Annual Financial Statements


Financial Statements for the year ended 31 March 2013


NOTES (21-30) TO THE FINANCIAL STATEMENTS

21.
TAX (Rmillion)   Consolidated Company
  2013  2012  2013  2012 
         
Earnings before capital profits:        
Current  294  108  10 
Deferred  88  189  28  15 
Rate change adjustment (deferred) 16     
Secondary tax on companies     36    36 
Prior years  (1) (1)  
  386  348  38  59 
Capital profits:         
Deferred 
Tax charge for the year  389  351  41  62 
Foreign tax included above  250  225  10 
         
Tax charge at normal rate of South African tax 436 384 82 102
Adjusted for:          
Non-taxable income and permanent allowances/deductions (63) (112) (50) (87)
Assessed losses of foreign subsidiaries  (3)    
Non-allowable expenditure  29  23 
Foreign tax rate variations  (30)      
Foreign withholding tax 
Rate change adjustment (deferred) 16     
Secondary tax on companies     36    36 
Capital gains 
Prior years  (1) (1)  
Tax charge  389  351  41  62 
         
Normal rate of South African tax 28,0% 28,0% 28,0% 28,0%
Adjusted for:          
Non-taxable income and permanent allowances/deductions (4,0) (8,2) (17,0) (23,9)
Assessed losses of foreign subsidiaries  0,1  (0,2)    
Non-allowable expenditure  1,9  1,7  0,3  0,3 
Foreign tax rate variations  (1,9)      
Foreign withholding tax  0,5  0,2  1,7  0,8 
Rate change adjustment (deferred) 0,3  1,2     
Secondary tax on companies     2,6    9,8 
Capital gains  0,2  0,4  1,0  1,4 
Prior years  (0,1) (0,1)   0,6 
Effective rate of tax  25,0%  25,6%  14,0%  17,0% 
   
   
22. HEADLINE EARNINGS (Rmillion)
 
  Consolidated    
  2013  2012     
         
Profit attributable to shareholders 1 070  889     
Less after tax effect of: (12)    
Capital profit on sale of land (16) (3)    
Capital loss on other  items      
Loss on fixed  assets and other disposals      
  (15) (1)    
Tax charge on profit on sale of land    
         
Headline earnings 1 058  891     
         
Headline earnings per share (cents)        
Basic 959,9  838,9     
Diluted 942,3  819,4     
   
   
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 110 225 436 (2012: 106 208 909). In respect of diluted earnings per share, the weighted average number  of shares  is 112 274 481 (2012: 108 738 956) and includes 2 049 045 (2012: 2  530 047) shares that relate to employee share award schemes.
   
   
24. DIVIDENDS (Rmillion)
 
  Consolidated  Company 
  2013  2012  2013  2012 
         
Ordinary share capital         
Final for previous year, paid 19 July 2012: 170 cents (2012: 140 cents) 179  147  179  147 
Interim for current period, paid 24 January 2013: 150 cents (2012: 120 cents) 163  126  163  126 
         
B ordinary share capital         
Final for previous year, paid 19 July 2012: 170 cents (2012: 140 cents) 16  14  16  14 
Interim for current period, nil (2012: 120 cents)   12    12 
         
A preferred ordinary share capital         
Interim for current period, paid 30 June 2012: 223 cents (30 June 2011: 203 cents) 56  51  56  51 
Final for current period, paid 31 December 2012: 223 cents (31 December 2011: 203 cents) 56  51  56  51 
Accrued for three months to 31 March 2013: 223 cents (2012: 223 cents) 28  28  28  28 
  498  429  498  429 
Less dividends relating to BEE treasury shares  (151) (150) (11) (19)
  347  279  487  410 
   
  The final ordinary dividend for the year ended 31 March 2013 of 190 cents per share, declared on 23 May 2013 and payable on 18 July 2013, has not been accrued.
   
   
25. FINANCIAL RISK MANAGEMENT (Rmillion)
  Financial instruments consist primarily of cash deposits with banks, unlisted investments, derivatives, accounts receivable and payable, and loans to and from associates and others. Financial instruments are carried at fair value or amounts that approximate fair value.
   
 
Categories of financial instruments Consolidated Company
  2013 2012 2013 2012
         
Financial assets         
Derivative instruments in designated hedge accounting relationships     
Unlisted shares at cost  14  12     
Loans and receivables at amortised cost  3 672  2 683  1 305  851 
  3 686  2 699  1 305  855 
Financial liabilities         
Derivative instruments in designated hedge accounting relationships  16  16 
Financial liabilities at amortised cost  8 077  6 905  6 393  5 440 
Non-recourse equity-settled BEE borrowings  722  737     
  8 815  7 643  6 409  5 441 
   
  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 (FECs) and options, interest rate swaps and commodity futures and options. Separate committees are used to manage risks and hedging activities. Tongaat Hulett does not speculate in or engage in the trading of derivative instruments. Since derivative instruments are utilised for risk management, market risk relating to derivative instruments will be offset by changes in the valuation of the underlying assets, liabilities or transactions being hedged. The overall risk strategy remains unchanged from previous years.

Capital risk management
Tongaat Hulett’s overall strategy around capital structure remains unchanged from previous years and is continually reviewed in budgeting and business planning processes. Tongaat Hulett manages its capital to ensure that its operations are able to continue as a going concern, while maximising the return to stakeholders through an appropriate debt and equity balance. The capital structure of Tongaat Hulett consists of debt, which includes borrowings (long-term and short-term bank debt and bonds issued in the debt capital market), cash and cash equivalents and equity.

Credit risk
Financial instruments do not represent a concentration of credit risk, because Tongaat Hulett deals with a variety of major banks, and its accounts receivable and loans are spread among a number of major industries, customers and geographic areas. The credit risk on liquid funds and derivative financial instruments is limited, because the counterparties are banks with high credit ratings assigned by international credit- rating agencies. In addition, appropriate credit committees review significant credit transactions before consummation. Where considered appropriate, use is made of credit guarantee insurance. A suitable provision is made for doubtful debts. Financial guarantee contracts are accounted for as insurance arrangements.

Past due trade receivables

Included in trade receivables are debtors which are past the expected collection date (past due) at the reporting date and no provision has been made, as there has not been a significant change in credit quality, and the amounts are still considered recoverable. No collateral is held over these balances. A summarised age analysis of past due debtors is set out below.

 
  Consolidated Company
  2013  2012  2013  2012 
         
Less than  1 month  41  44  26  20 
Between 1 to 2 months  15  12 
Between 2 to 3 months  11 
Greater than 3 months  224  353 
Total past due  291  417  43  27 
         
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  20  17 
Currency alignment     
Amounts written off during the year  (1) (1) (1)  
(Decrease)/increase in allowance recognised in profit or loss  (1) (2) (1)
Balance at end of year                                                                                             20  20 
   
  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 values of the forward exchange contracts were established 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
  Average
contract
rate
Commitment

(Rmillion)
2013
Fair value
of FEC
(Rmillion)
2012
Fair value
of FEC
(Rmillion)
  Average
contract
rate 
Commitment

(Rmillion)
2013
Fair value
of FEC
(Rmillion)
2012
Fair value
of FEC
(Rmillion)
Imports                  
Euro  11,74        11,74     
US dollar  9,32        9,32     
    14          14     
Exports                  
US dollar  9,26  331  (6)   9,26  331  (6)
Net total    345  (6)     345  (6)
       
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 date of the statement of financial position.

Forward exchange contracts that do not constitute designated hedges of currency risk at year end are summarised as follows:
       
  Consolidated   Company
  Average
contract
rate
Commitment

(Rmillion)
2013
Fair value
of FEC
(Rmillion)
2012
Fair value
of FEC
(Rmillion)
  Average
contract
rate 
Commitment

(Rmillion)
2013
Fair value
of FEC
(Rmillion)
2012
Fair value
of FEC
(Rmillion)
Imports                   
US dollar  8,70 6       8,70 6    
UK pound  13,70 1       13,70 1    
Total    7         7    
                   
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 amount (million) 2013 (Rmillion) 2012 (Rmillion)     Foreign amount (million) 2013 (Rmillion) 2012 (Rmillion)
US dollar 5 45 10     4 42 8
Australian dollar 6 53 43     6 53 43
New Zealand dollar   2 2          
    100 55       95 51
                 
The impact of a 10% strengthening or weakening of the Rand on the uncovered Australian dollar receivable will have a
R5 million (2012: R4 million) impact on profit before tax and a R4 million (2012: R3 million) impact on equity. The impact of a 10% strengthening or weakening of the Rand on the uncovered US dollar receivable will have a R5 million (2012: R1 million) impact on profit before tax and a R4 million (2012: 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 2013 and a significant portion of its requirements for the period to 31 May 2014, by using a combination of unpriced procurement contracts and purchases and sales of maize futures.

The fair values of the commodity futures contracts, which are set out below, were established by reference to quoted prices and are categorised as Level 1 under the fair value hierarchy.
  Consolidated   Company
  Tons


Contract
value
(Rmillion)
2013
Fair
value
(Rmillion)
2012
Fair
value
(Rmillion)
  Tons


Contract
value
(Rmillion)
2013
Fair
value
(Rmillion)
2012
Fair
value
(Rmillion)
Futures-hedge accounted:                  
Maize futures sold 2 900 7 (15)   2 900  (15)
Maize futures purchased 28 200 65 (1)   28 200  65  (1)
      (10)       (10)
Period when cash flow is expected 2013/14  2012/13        2013/14  2012/13 
When expected to affect profit 2013/14  2012/13        2013/14  2012/13 
(Loss)/gain recognised in hedge reserve during the year (4)       (4)
(Gain) transferred from hedge reserve and recognised in profit or loss (1) (3)       (1) (3)
   
  Interest rate risk
Tongaat Hulett is exposed to interest rate risk on its fixed rate loan liabilities and accounts receivable and payable, which can impact on the fair value of these instruments. Tongaat Hulett is also exposed to interest rate cash flow risk in respect of its variable rate loans and short-term cash investments, which can impact on the cash flows of these instruments. The exposure to interest rate risk is managed through the cash management system, which enables Tongaat Hulett to maximise returns while minimising risks. The impact of a 50 basis point move in interest rates will have a R29 million (2012: R26 million) effect on profit before tax and a R21 million (2012: R19 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 of R1,75 billion (2012: R2 billion and 2011: R1,5 billion). Tongaat Hulett continues to meet the covenants associated with its long-term unsecured South African debt facilities.

Borrowings inclusive of interest projected at current interest rates:
   
 
Consolidated Weighted average effective interest rate (%) Due
within 1 year
1 to 2 years 2 to 5 years After 5 years Interest adjustment Total
               
2013              
Bank loans  6,9  2 244  1 348  2 211  489  (891) 5 401 
Foreign loans  10,0  138        (7) 131 
Other borrowings  6,3  242        (7) 235 
Financial lease liability  7,0     
Other non-interest bearing liabilities    2 302        2 307 
Net settled derivatives    16          16 
Total for Tongaat Hulett    4 943  1 349  2 212  494  (905) 8 093 
Non-recourse equity-settled              
BEE borrowings    82  856      (216) 722 
Total including SPV debt    5 025  2 205  2 212  494  (1 121) 8 815 
               
2012              
Bank loans  7,0  3 259  210  1 203  401  (724) 4 349 
Foreign loans  10,0  346  60  179  181  (157) 609 
Other borrowings  6,8  185        (6) 179 
Financial lease liability  5,1    (1)
Other non-interest bearing liabilities    1 747      14    1 761 
Net settled derivatives           
Total for Tongaat Hulett    5 544  271  1 383  596  (888) 6 906 
Non-recourse equity-settled              
BEE borrowings    87  87  732    (169) 737 
Total including SPV debt    5 631  358  2 115  596  (1 057) 7 643 
   
   
26. PRINCIPAL SUBSIDIARY COMPANIES AND JOINT VENTURES (Rmillion)
   
 
  Interest of Holding Company
  Equity Indebtness
  2013  2012  2013  2012 
         
Tongaat Hulett Starch (Pty) Limited 15  15  51  36 
         
Tongaat Hulett Developments (Pty) Limited     (578) (269)
Tongaat Hulett Estates (Pty) Limited        
         
Tongaat Hulett Sugar South Africa Limited 4 328  4 328  730  440 
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)        
Triangle Limited (Zimbabwe)        
Hippo Valley Estates Limited (Zimbabwe) (50,3%)        
         
The Tongaat Group Limited 54  54  (59) 148 
  4 397  4 397  144  148 
   
  Except where otherwise indicated, effective participation is 100 percent.
A full list of all subsidiaries and joint ventures is available from the company secretary on request.
   
   
27. GUARANTEES AND CONTINGENT LIABILITIES (Rmillion)
   
 
  Consolidated Company
  2013 2012 2013 2012
         
Guarantees in respect of obligations of Tongaat Hulett and third parties 38 14 7 7
Contingent liabilities   10   10
  38 24 7 17
   
   
28. LEASES (Rmillion)
   
 
  Consolidated Company
  2013 2012 2013 2012
         
Amounts payable under finance leases        
Minimum lease payments due:        
Not later than one year 1 6 1 1
Later than one year and not later than five years 2 1 2 1
  3 7 3 2
Less future finance charges        
Present value of lease obligations  3 7 3 2
         
Payable:        
Not later than one year 1 6 1 1
Later than one year and not later than five years 2 1 2 1
  3 7 3 2
Operating lease commitments, amounts due:        
Not later than one year 41 36 38 32
Later than one year and not later than five years 58 59 52 50
Later than five years 5   4  
  104 95 94 82
         
In respect of:        
Property 86 78 78 68
Plant and machinery 4 9 4 9
Other 14 8 12 5
  104 95 94 82
   
   
29. CAPITAL EXPENDITURE COMMITMENTS (Rmillion)
 
  Consolidated Company
  2013 2012 2013 2012
         
Contracted 175 132 60 56
Approved but not contracted 312 210 202 114
  487 342 262 170
   
  Funds to meet future capital expenditure will be provided from retained net cash flows and debt financing.
   
   
30. RELATED PARTY TRANSACTIONS (Rmillion)
  During the year Tongaat Hulett, in the ordinary course of business, entered into various related party sales, purchases and investment transactions. These transactions occurred under terms that are no less favourable than those arranged with third parties. Intra-group transactions are eliminated on consolidation.
 
  Consolidated Company
  2013 2012 2013 2012
         
Goods and services:        
Transacted between operating entities within the company     1 1
Between the company and its subsidiaries     706 588
Transacted between subsidiaries within Tongaat Hulett 260 400    
Tongaat Hulett Pension Fund contribution cost 56 55 53 53
         
Administration fees and other income:        
Transacted between operating entities within the company     5 9
Between the company and its subsidiaries     82 55
Transacted between subsidiaries within Tongaat Hulett 119 109    
Transacted with/between joint ventures within Tongaat Hulett 8 4    
Paid to external related parties 4 4    
         
Interest paid:        
Transacted between operating entities within the company     9 12
Between the company and its subsidiaries     41 42
Transacted with/between joint ventures within Tongaat Hulett 4 2    
         
Interest received:        
Transacted between operating entities within the company     458 391
Between the company and its subsidiaries     2 2
Transacted between subsidiaries within Tongaat Hulett 57 50    
Transacted with/between joint ventures within Tongaat Hulett 5 1    
         
Sales of fixed assets:        
Between the company and its subsidiaries     55 110
         
Loan balances:        
Between operating entities within the company     6 054 5 606
Between the company and its subsidiaries     143 148
Pension Fund Loan - Employer Surplus Account 69 96 69 96
         
Dividends received:        
Between the company and its subsidiaries     97 81
Transacted between subsidiaries within Tongaat Hulett 90 75    
         
Other related party information:        
Total dividends paid - refer to note 24        
Directors - refer to notes 32 and 33        
Tongaat Hulett Developments is a guarantor for a Tongaat Hulett Limited South African long-term unsecured loan facility