Annual Financial Statements


Financial Statements for the year ended 31 March 2010


Notes to the Annual Financial Statements (21 - 30)

21. TAX (Rmillion) Consolidated Company
  15 months to 12 months to 15 months to 12 months to
  31 March 31 December 31 March 31 December
  2010 2008 2010 2008
  Earnings before capital profits:        
    Current 331 196 196 75
    Deferred (16) (11) (134) (7)
    Rate change adjustment (deferred) (154) (22)   (17)
    Secondary tax on companies 39 44 39 44
    Prior periods 8 2 12  
  208 209 113 95
  Capital profits:        
    Current   3   3
  Tax for the period 208 212 113 98
  Foreign tax included above 36 25    
  Tax charge at normal rate of South African tax 906 250 124 171
  Adjusted for:        
    Non-taxable income (19) (48) (64) (106)
    Zimbabwe consolidation take-on gain (551)      
    Assessed losses of foreign subsidiaries (20) (3)    
    Non-allowable expenditure 27 24 2 3
    Foreign tax rate variations (28) (38)    
    Rate change adjustment (deferred) (154) (22)   (17)
    Secondary tax on companies 39 44 39 44
    Capital gains   3   3
    Prior periods 8 2 12  
  Tax charge 208 212 113 98
  Normal rate of South African tax 28,0% 28,0% 28,0% 28,0%
  Adjusted for:        
    Non-taxable income (0,6) (5,2) (14,5) (17,4)
    Zimbabwe consolidation take-on gain (17,0)      
    Assessed losses of foreign subsidiaries (0,6) (0,4)    
    Non-allowable expenditure 0,8 2,7 0,5 0,5
    Foreign tax rate variations (0,9) (4,3)    
    Rate change adjustment (deferred) (4,8) (2,5)   (2,7)
    Secondary tax on companies 1,2 4,9 8,8 7,2
    Capital gains   0,3   0,5
    Prior periods 0,3 0,3 2,7  
  Effective rate of tax 6,4% 23,8% 25,5% 16,1%
 
Normal tax losses of R537 million (31 December 2008 - R17 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
    15 months to 12 months to
    31 March 31 December
    2010 2008
  Profit attributable to shareholders 2 898 649
  Less Zimbabwe consolidation take-on gain (1 969)  
  Less after tax effect of: (71) (66)
    Capital profit on sale of land (52) (22)
    Capital profit on insurance claim (13) (49)
    Fixed assets and other disposals (8) 3
    (73) (68)
    Tax charge on profit on insurance claim 2 3
    Tax relief on loss on disposal of other fixed assets   (1)
  Headline earnings 858 583
  Headline earnings per share (cents)    
    Basic 826,5 565,6
    Diluted 810,0 554,2
       
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 15 month period to 31 March 2010 is 103 810 807 (31 December 2008 - 103 070 228). In respect of diluted earnings per share the weighted average number of shares is 105 922 176 (31 December 2008 - 105 224 655).
 
24. DIVIDENDS (Rmillion) Consolidated Company
    15 months to 12 months to 15 months to 12 months to
    31 March 31 December 31 March 31 December
    2010 2008 2010 2008
  Ordinary share capital        
  Final for previous year, paid 26 March 2009 -
150 cents (31 December 2008 - 160 cents)
155 165 155 165
  Interim for current period, paid 17 September 2009 -
100 cents (31 December 2008 - 160 cents)
103 165 103 165
  B ordinary share capital        
  Final for previous year, paid 26 March 2009 -
150 cents (31 December 2008 - 160 cents)
15 16 15 16
  Interim for current period, paid 17 September 2009 -
100 cents (31 December 2008 - 160 cents)
10 16 10 16
  A preferred ordinary share capital        
  Interim for current period, paid 30 June 2009 -
203 cents (30 June 2008 - 203 cents)
51 51 51 51
  Final for current period, paid 31 December 2009 -
203 cents (31 December 2008 - 203 cents)
51 51 51 51
  Accrued for three months to 31 March 2010 -
102 cents (31 March 2009 - nil)
25   25  
    410 464 410 464
  Less dividends relating to BEE treasury shares (146) (128) (19) (26)
    264 336 391 438
 
The final ordinary dividend for the 15 month period ended 31 March 2010, being a scrip distribution with a cash alternative of 175 cents per share, declared on 26 May 2010 and payable on 22 July 2010 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
    31 March 31 December 31 March 31 December
    2010 2008 2010 2008
  Financial assets        
  Derivative instruments in designated hedge accounting relationships 9 2 9 2
  Unlisted shares at cost 10 268 2 265
  Loans and receivables at amortised cost 1 976 2 072 792 1 110
    1 995 2 342 803 1 377
           
  Financial liabilities        
  Derivative instruments in designated hedge accounting relationships 3 23 3 23
  Financial liabilities at amortised cost 5 229 4 490 4 193 3 231
  Non-recourse equity-settled BEE borrowings 787 792    
    6 019 5 305 4 196 3 254
 
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 exposed to inter alia 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 (FECs) 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 previous years.

Capital risk management
Tongaat Hulett’s overall strategy around capital structure remains unchanged from previous years and is continually reviewed in budgeting and business planning processes. 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.

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
    31 March 31 December 31 March 31 December
    2010 2008 2010 2008
  Less than 1 month 23 32 17 26
  Between 1 to 2 months 26 10 16 10
  Between 2 to 3 months 9 47 4 1
  Greater than 3 months 416 317 1 2
  Total past due 474 406 38 39
  Provision for doubtful debts        
  Set out below is a summary of the movement in the provision for doubtful debts for the period:        
    Balance at beginning of period 11 8 5 3
    Currency alignment (1) 1    
    Amounts written off during the period   (1)    
    Increase in allowance recognised in profit or loss 8 3 2 2
    Balance at end of period 18 11 7 5
 
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 period end. All foreign exchange contracts are supported by underlying transactions. Tongaat Hulett is not reliant on imported raw materials to any significant extent. The fair value of the forward exchange contracts was established with reference to quoted prices and are categorised as Level 1 under the fair value hierarchy.

Forward exchange contracts that constitute designated hedges of currency risk at period end are summarised as follows:
 
    Consolidated   Company
      31 March 31 December     31 March 31 December
      2010 2008     2010 2008
  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 7,64 10     7,64 10    
Exports                
US dollar 7,98 175 8 (19) 7,98 175 8 (19)
Australian dollar 7,13 22 1 2 7,13 22 1 2
    197 9 (17)   197 9 (17)
Net total   207 9 (17)   207 9 (17)

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 statement of financial position date.

Forward exchange contracts that do not constitute designated hedges of currency risk at period end are summarised as follows:

    Consolidated   Company
      31 March 31 December     31 March 31 December
      2010 2008     2010 2008
  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 7,74 3   (1) 7,74 3   (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 31 March 31 December   Foreign 31 March 31 December
  amount 2010 2008   amount 2010 2008
  (million) (Rmillion) (Rmillion)   (million) (Rmillion) (Rmillion)
US dollar 2 16 27   2 14 27
Australian dollar 3 18 35   3 18 35
New Zealand dollar   1          
    35 62     32 62

The impact of a 10% strengthening or weakening of the Rand on the uncovered Australian dollar receivable will have a R2 million (31 December 2008 - R3 million) impact on profit before tax and a R1 million (31 December 2008 - R2 million) impact on equity. The impact of a 10% strengthening or weakening of the Rand on the uncovered US dollar receivable will have a R2 million (31 December 2008 - R3 million) impact on profit before tax and a R1 million (31 December 2008 - R2 million) impact on equity. The impact of a 10% strengthening or weakening of the Rand on the uncovered New Zealand dollar receivable will have a R0,1 million (31 December 2008 - nil) impact on profit before tax and a R0,1 million (31 December 2008 - nil) 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-defined forward sales contracts and call and put options.

The starch operation has secured its maize requirements for the current maize season to 31 May 2010 and a significant portion of its requirements for the year ending 31 May 2011 by using a combination of unpriced procurement contracts and purchases and sales of maize futures.

The fair value of the commodity futures contracts which are set out below, was established with reference to quoted prices and are categorised as Level 1 under the fair value hierarchy.

  Consolidated   Company
      31 March 31 Dec       31 March 31 Dec
      2010 2008       2010 2008
  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 3 500 4 (3) (3)   3 500 4 (3) (3)
Maize futures purchased 6 800 8       6 800 8    
      (3) (3)       (3) (3)
Period when cash flow expected to occur 2010/11 2009       2010/11 2009
When expected to affect profit 2010/11 2009       2010/11 2009
Amount recognised in equity during the period 5 (9)       5 (9)
Amount transferred from equity and recognised in profit or loss 10 (4)       10 (4)

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 R18 million (31 December 2008 - R15 million) effect on profit before tax and a R13 million (31 December 2008 - R11 million) impact on equity.

Liquidity risk
Tongaat Hulett manages its liquidity risk by monitoring forecast cash flows on a weekly basis. There are unutilised established banking facilities in excess of R1 billion (31 December 2008 - R755 million). 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:

Consolidated Weighted
average
effective
interest
rate (%)
Due
within 1 year
1 to 2 years 2 to 5
years
After 5
 years
Interest
adjustment
Total
31 March 2010              
Bank loans 8,2 1 909 228 1 225   (521) 2 841
Foreign loans 10,2 315 6 14 4 (33) 306
Other borrowings 8,6 413       (17) 396
Financial lease liability 8,9 1 9 6   (2) 14
Other non-interest bearing liabilities   1 671 2       1 673
Net settled derivatives   3         3
Total for Tongaat Hulett   4 312 245 1 245 4 (573) 5 233
Non-recourse equity- settled BEE borrowings   93 81 760   (147) 787
Total including SPV debt   4 405 326 2 005 4 (720) 6 020
31 December 2008              
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
                 
26.  PRINCIPAL SUBSIDIARY COMPANIES AND JOINT VENTURES (Rmillion)
    Interest of Holding Company
    Equity Indebtedness
    31 March 31 December 31 March 31 December
    2010 2008 2010 2008
           
  Tongaat Hulett Starch (Pty) Limited 15 15 25 22
  Tongaat Hulett Developments (Pty) Limited     (440) (562)
  Tongaat Hulett Estates (Pty) Limited        
  Tongaat Hulett Sugar Limited 2 664 1 186 1 437 1 262
  Tambankulu Estates Limited (Swaziland)        
  Tongaat Hulett Acucareira de Mocambique, SA (Mozambique) (85%)        
  Tongaat Hulett Acucareira de Xinavane, SA (Mozambique) (88%)        
  Tongaat Hulett Acucar Limitada (Mozambique)        
  Triangle Sugar Corporation Limited (Zimbabwe)        
  Hippo Valley Estates Limited (Zimbabwe) (50,3%)        
  The Tongaat Group Limited 54 54 (59) (73)
    2 733 1 255 963 649
 
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. SUBSIDIARIES CONSOLIDATED (Rmillion)        
  Details of Zimbabwe subsidiaries consolidated and their cash flow effects at the beginning of 2009 are summarised below.        
           
  Property, plant, equipment and investments 3 555      
  Growing crops 342      
  Inventories 255      
  Trade and other receivables 101      
  Cash 69      
  Trade and other payables (182)      
  Provisions (289)      
  Deferred tax (1 038)      
  Borrowings (33)      
  Minority interest (755)      
  Net assets consolidated 2 025      
  Goodwill arising on consolidation 207      
    2 232      
  Zimbabwe consolidation take-on gain (1 969)      
  Investment in subsidiaries 263      
           
28. GUARANTEES AND CONTINGENT LIABILITIES (Rmillion)
    Consolidated Company
    31 March 31 December 31 March 31 December
    2010 2008 2010 2008
  Guarantees in respect of obligations of Tongaat Hulett and third parties 134 95 2 20
  Contingent liabilities 14 27 14 25
    148 122 16 45
           
29. LEASES (Rmillion)        
    Consolidated Company
    31 March 31 December 31 March 31 December
    2010 2008 2010 2008
  Amounts payable under finance leases        
  Minimum lease payments due:        
    Not later than one year 3 1 1 1
    Later than one year and not later than five years 9 1 1 1
    Later than five years 6      
    18 2 2 2
  Less: future finance charges (4) (1) (1) (1)
    Present value of lease obligations 14 1 1 1
  Payable:        
    Not later than one year 1      
    Later than one year and not later than five years 7 1 1 1
    Later than five years 6      
           
    14 1 1 1
  Operating lease commitments, amounts due:        
    Not later than one year 14 10 13 10
    Later than one year and not later than five years 17 18 16 13
    31 28 29 23
  In respect of:        
    Property 18 11 16 6
    Plant and machinery 11 15 11 15
    Other 2 2 2 2
    31 28 29 23
           
30. CAPITAL EXPENDITURE COMMITMENTS (Rmillion)        
    Consolidated Company
    31 March 31 December 31 March 31 December
    2010 2008 2010 2008
  Contracted 234 587 43 35
  Approved but not contracted 118 114 28 80
    352 701 71 115
 
Funds to meet future capital expenditure will be provided from retained net cash flows and debt financing.