,78%) 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 2016 award (2015, 2014, 2013 and 2012: 2,6%,
2011: 2,75% and 2010: 2,5%). 
Weighted average share price  As above. 
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 with effect from the 2010 award. 
Non-market performance conditions  Growth in headline earnings per share. 
Market performance conditions  No market conditions. 
Weighted average remaining life:   
Expected  2016: 74 months, 2015: 62 months, 2014: 50 months, 2013: 26 months, 2012:
26 months, 2011: 14 months and 2010: 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 2016 
Granted  Settled  Lapsed/ 
forfeited 
Number of 
conditional 
awards 
31 March 2017 
               
29 May 2013  126,85  49,22  530 670    527 486  3 184   
26 May 2014  121,93  51,79  571 266      18 232  553 034 
28 May 2015  128,54  57,82  559 899      18 502  541 397 
6 June 2016  113,41  60,28    576 207    17 303  558 904 
      1 661 835  576 207  527 486  57 221  1 653 335 
 
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. 
Weighted average share price  As above. 
Time constraints Three years from grant date. 
Performance (vesting) conditions  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. 
  2014 and 2015 awards: 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  2016 award: ROCE, sugar production and the land conversion cash generation conditions. 2014 and 2015 awards: ROCE, sugar production and the large land deals conditions. 
Market performance conditions  Total shareholder return (TSR). 
Weighted average remaining life:   
Expected  2016: 26 months, 2015: 14 months and 2014: 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.

Expiring
four years from 
Grant price 
Rand 
Fair value 
Rand 
Number of 
conditional 
awards 
31 March 2016 
Granted  Settled  Lapsed/ 
forfeited 
Number of 
conditional 
awards 
31 March 2017 
16 November 2012  126,71  92,88  72 442    70 406  2 036   
11 March 2013  139,39  102,18  15 000    15 000     
29 May 2013  126,85  92,99  98 390      1 039  97 351 
26 May 2014  121,93  89,38  139 767      3 418  136 349 
28 May 2015  128,54  94,23  179 642      3 487  176 155 
6 June 2016  113,41  102,07    155 931    10 968  144 963 
      505 241  155 931  85 406  20 948  554 818 
               
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. 
Weighted average share price  As above. 
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  June 2016: 38 months, May 2015: 26 months, May 2014: 14 months and
May 2013: 2 months. 
Contractual  48 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 2016 
Granted  Settled  Forfeited  Number of 
conditional 
awards 
31 March 2017 
               
29 May 2013  126,85  100,49  63 630    63 630     
26 May 2014  121,93  96,60  75 950      2 785  73 165 
25 May 2015  131,27  103,99  63 502      2 593  60 909 
30 May 2016  113,06  104,47    46 335    1 871  44 464 
      203 082  46 335  63 630  7 249  178 538 
               
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. 
Weighted average share price  As above. 
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  2016 award: 26 months, 2015 award: 14 months and 2014 award: 2 months. 
Contractual  36 months. 
               
The deferred bonus shares were purchased by the participating employees on 3 June 2016 in respect of the 2016 award. (2015 award purchased 1 June 2015 and the 2014 award purchased 2 June 2014). 
               

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 
2016 
Granted  Exercised  Lapsed  Number of 
rights 
31 March 
2017 
Performance 
condition 
and time 
constrained 
                     
PH Staude  22 May 2009  75,06  12,54  91 120    91 120       
  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   
  29 May 2013  126,85  24,30  104 578      104 578     
  26 May 2014  121,93  23,96  115 081        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 
        661 724  111 172  91 120  104 578  577 198  349 667 
                   
MH Munro  22 May 2009  75,06  12,54  30 857    30 857       
  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   
  29 May 2013  126,85  24,30  34 476      34 476     
  26 May 2014  121,93  23,96  47 818        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 
        240 145  49 654  30 857  34 476  224 466  149 720 
                   
Long Term Incentive Plan 2005 
                   
Name  Expiring 
three years 
from 
Grant 
price 
Rand 
Fair 
value 
Rand 
Number of 
conditional 
awards 
31 March 
2016 
Granted  Settled  Lapsed  Number of 
conditional 
awards 
31 March 
2017 
Performance 
condition 
and time 
constrained 
PH Staude  29 May 2013  126,85  49,22  47 660    13 107  34 553     
  26 May 2014  121,93  51,79  49 144        49 144  49 144 
  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 
        143 464  47 766  13 107  34 553  143 570  143 570 
                   
MH Munro  29 May 2013  126,85  49,22  15 709    4 320  11 389     
  26 May 2014  121,93  51,79  20 420        20 420  20 420 
  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 
        55 882  21 334  4 320  11 389  61 507  61 507 
                   

Deferred Bonus Plan 2005

Name  Expiring
three years
from 
Grant 
price 
Rand 
Fair 
value 
Rand 
Number of 
conditional 
awards 
31 March 
2016 
Granted  Delivered  Number of 
conditional 
awards 
31 March 
2017 
Conditional 
awards 
time 
constrained 
PH Staude  29 May 2013  126,85  100,49  14 720    14 720     
  26 May 2014  121,93  96,60  17 451      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 
        45 576  9 301  14 720  40 157  40 157 
                 
MH Munro  29 May 2013  126,85  100,49  4 821    4 821     
  26 May 2014  121,93  96,60  5 539      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 
        14 474  3 092  4 821  12 745  12 745 

The deferred bonus shares were purchased by the participating employees on 3 June 2016 in respect of the 2016 award. (2015 award purchased 1 June 2015 and the 2014 award purchased 2 June 2014). 

The share awards were made and exercised at various times and the average share price for the period was R122,68 (2016: R112,38). 

The share incentive gains made by directors are reflected here.