NOTES (21-30) TO THE FINANCIAL STATEMENTS



21. TAX (Rmillion) Consolidated Company
    2012 2011 2012 2011
  Earnings before capital profits:        
    Current 108 93 7  
    Deferred 189 161 15 108
    Rate change adjustment (deferred) 16      
    Secondary tax on companies 36 29 36 29
    Prior years (1) (22) 1  
    348 261 59 137
  Capital profits:        
    Deferred 3   3  
  Tax for the year 351 261 62 137
  Foreign tax included above 225 68 7  
  Tax charge at normal rate of South African tax 384 317 102 143
  Adjusted for:        
    Non-taxable income and permanent allowances (112) (15) (87) (37)
    Assessed losses of foreign subsidiaries (3) (48)    
    Non-allowable expenditure 23 29 1 2
    Foreign withholding tax and rate variations 3 (29) 3  
    Rate change adjustment (deferred) 16      
    Secondary tax on companies 36 29 36 29
    Capital gains 5   5  
    Prior years (1) (22) 2  
  Tax charge 351 261 62 137
  Normal rate of South African tax 28,0% 28,0% 28,0% 28,0%
  Adjusted for:        
    Non-taxable income and permanent allowances (8,2) (1,3) (23,9) (7,2)
    Assessed losses of foreign subsidiaries (0,2) (4,3)    
    Non-allowable expenditure 1,7 2,5 0,3 0,4
    Foreign withholding tax and rate variations 0,2 (2,5) 0,8  
    Rate change adjustment (deferred) 1,2      
    Secondary tax on companies 2,6 2,5 9,8 5,7
    Capital gains 0,4   1,4  
    Prior years (0,1) (1,9) 0,6  
  Effective rate of tax 25,6% 23,0% 17,0% 26,9%
           
22. HEADLINE EARNINGS (Rmillion) Consolidated    
    2012 2011    
  Profit attributable to shareholders 889 833    
  Less after tax effect of surplus on sale of property 2 (27)    
    Capital profit on sale of land (3) (23)    
    Capital profit on other items   (4)    
    Fixed assets and other disposals 2 (1)    
    (1) (28)    
    Tax charge on profit on sale of land 3      
    Tax charge on disposal of other fixed assets   1    
           
  Headline earnings 891 806    
  Headline earnings per share (cents)        
    Basic 838,9 760,5    
    Diluted 819,4 739,6    
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 106 208 909 (2011: 105 986 145). In respect of diluted earnings per share the weighted average number of shares is 108 738 956 (2011: 108 983 882).
24. DIVIDENDS (Rmillion)        
    Consolidated Company
    2012 2011 2012 2011
  Ordinary share capital        
    Final for previous year, paid 21 July 2011: 140 cents (2011: 175 cents) 147 69 147 69
    Interim for current period, paid 26 January 2012: 120 cents (2011: 110 cents) 126 115 126 115
  B ordinary share capital        
    Final for previous year, paid 21 July 2011: 140 cents (2011: 175 cents) 14 17 14 17
    Interim for current period, paid 26 January 2012: 120 cents (2011: 110 cents) 12 11 12 11
  A preferred ordinary share capital        
    Interim for current period, paid 30 June 2011: 203 cents (30 June 2010: 203 cents) 51 51 51 51
    Final for current period, paid 31 December 2011: 203 cents
(31 December 2010: 203 cents)		 51 51 51 51
    Accrued for three months to 31 March 2012: 223 cents (2011: 203 cents) 28 25 28 25
    429 339 429 339
     Less dividends relating to BEE treasury shares (150) (148) (19) (21)
    279 191 410 318
  The final ordinary dividend for the year ended 31March 2012 of 170 cents per share declared on 24 May 2012 and payable on 19 July 2012 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
    2012 2011 2012 2011
  Financial assets        
    Derivative instruments in designated hedge accounting relationships 4 11 4 11
    Unlisted shares at cost 12 7    
    Loans and receivables at amortised cost 2 683 1 947 851 820
    2 699 1 965 855 831
  Financial liabilities        
    Derivative instruments in designated hedge accounting relationships 1 2 1 4
    Financial liabilities at amortised cost 6 905 6 120 5 440  
    Non-recourse equity-settled BEE borrowings 737 761    
    7 643 6 883 5 441 4
           
  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 o set 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
    2012 2011 2012 2011
  Less than 1 month 44 32 20 21
  Between 1 to 2 months 12 16 4 6
  Between 2 to 3 months 8 5 1 3
  Greater than 3 months 353 320 2 2
  Total past due 417 373 27 32
  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 17 18 6 7
  Consolidation of subsidiaries   1    
  Currency alignment 2 (1)    
  Amounts written o during the year (1) (1)    
  Increase/(decrease) in allowance recognised in profit or loss 2   (1) (1)
  Balance at end of year 20 17 5 6
           
  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 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
      2012 2011     2012 2011
  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 8,12 12   (1) 8,12 12   (1)
Exports                
US dollar 7,93 273 2 4 7,93 273 2 4
                 
Net total   285 2 3   285 2 3

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
      2012 2011     2012 2011
  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 7,57 12     7,57 12    
UK pound 12,87 1     12,87 1    
    13       13    
Exports                
US dollar       5       5
Net total   13   5   13   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 2012 2011 amount 2012 2011
  (million) (Rmillion) (Rmillion) (million) (Rmillion) (Rmillion)
US dollar 1 10 22 1 8 20
Australian dollar 5 43 36 5 43 36
New Zealand dollar   2        
    55 58   51 56

The impact of a 10% strengthening or weakening of the Rand on the uncovered Australian dollar receivable will have a R4 million (2011: R4 million) impact on profit before tax and a R3 million (2011: 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 R1 million (2011: R2 million) impact on profit before tax and a R1 million (2011: 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 2012 and a significant portion of its requirements for the period to 31 May 2013 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
      2012 2011     2012 2011
  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 14 500 31 2 2 14 500 31 2 2
 Maize futures purchased 58 200 123 (1) (1) 58 200 123 (1) (1)
      1 1     1 1
Period when cash flow expected to occur     2012/13 2011/12     2012/13 2011/12
When expected to affect profit     2012/13 2011/12     2012/13 2011/12
Amount recognised in equity during the year     1 3     1 3
Amount transferred from equity and recognised in profit or loss     3 6     3 6

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 R26 million (2011: R22 million) effect on profit before tax and a R19 million (2011: R16 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 some R2 billion (2011 R1,5 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 Due       Interest  
Consolidated                      effective interest rate (%) within 1 year 1 to 2 years 2 to 5 years After 5 years adjustment Total
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 6 1 1   (1) 7
Other non-interest bearing liabilities   1 747     14   1 761
Net settled derivatives   1         1
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
               
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

26. PRINCIPAL SUBSIDIARY COMPANIES AND JOINT VENTURES (Rmillion)        
    Interest of Holding Company
    Equity Indebtedness
    2012 2011 2012 2011
  Tongaat Hulett Starch (Pty) Limited 15 15 36 27
  Tongaat Hulett Developments (Pty) Limited     (269) (434)
  Tongaat Hulett Estates (Pty) Limited        
  Tongaat Hulett Sugar Limited 4 328 4 634 440 (317)
  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%) 54 54 (59) (62)
  The Tongaat Group Limited 4 397 4 703 148 (786)
           
  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)        
    Consolidated    
    2012 2011    
  Details of Namibian subsidiaries consolidated during the year ended 31 March 2011 and their cash flow effects are summarised below.
 		        
  Property, plant, equipment and investments   3    
  Inventories   39    
  Trade and other receivables   22    
  Trade and other payables   (47)    
  Deferred tax   1    
  Borrowings   (18)    
  Minority interest   (1)    
  Net assets consolidated   (1)    
  Goodwill arising on consolidation   8    
  Investment in subsidiaries - 7    
           
28. GUARANTEES AND CONTINGENT LIABILITIES (Rmillion)        
    Consolidated Company
    2012 2011 2012 2011
  Guarantees in respect of obligations of Tongaat Hulett and third parties 14 23 7 2
  Contingent liabilities 10 12 10 12
    24 35 17 14
           
29. LEASES (Rmillion)        
    Consolidated Company
    2012 2011 2012 2011
  Amounts payable under finance leases        
  Minimum lease payments due:        
    Not later than one year 6 8 1 1
    Later than one year and not later than five years 1 6 1 1
    7 14 2 2
  Less: future finance charges   (1)    
  Present value of lease obligations 7 13 2 2
  Payable:        
    Not later than one year 6 7 1 1
    Later than one year and not later than five years 1 6 1 1
    7 13 2 2
  Operating lease commitments, amounts due:        
    Not later than one year 36 18 32 16
    Later than one year and not later than five years 59 24 50 10
    95 42 82 26
  In respect of:        
    Property 78 28 68 15
    Plant and machinery 9 8 9 8
    Other 8 6 5 3
    95 42 82 26
           
30. CAPITAL EXPENDITURE COMMITMENTS (Rmillion)        
    Consolidated Company
    2012 2011 2012 2011
  Contracted 132 134 56 33
  Approved but not contracted 210 51 114 37
    342 185 170 70
   
  Funds to meet future capital expenditure will be provided from retained net cash flows and debt financing.


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