2010 ANNUAL REPORT FOR THE FIFTEEN MONTHS ENDED 31 MARCH 2010 TONGAAT HULETT LIMITED ANNUAL REPORT FOR THE 15 MONTHS ENDED 31 MARCH 2010 www.tongaat.co.za CONTENTS Introduction to Tongaat Hulett 2 Capitalising on Tongaat Hulett’s Strategic Platform 4 Chairman’s Statement 6 Sustainability Report 31 Chief Executive’s Review 9 Introduction 31 Tongaat Hulett’s Competitive Position in a Environmental Stewardship 32 Changing World of Agriculture 10 Social Performance 35 Financial Results 17 Safety 35 Review of Tongaat Hulett’s Operations 18 Health 36 Conclusion 29 Talent Management and People Development 37 Stakeholder Engagement 40 Economic Sustainability 41 Socio-Economic Development 44 Independent Assurance Statement 45 Corporate Governance 46 Directorate 53 Segmental Analysis 56 Financial Results with 15 Month Comparatives 57 Annual Financial Statements 58 Report of the Independent Auditors 59 Directors’ Approval 60 Certificate by Company Secretary 60 Directors’ Statutory Report 61 Financial Statements 64 Five Year Review 108 Definitions 109 Independent Reporting Accountants’ Assurance Report 110 Share Ownership Analysis 112 Corporate Information 113 Shareholders’ Diary 113 Notice to Shareholders 114 Form of Proxy 1 2010 INTRODUCTION TO TONGAAT HULETT Tongaat Hulett is an agri-processing business which includes Tongaat Hulett’s wet-milling operation is the major producer integrated components of land management, property of starch and glucose on the African continent. Established development and agriculture. Through its sugar and starch in 1919, the starch operation has grown to be an important operations in Southern Africa, Tongaat Hulett produces a supplier to a diverse range of South African and African range of refined carbohydrate products from sugar cane industries. Operating four wet-milling plants, Tongaat Hulett and maize. It has considerable expertise in downstream converts more than 600 000 tons of maize per annum into agricultural products, biofuel production and electricity starch and starch-based products. It manufactures a wide cogeneration. Competition for water and alternative land range of products, from unmodified maize starch to highly usages is an ongoing dynamic. Tongaat Hulett balances the refined glucose products, which are key ingredients for operational requirement for cane supplies to its sugar cane local manufacturers of foodstuffs, beverages and a variety processing operations with the transition of agricultural land of industrial products. The expansion of the economically to other uses at the appropriate times. It is well positioned active population in the South African economy is positive to benefit from the changing world of agriculture and for the volume growth of these products. agri-processing. Possessing a portfolio of sugar operations and assets in Over the past century, Tongaat Hulett has established itself some of the lowest cost sugar production areas in the world, as a leading large scale agri-processing business which has its coupled with its leading Huletts® sugar brand, world class base firmly established in Southern Africa. Demand for food technology, and preferential market access, Tongaat Hulett products is increasing worldwide, renewable energy has is in the favourable position of being able to capitalise on the introduced a new dimension to agriculture and agricultural changing sugar fundamentals in world markets. trade regimes are changing, with Africa and the European Union moving closer as a trade bloc. Further opportunities The sugar assets are located in Southern Africa. Production for expansion and growth in Africa are thus emerging. in 2009/10 amounted to 1,0 million tons of sugar and Tongaat Hulett has the established business platform and actions are underway to increase sugar cane supplies in size to capitalise on these opportunities. The successful management of the socio-economic and political dynamics of agriculture, land, water, agri-processing, food and energy are integral to the business. The growth and development of Tongaat Hulett’s operations, in the selected regions in which it operates, have involved establishing credible partnering relationships with local communities, governments and employees over time. Its 25 percent South African BEE equity participation transactions and involvement in post settlement land claim solutions, the partnership with the Mozambique government in establishing the Mozambique sugar operations and its programmes to establish indigenous cane farmers in Zimbabwe illustrate the level of understanding and extent of relationships in the region. order to match the available milling capacity that is in excess of 1,9 million tons. Further expansion potential exists, The integrated business model involves land and water particularly in the low cost production areas of Zimbabwe management, agriculture, agri-processing and the transition and Mozambique. to property development and other uses at the appropriate times. Tongaat Hulett is able to maximise value through the In South Africa, Tongaat Hulett’s sugar milling, refining various phases of land usage, from acquisition, agriculture and and agricultural operations are located on the north coast agri-processing to the transition to property development of KwaZulu-Natal and in the Zululand region, where it has and other uses and the pace thereof. This carefully managed four sugar mills with installed capacity to produce more than process continues to enhance the value of Tongaat Hulett’s 1,0 million tons of sugar per annum. The sugar operations remaining land. As Durban grows and further developments are strategically positioned to leverage efficiencies and such as the recently opened King Shaka International economies as sugar milling in the region improves its Airport at La Mercy materialise, the importance of the cost competitiveness. The matching of milling capacity agricultural land conversion to development is increasing. to available cane supplies remains a key driver of low cost 2 2010 sugar production. The central refining capacity of some Mozambique’s LDC and ACP status allows its products to 600 000 tons offers the organisation unique advantages. enter the EU on a duty free basis, giving it an advantage over countries such as Brazil. The downstream and sugar value added operations include South African refined exports, domestic marketing and sales, Botswana and Namibia packing and distribution, Sugar operations in Zimbabwe consist of Triangle and a as well as Voermol® animal feeds. Key to enhanced value 50,3 percent stake in Hippo Valley Estates, representing a creation are the market leading Huletts® and Voermol® combined installed sugar milling capacity of 600 000 tons. brands. The South African sugar operations product range The lowveld in Zimbabwe, with excellent topography, offers a total sweetener solution including a range of climate and established water storage and conveyance high intensity sweeteners. The Voermol Feeds operation infrastructures for irrigation, is recognised as the lowest markets its range of energy and supplementary feeds to the cost sugar producer in Southern Africa, if not the world. livestock farming community. The operations at Triangle have produced, since 1980, industrial alcohol as an extension of the manufacturing Tongaat Hulett is able to take advantage of the evolving process, with capital invested during 2007 to convert this to renewable energy dynamics in its sugar operations by substituting the production of molasses and sugar for the fuel grade ethanol. international market with the production of bio-ethanol for the local market. The opportunity exists through additional Tongaat Hulett employs more than 35 000 employees capital investments to increase the efficiency in which the and conducts its business operations in a manner that energy component of bagasse is converted to electricity seeks to create value for all stakeholders, is sustainable thereby substantially increasing the quantum of electricity and contributes meaningfully to the social and physical produced at its mills for use by third parties. environment in which it operates. A high priority is In Mozambique, sugar operations consist of the expanded placed on all aspects of safety, health and environment. sugar mills and estates surrounding Xinavane and Tongaat Hulett prides itself on its BEE scorecard Mafambisse. The sugar estates are fully irrigated and are rating as a Level Three Contributor with a score of located in areas with ideal growing conditions resulting 78,23 percent achieved in 2009 and its inclusion in the in high cane and sucrose yields. These ideal agricultural JSE’s Social Responsibility Investment index for the sixth conditions combined with the sugar mills’ close proximity consecutive year. These results are testimony to Tongaat to the ports and the technology availability and support Hulett’s adherence to the triple bottom line principles of from South Africa are well positioned for future growth. environmental, economic and social development. 2010 3 CAPITALISING ON TONGAAT HULETT’S STRATEGIC PLATFORM EgdÒi [gdb deZgVi^dch d[ G&!+.& W^aa^dc [dg i]Z tourism areas north of Durban, a further 2 047 hectares 15 month period ended March 2010 reflected an to the west of the city and 5 374 hectares located in increase of 28 percent over the corresponding period. the eThekwini growth corridor north of the city. The Tongaat Hulett has increased profit from continuing opening of the new King Shaka International Airport at operations every year since 2003 as the company