NOTES (21-30) TO THE FINANCIAL STATEMENTS



21.  TAX (Rmillion) Consolidated  Company 
     2014  2013   2014  2013  
         Restated     Restated 
   Earnings before capital profits:             
   Current  507  294  10  10 
   Deferred  16  91  33  33 
   Rate change adjustment (deferred) (4)      
   Prior years  (1)      
      520  389  43  43 
                 
   Capital profits:             
   Current          
   Deferred  13  13 
      18  13 
                 
   Tax charge for the year  538  392  56  46 
                 
   Foreign tax included above  183  250  10  10 
                 
   Tax charge at normal rate of South African tax  494  439  113  87 
   Adjusted for:             
   Non-taxable income and permanent allowances/deductions  (14) (63) (77) (50)
   Assessed losses of foreign subsidiaries  (7)      
   Non-allowable expenditure  29  29 
   Foreign tax rate variations  11  (30)      
   Foreign withholding tax  10 
   Rate change adjustment (deferred) (4)      
   Capital gains  18  13 
   Prior years  (1)      
   Tax charge  538  392  56  46 
                 
   Normal rate of South African tax  28,0% 28,0% 28,0% 28,0%
   Adjusted for:             
   Non-taxable income and permanent allowances/deductions  (0,8) (4,0) (19,1) (17,0)
   Assessed losses of foreign subsidiaries  (0,4) 0,1       
   Non-allowable expenditure  1,6  1,9  0,5  0,3 
   Foreign tax rate variations  0,6  (1,9)      
   Foreign withholding tax  0,6  0,5  1,2  1,7 
   Rate change adjustment (deferred) (0,2) 0,3       
   Capital gains  1,0  0,2  3,2  1,0 
   Prior years  0,1  (0,1)      
   Effective rate of tax  30,5% 25,0% 13,8% 14,0%
                   
                   
22.  HEADLINE EARNINGS (Rmillion) Consolidated       
    2014  2013      
          Restated       
   Profit attributable to shareholders  1 155  1 079       
                 
   Less after tax effect of:  (49) (12)      
   Capital profit on disposal of land and buildings  (66) (16)      
   Capital loss on other items          
   Profit on disposal of plant and equipment  (1)         
      (67) (15)      
   Tax charge on profit on sale of land  18       
                 
   Headline earnings  1 106  1 067       
                 
   Headline earnings per share (cents)            
   Basic  990,5  968,0       
   Diluted  978,9  950,3       
                 
           
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 111 655 446 (2013: 110 225 436). In respect of diluted earnings per share the weighted average number of shares is 112 979 644 (2013: 112 274 481) and includes 941 010 shares (2013: 2 049 045 shares) that relate to employee share award schemes and 383 188 shares (2013: nil) that relate to BEE schemes.
 
           
24.  DIVIDENDS (Rmillion) Consolidated  Company 
      2014  2013  2014  2013 
   Ordinary share capital             
   Final for previous year, paid 18 July 2013: 190 cents
(2013: 170 cents)
206  179  206  179 
   Interim for current period, paid 6 February 2014: 150 cents
(2013: 150 cents)
34  163  34  163 
                 
   A preferred ordinary share capital             
   Interim for current period, paid 30 June 2013: 223 cents
(30 June 2012: 223 cents)
56  56  56  56 
   Final for current period, paid 31 December 2013: 223 cents
(31 December 2012: 223 cents)
56  56  56  56 
   Accrued for three months to 31 March 2014: 223 cents
(31 March 2013: 223 cents)
28  28  28  28 
                 
   B ordinary share capital: final for 2012, paid 19 July 2012: 170 cents     16     16 
      380  498  380  498 
                 
   Less dividends relating to BEE treasury shares  (140) (151)    (11)
      240  347  380  487 
                 
   The final ordinary dividend for the year ended 31 March 2014 of 210 cents per share declared on 22 May 2014 and payable on 26 June 2014 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 
      2014  2013  2014  2013 
   Financial assets             
   Derivative instruments in designated hedge
accounting relationships 
16     16    
   Unlisted shares at cost  18  14       
   Loans and receivables at amortised cost  4 402  3 672  1 356  1 305 
      4 436  3 686  1 372  1 305 
                 
   Financial liabilities             
   Derivative instruments in designated hedge
accounting relationships 
16  16 
   Financial liabilities at amortised cost  8 124  8 077  6 268  6 393 
   Non-recourse equity-settled BEE borrowings  691  722       
      8 816  8 815  6 269  6 409 
           
  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 
      2014  2013  2014  2013 
                 
   Less than 1 month  41  41  32  26 
   Between 1 to 2 months  12  15 
   Between 2 to 3 months  11 
   Greater than 3 months  240  224  15 
   Total past due  302  291  53  43 
                 
   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  20 
   Currency alignment       
   Amounts written off during the year     (1)    (1)
   Decrease in allowance recognised in profit or loss  (1) (1) (1) (2)
   Balance at end of year  21  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
        2014  2013       2014  2013
    Average contract rate Commitment (Rmillion) Fair value of FEC (Rmillion) Fair value of FEC (Rmillion)   Average contract rate Commitment (Rmillion) Fair value of FEC (Rmillion) Fair value of FEC (Rmillion)
  Imports                  
  US dollar  11,07 3       11,07    
  Exports                  
  US dollar  10,80  264 (1) (6)   10,80 264 (1) (6)
  Net total   267 (1) (6)     267 (1) (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 armís 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
        2014  2013       2014  2013
    Average contract rate Commitment (Rmillion) Fair value of FEC (Rmillion) Fair value of FEC (Rmillion)   Average contract rate Commitment (Rmillion) Fair value of FEC (Rmillion) Fair value of FEC (Rmillion)
  Imports                  
  US dollar  10,95 7       11,07    
  UK pound 17,68  2   (6)   10,80 2    
  Total   9   (6)     9    
                     
  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
        2014  2013       2014  2013
    Foreign amount (million) (Rmillion) (Rmillion)     Foreign amount (million) (Rmillion) (Rmillion)
  US dollar 6 63 45     63 42
  Australian dollar 5 47 53     5 47 53
  New Zealand dollar   2 2          
      112 100       110 95
                     
  The impact of a 10% strengthening or weakening of the Rand on the uncovered Australian dollar receivable will have a R5 million  (2013: R5 million) impact on profit before tax and a R3 million (2013: R4 million) impact on equity. The impact of a 10% strengthening or weakening of the Rand on the uncovered US dollar receivable will have a R6 million (2013: R5 million) impact on profit before tax and a  R5 million (2013: R4 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 Hulettís 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 2014 and a significant portion of its requirements for the period to 31 May 2015 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 established by reference to quoted prices and are categorised as level 1 under the fair value hierarchy.
 
  Consolidated    Company
        2014  2013       2014  2013
    Tons Contract value (Rmillion) Fair value(Rmillion) Fair value(Rmillion)   Tons  Contract value (Rmillion) Fair value(Rmillion) Fair value(Rmillion)
  Futures - hedge accounted:                   
  Maize futures sold  300 1 19 (15)   300 19 (15)
  Maize futures purchased  77 200 168 (3) 5   77 200 168 (3) 5
        16 (10)       16 (10)
  Period when cash flow is expected to occur    2014/15 2013/14       2014/15 2013/14
  When expected to affect profit or loss    2014/152013/14       2014/15 2013/14
  Loss recognised in equity during the year    (4)         (4)
  Loss/(gain) transferred from equity and  recognised in profit or loss   (1)       (1)
                   
  Growing crops fair value measurement 
Growing crops, comprising roots and standing cane, are measured at fair value which is determined using unobservable inputs and is categorised as level 3 under the fair value hierarchy. The fair value of roots is determined on a current amortised cost basis, which is adjusted for cost increases, and the amortisation takes place over the life of the roots (between approximately 6 and 12 years). The fair value of standing cane is determined by the growth of the cane, an estimate of the yield of the standing cane, sucrose content, selling prices, less costs to harvest and transport, over-the-weighbridge costs and costs into the market. Changes in the fair value are included in profit or loss, with a charge of R153 million (2013: benefit of R468 million) being recognised in profit or loss in the current year. A reconciliation of the change in fair value for the year is included in note 2

The effect of an increase in yield or in selling prices will result in an increase in the fair value of the standing cane. The key unobservable inputs, used in determining fair value and which are not interrelated, are yield of the standing cane of 87 tons per hectare (2013: 86 tons per hectare), and selling prices. For commercial reasons, selling prices cannot be disclosed. A change in yield of one ton per hectare would result in a R26 million (2013: R24 million) change in fair value while a change of one percent in selling prices would result in a R24 million (2013: R22 million) change in fair value.

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 R23 million (2013: R29 million) effect on profit before tax and a R17 million (2013: R21 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 R2,84 billion (2013: R1,75 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 
2014                      
Bank loans  7,3%  1 346  2 228  2 075     (810) 4 839 
Foreign loans  10,2%  330  61  61  183  (107) 528 
Other borrowings  7,0%  359           (12) 347 
Financial lease liability  7,3%     (1)
Other non-interest bearing liabilities     2 403           2 407 
Net settled derivatives                
Total for Tongaat Hulett     4 441  2 290  2 137  187  (930) 8 125 
                       
Non-recourse equity-settled BEE borrowings  947           (256) 691 
Total including SPV debt   5 388  2 290  2 137  187  (1 186) 8 816 
                       
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 
                     
                     
26.  PRINCIPAL SUBSIDIARY COMPANIES AND JOINT OPERATIONS (Rmillion)
         Interest of holding company 
   Name of subsidiary  Principal activity  Equity  Indebtedness 
         2014  2013  2014  2013 
   Tongaat Hulett Starch (Pty) Limited  Wet maize milling starch & glucose manufacturing operation  15  15  37  51 
   Tongaat Hulett Developments (Pty) Limited  Land & property development activities        (857) (578)
   Tongaat Hulett Estates (Pty) Limited  Estate agency             
   Tongaat Hulett Sugar Limited  Raw sugar refining, packaging and production of liquid & dry speciality sugars  4 238  4 328  576  730 
   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) (59)
         4 307  4 397  (303) 144 
             
 

Except where otherwise indicated, effective participation is 100 percent. 

A full list of all subsidiaries and joint operations is available from the company secretary on request.

Non-wholly owned subsidary with material non-controlling interests: Hippo Valley Estates Limited (Zimbabwe)

Hippo Valley Estates Limited is listed on the Zimbabwe Stock Exchange. It is engaged in the growing and milling of sugarcane and other farming operations. 

           
      Consolidated     
  Summarised financial information  2014  2013      
           Restated    
   Non-current assets  2 920  2 623     
   Current assets  1 079  685     
   Non-current liabilities  (1 522) (1 183)    
   Current liabilities  (182) (205)    
   Equity attributable to Tongaat Hulett  (1 141) (958)    
   Non-controlling interests  1 154  962     
               
               
   Revenue  1 380  1 478     
               
   Profit attributable to Tongaat Hulett  41  54     
   Profit attributable to non-controlling interests  40  52     
   Profit for the year  81  106     
           
   Other comprehensive income attributable to Tongaat Hulett  143  157       
   Other comprehensive income attributable to non-controlling interests  141  155       
   Other comprehensive income for the year  284  312       
                 
   Total comprehensive income attributable to Tongaat Hulett  184  211       
   Total comprehensive income attributable to non-controlling interests  181  207       
   Total comprehensive income for the year  365  418       
                 
   Net cash inflow from operating activities  300  369       
   Net cash outflow from investing activities  (313) (475)      
   Net cash inflow from financing activities  279  125       
   Net cash inflow for the year  266  19      
           
           
27. GUARANTEES AND CONTINGENT LIABILITIES (Rmillion)        
      Consolidated  Company 
      2014  2013  2014  2013 
   Guarantees in respect of obligations of Tongaat Hulett and third parties  113  38 
   Contingent liabilities          
      116  38 
                 
                 
28.  LEASES (Rmillion)
     Consolidated  Company 
      2014  2013  2014  2013 
  Amounts payable under finance leases            
   Minimum lease payments due:             
   Not later than one year
   Later than one year and not later than five years 
    
                
   Less future finance charges  (1)    (1)   
   Present value of lease obligations 
                
   Payable:             
   Not later than one year 
   Later than one year and not later than five years 
     
                
   Operating lease commitments, amounts due:             
   Not later than one year 65  41  61  38 
   Later than one year and not later than five years  63  58  56  52 
   Later than five years       
     128  104  117  94 
   In respect of:             
   Property  84  86  75  78 
   Plant and machinery 
   Other  38  14  37  12 
     128  104  117  94 
                 
                
29.  CAPITAL EXPENDITURE COMMITMENTS (Rmillion)            
      Consolidated  Company 
      2014  2013  2014  2013 
   Contracted  74  175  22  60 
   Approved but not contracted  152  312  124  202 
      226  487  146  262 
                 
   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 
      2014  2013  2014  2013 
   Goods and services:             
   Transacted between operating entities within the company       
   Between the company and its subsidiaries        761  706 
   Transacted between subsidiaries within Tongaat Hulett  193  260       
   Tongaat-Hulett Pension Fund contribution cost     56     53 
                 
   Administration fees and other income:             
   Transacted between operating entities within the company       
   Between the company and its subsidiaries        513  82 
   Transacted between subsidiaries within Tongaat Hulett  108  119       
   Transacted with/between joint operations within Tongaat Hulett       
   Paid to external related parties       
                 
   Interest received/paid:             
   Transacted between operating entities within the company        474  449 
   Paid by the company to its subsidiaries        76  41 
   Received by the company from its subsidiaries       
   Transacted between subsidiaries within Tongaat Hulett  95  57       
   Transacted with/between joint operations within Tongaat Hulett       
                 
   Sales of fixed assets:             
   Between the company and its subsidiaries        107  55 
   Transacted between subsidiaries within Tongaat Hulett  52          
                 
   Loan balances:             
   Between operating entities within the company        5 816  6 054 
   Between the company and its subsidiaries        303  144 
   Pension Fund loan - employer surplus account  73  69  73  69 
                 
   Dividends received:             
   Between the company and its subsidiaries        148  97 
   Transacted between subsidiaries within Tongaat Hulett  140  90       
                 
   Other related party information:             
  

Total dividends paid - refer to note 24 

Directors - refer to here and here of the Remuneration Report

Tongaat Hulett Developments is a guarantor on Tongaat Hulett Limitedís South African long-term unsecured loan facility