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AFGRI Limited Annual Report 2006
The past financial year was one of the
most testing in many years for AFGRI
and it is a credit to management’s
skill and perseverance that headline
earnings from continuing operations
increased by 144%.
Last year’s bumper maize crop of 11,45 million tons was a mixed
blessing for AFGRI. Capacity utilisation at AFGRI’s silo complexes
improved to 85% from 75% the previous year, but the
subsequent drop in plantings for the new season – prompted by
a sharp drop in maize prices due to over-supply – negatively
impacted Producer Services and Financial Services. The fortunes
of both these businesses are inextricably linked to the level of
activity in the farming sector. Producer Services, which supplies
equipment and primary inputs to the farming sector, was
particularly hard hit by the decline in new maize plantings. Lower
maize plantings also translated into reduced demand for crop
insurance, seed, fertiliser, agricultural equipment and other inputs
supplied by AFGRI.
Far more positive is how AFGRI management responded to the
threats and challenges it faced over the last financial year.
Logistics Services had another excellent year, due largely to the
aforementioned increase in silo capacity utilisation and Products’
Plant Oil business was returned to profitability. There was a 52%
improvement in the performance of the Producer Services’ Retail
and Equipment business, following a vigorous attack on fixed
costs, substantial stock reductions and the phasing out of
unviable retail branches. All remaining branches are now
profitable and this business is expected to make a positive
contribution to earnings in the coming financial year. Another
example of entrepreneurial innovation by Logistics Services is
the diversification into coal transport to offset reduced maize
deliveries in its transport business. Conscious of its heavy
exposure to the volatile grain business, AFGRI is diversifying into
new commodities such as tobacco processing and servicing of
tobacco farmers.
The acquisition, after year end, of Daybreak marks the Group’s re-
entry to the broiler business following the sale of the 50%
interest in Earlybird in 2004 due to the restrictions placed on
AFGRI by the partnership agreement with Astral. It was always
the intention to re-enter this business once a suitable
opportunity presented itself. This acquisition has the dual
advantage of giving AFGRI a solid foothold in an expanding
market segment with acceptable margins, while providing it with
the opportunity for expansion. All of the suspensive conditions
relating to this acquisition were fulfilled during March 2006. The
sale of the Group’s cotton ginning interest within Clark Cotton to
Cargill subsequent to the financial year end is positive for AFGRI.
AFGRI’s strategic policy is to either fix or exit those businesses
that do not meet its required rate of return and its exposure to
the volatile cotton business was identified as a strategic threat,
from which no immediate relief was seen due to continued low
cotton prices and the strength of the rand. Despite continuous
efforts to fix the problems at Clark Cotton, little could be done to
address exogenous factors in the cotton market. Given its size and
international footprint, Cargill is a more suitable home for the
cotton ginning interests of Clark Cotton, which is now in a
position to leverage the economies of scale indigenous to a
group of its size.
Good progress was made in bedding down the relationship with
AFGRI’s Black Economic Empowerment (“BEE”) partners, the Agri
Sizwe Empowerment Trust, which acquired a 26,77% interest in
AFGRI Operations in 2004. AFGRI continues to investigate ways to
expand its service offering to emerging commercial farmers
while continuing to service its traditional farmer market, and in
this AFGRI has been ably guided by its BEE partners. Many
exciting products and innovations are in the pipeline and AFGRI
is determined to play a meaningful role in the transformation of
the South African agricultural sector.
EXECUTIVE REVIEW
12
13
AFGRI Limited Annual Report 2006
OPERATIONAL REVIEW
AFGRI LOGISTICS SERVICESThis business unit comprises:
• Handling & Storage, with more than 4 million tons of fixed and
mobile capacity countrywide; and
• Logistics, a fourth party supplier of logistic services, as well as
fleet management and owner-driver solutions.
This business increased sales by 13% to R294 million (2005:
R260 million) and headline earnings from continuing operations
before income tax by a creditable 20% to R202 million (2005:
R169 million).
HANDLING & STORAGE
This is the largest supplier of handling and storage services to
the South African agricultural community, and represents nearly
a third of South Africa’s total silo capacity of 14 million tons.
Capacity utilisation over the past financial year exceeded 85%, up
from 75% for the prior year, helped by a bumper maize crop of
11,45 million tons. The bumper maize crop resulted in a surplus
of roughly 5 million tons, and many farmers opted to store rather
than sell their surplus crops due to the slump in the maize price.
AFGRI’s silo capacity has been augmented by the introduction of
non-permanent “bunker” silos, which can be erected at relatively
low cost in areas of greatest demand.
The reduction in maize plantings for the current season is
likely to result in lower capacity utilisation during the coming
financial year.
LOGISTICS
Logistics managed the transportation of 3,2 million tons of
product last year, almost a 50% increase over the prior year. It
remains the single largest transporter of grain products in South
Africa. As a fourth party logistics provider, this business owns
very little in the way of assets, relying on the services of
outsourced suppliers and hauliers.
FINANCIAL RESULTSThe Board is pleased to report an overall increase in earnings of
19,6% and headline earnings of 8,8% on the pro forma results of
the prior year. This was made possible due to the significant
improvement in headline earnings from continuing operations
before income tax of 19% in what can best be described as a
particularly challenging year for agriculture. This was achieved on
continuing sales of R5,4 billion, which was largely unchanged
from the previous year. The strengthening of the South African
rand, the sharp drop in realised maize prices and the resultant
45% decrease in planted hectares directly impacted the results of
both the Producer Services and Financial Services businesses.
Sales in Financial Services’ continuing operations increased 38% to
R572 million (2005: R413 million) though headline earnings from
continuing operations before income tax declined by 13% to R45
million (2005: R52 million) due primarily to lower demand for crop
insurance. Logistics Services increased sales 13% to R294 million
(2005: R260 million) and headline earnings from continuing
operations before income tax by a creditable 20% to R202 million
(2005: R169 million). Products’ headline earnings from continuing
operations before income tax remained largely unchanged at R66
million (2005: R67 million).
STRATEGYAFGRI’s business strategy is to achieve real economic growth by
maximising returns on shareholder capital and to fix or exit those
businesses that destroy value. AFGRI’s re-entry to the broiler
business, through the acquisition of Daybreak and the disposal
of the cotton ginning interests within Clark Cotton, is consistent
with this philosophy. AFGRI also seeks to capture a larger share
of the agricultural value chain by reducing its exposure to the
vagaries of commodity prices. Since embarking on a major
restructuring of the Group four years ago, value-destroying
businesses that could not be fixed have been sold and new
business opportunities with solid potential for value creation
have been pursued both in South Africa and beyond. Today,
AFGRI is a diverse agricultural services group offering the full-
spectrum of agricultural, logistics and financial services to clients.
AFGRI Limited Annual Report 2006
The 2 million tons of grain transported was down 10% on the
previous year, but this was more than offset by the 1,2 million
tons of coal shipped. AFGRI is in the process of converting several
grain sidings to coal sidings and is confident of expanding this
new business opportunity in the coming year.
AFGRI FINANCIAL SERVICESThis business is one of the biggest financiers of the agricultural
market and the biggest financier of the milling industry in South
Africa. It comprises:
• Finance facilities, providing loans and seasonal accounts to
about 19 000 farmers and agri-processors;
• Trading, one of the three leading grain traders in South Africa;
and
• Insurance, the largest crop insurance brokers in South Africa.
Sales in Financial Services’ continuing operations increased 38%
to R572 million (2005: R413 million) as a result of the much
improved performance in Africa (Zambian and Malawian
businesses). Headline earnings from continuing operations
before income tax declined by 13% to R45 million (2005:
R52 million) due primarily to lower demand for crop insurance.
FINANCE FACILITIES
This business provides financial facilities and products to
approximately 19 000 farmers and agri-processors. The average
debtors’ book was R3,1 billion (2005: R2,9 billion), with a bad debt
experience of around 1%. The types of loans provided range from
seasonal to term loans.
TRADING
The Trading business posted a strong performance due mainly
to higher trading on SAFEX by clients, translating into higher
brokerage income, increased milldoor grain supplies and the
launch of an innovative new product. This business provides
farmers and agri-processors with an efficient pricing mechanism
and achieved trading volumes of 2,1 million tons (2005:
1,8 million tons), an increase of 17%. The Trading business does
not take on any principal risk, nor does it speculate on future
price movements. It is a fee-earning business and revenue is
dependent on trading volumes transacted on behalf of clients.
INSURANCE
Demand for crop insurance was sharply down due to the
reduction in maize plantings. Farmers are expected to increase
plantings in the coming season due to the current increase in
maize prices and this should result in a recovery in demand for
crop insurance.
EXECUTIVE REVIEW (continued)
14
AFGRI Limited Annual Report 2006
The outlook for Retail and Equipment going forward is positive,
for several reasons:
• the recent recovery in the maize price is expected to translate
into higher maize plantings in the forthcoming season;
• most dams are full to capacity, which contributes to an
improved outlook for agriculture; and
• all retail outlets within the Group are now trading profitably
following the phase-out of loss-making stores and the
reduction in fixed costs.
There are ongoing efforts to streamline IT systems throughout
the retail network, reduce infrastructure costs and improve
margins through more efficient procurement and supply
chain management.
The Golf and Industrial business specialises in golf course and
industrial turf equipment. The prospect for the supply of John
Deere equipment to the more than 20 new golf courses under
development across the country are good.
PARTMASTER
Previously known as Kramp South Africa, Partmaster has a proud
history going back more than 20 years in South Africa servicing
the agricultural machinery industry by stocking and supplying a
wide range of parts and components for the agricultural
community. Partmaster retains the exclusive right to products
available from the Kramp group suppliers and plans to expand its
range of products available to AFGRI clients during the coming
year.
TECHNICAL SERVICES
Technical Services is a market leader in precision farming, a
scientifically-based technique that removes the guesswork
associated with traditional farming. It continues to make steady
inroads among larger commercial farmers eager to reduce input
costs and maximise yields. This business provides satellite
imaging capabilities over most of South Africa’s crop producing
regions and offers farmers an early view of any crop stress they
will be experiencing so that corrective action can be taken.
AFGRI PRODUCER SERVICESThis business comprises:
• Retail
– Retail and Equipment, with over 80 retail outlets supplying
requisites and equipment to farming communities across
the country;
– Partmaster, a national supplier of agricultural machinery
parts and components; and
– Technical Services, which offers leading-edge technology to
assist farmers in optimising returns.
• Primary Inputs, supplying fertiliser, chemicals, fuel and seed
to farmers; including Tsunami Crop Care, which sources and
formulates cost-effective agro-chemicals for distribution by
agents.
RETAIL AND EQUIPMENT
Retail and Equipment comprises a network of some 80 stores
servicing farming communities across the country. This business
also services the equipment needs of farmers through the retail
network, as well as through 30 workshops and 23 mobile units.
Sales for the Retail and Equipment business, at R2,2 billion, were
constant with the previous year, and the headline loss from
continuing operations before income tax at R48 million was an
improvement of 52% on the R99 million loss for 2005. This loss
disguises the strong improvement in the Retail and Equipment
businesses in recent months and the actions taken to return
these businesses to profit.
The retail network was adversely impacted by the 45% reduction
in summer maize plantings. The improvement in operating
performance over the prior year was due to the phasing-out of
loss-making branches, a 25% reduction in fixed costs and a much
tighter stock control.
15
AFGRI Limited Annual Report 2006
PRIMARY INPUTS
The headline loss from continuing operations before income tax
of R44 million (2005: R8 million) is due to the poor performance
of Seed. It was another difficult year for Seed due to the near
45% reduction in maize plantings, itself a result of much lower
maize prices. The launch of high-yield yellow maize hybrids in the
last two years has been well received by the market. The recent
recovery in maize prices augurs well for the coming planting
season and an increase in maize plantings is anticipated. This will
be to the benefit of Seed in the coming financial year. The Seed
business continues to research new hybrids for wheat, sunflower,
soya beans and other grains.
Tsunami was launched during the previous financial year to offer
AFGRI clients more competitive prices on generic agro-chemicals
and technical advice on the optimum application of these
chemicals to maximise yields and minimise environmental
damage. This business has performed well since start-up,
although demand for agro-chemicals suffered due to reduced
grain plantings, a situation which should improve markedly in
the coming year. New product formulations currently in the
pipeline, including a joint venture with a major domestic
chemical producer, will expand the range of products available
to AFGRI customers and expand the Group’s market share.
AFGRI PRODUCTSAFGRI Products comprises:
• AFGRI Animal Proteins, with Feeds being one of the three
largest producers of animal feeds in South Africa;
• Foods and Plant Oils; and
• Clark Cotton.
ANIMAL PROTEINS
AFGRI Animal Feeds comprises six manufacturing facilities at
Eloff, Isando, Bethlehem, Kinross, Paterson in the Eastern Cape
and Klipheuwel in the Western Cape. It has a total production
capacity of 1,2 million tons a year, which makes it one of the
three largest animal feed businesses in South Africa.
Animal Feeds achieved headline earnings from continuing
operations before income tax of R71 million during the year
under review, which is 8% down from that of the previous year.
Headline earnings growth was impacted by start-up costs
associated with the new Western Cape plant and the closure
of a facility (part of the Natalagri acquisition) due to low
capacity utilisation. This is a creditable result in the light of the
unusually high costs associated with the closure and Western
Cape start-up.
A new factory in Paterson in the Eastern Cape was commissioned
during the year under review and is now operating profitably.
This joint venture with the Eastern Cape Agricultural Co-op
expands AFGRI’s animal feed production by about 8% and,
together with the new Western Cape plant, extends the national
footprint of the Animal Feeds division. The acquisition of the
Daybreak broiler business secures current feed offtake and
provides Afgri with an expansion opportunity for Animal Feeds,
the benefits of which will reflect in the results for the current
financial year.
EXECUTIVE REVIEW (continued)
16
AFGRI Limited Annual Report 2006
CLARK COTTON
AFGRI’s cotton ginning interests within Clark Cotton, comprising
three gins in Zambia, three in South Africa and a 51% interest in
two gins in Malawi, were sold to Cargill subsequent to the close
of the financial year under review. The total proceeds of the
transaction is approximately R259 million. Cargill paid US$15
million for the fixed and intangible assets of Clark Cotton. It also
acquired at book value the inventory and will collect the
outstanding debtors of Clark Cotton in Zambia and South Africa,
as well as procure the repayment of the working capital loans to
Clark Cotton Malawi.
As mentioned in the previous annual report, the South African
market for cotton lint has been severely disrupted in recent years
by low cost imports of manufactured garments from China,
placing Clark Cotton’s margins under severe pressure. Despite
efforts to lower costs, reduce investment in working capital and
adjust the business’ hedging policy, these were not sufficient to
offset lower cotton prices and currency translation effects
eminating from the strong rand and Zambian kwacha. A decision
was therefore taken to exit this business and redeploy the capital
realised more profitably elsewhere.
In last year’s annual report, reference was made to a venture
between Animal Feeds and Carr’s Milling Industries plc, a UK
listed agri-business with operations very similar to AFGRI. This
venture would establish a joint manufacturing facility in the UK
to produce technologically advanced bypass protein for inclusion
in ruminant feed which has been developed and licensed by
AFGRI. This joint venture is now well advanced, and the
production plant is due to be commissioned in the second half of
the current calendar year, at a total cost of R6 million.
FOODS AND PLANT OILS
The Foods business comprises Citrifruit, which extracts and
refines high quality citrus oil for supply to the beverage market
and is a supplier of lemon oil to the largest branded soft drinks
supplier in the world, and a Snacks business.
The Plant Oils business comprises Cotton Seed Processors and
Nedan Oil Mills, which supply plant oils and soya-based products
from a manufacturing plant in Mokopane.
Sales of the Foods and Plant Oils businesses increased by 180%
to R375 million (2005: R134 million) due to the acquisition of
Nedan Oil Mills. The headline loss from continuing operations
before income tax was R5 million (2005: R10 million loss) and was
primarily due to the poor performance of Citrifruit. This operation
was negatively impacted by low production due in part to the
drought affecting the citrus harvest in the Lowveld.
17
AFGRI Limited Annual Report 2006
AFGRI INTERNATIONALThis business comprises the Group’s operations in Australia and
Zambia.
T&H Walton Stores, the largest distributor of John Deere farming
equipment in Western Australia, had another excellent year, with
equipment sales buoyed by good crop yields.
The Zambian business is a replica of AFGRI’s South African
operations and is involved in the handling, grading, storage,
marketing and trading of grain. Zambia has become an African
success story, helped by rising copper prices and a resurgent
agricultural sector. Many displaced former Zimbabwean farmers
have been welcomed with open arms in Zambia, helping to turn
this country into a net food producer.
PROSPECTSFollowing the Group’s sale of the Clark Cotton ginning interests,
the re-entry into the broiler business and the restructuring of the
Producer Services business, AFGRI has built an excellent platform
for growth over the coming financial year. As mentioned earlier,
the recent recovery in the maize price to about R1 100 a ton from
below R600 last year and the lower current crop suggests maize
plantings will return to normal levels in the forthcoming season.
This will have a positive effect on virtually all areas of the Group’s
business. The lower summer crop is, however, expected to have a
negative effect on the capacity utilization in the Handling &
Storage business.
A recovery in the fortunes of the agricultural sector – helped by
excellent rains and near record dam capacities – should reflect in
the financial performance of the Financial Services, Products and
Producer Services businesses.
We continue to look for opportunities to expand our
geographical footprint and capture a larger share of the
agricultural value chain through appropriate acquisitions that
meet AFGRI’s strategic objectives. Having weathered the
extremely difficult past year, we are confident of a much
improved performance in the year ahead.
Jeff D Wright
Managing Director
Dominic M Sewela
Deputy Managing Director
Izak De Wet Goosen
Director Finance
EXECUTIVE REVIEW (continued)
18
AFGRI Limited Annual Report 2006
The Directors of AFGRI are unreservedly committed to applying
the principles of discipline, independence, responsibility,
fairness, social responsibility, transparency and accountability
to all stakeholders.
The Board is of the opinion that the Group currently complies
with all the significant requirements in the Code of Corporate
Practices and Conduct, as advocated in the King II Report on
Corporate Governance for South Africa 2002 and the JSE Limited
(“JSE”) Listings Requirements.
DIRECTORS AND EXECUTIVEMANAGEMENTThe Board is a unitary Board whose primary responsibilities
include: giving strategic direction to AFGRI, identifying key risk
areas and key performance indicators for the Group’s business,
monitoring investment decisions, considering significant
financial matters, reviewing performance of executive
management against business plans, budgets and industry
standards. The Board retains full and effective control over the
Group and has unrestricted access to all Company records.
Managerial levels of authority have been established for capital
expenditure projects and the acquisition and disposal of assets.
However, decisions of a material nature are taken by the Board.
The Board is chaired by a Non-executive Director, Mr PF Erasmus
and consists of three Executive Directors and ten Non-executive
Directors. Details of the Directors in office on 16 May 2006, and
their attendance at Board and Committee meetings are detailed
on pages 6 and 26 respectively.
Board meetings are held at least quarterly, with additional
meetings called where circumstances necessitate. Non-executive
Directors do not meet without the Chairman and Executive
Directors present. Effective chairmanship and a formal agenda,
ensures that all issues requiring attention are raised, proceedings
are conducted efficiently and all appropriate matters are addressed.
All relevant information is supplied to Directors timeously.
Directors have unlimited access to the Group Company Secretary,
who acts as an advisor to the Board and its sub-committees on
issues including compliance with Group rules and procedures,
statutory regulations, the JSE Listings Requirements and with the
King II Code of Corporate Governance.
Furthermore, the advice of independent professionals may be
obtained by any Board member in appropriate circumstances,
at the expense of the Company. The name and address of the
Secretary is on page 118.
BOARD SUB-COMMITTEESSpecific responsibilities have been delegated to Board
Committees with defined terms of reference. The current
Board Committees are:
REMUNERATION COMMITTEE
Members: PF Erasmus (Chairman)
NO Davies
GAL Ebedes
MM Moloele
FJ van der Merwe
The Remuneration Committee consists of five Non-executive
Directors and is chaired by a Non-executive Director of the
Group. The Committee met six times during the financial year.
The function of the Committee is to approve a broad
remuneration strategy for the Group and to ensure that Directors
and senior executives are adequately remunerated for their
contribution to AFGRI’s operating and financial performance.
The three major elements of the remuneration structure are
guaranteed package, short-term incentive schemes and long-
term awards (share options). At all times, due attention is paid to
succession planning and the retention of key executives.
The Committee also reviews the recommendations for Non-
executive Directors’ fees and Committee fee structures against
market data before submission to the Board.
CORPORATE GOVERNANCE
22
AFGRI Limited Annual Report 2006
• providing the Board of Directors with assurance that significant
business risks are systematically identified, assessed and
reduced to acceptable levels in order to yield a return equal to
the risk; and
• making risk identification and risk management an integral
part of the daily activities of everyone in the organisation.
Implementation of the risk management policy
Executive management is accountable for the process of risk
management and for establishing appropriate risk and control
policies. The implementation of the risk management framework
is the responsibility of everyone in the Group.
Risk management process
Supporting the risk management policy is the Enterprise-wide
Risk Management (“ERM”) strategy. This strategy embeds risk
management processes into all the critical business systems,
allowing the Group to adopt a precautionary approach to
business management. When critical decisions are being made,
managers are required to look beyond the obvious risks and
recognise all sources of uncertainty, including issues related to
health, safety, environment and community.
ERM requires management to understand the risks associated with
the activities under their control and manage them accordingly,
and this acts to stimulate and reinforce accountability.The context
of all the risk management activities is always the achievement of
the business plan and strategic objectives.
Each division and subsidiary has gone through an objective
process of business risk assessment during the year under
review, facilitated by Group risk management and external
consultants. The risk assessments have highlighted where further
control action is required, and this is now being taken.
The Board of Directors has appointed internal and external
consultants to audit compliance with regard to security, health
and safety, risk control organisation, emergency planning, vehicle
fleet, fire and loss controls. This provides an ongoing process for
identifying, evaluating and managing the significant operational
risks faced by the Group.
No Director has service contracts in excess of three years. Details
of service contracts, restraint of trade and Directors’ interests in
issued shares of the Company is provided on page 37 of this
annual report.
The remuneration paid to Executive and Non-executive Directors
of AFGRI, as well as details of share options are disclosed on
pages 108 to 110, Note 8.
AUDIT AND RISK MANAGEMENT COMMITTEE
Members: NO Davies (Chairman)
JJ Claassen
I De W Goosen
KL Thoka
FJ van der Merwe
JD Wright
This Committee consists of four Non-executive and two
Executive Directors with a Non-executive chairman and meets at
least twice a year with management and the external and
internal auditors.
Audit
The Audit Committee reviews the effectiveness of the risk
management process and internal control in the Group with
reference to the findings of both the internal and external
auditors and the external and internal risk management audits.
Other areas covered include the review of important accounting
issues, including specific disclosures in the financial statements
and a review of the major audit recommendations.
The internal and external auditors have direct access to the
Audit Committee.
Risk management
Risk management policy
Risk management is an integral part of management’s functions
within the Group and includes the management of operational
and business risks. The establishment of a more formalised
enterprise-wide risk management process was initiated during
the 2005 financial year with the following principal objectives:
23
AFGRI Limited Annual Report 2006
The most significant business risks identified, through a
top-down process performed on an annual basis, are:
• Grain stock
• Commodity trading
• Debtors
• Information and network technology
• Self-insurance
• Debtors and stock structures
• Electronic funds transfers
• Specific stock items
• Foreign investments
• Weather
These risks are controlled and managed by external and internal
insurance programmes, Group policies limiting exposure in
specific areas, Group treasury, specific management focus and
structures such as the marketing, procurement, hedging and
credit policies developed at Group level.
Reporting on the effectiveness of risk management
During the year under review a risk management system
was implemented to capture risk information, assign risks,
controls and actions to accountable managers and enables
management to track and report progress on all risk control
activity more effectively.
All divisions and subsidiaries report on the effectiveness of their
risk management processes, in a generic dashboard format, to
Group Risk management, the divisional ERM Committees and the
divisional Audit and Risk Committees that in turn report to the
Board of Directors via a bottom-up process.
Responsibility of the Board
The Board of Directors is responsible for governing risk
management processes and the quality of internal control
systems in the Group in accordance with corporate governance
best practice. The Board is supported in these tasks by the
Committees of the Board and their sub-committees and risk
management functions. Levels of the risk management
governance structures for the Group:
• Audit and Risk Committee of AFGRI and specific
sub-committees
• Audit and Risk Committees of each division
• Enterprise-wide Risk Management Committee for each division
• Risk Management Committees of divisions and subsidiaries
Having evaluated the process of risk management, the Board is
of the opinion that an adequate and effective system of internal
control is in place to provide reasonable assurance that
significant risks have been mitigated to an acceptable level.
ACQUISITIONS COMMITTEE
Members: PF Erasmus (Chairman)
CA Apsey
JJ Claassen
MM Moloele
FJ van der Merwe
The Committee comprises five Non-executive Directors, with the
Chairman being Non-executive. The purpose of this Committee is
to support the Board in their responsibilities on acquisitions and
capital expenditure.
DIRECTORS’ NOMINATION COMMITTEE
Members: PF Erasmus (Chairman)
GAL Ebedes
NO Davies
MM Moloele
FJ van der Merwe
The main responsibilities of the Committee are to review the
membership of the Board and the performance of Executive
Directors on an annual basis, having regard to the current and
future needs of the Company, and to make recommendations on
Board composition and appointments. Such appointments are
formal and transparent and a matter for the Board as a whole.
SHARE DEALING COMMITTEE
Members: PF Erasmus (Chairman)
JD Wright
I De W Goosen
24
CORPORATE GOVERNANCE(continued)
AFGRI Limited Annual Report 2006
The Group has comprehensive risk and loss control procedures in
place, which form an integral part of a sophisticated self-
insurance programme. The layered structure of the programme
allows the Group to obtain highly competitive rates while
protecting other companies from major losses through
appropriate local and offshore insurance.
GOING CONCERNThe annual financial statements set out in this annual report
have been prepared in accordance with International Financial
Reporting Standards. They are based on appropriate accounting
policies that have been consistently applied.
Having reviewed AFGRI’s financial projections, the Directors
believe that the Group will continue as a going concern in the
year ahead.
COMMUNICATION TOSTAKEHOLDERSAFGRI is committed to a process of continuing dialogue with its
investors. AFGRI is proactive in the distribution of information to
relevant parties through the JSE SENS communications system,
printed and electronic media releases and the statutory
publication of its financial results. All stakeholders are
communicated with on a regular basis.
The Board would like to encourage all shareholders to attend the
shareholders’ meetings as this is the ideal opportunity to voice
their opinions.
The Group is committed to transparency.
EMPLOYEE PARTICIPATIONAFGRI employs a variety of participative structures to deal with
issues that affect employees directly and materially. These
include structures to drive productivity improvements, safety
committees and other participative forums.
The Group is committed to creating a working environment in
which employees are encouraged to become involved in its
affairs and to obtain a sound understanding of its activities. This
is achieved through employee forums operating throughout the
Group, and the regular publication of internal communiqués.
In terms of the JSE Listings Requirements, a Share Dealing
Committee was constituted to approve share dealings and trades
undertaken by the Company Directors and officers. Records of
the requests and approvals are held with the Company Secretary.
MANAGEMENT REPORTINGThere are comprehensive management reporting disciplines in
place, which include the preparation of annual budgets by all
operating units. The EXCO (Executive Directors) approves
individual operational budgets, while the Group budget is
reviewed by the Board of Directors of the Company. Monthly
results and the financial status of operating units are reported
against approved budgets and compared to the prior year results.
Profit projections and cash flow forecasts are updated monthly,
while working capital and borrowing levels are monitored on an
ongoing basis.
INTERNAL CONTROLThe Group maintains internal controls and systems designed to
provide reasonable assurance as to the integrity and reliability of
the financial statements and to adequately safeguard, verify and
maintain accountability for its assets. Such controls are based on
established policies and procedures and are implemented by
trained personnel with an appropriate segregation of duties. The
Group has outsourced its internal audit function. This internal
audit function operates under the direction of the Group Audit
Committee, which approves the scope of the work to be
performed. Significant findings are reported to both executive
management and the Audit Committee. Corrective action is
taken to address internal control deficiencies identified in the
execution of the work.
PricewaterhouseCoopers Inc. acts as external auditors and KPMG
as internal auditors.
Nothing has come to the attention of the Directors, or the
auditors that indicated material breakdowns in the functioning
of the Group’s key internal controls and systems during the year
under review.
25
AFGRI Limited Annual Report 2006
26
ATTENDANCE AT BOARD AND COMMITTEE MEETINGS
Board Audit and Risk Acquisition Credit Remuneration Nomination
Board member meetings Committee Committee Committee Committee Committee
6 3 1 4 4 2
CA Apsey 6 n/a 1 n/a n/a n/a
JJ Claassen 6 3 1 n/a n/a n/a
NO Davies 6 3 n/a 4 4 2
GAL Ebedes 6 n/a n/a 1 4 2
PF Erasmus 6 n/a 1 4 4 2
JJ Ferreira 6 n/a n/a n/a n/a n/a
I De W Goosen 6 3 n/a 4 n/a n/a
MM Moloele 6 n/a 1 n/a 4 2
DM Sewela 1 n/a n/a n/a n/a n/a
KL Thoka 5 3 n/a n/a n/a n/a
FJ van der Merwe 6 3 1 n/a 3 2
JTJ van Rensburg 5 n/a n/a n/a n/a n/a
JD Wright 5 3 n/a 4 1 n/a
Total membership 13 6 5 4 5 5
Note: DM Sewela was only appointed as a full Director with effect from 7 April 2006.
In July 2005 the membership of the Remuneration, Nomination and Credit Committees were reconstituted.
CODE OF ETHICSA code of ethics has been adopted which requires all employees
to participate in the Group’s commitment to high moral, ethical
and legal standards.
This code controls the Group’s responsibilities towards
shareholders, customers, suppliers and the broad community,
as well as the personal actions of Directors, management and
other employees.
The Group maintains a closed period of one month prior to the
financial year and or half year until the public release of these
results, during which period no Executive Director or employee
may, directly or indirectly, trade in the shares of AFGRI Limited.
However, employees with contracts awarded in terms of the
AFGRI Share Incentive Scheme, may trade these shares during
the closed period, if authorised to this effect by the Managing
Director. Additional periods may be declared “closed” from time
to time if circumstances warrant this action.
DISCLOSUREThe annual report deals adequately with disclosures pertaining
to the annual financial statements, auditors’ responsibilities,
accounting records, internal control, risk management,
accounting policies, adherence to accounting standards, going
concern issues and adherence to codes of governance and the
JSE Listings Requirements.
CORPORATE GOVERNANCE(continued)
AFGRI Limited Annual Report 2006
27
GROUP REVIEW
2006 2005 2004 2003 2002
Ordinary share performance (cents per share)
Earnings 39,0 32,6* 62,9 65,8 67,9
Headline earnings 37,2 34,2* 73,3 66,1 68,9
Cash flow 41,7 62,0 120,3 150,3 111,5
Dividend and capital distribution 30,3 140,2 41,3 37,8 268,0
– Interim 9,1 18,3 15,2 15,2 9,9
– Final proposed – 8,0 26,1 22,6 13,1
– Special distribution – 113,9 – – 245,0
– Capital distribution 21,2 – – – –
Net tangible asset value 307,5 294,8 268,0 354,6 387,9
Returns
Return on average equity (%) 11,7 12,5 21,7 17,0 17,7
Operating profit to revenue from continuing operations (%) 4,1 2,4 6,6 4,6 7,5
Effective tax rate (%) 10,1 31,6 31,8 22,5 29,3
Productivity
Value added (Rm) 921,6 981,0 1 059,0 966,8 785,5
Net asset sales (times) 3,4 4,0 6,2 5,1 3,6
Net assets per employee (R000) 388,1 339,3 188,3 244,8 328,2
Sales per employee (R000) 1 318,4 1 361,9 1 163,9 1 239,4 1 098,4
Solvency and liquidity
Finance cost cover (times) 2,8 3,5 3,0 4,1 8,9
Dividend cover compared to applicable year (times) 1,3 1,2 1,5 1,7 3,0
Cash realisation rate 0,7 0,8 1,4 1,8 1,3
Interest free liabilities/total assets 38,0 46,1 36,1 42,7 36,5
Current ratio 1,3 1,3 1,5 1,3 1,6
Acid test ratio 0,8 0,8 1,1 1,0 1,3
* These figures are based on pro forma results which include an adjustment to profit in respect of the BEE transaction.
As the Group’s financial statements for the year ended 28 February 2006 are the first financial statements that comply with
International Financial Reporting Standards (“IFRS”) and the Group has applied IFRS 1 in preparation thereof, AFGRI’s transition date is
1 March 2004. As such, only the 2006 and 2005 information have been presented in accordance with IFRS.
2006 2005 2004 2003 2002
JSE performance
Traded prices (cents per share)
– last sale in year 640 480 630 420 451
– high 700 780 630 620 570
– low 450 480 410 420 302
– weighted average price per share traded 533 652 470 530 471
Price earnings ratio 16,4 14,7* 10,0 6,4 6,6
Price earnings ratio (based on headline earnings) 17,2 14,0* 8,6 6,4 6,5
Year-end market price/net interest per share 1,8 1,5 2,2 1,1 1,2
Number of shares in issue at year-end (m) 341,2 326,9 333,1 327,8 334,4
Volume of shares traded (m) 103,5 119,9 151,1 69,5 91,5
Number of transactions 6 536 8 870 4 883 3 413 3 534
Volume traded as % of number in issue 30,3 36,7 42,1 19,7 26,4
Value of shares traded (Rm) 545,9 782,1 710,6 369,0 431,5
Market capitalisation (Rm) 2 183,6 1 569,2 2 098,5 1 376,6 1 508,0
Number of shareholders 5 409 6 032 5 308 5 213 4 719
Earnings yield (%) 6,1 6,8 10,0 15,7 15,1
Dividend yield (%) 4,7 5,5 6,6 9,0 5,1
AFGRI Limited Annual Report 2006
GROUP REVIEW (continued)
28
29
AFGRI Limited Annual Report 2006
2006 2005 2004 2003 2002
Rm Rm Rm Rm Rm
Cash flow information
Net cash generated from operating activities 17,9 25,4 103,1 271,0 951,6
Net cash (utilised in)/generated from investing activities (217,0) 18,7 (98,6) (216,5) 36,9
Net cash generated from/(utilised in) financing activities 55,3 (133,5) (15,8) (56,7) (763,3)
(Decrease)/increase (143,8) (89,4) (11,3) (2,2) 225,2
Movements in cash and cash equivalents
Beginning of year (153,9) (64,5) 246,0 248,2 23,0
(Decrease)/increase (143,8) (89,4) (11,3) (2,2) 225,2
End of year (297,7) (153,9) 234,7 246,0 248,2
Income statement information
Sales 5 788,0 6 246,9 5 913,9 6 041,3 4 472,8
Profit before income tax 186,3 230,7* 370,0 278,3 324,4
Income tax expense (14,4) (66,2)* (96,1) (62,2) (95,1)
Profit after tax 171,9 164,5 273,9 216,1 229,3
AFGRI Limited Annual Report 2006
30
GROUP REVIEW (continued)
2006 2005 2004 2003 2002
Rm Rm Rm Rm Rm
Balance sheet information
Assets
Non-current assets 1 255,9 1 096,6 706,9 679,1 634,1
Current assets 2 571,4 2 790,7 2 125,6 2 695,5 1 826,7
Non-current assets held for sale 86,4 – – – –
Total assets 3 913,7 3 887,3 2 832,5 3 374,6 2 460,8
Equity and liabilities
Capital and reserves 1 172,6 1 042,1 1 379,4 1 210,9 1 336,3
Minority interest 531,1 514,4 – – –
Non-current liabilities 232,9 130,6 64,3 79,6 81,8
Current liabilities 1 974,2 2 200,2 1 388,8 2 084,1 1 042,7
Liabilities associated with non-current assets held for sale 2,9 – – – –
Total equity and liabilities 3 913,7 3 887,3 2 832,5 3 374,6 2 460,8
AFGRI Limited Annual Report 2006
FINANCE COST COVER
Operating profit divided by finance costs.
NET ASSETS
The sum of fixed and current assets less current liabilities,
borrowings and deferred income tax.
NET ASSETS PER EMPLOYEE
Net assets divided by the number of permanent employees in
service at year end.
NET ASSET SALES
Sales divided by closing net assets.
NET TANGIBLE ASSET VALUE
Capital and reserves less intangible assets divided by the number
of shares with voting rights at year end.
OPERATING PROFIT TO SALES FROM CONTINUING
OPERATIONS
Operating profit as a percentage of sales.
PRICE EARNINGS RATIO
The closing share price on the JSE at 28 February 2006 divided by
earnings per share.
RETURN ON AVERAGE EQUITY
Earnings attributable to equity holders as a percentage of
average shareholders’ equity.
SALES PER EMPLOYEE
Sales divided by the number of permanent employees in service.
ACID TEST RATIO
Current assets less inventories divided by current liabilities.
CASH FLOW PER SHARE
The attributable cash flow from operations divided by the
weighted average number of shares in issue during the year.
CASH REALISATION RATE
The percentage of cash earnings realised, derived by dividing
cash flow per share by cash equivalent earnings per share.
CURRENT RATIO
Current assets divided by current liabilities.
DIVIDEND COVER
Earnings per share divided by dividend per share.
DIVIDEND YIELD
Dividend per share divided by the closing price of AFGRI on the
JSE Limited (“JSE”) at 28 February 2006.
EARNINGS PER SHARE
• Attributable earnings basis
Earnings attributable to equity holders divided by the weighted
average number of shares in issue during the year.
• Cash equivalent basis
Earnings attributable to equity holders adjusted for non-cash
items in attributable earnings, divided by the weighted average
number of shares in issue during the year.
EARNINGS YIELD
Earnings per share divided by the closing price on the JSE at
28 February 2006.
31
DEFINITIONS
AFGRI Limited Annual Report 2006
32
VALUE ADDED STATEMENT
2006 2005
R000 % R000 %
Sales of goods and services 5 787 981 6 246 885
Investment income 57 284 32 213
Cost of goods and services (4 923 664) (5 298 080)
Value added 921 601 100 981 018 100
Utilised to:
Remunerate employees for their services 593 651 64 570 737 58
Provide lenders and shareholders with a return on capital 161 659 18 229 856 23
Finance costs 102 752 11 92 953 9
Dividend and distributions 58 907 7 136 903 14
Pay taxes to the Government 31 068 3 44 592 5
Retain funds in the business 135 223 15 135 833 14
Depreciation and amortisation 65 057 7 89 104 9
Retained earnings 70 166 8 46 729 5
Total utilisation of value added 921 601 100 981 018 100
AFGRI Limited Annual Report 2006
33
GROUP ANNUAL FINANCIALSTATEMENTS 2006
Directors’ responsibility and approval 34
Certificate by company secretary 35
Report of the independent auditors 36
Directors’ report 37
Accounting policies 39
Group balance sheet 52
Group income statement (Actual) 53
Unaudited Group income statement (Pro forma) 54
Group statement of changes in equity 55
Group cash flow statement 56
Segment information 57
Notes to the Group annual financial statements 61
Appendix A – Interest in unlisted subsidiaries 97
Appendix B – Interest in unlisted joint ventures 98
Appendix C – Interest in unlisted associates 99
Appendix D – Available-for-sale financial assets 100
AFGRI Limited Annual Report 2006
The Directors are responsible for the preparation, integrity and
fair presentation of the financial statements of AFGRI Limited and
its subsidiaries. The financial statements presented on pages
37 to 110 have been prepared in accordance with International
Financial Reporting Standards, and include amounts based on
judgements and estimates made by management. The Directors
also prepared the other information included in the annual
report and are responsible for both its accuracy and its
consistency with the financial statements.
The going concern basis has been adopted in preparing the
financial statements. The Directors have no reason to believe that
the Group or any Company within the Group will not be going
concerns in the foreseeable future based on forecasts and
available cash resources. These financial statements support the
viability of the Company and the Group.
The financial statements have been audited by the independent
auditing firm, PricewaterhouseCoopers Incorporated, who were
given unrestricted access to all financial records and related data,
including minutes of all meetings of shareholders, the Board of
Directors and Committees of the Board. The Directors believe
that all representations made to the independent auditors
during their audit are valid and appropriate.
PricewaterhouseCoopers Incorporated’s audit report is presented
on page 36.
The financial statements were approved by the Board of
Directors on 16 May 2006 and are signed on its behalf by:
PF ERASMUS
Chairman
JD WRIGHT
Managing Director
JOHANNESBURG
16 May 2006
DIRECTORS’ RESPONSIBILITYAND APPROVAL
34
AFGRI Limited Annual Report 2006
In my capacity as Company Secretary, I hereby confirm that the
Company has lodged with the Registrar of Companies all such
returns as are required of a public company in terms of Section
268 G(d) of the Companies Act, 1973, as amended and that such
returns are true, correct and up to date.
SL REYNOLDS (Ms)
Company Secretary
JOHANNESBURG
16 May 2006
35
CERTIFICATE BY COMPANY SECRETARY
AFGRI Limited Annual Report 2006
We have audited the annual financial statements and Group
annual financial statements of AFGRI Limited, set out on pages
102 to 110 and pages 37 to 100 (excluding page 54) for the year
ended 28 February 2006.These financial statements are the
responsibility of the Company’s Directors. Our responsibility is to
express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with International
Standards on Auditing. Those Standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement.
An audit includes, examining, on a test basis, evidence
supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting
principles used and significant estimates made by management,
as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for
our opinion.
In our opinion, the financial statements present fairly, in all
material respects, the financial position of the Company and of
the Group at 28 February 2006, and the results of their
operations and cash flows for the year then ended in accordance
with International Financial Reporting Standards and in the
manner required by the Companies Act of South Africa.
PRICEWATERHOUSECOOPERS INC
Registered Accountants and Auditors
JOHANNESBURG
16 May 2006
REPORT OF THE INDEPENDENTAUDITORS
36
AFGRI Limited Annual Report 2006
SHARE OPTIONS
The share options of Executive and former Executive Directors of
the Company are as follows:
Number
2006 2005
‘000 ‘000
– Total share options exercised
cumulatively from date of
appointment 28 087 20 483
– Total contracts not implemented
(refer Note 8.3, page 110) 11 484 7 098
DIRECTORS’ SERVICE CONTRACTS AND
RESTRAINT OF TRADE
JD Wright, I De W Goosen and DM Sewela are Executive
Directors of the Company and are subject to written
employment agreements. The employment agreements
regulate the duties, remuneration, allowances, restraints,
leave and notice periods of these Executive Directors. The
employment agreement of JD Wright shall run up to September
2006 and thereafter shall run indefinitely with a six months’ notice
period.The employment agreement of I De W Goosen was
renewed during the year and shall run up to 1 June 2008.
An employment agreement has also been entered into with
DM Sewela and shall run up to 30 June 2008. The Company has
entered into agreements with GAL Ebedes and MM Moloele to
retain their expertise and to attend to the Company’s public
relations and other strategic projects. Mr Ebedes’ agreement
shall terminate on 28 February 2007 and Mr Moloele’s
agreement shall terminate on 31 October 2006.
JD Wright and I De W Goosen are restrained from competing
with the Company and any of the businesses within the AFGRI
Group for a period of 24 months after termination of
employment with the Company. DM Sewela has been restrained
for a period of 12 months after termination of employment.
DIRECTORS’ REMUNERATION
The Directors’ remuneration for the year under review is set out
on pages 108 to 110, Note 8.
DIRECTORSBOARD COMPOSITION
The names of the Directors appear on page 6.
The following changes were made to the Board during the year:
On 1 April 2005 Mr CA Apsey was appointed as an independent
Non-executive Director on the Board and Mr DM Sewela was
appointed as an alternate Director to Mr I De W Goosen.
Mr MM Moloele was appointed Joint Deputy Chairman with
effect from 16 May 2005.
Mr DM Sewela was appointed a full Executive Director with effect
from 7 April 2006.
In terms of the Articles of Association, Messrs Claassen, Ferreira,
Jansen van Rensburg and Van der Merwe retire by rotation at the
Annual General Meeting. All of the Directors, except Mr Jansen
van Rensburg, offer themselves for re-election.
In terms of the Articles of Association, Mr Davies is required to
resign, having reached the age of 70 years and is not available
for re-election.
DIRECTORS’ INTERESTS
The interests of Directors in the issued shares of the Company
were as follows and did not individually exceed one percent of
the issued share capital or voting control of the Company:
Number
2006 2005
‘000 ‘000
Beneficial
– Direct
JJ Claassen – 20
JD Wright 700 –
I De W Goosen 525 –
JTJ v Rensburg 700 943
JJ Ferreira – 78
1 925 1 041
There are no indirect and non-beneficial interests.
37
DIRECTORS’ REPORT
AFGRI Limited Annual Report 2006
SHARE CAPITALAUTHORISED AND ISSUED CAPITAL
The authorised share capital remained unchanged from the prior
year. During the year 14 279 000 shares were issued to the share
incentive trust as detailed below.
AFGRI SHARE INCENTIVE TRUST
At 28 February 2006 the AFGRI Limited Trust held 24 806 788
allocated shares. Employees have implemented 6 033 422
contracts and 14 279 000 (2005: Nil) shares have been allocated
to employees during the year.
FINANCIAL MATTERSDIVIDENDS AND CAPITAL DISTRIBUTION
An interim dividend of 9,05 cents per share was paid on
19 December 2005. The Directors have declared a capital
distribution, out of share premium in lieu of a dividend, of
21,18 cents per share for the year ended 28 February 2006,
subject to shareholders’ approval at the Annual General Meeting.
No provision for the capital distribution is recognised.
CAPITAL EXPENDITURE
Capital expenditure for the year amounted to R153,2 million
(2005: R166,9 million). The estimated R157 million expenditure
envisaged by the Group for the 2007 financial year, will be funded
from internal resources and, if appropriate, by borrowings.
FINANCIAL RESULTS
The results of the Group are presented in detail in the financial
statements and further information is provided in the income
statements on pages 53 and 54 and the segment information
on pages 57 to 60.
POST BALANCE SHEET EVENTS
No material events, except for those mentioned in the following
paragraph, have occurred since the date of these financial
statements and the date of approval thereof, the knowledge of
which would affect the ability of the users of these statements to
make proper evaluations and decisions.
The acquisition of a 100% interest in Daybreak for a
consideration of R120 million marks the Group’s re-entry into the
broiler industry. All of the suspensive conditions relating to this
acquisition were fulfilled during March 2006. No additional
disclosure can be provided, as at the date of this report, as the
purchase consideration is still being allocated to the acquirees’
assets, liabilities and contingent liabilities.
Subsequent to the financial year end, the cotton ginning
interests within Clark Cotton were sold to Cargill, the total
proceeds of the sale of the cotton ginning interests is
approximately R259 million.
JOINT VENTURES, ASSOCIATES AND
SUBSIDIARY COMPANIES
Information regarding the subsidiaries, associates and joint
ventures is given in Appendix A, B and C to the financial
statements.
SECRETARY
SL Reynolds is the Group Company Secretary. The business and
postal addresses of the Secretary are set out on page 118.
PUBLIC OFFICER
PFR Swanepoel is the public officer for the Group.
AUDITORS
PricewaterhouseCoopers Inc has expressed their willingness
to continue in office and resolutions proposing their re-
appointment will be submitted to the forthcoming Annual
General Meeting.
38
DIRECTORS’ REPORT (continued)
AFGRI Limited Annual Report 2006
– IFRIC 2, Members’ Shares in Co-operative Entities and Similar
Instruments (effective from 1 January 2005);
– SIC 12 (Amendment), Consolidation – Special Purpose Entities
(effective from 1 January 2005); and
– IAS 39 (Amendment), Transition and Initial Recognition of
Financial Assets and Financial Liabilities (effective from
1 January 2005).
Standards, interpretations and amendments to published
standards that are not yet effective
Certain new standards, amendments and interpretations to
existing standards have been published that are mandatory for
the Group’s accounting periods beginning on or after 1 March
2006 or later, but which the Group has not early adopted. These
standards, amendments and interpretations are not necessarily
applicable and management have decided not to early adopt.
The effect of these amendments on the Group is still to be
evaluated.
2 CONSOLIDATION2.1 SUBSIDIARIES
Subsidiaries are all entities (including special purpose entities)
over which the Group has the power to govern the financial and
operating policies as generally accompanying a shareholding of
more than one half of the voting rights. The existence and effect
of potential voting rights that are currently exercisable or
convertible are considered when assessing whether the Group
controls another entity.
Subsidiaries are fully consolidated from the date on which
control is transferred to the Group. They are de-consolidated
from the date that control ceases.
The purchase method of accounting is used to account for the
acquisition of subsidiaries by the Group.
The cost of an acquisition is measured as the fair value of the
assets given, equity instruments issued and liabilities incurred or
assumed at the date of exchange, plus costs directly attributable
to the acquisition. Identifiable assets acquired and liabilities and
contingent liabilities assumed in a business combination are
measured initially at their fair values at the acquisition date,
The principal accounting policies adopted in the preparation of
these consolidated annual financial statements are set out below
and are consistent with those of the previous year, except where
indicated otherwise.
1 BASIS OF PREPARATIONThese consolidated financial statements of AFGRI have been
prepared in accordance with International Financial Reporting
Standards (“IFRS”). IFRS 1, First-time Adoption of International
Financial Reporting Standards, has been applied in preparing
these financial statements. These consolidated financial
statements are the first AFGRI financial statements to be
prepared in accordance with IFRS.
The accounting policies set out below have been consistently
applied to all the years presented.
Reconciliations and descriptions of the effect of the transition
from Generally Accepted Accounting Practice (“GAAP”) to IFRS
on the Group’s equity and its net income are given in Note 2 of
the notes to the Group annual financial statements.
These consolidated financial statements have been prepared
under the historical cost convention, as modified by the
revaluation of available-for-sale financial assets and financial
liabilities (including derivative financial instruments) at fair value
through profit or loss.
The preparation of financial statements in conformity with IFRS
requires the use of certain critical accounting estimates. It also
requires management to exercise its judgement in the process of
applying the Company’s accounting policies. The areas involving
a higher degree of judgement or complexity, or areas where
assumptions and estimates are significant to the consolidated
financial statements, are disclosed in Note 1 (Critical accounting
estimates and judgments).
Interpretations and amendments to published standards
effective in 2005
The following amendments and interpretations to standards are
mandatory for the Group’s accounting periods beginning on or
after 1 March 2005:
39
ACCOUNTING POLICIES
AFGRI Limited Annual Report 2006
irrespective of the extent of any minority interest. The excess of
the cost of acquisition over the fair value of the Group’s share of
the identifiable net assets acquired is recorded as goodwill. If the
cost of acquisition is less than the fair value of the Group’s share
of the net assets of the subsidiary acquired, the difference is
recognised directly in the income statement.
Intercompany transactions, balances and unrealised gains on
transactions between Group companies are eliminated.
Unrealised losses are also eliminated unless the transaction
provides evidence of an impairment of the asset transferred.
Accounting policies of subsidiaries have been changed where
necessary to ensure consistency with the policies adopted by
the Group.
2.2 ASSOCIATES
Associates are all entities over which the Group has significant
influence but not control, generally accompanying a
shareholding of between 20% and 50% of the voting rights.
Investments in associates are accounted for under the equity
method of accounting and are initially recognised at cost.
The Group’s investment in associates includes goodwill (net
of any accumulated impairment loss) identified on acquisition.
The Group’s share of its associates’ post-acquisition profits or
losses is recognised in the income statement, and its share of
post-acquisition movements in reserves is recognised in reserves.
The cumulative post-acquisition movements are adjusted against
the carrying amount of the investment.
When the Group’s share of losses in an associate equals or
exceeds its interest in the associate, including any other
unsecured receivables, the Group does not recognise further
losses, unless it has incurred obligations or made payments on
behalf of the associate.
Unrealised gains on transactions between the Group and its
associates are eliminated to the extent of the Group’s interest in
the associates. Unrealised losses are also eliminated unless the
transaction provides evidence of an impairment of the asset
transferred. Accounting policies of associates have been changed
where necessary to ensure consistency with the policies adopted
by the Group.
2.3 JOINT VENTURES
The Group’s interests in jointly controlled entities are accounted
for by proportionate consolidation.
The Group combines its share of the joint ventures, individual
income and expenses, assets and liabilities and cash flows on a line-
by-line basis with similar items in the Group’s financial statements.
The Group recognises the portion of gains or losses on the sale
of assets by the Group to the joint venture that is attributable to
the other ventures. The Group does not recognise its share of
profits or losses from the joint venture that result from the
Group’s purchase of assets from the joint venture until it resells
the assets to an independent party. However, a loss on the
transaction is recognised immediately if the loss provides
evidence of a reduction in the net realisable value of current
assets, or an impairment loss. Accounting policies of joint
ventures have been changed where necessary to ensure
consistency with the policies adopted by the Group.
3 PROPERTY, PLANT ANDEQUIPMENT
Land and buildings comprise mainly factories and offices. All
property, plant and equipment is shown at cost, less subsequent
depreciation and impairment, except for land, which is shown at
cost less impairment. Cost includes expenditure that is directly
attributable to the acquisition of the items. Cost may also include
transfers from equity of any gains/losses on qualifying cash flow
hedges of foreign currency purchases of property, plant and
equipment. Subsequent costs are included in the asset’s carrying
amount or recognised as a separate asset, as appropriate, only
when it is probable that future economic benefits associated
with the item will flow to the Group and the cost of the item can
be measured reliably. Certain items of property, plant and equip-
ment are carried at revalued amounts, which are broadly
comparable to their fair value. This is their deemed cost at the
transition date to IFRS. All other repairs and maintenance
expenditures are charged to the income statement during the
financial period in which they are incurred.
40
ACCOUNTING POLICIES(continued)
AFGRI Limited Annual Report 2006
Goodwill is allocated to cash-generating units for the purpose
of impairment testing. The allocation is made to those cash-
generating units or Groups of cash-generating units that are
expected to benefit from the business combination in which
goodwill arose. AFGRI allocates goodwill to each business
segment in each country in which it operates.
4.2 RESEARCH AND DEVELOPMENT
Research expenditure is recognised as an expense as incurred.
Costs incurred on development projects are recognised as
intangible assets when it is probable that the project will be
a success, considering its commercial and technological
feasibility, and costs can be measured reliably. Other
development expenditures are recognised as an expense as
incurred. Development costs previously recognised as an
expense are not recognised as an asset in a subsequent period.
Development costs that have a definite useful life and have
been capitalised are amortised from the commencement of
commercial production of the product on a straight-line
basis over the period of its expected benefit, not exceeding
five years.
4.3 COMPUTER SOFTWARE
Acquired computer software licenses are capitalised on the
basis of the costs incurred to acquire and bring to use the
specific software. These costs are amortised using the straight-
line method over their estimated useful lives.
Costs associated with developing or maintaining computer
software programs are recognised as an expense as incurred.
Costs that are directly associated with the production of
identifiable and unique software products controlled by the
Group, and that will probably generate economic benefits
exceeding costs beyond one year, are recognised as intangible
assets. Direct costs include the software development employee
costs and an appropriate portion of relevant overheads.
Computer software development costs recognised as assets are
amortised using the straight-line method over their estimated
useful lives (not exceeding five years).
Depreciation is calculated using the straight-line method to
allocate the cost of each asset to its residual value over its
estimated useful life as follows:
• Buildings 25 – 100 years
• Plant and machinery 5 – 100 years
• Equipment and motor vehicles 5 – 50 years
• Land is not depreciated
Major renovations are depreciated over the remaining useful life
of the related asset or to the date of the next major renovation,
whichever is the earlier.
The assets’ residual values and useful lives are reviewed, and
adjusted if appropriate, at each balance sheet date. An asset’s
carrying amount is written down immediately to its recoverable
amount if the asset’s carrying amount is greater than its
estimated recoverable amount.
Borrowing costs incurred for the construction of any qualifying
asset are capitalised during the period of time that is required
to complete and prepare the asset for its intended use. Other
borrowing costs are expensed.
Gains and losses on disposals are determined by comparing
proceeds with carrying amount. These are included in the
income statement. When revalued assets are sold, the amounts
included in other reserves are transferred to retained earnings.
4 INTANGIBLE ASSETS
4.1 GOODWILL
Goodwill represents the excess of the cost of an acquisition
over the fair value of the Group’s share of the net identifiable
assets of the acquired subsidiary/associate at the date of
acquisition. Goodwill on acquisitions of subsidiaries is included
in intangible assets. Goodwill on acquisitions of associates is
included in investments in associates. Goodwill is tested
annually for impairment and carried at cost less accumulated
impairment losses. Gains and losses on the disposal of an
entity include the carrying amount of goodwill relating to
the entity sold.
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AFGRI Limited Annual Report 2006
4.4 TRADEMARKS AND LICENCES
Trademarks and licences are shown at historical cost.
Trademarks and licences have a definite useful life and are
carried at cost less accumulated amortisation. Amortisation is
calculated using the straight-line method to allocate the cost
of trademarks and licences over their estimated useful lives
(not exceeding twenty years).
5 IMPAIRMENTS OF NON-FINANCIAL ASSETS
Assets that have an indefinite useful life are not subject to
amortisation and are tested annually for impairment. Assets
that are subject to amortisation or depreciation are reviewed
for impairment whenever events or charges in circumstances
indicate that the carrying amount may not be recoverable. An
impairment loss is recognised for the amount by which the
asset’s carrying amount exceeds its recoverable amount.
The recoverable amount is the higher of an asset’s fair value
less costs to sell and value-in-use. For the purposes of
assessing impairment, assets are grouped at the lowest levels
for which there are separately identifiable cash flows (cash-
generating units). Non-financial assets other than goodwill that
suffered an impairment are reviewed for possible reversal of
the impairment at each reporting date.
6 FINANCIAL ASSETS
From 1 March 2004 to 28 February 2005:
Financial assets include investments in companies other than
subsidiaries and associates, financial receivables held for
investment purposes, treasury stock and other securities.
Financial assets are recorded at cost, including additional direct
charges. A permanent impairment is provided as a direct
reduction of the securities account.
Current assets also include investments and securities acquired
as a temporary investment, which are valued at the lower of
cost and market, cost being determined on a last-in-first-out
(LIFO) basis.
From 1 March 2005:
The Group classifies its investments in the following categories:
financial assets at fair value through profit or loss, loans and
receivables, held-to-maturity investments and available-for-sale
financial assets. The classification depends on the purpose for
which the investments were acquired. Management determines
the classification of its investments at initial recognition and re-
evaluates this designation at every reporting date.
Financial assets at fair value through profit or loss
This category has two sub-categories: financial assets held for
trading, and those designated at fair value through profit or
loss at inception. A financial asset is classified in this category if
acquired principally for the purpose of selling in the short-term
or if so designated by management. Derivatives are also
categorised as held for trading unless they are designated as
hedges. Assets in this category are classified as current assets if
they are either held for trading or are expected to be realised
within 12 months of the balance sheet date.
The Group enters into various OTC (over the counter) forward
purchases and sales contracts for the purchase and sale of
commodities. Although certain of the contracts are settled by
taking or making physical delivery in the normal course of
business, the OTC contracts are regarded as financial
instruments and are accounted for at fair value under IAS 39,
where the Group has a substantive past practice of net
settlement (either with the counterparty or by entering into off-
setting contracts).
Such contracts are initially recognised in the balance sheet at
cost and are subsequently remeasured to their fair value. These
derivative transactions, while providing effective economic
hedges under the Group’s risk management policies, do not
qualify for hedge accounting under the specific rules in IAS 39.
Changes in the fair value of any derivative instruments that do
not qualify for hedge accounting under IAS 39 are recognised
immediately in the income statement.
If a legally enforceable right exists to set off recognised
amounts of financial assets and liabilities, which are in
42
ACCOUNTING POLICIES(continued)
AFGRI Limited Annual Report 2006
financial assets at fair value through profit or loss” category are
included in the income statement in the period in which they
arise. Unrealised gains and losses arising from changes in the
fair value of non-monetary securities classified as available-for-
sale are recognised in equity. When securities classified as
available-for-sale are sold or impaired, the accumulated fair
value adjustments are included in the income statement as
gains and losses from investment securities.
The fair values of quoted investments are based on current
bid prices. If the market for a financial asset is not active
(and for unlisted securities), the Group establishes fair value by
using valuation techniques. These include the use of recent
arm’s length transactions, reference to other instruments that
are substantially the same, discounted cash flow analysis, and
option pricing models refined to reflect the issuer’s
specific circumstances.
The Group assesses at each balance sheet date whether there is
objective evidence that a financial asset or a group of financial
assets are impaired. In the case of equity securities classified as
available-for-sale, a significant or prolonged decline in the fair
value of the security below its cost is considered in determining
whether the securities are impaired. If any such evidence exists
for available-for-sale financial assets, the cumulative loss –
measured as the difference between the acquisition cost and
the current fair value, less any impairment loss on that financial
asset previously recognised in profit or loss – is removed from
equity and recognised in the income statement. Impairment
losses recognised in the income statement on equity
instruments are not reversed through the income statement.
7 INVENTORIES
Inventories are stated at the lower of cost and net realisable
value. Cost is determined using the first-in-first-out (FIFO)
method. The cost of finished goods and work in progress
comprises design costs, raw materials, direct labour, other direct
costs and related production overheads (based on normal
operating capacity). It excludes borrowing costs. Net realisable
value is the estimated selling price in the ordinary course of
business, less applicable variable selling expenses.
determinable monetary amounts and the Group intends to
settle on a net basis, the relevant financial assets and liabilities
are offset.
Loans and receivables
Loans and receivables are non-derivative financial assets with
fixed or determinable payments that are not quoted in an
active market. They arise when the Group provides money,
goods or services directly to a debtor with no intention of
trading the receivables. They are included in current assets,
except for maturities greater than 12 months after the balance
sheet date. These are classified as non-current assets.
Loans and receivables are included in trade and other
receivables in the balance sheet.
Held-to-maturity investments
Held-to-maturity investments are non-derivative financial
assets with fixed or determinable payments and fixed
maturities that the Group’s management has the positive
intention and ability to hold to maturity.
Available-for-sale financial assets
Available-for-sale financial assets are non-derivatives that are
either designated in this category or not classified in any of
the other categories. They are included in non-current assets
unless management intends to dispose of the investment
within 12 months of the balance sheet date.
Purchases and sales of investments are recognised on trade-
date – the date of which the Group commits to purchase or sell
the asset. Investments are initially recognised at fair value plus
transaction costs for all financial assets not carried at fair value
through profit or loss.
Investments are derecognised when the rights to receive cash
flows from the investments have expired or have been
transferred and the Group has transferred substantially all risks
and rewards of ownership. Available-for-sale financial assets
and financial assets at fair value through profit or loss are
subsequently carried at fair value. Loans and receivables and
held-to-maturity investments are carried at amortised cost
using the effective interest method. Realised and unrealised
gains and losses arising from changes in the “fair value of the
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AFGRI Limited Annual Report 2006
Costs of inventories include the transfer from equity of
gains/losses on qualifying cash flow hedges relating to
inventory purchases.
8 BIOLOGICAL ASSETS
Biological assets are stated at fair value less estimated point-of-
sale cost. Fair value changes are recognised in the income
statement. All the expenses incurred in establishing and
maintaining the assets are recognised in the income statement.
All costs incurred in acquiring biological assets are capitalised.
Finance charges are not capitalised.
Livestock, consisting of broilers, is initially shown at fair value
less estimated point-of-sale costs.
9 TRADE RECEIVABLES
Trade receivables are recognised initially at fair value and
subsequently measured at amortised cost using the effective
interest method, less provision for impairment. A provision
for impairment of trade receivables is established when there is
objective evidence that the Group will not be able to collect all
amounts due according to the original terms of receivables. The
amount of the provision is the difference between the asset’s
carrying amount and the present value of estimated future
cash flows, discounted at the effective interest rate. The amount
of the provision is recognised in the income statement.
Included in trade receivables are payments made on behalf of
third parties in respect of agricultural produce, which is
repayable on delivery of such agricultural produce. The
amounts owed are secured by physical grain and other
securities under the control of the Group.
10 CASH AND CASHEQUIVALENTS
Cash and cash equivalents are carried in the balance sheet at
cost. Cash and cash equivalents comprise cash on hand,
deposits held on call with banks, other short-term, highly liquid
investments with original maturities of three months or less,
and bank overdrafts. Bank overdrafts are included within
borrowings in current liabilities on the balance sheet.
11 SHARE CAPITAL
Ordinary shares are classified as equity. Mandatory redeemable
preference shares are classified as liabilities.
Incremental costs directly attributable to the issue of new
shares or options are shown in equity as a deduction, net of tax,
from the proceeds. Incremental costs directly attributable to
the issue of new shares or options, or for the acquisition of a
business, are included in the cost of acquisition as part of the
purchase consideration.
Where any Group company purchases the Company’s equity
share capital (treasury shares), the consideration paid, including
any directly attributable incremental costs (net of income
taxes), is deducted from equity attributable to the Company’s
equity holders until the shares are cancelled, reissued or
disposed of. Where such shares are subsequently sold or
reissued, any consideration received, net of any directly
attributable incremental transaction costs and the related
income tax effects, is included in equity attributable to the
Company’s equity holders.
44
ACCOUNTING POLICIES(continued)
45
AFGRI Limited Annual Report 2006
Shares in the Company are held by the AFGRI Ltd Trust. The
cost price of these shares is deducted from the Group’s equity.
The AFGRI Ltd Trust is consolidated.
12 BLACK ECONOMICEMPOWERMENTTRANSACTION
AFGRI’s black economic empowerment transaction includes
the following:
• Disposal of a 26,77% undivided interest in the business of
AFGRI Operations to the Trust.
• AFGRI Operations and the Trust will be co-owners of the
entire business undertaking conducted as a going concern
by AFGRI Operations.
• AFGRI Operations will continue to manage the entire
business undertaking in a partnership.
The transaction is not treated as a disposal of assets. The
partnership is consolidated as a whole and the BEE share is
disclosed as minority interest on the balance sheet. The portion
of the income before tax is disclosed as minority interest in the
income statement and credited to minority interest on the
balance sheet.
AFGRI Operations has the right to call on the Trust to sell to
AFGRI Operations its undivided interest in the entire business
of AFGRI Operations. The call option price will be settled in
cash or by allotting and issuing of new AFGRI Operations
shares or new AFGRI shares.
13 BORROWINGS
Borrowings are recognised initially at fair value, net of
transaction costs incurred. Borrowings are subsequently stated
at amortised cost; any difference between proceeds (net of
transaction costs) and the redemption value is recognised in
the income statement over the period of the borrowings using
the effective interest method.
Borrowings are classified as current liabilities unless the Group
has an unconditional right to defer settlement of the liability
for at least 12 months after the balance sheet date.
14 DEFERRED INCOME TAX
Deferred income tax is provided in full, using the liability
method, on temporary differences arising between the tax
bases of assets and liabilities and their carrying amounts in the
consolidated financial statements. However, if the deferred
income tax arises from initial recognition of an asset or liability
in a transaction other than a business combination that at the
time of the transaction affects neither accounting nor taxable
profit or loss, it is not accounted for. Deferred income tax is
determined using tax rates (and laws) that have been enacted
or substantially enacted by the balance sheet date and are
expected to apply when the related deferred income tax asset
is realised or the deferred income tax liability is settled.
Deferred income tax assets are recognised to the extent that it
is probable that future taxable profit will be available against
which the temporary differences can be utilised.
Deferred income tax is provided on temporary differences
arising on investments in subsidiaries and associates, except
where the timing of the reversal of the temporary difference is
controlled by the Group and it is probable that the temporary
difference will not reverse in the foreseeable future.
15 FOREIGN CURRENCYTRANSLATION
15.1 FUNCTIONAL AND PRESENTATION
CURRENCY
Items included in the financial statements of each of the
Group’s entities are measured using the currency of the
primary economic environment in which the entity operates
(‘the functional currency’). The consolidated financial
statements are presented in Rands, which is the Company’s
functional and presentation currency.
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AFGRI Limited Annual Report 2006
ACCOUNTING POLICIES(continued)
15.2 TRANSACTIONS AND BALANCES
Foreign currency transactions are translated into the functional
currency using the exchange rates prevailing at the dates of
the transactions. Foreign exchange gains and losses resulting
from the settlement of such transactions and from the
translation at year-end exchange rates of monetary assets
and liabilities denominated in foreign currencies are
recognised in the income statement, except when deferred
in equity as qualifying cash flow hedges and qualifying net
investment hedges.
Translation differences on non-monetary items, such as equities
held at fair value through profit or loss, are reported as part of
the fair value gain or loss. Translation differences on non-
monetary items, such as equities classified as available-for-sale
financial assets, are included in the fair value reserve in equity.
15.3 GROUP COMPANIES
The results and financial position of all the Group entities
(none of which has the currency of a hyperinflationary
economy) that have a functional currency different from the
presentation currency are translated into the presentation
currency as follows:
1 assets and liabilities for each balance sheet presented are
translated at the closing rate at the date of that balance
sheet;
2 income and expenses for each income statement are
translated at average exchange rates (unless this average is
not a reasonable approximation of the cumulative effect of
the rates prevailing on the transaction dates, in which case
income and expenses are translated at the dates of the
transactions); and
3 all resulting exchange differences are recognised as a
separate component of equity.
On consolidation, exchange differences arising from the
translation of the net investment in foreign entities, and of
borrowings and other currency instruments designated as
hedges of such investments, are taken to shareholders’ equity.
When a foreign operation is sold, such exchange differences
are recognised in the income statement as part of the gain or
loss on sale.
16 LEASES
16.1 A GROUP COMPANY IS THE LESSEE
Leases of property, plant and equipment where the Group has
substantially all the risks and rewards of ownership are
classified as finance leases. Finance leases are capitalised at the
lease’s inception at the lower of the fair value of the leased
property and the present value of the minimum lease
payments. Each lease payment is allocated between the
liability and finance charges so as to achieve a constant rate on
the finance balance outstanding. The corresponding rental
obligations, net of finance charges, are included in other long-
term payables.
The interest element of the finance cost is charged to the
income statement over the lease period so as to produce a
constant periodic rate of interest on the remaining balance of
the liability for each period. The property, plant and equipment
acquired under finance leases is depreciated over the shorter
of the asset’s useful life and the lease term.
Leases where the lessor retains a significant portion of the risks
and rewards of ownership are classified as operating leases.
Payments made under operating leases (net of any incentives
received from the lessor) are charged to the income statement
on a straight-line basis over the period of the lease.
16.2 A GROUP COMPANY IS THE LESSOR
When assets are leased out under a finance lease, the present
value of the lease payments is recognised as a receivable. The
difference between the gross receivable and the present value
of the receivable is recognised as unearned finance income.
Lease income is recognised over the term of the lease using
the net investment method, which reflects a constant periodic
rate of return.
Assets leased to third parties under operating leases are
included in property, plant and equipment in the balance sheet.
They are depreciated over their expected useful lives on a basis
47
AFGRI Limited Annual Report 2006
consistent with similar owned property, plant and equipment.
Rental income (net of any incentives given to lessees) is
recognised on a straight-line basis over the lease term.
17 EMPLOYEE BENEFITS
17.1 PENSION OBLIGATIONS
Group companies operate various pension schemes. The Group
has defined contribution plans. A defined contribution plan is a
pension plan under which the Group pays fixed contributions
into a separate entity. The Group has no legal or constructive
obligations to pay further contributions if the fund does not
hold sufficient assets to pay all employees the benefits relating
to employee service in the current and prior periods.
For defined contribution plans, the Group pays contributions
to publicly or privately administered pension insurance plans
on a mandatory, contractual or voluntary basis. The Group has
no further payment obligations once the contributions have
been paid. The contributions are recognised as employee
benefit expense when they are due. Prepaid contributions are
recognised as an asset to the extent that a cash refund or a
reduction in the future payments is available.
17.2 SHARE-BASED COMPENSATION
Share options granted before 7 November 2002 and vested
before 1 January 2005.
No expense is recognised in respect of these options. The shares
are recognised when the options are exercised and the proceeds
received allocated between share capital and share premium.
Share options granted after 7 November 2002 and vested after
1 January 2005.
The total amount to be expensed over the vesting period is
determined by reference to the fair value of the options
granted, excluding the impact of any non-market vesting
conditions (for example, profitability and sales growth targets).
Non-market vesting conditions are included in assumptions
about the number of options that are expected to become
exercisable. At each balance sheet date, the entity revises its
estimates of the number of options that are expected to
become exercisable.
It recognises the impact of the revision of original estimates, if
any, in the income statement, and a corresponding adjustment
to equity.
The proceeds received net of any directly attributable
transaction costs are credited to share capital (nominal value)
and share premium when the options are exercised.
17.3 TERMINATION BENEFITS
Termination benefits are payable when employment is
terminated before the normal retirement date, or whenever an
employee accepts voluntary redundancy in exchange for these
benefits. The Group recognises termination benefits when it is
demonstrably committed to either: terminating the
employment of current employees according to a detailed
formal plan without possibility of withdrawal; or providing
termination benefits as a result of an offer made to encourage
voluntary redundancy. Benefits falling due more than
12 months after balance sheet date are discounted to
present value.
17.4 PROFIT-SHARING AND BONUS PLANS
The Group recognises a liability and an expense for bonuses
and profit-sharing, based on a formula that takes into
consideration the profit attributable to the Company’s
shareholders after certain adjustments. The Group recognises a
provision where contractually obliged or where there is a past
practice that has created a constructive obligation.
18 PROVISIONS
Provisions are recognised when:
• The Group has a present legal of constructive obligation as a
result of past events;
• It is more likely than not that an outflow of resources will be
required to settle the obligation; and
• The amount has been reliably estimated.
Restructuring provisions comprise lease termination penalties
and employee termination payments. Provisions are not
recognised for future operating losses.
AFGRI Limited Annual Report 2006
48
ACCOUNTING POLICIES(continued)
Where there are a number of similar obligations – for example,
in the case of product warranties – the likelihood that an
outflow will be required in settlement is determined by
considering the class of obligations as a whole. A provision is
recognised even if the likelihood of an outflow with respect
to any one item included in the same class of obligations may
be small.
Provisions are measured at the present value of the
expenditures expected to be required to settle the obligation
using a pre-tax rate that reflects current market assessments
of the time value of money and the risks specific to the
obligation. The increase in the provision due to passage of
time is recognised as interest expense.
19 REVENUE RECOGNITION
Revenue comprises the fair value for the sale of goods and
services, net of value-added tax, rebates and discounts and
after eliminated sales within the Group. Revenue is recognised
as follows:
19.1 SALES OF GOODS
Sales of goods are recognised when a Group entity has
delivered products to the customer, the customer has accepted
the products and collectibility of the related receivables is
reasonably assured.
19.2 SALES OF SERVICES
Sales of services are recognised in the accounting period in
which the services are rendered, by reference to completion
of the specific transaction assessed on the basis of the
actual service provided as a proportion of the total services
to be provided.
19.3 INTEREST INCOME
Interest income is recognised on a time-proportion basis using
the effective method. When a receivable is impaired, the Group
reduces the carrying amount to its recoverable amount –
being the estimated future cash flow discounted at original
effective interest rate of the instrument – and continues
unwinding the discount as interest income. Interest income on
impaired loans is recognised either as cash is collected or on a
cost-recovery basis as conditions warrant.
19.4 ROYALTY INCOME
Royalty income is recognised on an accruals basis in
accordance with the substance of the relevant agreements.
19.5 DIVIDEND INCOME
Dividend income is recognised when the right to receive
payment is established.
20 DIVIDEND DISTRIBUTION
Dividend distribution to the Company’s shareholders is
recognised as a liability in the Group’s financial statements in
the period in which the dividends are approved by the
Company’s shareholders.
21 CAPITAL DISTRIBUTION
The gross cash capital distributions are charged against share
premium when paid and are disclosed as capital distribution to
shareholders in the statement of changes in equity.
22 SEGMENTAL ANALYSIS
Business segments provide products or services that are subject
to risks and returns that are different from those of other
business segments. Geographical segments provide products or
services within a particular economic environment that are
subject to risks and returns that are different from those of
components operating in other economic environments.
Head office expenses are allocated based on a combination of
sales, operating profit and time spent by executive
management except where information technology costs can
be directly allocated.
AFGRI Limited Annual Report 2006
49
23 FINANCIAL RISKMANAGEMENT
23.1 FINANCIAL RISK FACTORS
The Group’s activities expose it to a variety of financial risks:
(a) Market risk (including foreign exchange risk and price risk);
(b) Cash flow and fair value interest rate risk;
(c) Credit risk; and
(d) Liquidity risk.
The Group’s overall risk management programme focuses on
the unpredictability of financial markets and seeks to minimise
potential adverse effects on the Group’s financial performance.
The Group uses derivative financial instruments to hedge
certain risk exposures.
Risk management is carried out by a central treasury
department (Group treasury) under policies approved by the
Board of Directors. Group treasury identifies, evaluates and
hedges financial risks in close co-operation with the Group’s
operating units. The Board provides written principles for
overall risk management, as well as written policies covering
specific areas, such as foreign exchange risk, interest-rate risk,
credit risk, use of derivative financial instruments and non-
derivative financial instruments, and investing excess liquidity.
(a) Market risk
(i) Foreign exchange risk
The Group operates internationally and is exposed to foreign
exchange risk arising from various currency exposures,
primarily with respect to the US dollar and the Euro.
Foreign exchange risk arises from future commercial
transactions, recognised assets and liabilities and net
investments in foreign operations. To manage their foreign
exchange risk arising from future commercial transactions,
recognised assets and liabilities, entities in the Group use
forward contracts, transacted with Group treasury. Foreign
exchange risk arises when future commercial transactions,
recognised assets and liabilities are denominated in a currency
that is not the entity’s functional currency. Group treasury is
responsible for managing the net position in each foreign
currency by using external forward currency contracts.
For segment reporting purposes, each subsidiary designates
contracts with Group treasury as fair value hedges or cash
flow hedges, as appropriate. External foreign exchange
contracts are designated at Group level as hedges of foreign
exchange risk on specific assets, liabilities or future
transactions, on a gross basis.
The Group’s risk management policy is to hedge 100% of
anticipated transactions in each major currency for the
subsequent 12 months.
The Group has certain investments in foreign operations
whose net assets are exposed to foreign currency translation
risk. Currency exposures arising from the net assets of the
Group’s foreign operations in Africa and Australia are managed
primarily through borrowings denominated in the relevant
foreign currencies.
(ii) Price risk
The Group is exposed to equity securities price risk because of
investments held by the Group and classified on the
consolidated balance sheet either as available-for-sale or at fair
value through profit or loss. The Group is not exposed to
commodity price risk.
(b) Cash flow and fair value interest rate risk
The Group’s income and operating cash flows are substantially
independent of changes in market interest rates. The interest
rates of finance leases to which the Group is lessor are fixed at
inception of the lease. These leases expose the Group to fair
value interest rate risk.
The Group’s cash flow interest rate risk arises from long-term
borrowings. Borrowings issued at variable rates expose the
Group to cash flow interest rate risk. Borrowings issued at fixed
rates expose the Group to fair value interest rate risk. Group
policy is to maintain approximately 60% of its borrowings in
fixed rate instruments. At the year-end, 65% of borrowings
were at fixed rates.
AFGRI Limited Annual Report 2006
50
The Group manages its cash flow interest rate risk by using
floating-to-fixed interest rate swaps. Such interest rate swaps
have the economic effect of converting borrowings from
floating rates to fixed rates. Generally, the Group raises long-
term borrowings at floating rates and swaps them into fixed
rates that are lower than those available if the Group borrowed
at fixed rates directly. Under the interest rate swaps, the Group
agrees with other parties to exchange, at specified intervals,
the difference between fixed contract rates and floating-rate
interest amounts calculated by reference to the agreed
notional principal amounts.
(c) Credit risk
The Group is exposed to the agricultural industry and has
significant concentrations of credit risk in this regard. It has
policies in place to ensure that sales of products are made to
customers with an appropriate credit history. Derivative
counterparties and cash transactions are limited to high-credit-
quality financial institutions. The Group has policies that limit
the amount of credit exposure to any financial institution.
(d) Liquidity risk
Prudent liquidity risk management implies maintaining
sufficient cash and marketable securities, the availability of
funding through an adequate amount of committed credit
facilities and the ability to close out market positions. Due to
the dynamic nature of the underlying businesses, Group
treasury aims to maintain flexibility in funding by keeping
committed credit lines available.
23.2 FAIR VALUE ESTIMATION
The fair value of financial instruments traded in active markets
(such as publicly traded derivatives, and trading and available-
for-sale securities) is based on quoted market prices at the
balance sheet date.
The quoted market price used for financial assets held by the
Group is the current bid price; the appropriate quoted market
price for financial liabilities is the current ask price.
The fair value of financial instruments that are not traded in an
active market (for example, over-the-counter derivatives) is
determined by using valuation techniques. The Group uses a
variety of methods and makes assumptions that are based on
market conditions existing at each balance sheet date.
Quoted market prices or dealer quotes for similar instruments
are used for long-term debt. Other techniques, such as
estimated discounted cash flows, are used to determine fair
value for the remaining financial instruments.
The fair value of interest-rate swaps is calculated as the present
value of the estimated future cash flows. The fair value of
forward foreign exchange contracts is determined using
forward exchange market rates at the balance sheet date.
The nominal value less estimated credit adjustments of trade
receivables and payables are assumed to approximate their fair
values. The fair value of financial liabilities for disclosure
purposes is estimated by discounting the future contractual
cash flows at the current market interest rate that is available
to the Group for similar financial instruments.
24 ACCOUNTING FORDERIVATIVE FINANCIALINSTRUMENTS ANDHEDGING ACTIVITIES
Derivatives are initially recognised at fair value on the date
on which a derivative contract is entered into and are
subsequently remeasured at their fair value. The method of
recognising the resulting gain or loss depends on whether the
derivative is designated as a hedging instrument, and if so, the
nature of the item being hedged. The Group designates certain
derivatives as either: (1) hedges of the fair value of recognised
assets or liabilities or a firm commitment (fair value hedge);
(2) hedges of highly probable forecast transactions (cash flow
hedges); or (3) hedges of net investments in foreign operations.
ACCOUNTING POLICIES(continued)
AFGRI Limited Annual Report 2006
51
The Group documents at the inception of the transaction the
relationship between hedging instruments and hedged items,
as well as its risk management objective and strategy for
undertaking various hedge transactions. The Group also
documents its assessment, both at hedge inception and on an
ongoing basis, of whether the derivatives that are used in
hedging transactions are highly effective in offsetting changes
in fair values or cash flows of hedged items.
The fair values of various derivative instruments used for
hedging purposes are disclosed in Note 10.1 (‘Derivative
financial instruments’). Movements on the hedging reserve in
shareholders’ equity are shown in Note 14 (‘Fair value and
other reserves’).
(a) Fair value hedge
Changes in the fair value of derivatives that are designated
and qualify as fair value hedges are recorded in the income
statement, together with any changes in the fair value of the
hedged asset or liability that are attributable to the hedged risk.
(b) Cash flow hedge
The effective portion of changes in the fair value of derivatives
that are designated and qualify as cash flow hedges are
recognised in equity. The gain or loss relating to the ineffective
portion is recognised immediately in the income statement.
Amounts accumulated in equity are recycled in the income
statement in the periods when the hedged item will affect
profit or loss (for instance when the forecast sale that is
hedged takes place). However, when the forecast transaction
that is hedged results in the recognition of a non-financial
asset (for example, inventory) or a liability, the gains and losses
previously deferred in equity are transferred from equity and
included in the initial measurement of the cost of the asset
or liability.
When a hedging instrument expires or is sold, or when a hedge
no longer meets the criteria for hedge accounting, any
cumulative gain or loss existing in equity at that time remains
in equity and is recognised when the forecast transaction is
ultimately recognised in the income statement. When a
forecast transaction is no longer expected to occur, the
cumulative gain or loss that was reported in equity is
immediately transferred to the income statement.
(c) Net investment hedge
Hedges of net investments in foreign operations are
accounted for similarly to cash flow hedges. Any gain or loss
on the hedging instrument relating to the effective portion of
the hedge is recognised in equity; the gain or loss relating to
the ineffective portion is recognised immediately in the
income statement.
Gains and losses accumulated in equity are included in the
income statement when the foreign operation is disposed of.
(d) Derivatives that do not qualify for hedge accounting
Certain derivative instruments do not qualify for hedge
accounting. Changes in the fair value of any derivative
instruments that do not qualify for hedge accounting are
recognised immediately in the income statement.
25 GOVERNMENT GRANTS
Grants from the government are recognised at their fair value
where there is reasonable assurance that the grant will be
received and the Group will comply with all attached conditions.
Government grants relating to costs are deferred and
recognised in the income statement over the period
necessary to match them with the costs for which they are
intended to compensate.
Government grants relating to the purchase of property, plant
and equipment are included in non-current liabilities as other
liabilities and are credited to the income statement on a
straight-line basis over the expected lives of the related assets.
52
GROUP BALANCE SHEET
at 28 February 2006
2006 2005
Note R000 R000
ASSETSNon-current assetsProperty, plant and equipment 3 710 065 682 988Intangible assets 4 104 943 78 357Investments in associates 5 8 688 20 046Available-for-sale financial assets 6 3 210 96 117Financial receivables 7 268 684 99 674Deferred income tax assets 19 160 267 119 420
1 255 857 1 096 602
Current assetsInventories 8 1 037 522 1 080 999Trade and other receivables 9 775 846 907 027Derivative financial instruments 10 60 791 68 143Current income tax assets 120 399 120 899Cash and cash equivalents and cash collateral deposits 576 821 613 639
Cash collateral deposits 11 382 080 342 343Cash and cash equivalents 11 194 741 271 296
2 571 379 2 790 707
Non-current assets classified as held-for-sale 25 86 414 –
Total assets 3 913 650 3 887 309
EQUITY AND LIABILITIESCapital and reserves attributable to the Company’s equity holdersShare capital 12 4 4Treasury shares 16 (155 371) (155 371)Incentive trust shares 17 (122 091) (58 928)Share premium 13 72 589 –Fair value and other reserves 14 7 822 (41 940)Retained earnings 15 1 369 685 1 298 353
1 172 638 1 042 118Minority interest 531 094 514 350
Total equity 1 703 732 1 556 468
Non-current liabilitiesBorrowings 18 115 728 13 363Deferred income tax liabilities 19 99 548 94 322Provisions for other liabilities and charges 21 17 673 22 882
232 949 130 567
Current liabilitiesTrade and other payables 20 1 460 282 1 743 177Derivative financial instruments 10 9 617 24 299Current income and other tax liabilities 11 714 7 629Short-term borrowings and bank overdrafts 11 492 432 425 169
1 974 045 2 200 274
Liabilities directly associated with non-current assets classified as held-for-sale 25 2 924 –
Total liabilities 2 209 918 2 330 841
Total equity and liabilities 3 913 650 3 887 309
AFGRI Limited Annual Report 2006
53
Actual Actual
2006 2005
Note R000 R000
Continuing operations:Sales 22 5 431 168 5 357 912
Cost of sales (4 181 826) (4 191 808)
Gross profit 1 249 342 1 166 104
Other operating income 64 804 54 261
Other operating expenses (999 011) (1 004 157)
Operating profit 23 315 135 216 208
Share of (loss)/profit of associates (638) 2 509
Finance costs (90 821) (87 463)
Profit before income tax 223 676 131 254
Income tax expense 26 (22 042) (82 508)
Profit for the year from continuing operations 201 634 48 746
Discontinued operations:(Loss)/profit for the year from discontinued operations 23, 25 (29 739) 113 087
Profit for the year 171 895 161 833
Profit for the year attributable to:
Equity holders of the Company 129 073 149 167
Minority interest 42 822 12 666
Profit for the year 171 895 161 833
Earnings per share from continuing operations attributable to the
equity holders of the Company during the year (expressed in cents
per share) 45,0 12,2
(Loss)/earnings per share from discontinued operations
attributable to the equity holders of the Company during the
year (expressed in cents per share) (6,0) 32,9
Earnings per share from all operations attributable to the equity
holders of the Company during the year (expressed in cents
per share) 28 39,0 45,1
AFGRI Limited Annual Report 2006
for the year ended 28 February 2006
GROUP INCOME STATEMENT(ACTUAL)
AFGRI Limited Annual Report 2006
54
for the year ended 28 February 2006
Actual Pro forma
2006 2005
R000 R000
Continuing operations:Sales 5 431 168 5 357 912
Cost of sales (4 181 826) (4 191 808)
Gross profit 1 249 342 1 166 104
Other operating income 64 804 54 261
Other operating expenses (999 011) (1 004 157)
Operating profit 315 135 216 208
Share of (loss)/profit of associates (638) 2 509
Finance costs (90 821) (87 463)
Profit before income tax 223 676 131 254
Income tax expense (22 042) (73 568)
Profit for the year from continuing operations 201 634 57 686
Discontinued operations:(Loss)/profit for the year from discontinued operations (29 739) 106 808
Profit for the year 171 895 164 494
Profit for the year attributable to:
Equity holders of the Company 129 073 107 959
Minority interest 42 822 56 535
Profit for the year 171 895 164 494
Earnings per share from continuing operations attributable to the
equity holders of the Company during the year (expressed in cents
per share) 45,0 8,4
(Loss)/earnings per share from discontinued operations
attributable to the equity holders of the Company during the
year (expressed in cents per share) (6,0) 24,2
Earnings per share from all operations attributable to the equity
holders of the Company during the year (expressed in cents
per share) 39,0 32,6
UNAUDITED GROUP INCOMESTATEMENT (PRO FORMA)
55
AFGRI Limited Annual Report 2006
GROUP STATEMENT OFCHANGES IN EQUITY
for the year ended 28 February 2006(All amounts in Rand millions)
Fair value Incentive Share Share and other Retained Treasury trust Minority
capital premium reserves earnings shares shares interest Total
Balance 29 February 2004 – 89 372 1 134 (122) (93) – 1 380Reclassification of reserves – – (459) 459 – – – –Restatement of translation
reserves – – (42) – – – – (42)IFRS impact: (Note 2.2.2)– Adoption of the historical
cost method and fair value valuation method for assets – – – 95 – – – 95
– Share-based payments – – 1 (1) – – – –– Operating leases – – – (1) – – – (1)– Transfer of cumulative
foreign currencytranslation reserves on transition date – – 127 (127) – – – –
Adjusted balance 29 February 2004 – 89 (1) 1 559 (122) (93) – 1 432Profit for the year – – – 149 – – 13 162BEE purchase of share
in business – – – – – – 501 501Currency translation
differences – – (42) – – – – (42)Dividends paid – – – (137) – – – (137)Special dividend paid – (89) (272) – – – (361)Disposal of incentive shares – – – – – 34 – 34Purchase of treasury shares – – – – (33) – – (33)
Balance 28 February 2005 – – (43) 1 299 (155) (59) 514 1 556IFRS impact: (Note 2.2.3)– Business combinations – – – (8) – – – (8)– Adoption of the historical
cost method and fair value valuation method for assets – – (1) 12 – – – 11
– Operating leases – – – (1) – – – (1)– Share-based payments – – 2 (2) – – – –
Adjusted balance 28 February 2005 – – (42) 1 300 (155) (59) 514 1 558Profit for the year – – – 129 – – 43 172Payment to minorities – – – – – – (26) (26)Currency translation
differences – – 43 – – – – 43Cash flow hedge revaluationdifferences – – 1 – – – – 1
Share-based payments – – 6 – – – – 6Dividends paid – – – (59) – – – (59)Issue of shares to share
incentive trust – 73 – – – (73) – –Disposal of incentive shares – – – – – 10 – 10
Balance 28 February 2006 – 73 8 1 370 (155) (122) 531 1 705
Retained earningscomprise:– Distributable reserves 1 182– Self-insurance reserve 188
56
2006 2005
Note R000 R000
Operating activitiesCash generated from operations 30.1 137 941 205 268
Finance costs (102 752) (92 953)
Interest received 9 151 5 528
Income tax paid 30.3 (26 483) (92 380)
Net cash generated from operating activities 17 857 25 463
Investing activitiesPurchase of property, plant and equipment 30.4 (105 502) (123 839)
Purchase of intangible assets (47 733) (43 033)
Proceeds from disposal of property, plant and equipment 30.5 21 701 55 104
Financial receivables granted (172 307) (4 333)
Financial receivables repaid 3 297 20 528
Dividends from investments 26 511 26 118
Interest received – 17 085
Purchase of available-for-sale investments (40 054) (51 482)
Acquisition of shares in associates (1 014) (8 285)
Disposal of available-for-sale investments 93 010 1 082
Acquisition of subsidiaries – net of cash acquired 30.6 5 074 (86 017)
Proceeds from disposal of shares in joint venture – net of
cash disposed 30.7 – 215 755
Net cash (utilised in)/generated from investing activities (217 017) 18 683
Financing activitiesNet proceeds from BEE disposal – 5 976
Special dividend paid – (272 695)
Special capital distribution – (88 548)
Secondary tax paid on special dividend – (34 465)
Collateral investment made – (100 000)
Proceeds on BEE disposal – 501 684
Dividends paid 30.2 (58 907) (136 903)
Repurchase of shares – (33 706)
Proceeds from disposal of incentive trust shares 9 425 34 768
Proceeds from/(repayment of ) borrowings 104 824 (3 631)
Net cash generated from/(utilised in) financing activities 55 342 (133 496)
Net decrease in cash and cash equivalents (143 818) (89 350)
Cash and cash equivalents at beginning of year (153 873) (64 523)
Cash and cash equivalents at end of year 11 (297 691) (153 873)
AFGRI Limited Annual Report 2006
GROUP CASH FLOW STATEMENT
for the year ended 28 February 2006
57
AFGRI Limited Annual Report 2006
SEGMENT INFORMATION
(all amounts in Rand millions)
(a) Primary reporting format – business segments
At 28 February 2006 the Group is organised on a worldwide basis into two main business pillars – AFGRI Services and AFGRI Products.
The AFGRI Services pillar houses the Group’s Producer, Financial and Logistics businesses and the AFGRI Products pillar, the Group’s
value added processing businesses.The Products pillar is divided into two continuing business segments, namely Foods and Protein.
Cotton has been disclosed as discontinued following the classification as held-for-sale as a result of the disposal to Cargill.
Inter-segment sales are entered into under normal commercial terms and conditions that would also be available to unrelated third
parties.
The continuing segment results for the year ended 28 February are as follows:
Continuing operations 2006:
AFGRI AFGRI Producer Financial Logistics Services Foods Protein Products Other Group
Primaryinputs Retail
Total gross segment sales 933 2 172 587 413 4 105 396 1 128 1 524 2 5 631
Inter-segment sales (8) – (15) (119) (142) (21) (37) (58) – (200)
Sales 925 2 172 572 294 3 963 375 1 091 1 466 2 5 431
Operating profit (33) (27) 57 204 201 – 74 74 – 275
Finance costs – net (11) (21) (12) (2) (46) (5) (3) (8) – (54)
Headline earnings from
continuing operations
before income tax (44) (48) 45 202 155 (5) 71 66 – 221
Earnings from
continuing operations
before income tax (44) (45) 46 203 160 9 71 80 – 240`
Continuing operations 2005:
AFGRI AFGRI Producer Financial Logistics Services Foods Protein Products Other Group
PrimaryInputs Retail
Total gross segment sales 988 2 335 416 343 4 082 157 1 341 1 498 – 5 580
Inter-segment sales – (80) (3) (83) (166) (23) (42) (65) – (231)
Sales 988 2 255 413 260 3 916 134 1 299 1 433 – 5 349
Operating profit (4) (81) 60 170 145 (10) 80 70 – 215
Finance costs – net (4) (18) (8) (1) (31) – (3) (3) – (34)
Headline earnings from
continuing operations
before income tax (8) (99) 52 169 114 (10) 77 67 – 181
Earnings from
continuing operations
before income tax (8) (116) 36 165 77 (12) 73 61 – 138
The discontinued segment results for the year ended 28 February are as follows:
Discontinued operations 2006:
AFGRI AFGRI Producer Financial Logistics Services Foods Cotton Protein Products Group
Primaryinputs Retail
Total gross segment sales – 56 – – 56 – 301 – 301 357Inter-segment sales – – – – – – – – – –
Sales – 56 – – 56 – 301 – 301 357
Operating profit – (15) – – (15) – (11) – (11) (26)Finance costs – net – (2) – – (2) – (13) – (13) (15)
Headline earnings from discontinued operations before income tax – (17) – – (17) – (24) – (24) (41)
Earnings from discontinued operations before income tax – (28) – – (28) (3) (22) – (25) (53)
Discontinued operations 2005:
AFGRI AFGRI Producer Financial Logistics Services Foods Cotton Protein Products Group
Primaryinputs Retail
Total gross segment sales – 151 – – 151 3 270 466 739 890Inter-segment sales – – – – – – – – – –
Sales – 151 – – 151 3 270 466 739 890
Operating profit – (16) – 74 58 – (44) 54 10 68Finance costs – net – – – – – (1) (9) – (10) (10)
Headline earnings from discontinued operations before income tax – (16) – 74 58 (1) (53) 54 – 58
Earnings from discontinued operations before income tax – (27) (25) 74 22 (13) (53) 126 60 82
Note 1:Included in AFGRI Financial Services is a preference dividend received of R25 million as a result of a change in the debtor financingstructure. To ensure comparability with the prior year an adjustment of R10 million was made to sales and headline operating profit.This restatement was made to ensure the after-tax operating interest earned in the prior year is comparable to the after-taxdividend received in the current year.
Note 2:The pre-tax business segment results are presented after taking into account the pre-tax headline earnings adjustments and beforeallocation of the BEE share in profits. This methodology resulted in the restatement of the segmental analysis of the previous year.This restatement makes the segmental profit more comparable after adjustments for the profit/(loss) of discontinued operations anddisposal of businesses and assets.
Headline operating profit is shown after the allocation of cost of capital based on each division’s net assets. The prior year pro forma saleshave been restated to reflect the gross sales from debtor financing to be comparable with the current year.
58
AFGRI Limited Annual Report 2006
(all amounts in Rand millions)
SEGMENT INFORMATION(continued)
59
AFGRI Limited Annual Report 2006
Other segment items included in the income statement and balance sheet are as follows:
For the year 28 February 2006:
AFGRI AFGRI Producer Financial Logistics Services Foods Cotton Protein Products Other Group
Primaryinputs Retail
Depreciation 1 9 3 9 22 6 8 9 23 3 48
Amortisation 2 2 1 – 5 – 3 1 4 6 15
Impairment of
goodwill – – – – – – – – – – –
Assets 148 969 924 321 2 362 258 429 365 1 052 500 3 914
Liabilities 74 463 470 54 1 061 73 169 214 456 693 2 210
Capital
expenditure 6 16 20 14 56 21 7 22 50 – 106
For the year 28 February 2005:
AFGRI AFGRI Producer Financial Logistics Services Foods Cotton Protein Products Other Group
Primaryinputs Retail
Depreciation 1 6 1 8 16 4 4 16 24 2 42
Amortisation – – 1 – 1 – 3 – 3 – 4
Impairment of
goodwill – – 10 – 10 – – – – 10 20
Assets 96 1 142 574 326 2 138 224 392 412 1 028 722 3 888
Liabilities 22 768 244 49 1 083 85 80 265 430 817 2 330
Capital
expenditure 1 17 2 10 30 25 8 54 87 8 125
Segment assets include property, plant and equipment, intangible assets, other investments, inventories, trade and other receivables,
cash equivalents and cash collateral deposits. Segment liabilities include all operating liabilities, short-term borrowings and non-current
liabilities. Tax liabilities are included in the segment “Other”. Capital expenditure comprises additions to property, plant and equipment.
60
(b) Secondary reporting format – geographical segments
The Group’s business segments are managed in three main
geographical areas:
• South Africa is the home country of the holding and the main
operating Company. The operations include Products and
Services.
• Other African countries – the operations include mainly
cotton and grain trading.
• Australia – the operations comprise Producer Services.
Sales Total assets Capital expenditure
South Africa 4 916 3 220 86
Other African countries 207 94 10
Australia 308 135 3
Continuing operations 5 431 3 449 99
Discontinued operations 357 465 7
Total 5 788 3 914 106
With the exception of South Africa, no other individual country
contributed more than 10% of consolidated revenues and assets.
Sales are allocated based on the country in which the customer
is located.
Total assets and capital expenditure are allocated based on where
the assets are located.
AFGRI Limited Annual Report 2006
(all amounts in Rand millions)
SEGMENT INFORMATION(continued)
61
1 CRITICAL ACCOUNTINGESTIMATES ANDJUDGEMENTS
Estimates and judgements are continually evaluated and are
based on historical experience and other factors, including
expectations of future events that are believed to be
reasonable under the circumstances.
The Group makes estimates and assumptions concerning the
future. The resulting accounting estimates will, by definition,
seldom equal the related actual results. The estimates and
assumptions that have a significant risk of causing a material
adjustment to the carrying amounts of assets and liabilities
within the next financial year are discussed below.
1.1 IMPAIRMENT OF TRADE RECEIVABLES
A provision for impairment of trade receivables is established
when there is objective evidence that the Group will not be
able to collect all amounts due according to the original terms
of the receivables. The amount of the provision is the
difference between the asset’s carrying amount and the
present value of estimated future cash flows, discounted at
the effective interest rate.
Management considers the following when estimating the
provision to be recognised in the income statement:
– Identification of specific non-performing trade receivables
The provision for individual trade receivables only takes the
difference between total debt less security available into
account. Security required was initially established as part of
the credit granting policy and the risk profile of the debtor.
– Time value of security available from specific non-performing
trade receivables
The recovery period after identifying a specific non-
performing debt is assessed. Based on experience,
management discounts the security that will eventually be
obtained to its current value. As a result, the value of the
security is reduced. These in turn result in a top-up portion
being provided for to accrue for the time value shortfall.
– Review of the recovery history of securities
Management assesses the recoverability of securities
based on past experience and may adjust the security
downward. The shortfall would result in an increase in the
provision required.
2 TRANSITION TO IFRS
2.1 BASIS OF TRANSITIONS TO IFRS
2.1.1 Application of IFRS 1
The Group’s financial statements for the year ended
28 February 2006 are the first annual financial statements that
comply with IFRS. These annual financial statements have been
prepared as described in the section “Accounting policies”.
The Group has applied IFRS 1 in preparing these consolidated
annual financial statements.
AFGRI’s transition date is 1 March 2004. The Group prepared its
opening IFRS Balance sheet at that date. The Group’s adoption
date is 1 March 2005.
2.1.2 Exemptions from full retrospective application elected by
the Group
The Group has elected to apply the following optional
exemptions from full retrospective application.
(a) Business combinations exemption
The Group has applied the business combinations exemption
in IFRS 3. It has not restated business combinations that took
place prior to the 1 March 2004 transition date.
(b) Fair value as deemed cost exemption
The Group has in general not utilised the exemption and has
elected to apply the cost model for property, plant and
equipment and investment property and intangible assets.
The exemption has been applied for selected items of
property, plant and equipment only.
(c) Employee benefit exemption
The exemption is not applicable as there are no defined
benefit pension funds or past retirement medical aid liabilities.
(d) Cumulative translation differences exemption
The Group has elected to set the previously accumulated
foreign currency translation reserve to zero at 1 March 2004.
This exemption has been applied to all subsidiaries in
accordance with IFRS 1. The application of this exemption is
detailed in Note 2.2.2 (b).
(e) Compound financial instruments exemption
The exemption is not applicable.
(f) Assets and liabilities of subsidiaries, associates and joint
ventures exemption
The exemption is not applicable.
(g) Exemption of restatement of comparatives for IAS 32 and IAS 39
The exemption is not applicable.
AFGRI Limited Annual Report 2006
NOTES TO THE GROUP ANNUALFINANCIAL STATEMENTS
for the year ended 28 February 2006
1 March 28 February2004 2005
2.2.1 Summary of impact on equityTotal equity under local GAAP 1 338 1 463
Restatement of accumulated
depreciation to reflect PPE’s useful lives
and recognition of residual values 141 166
Impairment of goodwill from
business combinations – (12)
Cumulative impact of other
non-material items (1) (5)
Deferred tax adjustments (46) (54)
Total equity under IFRS 1 432 1 558
AFGRI Limited Annual Report 2006
NOTES TO THE GROUP ANNUALFINANCIAL STATEMENTS
62
for the year ended 28 February 2006(all amounts in Rand millions)
(h) Designation of previously recognised financial instruments
exemption
In general the exemption was not applied. In terms of the
transitional arrangements, the Group elected to reclassify
certain financial assets and liabilities on 1 March 2005.
(i) Share-based payment transaction exemption
The exemption is not applicable to equity-settled awards
granted on or after 7 November 2002 or to awards granted
after that date, but which had vested prior to 1 January 2005.
Liabilities arising on cash-settled share-based payments settled
after 1 January 2005 are subject to IFRS 2.
(j) Insurance contracts exemption
The exemption is not applicable.
(k) Decommissioning liabilities included in the cost of property,
plant and equipment exemption
The exemption is not applicable as no decommissioning
liabilities were identified within the Group.
(l) Fair value measurement of financial assets or liabilities at
initial recognition
The exemption is not applicable.
2.1.3 Exception from full retrospective application followed
by the Group
The Group has applied the following mandatory exceptions
from retrospective application.
(a) Derecognition of financial assets and liabilities exception
The exception is not applicable.
(b) Hedge accounting exception
The Group previously hedge accounted in accordance with
SA GAAP (AC 133) for which the hedge accounting criteria are
the same as IAS 39. Hedge accounting has therefore been
applied consistently.
(c) Estimates exception
Estimates under IFRS at 1 March 2004 should be consistent
with estimates made for the same date under previous GAAP,
unless there is evidence that those estimates were in error.
(d) Assets held-for-sale and discontinued operations exception
The Group applies IFRS 5 prospectively from 1 March 2004. Any
assets held-for-sale or discontinued operations are only
recognised in accordance with IFRS 5 from 1 March 2004.
2.2 RECONCILIATIONS BETWEEN IFRSAND GAAP
The following reconciliations provide quantification of the
effect of the transition to IFRS. The first reconciliation provides
an overview of the impact on equity of the transition at
1 March 2004 and 28 February 2005.
The following three reconciliations provide details of the
impact of the transition on:
– equity at 1 March 2004 (Note 2.2.2);
– equity at 28 February 2005 (Note 2.2.3); and
– net income for the year ended 28 February 2005
(Note 2.2.4).
63
AFGRI Limited Annual Report 2006
NOTES TO THE GROUP ANNUALFINANCIAL STATEMENTS
for the year ended 28 February 2006(all amounts in Rand millions)
Effect of transition
Note GAAP to IFRS IFRS
2.2.2 Reconciliation of equity at 1 March 2004ASSETSNon-current assets 707 141 848
Property, plant and equipment a 517 141 658
Intangible assets 65 – 65
Investments in associates 4 – 4
Available-for-sale financial assets 17 – 17
Financial receivables 22 – 22
Deferred income tax assets 82 – 82
Current assets 2 092 – 2 092
Inventories 588 – 588
Biological assets 37 – 37
Trade and other receivables 819 – 819
Derivative financial instruments 22 – 22
Current income tax assets 86 – 86
Cash and cash equivalents and cash collateral deposits 540 – 540
Cash collateral deposits 299 – 299
Cash and cash equivalents 241 – 241
Total assets 2 799 141 2 940
EQUITY AND LIABILITIESCapital and reserves attributable to the Company’s equity holders 1 338 94 1 432
Share capital – – –
Share premium 89 – 89
Treasury shares (122) – (122)
Incentive trust shares (93) – (93)
Fair value and other reserves b (129) 128 (1)
Retained earnings e 1 593 (34) 1 559
LIABILITIESNon-current liabilities 87 46 133
Borrowings 9 – 9
Deferred income tax liabilities c 55 46 101
Provisions for other liabilities and charges 23 – 23
Current liabilities 1 374 1 1 375
Trade and other payables d 1 009 1 1 010
Derivative financial instruments 22 – 22
Current income tax liabilities 38 – 38
Short-term borrowings and bank overdrafts 305 – 305
Total liabilities 1 461 47 1 508
Total equity and liabilities 2 799 141 2 940
Explanation of the effect of the transition to IFRSThe following explains the material adjustments to
the balance sheet:
(a) Property, plant and equipment (PPE)
(i) Adjustment to economic useful lives of assets and
recognition of residual values 154
(ii) Recognition of impairment provisions against
PPE using guidance as set out in IAS 36 (13)
Total impact – increase in PPE 141
(i) In general the Group did not utilise the exception available
under IFRS 1 and applied the cost model for PPE. The total
adjustment represents retrospective restatement of
accumulated depreciation to reflect the PPE’s useful lives
and recognition of residual values.
(ii) Recognition of impairment provisions against PPE using
guidance set out in IAS 36 relates to asset impairment of:
• The Fresh Cut business previously included in the
Products segment that was closed and reported as a
discontinued operation. Impairment of immovable
property improvements of R2,1 million.
• Certain assets included in the Products segment with a
value of R6,8 million were impaired based on external
offers received for the assets.
• Properties whose net realisable value is less than the
book value and amounting to R4,0 million.
(b) Fair value and other reserves
(i) Resetting of cumulative foreign currency
translation reserves to zero 127
(ii) Recognition of share options issued after
7 November 2002 and not vested on
1 January 2005 1
Total impact – increase in fair value and other reserves 128
(c) Deferred income tax liabilities
Total impact – increase in deferred income tax liabilities 46
The Group recalculated deferred income tax in accordance
with IAS 12. IAS 12 allows a net presentation of deferred
income tax assets and liabilities only when certain criteria are
met. This adjustment recognises the gross presentation
required by IAS 12.
(d) Trade and other payables (current)
Recognising operating leases on a
straight-line bases over the term of
the lease in accordance with IAS 17 1
(e) Retained earnings
The cumulative effect of all the above
adjustments resulted in a decrease in
retained earnings at 1 March 2004 (34)
64
AFGRI Limited Annual Report 2006
NOTES TO THE GROUP ANNUALFINANCIAL STATEMENTSfor the year ended 28 February 2006
AFGRI Limited Annual Report 2006
65
NOTES TO THE GROUP ANNUALFINANCIAL STATEMENTS
for the year ended 28 February 2006(all amounts in Rand millions)
Effect of transition
Note GAAP to IFRS IFRS
2.2.3 Reconciliation of equity at 28 February 2005
ASSETSNon-current assets 941 155 1 096
Property, plant and equipment a 517 166 683Intangible assets b 90 (12) 78Investments in associates 20 – 20Available-for-sale financial assets 96 – 96Financial receivables 100 – 100Deferred income tax assets c 118 1 119
Current assets 2 791 – 2 791
Inventories 1 081 – 1 081Trade and other receivables 907 – 907Derivative financial instruments 68 – 68Current income tax assets 121 – 121Cash and cash equivalents and cash collateral deposits 614 – 614
Cash collateral deposits 343 – 343Cash and cash equivalents 271 – 271
Total assets 3 732 155 3 887
EQUITY AND LIABILITIESCapital and reserves attributable to the Company’s equity holders 949 95 1 044
Share capital – – –Share premium – – –Treasury shares (155) – (155)Incentive trust shares (59) – (59)Fair value and other reserves d (171) 129 (42)Retained earnings g 1 334 (34) 1 300
Minority interest 514 – 514
Total equity 1 463 95 1 558
LIABILITIESNon-current liabilities 76 54 130
Borrowings 13 – 13Deferred income tax liabilities e 40 54 94Provisions for other liabilities and charges 23 – 23
Current liabilities 2 193 6 2 199
Trade and other payables f 1 736 6 1 742Derivative financial instruments 24 – 24Current income tax liabilities 8 – 8
Short-term borrowings and bank overdrafts 425 – 425
Total liabilities 2 269 60 2 329
Total equity and liabilities 3 732 155 3 887
Explanation of the effect of the transition to IFRSThe following explains the material adjustments to the
balance sheet and income statement:
(a) Property, plant and equipment (PPE)
(i) Adjustment to economic useful lives of assets and
recognition of residual values. 179
(ii) Recognition of impairment provisions against
PPE using guidance set out in IAS 36 (13)
Total impact – increase in PPE 166
(i) In general the Group did not utilise the exception
available under IFRS 1 and applied the cost model for
PPE. The total adjustment represents the retrospective
restatement of accumulated depreciation to reflect the
PPE’s useful lives and recognition of residual values.
(ii) Recognition of impairment provisions against PPE
using guidance set out in IAS 36 relates to the
impairment of:
• The Fresh Cut business previously included in the
Products segment that was closed and reported
as a discontinued operation. Impairment of
immovable property improvements of R2,1 million.
• Certain assets included in the Products segment with
a value of R6,8 million were impaired based on
external offers received for the assets.
• Properties whose net realisable value is less than the
book value and amounting to R4,0 million.
(b) Goodwill
(i) Business combinations (17)
(ii) Reversal of goodwill amortised under GAAP 5
Total impact – decrease in goodwill (12)
Goodwill is tested annually for impairments and is
allocated to the Group’s cash-generating units identified
according to business segment.
(c) Deferred income tax asset
Total impact – increase in deferred income tax asset 1
The Group has recalculated deferred income tax in
accordance with IAS 12. IAS 12 allows a net
presentation of deferred income tax assets and liabilities
only when certain criteria are met. This adjustment
recognises the gross presentation required
by IAS 12.
66
AFGRI Limited Annual Report 2006
NOTES TO THE GROUP ANNUALFINANCIAL STATEMENTSfor the year ended 28 February 2006
(d) Fair value and other reserves
(i) Resetting of cumulative foreign currency translation
reserves to zero 127
(ii) Recognition of share options issued after
7 November 2002 and not vested on
1 January 2005 3
Total impact of other items (1)
Total impact – increase in fair value and other reserves 129
(e) Deferred income tax liabilities
Total impact – Increase in deferred income tax liabilities 54
The Group has recalculated deferred income tax in
accordance with IAS 12. IAS 12 allows a net presentation of
deferred income tax assets and liabilities only when certain
criteria are met. This adjustment recognises the gross
presentation required by IAS 12.
(f ) Trade and other payables
(i) Contingent insurance claim liability out of
acquisition of Natalagri moved to pre-acquisition
profits on calculation of goodwill in accordance
with IFRS 5 4
(ii) Recognising operating leases on a straight-line
basis over the term of the lease in accordance
with IAS 17 2
Total impact – increase in trade and other payables 6
(g) Retained earnings
(i) The cumulative effect of all the above
adjustments has resulted in a decrease
in retained earnings at 28 February 2005 (34)
AFGRI Limited Annual Report 2006
67
NOTES TO THE GROUP ANNUALFINANCIAL STATEMENTS
for the year ended 28 February 2006(all amounts in Rand millions)
2.2.4 Reconciliation of net income for the year ended 28 February 2005
Effect of Note GAAP transition to IFRS IFRS
Sales 6 247 – 6 247
Cost of sales (5 316) – (5 316)
Gross profit 931 – 931
Other operating income 75 – 75
Other operating expenses a (702) 4 (698)
Operating profit 304 4 308
Finance costs (80) – (80)
Share of profit of associates 3 – 3
Profit before income tax 227 4 231
Income tax expense (65) (4) (69)
Profit for the year 162 – 162
(a) Other operating expenses
(i) Business combinations (2)
(ii) Property, plant and equipment 20
(iii) Share-based payments (2)
(iv) Goodwill (12)
4
(i) Total impact of the adjustment for business combinations
relate to the impairment of intangible assets.
(ii) Property, plant and equipment adjustment relates to
the restatement of depreciation to reflect the assets
useful lives and the recognition of residual values.
(iii) Recognition of expense component of share options
issued after 7 November 2002 and not vested on
1 January 2005.
(iv) Recognition of goodwill expensed after calculating
value in use of the underlying cash-generating unit
and reversal of goodwill amortisation under GAAP.
68
2006 2005
R000 R000
3 PROPERTY, PLANT AND EQUIPMENT3.1 Cost or valuation 1 056 401 980 482
Land 23 423 30 034
Buildings and improvements 390 434 397 425
Machinery and equipment 561 153 467 289
Vehicles 81 391 85 734
3.2 Accumulated depreciation and impairments (346 336) (297 494)
Buildings and improvements (90 241) (98 256)
Machinery and equipment (213 193) (157 169)
Vehicles (42 902) (42 069)
3.3 Net carrying value 710 065 682 988
Land 23 423 30 034
Buildings and improvements 300 193 299 169
Machinery and equipment 347 960 310 120
Vehicles 38 489 43 665
3.4 The registers of land and buildings are available for
inspection at the registered offices of the respective
Companies.
3.5 Included in buildings and improvements are silo
facilities with a book value of R203,1 million
(2005: R203,2 million). These silo facilities are a
major income generating asset of the Group.
The replacement value of these facilities is
estimated at R2 554,9 million (2005: R2 528,3 million).
3.6 Refer to Note 31.1 for the Group’s commitments for
the acquisition of property, plant and equipment.
3.7 Included in machinery and equipment are lease
assets to the value of R6,6 million (2005: R6,6 million).
These assets serve as security for finance leases
(refer Note 18.3).
AFGRI Limited Annual Report 2006
NOTES TO THE GROUP ANNUALFINANCIAL STATEMENTSfor the year ended 28 February 2006
69
2006 2005
R000 R000
3 PROPERTY, PLANT AND EQUIPMENT (continued)3.8 Movements for the year
Opening carrying value 682 988 659 133
Land 30 034 29 830Buildings and improvements 299 169 281 317Machinery and equipment 310 120 312 248Vehicles 43 665 35 738
Additions at cost 105 502 123 839
Land 1 328 2 115Buildings and improvements 14 801 28 385Machinery and equipment 75 484 79 550Vehicles 13 889 13 789
Acquisition of subsidiaries and joint ventures 42 325 141 102
Land 335 3 654Buildings and improvements 5 628 88 557Machinery and equipment 32 976 44 633Vehicles 3 386 4 258
Transfers – –
Land (1 420) 421Buildings and improvements 1 420 (903)Machinery and equipment (7) (33)Vehicles 7 515
Exchange differences 14 467 (9 325)
Land (3 664) 3 790Buildings and improvements 5 267 (6 979)Machinery and equipment 13 134 (5 149)Vehicles (270) (987)
Disposals at book value (17 861) (53 284)
Land (2 964) (6 074)Buildings and improvements (9 564) (34 314)Machinery and equipment (2 438) (11 679)Vehicles (2 895) (1 217)
Depreciation charge (48 314) (41 959)
Buildings and improvements (6 718) (7 058)Machinery and equipment (32 161) (28 642)Vehicles (9 435) (6 259)
Disposals of subsidiaries and joint ventures – (127 511)
Land – (3 702)Buildings and improvements – (49 084)Machinery and equipment – (72 553)Vehicles – (2 172)
Assets classified as held-for-sale (67 782) _
Land (226) –Buildings and improvements (9 810) –Machinery and equipment (47 888) –Vehicles (9 858) –
AFGRI Limited Annual Report 2006
NOTES TO THE GROUP ANNUALFINANCIAL STATEMENTS
for the year ended 28 February 2006
70
2006 2005
R000 R000
3 PROPERTY, PLANT AND EQUIPMENT (continued)3.8 Movements for the year (continued)
Impairment charge (1 260) (9 007)
Buildings and improvements – (752)
Machinery and equipment (1 260) (8 255)
Closing carrying value 710 065 682 988
Land 23 423 30 034
Buildings and improvements 300 193 299 169
Machinery and equipment 347 960 310 120
Vehicles 38 489 43 665
4 INTANGIBLE ASSETS4.1 Cost 150 445 140 012
Goodwill 41 193 50 051
Trademarks and patents 20 308 31 977
Other 88 944 57 984
4.2 Accumulated amortisation and impairments (45 502) (61 655)
Goodwill (17 363) (26 919)
Trademarks and patents (4 112) (21 892)
Other (24 027) (12 844)
4.3 Net carrying value 104 943 78 357
Goodwill 23 830 23 132
Trademarks and patents 16 196 10 085
Other 64 917 45 140
4.4 Movements for the year
Opening carrying value 78 357 64 365
Goodwill 23 132 29 787
Trademarks and patents 10 085 14 167
Other 45 140 20 411
Additions at cost 47 733 43 033
Goodwill 720 4 575
Trademarks and patents 16 053 885
Other 30 960 37 573
Acquisition of subsidiaries 12 990 9 097
Goodwill 12 990 9 097
Amortisation charge (15 483) (4 228)
Trademarks and patents (4 300) (2 821)
Other (11 183) (1 407)
AFGRI Limited Annual Report 2006
NOTES TO THE GROUP ANNUALFINANCIAL STATEMENTSfor the year ended 28 February 2006
71
2006 2005
R000 R000
4 INTANGIBLE ASSETS (continued)4.4 Movements for the year (continued)
Impairment charge – (33 910)
Goodwill – (20 327)
Trademarks and patents – (2 146)
Other – (11 437)
Assets classified as held-for-sale (18 632) –
Goodwill (12 990) –
Trademarks and patents (5 642) –
Exchange differences (22) –
Goodwill (22) –
Closing carrying value 104 943 78 357
Goodwill 23 830 23 132
Trademarks and patents 16 196 10 085
Other 64 917 45 140
4.5 Included under trademarks and patents are the following:• Chemical trademark registrations with a carrying
value of R15,0 million (2005: Nil) and remaining
useful lives of 10 years.
4.6 Included under other is the following:• Group internally developed computer software
with a carrying value of R32,9 million (2005:
R35,6 million) and assets brought into use have
remaining useful lives of 4,5 years.
• Internally developed computer software for the
Animal Feeds division with a carrying value of
R8,5 million (2005: Nil) and a remaining useful life
of 3 years.
• Internally developed intellectual capital within the
Financial Services segment with a carrying value of
R4,0 million (2005: Nil) and a remaining useful life
of 5 years.
• AFGRI Seed hybrids development cost with a
carrying value of R12,4 million (2005: R8,0 million)
and a remaining useful life of 5 years.
AFGRI Limited Annual Report 2006
NOTES TO THE GROUP ANNUALFINANCIAL STATEMENTS
for the year ended 28 February 2006
72
2006 2005
R000 R000
4 INTANGIBLE ASSETS (continued)4.7 Impairment tests for goodwill
Goodwill is allocated to the Group’s cash-generating
units identified according to business segments.
4.7.1 A segment-level summary of the goodwill allocation
is presented below.
Services 14 498 13 800
Producer 14 498 13 800
Products 22 322 9 332
Cotton* 12 990 —
Foods 5 133 5 133
Protein 4 199 4 199
Group 36 820 23 132
The recoverable amount of a business unit is
determined based on value-in-use calculations.
These calculations use cash flow projections based
on financial budgets approved by management
covering a five-year period. Cash flows beyond the
five-year period are extrapolated using estimated
growth rates stated below. The growth rate does
not exceed the long-term average growth rate for
the business segment in which the business
unit operates.
*Classified as held-for-sale
4.7.2 Key assumptions used for value-in-use-calculations
Gross margin1 Growth rate2 Discount rate3
Producer 22,5% 4,5% 16,2%
Cotton and Foods 25,2% 4,0% 16,2%
Protein 30,0% 15,0% 16,2%
These assumptions have been used for the
analysis of each cash-generating unit within the
business segments.
1 Budgeted gross margin2 Weighted average growth rate used to extrapolate cash
flows beyond the budget period3 Pre-tax discount rate applied to the cash flow projections
Management determined the budgeted gross margin
based on past performance and its expectations for
market development. The weighted average growth
rates used are consistent with the forecasts included
in industry reports. The discount rates used are
pre-tax and reflect specific risks relating to the
relevant segments.
AFGRI Limited Annual Report 2006
NOTES TO THE GROUP ANNUALFINANCIAL STATEMENTSfor the year ended 28 February 2006
73
2006 2005
R000 R000
5 INVESTMENTS IN ASSOCIATES5.1 Interest in unlisted associates (refer Appendix C)
Opening carrying amount 20 046 4 152
Purchased during the year 1 014 8 285
Sold during the year (11 734) (378)
Share of (loss)/profit after income tax and
minority interest (638) 7 987
Closing carrying amount 8 688 20 046
Directors’ valuation 8 688 20 046
The directors’ valuation is based on the net asset
value of the various associates.
5.2 The summarised financial information of associates all of which are unlisted, is as follows:
Assets 23 958 86 312
Liabilities 8 511 62 941
Sales 17 517 304 936
(Loss)/profit (3 470) 10 792
There are no contingent liabilities relating to the
Group’s and Company’s interest in the associates.
6 AVAILABLE-FOR-SALE FINANCIAL ASSETS6.1 Interest in unlisted investments (refer Appendix D)
Cost 3 790 21 920
Fair value gain – 74 777
Impairment (580) (580)
Fair value 3 210 96 117
Directors’ valuation 3 210 96 117
The directors’ valuation is based on the investments’
fair value and net asset values.
6.2 The registers of investments are available for
inspection at the registered offices of the
respective Companies.
7 FINANCIAL RECEIVABLESLoans to unlisted joint ventures 10 906 7 470
Loans to unlisted associates (refer Appendix C) 2 842 1 601
Other loans to unlisted investments (refer Appendix D) 13 358 11 879
Held-to-maturity investments 262 151 100 000
Non-current portion of trade and other receivables 7 758 –
297 015 120 950
Impairment of loans to unlisted investments (1 225) (326)
Short-term portion of interest free loans (refer Note 9) (27 106) (20 950)
268 684 99 674
AFGRI Limited Annual Report 2006
NOTES TO THE GROUP ANNUALFINANCIAL STATEMENTS
for the year ended 28 February 2006
74
2006 2005
R000 R000
7 FINANCIAL RECEIVABLES (continued)7.1 The loans included in unlisted joint ventures, associates
and investments have no fixed terms of repayment
and are interest free.
7.2 The held-to-maturity investments are:
7.2.1 A preference share investment at Depfin
Investments (Pty) Ltd of R100 million.
The preference shares earn dividends at a
variable rate of 65% of prime payable semi-
annually. The final redemption date is
24 December 2007. These preference shares
have been ceded to the Land and Agricultural
Development Bank in terms of the BEE
transaction. The dividends received of
R5,5 million are in turn placed with the Land
and Agricultural Development Bank as
additional security.
7.2.2 Preference share investments at Premier
Foods Limited of R100 million and R50 million.
The preference shares earn dividends at
variable rates linked to prime bank rate and
payable quarterly. The final redemption
date for the R100 million investment is on
9 July 2010 and the R50 million investment
has no fixed redemption date.
7.2.3 An option purchased in the current year for
Daybreak Farms. Cost and fair value is
R6,6 million. Subsequent to year end this
option was exercised
8 INVENTORIESMerchandise 579 175 713 324
Raw materials 127 409 111 362
Finished goods 272 610 220 957
Consumable goods 58 328 35 356
1 037 522 1 080 999
8.1 Included in merchandise is R57,5 million (2005:
R165,3 million) for purchases financed on a floor
plan basis, which serve as security for such trade
payables (refer Note 20.1).
8.2 Included in merchandise is seed stock with a value
of R22 million (2005: R50 million) with an expected
liquidity period of longer than 12 months.
8.3 The following inventory is valued at net realisable value:
Merchandise 43 042 107 175
Finished goods 112 245 1 970
Consumable goods – 76
155 287 109 221
AFGRI Limited Annual Report 2006
NOTES TO THE GROUP ANNUALFINANCIAL STATEMENTSfor the year ended 28 February 2006
75
2006 2005R000 R000
9 TRADE AND OTHER RECEIVABLES
Total trade receivables 741 955 872 373
– Current 571 456 693 848– Season 143 747 151 501– Capital goods 26 752 27 024
Prepayments 6 785 13 704Short-term portion of interest free loans (refer Note 7) 27 106 20 950
775 846 907 027
9.1 Accounts for the financing of capital goods can be paid over periods of more than 12 months. The underlying capital goods serve as security for the debt.
9.2 Season and capital goods accounts bear interest at rates varying between prime bank rate and prime bank rate plus 5%.
9.3 Included in Trade and other receivables are the following receivables which have been financed through the Land and Agricultural Development Bank.
Liability – Land and Agricultural Development Bank (2 228 798) (2 513 368)Asset – Trade receivables 2 323 275 2 487 968
Net 94 477 (25 400)
The above asset and liability have been offset and the net amount disclosed in the balance sheet as there is a legally enforceable right to set off the recognised amounts and the intention is to realise the asset and settle the liability simultaneously. The Group’s liability for bad debts is limited to a maximum of 10% of the gross trade receivables. The net interest income from this structure is included in the operating profit of AFGRI Financial Services.
10 DERIVATIVE FINANCIAL INSTRUMENTS
The net fair values of derivative financial instruments,interest rate swaps and cash flow hedges at the balance sheet date are:10.1 Derivative financial instruments
Assets– Forward purchase contracts 15 804 30 668– Forward sale contracts 19 073 172– Net options – –– Net futures – 5 222– Interest rate swaps – fair value hedge 25 914 32 081
60 791 68 143
Liabilities– Forward sale contracts 954 23 376– Forward purchase contracts 8 159 840– Net futures 494 –– Net options 10 83
9 617 24 299
AFGRI Limited Annual Report 2006
NOTES TO THE GROUP ANNUALFINANCIAL STATEMENTS
for the year ended 28 February 2006
76
10 DERIVATIVE FINANCIAL INSTRUMENTS (continued)10.2 Interest rate swaps
The notional principal amount of the outstanding interest-rate swap contracts on 28 February 2006 was R25 816 876 (2005: R32 582 564). The Group is not exposed to any risk on these swaps as they have been fully hedged.
At year end the fixed interest rate was 11,85% (2005: 11,85%) and the main floating rate was ZAR prime rate less 1%.
10.3 Foreign currency cash flow hedgesThe fair value adjustment on foreign currency cash flow hedges is included in equity (refer note 14.3).
Foreign currency cash flow hedges consist of:
2006 2005Contract Market Fair Contract Market Fair
value value value value value valueSoldEuro 407 405 (2) – – –Pound Sterling 187 185 (2) – – –Japanese Yen 811 810 (1) – – –US Dollar 25 007 24 023 (984) 1 250 1 211 (39)
26 412 25 423 (989) 1 250 1 211 (39)
PurchasedEuro 6 156 5 902 254 2 553 2 547 6Japanese Yen 9 077 8 726 351 – – –US Dollar 19 780 19 740 40 5 652 4 856 796
35 013 34 368 645 8 205 7 403 802
Net fair value (344) 763
2006 2005R000 R000
11 CASH AND CASH EQUIVALENTS AND CASH COLLATERAL DEPOSITSCash on hand 45 510 70 558Bank balances 149 231 200 738
194 741 271 296Short-term borrowings and bank overdrafts (492 432) (425 169)
Short-term borrowings (460 900) (408 700)Bank overdrafts (31 532) (16 469)
Cash and cash equivalents (297 691) (153 873)Cash collateral deposits 382 080 342 343
Balance end of year 84 389 188 470
11.1 Cash and cash equivalents are the same for cash flow statement purposes.
11.2 The cash collateral deposits consists of cash deposits at financial institutions and serve as security for bad debts, up to amaximum of 10% of the debtors administered on behalf of third parties by AFGRI or debtors financed by the Land andAgricultural Development Bank (refer Note 9.3). The deposits bear interest at market related cash deposit rates.
11.3 The short-term borrowings and bank overdrafts bear interest at rates varying from 7% to 10,5% (2005: 7,6% to 11%). All
amounts are repayable within the next twelve months.
AFGRI Limited Annual Report 2006
NOTES TO THE GROUP ANNUALFINANCIAL STATEMENTSfor the year ended 28 February 2006
77
12 SHARE CAPITALNumber of Ordinary Treasury
shares shares shares Total
At 1 March 2004 333 100 796 4 – 4
Treasury shares acquired (6 194 431) – – –
Balance at 28 February 2005 326 906 365 4 – 4
Shares issued to share incentive trust 14 279 000 – – –
Balance at 28 February 2006 341 185 365 4 – 4
12.1 The total authorised number of ordinary shares is
515 million shares with a par value of 0,001 cents per
share. All issued shares are fully paid.
12.2 The Company acquired Nil (2005: 6 194 431) of its
own shares through purchases on the JSE (refer Note 16 ).
12.3 The Company issued 6 300 000 during August 2005
and 7 979 000 during February 2006 to the AFGRI
Limited Trust in terms of the share incentive
scheme rules (refer Note 17).
2006 2005
R000 R000
13 SHARE PREMIUMBalance beginning of year – 88 555
Premium on shares issued to share incentive trust 72 663 –
Allotment duty on issue of shares (74) (7)
Special capital distribution – (88 548)
Balance end of year 72 589 –
14 FAIR VALUE AND OTHER RESERVES14.1 Share-based equity valuation reserve
Opening balance 2 714 638
Movement for the year 6 256 2 076
Balance end of year 8 970 2 714
The fair value of options granted during the year determined
using the Black-Scholes valuation model was R6,3 million
(2005: R2,1 million). The significant inputs into the model
were share prices of R4,72 and R5,38 (2005: R5,10),
respectively, at the grant dates, standard deviation of
expected share price returns of 43% (2005: 43%), dividend
yield of 6% (2005: 6%), option life of 2 – 5 years and annual
risk-free interest rate of 7,7% (2005: 7,7%). The volatility
measured at the standard deviation of expected share price
returns is based on statistical analysis of daily share prices
over the last three years.
AFGRI Limited Annual Report 2006
NOTES TO THE GROUP ANNUALFINANCIAL STATEMENTS
for the year ended 28 February 2006
78
2006 2005
R000 R000
14 FAIR VALUE AND OTHER RESERVES (continued)14.2 Foreign currency translation reserve
Opening balance (43 891) (803)
Movement for the year 42 399 (43 088)
Balance end of year (1 492) (43 891)
14.3 Revaluation reserve of cash flow hedges (refer note 10.3)Opening balance (763) (432)
Movement for the year 1 107 (331)
Balance of end of year 344 (763)
Total fair value and other reserves 7 822 (41 940)
15 RETAINED EARNINGSComprising:
Company 149 915 134 873
Subsidiaries 1 223 896 1 153 087
Joint ventures (4 334) (2 547)
Associates 208 12 940
Balance end of year 1 369 685 1 298 353
An amount of R458,9 million in respect of general and
self-insurance reserves have been reclassified to retained
earnings as they are distributable. The effect of this
reclassification is presented in the Groups Statement of
Changes in Equity.
16 TREASURY SHARESThe treasury shares are purchased by a subsidiary,
OTK Investment House (Pty) Ltd. Treasury shares are
disclosed as a reduction of equity in the Statement of
Changes in Equity.
The following shares were purchased in terms of a
general authorisation:
NumberBeginning of year 32 608 635 26 414 204
During the year – 6 194 431
Balance end of year 32 608 635 32 608 635
Average price of shares purchased during the year – R5,44
Average purchase price of all shares R4,62 R4,62
Total number purchased as a percentage of total
issued shares 8,7% 9,1%
AFGRI Limited Annual Report 2006
NOTES TO THE GROUP ANNUALFINANCIAL STATEMENTSfor the year ended 28 February 2006
79
2006 2005
R000 R000
17 INCENTIVE TRUST SHARESIn terms of the AFGRI Limited incentive scheme, a maximum
of 15% of the issued share capital can be issued to the
deferred delivery scheme.
The shares for deferred options exercised have been issued
to AFGRI Limited Trust, which administers the incentive
scheme. Registration in the name of the employee is deferred
until future dates and will be transferred after payment of
the subscription price. At 28 February 2006 a total number
of 24 806 788 – 6,6% (2005: 16 688 690 – 4,6%) shares are
held in trust for the incentive scheme. The 31 262 312
(2005: 37 238 560) unissued shares which have been reserved
for the AFGRI Limited incentive scheme are under the control
of the Directors.
18 BORROWINGS18.1 Interest bearing loans 110 373 10 173
Depfin Investments (Pty) Ltd 100 000 –
Balance 100 000 –
Short-term portion – –
Nedbank – 2 866
Balance – 3 324
Short-term portion – (458)
Bank West 1 677 1 917
Balance 1 820 2 076
Short-term portion (143) (159)
Wesbank – 959
Balance – 1 128
Short-term portion – (169)
Toyota Financial Services – 442
Balance – 554
Short-term portion – (112)
Land and Agricultural Development Bank 938 1 259
Balance 4 248 4 629
Short-term portion (3 310) (3 370)
Standard Bank – 2 730
Balance – 3 120
Short-term portion – (390)
Rand Merchant Bank 7 758 –
Balance 15 516 –
Short-term portion (7 758) –
AFGRI Limited Annual Report 2006
NOTES TO THE GROUP ANNUALFINANCIAL STATEMENTS
for the year ended 28 February 2006
80
2006 2005
R000 R000
18 BORROWINGS (continued)18.1.1Present value of interest bearing loans
– Not later than 1 year 11 211 4 658
– Later than 1 year and not later than 5 years 109 268 6 411
– Later than 5 years 1 105 3 762
121 584 14 831
18.1.2 The Depfin preference share borrowing is cumulative
non-convertible and redeemable on 9 July 2010 and
bears interest at a variable rate of 75% of prime bank
rate payable quarterly.
18.1.3 The Nedbank loan was repayable in monthly
instalments of R65 142 and beared interest at a rate
of 10,0% per annum. The loan was secured by
land and buildings with a carrying value of
R8,7 million. The loan was repaid in full in the
current year.
18.1.4 The Bank West loan is denominated in Australian
Dollars and is not hedged. The loan is repayable in
monthly instalments of R35 020. The last payment
is due in October 2013. Interest is charged at a rate
of 7,15% per annum. The loan is secured by land and
buildings with a carrying value of R25 million.
18.1.5 The Wesbank loan was repayable in monthly
instalments of R31 970 and beared interest at a rate
of 9% per annum. The loan was secured by vehicles
with a carrying value of R913 773. The loan was
repaid in full in the current year.
18.1.6 The Toyota Financial Services loan was repayable in
monthly instalments of R19 959 and beared interest
at a rate of 9% per annum. The loan was secured by
vehicles with a carrying value of R428 300.The loan
was repaid in full in the current financial year.
18.1.7 The Land and Agricultural Development Bank loan
of R1,248 million (2005: R1,569 million) is repayable
in annual instalments of R310 000 and bears interest
at a rate of 9,5% per annum. The loan is secured by
the total debtors book, inventory and machinery
and equipment with a carrying value of R14 million
(2005: R11,3 miilion).
The Land and Agricultural Development Bank loan
of R3,000 million bears interest at a rate of 9,25%
per annum and is fully repayable in the next
financial year.
AFGRI Limited Annual Report 2006
NOTES TO THE GROUP ANNUALFINANCIAL STATEMENTSfor the year ended 28 February 2006
81
2006 2005
R000 R000
18 BORROWINGS (continued)18.1.8 The Standard Bank loan was repayable in monthly
instalments of R32 900 and beared interest at a rate
of 10,25% per annum. The loan was secured by land
and buildings with a carrying value of R4,8 million.
The loan was repaid in full in the current financial year.
18.1.9The Rand Merchant Bank loan is denominated in
US Dollars. The loan is repayable in annual instalments
of R6 611 469. Interest is charged at 4,3% per annum.
The loan is secured by equipment held by Mpongwe
Development Company, Wangwa and Cropmasters,
with a carrying value of R24,7 million under a
Zambian fixed charge. The last payment is due in
February 2008.
18.2 Interest free loansOther loans 10 550 3 643
Held-for-sale (2 668) –
Short-term portion of interest free loans (7 882) (3 643)
– –
These loans are unsecured and have no specific
terms of repayment.
18.3 Finance leases18.3.1 Hewlett Packard 5 355 3 190
Minimum lease payments
Not later than 1 year 3 945 2 440
Later than 1 year and not later than 5 years 6 238 3 363
10 183 5 803
Future finance charges on finance leases (1 429) (491)
Present value of finance lease liabilities 8 754 5 312
Short-term portion of finance leases (3 399) (2 122)
18.3.2 Present value of finance lease liabilities
Not later than 1 year 3 399 2 122
Later than 1 year and not later than 5 years 5 355 3 190
8 754 5 312
18.3.3 The finance leases are repayable in monthly
instalments varying from R3 700 to R147 691
and bear interest at rates varying between 5%
and 12,5%. Finance leases are secured by machinery
and equipment and vehicles with a carrying value
of R6,6 million (2005: R6,6 million) and debtors of
R2,5 million (refer Note 3.7).
Total borrowings 115 728 13 363
AFGRI Limited Annual Report 2006
NOTES TO THE GROUP ANNUALFINANCIAL STATEMENTS
for the year ended 28 February 2006
82
2006 2005
R000 R000
19 DEFERRED INCOME TAX19.1 Movement in deferred income tax
Balance beginning of year (25 098) 19 319
Disposal of joint ventures – (34 822)
Purchase of subsidiaries (9 176) 571
Income statement debit (16 636) (10 166)
Foreign currency differences (4 292) –
Other (5 517) –
End of year (60 719) (25 098)
19.2 Analysis of deferred income taxDeferred income tax liabilitiesProperty, plant and equipment 98 178 84 225
Trade and other receivables 1 370 10 097
Total 99 548 94 322
Deferred income tax assetsProperty, plant and equipment 9 601 9 741
Provisions 30 794 37 438
Trade and other receivables – 14 745
Income tax losses 107 861 54 537
Other 12 011 2 959
Total 160 267 119 420
20 TRADE AND OTHER PAYABLESTrade accounts payable 764 816 1 004 548
Other payables and accruals 672 974 728 206
Short-term portion of borrowings
– interest bearing loans 11 211 4 658
– finance leases 3 399 2 122
– interest free loans 7 882 3 643
1 460 282 1 743 177
20.1 Included in trade accounts payable is R57,5 million
(2005: R165,3 million) for purchases financed on a
floor plan basis. These payables are secured by
merchandise included in Note 8.1
AFGRI Limited Annual Report 2006
NOTES TO THE GROUP ANNUALFINANCIAL STATEMENTSfor the year ended 28 February 2006
83
2006 2005
R000 R000
21 PROVISIONS FOR OTHER LIABILITIES AND CHARGES21.1 Grain industry risk
Beginning of year 19 419 23 061
Utilised during the year (6 297) (8 696)
Charged to income statement – 5 054
Balance end of year 13 122 19 419
Provision for grain industry risks is made for the risks
inherent in the handling and storage of grain. The
decrease in this provision is due to the successful
implementation of the SIMS stock management
system, which led to more accurate stock levels with
smaller deviations.
21.2 Onerous contractsBeginning of year 3 463 –
Charged to income statement 5 571 3 463
Utilised during the year (4 483) –
Balance end of year 4 551 3 463
Provision is made for the full term of contractual
leases that are payable for vacated offices where
the lease term has not expired.
Total provisions for other liabilities and charges 17 673 22 882
22 SALESSales from continuing operations 5 431 168 5 357 912
Sale of goods 4 722 905 4 714 060
Services rendered 419 441 412 587
Debtor financing 288 822 231 265
Sales from discontinued operations
Sale of goods 356 813 888 973
Gross sales from operations 5 787 981 6 246 885
AFGRI Limited Annual Report 2006
NOTES TO THE GROUP ANNUALFINANCIAL STATEMENTS
for the year ended 28 February 2006
84
2006 2005
R000 R000
23 OPERATING PROFITThe operating profit is stated after taking into account
the following:
23.1 Net profit on disposal of property,plant and equipment 3 840 1 820
23.2 Payments to non-employeesManagerial, technical, administrative and
secretarial fees (18 463) (28 520)
Outsourcing of IT, personnel and internal
audit functions (61 376) (58 828)
(79 839) (87 348)
23.3 Fair value adjustments to trade and other receivables (10 094) (21 997)
23.4 Fair value losses on financial instrumentsOn forward contracts: transactions not qualifying
as hedges (1 361) (8 472)
– Gains 3 194 6 346
– Losses (4 555) (14 818)
23.5 DepreciationBuildings and improvements (6 718) (7 058)
Machinery and equipment (32 161) (28 642)
Vehicles (9 435) (6 259)
(48 314) (41 959)
23.6 Impairments of assetsBuildings and improvements – (752)
Machinery and equipment (1 260) (8 255)
Goodwill – (20 327)
Trademarks and patents – (2 146)
Other – (11 437)
(1 260) (42 917)
23.7 Amortisation of intangible assetsTrademarks (4 300) (2 821)
Other (11 183) (1 407)
(15 483) (4 228)
23.8 Finance costsInterest paid (101 862) (92 675)
Interest paid on leases (890) (278)
(102 752) (92 953)
23.9 Foreign currency profits/(losses)8 743 (11 993)
23.10 Interest paid to Land and Agricultural DevelopmentBank legal right of set-off (refer Note 9.3) (184 048) (167 313)
AFGRI Limited Annual Report 2006
NOTES TO THE GROUP ANNUALFINANCIAL STATEMENTSfor the year ended 28 February 2006
85
AFGRI Limited Annual Report 2006
NOTES TO THE GROUP ANNUALFINANCIAL STATEMENTS
for the year ended 28 February 2006
2006 2005
R000 R000
23 OPERATING PROFIT (continued)23.11 Auditors’ remuneration
Audit remuneration
– current year (4 917) (4 650)
– previous year (938) (469)
Other services and expenses (1 483) (888)
(7 338) (6 007)
23.12 Profit on disposal of available-for-sale investments 1 788 616
23.13 Movement in provisions– Utilisation of grain industry risk provision 6 297 3 642
– Increase in onerous contract (1 088) (3 463)
5 209 179
23.14 Operating lease payments– Buildings (29 405) (26 289)
– Plant and machinery (3 847) (617)
– Motor vehicles (4 214) (699)
– Equipment (20 368) (25 892)
(57 834) (53 497)
23.15 Fair value adjustment to available-for-sale investments – 74 777
23.16 Fair value adjustments to share-based reserves (6 256) (2 076)
24 STAFF COSTSSalaries and wages 557 437 541 356
Pension costs – defined contribution plans 29 161 26 174
Termination benefits 7 053 3 207
593 651 570 737
Average monthly number of employees employed by the
Group during the year: NumberFull-time 4 390 4 587
Part-time 1 368 1 288
5 758 5 875
South Africa 4 228 4 973
Other African countries 1 433 803
Australia 97 99
5 758 5 875
86
2006 2005
R000 R000
25 HELD-FOR-SALE AND DISCONTINUED OPERATIONS25.1 Non-current assets and liabilities classified as
held-for-saleAFGRI’s cotton ginning interests of Clark Cotton (Pty)
Ltd were sold to Cargill subsequent to the year end.
The non-current assets and liabilities have therefore
been disclosed as held-for-sale.
AssetsNon-current assets classified as held-for-sale 86 414 —
Property, plant and equipment 67 782 —
Intangible assets 18 632 —
Total assets 86 414 —
Non-current liabilities classified as held-for-saleMinority interest 256 —
Non-current liabilitiesBorrowings 2 668 —
Total liabilities 2 924 —
Sales 301 276 269 454
Cost of sales (227 604) (232 776)
Gross profit 73 672 36 678
Other operating income 1 631 565
Finance costs (11 931) (4 831)
Other operating expenses (72 640) (68 111)
Loss before income tax (9 268) (35 699)
Income tax expense 1 968 9 909
Loss for the year (7 300) (25 790)
AFGRI Limited Annual Report 2006
NOTES TO THE GROUP ANNUALFINANCIAL STATEMENTSfor the year ended 28 February 2006
87
2006 2005
R000 R000
25 HELD-FOR-SALE AND DISCONTINUED OPERATIONS(continued)25.2 Discontinued operations
The loss from discontinued operations of R22,4 million
(2005: R138,9 million profit), resulted from the closure
of the Western Free State and North West retail
branches and the retail distribution centre. The profit
in the previous year resulted from the disposal of
Earlybird Farm, Pioneer, Bester Voer and Graanbeurs,
ANB Vet and the closure of the AFGRI Fresh Cut business.
AssetsNon-current assets 1 023 6 136
Property, plant and equipment 1 023 6 129
Intangible assets – 7
Current assets 35 719 62 802
Inventories 32 664 58 458
Trade and other receivables 2 721 1 659
Cash and cash equivalents 334 2 685
Total assets 36 742 68 938
Equity and liabilitiesCapital and reserves (82 067) (51 716)
Share capital – 1
Retained earnings (82 067) (51 717)
Non-current liabilitiesBorrowings 111 713 75 218
Current liabilities 7 096 45 436
Trade and other payables 7 096 45 436
Total equity and liabilities 36 742 68 938
Sales 55 537 619 519
Cost of sales (57 202) (513 204)
Gross (loss)/profit (1 665) 106 315
Other operating income – 120 690
Finance costs – (659)
Other operating expenses (26 415) (91 177)
(Loss)/profit before income tax (28 080) 135 169
Income tax expense 5 641 3 708
(Loss)/profit for the year (22 439) 138 877
AFGRI Limited Annual Report 2006
NOTES TO THE GROUP ANNUALFINANCIAL STATEMENTS
for the year ended 28 February 2006
88
2006 2005
R000 R000
26 INCOME TAX EXPENSE26.1 Income tax expense
South African normal income tax 25 119 36 638
Current year 25 553 37 604
Previous year overprovision (434) (966)
Deferred income tax (16 585) (10 166)
Current year (15 155) (14 722)
Previous year (over)/under provision (1 430) 4 556
Change in income tax rate (51) –
Secondary tax on companies 4 130 40 994
Capital gains tax 1 819 1 425
Income tax charge 14 432 68 891
Continuing operations 22 042 82 508
Discontinued operations (7 610) (13 617)
Income tax charge 14 432 68 891
26.2 Reconciliation of income tax rateIncome tax for the year as a percentage of income
before income tax 10 31
Income tax effect of:
Non-deductible expenditure (4) (3)
Capital profits 3 14
Dividends received 22 8
Secondary tax on companies (3) (20)
Capital gains tax (1) (1)
Prior year overprovision 1 2
Income tax losses not provided 1 (1)
Standard rate 29 30
27 DIVIDENDSFinal normal and special of 9,7 cents per share for 2005 year
(2004: 26,1 cents per share) 30 390 80 226
Interim of 9,05 cents per share for 2006 year (2005: 18,3 cents
per share) 28 517 56 677
58 907 136 903
AFGRI Limited Annual Report 2006
NOTES TO THE GROUP ANNUALFINANCIAL STATEMENTSfor the year ended 28 February 2006
89
2006 2005
R000 R000
28 EARNINGS PER SHAREBasic earnings per share is calculated by dividing the
profit attributable to shareholders by the weighted average
number of ordinary shares in issue during the year.
Net profit 129 073 149 167
Weighted average number of ordinary shares in issue
(thousands) 330 640 331 104
Basic earnings per share (cents) 39,0 45,1
The earnings of the prior year have been adjusted to take
into account the effect of the BEE transaction and the
once off STC (12,5)
Basic earnings per share (cents) 32,6
29 HEADLINE EARNINGS PER SHARE29.1 Headline earnings
The headline earnings per share has been calculated
on profit of R122,910 million (2005: R113,379 million)
and weighted average issued shares of 330 640 234
(2005: 331 103 785) at 28 February.
Headline earningsProfit before Actual Pro forma
income tax Income tax 2006 2005
Profit per financial statements 143 506 (14 433) 129 073 107 959
Net profit on disposal of business assets (4 165) 720 (3 445) (44 891)
Amortisation/impairment of goodwill (10 131) – (10 131) 16 686
Loss on discontinued operations 9 791 (2 378) 7 413 19 803
Impairment of assets – – – 13 822
Headline earnings 139 001 (16 091) 122 910 113 379
Headline earnings per share (cents) 37,2 34,2
The headline earnings of the prior year have been
adjusted taking into account the BEE effect and the
once off STC charge.
Headline earnings previously reported (cents) 46,9
BEE and STC effect (12,7)
Adjusted headline earnings for 2005 (cents) 34,2
29.2 Diluted earnings per shareThere is no dilution as all the shares under the
deferred delivery scheme have been issued to the
AFGRI Limited Trust and are included in the weighted
average number of ordinary shares in issue.
AFGRI Limited Annual Report 2006
NOTES TO THE GROUP ANNUALFINANCIAL STATEMENTS
for the year ended 28 February 2006
90
2006 2005
R000 R000
30 NOTES TO THE CASH FLOW STATEMENT30.1 Cash generated from operations
Profit before income tax 160 192 230 724
Adjusted for:
Depreciation 48 314 41 959
Impairment of property, plant and equipment 1 260 9 007
Amortisation of intangible assets 15 483 4 228
Impairment of intangible assets – 33 910
Dividends from investments (26 511) (26 118)
Interest received (9 151) (22 613)
Finance costs 102 752 92 953
Net profit on disposal of property, plant and equipment (3 840) (1 820)
Adjustment for other non-cash items (5 501) (131 004)
Working capital changes
Inventories 97 581 (396 809)
Biological assets – (36 775)
Trade, other receivables and financial assets 181 078 (324 660)
Trade, other payables and financial liabilities (423 716) 732 286
137 941 205 268
30.2 Dividends paidPrior year final dividend paid (30 390) (80 226)
Interim dividend paid (28 517) (56 677)
(58 907) (136 903)
30.3 Income tax paidUnpaid amounts beginning of year 113 270 48 763
Normal income tax charged for year (25 119) (36 638)
Secondary tax on Companies charged for year (4 130) (6 529)
Capital gains tax charged for year (1 819) (1 425)
Tax realised on disposal of joint venture – 16 719
Unpaid amounts end of year (108 685) (113 270)
(26 483) (92 380)
30.4 Purchase of property, plant and equipmentLand (1 328) (2 115)
Buildings and improvements (14 801) (28 385)
Machinery and equipment (75 484) (79 550)
Vehicles (13 889) (13 789)
(105 502) (123 839)
AFGRI Limited Annual Report 2006
NOTES TO THE GROUP ANNUALFINANCIAL STATEMENTSfor the year ended 28 February 2006
91
2006 2005
R000 R000
30 NOTES TO THE CASH FLOW STATEMENT (continued)30.5 Proceeds from disposal of property, plant
and equipmentBook value 17 861 53 284
Profit on disposal 3 840 1 820
21 701 55 104
30.6 Acquisition of subsidiaries – net of cash acquiredProperty, plant and equipment (42 325) (141 102)
Available-for-sale investments 11 734 (1 378)
Intangible assets – (5 821)
Inventories (41 126) (100 569)
Trade and other receivables (39 658) 47 534
Trade and other payables 124 529 106 958
Goodwill 840 (3 276)
Deferred income tax (9 176) 571
Borrowings – 11 066
Cash and cash equivalents (28 102) 58 299
Minority interest 256 –
Total purchase consideration (23 028) (27 718)
Cash and cash equivalents acquired 28 102 (58 299)
Net cash flow on acquisition 5 074 (86 017)
30.6.1 The remaining 73% of Nedan Oil Mills (Pty) Ltd
was acquired on 1 March 2005 for a
consideration of R18,5 million. The purchase
consideration was allocated to all identifiable
assets and liabilities with an amount of
R13,8 million recognised as negative goodwill.
Earnings to the value of R9,5 million after tax
are recognised in the Group earnings for
the year.
30.6.2 51% interest in Clark Cotton Malawi Limited
was acquired on 1 March 2005 for a
consideration of R4,6 million. The purchase
consideration was allocated to all identifiable
assets and liabilities with an amount of
R13,0 million recognised as positive goodwill.
Losses to the value of R3,4 million after tax are
recognised in the Group earnings for the year.
AFGRI Limited Annual Report 2006
NOTES TO THE GROUP ANNUALFINANCIAL STATEMENTS
for the year ended 28 February 2006
92
2006 2005
R000 R000
30 NOTES TO THE CASH FLOW STATEMENT (continued)30.7 Proceeds from disposal of shares in joint venture
– net of cash disposedProperty, plant and equipment – 127 511
Inventories – 67 152
Trade and other receivables – 142 303
Trade and other payables – (115 892)
Income tax – (16 719)
Deferred income tax – (34 822)
Profit on disposal – 46 222
Cash and cash equivalents disposed – 9 245
Total proceeds on disposal – 225 000
Cash and cash equivalents – (9 245)
Net proceeds on disposal – 215 755
31 COMMITMENTS31.1 Capital commitments
Contracted for additions to property, plant and equipment 35 426 24 878
Authorised but not contracted for additions to
property, plant and equipment 23 208 82 701
58 634 107 579
The abovementioned capital commitments will be
financed by net cash flow from operations and the
utilisation of cash and borrowings within the accepted
gearing profile of the Group.
The Group’s proportionate share of the capital
expenditure commitments of joint ventures is
included in the above commitments is Rnil
(2005: R11,8 million).
31.2 Operating lease commitmentsThe future minimum lease payments under non-
cancellable operating vehicle and equipment
leases are as follows:
Not later than 1 year 11 098 15 133
Later than 1 year and not later than 5 years 9 040 27 339
Later than 5 years 921 811
21 059 43 283
AFGRI Limited Annual Report 2006
NOTES TO THE GROUP ANNUALFINANCIAL STATEMENTSfor the year ended 28 February 2006
93
2006 2005
R000 R000
32 GROUP BORROWING FACILITIES32.1 Borrowing facilities
General banking facilities 1 164 900 1 147 400
Term facilities, including foreign facilities 654 500 326 800
1 819 400 1 474 200
In terms of the Company’s Articles of Association,
the Group borrowings are unlimited, but certain
limits on borrowing levels have been fixed by the
Board of Directors.
32.2 Unutilised borrowing facilitiesTotal facilities 1 819 400 1 474 200
Utilisation – Short term borrowings (460 900) (408 700)
– Guarantees (143 500) (60 700)
1 215 000 1 004 800
33 AGENCY AGREEMENTSThe following financial assets are administered on behalf
of third parties:
33.1 DebtorsThe Group manages agri debtors on behalf of the
following third parties:
Wesbank 486 125 376 467
Rand Merchant Bank – 165 944
Stanbic 36 698 20 139
522 823 562 550
Management fees are paid by these third parties and
the Group is liable for bad debts up to a maximum
of between 10% and 15% of the value of debtors
administered.
33.2 CommoditiesThe following value of commodities were handled,
stored and managed on behalf of third parties:
Rand Merchant Bank 229 722 41 080
ABSA Bank – 257 705
Other commodity users 1 676 612 818 946
Producers 143 964 91 975
2 050 298 1 209 706
AFGRI receives a fee for the handling, grading, storing
and administration of these commodities. AFGRI
has a contractual right of first refusal to purchase
R253,9 million (2005: R299 million) of the commodities
at market value.
AFGRI Limited Annual Report 2006
NOTES TO THE GROUP ANNUALFINANCIAL STATEMENTS
for the year ended 28 February 2006
94
2006 2005
R000 R000
34 RETIREMENT BENEFITSThe Group provides retirement fixed contribution plans to
all permanent employees through the AFGRI Personnel
Pension Contribution Plan, AFGRI Provident Plan and other
contribution plans. These funds are governed by the Pension
Fund Act of 1956 and no actuarial valuations are required.
The funds are administered by several service providers. The
assets of the funds always equal or exceed the liabilities and
all death and disability benefits are fully reinsured.
The AFGRI Personnel Pension Contribution Plan has a surplus.
In terms of new legislation governing pension fund
surpluses, contribution holidays have been discontinued
until investigations and recalculations by independent
actuaries are finalised.
The contributions of the other funds, as well as the future
contributions of the AFGRI Personnel Pension Plan, are and
will be charged against the Income Statement as and
when incurred.
35 RELATED PARTY TRANSACTIONSDuring the year the Company and its subsidiaries, in the
ordinary course of business, entered into various sale and
purchase transactions with joint ventures. These transactions
occurred on an arm’s length and commercial basis.
Associates and joint venturesDetails of investments in joint ventures and associates are
disclosed in Appendix B and C, whilst the Group’s share
of income and expenses is included in the Income Statement.
Details of transactions with joint ventures are as follows:
Interest income 62 27
Goods purchased 35 606 42 484
Goods sold – 182 122
The outstanding balances at year end are as follows:
Trade and other receivables (Note 9) – 4 908
Trade and other payables (Note 20) 10 351 1 276
AFGRI Limited Annual Report 2006
NOTES TO THE GROUP ANNUALFINANCIAL STATEMENTSfor the year ended 28 February 2006
95
35 RELATED PARTY TRANSACTIONS (continued)
SubsidiariesInvestments in subsidiaries are disclosed in Appendix A
and on page 106 Note 3.
DirectorsDetails relating to Directors’ emoluments are disclosed on
pages 108 to 110, Note 8. All Executive Directors are eligible
for an annual performance-related bonus payment linked to
appropriate Group and business sector targets.
The structure of the individual bonus plans and awards is
decided by the Remuneration Committee and is EVA based.
The aggregate number of share options granted to and
exercised by executive Directors of the Company during
the year was 7 234 000 (2005: 4 500 000). The total
Directors’ interests in the issued shares of the Company are
disclosed on page 37, Directors’ report.
The total value of turnover from Directors is R48,6 million
(2005: R57,5 million) and the total amount of debt owed
by Directors is R55,3 million (2005: R49,9 million). These
transactions arise from normal trading activities at an arm’s
length basis. The debts are repayable on normal terms.
AFGRI Limited Annual Report 2006
NOTES TO THE GROUP ANNUALFINANCIAL STATEMENTS
for the year ended 28 February 2006
96
2006 2005
R000 R000
35 RELATED PARTY TRANSACTIONS (continued)
Salaries of key personnelThe salary costs of key personnel as identified by
Management are as follows:
– Cost to Company 56 803 52 465
– Share-based payments 6 256 2 076
ShareholdersThe principal shareholders of the Company are detailed in
the “Shareholder spread analysis” on page 111.
Capital commitmentsDetails are disclosed in Note 31.1.
36 GUARANTEES AND CONTINGENT LIABILITY
36.1 GuaranteesPerformance guarantees given to banks and
other third parties 31 237 35 340
36.2 Contingent liabilityIncome taxThe Company and SARS are in disagreement over the
treatment of certain trading losses, which could result
in an income tax liability. The Board will oppose any
claim that may arise.
AFGRI Limited Annual Report 2006
NOTES TO THE GROUP ANNUALFINANCIAL STATEMENTSfor the year ended 28 February 2006
111
AFGRI Limited Annual Report 2006
SHAREHOLDER SPREAD ANALYSIS
at 28 February 2006
TYPE OF LISTED SECURITY Ordinary shares
TOTAL NUMBER IN ISSUE 373 794 000
MAIN BOARD, VCM OR DCM Main Board
Number of Number of Percentage of Type of shareholders shareholders securities held securities issued
1. Public 5 404 314 453 622 84,1
2. Non-public 5 59 340 378 15,9
Total 5 409 373 794 000 100
ANALYSIS OF NON-PUBLIC SHAREHOLDERSNumber of Number of Percentage of
Type of shareholders shareholders securities held securities issued
1. Directors of the applicant or any of its subsidiaries 4 34 533 590 9,3
2. Any associates of 1 above – – –
Total 4 34 533 590 9,3
3. The trustee of any employees’ share scheme or pension fund
established for the benefit of any Director or employees of
the applicant and its subsidiaries 1 24 806 788 6,6
4. Any person who, by virtue of any agreement, has a right to
nominate a person to the Board of Directors of the applicant – – –
5. Any person that is interested in 10% or more of the securities
of the relevant class unless the JSE determines that, in all the
circumstances, such person can be included in the public for
the purposes of paragraphs 4.29 (d) and (e), 4.31 (g) (iv) and (v) – – –
SHAREHOLDERS WITH A HOLDING GREATER THAN 5% OF THE ISSUED SHARES
Number of Percentage of Type of shareholders securities held securities issued
Trustees of the AFGRI Share Incentive Scheme 24 806 788 6,6
OTK Investment House (Pty) Limited 32 608 635 8,7
Public Investment Commissioner 24 491 683 6,6
112
Financial year end February
Annual General Meeting Friday, 23 June 2006
Financial Reports
Announcement of interim results November 2005
Interim report published November 2005
Announcement of annual results May 2006
Annual financial statements published May 2006
Dividends
Interim dividend – declared November 2005
– paid December 2005
Capital distribution – declared May 2006
– paid June 2006
NotesThese dates are subject to change, and shareholders will be notified of any changes.
AFGRI Limited Annual Report 2006
SHAREHOLDERS’ DIARY
at 28 February 2006
AFGRI Limited Annual Report 2006
113
NOTICE OF ANNUAL GENERALMEETING
NOTICE is hereby given that the Eleventh Annual General
Meeting of shareholders in AFGRI will be held at AFGRI,
Block B2, Knightsbridge Manor, 33 Sloane Street, Bryanston,
on Friday, 23 June 2006 at 10:00, to transact the following
matters:
1 To receive, approve and adopt the Group’s annual financial
statements for the year ended 28 February 2006.
2 RESOLVED THAT as contemplated in section 90 of the
Companies Act No 61 of 1973, as amended, (“the Act”), the
Directors of the Company shall be entitled to pay, by way of
a capital distribution from the Company’s share capital or
share premium, in lieu of a dividend, an amount equal to the
amount which the Directors of the Company would have
declared and paid out of profits in respect of the Company’s
interim and final dividend for the year ended 28 February
2006, subject to the provisions of the Companies Act and
the Listings Requirements of the JSE Limited (“JSE”) and the
following limitations:
– that this authority shall not extend beyond 15 (fifteen)
months from the date of this meeting or the date of the
next annual general meeting, whichever is the earlier date;
– that the maximum amount by which the share capital or
share premium shall be reduced in terms of this authority,
shall not exceed R73 000 000 (seventy three million Rand),
which amount represents not more than the Rand value
of 20% (twenty percent) of the Company’s issued share
capital at the date of this meeting (including share
premium and reserves at the date of this meeting, but
excluding minority interests and re-valuations of assets
and intangible assets that are not supported by a
valuation by an independent professional expert
acceptable to the JSE prepared within the last six months,
in any one financial year, measured as at the beginning of
such financial year); and
– that any capital distribution be made pro rata to all
shareholders.
The Company’s Directors undertake that they will not
implement the proposed capital distribution, unless for a
period of 12 (twelve) months following the date of the
annual general meeting:
– the Company and the Group are able to repay their debts
in the ordinary course of business;
– the consolidated assets of the Company and the Group,
fairly valued according to IFRS and on a basis consistent
with the last financial year of the Company, exceed their
consolidated liabilities;
– the Company and the Group have adequate share capital
and reserves for ordinary business purposes; and
– the Company and the Group have sufficient working
capital for ordinary business purposes.
The Directors of the Company intend to utilise the authority
in terms of this Ordinary Resolution Number 2 in order to
make payment to shareholders, in lieu of dividend, by way
of a capital distribution from the Company’s share capital
or share premium.
An announcements will be published on SENS once the
shareholder approval is obtained setting out the finalised
dates, complying with Schedule 24. The financial effect of
the capital distribution is insignificant (below 3%) and will
therefore not be disclosed.
The Directors of the Company who hold shares in the
Company intend to vote their shares in favour of this
resolution and recommend that shareholders do the same.
Please refer to the additional disclosure of information
contained in this notice, which disclosure is required in
terms of the Listings Requirements.
3 To confirm the interim cash dividend of 9,05 cents per share
paid in December 2005.
4 To appoint three Directors to the positions of the under
mentioned Directors who retire in terms of the Company’s
Articles of Association, and who, being eligible, offer
themselves for re-election:
AFGRI Limited Annual Report 2006
NOTICE OF ANNUALGENERAL MEETING
114
4.1 JJ Claassen
4.2 JJ Ferreira
4.3 FJ van der Merwe
Abbreviated CV’s appear on page 6 of the annual report.
Shareholders have the opportunity to nominate Directors in
terms of the Articles of Association, up to seven (7) clear
days before the meeting. Proxy forms for this purpose will be
obtainable on request during normal business hours at the
Company’s head office, 33 Sloane Street, Bryanston, as from
1 June 2006.
5 To re-appoint PricewaterhouseCoopers Inc as the auditors of
the Company and to approve their remuneration.
6 RESOLVED THAT the authorised but unissued share capital
of the Company be and is hereby placed under the authority
of the Directors, who are hereby authorised to allot and
issue such shares upon and subject to such terms and
conditions as they may deem fit, but restricted specifically
to the allotment and issue of shares which may be allocated
during the year to certain employees and Executive
Directors in terms of the employee share incentive scheme
to a maximum of 10% (ten percent) of the issued share
capital, and subject to the following:
1 the Company’s Articles of Association;
2 the provisions of the Act;
3 the Listings Requirements of the JSE; and
4 the terms and conditions of the Company’s share
incentive scheme, as previously approved by the
shareholders.
Shareholders are advised that the employee share incentive
scheme currently holds 6,6% of the issued share capital and
is authorised by way of a previous resolution, to hold up to a
maximum of 15% of the Company’s issued share capital at
any one time.
7 SPECIAL RESOLUTION
“RESOLVED THAT the Board of Directors of the Company be
authorised by way of a general authority to facilitate the
acquisition by the Company or a subsidiary of the Company of
the issued ordinary shares of the Company, upon such terms
and conditions and in such amounts as the Directors may from
time to time determine (“the Repurchase”), but subject to the
Articles of Association of the Company, the provisions of the
Act and the JSE Listings Requirements, when applicable, and
provided that:
• the repurchase of securities will be effected through the
order book operated by the JSE trading system and done
without any prior understanding or arrangement between
the Company and the counter party;
• this general authority shall only be valid until the Company’s
next Annual General Meeting, provided that it shall not
extend beyond 15 (fifteen) months from the date of passing
of this special resolution;
• in determining the price at which the Company’s ordinary
shares are acquired by the Company in terms of this general
authority, the maximum premium at which such ordinary
shares may be acquired will be 10% (ten percent) of the
weighted average of the market price at which such ordinary
shares are traded on the JSE, as determined over the 5 (five)
trading days immediately preceding the date of the
repurchase of such ordinary shares by the Company;
• the acquisitions of ordinary shares in the aggregate in any
one financial year do not exceed 20% (twenty per cent) of
the Company’s issued ordinary share capital from the date
of the grant of this general authority;
• the Company and the Group are in a position to repay
their debt in the ordinary course of business for the next
12 months;
AFGRI Limited Annual Report 2006
115
• the consolidated assets of the Company and the Group,
being fairly valued in accordance with International Financial
Reporting Standards are in excess of the consolidated liabilities
of the Company and the Group in the next 12 months;
• the ordinary capital and reserves of the Company and the
Group are adequate for the next 12 months;
• the available working capital is adequate to continue
the operations of the Company and the Group in the next
12 months;
• upon entering the market to proceed with the repurchase,
the Company’s sponsor has confirmed the adequacy of the
Company’s working capital for the purposes of undertaking
a repurchase of shares in writing to the JSE;
• after such Repurchase the Company will still comply with
the JSE Listings Requirements concerning shareholder
spread requirements;
• the Company or its subsidiary are not repurchasing securities
during a prohibited period as defined in the JSE Listings
Requirements;
• when the Company has cumulatively repurchased 3% of the
initial number of the relevant class of securities, and for each
3% in aggregate of the initial number of that class acquired
thereafter, an announcement will be made; and
• the Company only appoints one agent to effect any
repurchase(s) on its behalf.”
The JSE Listings Requirements require the following
disclosure, some of which are elsewhere in the annual report
of which this notice forms part as set out below:
Directors and management pages 6 and 7
Major shareholders of the Company page 111
Directors’ interests in securities page 37; and
Share capital of the Company pages 77 and 107
LITIGATION STATEMENT
In terms of section 11.26 of the Listings Requirements of the
JSE, the Directors, whose names are given on page 6 of the
annual report of which this notice forms part, are not aware of
any legal or arbitration proceedings, including proceedings
that are pending or threatened, that may have or have had in
the recent past, being at least the previous 12 months, a
material effect on the Group’s financial position.
DIRECTORS’ RESPONSIBILITY STATEMENT
The Directors, whose names are given on pages 6 and 7 of the
annual report, collectively and individually accept full
responsibility for the accuracy of the information pertaining to
this resolution and certify that to the best of their knowledge
and belief there are no facts that have been omitted which
would make any statement false or misleading, and that all
reasonable enquiries to ascertain such facts have been made
and that this resolution contains all information required by
law and the JSE Listings Requirements.
MATERIAL CHANGE
Other than the facts and developments reported on in the
annual report, there have been no material changes in the
trading or financial positon of the Company and its
subsidiaries since the date of signature of the audit report and
the date of this notice.
The reason and effect for this special resolution is to grant the
Company a general authority to acquire its own shares, which
general authority shall be valid until the earlier of the next
annual general meeting of the Company or its variation or
revocation of such general authority by special resolution by
any subsequent general meeting of the Company, provided
that it does not extend beyond 15 (fifteen) months from the
date of this general meeting. (Refer to the attached report of
the independent auditors (page 117).
8 To transact such other matters as may be transacted at an
Annual General Meeting.
“Shareholders who have not dematerialised their shares or
who have dematerialised their shares with “own name”
registration are entitled to attend and vote at the meeting
and are entitled to appoint a proxy or proxies to attend,
speak and vote in their stead. The person so appointed need
not be a shareholder.
AFGRI Limited Annual Report 2006
NOTICE OF ANNUALGENERAL MEETING
116
Proxy forms must be forwarded to reach the Company’s
transfer secretaries, Computershare Investor Services 2004
(Pty) Ltd, 70 Marshall Street, Johannesburg, 2001, PO Box
61051, Marshalltown, 2107, so as to reach them by no later
than 10:00 on Wednesday, 21 June 2006. Proxy forms must
only be completed by shareholders who have not
dematerialised their shares or who have dematerialised their
shares with “own name” registration.”
On a show of hands, every shareholder of the Company
present in person or represented by proxy shall have one
vote only. On a poll, every shareholder of the Company
shall have one vote for every share held in the Company by
such shareholder.
Shareholders who have dematerialised their shares, other
than those shareholders who have dematerialised their
shares with “own name” registration, should contact their
CSDP or broker in the manner and time stipulated in
their agreement:
• to furnish them with their voting instructions; and
• in the event that they wish to attend the meeting, to
obtain the necessary authority to do so.
By order of the Board of the Company
SL REYNOLDS (Ms)
Group Company Secretary
JOHANNESBURG
16 May 2006
Proxy forms must be forwarded to reach the Company’s
transfer secretaries, Computershare Investor Services 2004
(Pty) Ltd, 70 Marshall Street, Johannesburg, 2001, PO Box
61051, Marshalltown, 2107, so as to reach them by no later
than 10:00 on Wednesday, 21 June 2006. Proxy forms must
only be completed by shareholders who have not
dematerialised their shares or who have dematerialised their
shares with “own name” registration.”
On a show of hands, every shareholder of the Company
present in person or represented by proxy shall have one
vote only. On a poll, every shareholder of the Company
shall have one vote for every share held in the Company by
such shareholder.
Shareholders who have dematerialised their shares, other
than those shareholders who have dematerialised their
shares with “own name” registration, should contact their
CSDP or broker in the manner and time stipulated in
their agreement:
• to furnish them with their voting instructions; and
• in the event that they wish to attend the meeting, to
obtain the necessary authority to do so.
By order of the Board of the Company
SL REYNOLDS (Ms)
Group Company Secretary
JOHANNESBURG
16 May 2006
AFGRI Limited Annual Report 2006
117
REPORT OF THE INDEPENDENTAUDITORS ON THE FORECAST FOR
REPURCHASE OF SHARES
Report of the independent auditors to the Directors ofAFGRI Limited on the forecast consolidated balance sheet,income statement and cash flow statement up to28 February 2007.
We have examined the forecast balance sheet, income
statement and cash flow statement for the twelve months
ended 28 February 2007. The forecasts were compiled by you
and are the sole responsibility of the Directors of AFGRI
Limited. Our responsibility is to report on the results of our
review for the purpose of meeting the Listing Requirements
of the JSE Limited regarding share repurchases.
SCOPEOur examination was carried out in terms of section 5.140 of
the JSE Limited requirements and was conducted in
accordance with the Audit and Accounting Guide on profit
forecasts and additional guidance issued by the South African
Institute of Chartered Accountants. In carrying out our
examination we have analysed the accounting policies,
checked the calculations used in the forecast and have
confirmed that the underlying information used in the forecast
has been presented on a basis consistent with the accounting
policies normally adopted by AFGRI Limited. We consider that
our procedures were appropriate in the circumstances to
enable us to express our opinion presented below.
ASSUMPTIONSThe profit forecast of the Directors was made in accordance
with existing budget procedures and accounting policies and
is based on the following main assumptions:
• An average crop return and general farming conditions in
the AFGRI Limited operating areas;
• No material changes in market circumstances, inflation rate,
exchange rate and interest rates;
• No extraordinary disruptions due to political and labour-
related factors;
• No major capital projects or acquisitions to take place
(normal capital expenditure was provided for), except for:
• the acquisition of Daybreak; and
• the disposal of the cotton ginning interests
• The proposed 20% share repurchase will be carried out
during this forecast period.
IN OUR OPINION• The assumptions set out above provide a reasonable basis
for the preparation of the forecast;
• The forecast has been properly compiled on the basis of
the assumptions;
• The forecast is presented on a basis consistent with the
accounting policies normally adopted by AFGRI Limited.
Since the forecast is based on assumptions concerning future
events, actual results may vary from the forecast, which has
been presented, and the variation may be material. Accordingly
we express no opinion on whether or not the forecast will
be achieved.
PRICEWATERHOUSECOOPERS INC
Registered Accountants and Auditors
JOHANNESBURG
16 May 2006
AFGRI Limited Annual Report 2006
ADMINISTRATION
118
AFGRI LIMITED
Registration number 1995/004030/06
Incorporated in South Africa
GROUP SECRETARY
SL Reynolds (Ms)
BA LLB
POSTAL ADDRESS
PO Box 3559
CRAMERVIEW 2060
BUSINESS ADDRESS AND REGISTERED OFFICE
33 Sloane Street
Knightsbridge Manor, Block B2
BRYANSTON
Fax (011) 463 4139 / 706 7662
Tel (011) 706 7897 / 549 0600
INTERNET ADDRESS
www.AFGRI.co.za
BANKERS
ABSA Bank Limited
FirstRand Bank Limited
Land and Agricultural Development Bank of SA Limited
Nedcor Bank Limited
Standard Bank of SA Limited
AUDITORS
PricewaterhouseCoopers Inc
SPONSOR
Rand Merchant Bank (A division of FirstRand Bank Limited)
TRANSFER SECRETARIES
Computershare Investor Services 2004 (Pty) Ltd
(Registration number 2004/002649/07)
70 Marshall Street
JOHANNESBURG 2001
PO Box 61051
MARSHALLTOWN 2107
Tel (011) 370 5320
AFGRI Limited Annual Report 2006
119
FORM OF PROXY
ONLY FOR USE BY SHAREHOLDERS WHO HAVE NOT DEMATERIALISED THEIR SHARES OR SHAREHOLDERS WHO HAVEDEMATERIALISED THEIR SHARES WITH “OWN NAME” REGISTRATION. ALL OTHER DEMATERIALISED SHAREHOLDERS MUSTCONTACT THEIR CSDP OR BROKER TO MAKE THE RELEVANT ARRANGEMENTS CONCERNING VOTING AND/OR ATTENDANCE ATTHE MEETING.
I/We (block letters)
(Name of shareholder)
of (address)
being a member/members of the Company, holding ____________________________________ number of shares, do hereby appoint
(name of proxy)
of (address)
or failing him, the Chairman of the meeting, as my/our proxy to represent me/us at the Annual General Meeting of the Company to be
held on Friday, 23 June 2006 at AFGRI Ltd, Block B2, Knightsbridge Manor, 33 Sloane Street, Bryanston, Sandton, at 10:00, or at any
adjournment thereof, to speak thereon and to vote as follows:
In favour of Against Abstain from resolution resolution voting
1 To adopt the annual financial statements for the year ended 28 February 2006
2 To confirm the payment of a capital distribution of 21,18 cents per share
3 To confirm the interim cash dividend of 9,05 cents per share
4 To appoint Directors to the positions of the undermentioned Directors who
retire in terms of the Company’s Articles of Association and being eligible,
offer themselves for re-election:
4.1 JJ Claassen
4.2 JJ Ferreira
4.3 FJ van der Merwe
5 Auditors
5.1 To appoint PricewaterhouseCoopers Inc as auditors
5.2 To approve the auditors’ remuneration
6 To adopt the special resolution authorising the issue of unissued share capital
in terms of the share incentive scheme
7 To adopt the special resolution to repurchase shares by way of a general authority
Please indicate instruction to proxy by way of a cross in the space provided above.
Signed at on 2006
Signature
Registration number 1995/004030/06
ISIN code ZAE 000040549 Share code AFR
“the Company”
AFGRI Limited Annual Report 2006
NOTES TO THE FORM OF PROXY
120
1 A shareholder entitled to attend and vote at the Annual
General Meeting is entitled to appoint one or more proxies
to attend, speak and vote in his/her stead. A proxy need not
be a shareholder of the Company.
2 Every shareholder present in person or by proxy and entitled
to vote at the Annual General Meeting of the Company shall,
on a show of hands, have one vote only, irrespective of the
number of shares such shareholder holds, but in the event
of a poll, every ordinary share in the Company shall have
one vote.
3 Dematerialised shareholders registered in their own names
are shareholders who appointed Computershare Custodial
Services as their Central Securities Depository Participant
(CSDP) with the express instruction that their uncertificated
shares are to be registered in the electronic sub-register of
shareholders in their own names.
Instructions on signing and lodging the proxy form
1 A shareholder may insert the name of a proxy or the names
of two alternative proxies of the shareholder’s choice in the
space/s provided, with or without deleting “the chairman of
the Annual General Meeting”, but any such deletion must be
initialled by the shareholder. Should this space be left blank,
the chairman of the Annual General Meeting will exercise
the proxy. The person whose name appears first on the
proxy form and who is present at the Annual General
Meeting will be entitled to act as proxy to the exclusion of
those whose names follow.
2 A shareholder’s voting instructions to the proxy must be
indicated by the insertion of the number of votes
exercisable by that shareholder in the appropriate spaces
provided. Failure to do so shall be deemed to authorise the
proxy to vote or to abstain from voting at the Annual
General Meeting, as he/she thinks fit in respect of all the
shareholders’ exercisable votes. A shareholder or his/her
proxy is not obliged to use all the votes exercisable by
his/her proxy, but the total number of votes cast, or those in
respect of which abstention is recorded, may not exceed the
total number of votes exercisable by the shareholder or by
his/her proxy.
3 A minor must be assisted by his/her parent or guardian
unless the relevant documents establishing his/her legal
capacity are produced or have been registered by the
transfer secretaries.
4 To be valid the completed proxy forms must be lodged with
the transfer secretaries of the Company at Computershare
Investor Services 2004 (Pty) Ltd, 70 Marshall Street,
Johannesburg 2001, PO Box 61051, Marshalltown 2107,
so as to reach them by no later than 10:00 on Wednesday,
21 June 2006.
5 Documentary evidence establishing the authority of a
person signing this proxy form in a representative capacity
must be attached to this proxy form unless previously
recorded by the transfer secretaries or waived by the
chairman of the Annual General Meeting.
6 The completion and lodging of this proxy form shall not
preclude the relevant shareholder from attending the
Annual General Meeting and speaking and voting in person
thereat to the exclusion of any proxy appointed in terms
hereof, should such shareholder wish to do so.
7 The completion of any blank spaces need not be initialled.
Any alterations or corrections to this proxy form must be
initialled by the signatory/ies.
8 The chairman of the Annual General Meeting may reject or
accept any proxy form which is completed other than in
accordance with these instructions provided that he is
satisfied as to the manner in which a shareholder wishes
to vote.
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