Annual Financial Statements


Financial Statements for the year ended 31 December 2002


Notes to the Financial Statements
Notes 21 - 30 to the Financial Statements
21. RETIREMENT BENEFITS

Pension and Provident Fund Schemes

The Group contributes towards retirement benefits for substantially all permanent employees who, depending on preference or local legislation, are required to be a member of either a Group implemented scheme or various designated industry or state schemes. The Group schemes are governed by the relevant retirement fund legislation. Their assets consist primarily of listed shares, fixed income securities, property investments and money market instruments and are held separately from those of the Group. The scheme assets are administered by boards of trustees, each of which includes elected employee representatives.

Defined Benefit Pension Scheme

There is one defined benefit scheme for employees including those of the Hulett Aluminium Joint Venture. This scheme is actuarially valued at intervals of not more than three years using the projected unit credit method. The last statutory actuarial valuation of the scheme was carried out at 31 December 1998, and the scheme was certified by the reporting actuary to be in a sound financial position. With effect from 7 December 2001 The Pension Funds Second Amendment Bill was enacted. In terms of these amendments any surplus residing in pension funds governed by the South African Pension Funds Act of 1956 must be allocated on a fair basis to current and past members of the respective funds. The statutory actuarial valuation of the scheme which was due to be carried out as at 31 December 2001, cannot be completed as the regulations required to quantify and implement the requirements of The Pension Fund Second Amendment Act have not yet been promulgated. Accordingly due to the uncertainty regarding entitlement, in terms of legislation, no surplus has been recognised on the Group's Balance Sheet.

An actuarial valuation of liabilities, based on the existing benefits, carried out as at 31 December 2002 in accordance with accounting statement AC 116 (Employee Benefits) showed the present value of obligations to be adequately covered by the fair value of the scheme assets.
 

Group
2002 2001
Rmillion Rmillion
Details of the valuation are as follows:
Fair value of scheme assets 2 736 2 942
Present value of obligation (2 215) (2 261)

521 681

The reconciliation for the year is as follows:
Opening balance 681 382
Interest costs (349) (248)
Service costs (52) (48)
Contributions paid 52 58
Expected return on scheme assets 348 282
Actuarial (losses)/gains (159) 255

Closing balance 521 681

Actual return on scheme assets: 8 646
Included in the assets of the scheme are ordinary shares held
   in The Tongaat-Hulett Group Limited, at fair value 64 74
The principal actuarial assumptions are:
Discount rate 11,5% 12,0%
Salary cost inflation 8,0% 8,5%
Pension increase allowance 6,5% 7,0%
Expected rate of return on assets 11,5% 12,0%
 

Defined Contribution Pension and Provident Schemes

There are four Group defined contribution schemes, one of which is located in Swaziland. The latest audited financial statements of these schemes all reflect a satisfactory state of affairs. Contributions of R12 million were expensed during the year (2001 - R15 million).

Defined Benefit Post-Retirement Medical Aid Benefits

The obligation of the Group to pay medical aid contributions after retirement is no longer part of the conditions of employment for employees engaged after 30 June 1996. A number of pensioners and current employees, however, remain entitled to this benefit. The entitlement to this benefit for current employees is dependent upon the employee remaining in service until retirement age and completing a minimum service period of ten years. The unfunded liability for post-retirement medical aid benefits is determined actuarially each year.

The provision of R185 million, brought forward from the prior year has been increased by R14 million in the current year. The current year movement comprises service costs of R3 million, interest costs of R21 million, benefit payments of R13 million and actuarial losses recognised of R3 million. Actuarial losses to be recognised in future years amount to R4 million. The principal acturial assumptions in the latest valuation were health care cost inflation of 8,5 percent per annum (2001 ­ 1,7 percent) and a discount rate of 11,5 percent per annum (2001 ­ 11,0 percent).

Defined Benefit Retirement Gratuities

The Group has in the past made payments, on retirement, to eligible employees who have remained in service until retirement, and have completed a minimum service period of ten years. The unfunded liability for post-retirement gratuities is determined actuarially each year.

The provision of R37 million brought forward from the prior year has been increased by a further R 6 million in the current year comprising service costs of R2 million, interest costs of R4 million, benefit payments of R2 million and actuarial losses recognised of R2 million. Actuarial losses to be recognised in future years amount to R3 million. The principal actuarial assumptions in the latest valuation were salary inflation of 8,5 percent per annum (2001 - 8,0 percent) and a discount rate of 11,5 percent per annum (2001 - 11,5 percent).
 


22.  SHARE OPTIONS
Details of share options issued in terms of the company's share incentive schemes are as follows:
 
Option Expiring Number of Options Options Options Number of Options
price ten  options  granted  exercised  forfeited  options  time
Rand  years at 31 in 2002 in 2002 in 2002 at 31 constrained
from Dec 2001 Dec 2002
 
18,33 16/6/1993 121 340 13 820 107 520
28,33 4/3/1994 19 200 19 200
40,50 20/10/1994 562 760 74 740 488 020
40,00 24/3/1995 97 400 97 400
33,25 4/11/1998 242 400 10 400 232 000 92 800
32,90 5/3/1999 1 483 800 102 000 1 381 800 829 080
40,10 7/5/1999 651 900 21 540 1 600 628 760 377 256
30,00 19/5/2000 206 700 4 400 202 300 161 840
29,40 26/7/2000 22 300 22 300 17 840
39,85 12/1/2001 134 600 134 600 134 600
40,00 16/5/2001 1 259 900 17 700 1 242 200 1 242 200
42,00 15/8/2001 66 000 66 000 66 000
49,60 13/5/2002 1 341 000 5 500 1 335 500 1 335 500

4 868 300 1 341 000 226 900 24 800 5 957 600 4 257 116
 

23. DIRECTORS' REMUNERATION AND INTERESTS
Directors' remuneration (R000)
The directors' remuneration for the year ended 31 December 2002 was as follows:
Retirement Share
and medical Other option 2002 2001
Name Fees Salary Bonus contributions benefits gains Total Total
Executive directors:
D G Aitken 46 976 478 135 271 1 906 1 944
B G Dunlop 46 1 096 558 155 153 2 008 2 010
A Fourie 
  (from 10 May 2002)
25 604 281 86 244 1 240
G R Hibbert 46 824 412 115 501 1 898 1 504
G P N Kruger 46 1 067 541 143 140 152 2 089 2 257
J B Magwaza 46 932 462 132 269 1 841 1 833
S J Saunders 46 1 037 514 150 311 2 058 2 094
C M L Savage 
  (to 10 May 2002)
34 820 412 123 2 260* 3 649 4 409
M Serfontein 46 835 409 125 345 1 760 1 742
P H Staude 46 1 713 820 201 117 2 897 2 620
Directors retired/resigned 2 703
427 9 904 4 887 1 365 4 611 152 21 346 23 116
* Including accrued leave and retirement gratuity
2002 2001
Name Fees Other Total Total
Non-executive directors:
D D Barber 46 46
L Boyd 46 40 86 60
E le R Bradley 46 78 124 94
E K Diack 46 59 105 76
M W King 46 29 75 30
M Mia 46 49 95 95
T H Nyasulu 46 23 69 65
C M L Savage 
  (from 11 May 2002)
96 341 437
R H J Stevens 46 69 115 70
A M Thompson 
  (from 31 July 2002)
21 21
Directors retired/resigned 47 88 135 159
532 776 1 308 649
     
Interest of directors of the company in share capital
The aggregate beneficial holdings as at 31 December 2002 of those directors of the company holding issued ordinary shares of the company are detailed below.
2002 2001
Direct Indirect Direct Indirect
    Name shares shares shares shares
Executive directors:
D G Aitken 52 500 52 500
G R Hibbert 20 562 20 562
G P N Kruger 205 100
S J Saunders 750 017 750 017
M Serfontein 500 8 000 500 8 000
P H Staude 7 249 7 249

28 516 810 517 28 411 810 517

Non-executive directors:
E le R Bradley 98 000 17 669
C M L Savage 24 003 73 225 24 003 73 225
R H J Stevens 618 618

24 621 171 225 24 621 90 894

Interest of directors of the company in share options
The interest of the directors in share options of the company are shown in the table below:
Number Options Options Number
of shares granted exercised of shares Average
at 31 Dec during during at 31 Dec price
Name 2001 the year the year 2002 Rand
Executive directors:
D G Aitken 109 400 10 000 119 400 39,06
B G Dunlop 128 440 25 000 153 440 38,79
A Fourie 51 200 35 000 86 200 40,76
G R Hibbert 92 600 15 000 107 600 37,12
G P N Kruger 111 600 25 000 7 000 129 600 38,46
J B Magwaza 122 560 10 000 132 560 37,58
S J Saunders 116 960 18 000 134 960 36,92
M Serfontein 101 400 15 000 116 400 38,74
P H Staude 137 800 65 000 202 800 39,54
Non-executive directors:
C M L Savage 140 000 140 000 36,98

1 111 960 218 000 7 000 1 322 960
 

24. GUARANTEES AND CONTINGENT LIABILITIES (Rmillion) Group Company
2002 2001 2002 2001
Guarantees in respect of obligations 
    of the Group and third parties
28 9 21 4
Contingent liabilities 16 3 1

44 12 22 4


  
25. LEASES (Rmillion) Group Company
2002 2001 2002 2001
Amounts payable under finance leases
   Minimum lease payments due:
      Within one year 5 13 6
      Within two to five years 8 9
      After five years 2 2

15 24 6
Less future finance charges (4) (5) (1)

Present value of lease obligations 11 19 5

Payable:
   Within one year 3 12 5
   Within two to five years 6 7
   After five years 2

11 19 5

Operating lease commitments, amounts due:
   Within one year 13 6 11 4
   Within two to five years 18 18 16 16
   After five years 13 16 2 4

44 40 29 24

In respect of:
   Property 28 36 14 20
   Plant and machinery 2 1 2 1
   Other 14 3 13 3

44 40 29 24
  

26. CAPITAL EXPENDITURE COMMITMENTS (Rmillion) Group Company
2002    2001  2002   2001
Contracted 90 75 54 42
Approved but not contracted 221 67 56 37

311 142 110 79

Funds to meet this future expenditure will be provided from retained net cash flows and established facilities.

 

27. RELATED PARTY TRANSACTIONS (Rmillion)

During the year, the Group, in the ordinary course of business, entered into various related party sales, purchases and investment transactions, in the main, with companies in the Anglo American plc group. These transactions occurred under terms that are no less favourable than those arranged with third parties.

The outstanding balances at year end are as follows:

Group Company
2002 2001 2002 2001
Included in:
   Accounts receivable 7 5 7 5
   Borrowings 1 23 1

 
28. FINANCIAL RISK MANAGEMENT

The Group's financial instruments consist primarily of cash deposits with banks, unlisted investments, derivatives, accounts receivable and payable, and loans to and from associates and others. Derivatives and investments, other than investments which are accounted for as subsidiaries, joint ventures and associates, are carried at fair value. All other financial instruments are carried at cost or amortised cost.

In the normal course of its operations, the Group is inter alia exposed to credit, foreign currency, interest, liquidity and commodity price risk. In order to manage these risks, the Group may enter into transactions which make use of derivatives. They include forward exchange contracts (FEC's) and options, interest rate swaps and commodity futures and options. Separate committees are used to manage the risks and the hedging activities of the Group. The Group does not speculate in or engage in the trading of derivative instruments. Since the Group utilises derivative instruments for risk management, market risk relating to derivative instruments will be offset by changes in the valuation of the underlying assets, liabilities or transactions being hedged.

Credit risk

The Group's financial instruments do not represent a concentration of credit risk because the Group deals with a variety of major banks, and its debtors and loans are spread among a number of major industries, customers and geographic areas. The credit risk on liquid funds and derivative financial instruments is limited because the counterparties are banks with high credit ratings assigned by international credit-rating agencies. In addition, appropriate credit committees review significant credit transactions before consummation. An appropriate level of provision is maintained.

Foreign currency risk

In the normal course of business, the Group enters into transactions denominated in foreign currencies. As a result, the Group is subject to transaction and translation exposure from fluctuations in foreign currency exchange rates. The Group uses a variety of instruments to minimise foreign currency exchange rate risk in terms of its risk management policy. In principle it is the Group's policy to cover its foreign currency exposure in respect of liabilities and purchase commitments and to cover up to 50 percent of its foreign currency exposure on receivables. There were no speculative positions in foreign currencies at year end. All foreign exchange contracts are supported by underlying transactions. The Group is not reliant on imported raw materials to any significant extent.

The Group's forward exchange contracts that constitute designated hedges of currency risk at year end are summarised as follows:

Group
2002 2001
Average Commitment Fair value Fair value
contract of FEC of FEC
rate (Rmillion) (Rmillion) (Rmillion)
Imports
UK pounds 15,37 2
Other currencies 1 2

3 2

Exports
Euro 12,15 4 1
US dollars 9,98 319 35 (91)
UK pounds 12,03 2

325 36 (91)
     
Loan capital payments
   and interest
US dollars 12,82 433 (122) 195

Net total 761 (86) 106

Company
2002 2001
  Average Commitment Fair value Fair value
contract of FEC of FEC
rate (Rmillion) (Rmillion) (Rmillion)
Imports
UK pounds
Other currencies
Exports
Euro
US dollars 10,31 188 24 (66)
UK pounds

188 24 (66)
     
Loan capital payments
   and interest
US dollars
Net total 188 24 (66)

       

 

     

The hedges in respect of imports and exports are expected to mature within approximately one year. The hedges in respect of the capital payments and interest on the loan will mature during 2003.

The fair value is the estimated amount that the Group would pay or receive to terminate the forward exchange contracts at the balance sheet date.

  
The Group's forward exchange contracts that do not constitute designated hedges of currency risk at year end are summarised as follows:
Group
2002 2001
Average Commitment Fair value Fair value
contract of FEC of FEC
rate (Rmillion) (Rmillion) (Rmillion)
Imports
Australian dollars 5,53 7 (1)
Euro 10,74 14 (2)
US dollars 9,19 5 3
Swiss francs 6,89 1 1

27 (3) 4

Exports
Australian dollars 5,22 1
US dollars 9,47 8 1 1

9 1 1

Net total 36 (2) 5
      
Company
2002 2001
Average Commitment Fair value Fair value
contract of FEC of FEC
rate (Rmillion) (Rmillion) (Rmillion)
Imports
Australian dollars 5,53 7 (1)
Euro 10,74 14 (2)
US dollars 9,19 5 3
Swiss francs 6,89 1 1

27 (3) 4

Exports
Australian dollars 5,22 1
US dollars 9,47 8 1 1

9 1 1

Net total 36 (2) 5
      

 

The Group has the following uncovered export trade debtors:
Group Company
Foreign Foreign
amount 2002 2001 amount 2002 2001
(million) (Rmillion) (Rmillion) (million) (Rmillion) (Rmillion)
Australian dollars 1,1 5 1,1 5
Euro 1,6 15
Mozambique meticais 56,4 20 56,4 20
UK pounds 0,7 10 10
US dollars 11,8 101 16 0,2 1 5


151 26 26 5


Commodity price risk

Commodity price risk arises from the risk of an adverse effect on current or future earnings resulting from fluctuations in the prices of commodities. To hedge prices for the Group's substantial commodity requirements, commodity futures and options are used, including fixed and spot-defined forward sales contracts and call and put options.

African Products has secured its maize requirements for the current maize season to 31 May 2003 and its requirements for the year ending 31 May 2004 by means of fixed price contracts, futures and options.

Hulett Aluminium purchases its aluminium raw material at prices that fluctuate with movements in the London Metal Exchange price for aluminium and foreign exchange rates. The Group hedges exposure to movements in the price of aluminium arising from fixed price sales contracts by entering into fixed price purchase contracts with suppliers and by futures and options contracts.

Tongaat-Hulett Sugar secures the premium on refined sugar exports from fluctuating international prices by using commodity futures.

 
At the year end the futures and options contracts where delivery will not be taken were:
Options:
Group Company
2002 2001 2002 2001
Tons Strike 
  price
Fair Fair Tons Strike
price
Fair Fair
per ton value value per ton value value
(Rand) (Rmillion) (Rmillion) (Rand) (Rmillion) (Rmillion)
Maize 
puts
560 100 1 403 (20) 560 100 1 403 (20)
Maize 
calls
137 200 1 888 8 (24) 137 200 1 888 8 (24)
Aluminium
   puts
18
Aluminium
   calls
1


(12) (5) (12) (24)


Futures:
Group Company
2002 2001 2002 2001
Tons Contract Fair Fair Tons Contract Fair Fair
value value value value value value
(Rmillion) (Rmillion) (Rmillion) (Rmillion) (Rmillion) (Rmillion)
Maize 
futures
purchased
360 300 41 (41) 84 360 300 41 (41) 84
Maize 
futures
sold
72 500 6 6 72 500 6 6
Raw 
sugar
futures 
purchased
    58 500 74 (5) 58 500 74 (5)
Raw 
sugar
futures 
sold
110 350 117 (2) 110 350 117 (2)
Aluminium
futures 
sold
1 800 21 3


(35) 80 (35) 77


Interest rate risk

The Group is exposed to interest rate price risk on its fixed rate loan liabilities and accounts receivable and payable, which can impact on the fair value of these instruments. The Group is exposed to interest rate cash flow risk in respect of its variable rate loans and short term cash investments, which can impact on the cash flows of these instruments. The exposure to interest rate risk is managed using derivatives, where it is considered appropriate, and through the Group cash management system, which enables the Group to maximise returns while minimising risks.

Liquidity risk

The Group manages its liquidity risk by monitoring forecast cash flows on a weekly basis. The Group has unutilised committed banking facilities of R930 million (2001 - R940 million).


 
29.  CHANGES IN ACCOUNTING POLICIES (Rmillion)
Restatement of comparatives
The adoption of accounting statement AC 137 (Agriculture) and changes in accounting policies in relation to the sugar operations, maize futures and option contracts has resulted in comparative figures being adjusted as follows:
Balance sheet       Group   Company
Equity as previously reported 4 038 2 723
Effect of changes in accounting policies (18) (36)
         Decrease in property, plant 
           and equipment
(84) (54)
         Increase in growing crops 132 82
         Increase in derivative assets 9 9
         Increase in sugar inventories 440 440
         Decrease in accounts receivable (539) (539)
         Decrease in accounts payable 10 10
         Decrease in deferred tax 14 16

Adjusted equity at 1 January 2001 4 020 2 687

Income statement
Total net earnings as previously reported 609 185
Increase in operating earnings arising 
   from accounting policy changes:
         African Products 51 51
         Tongaat-Hulett Sugar (39) (46)
         Deferred tax thereon (3) (2)

Adjusted total net earnings 618 188
 

30.  PRINCIPAL SUBSIDIARY COMPANIES AND JOINT VENTURES (Rmillion)
Interest of Holding Company
Shares Indebtedness
2002 2001 2002 2001
African Products 
   (Pty) Limited
15 15 (15) (15)
*Hulett Aluminium
   (Pty) Limited (50%)
7 7 57 222
Hulett-Hydro Extrusions 
   (Pty) Limited (35%)
Moreland Estates 
   (Pty) Limited
173 235
Tongaat-Hulett Sugar Limited 333 333 19 (41)
Tambankulu Estates 
   Limited (Swaziland)
Açucareira de Mocambique,
   SARL (Mozambique) (75%)
+Triangle Sugar Corporation
    Limited (Zimbabwe)
The Tongaat Group Limited 54 54 (4) (11)

409 409 230 390

* Joint Venture    + Not consolidated
 
Except where otherwise indicated, effective participation is 100 percent.
A full list of all subsidiaries and joint ventures is available from the group secretary on request.