Annual Financial Statements


Financial Statements for the year ended 31 December 2008


Notes to the Annual Financial Statements (21 - 30)

21.  TAX (Rmillion) Consolidated      Company        
    2008 2007 2008 2007
           
  Earnings before capital profi ts:        
     Current 196 96 75  
     Deferred (11) 68 (7) 13
     Rate change adjustment (deferred) (22)   (17)  
     Secondary tax on companies 44 127 44 127
     Prior years 2 (3)   2
    209 288 95 142
  Capital profits:        
     Current 3   3  
  Tax for the year 212 288 98 142
   Foreign tax included above 25 12    
   Tax charge at normal rate of South African tax 250 1 082 171 981
   Adjusted for:        
      Non-taxable income (48) (54) (106) (100)
      Fair value adjustment of investment in Hulamin   (971)   (971)
      Assessed losses of foreign subsidiaries (3) (2)    
      Non-allowable expenditure 24 115 3 102
      Foreign tax rate variations (38) (11)    
      Rate change adjustment (deferred) (22)   (17)  
      Secondary tax on companies 44 127 44 127
      Capital gains 3 5 3 1
      Prior years 2 (3)   2
   Tax charge 212 288 98 142
   Normal rate of South African tax 28,0% 29,0% 28,0% 29,0%
   Adjusted for:        
      Non-taxable income (5,2) (1,4) (17,4) (2,9)
      Fair value adjustment of investment in Hulamin   (26,0)   (28,7)
      Assessed losses of foreign subsidiaries (0,4) (0,1)    
      Non-allowable expenditure 2,7 3,1 0,5 3,0
      Foreign tax rate variations (4,3) (0,3)    
      Rate change adjustment (deferred) (2,5)   (2,7)  
      Secondary tax on companies 4,9 3,4 7,2 3,7
      Capital gains 0,3 0,1 0,5  
      Prior years 0,3 (0,1)   0,1
   Effective rate of tax 23,8% 7,7% 16,1% 4,2%
  Normal tax losses of R17 million (2007 - R37 million) have been utilised to reduce deferred tax. No deferred tax asset has been raised in respect of the tax losses of foreign subsidiaries that may not be utilised in the short term or may expire in terms of applicable tax legislation.
   

22.  HEADLINE EARNINGS (Rmillion) Consolidated      
    2008 2007
  Profit attributable to shareholders 649 3 457
  Less after tax effect of: (66) (48)
     Profit on sale of land (22) (48)
     Profit on insurance claim (49)  
     Loss on disposal of other fixed assets 3  
    (68) (48)
     Tax charge on profit on insurance claim 3  
     Tax relief on loss on disposal of other fixed assets (1)  
  Reversal of fair value adjustment of Hulamin   (3 348)
  Headline earnings 583 61
       
  Headline earnings per share (cents)    
     Basic 565,6 58,1
     Diluted 554,2 56,8
       

23.  EARNINGS PER SHARE
  Earnings per share are calculated using the weighted average number of relevant ordinary shares and qualifying preferred 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 103 070 228 (2007 - 104 986 732). In respect of diluted earnings per share the weighted average number of shares is 105 224 655 (2007 - 107 336 780).
   

24.  DIVIDENDS (Rmillion) Consolidated     Company     
    2008 2007 2008 2007
  Paid:        
     Ordinary share capital        
        Final for previous year, paid 27 March 2008 - 160 cents (2007 - 350 cents) 165 373 165 373
        Interim for current year, paid 4 September 2008 - 160 cents (2007 - 150 cents) 165 155 165 155
           
     B ordinary share capital        
        Final for previous year, paid 27 March 2008 - 160 cents (2007 - 350 cents) 16   16  
        Interim for current year, paid 4 September 2008 - 160 cents (2007 - 150 cents) 16 15 16 15
           
     A preferred ordinary share capital        
        Interim for current year, paid 30 June 2008 - 203 cents (2007 - nil) 51   51  
        Final for current year, paid 31 December 2008 - 203 cents (2007 - 203 cents) 51 51 51 51
           
    464 594 464 594
     Less dividends relating to BEE treasury shares (128) (63) (26) (12)
    336 531 438 582
  The final ordinary dividend for the year ended 31 December 2008 of 150 cents per share declared on 19 February 2009 and payable on 26 March 2009 has not been accrued.
           

 

25. FINANCIAL RISK MANAGEMENT (Rmillion)        
  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.
           
  Categories of financial instruments Consolidated       Company    
    2008 2007 2008 2007
           
  Financial assets        
  Derivative instruments in designated hedge accounting relationships 2 12 2 12
  Unlisted shares at cost 268 267 265 265
  Loans and receivables at amortised cost 2 072 2 404 1 110 1 039
           
    2 342 2 683 1 377 1 316
           
  Financial liabilities        
  Derivative instruments in designated hedge accounting relationships 23 2 23 2
  Financial liabilities at amortised cost 4 490 2 867 3 231 1 857
  Non-recourse equity-settled BEE borrowings 792 812    
           
    5 305 3 681 3 254 1 859
           
  Risk management is recognised as being dynamic, evolving and integrated into the core of running the business. The approach to risk management in Tongaat Hulett includes being able to identify and describe / 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 a Tongaat Hulett Risk Committee level. Risks and mitigating actions are given relevant visibility at various appropriate forums throughout the organisation.
           
  In the normal course of its operations, Tongaat Hulett is inter alia exposed to capital, credit, foreign currency, interest, liquidity and commodity price risks. In order to manage these risks, Tongaat Hulett 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 risks and hedging activities. Tongaat Hulett does not speculate in or engage in the trading of derivative instruments. Since derivative instruments are utilised 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. The overall risk strategy remains unchanged from 2007.
           
  Capital risk management
  Tongaat Hulett's overall strategy around capital structure remains unchanged from 2007. Tongaat Hulett manages its capital to ensure that its operations are able to continue as a going concern while maximising the return to stakeholders through an appropriate debt and equity balance. The capital structure of Tongaat Hulett consists of debt, which includes borrowings, cash and cash equivalents and equity. It was reviewed in detail by the board in the corporate restructure process in 2007.
   
  Credit risk
  Financial instruments do not represent a concentration of credit risk because Tongaat Hulett 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.
   
  Past due trade receivables
  Included in trade receivables are debtors which are past the expected collection date (past due) at the reporting date and no provision has been made as there has not been a significant change in credit quality and the amounts are still considered recoverable. No collateral is held over these balances. A summarised age analysis of past due debtors is set out below.
                  Consolidated                  Company
    2008 2007 2008 2007
  Less than 1 month 32 74 26 16
  Between 1 to 2 months 10 12 10 11
  Between 2 to 3 months 47 24 1 2
  Greater than 3 months 317 115 2 2
           
  Total past due 406 225 39 31
           
  Provision for doubtful debts        
  Set out below is a summary of the movement in the provision for doubtful        
     debts for the year:        
     Balance at beginning of year 8 11 3 6
     Currency alignment 1      
     Amounts written off during the year (1) (4)   (4)
     Increase in allowance recognised in profit or loss 3 1 2 1
           
  Balance at end of year 11 8 5 3
           
  Foreign currency risk        
  In the normal course of business, Tongaat Hulett enters into transactions denominated in foreign currencies. As a result, Tongaat Hulett is subject to transaction and translation exposure from fluctuations in foreign currency exchange rates. A variety of instruments are used to minimise foreign currency exchange rate risk in terms of its risk management policy. In principle it is the policy to cover foreign currency exposure in respect of liabilities and purchase commitments and an appropriate portion of 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. Tongaat Hulett is not reliant on imported raw materials to any significant extent.
   
  Forward exchange contracts that constitute designated hedges of currency risk at year end are summarised as follows:
        Consolidated           Company        
        2008 2007     2008 2007
    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 dollar 9,37 6     9,37 6    
  Euro 13,08 1     13,08 1    
      7       7    
  Exports                
  US dollar 8,77 203 (19) 8 8,77 203 (19) 8
  Australian dollar 7,32 32 2   7,32 32 2  
      235 (17) 8   235 (17) 8
                   
  Net total   242 (17) 8   242 (17) 8
                   
  The hedges in respect of imports and exports are expected to mature within approximately one year.

The fair value is the estimated amount that would be paid or received to terminate the forward exchange contracts in arm's length transactions at the balance sheet date.
  Forward exchange contracts that do not constitute designated hedges of currency risk at year end are summarised as follows:
        Consolidated           Company        
        2008 2007     2008 2007
       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 dollar              10,40 5 (1) (1) 10,40 5 (1) (1)
  Euro 13,20 6     13,20 6    
                   
      11 (1) (1)   11 (1) (1)
                   
  Although not designated as a hedge for accounting purposes, these forward exchange contracts represent cover of existing foreign currency exposure.
   
  Tongaat Hulett has the following uncovered foreign receivables:
      Consolidated         Company        
    Foreign     Foreign    
    Amount 2008 2007 Amount 2008 2007
    (million) (Rmillion) (Rmillion) (million) (Rmillion) (Rmillion)
  US dollar 3 27 30 3 27 30
  Australian dollar 5 35   5 35  
      62 30   62 30
               
  The impact of a 10% strengthening or weakening of the Rand on the uncovered US dollar receivable will have a R3 million (2007 - R4 million) impact on profit or loss and a R2 million (2007 - R3 million) impact on equity. The impact of a 10% strengthening or weakening of the Rand on the uncovered Australian dollar receivable will have a R3 million (2007 - Rnil) impact on profit or loss and a R2 million (2007 - Rnil) impact on equity.
   
  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 Tongaat Hulett's substantial commodity requirements, commodity futures and options are used, including fixed and spot-defi ned forward sales contracts and call and put options.
   
  Tongaat Hulett Starch has secured its maize requirements for the current maize season to 31 May 2009 and a significant portion of its requirements for the year ending 31 May 2010 by means of unpriced procurement contracts and futures.
   
  At the year end the commodity futures contracts were:
        Consolidated          Company     
        2008 2007     2008 2007
       Tons Contract Fair Fair Tons Contract Fair Fair
      value value value   value value value
      (Rmillion) (Rmillion) (Rmillion)   (Rmillion) (Rmillion) (Rmillion)
  Futures - hedge accounted:                
  Maize futures sold 19 300 36 (3) 5 19 300 36 (3) 5
  Raw sugar futures purchased       (3)       (3)
  Raw sugar futures sold       1       1
        (3) 3     (3) 3
                   
  Period when cash flow expected to occur     2009 2008     2009 2008
  Period when expected to affect profit or loss     2009 2008     2009 2008
  Amount recognised in equity during the period     (9) 6     (9) 6
  Amount transferred from equity and recognised in profit or loss     (4) (3)     (4) (3)
                   
  Interest rate risk                
  Tongaat Hulett 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. Tongaat Hulett is also 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 through the cash management system, which enables Tongaat Hulett to maximise returns while minimising risks. The impact of a 50 basis point move in interest rates will have a R15 million (2007 - R8 million) effect on profit or loss and a R11 million (2007 - R5 million) impact on equity.
   
  Liquidity risk
  Tongaat Hulett manages its liquidity risk by monitoring forecast cash flows on a weekly basis. There are unutilised committed banking facilities of R755 million (2007 - R2,2 billion). Tongaat Hulett continues to meet the covenants associated with its long-term unsecured South African debt facility.
   
  Borrowings inclusive of interest projected at current interest rates:
                 
  2008 Weighted average Due within       Interest  
  Consolidated effective interest rate 1 year 1 to 2 years 2 to 5 years After 5 years adjustment Total
  Bank loans 12,9 1 407 253 661 899 (865) 2 355
  Foreign loans 17,7 169 13 26   (30) 178
  Other borrowings 13,4 442       (28) 414
  Financial lease liability 13,0 1 1     (1) 1
  Other non-interest bearing liabilities   1 533 2 5     1 540
  Net settled derivatives   23         23
  Total for Tongaat Hulett   3 575 269 692 899 (924) 4 511
                 
  Non-recourse equity-settled BEE borrowings   66 101 304 515 (194) 792
  Total including SPV debt   3 641 370 996 1 414 (1 118) 5 303

  2007 Weighted average Due within       Interest  
  Consolidated effective interest rate 1 year 1 to 2 years 2 to 5 years After 5 years adjustment Total
  Bank loans 12,2 943 59 158 438 (361) 1 237
  Foreign loans 18,0 114 10 31   (26) 129
  Other borrowings 12,1 178       (8) 170
  Financial lease liability 12,5   1 1   (1) 1
  Other non-interest bearing liabilities   1 330         1 330
  Net settled derivatives   2         2
  Total for Tongaat Hulett   2 567 70 190 438 (396) 2 869
                 
  Non-recourse equity-settled BEE borrowings   65 102 304 616 (275) 812
  Total including SPV debt   2 632 172 494 1 054 (671) 3 681
                 

26. PRINCIPAL SUBSIDIARY COMPANIES AND JOINT VENTURES (Rmillion)  
    Interest of Holding Company
    Shares Indebtedness
    2008 2007 2008 2007
     Tongaat Hulett Starch (Pty) Limited 15 15 22 (2)
     Tongaat Hulett Developments (Pty) Limited     (562) (248)
     Tongaat Hulett Estates (Pty) Limited        
     Tongaat Hulett Sugar Limited 1 186 487 1 262 897
     Tambankulu Estates Limited (Swaziland)        
     Acucareira de Mocambique, SARL (Mozambique) (85%)        
     Acucareira de Xinavane, SARL (Mozambique) (88%)        
  + Triangle Sugar Corporation Limited (Zimbabwe)        
  + Hippo Valley Estates Limited (Zimbabwe) (50,35%)        
     The Tongaat Group Limited 54 54 (73) (65)
    1 255 556 649 582
           
  + Not consolidated        
     Except where otherwise indicated, effective participation is 100 percent.
     A full list of all subsidiaries and joint ventures is available from the company secretary on request.

27.  GUARANTEES AND CONTINGENT LIABILITIES (Rmillion) Consolidated      Company      
    2008 2007 2008 2007
  Guarantees in respect of obligations of Tongaat Hulett and third parties 95 9 20 21
  Contingent liabilities 27 26 25 24
    122 35 45 45
           

28.  LEASES (Rmillion)                       Consolidated                           Company
    2008 2007 2008 2007
  Amounts payable under finance leases        
    Minimum lease payments due:        
       Not later than one year 1 1 1 1
       Later than one year and not later than five years 1 1 1 1
    2 2 2 2
     Less: future finance charges (1) (1) (1) (1)
     Present value of lease obligations 1 1 1 1
     Payable:        
       Later than one year and not later than five years 1 1 1 1
           
  Operating lease commitments, amounts due:        
      Not later than one year 10 9 10 8
      Later than one year and not later than five years 18 14 13 8
    28 23 23 16
     In respect of:        
       Property 11 12 6 5
       Plant and machinery 15 8 15 8
       Other 2 3 2 3
    28 23 23 16
           

29. CAPITAL EXPENDITURE COMMITMENTS (Rmillion)                       Consolidated                           Company
    2008 2007 2008 2007
  Contracted 587 539 35 44
  Approved but not contracted 114 796 80 239
    701 1 335 115 283
  Funds to meet future capital expenditure will be provided from retained net cash flows and debt financing.
   

30. RELATED PARTY TRANSACTIONS (Rmillion)
  During the year Tongaat Hulett, 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.
    Consolidated      Company        
    2008 2007 2008 2007
  Goods and services:        
     Transacted between operating entities within the company     5 5
     Between the company and its subsidiaries     44 11
     Transacted between subsidiaries within Tongaat Hulett 117 93    
     Sales to external related parties 138 141 138 141
     Paid to the Tongaat-Hulett Pension Fund 30 26 27 24
           
  Administration fees and other income:        
     Transacted between operating entities within the company     7 5
     Between the company and its subsidiaries     16 32
     Transacted between subsidiaries within Tongaat Hulett 57 42    
     Transacted with/between joint ventures within Tongaat Hulett 1 57    
     Paid to external related parties 3 3    
           
  Interest paid:        
     Transacted between operating entities within the company     48 27
     Between the company and its subsidiaries     56 4
     Transacted with/between joint ventures within Tongaat Hulett 9 6    
           
  Interest received:        
     Transacted between operating entities within the company     375 189
     Between the company and its subsidiaries     111 18
     Transacted between subsidiaries within Tongaat Hulett 47 26    
     Transacted with/between joint ventures within Tongaat Hulett 5 3    
           
  Sales of fixed assets:        
     Between the company and its subsidiaries     15  
           
  Loan balances:        
     Transacted between operating entities within the company     3 257 2 340
     Between the company and its subsidiaries     649 582
     External related parties 7 12 7 12
           
  Dividends received:        
     Between the company and its subsidiaries     329 300
     Transacted between subsidiaries within Tongaat Hulett 200 64    
           
  Other related party information:        
     Export partnership - refer to note 3        
     Total dividends paid - refer to note 24        
     Directors - refer to notes 32 and 33        
     Tongaat Hulett Developments is a guarantor on Tongaat Hulett Limited's South African long-term unsecured loan facility