Annual Financial Statements


Financial Statements for the year ended 31 March 2010


Notes to the Annual Financial Statements (30 - 35)


31. RELATED PARTY TRANSACTIONS (Rmillion)
  During the period 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
    15 months to 12 months to 15 months to 12 months to
    31 March 31 December 31 March 31 December
    2010 2008 2010 2008
  Goods and services:        
    Transacted between operating entities within the company     7 5
    Between the company and its subsidiaries     326 44
    Transacted between subsidiaries within Tongaat Hulett 335 117    
    Sales to external related parties 2 138   138
    Tongaat-Hulett Pension Fund contribution cost 65 30 57 27
  Administration fees and other income:        
    Transacted between operating entities within the company     16 7
    Between the company and its subsidiaries     45 16
    Transacted between subsidiaries within Tongaat Hulett 132 57    
    Transacted with/between joint ventures within Tongaat Hulett 7 1    
    Paid to external related parties 4 3    
  Interest paid:        
    Transacted between operating entities within the company     39 48
    Between the company and its subsidiaries     12 56
    Transacted with/between joint ventures within Tongaat Hulett 6 9    
  Interest received:        
    Transacted between operating entities within the company     496 375
    Between the company and its subsidiaries     90 111
    Transacted between subsidiaries within Tongaat Hulett 48 47    
    Transacted with/between joint ventures within Tongaat Hulett 3 5    
  Sales of fixed assets:        
    Between the company and its subsidiaries     3 15
  Loan balances:        
    Transacted between operating entities within the company     4 305 3 257
    Between the company and its subsidiaries     962 649
    Pension Fund Loan - Employer Surplus Account 89   89  
    External related parties   7   7
  Dividends received:        
    Between the company and its subsidiaries     137 329
    Transacted between subsidiaries within Tongaat Hulett 130 200    
  Other related party information:        
    Total dividends paid to the holding company and other shareholders - refer to note 24
    Directors - refer to notes 33 and 34
    Tongaat Hulett Developments is a guarantor on Tongaat Hulett Limited’s South African long-term unsecured loan facility.
             
32. RETIREMENT BENEFITS
  Pension and Provident Fund Schemes
Tongaat Hulett 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 Tongaat Hulett implemented scheme or of various designated industry or state schemes. The Tongaat Hulett 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 Tongaat Hulett. The scheme assets are administered by boards of trustees, each of which includes elected employee representatives.

Defined Benefit Pension Scheme
The Tongaat-Hulett Pension Fund (the Fund) is a defined benefit scheme in South Africa and includes employees of Hulamin Limited. 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 scheme as at 31 December 2007 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 Act was promulgated. This Act required the Fund to submit a plan for the apportionment on a fair basis to the employer and past and current members of the Fund of the actuarial surplus as at 31 December 2001. The 2001 apportionment plan was approved by the Financial Services Board in May 2007. During 2008 and 2009/10 Tongaat Hulett became unconditionally entitled to its share of the 2001 employer surplus account and to its share of the 2007 surplus respectively and these amounts were recognised as an asset by Tongaat Hulett.

The manner in which the Fund proceeds following the unbundling of Hulamin from Tongaat Hulett and the split between the employers participating in the Fund has yet to be finalised and/or become unconditional. Consequently, no further surplus apportionment has been recognised. An actuarial valuation of liabilities, based on the existing benefits, carried out as at 31 December 2009 in accordance with IAS 19 showed the present value of obligations to be adequately covered by the fair value of the scheme assets.
    31 December 31 December
    2009 2008
    Rmillion Rmillion
  Details of the valuation of the Fund (100%) are as follows:    
  Fair value of plan assets    
  Balance at 1 January 2009 5 537 6 544
  Expected return on scheme assets 395 520
  Employer contributions 87 52
  Members’ contributions 46 41
  Benefits paid (289) (549)
  Net member transfers (12) (24)
  Actuarial gain/(loss) 444 (1 047)
  Balance at 31 December 2009 6 208 5 537
  Present value of defined benefit obligation    
  Balance at 1 January 2009 4 455 4 444
  Current service cost 134 118
  Interest cost 319 350
  Members’ contributions 46 41
  Benefits paid (289) (549)
  Net member transfers (12) (24)
  Actuarial loss 109 75
  Balance at 31 December 2009 4 762 4 455
  Fund assets less member liabilities, before reserves 1 446 1 082
  Asset information    
  Equities 3 812 3 542
  Fixed interest bonds 926 751
  Property 106 101
  Cash 1 364 1 143
    6 208 5 537
  Included in the assets of the scheme are ordinary shares held in Tongaat Hulett Limited, stated at fair value 148 95
  Actual return on scheme assets 839 (527)
  The principal actuarial assumptions are:    
  Discount rate 9,25% 7,25%
  Salary cost and pension increase 6,25% 4,25%
  Expected rate of return on assets 7,25% 8,25%
  Experience gains and (losses) on:    
  Plan liabilities (106) (137)
  Percentage of the present value of the plan liabilities 2,2% 3,1%
  Plan assets 444 (1 047)
  Percentage of plan assets 7,2% (18,9%)
  Estimated contributions payable in the next financial year 93 58
 
Basis used to determine the rate of return on assets
The expected rate of return on assets has been calculated using the discount rate at the beginning of the period, which corresponds to that used in the previous valuation. This is a reasonably conservative approach, adopted on the basis that the additional returns anticipated on certain other asset classes in which the Fund is invested (eg. equities) can only be achieved with increased risk.

Defined Contribution Pension and Provident Schemes|
The latest audited financial statements of the defined contribution schemes including the scheme located in Swaziland reflect a satisfactory state of affairs. Contributions of R27 million were expensed during the period (31 December 2008 - R22 million).

Zimbabwe Pension Funds
The Zimbabwe operations’ post-retirement provisions have been accounted for on consolidation, as reflected in note 27. The basis for determining the provisions has taken into account relevant assumptions which reflect the current situation in Zimbabwe, which is evolving.

Post-Retirement Medical Aid Benefits
In the South African operations, the obligation 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 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. In Mozambique, Acucareira de Xinavane subsidises the medical contributions in respect of its pensioners. Included in the consolidated amounts for the current period are the post-retirement medical benefits for the Zimbabwe employees.

The unfunded liability for post-retirement medical aid benefits is determined actuarially each year and comprises:
 
    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
    Rmillion Rmillion Rmillion Rmillion
  Amounts recognised in the statement of financial position:        
  Present value of unfunded obligations 346 281 289 281
  Unrecognised actuarial losses (42) (58) (53) (58)
  Net liability 304 223 236 223
  The liability is reconciled as follows:        
  Net liability at beginning of period 223 209 223 209
  Subsidiaries consolidated 77      
  Currency alignment (17) 30 36  
  Net expense recognised in income statement 46 (16) (23) 30
  Contributions (25)      
  Net liability at end of period 304 223 236 223
  Amounts recognised in the income statement:        
  Service costs 6 2 3 2
  Interest costs 33 20 25 20
  Net actuarial losses recognised 7 8 8 8
    46 30 36 30
  The principal actuarial assumptions applied are:        
  Discount rate        
    South Africa 9,00% 7,25% 9,00% 7,25%
    Mozambique 11,0%      
    Zimbabwe 15,0%      
  Health care cost inflation rate        
    South Africa 6,50% 5,00% 6,50% 5,00%
    Mozambique 8,0%      
    Zimbabwe 13,5%      
  Sensitivity of healthcare cost trend rates:        
  1% increase in trend rate - effect on the aggregate of the service and interest costs 2 3 1 3
  1% increase in trend rate - effect on the obligation 41 33 33 33
  1% decrease in trend rate - effect on the aggregate of the service and interest costs 1 2   2
  1% decrease in trend rate - effect on the obligation 34 28 27 28
  Estimated contributions payable in the next financial year 22 18 20 18
  Experience gains / (losses):        
  On plan liabilities 3 (22) (9) (22)
  Percentage of the present value of the plan liabilities 0,9% (7,8%) (3,1%) (7,8%)
 
Retirement Gratuities
Tongaat Hulett 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 benefit is applicable to employees in the South African and Zimbabwean operations. The unfunded liability for retirement gratuities which is determined actuarially each year comprises:
 
    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
    Rmillion Rmillion Rmillion Rmillion
  Amounts recognised in the statement of financial position:        
  Present value of unfunded obligations 155 67 71 67
  Unrecognised actuarial losses (10) (12) (10) (12)
  Net liability 145 55 61 55
  The liability is reconciled as follows:        
  Net liability at beginning of period 55 51 55 51
  Subsidiaries consolidated 105      
  Currency alignment (23)      
  Net expense recognised in income statement 16 9 11 9
  Payments made (8) (5) (5) (5)
  Net liability at end of period 145 55 61 55
  Amounts recognised in the income statement:        
  Service costs 7 3 4 3
  Interest costs 7 5 6 5
  Net actuarial losses recognised 2 1 1 1
    16 9 11 9
  The principal actuarial assumptions applied are:        
  Discount rate        
    South Africa 9,00% 7,25% 9,00% 7,25%
    Zimbabwe 15,0%      
  Salary inflation rate        
    South Africa 6,50% 5,00% 6,50% 5,00%
    Zimbabwe 12,5%      
  Estimated contributions payable in the next financial year 11 5 4 5
  Experience losses:        
  On plan liabilities 2 9 2 9
  Percentage of the present value of the plan liabilities 1,3% 13,4% 2,8% 13,4%
           
33. DIRECTORS’ EMOLUMENTS AND INTERESTS(R000)
  Directors’ remuneration
Remuneration reported below is for the current 15 month period while the comparative is for a 12 month period.

The directors’ remuneration for the15 month period ended 31 March 2010 was as follows:
 
            Retirement  
        Cash   and medical  
        Package Bonus contributions Total
  Executive directors:            
  B G Dunlop     3 629 1 600 408 5 637
  M H Munro     3 306 1 508 391 5 205
  P H Staude     6 407 3 850 686 10 943
        13 342 6 958 1 485 21 785
 
Bonuses are reported to match the amount payable to the applicable financial period.

The directors’ remuneration for the 12 months ended 31 December 2008 was as follows:
 
            Retirement  
        Cash   and medical  
        Package Bonus contributions Total
  Executive directors:            
  B G Dunlop     2 541 1 164 287 3 992
  M H Munro     2 290 1 065 271 3 626
  P H Staude     4 430 2 746 474 7 650
        9 261 4 975 1 032 15 268
 
Bonuses are reported to match the amount payable to the applicable financial period.

Share incentive gains on awards exercised and settled
          15 months to 12 months to
          31 March 31 December
          2010 2008
  Executive directors:          
  B G Dunlop       3 314 710
  M H Munro       768 563
  P H Staude       5 132 1 789
          9 214 3 062
    15 months to 31 March 2010 12 months to 31 December 2008
    Fees Other Total Fees Other Total
  Non-executive directors:            
  P M Baum (to 17 August 2009) 114 46 160 163 65 228
  E le R Bradley (to 29 April 2009) 61 84 145 163 228 391
  F Jakoet 227 143 370 41 82 41
  J John 227 197 424 163   245
  R P Kupara (from 8 October 2009) 87   87      
  J B Magwaza 601 64 665 163   163
  A A Maleiane (from 23 November 2009) 65   65      
  T V Maphai 227   227 41   41
  M Mia 227 322 549 163 277 440
  N Mjoli-Mncube 227 191 418 41   41
  T H Nyasulu 227   227 163   163
  C M L Savage (to 29 April 2009) 197 24 221 550 65 615
  C B Sibisi 227 64 291 163   163
  R H J Stevens 227 6 233 163 40 203
  J G Williams (to 17 August 2009) 114   114 163   163
    3 055 1 141 4 196 2 140 757 2 897
  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 period ended 31 March 2010.

Interest of directors of the company in share capital
The aggregate holdings as at 31 March 2010 of those directors of the company holding issued ordinary shares of the company are detailed below. Holdings are beneficial except where indicated otherwise.
    31 March 2010 31 December 2008
    Direct Indirect Direct Indirect
    shares shares shares shares
  Executive directors:        
  B G Dunlop 46 145   17 384  
  M H Munro 32 320   19 063  
  P H Staude 132 606   78 391  
    211 071   114 838  
  Non-executive directors:        
  J B Magwaza 11 901   5 501  
  T V Maphai 600      
  R H J Stevens 590   590  
  Directors who retired/resigned during the period     22 923 177 487
    13 091   29 014 177 487
           
34. EMPLOYEE SHARE INCENTIVE SCHEMES
  The adoption of IFRS 2 Share-based Payment (IFRS 2) in 2005 required that all awards made after 7 November 2002 be accounted for in the financial statements of the company. IFRS 2 has therefore 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).

Details of awards in terms of the company’s share incentive schemes are as follows:

As a result of the unbundling of Hulamin, participants in these share schemes who had not exercised their rights at the unbundling date converted their existing Tongaat-Hulett Group Limited instruments into two components, a Tongaat Hulett Limited component and a Hulamin Limited component, as detailed in the 2007 Annual Report. The obligation to settle these share schemes is in accordance with the following principles, which are in accordance with the Unbundling Agreement. Tongaat Hulett is obliged to settle all benefits under these share schemes for its own employees only, using Tongaat Hulett shares. It will settle the outstanding share scheme instruments that arise after the award adjustments for its own employees, by purchasing Tongaat Hulett shares in the market, or by issuing Tongaat Hulett shares. The benefit for the Hulamin component will be determined with reference to the Hulamin share price and the Tongaat Hulett component with respect to the Tongaat Hulett share price. Benefits arising from the Hulamin component will be settled using Tongaat Hulett shares.

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.

The option price and number of unexercised options after the unbundling of Hulamin were apportioned into a Tongaat Hulett component (Tongaat Hulett) and a Hulamin component (Hulamin), as detailed in the 2007 Annual Report.



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The weighted average fair value costing of the combined Tongaat Hulett and Hulamin components of the outstanding share options granted in 2003 and 2004, determined using the binomial tree valuation model, was R11,14 per share and R16,06 per share respectively (31 December 2008 - R11,14 and R16,06).

No awards have been made since 21 April 2004 under the original share option schemes, which were replaced by share schemes based on equity-settled share appreciation rights, conditional shares and a deferred annual bonus plan.

The estimated fair value costing of these outstanding share appreciation rights was determined using the binomial tree valuation model and non-market performance conditions, based on the following significant inputs:

Exercise price
Expected option life
Risk-free interest rate
114 months (assume contractual plus a leaving percentage of 5%).
 
Risk-free interest rate 9,84%
 
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 Tongaat Hulett component: R32,85 (31 December 2008 - R32,39) and Hulamin component R10,29 (31 December 2008 - R9,91).
 
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.
 
Weighted average remaining life:  
   - Expected 34 months (31 December 2008 - 44 months).
   - Contractual 120 months.

Share Appreciation Right 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 Tongaat Hulett performance levels over a performance period.

The grant price and number of unexercised rights after the unbundling of Hulamin were apportioned into a Tongaat Hulett component and a Hulamin component, as detailed in the 2007 Annual Report.



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The estimated fair value costing of these outstanding share appreciation rights was determined using the binomial tree valuation model and non-market performance conditions, based on the following significant inputs:

Exercise price 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 2009 award : 7,66% (2008 award: 8,75%, 2007 award: 8,19%, 2006 award: 7,22%, 2005 award: 8,09%).
 
Expected volatility Expected volatility of 28% (2008 and 2007: 27% and 2006 and 2005: 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 3,5% was used for the 2009 award (2008 and 2007 awards: 3,44%, 2006 award: 4,00%, 2005 award: 3,92%).
 
Weighted average share price As above.
 
Expected early exercise Early exercise is taken into account on an expectation basis.
 
Time constraints Three years from grant date.
 
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.
 
Estimated fair value per right at grant date 2009 award : R12,54 (2008 award: R16,93, 2007 award: R15,97, the combined Tongaat Hulett and Hulamin components: 2006 award: R18,11 and 2005 award: R13,88).
 
Weighted average remaining life:  
- Expected 2009 award: 74 months (2008 award: 61 months, 2007 award: 53 months, 2006 award: 37 months and 2005 award: 25 months).
- Contractual 84 months.

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.

The issue price and number of unexercised conditional awards after the unbundling of Hulamin were apportioned into a Tongaat Hulett component and a Hulamin component as detailed in the 2007 Annual Report.



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The estimated fair value costing of these outstanding conditional share awards was determined using the Monte Carlo Simulation model and non-market performance conditions, based on the following significant inputs:
 
Exercise price 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 2009 award: 5,77% (2008 award: 9,22%, 2007 award: 8,81% and 2006 award: 7,01%).
 
Expected volatility Expected volatility of 26,73% for the 2009 award (2008 award: 23,46%, 2007 award: 24,49% and 2006 award: 25,60%) 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 3,50% was used for the 2009 award (2008 award: 3,56%, 2007 award: 3,50% and 2006 award: 3,92%).
 
Weighted average share price As above.
 
Expected early exercise Early exercise is taken into account on an expectation basis.
 
Time constraints Three years from grant date.
 
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).
 
Estimated fair value per conditional
award at grant date
2009 award: R40,76 (2008 award: R56,82, 2007 award: R46,28 and the combined Tongaat Hulett and Hulamin components: 2006 award: R39,78).
 
Weighted average remaining life:  
- Expected 2009 award: 26 months (2008 award: 13 months and 2007 award: 5 months).
- Contractual 36 months.
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.
 
      Number of Conditional Conditional Number of
      conditional awards awards conditional
  Expiring Issue price awards at granted in settled in awards at
  three years from Rand 31 Dec 2008 2009/10 2009/10 31 March 2010
  2 March 2007 90,27 21 537   21 537  
  1 March 2008 88,75 28 936     28 936
  2 March 2009 74,72   46 586   46 586
  3 March 2010 97,32   39 651   39 651
      50 473 86 237 21 537 115 173
 
The estimated fair value costing of the outstanding deferred bonus share awards was based on the following significant inputs:

 
Share price at grant date The price at which the deferred bonus share is issued, 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 As above.
 
Expected early exercise Early exercise is taken into account on an expectation basis.
 
Time constraints Three years from grant date.
 
Performance (vesting) conditions There are no performance (vesting) conditions other than the passage of time.
 
Nonketperformance conditions No non-market conditions.
 
Market performance conditions No market conditions.
 
Estimated fair value per deferred bonus share at grant date 2010 award: R78,34 and 2009 award: R60,69 (2008 award: R71,33 and 2007 award: R67,53).
 
Weighted average remaining life:  
- Expected 2010 award: 35 months and 2009 award: 23 months (2008 award: 11 months and 2007 award: 4 months).
- Contractual 36 months.

The deferred bonus shares were purchased by the participating employees on 2 March 2009 in respect of the 2009 award and on 3 March 2010 in respect of the 2010 award (2008 award: purchased 1 March 2008 and 2007 award: purchased 3 August 2007).

Interest of directors of the company in share-based instruments

The interest of the directors in share options of the company are shown in the table below:

The Original Share Option Schemes

The option price and number of unexercised options after the unbundling of Hulamin were apportioned into a Tongaat Hulett component and a Hulamin component as detailed in the 2007 Annual Report.




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* The non-executive director’s share options were awarded when he was an executive director more than seven years ago.

80 000 Tongaat Hulett options and 140 000 Hulamin options relating to a director who retired during the year are excluded from the opening balance.

The interest of the directors in other share-based instruments of the company are shown in the table below:

Share Appreciation Right Scheme 2005
The grant price and number of unexercised rights after the unbundling of Hulamin were apportioned into a Tongaat Hulett component and a Hulamin component, as detailed in the 2007 Annual Report.



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Long Term Incentive Plan 2005
The issue price and number of unexercised conditional awards after the unbundling of Hulamin were apportioned into a Tongaat Hulett component and a Hulamin component as detailed in the 2007 Annual Report.



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The interest of the directors in other share-based instruments of the company are shown in the table below:

Deferred Bonus Plan 2005


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The deferred bonus shares were purchased by the participating employees on 2 March 2009 in respect of the 2009 award and on 3 March 2010 in respect of the 2010 award (2008 award: purchased 1 March 2008 and 2007 award: purchased 3 August 2007).

The share awards were made and exercised at various times and the average share price for the period was R87,65 (31 December 2008 : R77,80).

The gains made by directors are reflected in note 33 under Directors’ Emoluments and Interests.

35.  BEE EMPLOYEE SHARE OWNERSHIP PLANS
  The 7% BEE employee transaction comprises the Employee Share Ownership Plan (ESOP) and the Management Share Ownership Plan (MSOP).

The ESOP scheme consists of a share appreciation right scheme and participants share in 50% of the dividend payable to ordinary shareholders. The MSOP scheme consists of two components, namely a share appreciation right scheme and a share grant scheme.

The ESOP Trust and MSOP Trust were established to acquire and hold Tongaat Hulett Limited shares for the benefit of designated employees. Tongaat Hulett Limited and its subsidiaries have made contributions to the MSOP Trust and the ESOP Trust (refer to note 3). Due to these shares having specific repurchase rights at maturity (five years from grant date), they are a separate class of restricted shares which, other than for the repurchase terms, rank paripassu with ordinary shares and become ordinary shares on repurchase.

The number of shares repurchased at maturity is calculated such that the market value of the repurchased shares will be equal to :
  • The grant price of the shares allocated, plus the value of cash dividends paid to ESOP participants;
  • 80% of the market value (at the outset) of the shares issued in terms of the share appreciation right component of the MSOP;
  • Rnil in respect of the share grant component of the MSOP ; and
  • The Trusts will distribute the remaining Tongaat Hulett shares to the beneficiaries.

Under the share appreciation right scheme, participating employees are awarded the right to receive shares equal in value to the difference between the exercise price which will be equal to the grant price plus the aggregate of all cash dividends received (in the instance of the ESOP) and the market value at maturity of the scheme. The employees therefore participate in the share price appreciation in Tongaat Hulett. Under the share grant scheme, participating employees were granted the right to obtain ordinary shares in Tongaat Hulett on vesting. The value of both the MSOP share appreciation scheme and the MSOP share grant scheme are capped at a level of 10% compounded growth per year.

Employee Share Ownership Plan - Share Appreciation Right Scheme

  Grant
date 
Estimated
fair value
per right
Rand
Number
of shares
issued at
31 March 2010
  Number of
rights allocated at
31 December 2008
Number
of rights
allocated
in 2009/10
Number
of rights
forfeited
in 2009/10
Number
of rights
allocated at
31 March 2010
  1 August 2007 28,90 5 422 829   3 913 575   363 620 3 549 955
  1 February 2008 18,38     181 740   17 020 164 720
  1 August 2008 17,92     208 350   11 000 197 350
  1 February 2009 13,44       167 640 10 840 156 800
  1 August 2009 26,88       115 475 4 820 110 655
  1 February 2010 24,67       115 270   115 270
      5 422 829   4 303 665 398 385 407 300 4 294 750
 
Management Share Ownership Plan - Share Appreciation Right Scheme
 
  Grant
date
Estimated
fair value
per right
Rand
Number of
shares
issued at
31 March 2010
  Number of
rights allocated at
31 December 2008
Number
of rights allocated
in 2009/10
Number
of rights forfeited
in 2009/10
Number
of rights
allocated at
31 March 2010
  1 August 2007 19,80 3 296 657   1 453 580   98 730 1 354 850
  1 February 2008 13,93     167 710   4 170 163 540
  1 August 2008 14,79     176 460   9 740 166 720
  1 February 2009 10,56       96 110 14 250 81 860
  1 August 2009 24,83       72 920 4 540 68 380
  1 February 2010 25,14       108 470   108 470
      3 296 657   1 797 750 277 500 131 430 1 943 820
 
Management Share Ownership Plan - Share Grant Scheme
 
  Grant
date
Estimated
fair value
per right
Rand
Number of
shares
issued at
31 March 2010
  Number of
rights allocated at
31 December 2008
Number
of rights allocated
in 2009/10
Number
of rights forfeited
in 2009/10
Number
of rights
allocated at
31 March 2010
  1 August 2007 64,00 1 021 422   450 070   30 570 419 500
  1 February 2008 54,37     51 950   1 290 50 660
  1 August 2008 57,39     54 620   3 010 51 610
  1 February 2009 52,47       29 740 4 420 25 320
  1 August 2009 79,10       22 560 1 400 21 160
  1 February 2010 82,61       33 580   33 580
      1 021 422   556 640 85 880 40 690 601 830
 
The estimated fair value costing of these share appreciation rights and share grant rights was determined using option pricing methodology, based on the following significant inputs:
 
Fixed share price at grant dates R92,90
 
Expected option life 57 months (assume contractual plus a leaving percentage of 5%).
 
Risk-free interest rate 1 February 2009 award: 7,96%, 1 August 2009 award: 7,97% and 1 February 2010 award: 7,57% (1 August 2008 award: 10,06%, 1 February 2008 award: 9,62% and 1 August 2007 award: 8,45%).
 
Expected volatility The weighted average expected volatility is based on historical volatility determined by the statistical analysis of daily share price movements over the past three years. 1 February 2009 award: 34,45%, 1 August 2009 award: 29,19% and 1 February 2010 award: 29,47% (1 August 2008 award: 28,14%, 1 February 2008 award: 28,25% and 1 August 2007 award: 27,00%)
 
Dividend yield The dividend yield on valuation date is based on broker forecasts from the financial information vendor, McGregor BFA. 1 February 2009 award: 4,96%, 1 August 2009 award: 3,77% and 1 February 2010 award: 3,93% (1 August 2008 award: 4,84%, 1 February 2008 award: 4,88% and 1 August 2007 award: 4,60%)
 
Expected early exercise Not applicable.
 
Time constraints Five years from grant date.
 
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.
 
Employee Share Ownership Plan - Share appreciation right scheme
Exercise price R92,90 plus cash dividends to be received over the life of the scheme.
Expected dividends A weighted average dividend yield was used.
 
Management Share Ownership Plan - Share appreciation right scheme
Exercise price R74,32.
Expected dividends Nil.
 
Management Share Ownership Plan - Share grant scheme
Exercise price Nil.
Expected dividends Nil.