Annual Financial Statements


Financial Statements for the year ended 31 March 2011


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
    12 months to 15 months to 12 months to 15 months to
    31 March 2011 31 March 2010 31 March 2011 31 March 2010
  Goods and services:        
  Transacted between operating entities within the company     3 7
  Between the company and its subsidiaries     519 326
  Transacted between subsidiaries within Tongaat Hulett 322 335    
  Sales to external related parties   2    
  Tongaat-Hulett Pension Fund contribution cost 56 65 49 57
  Administration fees and other income:        
  Transacted between operating entities within the company     9 16
  Between the company and its subsidiaries     40 45
  Transacted between subsidiaries within Tongaat Hulett 129 132    
  Transacted with/between joint ventures within Tongaat Hulett 1 7    
  Paid to external related parties 4 4    
  Interest paid:        
  Transacted between operating entities within the company     21 39
  Between the company and its subsidiaries     9 12
  Transacted with/between joint ventures within Tongaat Hulett 2 6    
  Interest received:        
  Transacted between operating entities within the company     379 496
  Between the company and its subsidiaries     5 90
  Transacted between subsidiaries within Tongaat Hulett 99 48    
  Transacted with/between joint ventures within Tongaat Hulett 1 3    
  Sales of fixed assets:        
  Between the company and its subsidiaries       3
  Loan balances:        
  Transacted between operating entities within the company     4 489 4 305
  Between the company and its subsidiaries     786 962
  Pension Fund Loan - Employer Surplus Account 97 89 97 89
  Dividends received:        
  Between the company and its subsidiaries     105 137
  Transacted between subsidiaries within Tongaat Hulett 100 130    
  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

There is one defined benefit scheme in South Africa for employees that previously covered The Tongaat-Hulett Group Limited and in 2010/11 covered Tongaat Hulett and Hulamin. This scheme is actuarially valued at intervals of not more than three years using the projected unit credit method. The actuarial valuation of The Tongaat-Hulett Pension Fund as at 31?December?2009 revealed an actuarial surplus, a portion of which was allocated to the employer surplus account in the Fund with the balance remaining in the Fund. The allocation to the employer surplus account, which was approved by the trustees in August 2010, was split between the participating employers, Tongaat Hulett and Hulamin, as in the past, proportionate to their share of the liabilities in the Fund at the valuation date. Consequently an amount of R129 million (2010: R79 million) was recognised in the results to 31 March 2011, net of the employer contribution holiday for the period. The employer surplus account is being utilised for a contribution holiday and, within the regulatory framework, there is a “loan” from the pension fund to the company in respect of the employer surplus account.

An actuarial valuation of liabilities, based on the existing benefits, carried out as at 31? March 2011 in accordance with IAS 19 Employee Benefits, showed the present value of the obligations to be adequately covered by the fair value of the scheme assets.

Following the unbundling of Hulamin from The Tongaat-Hulett Group in 2007, The Tongaat-Hulett Group Pension Fund was required to be split between the employers and the manner in which the funds proceed following the unbundling also needed clarity, as reported previously. In December 2010 approval was granted by the trustees for the filings with the Financial Services Board (FSB) on the detail and basis of the splitting of the old fund into two new funds - one for Tongaat Hulett and one for Hulamin. The split of the fund between Tongaat Hulett and Hulamin is now clear and the financial position of the Tongaat Hulett portion of the fund is also determinable.

Following this clarity on the fund, the IFRS standard IAS 19 requires that, in these circumstances, the employer recognise on its balance sheet the relevant “defined benefit pension fund asset” relating to a portion of the accounting surplus, with a corresponding increase in earnings at the time of recognition. The detail of the accounting standards on this matter are contained in IAS 19, IFRIC 14 and AC504. Where an asset is to be recognised, IAS 19 limits the amount that should be recognised. IFRIC 14, updated in January 2010, provides guidance on this matter. AC504, issued in October 2010, provides guidance on the application of IFRIC 14.

The application of these standards confirm the recognition of the amounts previously allocated to the Tongaat Hulett Employer Surplus Account in the Fund and recognised in Tongaat Hulett’s financial statements.

A further accounting recognition was required for the year ended 31 March 2011. IFRIC 14 and AC 504 specify the criteria to be used in determining the amount to be recognised which represents the difference between the estimated future
IAS 19 service cost / contribution rate and the actual actuarially determined contribution rate over a relevant period. The period for this valuation was 12 years. An amount of R288 million has been recognised in profit in respect of this “defined benefit pension fund asset”, being a gross asset amount of R294 million less R6 million as a provision in respect of amounts payable to third parties in due course. If the valuation period used were to vary by 3 years, then the value of the asset would change by approximately R30 million, either way.

    31 March 2011
    Rmillion
  Details of the IAS 19 valuation of the Fund from 1 January 2011 to 31 March 2011 are as follows:  
  Fair value of fund assets  
  Balance at 1 January 2011 4 632
  Expected return on scheme assets 101
  Benefits paid (42)
  Actuarial loss (29)
  Balance at end of year 4 662
  Present value of defined benefit obligation  
  Balance at 1 January 2011 3 480
  Current service cost 23
  Interest cost 76
  Benefits paid (42)
  Actuarial loss (18)
  Balance at end of year 3 519
  Fund assets less member liabilities 1 143
  Employer surplus account (216)
    927
  Defined benefit pension fund asset (296)
  Asset restriction 631
  Amounts recognised in the company’s statement of financial position:  
  Non-current assets:  
  Defined benefit pension fund asset 296
  Unrecognised actuarial gains (2)
    294
  Employer surplus account 216
  Less current portion included in accounts receivable (81)
    135
  Current assets:  
  Employer surplus account 81
  Total amount recognised in the company’s statement of financial position 510
  The net asset is reconciled as follows:  
  Employer surplus account 225
  Initial recognition at take-on date 294
  Net expense recognised in the income statement (7)
  Prepayment recognised 512
  Unrecognised actuarial gains (2)
  Net asset at end of year 510
  Amounts recognised in the income statement for the 3 months ended 31 March 2011:  
  Service costs 23
  Interest costs 76
  Expected return on scheme assets (101)
  Net actuarial losses recognised 9
    7
    31 March 2011
  Asset information Rmillion
  Equities 2 844
  Fixed interest bonds 793
  Property 93
  Cash and other 932
    4 662
  Included in the assets of the scheme are ordinary shares held in Tongaat Hulett Limited, stated at fair value 142
  Actual return on scheme assets 72
  The principal actuarial assumptions (with December 2010 comparatives) are:    
  Discount rate 9,10% (8,75%)
  Salary cost and pension increase 6,25% (5,88%)
  Expected rate of return on assets 9,10% (8,75%)
  Experience gains and (losses) on:    
  Plan liabilities: 28  
  Percentage of the present value of the plan liabilities 0,8%  
  Plan assets: (29)  
  Percentage of plan assets (0,6%)  
 

Estimated contributions payable in the next financial year
With the benefit of the contribution holiday, there will be no cash contributions payable in the next financial year. This benefit amounts to R55 million for the next financial year.

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 (e.g. 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 in Swaziland, reflect a satisfactory state of affairs.?Contributions of R28 million were expensed during the period (2010: R27 million).

Zimbabwe Pension Funds
The post-retirement benefit provisions for the Zimbabwe operations at 31 March 2011 amount to R185 million (March?2010:?R245?million), including the post-retirement medical aid and the retirement gratuity provisions.

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, however, remain entitled to this benefit. The entitlement to this benefit for current employees is dependent upon the employee remaining in service until retirement and completing a minimum service period of ten years. In Mozambique, Acucareira de Xinavane subsidises the medical contributions in respect of its pensioners. Included in the consolidated amounts for the current year 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
    2011
Rmillion
2010
Rmillion
2011
Rmillion
2010
Rmillion
  Amounts recognised in the balance sheet:        
  Present value of unfunded obligations 361 346 314 289
  Unrecognised actuarial losses (38) (42) (60) (53)
  Net liability in balance sheet 323 304 254 236
  The liability is reconciled as follows:        
  Net liability at beginning of year 304 223 236 223
  Subsidiaries consolidated   77    
  Currency alignment (6) (17)    
  Net expense recognised in income statement 47 46 38 36
  Contributions (22) (25) (20) (23)
  Net liability at end of year 323 304 254 236
  Amounts recognised in the income statement:        
  Service costs 6 6 3 3
  Interest costs 34 33 25 25
  Net actuarial losses recognised 7 7 10 8
    47 46 38 36
  The principal actuarial assumptions applied are:        
  Discount rate        
  South Africa 9,10% 9,00% 9,10% 9,00%
  Mozambique 9,25% 11,00%    
  Zimbabwe 15,00% 15,00%    
  Health care cost inflation rate        
  South Africa 7,00% 6,50% 7,00% 6,50%
  Mozambique 6,24% 8,00%    
  Zimbabwe 13,50% 13,50%    
  Sensitivity of healthcare cost trend rates:        
  1% increase in trend rate - effect on the aggregate of the service and interest costs 1 2 1 1
  1% increase in trend rate - effect on the obligation 43 41 36 33
  1% decrease in trend rate - effect on the aggregate of the service and interest costs 1 1    
  1% decrease in trend rate - effect on the obligation 35 34 30 27
  Estimated contributions payable in the next financial year 24 22 22 20
  Experience gains / (losses):        
  On plan liabilities        
  Percentage of the present value of the plan liabilities 4 3 (5) (9)
    1,1% 0,9% (1,6%) (3,1%)
 

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
    2011 2010 2011 2010
    Rmillion Rmillion Rmillion Rmillion
  Amounts recognised in the balance sheet:        
  Present value of unfunded obligations 107 155 80 71
  Unrecognised actuarial losses (10) (10) (12) (10)
  Net liability in balance sheet 97 145 68 61
  The liability is reconciled as follows:        
  Net liability at beginning of year 145 55 61 55
  Subsidiaries consolidated   105    
  Currency alignment (4) (23)    
  Net expense recognised in income statement (39) 16 11 11
  Payments made (5) (8) (4) (5)
  Net liability at end of year 97 145 68 61
  Amounts recognised in the income statement:        
  Service costs 6 7 4 4
  Interest costs 10 7 6 6
  Net actuarial losses recognised 1 2 1 1
  Reduction of provision (56)      
    (39) 16 11 11
  The principal actuarial assumptions applied are:        
  Discount rate        
  South Africa 9,10% 9,00% 9,10% 9,00%
  Zimbabwe 15,00% 15,00%    
  Salary inflation rate        
  South Africa 7,00% 6,50% 7,00% 6,50%
  Zimbabwe 12,50% 12,50%    
  Estimated contributions payable in the next financial year 8 11 5 4
  Experience losses:        
  On plan liabilities (1) 2 (4) 2
  Percentage of the present value of the plan liabilities (0,9%) 1,3% (5,0%) 2,8%
           
33. DIRECTORS’ EMOLUMENTS AND INTERESTS (R000)

  

Executive Directors’ Remuneration

The directors’ remuneration for the 12 months ended 31 March 2011 was as follows:

        Retirement  
    Cash   and medical  
  Name Package Bonus* contributions Total
  Executive directors:        
  B G Dunlop 3 209 1 053 361 4 623
  M H Munro 3 018 1 087 354 4 459
  P H Staude 5 775 2 599 615 8 989
    12 002 4 739 1 330 18 071
           
  The directors’ remuneration for 15 months ended 31 March 2010 was as follows:    
        Retirement  
    Cash   and medical  
  Name 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
  Share incentive gains on awards exercised and settled:    
    12 months to 15 months to
    31 March 31 March
    2011 2010
  Executive directors:    
  B G Dunlop 807 3 314
  M H Munro 837 768
  P H Staude 7 919 5 132
    9 563 9 214
  Remuneration of the three highest paid executives, other than directors was:    
    12 months to  
    31 March  
    2011  
  Average of the three executives:    
  Cash package 2 857  
  Bonus* 884  
  Retirement and medical contributions 360  
    4 101  
       
  Share incentive gains 1 689  
       
  *Bonuses are reported to match the amount payable to the applicable financial period.    
    12 months to 31 March 2011 15 months to 31 March 2010
  Name Fees Other Total Fees Other Total
  Non-executive directors:            
  F Jakoet 223 206 429 227 143 370
  J John 223 229 452 227 197 424
  R P Kupara 223   223 87   87
  J B Magwaza 801 79 880 601 64 665
  A A Maleiane 223   223 65   65
  T V Maphai (to 8 March 2011) 173   173 227   227
  T N Mgoduso (from 21 May 2010) 173 27 200      
  M Mia 223 272 495 227 322 549
  N Mjoli-Mncube 204 261 465 227 191 418
  T H Nyasulu (to 27 July 2010) 68   68 227   227
  C B Sibisi 223 92 315 227 64 291
  R H J Stevens 204   204 227 6 233
  Directors who retired/resigned during the year       486 154 640
    2 961 1 166 4 127 3 055 1 141 4 196
 

Declaration of full disclosure
Other than that disclosed above, no consideration was paid to, or by any third party, or by the company itself, in respect of services of the company’s directors, as directors of the company, during the year ended 31 March 2011.

Interest of directors of the company in share capital
The aggregate holdings as at 31 March 2011 of those directors of the company holding issued ordinary shares of the company are detailed below. Holdings are direct and beneficial except where indicated otherwise.

    2011 2010
  Name    
  Executive directors:    
  B G Dunlop 49 646 46 145
  M H Munro 38 847 32 320
  P H Staude 175 957 132 606
    264 450 211 071
  Non-executive directors:    
  J B Magwaza 12 111 11 901
  R H J Stevens 600 590
  Directors who resigned during the year   600
    12 711 13 091
       
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 the SARS grants of 2005 and 2006 and the original share options for its own employees 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, however, 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.

  Expiring Option price (Rand) Number of options Options exercised Options lapsed/forfeited Number of options
  ten years from Apportioned at 31 March 2010 2010/11 2010/11 at 31 March 2011
    Tongaat Hulamin Tongaat Hulamin Tongaat Hulamin Tongaat Hulamin Tongaat Hulamin
    Hulett   Hulett   Hulett   Hulett   Hulett  
  19 May 2000 22,91 7,09 1 000 2 500 1 000 2 500        
  12 January 2001 30,44 9,41 8 200 9 800 8 200     9 800    
  16 May 2001 30,55 9,45 81 900 97 700 36 900 11 000     45 000 86 700
  15 August 2001 32,08 9,92 3 500 3 500 3 500         3 500
  13 May 2002 37,88 11,72 128 500 177 200 30 100       98 400 177 200
  14 April 2003 24,37 7,53 129 600 149 700 57 606 4 800     71 994 144 900
  1 October 2003 26,35 8,15 30 000 30 000         30 000 30 000
  21 April 2004 35,90 11,10 284 800 401 200 61 000   900 6 800 222 900 394 400
        667 500 871 600 198 306 18 300 900 16 600 468 294 836 700
 

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 (2010: 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 significant inputs into the model for the 2003/4 awards of the original share option schemes were:

  Exercise price The exercise price is the share price at grant date, as noted above, allocated between Tongaat Hulett and Hulamin.
  Expected option life 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: R33,42 (2010: R32,85) and Hulamin component R10,33 (2010: R10,29)
  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 28 months (2010: 34 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.

    Grant price (Rand) Number of rights Rights granted Rights exercised Rights lapsed/forfeited Number of rights
    Apportioned at 31 March 2010 in 2010/11 in 2010/11 in 2010/11 at 31 March 2011
  Expiring Tongaat Hulamin Tongaat Hulamin Tongaat Tongaat Tongaat Hulamin Tongaat Hulamin
  seven Hulett   Hulett   Hulett Hulett Hulett   Hulett  
  years from                    
  10 May 2005 43,98 13,60 476 432 646 075   157 839 3 793 9 096 314 800 636 979
  22 April 2006 73,39 22,70 677 670 812 848   126 907 6 254 12 019 544 509 800 829
  20 August 2007 88,84   1 122 029     149 755 23 902   948 372  
  25 April 2008 92,74   1 258 873     4 052 24 628   1 230 193  
  22 May 2009 75,06   1 558 579     10 648 39 308   1 508 623  
  31 May 2010 97,49       1 249 127   10 368   1 238 759  
        5 093 583 1 458 923 1 249 127 449 201 108 253 21 115 5 785 256 1 437 808
 

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 2010 award: 7,71% (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 26,78% (2009: 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 2,5% was used for the 2010 award (2009 award: 3,5%, 2008 and 2007 award: 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 not allowed from the 2010 award onwards.
  Non-market performance conditions Growth in headline earnings per share.
  Market performance conditions No market conditions.
     
  Estimated fair value per rightat grant date 2010 award: R20,00 (2009 award: R12,54, 2008 award: R16,93, 2007 award: R15,97, the combined TH and Hulamin components: 2006 award: R18,11 and 2005 award: R13,88).
  Weighted average remaining life:  
  - Expected 2010 award: 74 months (2009 award: 62 months, 2008 award: 49 months, 2007 award: 41 months, 2006 award: 25 months, 2005 award: 13 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.

     
Number of
Conditional
Conditional awards
Number of
  Expiring  
conditional awards
Conditional awards
awards settled
lapsed/
forfeited
conditional awards at
  three years from Issue price (Rand) 31 March 2010 granted in 2010/111 in 2010/11 in 2010/11 31 March 2011
  20 August 2007 88,84 119 876   75 228 44 648  
  25 April 2008 92,74 117 483       117 483
  22 May 2009 75,06 151 739       151 739
  31 May 2010 97,49   171 916     171 916
      389 098 171 916 75 228 44 648 441 138
 

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 2010 award: 7,6% (2009 award: 5,82%, 2008 award: 9,22% and 2007 award: 8,81%).
  Expected volatility Expected volatility of 28,57% for the 2010 award (2009 award: 26,73%, 2008 award: 23,46% and 2007 award: 24,49%) 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 2,5% was used for the 2010 award (2009 award: 3,5%, 2008 award: 3,56% and 2007 award: 3,50%).
  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 2010 award: R46,55 (2009 award: R40,76, 2008 award: R56,82 and 2007 award: R46,28).
  Weighted average remaining life:  
  - Expected 2010 award: 26 months (2009 award : 14 months and 2008 award: 1 month).
  - 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 March 2010 2010/11 2010/11 31 March 2011
  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
  4 June 2010 100,40   10 768   10 768
      115 173 10 768 28 936 97 005
 

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.
  Non-market performance conditions No non-market conditions.
  Market performance conditions No market conditions.
  Estimated fair value per deferred bonus share at grant date June 2010 award: R81,18 (March 2010 award: R78,34, 2009 award: R60,69 and 2008 award: R71,33).
  Weighted average remaining life:  
  - Expected June 2010 award: 26 months (March 2010 award: 23 months, 2009 award: 11 months).
  - Contractual 36 months.
 

The deferred bonus shares were purchased by the participating employees on 4 June 2010 in respect of the June 2010 award (2009 award: purchased 2 March 2009 and March 2010 award: purchased 3 March 2010).

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.

      Option price
(Rand)
Number
of options
Options
lapsed
Number
of options
      Apportioned at 31 March 2010 in 2010/11 at 31 March 2011
    Expiring Tongaat   Tongaat     Tongaat  
  Name ten years from Hulett Hulamin Hulett Hulamin Hulamin Hulett Hulamin
  Executive directors:                
  B G Dunlop 21 April 2004 35,90 11,10   1 100     1 100
  M H Munro 14 April 2003 24,37 7,53 4 900 4 900   4 900 4 900
    1 October 2003 26,35 8,15 30 000 30 000   30 000 30 000
    21 April 2004 35,90 11,10 32 000 32 000   32 000 32 000
          66 900 66 900   66 900 66 900
  P H Staude 13 May 2002 37,88 11,72   17 000     17 000
    21 April 2004 35,90 11,10   28 000     28 000
            45 000     45 000
  Non-executive director: *                
  J B Magwaza 12 January 2001 30,44 9,41   1 600 1 600    
    16 May 2001 30,55 9,45   6 000     6 000
    13 May 2002 37,88 11,72   6 000     6 000
            13 600 1 600   12 000
  Total       66 900 126 600 1 600 66 900 125 000
 

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

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.

      Grant price (Rand) Number of rights Rights Rights Number of rights Rights time
  Name of Expiring Apportioned at 31
March 2010
granted
in 2010/11
exercised
in 2010/11
at 31
March 2011
constrained
  executive seven years Tongaat Hulamin Tongaat Hulamin Tongaat Tongaat Tongaat Hulamin Tongaat
  director from Hulett   Hulett   Hulett   Hulett Hulett   Hulett
  B G Dunlop 10 May 2005 43,98 13,60   40 597         40 597  
    22 April 2006 73,39 22,70 23 737 23 737       23 737 23 737  
    20 August 2007 88,84   25 382         25 382    
    25 April 2008 92,74   27 276         27 276   27 276
    22 May 2009 75,06   32 736         32 736   32 736
    31 May 2010 97,49       25 698     25 698   25 698
          109 131 64 334 25 698     134 829 64 334 85 710
  M H Munro 10 May 2005 43,98 13,60 21 185 21 185       21 185 21 185  
    22 April 2006 73,39 22,70 20 472 20 472       20 472 20 472  
    20 August 2007 88,84   23 830         23 830    
    25 April 2008 92,74   25 807         25 807   25 807
    22 May 2009 75,06   30 857         30 857   30 857
    31 May 2010 97,49       23 638     23 638   23 638
          122 151 41 657 23 638     145 789 41 657 80 302
  P H Staude 10 May 2005 43,98 13,60 92 810 92 810     92 810   92 810  
    22 April 2006 73,39 22,70 62 082 62 082       62 082 62 082  
    20 August 2007 88,84   71 073         71 073    
    25 April 2008 92,74   75 720         75 720   75 720
    22 May 2009 75,06   91 120         91 120   91 120
    31 May 2010 97,49       74 289     74 289   74 289
          392 805 154 892 74 289   92 810 374 284 154 892 241 129

 

Long Term Incentive Plan 2005              
        Number of Conditional Conditional Conditional Number of Conditional      
  Name of Expiring Original conditional awards awards awards conditional awards      
  executive three years Issue price awards at granted in settled in lapsed in awards at time      
  director from (Rand) 31 March 2010 2010/11 2010/11 2010/11 31 March 2011 constrained      
  B G Dunlop 20 August 2007 88,84 8 503   5 336 3 167          
    25 April 2008 92,74 7 592       7 592 7 592      
    22 May 2009 75,06 9 421       9 421 9 421      
    31 May 2010 97,49   10 160     10 160 10 160      
        25 516 10 160 5 336 3 167 27 173 27 173      
  M H Munro 20 August 2007 88,84 7 991   5 015 2 976          
    25 April 2008 92,74 7 181       7 181 7 181      
    22 May 2009 75,06 8 880       8 880 8 880      
    31 May 2010 97,49   9 345     9 345 9 345      
        24 052 9 345 5 015 2 976 25 406 25 406      
  P H Staude 20 August 2007 88,84 23 834   14 956 8 878          
    25 April 2008 92,74 21 142       21 142 21 142      
    22 May 2009 75,06 26 316       26 316 26 316      
    31 May 2010 97,49   29 475     29 475 29 475      
        71 292 29 475 14 956 8 878 76 933 76 933      
 

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

Deferred Bonus Plan 2005

        Number Conditional Conditional Number Conditional
      Original of conditional awards awards of conditional awards
    Expiring Issue price awards at granted in delivered in awards at time
  Name of executive director three years from (Rand) 31 March 2010 2010/11 2010/11 31 March 2011 constrained
                 
  B G Dunlop 1 March 2008 88,75 2 730   2 730    
    2 March 2009 74,72 4 620     4 620 4 620
    3 March 2010 97,32 3 838     3 838 3 838
    4 June 2010* 100,40   1 031   1 031 1 031
        11 188 1 031 2 730 9 489 9 489
  M H Munro 1 March 2008 88,75 3 337   3 337    
    2 March 2009 74,72 4 227     4 227 4 227
    3 March 2010 97,32 3 609     3 609 3 609
    4 June 2010* 100,40   979   979 979
        11 173 979 3 337 8 815 8 815
  P H Staude 1 March 2008 88,75 11 219   11 219    
    2 March 2009 74,72 14 171     14 171 14 171
    3 March 2010 97,32 11 959     11 959 11 959
    4 June 2010* 100,40   3 272   3 272 3 272
        37 349 3 272 11 219 29 402 29 402
 

The deferred bonus shares were purchased by the participating employees on 4 June 2010 in respect of the June 2010 award (2009 award: purchased 2 March 2009 and March 2010 award: purchased 3 March 2010).

The share awards were made and exercised at various times and the average share price for the period was R103,09 (2010 : R87,65).

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

* These awards relate to the 3 month period to 31 March 2010.

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). An introduction to Tongaat Hulett’s BEE equity participation is provided on page 74.

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), 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 participates 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 Estimated fair Number of Number of Rights allocated/ Rights Number of
  date value per right shares issued at rights allocated at adjustments forfeited rights allocated at
    Rand 31 March 2011 31 March 2010 in 2010/111 in 2010/11 31 March 2011
  1 August 2007 28,90 5 422 829 3 549 955 296 155 95 080 3 751 030
  1 February 2008 18,38   164 720   15 060 149 660
  1 August 2008 17,92   197 350   15 240 182 110
  1 February 2009 13,44   156 800   8 800 148 000
  1 August 2009 26,88   110 655   8 270 102 385
  1 February 2010 24,67   115 270   1 540 113 730
  1 August 2010 23,44     56 600 2 060 54 540
  1 February 2011 20,74     51 730   51 730
      5 422 829 4 294 750 404 485 146 050 4 553 185
 

Management Share Ownership Plan - Share Appreciation Right Scheme

  Grant Estimated fair Number of Number of Rights allocated/ Rights Number of
  date value per right shares issued at rights allocated at adjustments forfeited rights allocated at
    Rand 31 March 2011 31 March 2010 in 2010/11 in 2010/11 31 March 2011
  1 August 2007 19,80 3 296 657 1 354 850   16 800 1 338 050
  1 February 2008 13,93   163 540     163 540
  1 August 2008 14,79   166 720   10 230 156 490
  1 February 2009 10,56   81 860   6 600 75 260
  1 August 2009 24,83   68 380     68 380
  1 February 2010 25,14   108 470   6 390 102 080
  1 August 2010 30,69     61 640   61 640
  1 February 2011 34,31     36 250   36 250
      3 296 657 1 943 820 97 890 40 020 2 001 690
               
 

Management Share Ownership Plan - Share Grant Scheme

     
  Grant Estimated fair Number of Number of Rights allocated/ Rights Number of
  date value per right shares issued at rights allocated at adjustments forfeited rights allocated at
    Rand 31 March 2011 31 March 2010 in 2010/11 in 2010/11 31 March 2011
  1 August 2007 64,00 1 021 422 419 500   5 200 414 300
  1 February 2008 54,37   50 660     50 660
  1 August 2008 57,39   51 610   3 160 48 450
  1 February 2009 52,47   25 320   2 040 23 280
  1 August 2009 79,10   21 160     21 160
  1 February 2010 82,61   33 580   1 970 31 610
  1 August 2010 94,68     19 100   19 100
  1 February 2011 101,89     11 210   11 210
      1 021 422 601 830 30 310 12 370 619 770
  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 August 2010 award: 7,29% and 1 February 2011 award: 6,16% (1 February 2009 award: 7,96%, 1 August 2009 award: 7,97%, 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 bythe statistical analysis of daily share price movements over the past three years. 1 August 2010 award: 23,09% and 1 February 2011 award: 17,61% (1 February 2009 award: 34,45%,
1 August 2009 award: 29,19%, 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 August 2010 award: 4,36% and 1 February 2011 award: 2,82% (1 February 2009 award: 4,96%, 1 August 2009 award: 3,77%, 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.
 

In addition, the following data is specific to each of the above schemes:

In addition, the following data is specific to each of the above schemes:
  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.