Annual Financial Statements


Financial Statements for the year ended 31 December 2005


Notes to the Financial Statments (1 - 10)


1.  TRANSITION TO IFRS (Rmillion)
Reconciliation of previous SA GAAP to IFRS
  Group Company
  Audited IFRS transition Audited IFRS transition
  year ended date year ended date
  31 December 1 January 31 December 1 January
  2004 2004 2004 2004
Balance sheet        
Equity        
As previously reported – SA GAAP 4 357 4 193 2 676 2 570
Effect of goodwill now recorded in Metical and translated at the closing exchange rate (14) (15)    
Share-based payment reserve 13 3 13 3
Effect of changes on income statement:        
Current year (6)   (6)  
Prior year (3) (3) (3) (3)
Shareholders’ interest 4 347 4 178 2 680 2 570
Minority interest in subsidiaries previously reported separately from equity 71 6    
Equity restated – IFRS 4 418 4 184 2 680 2 570
         
Income statement        
Net profit as previously reported 226   187  
Effect of transition to IFRS (6)   (6)  
Recognition of share-based payments as an expense (8)   (6)  
Goodwill no longer amortised 2      
       
Net profit attributable to shareholders restated – IFRS 220   181  
       
Effect of transition to IFRS on earnings per share (cents) 2005 2004    
Effect on basic earnings per share        
Recognition of share-based payments as an expense (14,6) (7,9)    
Goodwill no longer amortised   2,0    
Total impact of transition to IFRS on earnings per share (cents) (14,6) (5,9)    
Effect on diluted earnings per share        
Recognition of share-based payments as an expense (14,2) (7,8)    
Goodwill no longer amortised  1,9
Total impact of transition to IFRS on earnings per share (cents) (14,2) (5,9)    
         
The transition to IFRS has resulted in the following:
 
First-time elections made in terms of the IFRS transitional provisions:
  • Goodwill arising in respect of foreign entities
    Goodwill is now recorded in the currency of the foreign entities (in this instance the Mozambique Metical) and translated into Rand at the closing exchange rate, being a restated carrying value of R23 million at 31 December 2004. Goodwill will no longer be amortised under IFRS and an impairment test will be conducted on at least an annual basis. Goodwill at 31 December 2005 is reported at R21 million.
  • Foreign Currency Translation Reserve
    The foreign currency translation reserve (FCTR) relates to the consolidation of foreign subsidiaries and is affected by exchange rate movements. On adoption of IFRS, the Group elected to set the FCTR to nil by transferring the credit balance on this account of R23 million directly to retained income and thereafter tracking the FCTR by individual foreign entity.
New and revised standards that had an impact on the Group's financial statements:
  • IAS 38 (Revised) Intangible Assets
    An intangible asset is an identifiable non-monetary asset without physical substance. The adoption of IAS 38 (Revised) has resulted in software costs that were previously capitalised to property, plant and equipment now being disclosed as an intangible asset.
  • IFRS 2 Share-based Payment
    IFRS 2 requires the recognition of equity-settled share-based payments at fair value at the date of grant. IFRS 2 applies to all grants of equity instruments after 7 November 2002 that were unvested as at 1 January 2005 and as such applies to the original 2001 Tongaat-Hulett Employee Share Incentive Scheme in respect of share options issued after 7 November 2002, as well as to the newly approved and implemented share schemes, which incorporate the Share Appreciation Rights Scheme 2005, Long Term Incentive Plan 2005 and the Deferred Bonus Plan 2005.
     
    The accounting charges to the income statement required by IFRS 2 are accounted for as equity-settled instruments. As such, a once off valuation is performed at grant date to determine the fair value of the share-based payments. This fair value is then charged as a cost to the income statement on a consistent basis over the vesting period, effectively eliminating the volatility associated with the periodic mark-to-market adjustments that are required for cash-settled schemes. Adjustments are made to the charge to the income statement over the vesting period, relating to the actual employees leaving percentage versus the assumed percentage. The costs associated with the settlement of awards under the new share schemes qualify for a tax deduction by the company.
  • IFRS 3 Business Combinations
    With the adoption of IFRS 3, amortisation of goodwill is no longer permitted with effect from 1 January 2004. Goodwill, which is allocated to the appropriate cash generating units, is tested for impairment as required by IAS 36 Impairment on at least an annual basis.
  
2.  PROPERTY, PLANT AND EQUIPMENT (Rmillion)
  Total Land Plant and Vehicles Capitalised Capital
    and equipment and other leased work in
    buildings     plant and progress
Group         vehicles  
Carrying value at beginning of year 4 115 622 2 955 181 83 274
Transfer of software to intangible assets (refer to note 6) (9)     (5)   (4)
Restated carrying value at beginning of year 4 106 622 2 955 176 83 270
Additions 305 5 173 12   115
Disposals (23) (15) (1) (7)    
Depreciation (265) (11) (225) (25) (4)  
Transfers   18 121 9   (148)
Currency alignment (30) (12) (6) (2) (9) (1)
Carrying value at end of year 4 093 607 3 017 163 70 236
Comprising:            
2005            
At cost 5 781 736 4 288 410 111 236
Accumulated depreciation 1 688 129 1 271 247 41  
  4 093 607 3 017 163 70 236
2004*            
At cost 5 580 749 4 025 415 121 270
Accumulated depreciation 1 474 127 1 070 239 38  
  4 106 622 2 955 176 83 270
             
Company            
Carrying value at beginning of year 1 860 265 1 280 101 6 208
Additions 209 2 138 5   64
Disposals (23) (15)   (8)    
Depreciation (167) (4) (147) (14) (2)  
Transfers   16 103 9   (128)
Carrying value at end of year 1 879 264 1 374 93 4 144
Comprising:            
2005            
At cost 3 065 328 2 298 266 29 144
Accumulated depreciation 1 186 64 924 173 25  
  1 879 264 1 374 93 4 144
2004*            
At cost 2 904 329 2 069 269 29 208
Accumulated depreciation 1 044 64 789 168 23  
  1 860 265 1 280 101 6 208
Plant and machinery with a book value of R89 million (2004* – R44 million) are encumbered as security for the secured finance lease obligations and as security for certain short-term borrowings of R2 million (2004* – R8 million).

The register of land and buildings is available for inspection at the company's registered office.
 

  * Restated for IFRS        
 
 
3.   GROWING CROPS (Rmillion) Group Company
    2005 2004* 2005 2004*
 
  Carrying value at beginning of year 185 179 76 94
  Gain arising from physical growth and price changes 10 23 6 2
  Net decrease due to reduced area under cane (5) (20) (5) (20)
  Currency alignment (8) 3    
  Carrying value at end of year 182 185 77 76
  Area under cane (hectares)        
  South Africa 10 162 10 869 10 162 10 869
  Mozambique 7 200 7 200    
  Swaziland 3 726 3 811    
    21 088 21 880 10 162 10 869
  * Restated for IFRS        
 
4. LONG-TERM RECEIVABLE (Rmillion) Group Company
    2005 2004* 2005 2004*
 
  Advances to an export partnership        
  Carrying value at beginning of year 210 210 210 210
  Fair value adjustment due to reduction in tax rate (7)   (7)  
  Carrying value at end of year 203 210 203 210
   The company participates in an export partnership engaged in the construction of luxury vessels in order to foster the use of aluminium plate in marine applications.

* Restated for IFRS

         
 
5. GOODWILL (Rmillion) Group    
    2005 2004*    
 
  At cost 49 49    
 
  Less: Accumulated amortisation to 31 December 2003 14 14    
  Carrying value at 1 January 2004 35 35    
  Effect of transition to IFRS:        
  Goodwill now recorded in Metical and translated at the closing exchange rate (14) (15)    
  Reversal of goodwill previously amortised 2 2    
  Carrying value at beginning of year restated 23 22    
 
  Currency exchange rate changes (2) 1    
  Carrying value at end of year 21 23    
   
* Restated for IFRS
   
         
           
6. INTANGIBLE ASSETS (Rmillion) Group Company
    2005 2004* 2005 2004*
           
  Software at cost, transferred from property, plant and equipment        
  Balance at beginning of year 19 16 7 7
  Additions 4 3    
  Balance at end of year 23 19 7 7
 
  Accumulated amortisation        
  Balance at beginning of year 10 9 7 7
  Charge for the year 1 1    
  Balance at end of year 11 10 7 7
 
  Carrying value at end of year 12 9    
   * Restated for IFRS    
         
 
7. INVESTMENTS (Rmillion) Group Company
    2005 2004* 2005 2004*
  Associate:        
  The carrying value of the Group's 49% interest in        
  Açucareira de Xinavane, SARL (Mozambique) comprises:        
  Unlisted shares 128 20    
  Loan 30 80    
  Cumulative share of post-acquisition deficits (117) (95)    
  Balance at beginning of year (95) (94)    
  Movement in currency translation reserve 3 (7)    
  (Loss)/profit for the year (25) 6    
           
  Book value 41 5    
 
  Directors' valuation 41 5    
 
  Summarised balance sheet:        
  Property, plant and equipment 309 359    
  Growing crops 53 59    
  Current assets 105 49    
  Current liabilities (74) (82)    
  Borrowings:        
  External (276) (354)    
  Shareholders (158) (198)    
  Net deficit (41) (167)    
 
  Other shareholders' share of deficit 21 85    
  Group share of deficits (pre and post-acquisition) (20) (82)    
 
  Summarised income statement:        
  Revenue 167 125    
  Profit before depreciation 11 5    
  Depreciation (16) (24)    
  Foreign exchange (loss)/gain (19) 58    
  (Loss)/profit before financing costs (24) 39    
  Financing costs (28) (27)    
  (Loss)/profit after financing costs (52) 12    
  Other shareholders' interest 27 (6)    
  Group share of (loss)/profit (25) 6    
 
  Other investments:        
  Unlisted shares at fair value 13 15    
  Loans 3 3 3 2
  Book value 16 18 3 2
 
  Carrying value of investments 57 23 3 2
  A schedule of unlisted investments is available for inspection at the company's registered office.

*Restated for IFRS

 
8. SUBSIDIARIES AND JOINT VENTURES (Rmillion) Company
    2005 2004*
  Shares at cost, less amounts written off 563 527
  Indebtedness by 826 715
  Indebtedness to (301) (191)
    1 088 1 051
 
    Group
                2005             2004*
  The Group's proportionate share of the assets, liabilities and post-acquisition reserves of joint ventures, which comprise in the main, Hulett Aluminium, is included in the consolidated financial statements as follows:    
      Property, plant, equipment and investments 1 950 1 969
      Current assets 1 012 871
      Less: Current liabilities (372) (352)
      Capital employed 2 590 2 488
      Less: Borrowings (411) (435)
               Post-acquisition reserves (1 253) (1 318)
               Deferred tax and provisions (511) (530)
               Minority interest in subsidiary (16) (11)
  Interest in joint ventures 399 194
  The Group's proportionate share of the trading results of the joint ventures is as follows:    
 
      Revenue 2 241 1 783
      Profit before tax 167 56
      Tax (27) (3)
      Minority interest (4) (5)
      Net profit 136 48
  The Group's proportionate share of cash flows of the joint ventures is as follows:    
 
      Cash flows from operating activities 192 (193)
      Net cash used in investing activities (72) (38)
      Net movement in cash resources 120 (231)
 
The investment in Triangle is retained at a nominal value. Its unaudited assets, liabilities and results which are not included in the consolidated financial statements and which have not been adjusted for inflation, are translated at the official Zimbabwe dollar exchange rate as follows:
 
  2005 2004*     2005 2004*
Shareholder’s interest 115 194     ≠ Property, plant and equipment 14 28
Minority interest 6 6   Growing crops 97 133
        Current assets 118 255
Equity 121 200   Current liabilities (74) (175)
Deferred tax 31 41        
Long-term borrowings 3          
  155 241     155 241
Revenue 728 852   Net profit 359 256
 
  ≠ Property, plant and equipment have been accounted for in terms of the historical cost convention.

* Restated for IFRS

 
9. INVENTORIES (Rmillion) Group Company
    2005 2004* 2005 2004*
 
  Raw materials 294 404 147 263
  Work in progress 107 82 9 4
  Finished goods 736 819 655 724
  Consumable stores 117 122 63 56
  Development properties 202 222    
    1 456 1 649 874 1 047
  Included in raw materials is an amount of R106 million (2004* – R208 million) that relates to the constructive obligation that has been recognised on maize procurement contracts.
 
10.  DERIVATIVE INSTRUMENTS (Rmillion) Group Company
     2005      2004*      2005      2004*
The fair value of derivative instruments at year end was:        
Forward exchange contracts – hedge accounted (1) (8) 4 8
Forward exchange contracts – not hedge accounted   4   2
Futures contracts – hedge accounted 25 (7) 18 (7)
Embedded derivatives (1) (5)    
23 (16) 22 3
Summarised as:        
   Derivative assets 41 36 31 14
   Derivative liabilities (18) (52) (9) (11)
23 (16) 22 3
  Further details on derivative instruments are set out in note 31.

* Restated for IFRS