Annual Financial Statements


Financial Statements for the year ended 31 March 2011


Notes to the Annual Financial Statements (21 - 30)

21. TAX (Rmillion) Consolidated Company
    12 months to 15 months to 12 months to 15 months to
    31 March 31 March 31 March 31 March
    2011 2010 2011 2010
  Earnings before capital profits:        
  Current 93 331   196
  Deferred 161 (16) 108 (134)
  Rate change adjustment (deferred)   (154)    
  Secondary tax on companies 29 39 29 39
  Prior years (22) 8   12
  Tax for the year 261 208 137 113
  Foreign tax included above 68 36    
  Tax charge at normal rate of South African tax 317 906 143 124
  Adjusted for:        
  Non-taxable income (15) (19) (37) (64)
  Zimbabwe consolidation take-on gain   (551)    
  Assessed losses of foreign subsidiaries (48) (20)    
  Non-allowable expenditure 29 27 2 2
  Foreign tax rate variations (29) (28)    
  Rate change adjustment (deferred)   (154)    
  Secondary tax on companies 29 39 29 39
  Prior years (22) 8   12
  Tax charge 261 208 137 113
  Normal rate of South African tax 28,0% 28,0% 28,0% 28,0%
  Adjusted for:        
  Non-taxable income (1,3) (0,6) (7,2) (14,5)
  Zimbabwe consolidation take-on gain   (17,0)    
  Assessed losses of foreign subsidiaries (4,3) (0,6)    
  Non-allowable expenditure 2,5 0,8 0,4 0,5
  Foreign tax rate variations (2,5) (0,9)    
  Rate change adjustment (deferred)   (4,8)    
  Secondary tax on companies 2,5 1,2 5,7 8,8
  Prior years (1,9) 0,3   2,7
  Effective rate of tax 23,0% 6,4% 26,9% 25,5%
 

Normal tax losses of R610 million (2010: R537 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
    12 months to 15 months to
    31 March 31 March
    2011 2010
  Profit attributable to shareholders 833 2 898
  Less Zimbabwe consolidation take-on gain   (1 969)
  Less after tax effect of surplus on sale of property: (27) (71)
  Capital profit on sale of land (23) (52)
  Capital profit on other items (4) (13)
  Fixed assets and other disposals (1) (8)
    (28) (73)
  Tax charge on profit on other items   2
  Tax charge on profit on disposal of other fixed assets 1  
  Headline earnings 806 858
  Headline earnings per share (cents)    
  Basic 760,5 826,5
  Diluted 739,6 810,0
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 was 105 986 145 ( 15 month period to 31 March 2010: 103 810 807). In respect of diluted earnings per share the weighted average number of shares is 108 983 882 (15 month period to 31 March 2010: 105 922 176).

24. DIVIDENDS (Rmillion) Consolidated Company
    12 months to 15 months to 12 months to 15 months to
    31 March 31 March 31 March 31 March
    2011 2010 2011 2010
  Ordinary share capital        
  Final for previous year, paid 22 July 2010: 175 cents*
(2010: 150 cents)
69 155 69 155
  Interim for current year, paid 20 January 2011: 110 cents
(2010: 100 cents)
115 103 115 103
  B ordinary share capital        
  Final for previous year, paid 22 July 2010: 175 cents
(2010: 150 cents)
17 15 17 15
  Interim for current year, paid 20 January 2011: 110 cents
(2010: 100 cents)
11 10 11 10
  A preferred ordinary share capital        
  Interim for current year, paid 30 June 2010: 203 cents
(30 June 2009: 203 cents)
51 51 51 51
  Final for current year, paid 31 December 2010: 203 cents
(31 December 2009: 203 cents)
51 51 51 51
  Accrued for three months to 31 March 2011: 203 cents
(31 March 2010: 203 cents)
25 25 25 25
    339 410 339 410
  Less dividends relating to BEE treasury shares (148) (146) (21) (19)
    191 264 318 391
 

The final ordinary dividend for the year ended 31 March 2011 of 140 cents per share declared on 26 May 2011 and payable on 21 July 2011 has not been accrued.

* A scrip distribution with a cash alternative was offered for this dividend declaration.

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
    2011 2010 2011 2010
  Financial assets        
  Derivative instruments in designated hedge accounting relationships 11 9 11 9
  Unlisted shares at cost 7 10   2
  Loans and receivables at amortised cost 1 947 1 976 820 792
    1 965 1 995 831 803
  Financial liabilities        
  Derivative instruments in designated hedge accounting relationships 2 3 2 3
  Financial liabilities at amortised cost 6 120 5 229 4 456 4 193
  Non-recourse equity-settled BEE borrowings 761 787    
    6 883 6 019 4 458 4 196
 

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 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.

Market Risk Sensitivity
Where appropriate, market risk sensitivity has been provided on financial instruments held by Tongaat Hulett. On those instruments where cover is specifically taken out to effectively hedge a position, such as FEC’s and maize futures contracts, sensitivity analyses are not provided in respect of these hedge instruments as there is no profit or loss exposure.

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
    2011 2010 2011 2010
  Less than 1 month 32 23 21 17
  Between 1 to 2 months 16 26 6 16
  Between 2 to 3 months 5 9 3 4
  Greater than 3 months 320 416 2 1
  Total past due 373 474 32 38
  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 18 11 7 5
  Consolidation of subsidiaries 1      
  Currency alignment (1) (1)    
  Amounts written off during the year (1)      
  Increase/(decrease) in allowance recognised in profit or loss   8 (1) 2
  Balance at end of year 17 18 6 7
  Foreign currency risk        
 

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. The fair value of the forward exchange contracts were establised by 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 year end are summarised as follows:

      Consolidated     Company
        2011 2010     2011 2010
    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 7,42 9 (1)   7,42 9 (1)  
  UK pound 11,45 1     11,45 1    
  Euro 9,77 1     9,77 1    
      11 (1)     11 (1)  
  Exports                
  US dollar 7,14 173 4 8 7,14 173 4 8
  Australian dollar       1       1
      173 4 9   173 4 9
  Net total   162 3 9   162 3 9
 

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  
        2011 2010     2011 2010
    Average Commitment Fair value Fair value Average Commitment Fair value Fair value
    contract of FEC of FEC of FEC contract of FEC of FEC of FEC
    rate (Rmillion) (Rmillion) (Rmillion) rate (Rmillion) (Rmillion) (Rmillion)
  Imports                
  US dollar 7,05 5     7,05 5    
  UK pound 11,33 1     11,33 1    
  Euro 9,67 59     9,67 59    
      65       65    
  Exports                
  US dollar 7,93 35 5   7,93 35 5  
  Net total   30 5     30 5  
 

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 2011 2010 amount 2011 2010
  (million) (Rmillion) (Rmillion) (million) (Rmillion) (Rmillion)
US dollar 3 22 16 3 20 14
Australian dollar 5 36 18 5 36 18
New Zealand dollar     1      
    58 35   56 32
 

The impact of a 10% strengthening or weakening of the Rand on the uncovered Australian dollar receivable will have a
R4 million (2010: R2 million) impact on profit before tax and a R3 million (2010: R1 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 (2010:
R2 million) impact on profit before tax and a R1 million (2010: R1 million) 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.

Tongaat Hulett Starch has secured its maize requirements for the current maize season to 31 May 2011 and a significant portion of its requirements for the year ending 31 May 2012 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, were establised by reference to quoted prices and are categorised as Level 1 under the fair value hierarchy.

      Consolidated     Company  
        2011 2010     2011 2010
    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     2 (3)     2 (3)
  Maize futures purchased 3 200 5 (1)   3 200 5 (1)  
        1 (3)     1 (3)
  Period when cash flow expected to occur 2011/12 2010/11     2011/12 2010/11
  When expected to affect profit 2011/12 2010/11     2011/12 2010/11
  Amount recognised in equity during the year 3 5     3 5
  Amount transferred from equity and recognised
in profit or loss
6 10     6 10
 

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 R22 million (2010: R18 million) effect on profit before tax and a R16 million (2010: R13 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 R1,5 billion (2010: in excess of R1 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:

    Weighted average            
  Consolidated effective interest rate (%) Due
within 1 year
1 to 2 years 2 to 5 years After 5 years Interest
adjustment
Total
  2011              
  Bank loans 7,3 2 492 208 1 017   (455) 3 262
  Foreign loans 9,8 645 43 127 219 (62) 972
  Other borrowings 8,5 197       (8) 189
  Financial lease liability 4,8 8 5 1   (1) 13
  Other non-interest              
  bearing liabilities   1 677 1   5   1 683
  Net settled derivatives   2         2
  Total for Tongaat Hulett   5 021 257 1 145 224 (526) 6 121
  Non-recourse equity-              
  settled BEE borrowings   84 80 746   (149) 761
  Total including SPV debt   5 105 337 1 891 224 (675) 6 882
  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
                 
26. PRINCIPAL SUBSIDIARY COMPANIES AND JOINT VENTURES (Rmillion)  
    Interest of Holding Company
    Equity Indebtedness
    2011 2010 2011 2010
  Tongaat Hulett Starch (Pty) Limited 15 15 27 25
  Tongaat Hulett Developments (Pty) Limited     (434) (440)
  Tongaat Hulett Estates (Pty) Limited        
  Tongaat Hulett Sugar Limited 4 634 2 664 (317) 1 437
  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 (62) (59)
    4 703 2 733 (786) 963
 

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)    
    2011 2010
  The company acquired a further 33,3% interest, effective 1 April 2010, in Sugarmark Namibia (Pty) Limited which has a 51% held subsidiary Consolidated Sugar Industries (Namibia) (Pty) Limited. Details of these Namibian subsidiaries consolidated and their cash flow effects are summarised below. The prior year relates to the consolidation of the Zimbabwe subsidiaries.
  Property, plant equipment and investments 3 3 555
  Growing crops   342
  Inventories 39 255
  Trade and other receivables 22 101
  Cash   69
  Trade and other payables (47) (182)
  Provisions   (289)
  Deferred tax 1 (1 038)
  Borrowings (18) (33)
  Minority interest (1) (755)
  Net assets consolidated (1) 2 025
  Goodwill arising on consolidation 8 207
    7 2 232
  Zimbabwe consolidation take-on gain   (1 969)
  Investment in subsidiaries 7 263
       
28. GUARANTEES AND CONTINGENT LIABILITIES (Rmillion)        
    Consolidated Company
    2011 2010 2011 2010
  Guarantees in respect of obligations of Tongaat Hulett and third parties 23 134 2 2
  Contingent liabilities 12 14 12 14
    35 148 14 16
           
29. LEASES (Rmillion)        
    Consolidated Company
    2011 2010 2011 2010
  Amounts payable under finance leases        
  Minimum lease payments due:        
  Not later than one year 8 3 1 1
  Later than one year and not later than five years 6 9 1 1
  Later than five years   6    
    14 18 2 2
  Less: future finance charges (1) (4)   (1)
  Present value of lease obligations 13 14 2 1
  Payable:        
  Not later than one year 7 1 1  
  Later than one year and not later than five years 6 7 1 1
  Later than five years   6    
    13 14 2 1
  Operating lease commitments, amounts due:        
  Not later than one year 18 14 16 13
  Later than one year and not later than five years 24 17 10 16
    42 31 26 29
  In respect of:        
  Property 28 18 15 16
  Plant and machinery 8 11 8 11
  Other 6 2 3 2
    42 31 26 29
           
30. CAPITAL EXPENDITURE COMMITMENTS (Rmillion)        
    Consolidated Company
    2011 2010 2011 2010
  Contracted 134 234 33 43
  Approved but not contracted 51 118 37 28
    185 352 70 71
 

Funds to meet future capital expenditure will be provided from retained net cash flows and debt financing.