2124 Afgri AR 06 Front - ShareData › Data › 002679 › pdfs › AFGRI_ar_06.pdf · AFGRI Limited Annual Report 2006 The past financial year was one of the most testing in many

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


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.


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


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


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.


16


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 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


18


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


• 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


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


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


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


JD Wright

I De W Goosen

24

CORPORATE GOVERNANCE(continued)


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


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)


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


GROUP REVIEW (continued)

28

29


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


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


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


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


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


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


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


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


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


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)


– 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


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)


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.

41


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



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

43


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


45


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.

46



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


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.


48


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.


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.


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.



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


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


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


for the year ended 28 February 2006

GROUP INCOME STATEMENT(ACTUAL)


54


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)


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 attributable to:

Equity holders of the Company 129 073 107 959

Minority interest 42 822 56 535


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


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)


GROUP CASH FLOW STATEMENT


57


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


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



Earnings from



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


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


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



SEGMENT INFORMATION(continued)

59


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


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


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.



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


(g) Exemption of restatement of comparatives for IAS 32 and IAS 39



NOTES TO THE GROUP ANNUALFINANCIAL STATEMENTS


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



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


(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


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




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


NOTES TO THE GROUP ANNUALFINANCIAL STATEMENTSfor the year ended 28 February 2006


65



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



(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)


67



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



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).



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) –




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)


Closing carrying value 710 065 682 988

Land 23 423 30 034



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


Other 64 917 45 140

4.4 Movements for the year

Opening carrying value 78 357 64 365

Goodwill 23 132 29 787


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)



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


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.




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.



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




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



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




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.



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


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.




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%



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


Toyota Financial Services – 442

Balance – 554


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


Rand Merchant Bank 7 758 –

Balance 15 516 –

Short-term portion (7 758) –




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


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.



81

2006 2005

R000 R000

18 BORROWINGS (continued)18.1.8 The Standard Bank loan was repayable in monthly


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



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




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



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


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) –


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




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)


Vehicles (9 435) (6 259)

(48 314) (41 959)

23.6 Impairments of assetsBuildings and improvements – (752)


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)



85




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)



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




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



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.




90

2006 2005

R000 R000

30 NOTES TO THE CASH FLOW STATEMENT30.1 Cash generated from operations


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)


Vehicles (13 889) (13 789)

(105 502) (123 839)



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.




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:



Later than 5 years 921 811

21 059 43 283



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.




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



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.




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.



111


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.


SHAREHOLDERS’ DIARY

at 28 February 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:


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;


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.


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


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


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


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”


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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