Annual Financial Statements


Financial Statements for the year ended 31 December 2005


Notes to the Financial Statements (21 - 35)


21. HEADLINE EARNINGS (Rmillion) Group
    2005 2004*
 
  Profit attributable to shareholders 472 220
  Less after tax effect of:    
  Exceptional capital items (refer to note 18) (5) (11)
  Surplus on disposal of plant and equipment (1) (3)
  Headline earnings 466 206
  Headline earnings per share (cents)    
  Basic 452,4 202,5
  Diluted 441,5 200,4
 
 
22. EARNINGS PER SHARE
 
Earnings per share are calculated using the weighted average number of ordinary shares in issue during the year. In the case of basic earnings per share the weighted average number of shares in issue during the year is 103 017 561 (2004* – 101 718 002). In respect of diluted earnings per share the weighted average number of shares is 105 552 404 (2004* – 102 790 613).
 
 
23.  DIVIDENDS (Rmillion)
    2005 2004*
 
 Paid:    
    Final for previous year, paid 24 March 2005 – 120 cents (2004* – 80 cents) 123 81
Interim for current year, paid 1 September 2005 – 120 cents (2004* – 50 cents) 124 51
    247 132
 

The final dividend for the year ended 31 December 2005 of 280 cents per share declared on 17 February 2006 and payable on 23 March 2006 has not been accrued.

*Restated for IFRS
 
24. 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 of 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 (The Tongaat-Hulett Pension Fund) for employees including those of the Hulett Aluminium Joint Venture. The Fund is actuarially valued at intervals of not more than three years using the projected unit credit method. In the statutory actuarial valuation of the Fund as at 31 December 2001 the Fund 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. This Bill requires that the actuarial valuation at 31 December 2001, together with a plan for the apportionment on a fair basis to the employer and past and current members of the Fund, of any surplus by this valuation must be approved by the Financial Services Board (FSB). Whilst the valuation has been completed and submitted to the FSB, the apportionment plan is lying open for inspection before submission to the FSB, as required by law. Accordingly, due to the uncertainty regarding apportionment, 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 2005 in accordance with IAS 19 Employee Benefits showed the present value of obligations to be adequately covered by the fair value of the scheme assets.
 
  2005 2004*
  Rmillion Rmillion
 
Details of the valuation of the Fund (100%) are as follows:    
 
Fair value of scheme assets 4 554 3 602
Present value of obligation (3 465) (3 109)
Fund assets less member liabilities, before reserves 1 089 493
 
The reconciliation for the year is as follows:    
Opening balance 493 503
Interest costs (245) (270)
Service costs (101) (91)
Contributions paid (company and employee) 67 67
Expected return on scheme assets 283 270
Actuarial gains 592 14
Closing balance 1 089 493
 
Actual return on scheme assets 1 077 367
 
Included in the assets of the scheme are ordinary shares held in    
The Tongaat-Hulett Group Limited, stated at fair value 125 85
 
The principal actuarial assumptions are:    
 
Discount rate 7,75% 8,0%
Salary cost and pension increase 4,25% 4,5%
Expected rate of return on assets 7,75% 8,0%
 
* Restated for IFRS
 
Defined contribution pension and provident schemes
 

There are three 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 R16 million were expensed during the year (2004* - R15 million).

 
       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 and completing a minimum service period of ten years. The unfunded liability for post-retirement medical aid benefits is determined actuarially each year and comprises:
  Group Company
  2005 2004* 2005 2004*
 
Amounts recognised in the balance sheet:        
Present value of unfunded obligations 249 239 208 198
Unrecognised actuarial losses (19) (18) (18) (14)
Net liability in balance sheet 230 221 190 184
 
The liability is reconciled as follows:        
 
Net liability at beginning of year 221 211 184 177
Net expense recognised in income statement 25 26 20 22
Contributions (16) (16) (14) (15)
Net liability at end of year 230 221 190 184
 
Amounts recognised in the income statement:        
 
Service costs 4 3 3 2
Interest costs 19 21 15 18
Net actuarial losses recognised 2 2 2 2
  25 26 20 22
 
The principal actuarial assumptions applied are:        
 
Discount rate 7,75% 8,0% 7,75% 8,0%
Health care cost inflation rate 4,75% 5,0% 4,75% 5,0%
 
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 retirement gratuities which is determined actuarially each year comprises:

  Group Company
  2005 2004* 2005 2004*
 
Amounts recognised in the balance sheet:        
 
Present value of unfunded obligations 50 45 43 40
Unrecognised actuarial gains 2 4 3 3
Net liability in balance sheet 52 49 46 43
 
The liability is reconciled as follows:        
 
Net liability at beginning of year 49 46 43 41
Net expense recognised in income statement 6 7 5 6
Payments made (3) (4) (2) (4)
Net liability at end of year 52 49 46 43
 
Amounts recognised in the income statement:        
 
Service costs 2 3 2 2
Interest costs 4 5 3 4
Net actuarial gains recognised   (1)    
  6 7 5 6
The principal actuarial assumptions applied are:        
 
Discount rate 7,75% 8,0% 7,75% 8,0%
Salary inflation rate 4,75% 5,0% 4,75% 5,0%
         
* Restated for IFRS        
 
25.  DIRECTORS' REMUNERATION AND INTERESTS
Directors' remuneration (R000)              
The directors' remuneration for the year ended 31 December 2005 was as follows:
               
        Retirement   Share  
    Cash   and medical Other option  
Name Fees package Bonus contributions benefits gains Total
 
Executive directors:              
B G Dunlop   2 036 975 229   144 3 384
A Fourie   1883 825 222     2 930
G R Hibbert   1 615 761 194   96 2 666
G P N Kruger   1886 775 229   86 2 976
M H Munro   1 616 784 195     2 595
S J Saunders   1888 878 221   126 3 113
M Serfontein   1520 722 175   478 2 895
P H Staude   3 475 1 685 372   96 5 628
  – 15 919 7 405 1 837 1 026 26 187
 
 

The separate payment of directors’ fees to executive directors was discontinued with effect from 1 January 2005 and cash packages were adjusted to take this into account.

Bonuses are reported to match the amount payable to the applicable financial year.
 
The directors' remuneration for the year ended 31 December 2004 was as follows:
        Retirement   Share  
    Cash   and medical Other    option  
Name Fees package# Bonus contributions benefits    gains Total
 
Executive directors:              
D G Aitken (to 29 February 2004) 13 197   29     945 Δ 65 1 249
B G Dunlop 95 1 730 811 219 103 + 55 3 013
A Fourie 95 1 459 638 199 34 + 19 2 444
G R Hibbert 95 1 275 637 175 69 + 16 2 267
G P N Kruger 95 1 627 742 222 206 + 53 2 945
M H Munro 95 1 241 617 178   39 2 170
S J Saunders 95 1 620 767 214 206 + 74 2 976
M Serfontein 95 1 275 605 187 103 + 128 2 393
P H Staude 95 2 983 1 493 344 206 + 18 5 139
  773 13 407 6 310 1 767 1 872 467 24 596
# During 2004 the company converted to a cash based remuneration structure which resulted in the inclusion in cash package of amounts in respect of various separate fringe benefits previously disclosed as other benefits. Cash package includes cash salary and travel expense allowances.
Δ Including accrued leave and retirement gratuity.
+ A once-off lump sum settlement was paid on the discontinuance of an educational assistance scheme.
Bonuses and other benefits are reported to match the amount payable to the applicable financial year. 
Annual salary increases in 2004 were postponed from 1 January 2004 to 1 April 2004.
 
    2005     2004*  
Name Fees Other Total Fees Other Total
 
Non-executive directors:            
D D Barber 115   115 95   95
P M Baum 115 69 184 95 60 155
I Botha 115 84 199 82 25 107
L Boyd 115 138 253 95 70 165
E le R Bradley 115 165 280 95 135 230
B E Davison 115   115 67   67
M W King 115 108 223 95 50 145
J B Magwaza 115 1 936๘ 2 051 95 239๘ 334
M Mia 115 105 220 95 80 175
T H Nyasulu 115 96 211 95 25 120
C M LSavage 230 628 858 215 571 786
R H J Stevens 115 100 215 95 90 185
A M Thompson 115   115 95   95
  1 610 3 429 5 039 1 314 1 345 2 659
     ๘ Includes share option gain on the exercise of options awarded when he was an executive director.
 
Declaration of full disclosure
Other than that disclosed above, 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 December 2005.
 
Interest of directors of the company in share capital
The aggregate holdings as at 31 December 2005 of those directors of the company holding issued ordinary shares of the company are detailed below. Holdings are beneficial except where indicated otherwise.
 
  2005  2004*
  Direct Indirect Direct Indirect
Name shares shares shares shares
 
    Executive directors:        
  B G Dunlop 4 210   1 440  
  A Fourie 8 314   5 000  
  G R Hibbert 24 872   21 562  
  G P N Kruger 4 057   205  
  M H Munro 3 704   500  
  S J Saunders 9 982 761 632   761 632
  S J Saunders (non-beneficial)   487 376   487 376
  M Serfontein 6 141 8 000 1 000 8 000
  P H Staude 32 930   22 049  
    94 210 1 257 008 51 756 1 257 008
           
Non-executive directors:        
  L Boyd 500   500  
  E le R Bradley   104 191   104 191
E le R Bradley (non-beneficial)   20 934   20 934
  J B Magwaza 5 760   5 760  
  C M L Savage 24 003 73 225 24 003 73 225
  R H J Stevens 618   618  
    30 881 198 350 30 881 198 350
           
* Restated for IFRS        
 
26.  EMPLOYEE SHARE INCENTIVE SCHEMES 
The adoption of IFRS 2 Share-based Payment in 2005 requires that all awards made after 7 November 2002 be accounted for in the financial statements of the company. IFRS 2 has therefore only been applied to The Tongaat-Hulett Group Limited 2001 Share Option Scheme in respect of the awards made on 14 April 2003, 1 October 2003 and 21 April 2004 and to the new share incentive scheme comprising the Share Appreciation Right Scheme 2005 (SARS), the Long Term Incentive Plan 2005 (LTIP) and the Deferred Bonus Plan 2005 (DBP).
The charge to the income statement resulting from the adoption of IFRS 2 is summarised as follows:
Rmillion 2005 2004 2003
 
Original share option scheme 10 8 3
New share incentive scheme 5    
Cost of share-based payments before tax 15 8 3
Tax relief on new share incentive scheme (2)    
Cost of share-based payments after tax 13 8 3
 
  Details of awards in terms of the company's share incentive schemes are as follows:
 
The Tongaat-Hulett Employees Share Incentive Scheme and The Tongaat-Hulett Group Limited 2001 Share Option Scheme (the Original Share Option Schemes)
 

Under the original share option schemes, participating employees were awarded share options in the company. On vesting, the employee is entitled to purchase shares in the company and immediately sell the shares at the market price, thereby benefiting from the appreciation in the share price.

 
Option Expiring Number of Options Options Options Number of Options
price ten years from options at granted in exercised in forfeited in options at time
Rand   31 Dec 2004 2005 2005 2005 31 Dec 2005 constrained
 
40,00 24 March 1995 94 400   94 400      
33,25 4 November 1998 201 700   96 700   105 000  
32,90 5 March 1999 1 225 546   492 346   733 200  
40,10 7 May 1999 559 660   197 860   361 800  
30,00 19 May 2000 188 180   65 180 1 000 122 000  
29,40 26 July 2000 20 700   8 900   11 800  
39,85 12 January 2001 129 600   20 000 1 100 108 500 43 400
40,00 16 May 2001 1 146 705   355 222 6 200 785 283  
42,00 15 August 2001 58 500   2 400 1 100 55 000  
49,60 13 May 2002 1 279 930   190 880 17 700 1 071 350 321 405
31,90 14 April 2003 1 271 100   123 800 39 800 1 107 500 664 500
34,50 1 October 2003 45 000       45 000 27 000
47,00 21 April 2004 1 245 600     52 800 1 192 800 1192 800
    7 466 621 1 647 688 119 700 5 699 233 2 249 105
 
Weighted average remaining life:      
- Expected 72,96 months or 6,08 years      
- Contractual 120 months or 10 years      
 
The weighted average fair value costing of share options granted in 2003 and 2004, determined using the binomial tree valuation model, was R15,28 per share. No awards were made in 2005 under the original share option schemes.
         
The significant inputs into the model for the 2003/4 awards of the original share option schemes were:
                 

Share price at grant date 

The share price at grant date is the share price on the date on which the share option is issued, as noted above.

Exercise price  The exercise price is the share price at grant date, as noted above.
Expected option life  114 months (assume contractual plus a leaving percentage of 5%).
Risk-free interest rate  9,02%

Expected volatility 

Expected volatility of 35% 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 option did not take into account dividends, as no dividend payment was expected. A continuous dividend yield of 3,9% was used.

Weighted average share price  R40,40
Expected early exercise  Early exercise is taken into account on an expectation basis.

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.
                 
Share Appreciation Rights 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 Group performance levels over a performance period.

                 
Grant price Expiring   Number of Rights Rights Number of Rights
Rand seven years from   rights at granted in forfeited in rights at time
      31 Dec 2004 2005 2005 31 Dec 2005 constrained
               
57,58 10 May 2005   – 1 395 114 22 952 1 372 162 1 372 162
                 
Weighted average remaining life:
- Expected  76,27 months or 6,36 years
- Contractual 84 months or 7 years
                 

The fair value costing of one share appreciation right granted during 2005, determined using the binomial tree valuation model and non-market performance conditions, was R13,88. 

                 
The significant inputs into the model were:
                 

Share price at grant date 

The share price at grant date is the price at which the share appreciation right is issued, as noted above.

Exercise price  The exercise price is the share price at grant date, as noted above.
Expected option life  80 months (assume contractual plus a leaving percentage of 5%).
Risk-free interest rate  8.09%

Expected volatility 

Expected volatility of 35% 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 3,9% was used.

Weighted average share price  R57,58
Expected early exercise  Early exercise is taken into account on an expectation basis.

Performance (vesting) conditions 

An increase in headline earnings per ordinary share as determined by the Remuneration Committee. Retesting of the performance condition is allowed.

Non-market performance conditions  Growth in headline earnings per share.
Market performance conditions  No market conditions.
                 
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.
                 
Issue price Expiring Number of Conditional Conditional Number of Conditional
Rand  three years from conditional awards awards conditional awards
awards at granted in forfeited in awards at time
 
57,58  10 May 2005 31 Dec 2004 2005 2005 31 Dec 2005 constrained
                 
– 345 842 2 720 343 122 343 122
                 
Weighted average remaining life: 
- Expected  28,27 months or 2,36 years
- Contractual 36 months or 3 years
                 
The fair value costing of one conditional share award granted during 2005, determined using the Monte Carlo Simulation model and non-market performance conditions, was R24,96.
                 
The significant inputs into the model were: 
                     
Share price at grant date   The share price at grant date is the price at which the conditional share award is issued, as noted above.
Exercise price   The exercise price is the share price at grant date, as noted above.
Expected option life   34 months (assume contractual plus a leaving percentage of 5%).
Risk-free interest rate   7,44%
Expected volatility   Expected volatility of 27,02% 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 conditional share awards did not take into account dividends, as no dividend payment was expected. A continuous dividend yield of 3,9% was used.
Weighted average share price  R57,58
Expected early exercise   Early exercise is taken into account on an expectation basis. 
Performance (vesting) conditions 50% of the LTIP award will be subject to the TSR condition and 50% will be subject to the ROCE condition. No retesting of the performance condition is allowed.
Non-market performance conditions  Return on capital employed (ROCE). 
Market performance conditions    Total shareholder return (TSR).
 
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 released from the trust.
                     
Issue price Expiring   Number of Conditional Conditional Number of Conditional
Rand three years from   conditional awards awards conditional awards
      awards at granted in forfeited in awards at time
      31 Dec 2004 2005 2005 31 Dec 2005 constrained
57,76 4 May 2005   – 35 094 – 35 094 35 094
                     
The deferred bonus shares were purchased by the participating employees over the period from 4 May 2005 to 10 May 2005.
                     
Weighted average remaining life:
 - Expected 28,08 months or 2,34 years
- Contractual  36 months or 3 years
                     
The fair value costing of one deferred bonus share award granted during 2005 was R50,00.
                     
The significant inputs into the model were:
                     
Share price at grant date The share price at grant date is the price at which the deferred bonus
  share is issued, as noted above.
Exercise price The exercise price is the share price at grant date, as noted above.
Expected option life 34 months (assume contractual plus a leaving percentage of 5%).
Risk-free interest rate Not applicable.
Expected volatility Not applicable.
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.
Weighted average share price R57,76
Expected early exercise Early exercise is taken into account on an expectation basis.
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.
 
Interest of directors of the company in share-based instruments
 
The interests of the directors in share options of the company are shown in the table below:
 
     The Original Share Option Schemes
 
          Number Options Number  
  Option       of options exercised of options Options
  price   Expiring   at 31 Dec in at 31 Dec time
Name Rand   ten years from   2004 2005 2005 constrained
 
Executive directors:
 
B G Dunlop 40,00   24 March 1995   6 000 6 000    
  33,25   4 November 1998   8 000   8 000  
  32,90   5 March 1999   39 000   39 000  
  40,10   7 May 1999   14 000   14 000  
  30,00   19 May 2000   7 000   7 000  
  39,85   12 January 2001   9 000   9 000 3 600
  40,00   16 May 2001   30 000   30 000  
  49,60   13 May 2002   25 000   25 000 7 500
  31,90   14 April 2003   24 400   24 400 14 640
  47,00    21 April 2004    3 600   3 600 3 600
          166 000 6 000 160 000 29 340
 
A Fourie 33,25   4 November 1998   4 000   4 000  
  32,90   5 March 1999   18 000   18 000  
  40,10   7 May 1999   5 200   5 200  
  30,00   19 May 2000   4 000   4 000  
  39,85   12 January 2001   2 400   2 400 960
  40,00   16 May 2001   10 000   10 000  
  49,60   13 May 2002   35 000   35 000 10 500
  31,90   14 April 2003   40 000   40 000 24 000
  47,00   21 April 2004   30 000   30 000 30 000
          148 600   148 600 65 460
 
G R Hibbert 40,00   24 March 1995   4 000 4 000    
  33,25   4 November 1998   8 000   8 000  
  32,90   5 March 1999   40 000   40 000  
  40,10   7 May 1999   9 000   9 000  
  30,00   19 May 2000   4 000   4 000  
  39,85   12 January 2001   5 000   5 000 2 000
  40,00   16 May 2001   15 000   15 000  
  49,60   13 May 2002   15 000   15 000 4 500
  31,90   14 April 2003   15 000   15 000 9 000
  47,00   21 April 2004   25 000   25 000 25 000
          140 000 4 000 136 000 40 500
 
G P N Kruger 40,00   24 March 1995   4 000 4 000    
  33,25   4 November 1998   8 000   8 000  
  32,90   5 March 1999   43 000   43 000  
  40,10   7 May 1999   14 000   14 000  
  30,00   19 May 2000   4 000   4 000  
  39,85   12 January 2001   5 000   5 000 2 000
  40,00   16 May 2001   20 000   20 000  
  49,60   13 May 2002   25 000   25 000 7 500
  31,90   14 April 2003   20 000   20 000 12 000
  47,00   21 April 2004   10 000   10 000 10 000
          153 000 4 000 149 000 31 500
 
M H Munro 33,25   4 November 1998   4 000   4 000  
  32,90   5 March 1999   14 000   14 000  
  40,10   7 May 1999   5 800   5 800  
  30,00   19 May 2000   3 800   3 800  
  39,85   12 January 2001   2 400   2 400 960
  40,00   16 May 2001   9 000   9 000  
  49,60   13 May 2002   11 500   11 500 3 450
  31,90   14 April 2003   12 400   12 400 7 440
  34,50   1 October 2003   30 000   30 000 18 000
  47,00   21 April 2004   32 000   32 000 32 000
          124 900   124 900 61 850
 
S J Saunders 40,00   24 March 1995   6 000 6 000    
  33,25   4 November 1998   8 000   8 000  
  32,90   5 March 1999   30 000   30 000  
  40,10   7 May 1999   14 000   14 000  
  30,00   19 May 2000   5 000   5 000  
  39,85   12 January 2001   5 000   5 000 2 000
  40,00   16 May 2001   18 000   18 000  
  49,60   13 May 2002   18 000   18 000 5 400
  31,90   14 April 2003   18 000   18 000 10 800
  47,00   21 April 2004   18 000   18 000 18 000
          140 000 6 000 134 000 36 200
 
M Serfontein 33,25   4 November 1998   8 000 8 000    
  32,90   5 March 1999   28 000 9 000 19 000  
  40,10   7 May 1999   10 000   10 000  
  30,00   19 May 2000   5 000   5 000  
  39,85   12 January 2001   5 000   5 000 2 000
  40,00   16 May 2001   15 000   15 000  
  49,60   13 May 2002   15 000   15 000 4 500
  31,90   14 April 2003   20 000   20 000 12 000
  47,00   21 April 2004   14 000   14 000 14 000
          120 000 17 000 103 000 32 500
 
P H Staude 40,00   24 March 1995   4 000 4 000    
  33,25   4 November 1998   10 000   10 000  
  32,90   5 March 1999   49 000   49 000  
  40,10   7 May 1999   14 000   14 000  
  30,00   19 May 2000   7 000   7 000  
  39,85   12 January 2001   9 000   9 000 3 600
  40,00   16 May 2001   30 000   30 000  
  49,60   13 May 2002   65 000   65 000 19 500
  31,90   14 April 2003   30 000   30 000 18 000
  47,00   21 April 2004   28 000   28 000 28 000
          246 000 4 000 242 000 69 100

  
          Number Options Number  
  Option       of options exercised of options Options
  price   Expiring   at 31 Dec in at 31 Dec time
Name Rand   ten years from   2004 2005 2005 constrained
 
Non-executive directors: #
 
J B Magwaza 40,00   24 March 1995   4 800 4 800    
  33,25   4 November 1998   7 000 7 000    
  32,90   5 March 1999   30 000 30 000    
  40,10   7 May 1999   10 000 10 000    
  30,00   19 May 2000   5 000 3 000 2 000  
  39,85   12 January 2001   4 000 2 400 1 600 640
  40,00   16 May 2001   20 000 14 000 6 000  
  49,60   13 May 2002   10 000 4 000 6 000 1 800
          90 800 75 200 15 600 2 440
 
C M L Savage 32,90   5 March 1999   60 000   60 000  
  40,10   7 May 1999   50 000   50 000  
  39,85   12 January 2001   8 000   8 000 3 200
  40,00   16 May 2001   22 000   22 000  
          140 000   140 000 3 200
                 
Total         1 469 300 116 200 1 353 100 372 090
 
# The non-executive directors’ share options were awarded when they were executive directors.
 
 
The interests of the directors in other share-based instruments of the company are shown in the tables below:
Share Appreciation Rights Scheme 2005
          Number Rights Number  
          of rights granted of rights Rights
  Grant price   Expiring   at 31 Dec in at 31 Dec time
Name Rand   seven years from   2004 2005 2005 constrained
 
Executive directors:          
 
B G Dunlop 57,58   10 May 2005     40 597 40 597 40 597
A Fourie 57,58   10 May 2005     37 381 37 381 37 381
G R Hibbert 57,58   10 May 2005     30 776 30 776 30 776
G P N Kruger 57,58   10 May 2005     32 610 32 610 32 610
M H Munro 57,58   10 May 2005     32 185 32 185 32 185
S J Saunders 57,58   10 May 2005     31 003 31 003 31 003
M Serfontein 57,58   10 May 2005     24 942 24 942 24 942
P H Staude 57,58   10 May 2005     92 810 92 810 92 810
          322 304 322 304 322 304
Long Term Incentive Plan 2005      
 
          Number Conditional Number Conditional
          of conditional awards of conditional awards
  Issue price   Expiring   awards at granted in awards at time
Name Rand   three years from   31 Dec 2004 2005 31 Dec 2005 constrained
 
Executive directors:          
 
B G Dunlop 57,58   10 May 2005     20 126 20 126 20 126
A Fourie 57,58   10 May 2005     18 528 18 528 18 528
G R Hibbert 57,58   10 May 2005     15 730 15 730 15 730
G P N Kruger 57,58   10 May 2005     17 825 17 825 17 825
M H Munro 57,58   10 May 2005     15 955 15 955 15 955
S J Saunders 57,58   10 May 2005     17 308 17 308 17 308
M Serfontein 57,58   10 May 2005     13 925 13 925 13 925
P H Staude 57,58   10 May 2005     50 720 50 720 50 720
          170 117 170 117 170 117
Deferred Bonus Plan 2005      
 
          Number Conditional Number Conditional
          of conditional awards of conditional awards
  Issue price   Expiring   awards at granted in awards at time
Name Rand   three years from   31 Dec 2004 2005 31 Dec 2005 constrained
 
Executive directors:          
 
B G Dunlop 57,76   4 May 2005     4 210 4 210 4 210
A Fourie 57,76   4 May 2005     3 314 3 314 3 314
G R Hibbert 57,76   4 May 2005     3 310 3 310 3 310
G P N Kruger 57,76   4 May 2005     3 852 3 852 3 852
M H Munro 57,76   4 May 2005     3 204 3 204 3 204
S J Saunders 57,76   4 May 2005     3 982 3 982 3 982
M Serfontein 57,76   4 May 2005     3 141 3 141 3 141
P H Staude 57,76   4 May 2005     10 081 10 081 10 081
          35 094 35 094 35 094
  The deferred bonus shares were purchased over the period from 4 May 2005 to 10 May 2005.
 
27. GUARANTEES AND CONTINGENT LIABILITIES (Rmillion) Group Company
    2005 2004* 2005 2004*
  Guarantees in respect of obligations of the Group and third parties 30 21 14 15
  Contingent liabilities 14 13 11 5
    44 34 25 20
           
28. LEASES (Rmillion) Group Company
    2005 2004* 2005 2004*
  Amounts payable under finance leases        
  Minimum lease payments due:        
  Not later than one year 1 2    
  Later than one year and not later than five years 2 2    
  Later than five years 1 1    
    4 5    
 
  Less: future finance charges (1) (1)    
  Present value of lease obligations 3 4    
 
  Payable:        
  Not later than one year 1 1    
  Later than one year and not later than five years 2 2    
  Later than five years   1    
    3 4    
  Operating lease commitments, amounts due:        
  Not later than one year 12 12 8 7
  Later than one year and not later than five years 27 45 17 31
    39 57 25 38
 
  In respect of:        
  Property 25 42 11 24
  Plant and machinery 9 6 9 6
  Other 5 9 5 8
    39 57 25 38
           
29. CAPITAL EXPENDITURE COMMITMENTS (Rmillion) Group Company
    2005 2004* 2005 2004*
 
  Contracted 112 52 55 39
  Approved but not contracted 187 86 137 49
    299 138 192 88
  Funds to meet this future expenditure will be provided from retained net cash flows and established facilities.
           
* Restated for IFRS        
30.
  
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. These transactions occurred under terms that are no less favourable than those arranged with third parties. Intra-group transactions are eliminated on consolidation.
  Group Company
  2005 2004* 2005 2004*
 
Goods and services:        
Between the company and its subsidiaries     3 58
Transacted between subsidiaries within the Group 3      
Transacted with/between joint ventures within the Group 39 28 3  
Transacted with associate companies 75 62    
Sales to external related parties 90 87 90 87
Pension fund contributions 37 40 28 32
 
Administration fees and other income:        
Transacted between operating entities within the company     1 6
Between the company and its subsidiaries     20 14
Transacted between subsidiaries within the Group 25 21    
Transacted with/between joint ventures within the Group 235 235 2 2
Transacted with associate companies 11 9    
Paid to external related parties 4 4    
 
Interest paid:        
Transacted between operating entities within the company     16 8
Between the company and its subsidiaries     1 1
Transacted between joint ventures within the Group 6 3    
 
Interest received:        
Transacted between operating entities within the company     119 72
Transacted between subsidiaries within the Group 8 4    
Transacted with/between joint ventures within the Group 23 47 39 36
 
Sale of fixed assets:        
Between the company and its subsidiaries     57 28
 
Loan balances:        
Transacted between operating entities within the company     1 354 1 497
Between the company and its subsidiaries     62 94
Transacted with/between joint ventures within the Group 192 510 463 430
With directors of the company   2   2
External related parties 12 10 12 10
 
Dividends received:        
Transacted between operating entities within the company     47 33
Between the company and its subsidiaries     45 56
Transacted between subsidiaries within the Group 19 51    
 
Other related party information: 
Export partnership - refer to note 4
Total dividends paid to the holding company and other shareholders - refer to note 23 
Directors - refer to notes 25 and 26
 
Restated for IFRS
 
31.  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. Financial instruments are carried at fair value or amounts that approximate fair value.
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 accounts receivable 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. Where considered appropriate, use is made of credit guarantee insurance. A suitable provision is made for doubtful debts. Financial guarantee contracts are accounted for as insurance arrangements.
 
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 an appropriate portion 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   Company
      2005 2004*       2005 2004*
  Average Commitment Fair value Fair value   Average Commitment Fair value Fair value
  contract   of FEC of FEC   contract   of FEC of FEC
  rate (Rmillion) (Rmillion) (Rmillion)   rate (Rmillion) (Rmillion) (Rmillion)
Imports                  
Australian dollars 4,87 1       4,85 1    
Euro 7,81 5       7,63 1    
US dollars 6,89 9 (1)     6,55 8    
UK pounds 10,94 4              
    19 (1)       10    
Exports                  
Australian dollars 4,68 4       4,68 4    
Euro 7,64 11              
US dollars 6,48 384 7 28   6,74 82 4 8
    399 7 28     86 4 8
Loan capital payments and interest          
US dollars 7,06 121 (7) (36)          
 
Total     (1) (8)       4 8
 
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 2006 and 2007. 
The fair value is the estimated amount that the Group would pay or receive to terminate the forward exchange contracts in arm’s length transactions at the balance sheet date.
 
* Restated for IFRS
  
The Group's forward exchange contracts that do not constitute designated hedges of currency risk at year end are summarised as follows:
  Group   Company
      2005 2004*       2005 2004*
  Average Commitment Fair value Fair value   Average Commitment Fair value Fair value
  contract   of FEC of FEC   contract   of FEC of FEC
  rate (Rmillion) (Rmillion) (Rmillion)   rate (Rmillion) (Rmillion) (Rmillion)
Imports                  
US dollars 6,44 4   (1)   6,44 4   (1)
Euro 7,69 3       7,69 3    
    7   (1)     7   (1)
Exports                  
US dollars 6,36 16   5   6,36 12   3
UK pounds 12,08 4              
    20   5     12   3
  
Total       4         2
                   
The Group has the following uncovered foreign receivables:
  Group   Company
    Foreign         Foreign    
    Amount 2005 2004*     Amount 2005 2004*
    (million) (Rmillion) (Rmillion)     (million) (Rmillion) (Rmillion)
US dollars   1 8 90     1 6 15
UK pounds     4 7          
Mozambique Metical     17         17
Euro       8          
Australian dollars       5         5
      12 127       6 37
 
* Restated for IFRS
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.
Tongaat-Hulett Sugar secures the premium on refined sugar exports from fluctuating international prices by using commodity futures.
African Products has secured its maize requirements for the current maize season to 31 May 2006 and a significant portion of its requirements for the year ending 31 May 2007 by means of unpriced procurement contracts and futures.
Hulett Aluminium purchases its aluminium raw material at prices that fluctuate with movements in the London Metal Exchange price for aluminium and the Rand/US dollar exchange rate. The exposure to movements in the price of aluminium arising from fixed price sales contracts is hedged by entering into fixed price purchase contracts with suppliers and by futures contracts.
At the year end the commodity futures contracts were:
Futures hedge accounted: Group Company
    Contract 2005 2004*     Contract 2005 2004*
    value Fair value Fair value     value Fair value Fair value
  Tons  (Rmillion) (Rmillion) (Rmillion)   Tons (Rmillion) (Rmillion) (Rmillion)
Raw sugar futures purchased 50 453 78 8 3   50 453 78 8 3
Raw sugar futures sold 53 428 99 (9) (9)   53 428 99 (9) (9)
Maize futures purchased 5 600 5 1 (1)   5 600 5 1 (1)
Maize futures sold 62 696 91 18     62 696 91 18  
Aluminium futures purchased 3 275 8 7            
Aluminium futures sold 438 1              
      25 (7)       18 (7)
 
Embedded derivatives:     Group          
      2005 2004*          
Fair value Fair value
(Rmillion) (Rmillion)
Sales orders not yet fulfilled (1)  (5)
 
Interest rate risk
The Group is exposed to interest rate 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 R1,3 billion (2004* - R696 million).
   
32. PRINCIPAL SUBSIDIARY COMPANIES AND JOINT VENTURES (Rmillion)
Interest of Holding Company
    Shares  Indebtedness
    2005 2004* 2005 2004*
  African Products (Pty) Limited 15 15 (15) (15)
 
# Hulett Aluminium (Pty) Limited (50%) 7 7 646 582
  Hulett-Hydro Extrusions (Pty) Limited (35%)        
 
  Moreland Estates (Pty) Limited     (223) (113)
 
  Tongaat-Hulett Sugar Limited 487 451 164 94
  Tambankulu Estates Limited (Swaziland)        
  Açucareira de Moçambique, SARL (Mozambique) (75%)        
+ Triangle Sugar Corporation Limited (Zimbabwe)        
 
  The Tongaat Group Limited 54 54 (47) (24)
    563 527 525 524
# 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.
 
* Restated for IFRS
33. NEW OR REVISED IFRS STANDARDS APPLICABLE TO FUTURE PERIODS
IAS 19 Employee Benefits (Amended), which is not effective for 2005, allows an entity to account for actuarial gains/losses either by recognising them in profit or loss over the expected remaining lives of participants, or outside profit or loss in a “statement of recognised income and expense”. The statement includes pension fund accounting and the provisions for post-retirement medical costs and retirement gratuities.
In addition to the above, the following new standards and interpretations were also in issue but not effective for 2005. The Group is in the process of evaluating the effects of these new standards and interpretations but they are not expected to have a significant impact on the Group's results and disclosures: 
IFRS 7 Financial Instruments: Disclosures
IFRIC 4  Determining whether an Arrangement contains a Lease
IFRIC 5  Right to Interests arising from Decommissioning, Restoration and Environmental Rehabilitation Funds 
IFRIC 8  Scope of IFRS 2
 
34. JUDGEMENTS MADE BY MANAGEMENT
 

  
Preparing financial statements in accordance with IFRS requires estimates and assumptions that affect reported amounts and related disclosures. Certain accounting policies have been identified as involving complex or subjective judgements or assessments. The items for consideration have been identified as follows:
  • Non-consolidation of Zimbabwean subsidiaries:
    The appropriate accounting treatment of the Zimbabwean subsidiaries, in terms of IAS 27 Consolidated and Separate Financial Statements, is reviewed on an ongoing basis in the light of the prevailing situation in Zimbabwe.
  • Growing crop valuation:
    Growing crops are required to be measured at fair value less harvesting, transport and over the weighbridge costs. In determining fair value an estimate is made of the yield of the standing cane. This estimate can vary from the actual yield when the cane is harvested.
  • Future development expenditure provision/accrual at Moreland:
    Judgement is applied in determining total project costs, which are supported by estimates from professional consultants and consulting engineers for services infrastructure. These costs are reviewed by management three to four times a year during the forecasting process, and if necessary estimates are revised accordingly.
  • Asset lives and residual values:
    Property, plant and equipment are depreciated over their useful lives taking into account residual values. The actual lives of the assets and residual values are assessed annually and are influenced by factors such as technological innovation, product life cycles and maintenance programmes. Residual value assessments consider issues such as market conditions, the remaining life of the asset and projected disposal values.
  • Impairment of assets:
    Ongoing assessments are made regarding any potential impairment of assets across the Group, using valuation models prescribed under IFRS.
  • Decommissioning and rehabilitation obligations in respect of the environment:
    The Group monitors and assesses its obligations arising from decommissioning of plant and rehabilitation of the environment on an ongoing basis.
  • Post-employment benefit obligations:
    Post-retirement benefit obligations are provided for certain existing and former employees. Actuarial valuations are based on assumptions which include employee turnover, mortality rates, the discount rate, the expected long-term rate of return of retirement plan assets, healthcare costs, inflation rates and salary increases.
    Valuation of financial instruments:
    The value of the derivative instruments fluctuates on a daily basis and the actual amounts realised may differ materially from their value at the balance sheet date.
35.
  
KEY SOURCES OF ESTIMATION UNCERTAINTY
There are no key assumptions concerning the future and other key sources of estimation uncertainty at the balance sheet date that management have assessed as having a significant risk of causing material adjustment to the carrying amounts of the assets and liabilities within the next financial year.