Astral Foods Annual Report 2008
CONTENTS Profile, strategy and vision
1
Group activities
2
Financial highlights
4
Group structure
6
Directorate
7
Chairman’s review
10
Chief executive officer’s review
12
Corporate governance
15
Sustainability report
22
Value-added statement
25
Historical review
26
Annual financial statements
28
Analysis of ordinary shareholders
83
Notice of annual general meeting
84
Shareholders’ diary
87
Administration
88
Form of proxy: Inserted
PROFILE Astral Foods is a leading South African food group with key activities in animal feed, animal feed pre-mix, broiler genetics, broiler operations and the production and sale of day-old broilers and hatching eggs.
STRATEGY To grow the business in selected food markets to remain a leading food commodity company.
VISION
Astral Foods Annual Report 2008
To be a leading commodity food business.
1
GROUP ACTIVITIES
ANIMAL NUTRITION
ANIMAL FEED Eleven strategically placed feed mills in Southern Africa are well equipped to produce and distribute a wide range of specialised products for all commercially farmed animal species. The South African operations consist of mills located in Randfontein, Delmas, Welkom, Paarl, Port Elizabeth, Pietermaritzburg, Ladismith and a speciality mill in Richmond. The African operations consist of a feed mill in Lusaka (Zambia), a 33% shareholding in a feed mill in Port Louis (Mauritius) and an 80% shareholding in an operation in Maputo (Mozambique).
ANIMAL FEED PREMIX NuTec Southern Africa (Pty) Limited, a 50% joint venture with Provimi Holdings based in Holland, manufactures and markets vitamin and mineral premixes for animal feed as well as a wide range of feed additives and commodity and speciality raw materials.
ANALYTICAL LABORATORIES
Astral Foods Annual Report 2008
Central Analytical Laboratories analyses feed and water samples for feed manufacturers and for the agricultural sector.
2
ANIMAL HEALTHCARE NVS Biocare is involved in the marketing, sale and technical service of animal healthcare products, and manufactures and markets a full range of speciality detergents and disinfectants focused on both the animal health and food processing industries.
POULTRY
BROILER GENETICS Ross Poultry Breeders (Pty) Limited is the sole distributor and supplier of both Ross 788 and 308 parent stock to the South African broiler industry. The company has a technology agreement with Aviagen Limited, a multi-national company which holds the worldwide proprietary rights to the “Ross” brand. The company has entered into an agreement with Aviagen Limited for the exclusive rights to the International Ross 308 broiler/ breeder which is world renowned for its superior broiler and breeder performance. The performance of the breed will be evident from 2010 onwards. Aviagen Limited has a 10% shareholding in the company. Elite Breeding Farms is a joint venture between Country Bird Holdings Limited and Astral Operations Limited, in which Astral Operations Limited holds an 82% interest. The joint venture supplies parent stock to National Chicks and County Fair Foods only.
INTEGRATED BROILER OPERATIONS The group has three fully integrated broiler production, processing, distribution, sales and marketing operations. The combined production capacity of these three operations totals 3,75 million processed broilers per week made up as follows: Earlybird Standerton 1,25 million Earlybird Olifantsfontein 1,25 million County Fair Foods 1,25 million Both Earlybird Olifantsfontein and County Fair Foods market and distribute a full range of fresh and frozen poultry products whereas Earlybird Standerton’s primary products are in the form of individually quick frozen (IQF) products. County Fair Foods and Earlybird market and distribute a full range of value added products comprising frozen reformed filled products, ready to eat chicken products and a dedicated range of emulsified products.
The National Chicks division conducts business as a day-old chick and hatching egg supplier to the Astral integrated broiler operations and the independent non-integrated broiler producers in South Africa, Swaziland and Mozambique with a technical team servicing its customer base.
BAKERY Astral acquired a 50% interest in East Balt South Africa effective from 1 July 2008. East Balt South Africa bakes hamburger buns, English muffins, Kaiser rolls and other sandwich carriers, primarily for selling to fast food outlets in South Africa.
Astral Foods Annual Report 2008
DAY-OLD BROILER AND HATCHING EGG SUPPLIER
3
FINANCIAL HIGHLIGHTS
!
OPERATING PROFIT DECREASED 32%
!
EARNINGS PER SHARE DECREASED 38%
!
DIVIDEND PER SHARE UNCHANGED
!
CASH FROM OPERATING ACTIVITIES INCREASED 43%
Revenue Rm
REVENUE INCREASED BY 29% FROM R6 329 MILLION TO
10 000
8 000
R8 184 MILLION 6 000
4 000
2 000
0 01
02
03
04
05
06
07
08
Operating profit Rm
OPERATING PROFIT DECREASED BY 32% FROM R808 MILLION
1000
800
TO R548 MILLION Astral Foods Annual Report 2008
600
4
400
200
0 01
02
03
04
05
06
07
08
GREAT EMPHASIS IS PLACED ON CASH FLOW. DESPITE LOWER PROFITS AND HIGH CAPITAL EXPENDITURE THE NET DEBT TO EQUITY RATIO WAS 14%.
Headline earnings per share cents
EARNINGS PER SHARE DECREASED BY 38% TO
1500
1200
900
858 CENTS Cash generated from operating activities
600
Rm
300
750 0 01 600
02
03
04
05
06
07
08
CASH FROM OPERATING ACTIVITIES AT
450
R639 MILLION
300
Dividends per share cents
150
800 0 02
03
04
05
06
07
700
08
600 500 400
DIVIDEND PER SHARE UNCHANGED AT 700 CENTS
300 200 100 0 01
02
03
04
05
06
07
08
Astral Foods Annual Report 2008
01
5
GROUP STRUCTURE
100% ASTRAL OPERATIONS LIMITED 100% National Chicks Limited
50% NuTec Southern Africa (Pty) Limited
Meadow Feeds
NVS Biocare
67% National Chicks Swaziland (Pty) Limited
Central Analytical Laboratories
100% Africa Feeds Limited (Zambia)
Earlybird Olifantsfontein
Earlybird Standerton
County Fair Foods
33% Meaders Feeds Limited (Mauritius)
National Chicks
100% Meadow Feeds (Eastern Cape) (Pty) Limited
50% East Balt South Africa Partnership
Astral Foods Annual Report 2008
90% Ross Poultry Breeders (Pty) Limited
6
82% Elite Breeding Farms
80% Meadow Moçambique Limited
Animal Nutrition Operations Poulty Operations Investment Holding Bakery
DIRECTORATE INDEPENDENT NON-EXECUTIVE DIRECTORS JURIE JOHANNES GELDENHUYS (65) Independent non-executive director BSc (Eng Elec), BSc (Eng Mining), MBA Director of companies Appointed to the board on 24 May 2001 Chairman of the board, chairman of the human resources and remuneration committee, chairman of the nominations committee and member of the audit and risk management committee Previously served on the boards of Anglovaal Limited, Avmin Limited and its various gold mines, and Iscor Limited (now ArcelorMittal South Africa). Served as the Chamber of Mines president (1993 – 1994) and served on its Executive Council, Gold Producers’ Committee and various chamber related board committees. Previously served on the Council of the Atomic Energy Corporation and on the National Water Advisory Council. Retired as managing director of Avgold Limited during 2001. Currently a director of the listed Exxaro Resources Limited (chairman of safety, health and environmental committee and member of the transformation, nominations, human resources and remuneration committee).
THABANG CHARLOTTE CHRISTINE MAMPANE (50) Independent non-executive director BA Hons (Public Administration), Masters in Management Group Executive in the Group CEO’s office and Regions: South African Broadcasting Corporation Appointed to the board on 14 November 2003 Member of the human resources and remuneration committee and member of the nominations committee Started career at the SABC in 1983 as a junior announcer on Radio Seswana and remained in this position until promoted into the role of senior announcer in 1989. Promoted to Manager: Drama, Culture and Language in 1991. Joined Telkom as Manager of the Audio Visual Section in 1995 but returned to the SABC in 1996 as General Manager of the portfolio of eight radio stations, thereafter appointed as Chief Executive, Radio division for three years. Head of Regions from 2002 to 2005 before being appointed to her current position as Group Executive in the Group’s CEO’s office and Regions. Non-executive director of National Film and Video Foundation.
MALCOLM MACDONALD (66) Independent non-executive director BCom, CA(SA), ACIMA Director of companies Appointed to the board on 14 November 2003 Chairman of the audit and risk management committee Served as financial director of Iscor Limited (now ArcelorMittal South Africa) and its international steel marketing company until retirement in 2004. Previously general manager of the Industrial Development Corporation of SA Limited and non-executive director of many of its associated companies in a variety of industries (engineering, agriculture, chemicals, shipping, financial services, minerals extraction and processing).
Astral Foods Annual Report 2008
Currently serves on the boards and as chairman of the audit committees of the listed GijimaAST Group Limited, and unlisted Coris Capital.
7
DIRECTORATE
(continued)
INDEPENDENT NON-EXECUTIVE DIRECTORS
(continued)
CHARLES GUSTAV VAN VEYEREN (74) Independent non-executive director BSc Agric Director of companies Appointed to the board on 19 February 2001 Member of the human resources and remuneration committee Chairman of Onderberg Processing Co-operative Limited, Malelane Citrus Co-Operative Limited, Malelane Irrigation Board and Crocodile River Major Irrigation Board. Previously an executive member of the South African Agricultural Union and served on the boards of the Land & Agricultural Bank of South Africa, Agricultural Research Council and Citrus Industry Trust. Also served on the Tariffs/Marketing Development Committee, National Water Advisory Committee and as a Council Member of Eskom.
NOMBASA TSENGWA (43) Independent non-executive director BSc, MSc, PhD (Biotechnology) Executive General Manager: Safety and Sustainable Development, Exxaro Resources Limited Appointed to the board on 8 May 2007 Member of the nominations committee Started career as Research Assistant, University of Transkei. Previous positions include Lecturer: Department of Genetics, University of Pretoria and Senior Co-ordinator: Agriculture and Agroprocessing Sector within the National Research and Technology Foresight Project. Appointed as Corporate Manager: Biotechnology and Innovation Futures at the Council of Scientific and Industrial Research in 1999 before being appointed as Deputy-Director General: Environmental Management at the National Department of Environmental Affairs and Tourism in 2000. Currently a member of the South African National Parks Board of Directors.
THEUNIS ELOFF (53) Independent non-executive director BJur (Econ), ThB, ThM, ThD Vice-Chancellor of North-West University Appointed to the board on 8 May 2007
Astral Foods Annual Report 2008
Ordained as minister of religion of a congregation at the University of Pretoria. Completed Doctorate in Theology with a dissertation on “Government, Justice and Race Classification”. Left the ministry in 1989 and jointed the Consultative Business Movement and was appointed as Executive Director in 1990. In 1995 appointed as Chief Executive of the National Business Initiative. Served on the Economic Advisory Council of the Northwest Province, the Board of Business Against Crime and the Board of the Centre for Conflict Resolution. In 2002 became Vice-Chancellor of the Potchefstroom University for Christian Higher Education. In 2004 became Vice-Chancellor of the newly merged North-West University. Currently serving as chairman of Higher Education South Africa (HESA) and deputy chairman of the Association of Commonwealth Universities (ACU).
8
EXECUTIVE DIRECTORS
NICOLAAS CORNELIUS WENTZEL (53) Chief executive officer BCom (Hons), CA(SA) Appointed to the board on 9 February 2001 Appointed divisional director of Tiger Agri-Poultry in 1995 and divisional chairman of Tiger Milling and Baking operations in 1997. Left Tiger Brands in 1997 to take up position of chief executive officer of the Genfood Group. After successfully integrating the Premier Milling operations into Genfood, accepted offer to head up Astral Foods Limited.
CHRISTIAAN ERNST SCHUTTE (48) Managing director, Animal Nutrition Division Management Business Administration and Finance Dip. Appointed to the board on 18 August 2005
Astral Foods Annual Report 2008
Joined Golden Lay Farms, a division of Tiger Brands, the leading egg producing organisation in Southern Africa, in October 1984 as assistant farm manager. Spent 18 years with the group in various positions. Joined Astral Foods Limited in 2002 as manager of retail sales for Meadow Feeds. Appointed as managing director for the Animal Nutrition Division in July 2004. Responsible for Meadow Feeds Southern Africa, National Veterinary Services, Central Analytical Laboratories and East Balt South Africa.
9
CHAIRMAN’S REVIEW
The year marked the break in an exceptional, uninterrupted earnings growth pattern since listing in 2001
JJ Geldenhuys Chairman
OVERVIEW The year under review marked the break in an exceptional, uninterrupted earnings growth pattern since the listing of Astral Foods in 2001. Underlying this was a South African poultry industry that came under unprecedented pressure during the latter half of the year. Reduced consumer spending led to an oversupply and this, together with a substantial increase in input costs, caused profit margins to come under pressure. The group’s operating margin dropped from 12,8% to 6,7%. The Animal Nutrition Division had an exceptional year and despite high raw material prices, operating profit increased by 17,5%. Revenue for the year increased by 29% to R8,2 billion but operating income was 32% lower at R548 million. Diligent attention to cash flow, with a focus on working capital management, resulted in the maintenance of a strong balance sheet. Net debt of R186 million was marginally higher than last year’s R159 million. This justified the declaration of a dividend unchanged from last year’s, namely 700 cents per share. The Competition Commission has referred the findings of its investigation into the complaint of anti-competitive conduct by Astral Operations Limited and the Elite Breeding joint venture to the Competition Tribunal. The board disagrees with the views of the Commission and, in particular, the Commission’s view that Astral has, in any way, contravened the provisions of the Competition Act. We will raise, at the appropriate time, substantial factual and legal issues material to the matter, which were not dealt with by the Commission on its referral. The International Ross 308 bird will enter the market in 2010 replacing the Ascites resistant Ross 788 and the South African Ross 308. The International Ross 308 product is sold in 36 countries worldwide and will give Astral access to the latest developed genetics from Aviagen International. The bird is more feed efficient as well as a more prolific layer.
GROWTH Astral Foods Annual Report 2008
In line with our strategic plan to invest in organic expansion, projects to improve product mix and flexibility at the Earlybird processing plants, at a cost of R202 million, were completed during the year.
10
The new parent breeding operations of National Chicks Swaziland to produce 60 000 day-old chicks per week, was successfully commissioned in July 2008 at a cost of R14 million. Production is now in the correct location and transportation of eggs has been reduced. County Fair Foods completed its expansion to increase its broiler production by 55 000 broilers to 1,25 million per week in August 2008 at a total cost of R48 million.
Construction was started on a breeding operation and broiler hatchery in Lusaka (Zambia) to produce 200 000 day-old chicks per week. R18 million of the total cost of R55 million was spent during the year. As a result of the current broiler expansion programmes, our Animal Nutrition Division will continue to grow. Astral Foods acquired a 50% interest in East Balt South Africa effective 1 July 2008. East Balt South Africa bakes hamburger buns, English muffins, Kaiser rolls and other sandwich carriers primarily for selling to McDonald’s and Kentucky Fried Chicken outlets in South Africa. Capital expenditure of R58 million for a second bakery in the Western Cape was approved. Central Analytical Laboratories (Cape), the agronomy side of the Cape Analytical Laboratories operations, was perceived as non-core to Astral and was sold to SGS South Africa (Pty) Limited for R3,8 million.
PROSPECTS Consumption of poultry meat has increased steadily over the past few years and is expected to continue, albeit at a slower rate. The current weakness of the rand, if it persists, will continue to make imports of poultry meat very expensive. Due to the weakening of world markets, international agricultural commodity prices are likely to remain weak, placing downward pressure on food inflation. Reduced input costs together with lower imports are forecast in the new financial year. We therefore expect an improvement in earnings for the coming year, provided South African consumer demand for our products, particularly poultry, remains at acceptable levels despite a very uncertain global economy.
THE BOARD Mike Kingston, group poultry director since 2001, resigned with effect from 1 November 2008. Our thanks for a job well done and best wishes accompany him into the future.
APPRECIATION I would like to take this opportunity to thank my colleagues on the board for their wise counsel and to thank Nick Wentzel, his management team and all the staff at Astral for yet another fine effort under extremely difficult conditions during the past year.
JJ Geldenhuys Chairman
Astral Foods Annual Report 2008
13 November 2008
11
CHIEF EXECUTIVE OFFICER’S REVIEW Robust operating cash flow despite difficult trading conditions.
NC Wentzel Chief executive officer
FINANCIAL RESULTS Results for the year showed a 39% decline in headline earnings. Revenue increased by 29% to R8,2 billion (2007: R6,3 billion). Operating profit decreased by 32% to R548 million (2007: R808 million) although the Animal Nutrition Division reported strong growth. Group operating margins at 6,7% were down on last year’s 12,8%. Despite difficult trading conditions, cash flow was robust. As a result of a significant reduction in working capital, cash from operating activities increased 43% to R639 million compared to R448 million in 2007. Expansion capital expenditure for the year totalled R181 million (2007: R240 million), the major items being: !
R48 million at County Fair Foods to expand capacity to 1,25 million broilers per week;
!
R14 million at National Chicks (Swaziland) for a parent breeding operation;
!
R18 million for a breeding operation and broiler hatchery in Lusaka, Zambia;
!
R54 million to increase product mix and flexibility at Earlybird; and
!
R26 million in respect of the Earlybird Standerton rendering plant.
Replacement capital expenditure of R93 million was in line with the depreciation charge of R89 million. We place great emphasis on return on net assets. Net asset turn increased to 4,7 times but due to the lower profitability the return on net assets was 31% (2007: 55%). Return on equity decreased from 45% to 25%.
ANIMAL NUTRITION The division comprises three arms – Animal Feeds, Animal Feed Pre-Mixes and Services.
Astral Foods Annual Report 2008
Animal feeds
12
Despite volatile local and international commodity markets and high input costs, the results for the year were most pleasing. Revenue of R5,1 billion (2007: R3,5 billion) increased by 46% and operating profit of R385 million (2007: R333 million) improved by 16%. However, operating margins decreased from 9,4% to 7,5% as the full impact of increased input costs could not be recovered.
The South African animal feed market is mature with the only significant growth prospects coming from the expanding poultry industry. Our division is well positioned to take full advantage of any future poultry expansion. Quality remains one of our core focus areas and a major reason for our strong market position. The division has achieved certification with regard to ISO 22000/2005, ISO 9001/2000, Good Manufacturing Practices (GMP) and Hazard Analysis and Critical Control Point (HACCP) at all of the main feed mills which offer complete product traceability in line with European Union standards of feed safety. The technical agreement with Provimi Holding BV, a leading international animal feed research and development organisation, gives us access to the latest developments in animal feed nutrition.
Animal feed pre-mix NuTec Southern Africa, a 50% joint venture with Provimi Holding BV, produced an excellent financial performance despite significantly higher vitamin prices brought about by world wide shortages.
Service companies National Veterinary Supplies showed good progress in both its animal health and chemical divisions. Central Analytical Laboratories, our laboratory operation, also reported satisfactory results. A 50% stake in East Balt South Africa was acquired effective 1 July 2008 and reported results in line with budget.
POULTRY The division comprises three separate business units – integrated broiler operations, broiler genetics and the production and sale of day-old broiler chicks and hatching eggs. Revenue from Poultry increased by 16% from R4,4 billion to R5,1 billion. However, with only an 8% increase in poultry meat realisations against a 29% increase in feed costs, operating profit fell by 66% from R475 million to R163 million and operating margins dropped from 10,8% to 3,2%.
Integrated broiler operations The integrated broiler operations are represented by Earlybird, with production and processing facilities in Gauteng and Mpumalanga, and County Fair Foods in the Western Cape. Imported poultry products remain a strong competitor in the local market. Disease is always a major threat in the poultry industry and control measures are a major feature of our management focus. Sporadic outbreaks of Newcastle disease continued into 2008. Avian influenza remains a threat to the industry and its status is constantly monitored.
Broiler genetics The broiler genetics company, Ross Poultry Breeders (Pty) Limited, operates in association with one of the two largest global providers of broiler breeding stock, Aviagen Limited, which is a 10% shareholder. Despite increased input costs the company recorded good results.
Day-old broilers and hatching eggs
A parent breeding operation in Swaziland to produce an additional 60 000 day-old chicks per week was completed in July 2008.
Astral Foods Annual Report 2008
Our National Chicks group has operations in Gauteng, KwaZulu Natal and Swaziland. Profit for the year was marginally below last year as high input costs could not be fully recovered in the market place.
13
CHIEF EXECUTIVE OFFICER’S REVIEW
(continued)
CONCLUSION The poultry expansion programme to improve product mix and flexibility in the plants was completed during the year. The global recession has placed downward pressure on commodity prices and lower feed prices and energy costs are forecast for the coming year.
APPRECIATION I would like to thank our customers for their support during the past year. We remain committed to delivering excellent client service and providing products of the highest quality. I also wish to express our thanks to our suppliers for assisting us in achieving high performance standards. To my colleagues in management and to our staff, thank you for your support and contribution. Finally, the support received from our chairman, Jurie Geldenhuys, together with the board, is highly valued. The group has benefited from their wise counsel and depth of experience during the past year.
NC Wentzel Chief Executive Officer
Astral Foods Annual Report 2008
13 November 2008
14
CORPORATE GOVERNANCE
Our approach to corporate governance is a keystone of our primary objective which is to create value for all our stakeholders
We subscribe to the principles of discipline, transparency, independence, accountability, responsibility, fairness and social responsibility identified as the primary characteristics of good governance in the King Report on Corporate Governance 2002 (King Report). Our approach to corporate governance is a keystone of our primary objective which is to create value for all our stakeholders. We have taken cognisance of the Public Investment Corporation’s corporate governance and proxy voting policy and have implemented measures to comply with its requirements as far as possible. We acknowledge the constitution of South Africa as the supreme law of the country, and abide by all existing legislation. We believe that the group’s governance practices are sound and that in all material respects, we conform to the principles embodied within the King Report and the listing requirements of the JSE Limited. The board remains committed to ensure that these principles continue to be an integral part of the way in which Astral’s business is conducted.
THE CONSTITUTION AND THE OPERATION OF THE BOARD OF DIRECTORS The board The board operates in terms of a formally approved charter which sets out its role and responsibilities. In summary, the main elements of the charter are: !
The chairman of the board is an independent non-executive director;
!
A formal orientation programme for new directors is followed;
!
Specific clauses, in line with the King Report, exist with regard to conflicts of interest and the maintenance of a register of directors’ interests;
!
The board conducts self-evaluation on an annual basis;
!
Directors have access to staff, records and the advice and services of the company secretary;
!
Succession planning for executive management is in place and is regularly updated;
!
A strategic plan and approvals framework exist and are regularly reviewed;
!
Policies and processes necessary to ensure the integrity of internal controls and risk management are in place; and
!
The nature and extent of social transformation, ethical, health and safety, human capital, and environmental management policies and practices are monitored and reported on regularly.
On 14 February 2008 Mr JL van den Berg retired as chairman and non-executive director. Mr JJ Geldenhuys succeeded him as chairman of the board. Mr MA Kingston resigned as director on 1 November 2008. We believe that the non-executive directors are of suitable calibre and number for their views to carry significant weight in the board’s decisions. An independent non-executive chairman leads the board. A schedule of beneficial interests of directors appears on page 38 of this report. A complete list of board members appears on pages 7, 8 and 9 of this report. In terms of our articles of association all new directors appointed during the year, as well as one third of the existing directors, have to retire on a rotational basis each year and they may offer themselves for re-election.
Astral Foods Annual Report 2008
We have a unitary board structure, presently comprising eight directors, including six independent non-executive directors. The roles of chairman and chief executive are separate and distinct.
15
CORPORATE GOVERNANCE
(continued)
The board accepts responsibility for the induction of new or inexperienced directors. As part of the company’s induction programme, a new director is briefed by the company secretary and provided with a comprehensive company information pack. The directors are experienced business people and are required to exercise leadership, enterprise, integrity and judgment based on the principles of good governance. The board is committed to guiding and monitoring these high standards. The board is aware that it is accountable for the actions of management and has retained full and effective control of the organisation over the past year. The board defines levels of materiality, reserving specific powers to itself, and delegates other matters with the necessary written authority to management. These matters are monitored and evaluated on a regular basis. The board, in terms of its charter, is required to meet at least quarterly so as to monitor important issues and meet its objectives. Matters reviewed include strategy, planning, operational performance, broad-based black economic empowerment compliance, acquisitions, disposals, shareholder communications and other material aspects pertaining to the achievement of the group’s objectives. Board members are required to regularly declare any interest that they might have in transactions with the group. The board periodically reviews the mix of skills and experience available within the board. Procedures for appointment to the board are formal and transparent and are vested in the board. Management ensures that the information needs of the board are well defined and regularly reviewed. The board of directors is ultimately responsible for ensuring that Astral is a viable business and to this end effectively controls the company and its subsidiaries, monitors executive management and is involved in all decisions that are material for this purpose. The board conducts assessments annually based on several factors including expertise, objectivity, judgment, understanding the group’s business, willingness to devote the time needed to prepare for and participate in committee deliberations and timely responses.
Attendance at meetings
Astral Foods Annual Report 2008
The following is a list of scheduled and special board meetings and board committee meetings attended by each director during the year:
16
Board: 2007 Director
8/11
T Eloff JJ Geldenhuys MA Kingston M Macdonald TCC Mampane CE Schutte N Tsengwa JL van den Berg CG van Veyeren NC Wentzel Key:
√ A * •
√ √ √ √ √ √ √ √ √ √
2008 24/1• √ √ √ √ A √ A √ √ √
14/2
15/5
19/5
√ √ √ √ √ √ √ * √ √
√ √ √ √ A √ √ * √ √
√ √ √ √ A √ √ * √ √
5/6• A √ √ A √ √ A * √ √
17/6•
14/8
√ √ √ √ A √ A * √ √
√ √ √ √ √ √ √ * √ √
2007
2008
7/11
16/5
√ √ #
√ * √
Present Absent Retired 14 February 2008 Special board meetings
Audit and risk management committee The committee met twice in 2008. Attendance at meetings was as follows:
Director DM Macdonald JL van den Berg JJ Geldenhuys Key:
√ * #
Present Retired 14 February 2008 Appointed 16 May 2008
Human resources and remuneration committee The committee met twice during 2008. Attendance at meetings was as follows: 2008 Director JJ Geldenhuys TCC Mampane CG van Veyeren √
7/8
√ √ √
√ √ √
Present
Astral Foods Annual Report 2008
Key:
8/5
17
CORPORATE GOVERNANCE
(continued)
Non-executive directors receive the following fees: Fixed fee per annum 2008 R’000 Chairman of the board Member of the board Chairman of the audit and risk management committee Member of the audit and risk management committee Chairman of the human resources and remuneration committee Member of the human resources and remuneration committee
300 150 110 60 110 60
The remuneration is paid quarterly in arrears. Members will be requested to approve an 8% increase in nonexecutive directors’ fees at the forthcoming annual general meeting.
Board committees To enable the board to properly discharge its responsibilities and duties, certain responsibilities of the board have been delegated to board committees. The board is satisfied that all committees have met their respective responsibilities for the period under review. All board committees are chaired by an independent non-executive director. Particulars of the composition of the board of directors and committees appear on pages 7, 8 and 9 of this report. Board committee charters are reviewed on an ongoing basis to ensure that the committees’ duties and responsibilities are aligned with the requirements of corporate governance and keep abreast of developments in this field. The board committees are as follows: The audit and risk management committee The audit and risk management committee consists of two members, both of whom are independent non-executive directors, and meets at least twice a year with management, internal and external auditors as well as the group’s risk managers. Ideally, a third suitably qualified independent non-executive director should be appointed to the committee. The board will make this appointment on recommendation of the nominations committee. The opportunity is also created for discussion with the external and internal auditors without the presence of management. We believe that the members of the committee are knowledgeable about the affairs of the company and have a working familiarity with basic finance and accounting practices. Mr NC Wentzel, our chief executive officer, also makes a valuable contribution to the committee as a result of his extensive experience as a chartered accountant as well as his in-depth knowledge of the poultry and milling industries. The audit committee fulfils the responsibilities as set out in the audit committee charter, which include: !
Overseeing the internal and external audit function;
!
Assisting the board in the discharge of its duties relating to the safeguarding of assets and operation of adequate systems and internal controls;
!
The preparation of accurate financial reporting and statements in compliance with all applicable legal requirements, corporate governance and accounting standards; and
!
Providing support to the board on the risk profile and risk management of the group.
Astral Foods Annual Report 2008
Both the group internal audit manager and external auditors have unfettered access to the chief executive officer, the chairman of the board and the audit and risk management committee.
18
Members of the audit committee are: Member
Independent Non-executive
Period
M Macdonald (chairman) JJ Geldenhuys
Yes Yes
May 2004 to date May 2008 to date
To further enhance the effectiveness of the audit and risk management committee we also have bi-annual divisional audit committee meetings for each operation. As part of our enterprise wide risk management programme, quarterly risk management meetings are held at operational and corporate level under the chairmanship of a risk control manager who reports to the group audit and risk management committee. The nominations committee The nominations committee was established during the course of the year and consists of three independent non-executive directors. The committee meets annually or more often at the committee’s discretion. The primary purpose of the nominations committee is to ensure that the procedures for appointments to the board are formal and transparent, by making recommendations to the board on all new board appointments and reviewing succession planning for directors. The committee also has to evaluate all candidates for the position of director on the basis of skill and experience. Thorough background checks are conducted. Members of the nominations committee are: Member
Independent Non-executive
Period
JJ Geldenhuys (Chairman) TCC Mampane N Tsengwa
Yes Yes Yes
May 2008 to date May 2008 to date May 2008 to date
The human resources and remuneration committee The human resources and remuneration committee consists of three independent non-executive directors including the chairman of the committee. The committee meets at least twice a year. Responsibilities of the human resources and remuneration committee include: !
Development of our general policy and remuneration system for executive and senior management and making recommendations to the board on remuneration packages applicable to directors;
!
Measuring the performance of executive directors to ensure that they are fairly rewarded;
!
Employment equity and skills retention matters; and
!
Management succession planning.
Members of the human resources and remuneration committee are: Member
Independent Non-executive
Period
JJ Geldenhuys (chairman) TCC Mampane CG van Veyeren
Yes Yes Yes
May 2001 to date August 2005 to date May 2001 to date
REMUNERATION POLICY, SHARE INCENTIVE SCHEMES AND MANAGEMENT BONUS INCENTIVE SCHEME Astral’s remuneration policy is to attract, retain and incentivise management and personnel of the highest calibre.
Executive directors, senior management and middle management are eligible to participate in the group’s share incentive scheme, which is designed to enable them to participate in the growth that they helped create for the shareholders. Options are allocated at the market price ruling at the date they are granted, vest after stipulated periods, and are exercisable over a maximum period of ten years from the date of issue. Non-executive directors are not entitled to options in terms of the group’s share option scheme. A number of other bonus schemes are also in place that cover all levels of employees in the group.
Astral Foods Annual Report 2008
Executive directors, senior management and middle management participate in a management bonus incentive scheme based on an Economic Value Added (EVA®) formula.
19
CORPORATE GOVERNANCE
(continued)
ORGANISATIONAL INTEGRITY AND ETHICS We maintain a code of ethics, which requires all employees, managers and directors to comply with the letter and spirit of the code by observing the highest ethical standards and to ensure that all business practices are conducted in a manner which is beyond reproach. We maintain a zero-tolerance approach to unethical behaviour. Any employee found to be acting unethically is subject to disciplinary proceedings, which can lead to dismissal. An independent hotline is available where unethical behaviour, workplace dishonesty, fraud, theft or any other crime may be reported anonymously. The Code of Ethics includes: !
Compliance with laws and regulations and codes;
!
Culture, ethics and values;
!
Client service;
!
Privacy and confidentiality;
!
Respect and dignity;
!
Social responsibility; and
!
Conflict of interest.
The board has no reason to believe that there has been any material non-adherence to the code of ethics during the year under review.
RESTRICTIONS ON SHARE DEALINGS Directors and employees are prohibited from dealing in Astral shares during price sensitive periods. There is a formal clearance procedure in place with respect to directors dealing in Astral shares. Closed periods extend from 31 March and 30 September, being the commencement of the interim and year-end reporting dates, up to the date of announcement of interim and year-end results, and include any other period during which the company is trading under a cautionary announcement.
RISK MANAGEMENT AND INTERNAL CONTROL Risk management is an integral part of our culture and strategic operations. The audit and risk management committee is responsible for assessing our management of identified risk issues. The board believes its focus on risk issues is appropriate and that an adequate system of internal control is in place to mitigate significant risks and to provide the board with a reliable means of monitoring operational sustainability.
Astral Foods Annual Report 2008
Internal control self-appraisal systems are in place for all operations and are reviewed at divisional audit committee meetings. Annual audits are conducted in respect of health and safety, risk control organisation, emergency planning and fire and loss control. Documented crisis management plans are in place for all operations. In addition, we promote ongoing commitment to risk management and control by participating in externally organised risk management and safety programmes such as ISO 9001/2000, Good Manufacturing Processes (GMP) and Hazard Analysis and Critical Control Points (HACCP) at our various operations.
20
In terms of the current Environmental Risk Management programme within the group, all manufacturing business units are audited on a three year rotational basis. These audits are completed by a third party auditing company – Alexander Forbes Risk Engineering. Audits are aligned with the Group Environmental Risk Management Policy Statement and aim to highlight areas of risk exposure and legal non compliance. The board believes that it has reasonable, but not absolute, assurance with regard to the effectiveness and efficiency of operations, protection of assets and information, and regulatory and legal compliance.
INTERNAL AUDIT We have established an independent, objective and effective internal audit department governed by a charter approved by the board. The internal audit function reports to the chief executive officer and has unfettered access to the chairman of the board and the chairman of the audit and risk management committee. The role of internal audit is to review compliance with internal controls, systems and procedures. The board is satisfied that the group’s internal controls are adequate in safeguarding the group’s assets, preventing and detecting errors and fraud, ensuring the accuracy and completeness of accounting records and preparing reliable financial statements. During 2007 an independent review of the group’s internal audit department was conducted and the department achieved the highest compliance rating of the Institute of Internal Auditors.
EXTERNAL AUDIT The audit and risk management committee recommends to the board the appointment of external auditors. It also considers the independence of the external auditors, and has set principles for the use of external auditors to provide non-audit services. Consultation and co-operation between external auditors and internal auditors is encouraged by the board.
MANAGEMENT REPORTING We have comprehensive management reporting disciplines, which include the preparation of annual strategic plans and budgets by all operations. Group strategic plans and budgets are considered and approved by the board. Results and the financial status of the operations are reported monthly and compared with approved budgets and results of the previous year. Working capital requirements and borrowing levels are monitored on an ongoing basis and corrective or remedial action taken as appropriate.
COMPANY SECRETARY All directors have access to the advice of the company secretary and are entitled and authorised to seek independent and professional advice about the affairs of the company at the company’s expense. The company secretary is suitably qualified and experienced and plays an important role in ensuring that the board procedures are followed correctly and reviewed regularly. The company secretary is responsible for the duties set out in Section 268G of the Companies Act and is appropriately empowered by the board to fulfil these duties. The certificate required to be signed in terms of Section 268G(d) of the Act appears on page 29.
COMMUNICATION
Astral Foods Annual Report 2008
The board ensures that material matters of significant interest and concern to shareholders and other stakeholders are addressed in public disclosures and communications. In this regard, the board ensures that adequate transparency on all pertinent financial and non-financial matters is provided.
21
SUSTAINABILITY REPORT
We subscribe to the principles of sustainable development and are committed to the implementation of triple-bottom-line reporting
Being conscious of our social, environmental and economic responsibility to employees, the broader community and future generations, we subscribe to the principles of sustainable development and are committed to the implementation of triple-bottom-line reporting.
ORGANISATIONAL DEVELOPMENT Human resources development The training and development of employees in all key areas is an integral part of the internationally recognised 20 Keys Workplace Improvement Programme referred to below. Each employee attends a number of training sessions in this regard. A learnership programme in supervision has been introduced at several workplaces. Much emphasis is placed on the development of technical skills, which includes training under our technical agreements with Provimi Holding BV of Holland, a world leader in animal nutrition solutions. Some of the other training and development interventions that are focused on are: !
Information Technology skills;
!
Supervisory skills;
!
Sales;
!
Quality systems; and
!
Production and processing skills
The group is committed to the Skills Development Act. Our submission of skills development plans and our implementation against targets have ensured the maximum benefit in this regard. We have appointed 30 apprentices (electricians, millwrights, fitters and turners) with assistance from the Sectoral Training Authority for Agriculture. We have a study loan policy providing employees with financial assistance to further their academic qualifications in line with current and future job requirements.
Attraction and retention of people We continuously evaluate our recruitment processes to ensure that high calibre talent is employed, taking cognisance of leadership capabilities, identified competencies for positions and employment equity plans. Our approach is to attract the best people in the industry. In our employment process we also focus on the appointment of persons from the designated groups.
Astral Foods Annual Report 2008
Workplace improvement programme
22
Over the past year we have continued with our drive for excellence through the implementation of the 20 Keys Total Workplace Improvement Programme, which aims to energise the workforce to work faster, cheaper and better. All employees at the various workplaces participate as teams to improve productivity and efficiencies. We can claim that we have made the best progress in South Africa with the implementation of these concepts. Meadow Feeds Pietermaritzburg has recently been awarded the International Excellence Award and together
with Meadow Feeds Paarl, Meadow Feeds Randfontein, Earlybird Standerton and NuTec Southern Africa are the only five operations in South Africa to have received this award. We expect that the Meadow Feeds Delmas and Welkom operations will achieve this status during 2009. The Meadow Feeds plants in Paarl and Randfontein, as well as NuTec Southern Africa, will strive to reach the Bronze award during 2009, which will be a first in the world for operations of this kind.
HEALTH AND SAFETY We have implemented a Risk Control Programme with emphasis on compliance with the Occupational Health and Safety Act (the Act). A three tiered approach is followed in order to ensure compliance with the Act. The first tier consists of employees’ awareness of their responsibilities in terms of the Act. Executive management and employees are regularly updated on issues pertaining to the implementation and compliance with the Act through established structures and seminars. The second tier comprises education. All employees are put through induction training. This training specifically deals with health and safety in the workplace and compliance with regulations of the Act. Furthermore, legislatively required responsible persons, such as safety representatives and first aiders, are trained on a regular basis. The third tier comprises the implementation, monitoring and auditing of Occupational Health and Safety Act management systems to ensure compliance with the Act. A step by step documentary system is applied for each site, cross referenced to the actual sections of the Act. The system has received much praise from the Department of Labour inspectors conducting site inspections. Annual audits are done and results reported through established structures. Items affecting the wider risk management of each site are discussed at monthly corporate risk management meetings under the chairmanship of the group risk control officer. Matters arising from these meetings are referred to the group audit and risk management committee (board sub-committee). An annual group risk management meeting is held where senior management representing all the sites in the group are present. We set a minimum requirement for each site to score at least 85%, with the major sites 95%. With the exception of one major site we have met these requirements. The target for the Occupational Health and Safety Act compliance is 100%.
HIV/AIDS We recognise the implications of the pandemic for the family structure, the community and long-term issues of sustainability. The reality is that the prevalence of HIV/AIDS among our workforce is currently estimated to be about 27%. This estimation was made through an actuarial impact study. The indications are that we are slightly above the industry norm.
!
Educational programmes at all operations;
!
Voluntary testing to determine the prevalence of HIV/AIDS; and
!
Counselling of affected employees.
An initial AIDS Rating was introduced in 2007, which focused on strategy and implementation to increase awareness and decrease HIV/AIDS infections. A second AIDS Rating in June 2008 shows a significant improvement in awareness. We are currently evaluating different options to introduce a wellness programme.
Astral Foods Annual Report 2008
We have implemented a policy on HIV/AIDS focusing on:
23
SUSTAINABILITY REPORT
(continued)
TRANSFORMATION We are committed to providing equal opportunities to all employees.
Employment equity All our operations comply with the Employment Equity Act, 55 of 1998, and annual reports are submitted to the Department of Labour. Employment equity committees have been established at every business unit to set and monitor progress. The different occupational levels below management level reflect that between 35% and 92% of employees are from the designated group. The figure on management level is 18%, reflecting good progress towards the target set by the Department of Trade and Industry of 25 to 30% within 10 years. We believe that no unfair discrimination exists in the workplace.
Black economic empowerment We support and are committed to the concept of black economic empowerment and actively promote the empowerment of staff members and the communities in which we operate. The company has embarked on a rating of its Black Economic Empowerment status by EmpowerDEX. As a group the score for skills development came out high as a result of our focused approach to the training and development of staff and a satisfactory rating for employment equity. We have established a procurement committee to focus on securing the services of providers who meet certain black economic empowerment requirements and a formal policy in this regard has been implemented. In a number of instances business units get involved in local communities, through schools, feeding schemes and allocation of bursaries to children of black employees. Our Black Economic Empowerment rating by the Financial Mail during 2008 was listed as number 117 out of 200 companies listed on the JSE.
THE ENVIRONMENT We regard awareness of the need to protect the environment as of utmost importance. To this end we have measures and controls in place to ensure a friendly environment. The implementation of quality systems, ISO 9001-2000, ISO 22000:2005, Good Manufacturing Practices (GMP) and Hazard Analysis and Critical Control Point (HACCP) enable us to have full traceability of all products that go into the market. In accordance with our environmental philosophy, third party environmental compliance audits are regularly conducted at key sites. During the period under review, environmental risk assessments were conducted at County Fair, Earlybird and Meadow Paarl. The assessments could not identify any high risks. Furthermore, no significant environmental incidents were recorded during the year under review.
CONCLUSION
Astral Foods Annual Report 2008
We believe that the sustainability of our business lies firmly in the hands of our people, as they are the greatest source of our competitive advantage. We implement best practices in all areas of our operations in order to achieve meaningful improvement in the productivity of our people and in the quality of life for them and their communities.
24
VALUE-ADDED STATEMENT for the year ended 30 September 2008 The value-added statement measures performance in terms of value added by the group through the collective efforts of management, employees and the providers of capital. The statement shows how value has been distributed to those contributing to its creation, and the portion retained for future investments. 2008 R'000 8 184 205 (6 836 398)
R'000
%
6 329 311 (4 773 801)
Value added from trading operations Income from investments
1 347 807 10 762
99,2 0,8
1 555 510 9 407
99,4 0,6
Total value added
1 358 569
100,0
1 564 917
100,0
Value distributed To labour To government
706 386 168 859
52,0 12,4
635 313 266 755
40,6 17,0
Income tax Skills development levies
164 159 4 700
To providers of capital
329 399
Dividends to shareholders Interest on borrowings
261 089 5 666 24,3
269 236 60 163
Total distributions Income retained in the business
1 204 644 153 925
Depreciation/amortisation Retained profit for the year
1 358 569
2008
16,3
243 891 10 998 88,7 11,3
88 935 64 990
Total value distributed and reinvested
254 889
1 156 957 407 960
73,9 26,1
106 293 301 667 100,0
1 564 917
100,0
2007
Providers of capital Government Reinvested Labour
Astral Foods Annual Report 2008
Value added Sales of goods and services Less cost of materials and services
2007 %
25
HISTORICAL REVIEW
Astral Foods Annual Report 2008
2007*
2006*
2005*
2004
2003
2002
2001
Income statement information Revenue EBITDA EBITDA margin Operating profit Operating profit margin Profit for year Headline earnings for year
R million R million % R million % R million R million
8 184 637 7,8 548 6,7 334 320
6 329 915 14,5 808 12,8 546 536
5 184 855 16,5 766 14,8 516 510
4 838 674 13,9 597 12,3 415 397
4 053 464 11,4 389 9,6 264 263
3 947 396 10,0 327 8,3 210 208
3 692 278 7,5 220 5,9 140 140
2 792 248 8,9 203 7,3 115 117
Balance sheet information Total assets Total equity Total liabilities Net assets
R million R million R million R million
3 157 1 328 1 829 1 791
2 867 1 308 1 559 1 663
2 172 1 121 1 051 1 240
1 825 983 842 1 126
1 838 765 1 073 1 133
1 328 615 713 681
1 389 467 922 680
1 027 366 661 547
Profitability and asset management Return on total assets Return on equity Return on net assets Net asset turn
% % % times
16,7 25,3 31,3 4,7
32,2 45,0 54,8 4,3
38,6 49,3 64,7 4,4
31,3 46,4 51,3 4,2
27,1 38,6 48,3 4,7
23,0 39,0 48,1 5,8
14,8 33,4 35,8 6,0
17,0 31,2 37,1 5,1
Shareholders' ratios Earnings per share Headline earnings per share Dividend per share Dividend cover
cents cents cents times
858 840 700 1,2
1 387 1 381 700 2,0
1 285 1 286 585 2,2
989 958 380 2,5
630 631 230 2,7
487 487 168 2,9
323 326 108 3,0
266 272 90 3,0
9 650 15 490 7 300 7,3 8,9 11,3 42 136 17 492 23 646
12 100 14 347 8 600 5,1 11,3 8,8 42 728 15 030 25 027
8 650 10 400 6 580 5,6 13,9 7,2 43 277 8 809 22 317
7 100 7 500 4 020 3,8 10,3 7,7 44 520 6 807 19 530
4 071 4 100 2 385 4,7 13,7 6,5 43 499 5 401 21 783
2 395 2 400 1 300 5,0 15,2 4,9 42 867 2 793 15 158
56 2 596
59 2 889
52 1 846
44 1 185
50 679
35 270
47 249
76 304
4 066
5 170
3 743
3 161
1 786
1 027
562
509
Stock exchange statistics Market value per share – At year end cents – Highest cents – Lowest cents Closing dividend yield % Closing earnings yield % Closing price/earnings ratio times Number of shares issued # '000 Number of transactions Number of shares traded '000 Number of shares traded as a percentage of issued shares % Value of shares traded R million Closing market capitalisation R million
26
2008*
1 310 1 185 1 555 1 220 1 000 760 8,2 7,6 24,9 22,9 4,0 4,4 42 867 42 924 4 760 5 564 20 178 32 663
# Refer to note 10 of the financial statements for the number of shares effectively in issue net of treasury shares * Figures presented on IFRS basis
DEFINITIONS Operating profit margin Operating profit before interest and income tax as a percentage of revenue.
EBITDA Earnings before interest, income tax, depreciation and amortisation.
Net assets Total assets less total liabilities excluding cash and cash equivalents, borrowings, normal and deferred income tax, and shareholders for dividends.
Return on total assets Operating profit less finance costs as a percentage of average total assets.
Return on equity Net profit attributable to ordinary shareholders as a percentage of average ordinary shareholders' interest.
Return on net assets Operating profit before interest and income tax as a percentage of average net assets.
Net asset turn Revenue divided by average net assets.
Basic earnings per share Net profit for the year divided by the weighted average number of ordinary shares in issue during the year.
Headline earnings per share Headline earnings divided by the weighted average number of ordinary shares in issue during the year.
Headline earnings Net profit for the year adjusted for profit/loss on sale of property, plant and equipment, and investments.
Dividend cover Headline earnings per share divided by dividend per share declared out of earnings for the year.
Closing dividend yield Dividends per share as a percentage of market value per share at year end.
Closing earnings yield Headline earnings per share as a percentage of market value per share at year end.
Closing price/earnings ratio
Astral Foods Annual Report 2008
Market value per share divided by headline earnings per share at year end.
27
ANNUAL FINANCIAL STATEMENTS for the year ended 30 September 2008
Astral Foods Annual Report 2008
CONTENTS
28
Approval of annual financial statements
29
Certificate by company secretary
29
Statement of directors’ responsibility
30
Independent auditors’ report
31
Directors’ report
32
Directors’ remuneration report
36
Segment report
39
Accounting policies
40
Balance sheet
54
Income statement
55
Statement of changes in equity
56
Cash flow statement
57
Notes to the cash flow statement
58
Notes to the annual financial statements
59
APPROVAL OF ANNUAL FINANCIAL STATEMENTS
The annual financial statements and group annual financial statements of Astral Foods Limited for the year ended 30 September 2008 set out on pages 32 to 82, were approved by the board of directors on 13 November 2008 and signed on its behalf by:
JJ Geldenhuys Chairman
NC Wentzel Chief executive officer
Pretoria 13 November 2008
CERTIFICATE BY COMPANY SECRETARY
I certify in accordance with section 268G of the Companies Act, 1973, that the company has lodged with the Registrar of Companies all such returns as are required by a Public Company in terms of this Act and that all such returns are true, correct and up to date.
MA Eloff Group company secretary
Astral Foods Annual Report 2008
13 November 2008
29
STATEMENT OF DIRECTORS’ RESPONSIBILITY The directors are responsible for the preparation, integrity and fair presentation of the financial statements of Astral Foods Limited and its subsidiaries. The financial statements presented on pages 32 to 82 have been prepared in accordance with International Financial Reporting Standards (IFRS), and in the manner required by the Companies Act of South Africa and include amounts based on judgments and estimates made by management. The preparation of financial statements in conformity with IFRSs requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported expenses during the reporting period. Actual results could differ from those estimates. The directors consider that in preparing the financial statements they have used the most appropriate accounting policies, consistently applied and supported by reasonable and prudent judgments and estimates, and that all IFRS that they consider to be applicable have been followed. The directors are satisfied that the information contained in the financial statements fairly presents the results of operations for the year and the financial position of the company and the group at year end. The directors have responsibility for ensuring that accounting records are kept. The accounting records should disclose with reasonable accuracy the financial position of the company and the group to enable the directors to ensure that the financial statements comply with the relevant legislation. Astral Foods Limited and its subsidiaries operated in an established control environment, which is well documented and regularly reviewed. This incorporates risk management and internal control procedures, which are designed to provide reasonable, but not absolute, assurance that assets are safeguarded and the risks facing the business are being controlled. The going concern basis has been adopted in preparing the financial statements. The directors have no reason to believe that the company and the group will not be a going concern 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 auditors, 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.
Astral Foods Annual Report 2008
The audit report of PricewaterhouseCoopers Incorporated is presented on page 31.
30
INDEPENDENT AUDITOR’S REPORT
We have audited the annual financial statements and group annual financial statements of Astral Foods Limited, which comprise the directors’ report, the balance sheet and the consolidated balance sheet as at 30 September 2008, the income statement and the consolidated income statement, the statement of changes in equity and the consolidated statement of changes in equity, the cash flow statement and the consolidated cash flow statement for the year then ended, and a summary of significant accounting policies and other explanatory notes, as set out on pages 32 to 82.
DIRECTORS’ RESPONSIBILITY FOR THE FINANCIAL STATEMENTS The company’s directors are responsible for the preparation and fair presentation of these financial statements in accordance with International Financial Reporting Standards and in the manner required by the Companies Act of South Africa. This responsibility includes: designing, implementing and maintaining internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances.
AUDITOR’S RESPONSIBILITY 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 comply with ethical requirements and plan and perform the audit to obtain reasonable assurance whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgement, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
OPINION
PricewaterhouseCoopers Inc Director: DJ Fouché Registered Auditor Johannesburg 13 November 2008
Astral Foods Annual Report 2008
In our opinion, the financial statements present fairly, in all material respects, the financial position of the company and of the group as of 30 September 2008, and their financial performance and their 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.
31
DIRECTORS’ REPORT The directors’ report is presented, which forms part of the audited financial statements of the company and the group for the year ended 30 September 2008.
1.
NATURE OF BUSINESS The company holds investments in subsidiary and joint venture companies, with key activities in animal feeds, animal feed pre-mixes, broiler genetic breeding, broiler operations, and the production and sale of day-old broilers and hatching eggs as well as the manufacture of baking products.
2.
LISTING INFORMATION Astral Foods Limited is listed on the main board of the JSE Limited under the share code: ARL. The company’s ISIN number is ZAE000029757.
3.
REGISTERED ADDRESS The company’s registered address is: Block 9, Boardwalk Office Park, 107 Haymeadow Crescent, Faerie Glen, Pretoria, 0043 Postnet Suite 329, Private Bag X10, Elarduspark, 0047.
4.
BUSINESS REVIEW Profit for the year fell by 39% to R334 million from last year’s R545 million. The South African poultry industry came under pressure during the year following the reduction in consumer spending early in 2008 which led to an over supply situation developing. This, together with a substantial further increase in input costs, squeezed poultry margins severely. Revenue increased by 29% from R6,329 million to R8,184 million driven largely by input costs, but operating profit was 32% lower at R548 million (2007: R808 million). While Animal Nutrition operating profit improved by 16%, Poultry operating profit was down 66%. The group’s operating margin of 6,7% was down on last year’s 12,8%. Net interest paid for the year of R49,4 million compares to last year’s R1,6 million. Earnings per share decreased by 38% from 1 387 cents to 858 cents. Cash from operating activities for the year of R639 million was 43% higher than the R448 million generated in 2007. Net debt for the year increased by R28 million to R187 million representing a debt to equity ratio of 14%.
Astral Foods Annual Report 2008
A final dividend of 440 cents per share has been declared, resulting in a total dividend for the year of 700 cents, the same as last year. The distribution is justified by our robust underlying cash flow and strong balance sheet.
32
4.
BUSINESS REVIEW (continued) The financial position of the group for the financial year ended 30 September 2008 can be summarised as follows:
Operating results Revenue Operating profit Net finance costs
2008 R'000
2007 R'000
8 184 205
6 329 311
547 786 (49 401)
808 238 (1 591)
498 385 (164 159)
806 647 (261 089)
Profit for the year
334 226
545 558
Attributable to: Equity holders of the company Minority interests
327 261 6 965
537 858 7 700
Profit for the year
334 226
545 558
Financial position Non-current assets Current assets
1 614 525 1 542 689
1 416 775 1 449 933
Total assets
3 157 214
2 866 708
Total equity Non-current liabilities Current liabilities
1 328 150 390 223 1 438 841
1 307 513 329 967 1 229 228
Total equity and liabilities
3 157 214
2 866 708
Profit before income tax Income tax expense
Segment analysis A segment analysis of the revenue, operating profit and liabilities is set out on page 39 of the annual financial statements. Acquisitions The company acquired a 50% interest in East Balt South Africa effective 1 July 2008. East Balt South Africa bakes hamburger buns, English muffins, Kaiser rolls and other sandwich carriers, primarily for sale to fast food outlets in South Africa.
SHARE CAPITAL Detail of share capital is reflected under note 10 of the financial statements. At the annual general meeting of shareholders held on 14 February 2008, shareholders passed a special resolution authorising the company, or a subsidiary, to acquire the company’s own ordinary shares. In terms of the share repurchase programme a total of 450 000 (2007: 1 036 886) shares were acquired at a cost of R59 million (2007: R115 million) and subsequently cancelled. In terms of the group’s share incentive scheme, 37 916 (2007: 547 100) options were exercised. The company’s authorised share capital remained unchanged during the year. 7,5% of the unissued shares were placed under the control of the directors until the next annual general meeting of the company.
Astral Foods Annual Report 2008
5.
33
DIRECTORS’ REPORT 6.
(continued)
SUBSIDIARIES AND JOINT VENTURES Details of the joint ventures and subsidiaries of Astral Foods Limited are set out in notes 30 and 31 respectively of the annual financial statements. The attributable interest of the company in the profits and losses of its subsidiaries and joint ventures for the year ended 30 September 2008 is as follows: 2008 R'000 Subsidiaries Total profits before income tax Total profits after income tax Total losses before income tax Total losses after income tax Joint ventures Total profits before income tax Total profits after income tax
7.
483 352 1 1
2007 R'000
018 807 694 309
793 898 564 526 793 677
20 216 13 867
14 762 9 999
2008 R'000
2007 R'000
DIVIDENDS The following ordinary dividends were declared:
Interim dividend (No. 15) of 260 cents per share (2007: 260 cents per share) Less: Dividends received on treasury shares held by a subsidiary Final dividend (No. 16) of 440 cents per share (declared post year end) (2007:440 cents per share) Less: Dividends receivable on treasury shares held by a subsidiary Total dividend at 700 cents per share (2007: 700 cents per share)
8.
109 554 (10 630)
112 026 (11 248)
185 400 (17 990)
188 005 (18 782)
266 334
270 001
PROPERTY, VEHICLES, PLANT AND EQUIPMENT There has been no major change in the nature of and policy relating to property, vehicles, plant and equipment. Details of property, vehicles and equipment are set out in note 1 of the annual financial statements. The estimated useful lives of certain assets were re-assessed at the beginning of the current financial year. Changes were made to the useful lives of buildings from 25 to 50 years and of certain plant items from 15 to 25 years.
Astral Foods Annual Report 2008
9.
34
DIRECTORS The names of the directors who currently hold office are set out on pages 7, 8 and 9 of this report. In terms of Article 14 of the company’s articles of association, Ms TCC Mampane, Dr T Eloff and Mr NC Wentzel retire by rotation at the annual general meeting of shareholders and are eligible for re-election. No director holds more than 1% of the ordinary shares in the company. The directors beneficially and non-beneficially hold 189 293 (2007: 334 512) ordinary shares in the company – see directors’ remuneration report on page 36 for details. Following the formal performance evaluation of the above directors, the chairman confirms that these individuals’ performance continues to be effective and shows commitment to the role. Mr JL van den Berg retired as director at the annual general meeting held on 14 February 2008 and Mr JJ Geldenhuys was appointed chairman of the board. Mr CG van Veyeren advised the board that he wishes to retire at the forthcoming annual general meeting and the board has agreed not appoint a new director to fill his position until the normal nomination and selection processes as laid down by our nominations committee have been followed.
9.
DIRECTORS (continued) Subsequent to the year end, Mr. MA Kingston resigned as director with effect from 1 November 2008. Particulars of the company secretary and her business and postal address appear on page 88 of this report. No material contracts involving directors’ interests were entered into in the year. A register of directorships and interests is disclosed and circulated at every board meeting.
10. RESOLUTIONS With the exception of two special resolutions detailed below, no further special resolutions, the nature of which might be significant to members in their appreciation of the state of affairs of the group, were passed by any subsidiary companies during the period covered by this report. • Special resolution passed by the company and referred to under item 5 above relating to the repurchase of shares; and • Special resolution passed by Ross Poultry Breeders (Pty) Limited approving a transaction with Aviagen South Africa (Pty) Limited and Aviagen Limited in terms of which Ross Poultry Breeders (Pty) Limited undertook to sell certain existing poultry stock to Aviagen South Africa (Pty) Limited for a certain period of time after which Aviagen Limited undertook to supply poultry stock to Ross Poultry Breeders (Pty) Limited for a certain period of time. The special resolution was passed in terms of Section 228 of the Companies Act No. 61 of 1973 (as amended).
11. SHARE INCENTIVE SCHEME The number of shares placed under the control of the directors by the shareholders for purposes of the company’s employee share incentive scheme is limited to 10% of the issued share capital of Astral Foods Limited from time to time. The directors have decided to limit this to about 7,5% of the issued share capital. As at 30 September 2008, options in respect of 787 100 shares remained outstanding, being 2% of issued share capital. Details of the dates and prices at which the options were granted are given in note 11 to the financial statements.
12. SHAREHOLDERS Details of shareholders are set out on page 83 of the annual financial statements.
13. EVENTS SUBSEQUENT TO BALANCE SHEET DATE No events took place between year end and the date of the report that would have a material effect on the financial statements as disclosed.
14. LITIGATION
Profile Feeds (Pty) Limited and Paarl Poultry Farms (Pty) Limited instituted claims against Astral Operations Limited on the basis of a purported cancellation of a long-term feed agreement in the sum of R42 million, alternatively R21 million, alternatively R3,7 million. The prospects for success of these claims are regarded as being remote and any possible financial loss has been estimated and provided for in the financial statements.
15. DATE FOR AUTHORISATION FOR ISSUE OF FINANCIAL STATEMENTS The financial statements have been authorised for issue by the board of directors on 13 November 2008. No authority was given to anyone to amend the financial statements after the date of issue.
Astral Foods Annual Report 2008
A complaint was lodged against Astral Operations Limited and Elite Breeding Farms at the Competition Commission regarding anti-competitive behaviour relating to an existing supply agreement of parent stock. The Competition Commission referred the matter to the Competition Tribunal for determination. The group will oppose a claim and it is not anticipated that any material liabilities will arise from a claim.
35
DIRECTORS’ REMUNERATION REPORT for the year ended 30 September 2008
EMOLUMENTS
Salary R'000 Executive directors For managerial services NC Wentzel CE Schutte MA Kingston T Pritchard @ CA du Toit @
PerforRetiremance ment related fund conbonus* tributions R'000 R'000
Other benefits and allowances R'000
Total 2008 R'000
Total 2007 R'000
5 2 3 1
2 714 1 370 1 754 – –
– – – – –
484 266 400 – –
162 213 208 – –
3 360 1 849 2 362 – –
5 838
–
1 150
583
7 571
12 595
402 150 260 210 150 210 105
215 62 235 175 62 175 410
1 487
1 334
9 058
13 929
2008 R'000
2007 R'000
Non-executive directors' fees For services as directors JJ Geldenhuys Dr T Eloff ** M Macdonald TCC Mampane Dr N Tsengwa CG van Veyeren JL van den Berg @
Total paid to directors by the company and its subsidiaries
128 399 248 461 359
* No performance related bonuses have been provided for the current year @ Remuneration to date of retirement/resignation ** Director's fee paid to the North West University
Summary of benefits received from options exercised Share Share appreciation option option scheme scheme R'000 R'000
Astral Foods Annual Report 2008
NC Wentzel CE Schutte MA Kingston T Pritchard
36
2 405 – – –
– – 4 447 –
2 405 – 4 447 –
30 3 4 14
650 714 900 583
2 405
4 447
6 852
53 847
SHARE INCENTIVE SCHEME INTERESTS Share option scheme Options outstanding Grant date
Exercise price
NC Wentzel
CE Schutte MA Kingston
81 100
98 816
17 April 2001 28 August 2007
R7,75 R122,00
– 81 100
17 716 81 100
28 August 2007 28 August 2007
R122,00 R122,00
33 600 49 400
33 600 49 400
164 100
181 816
Options exercised
NC Wentzel CE Schutte MA Kingston T Pritchard
Number of options 2008 2007
Number
Average price
17 716 – – –
R143,82 – – –
Benefit received 2008 2007 R'000 R'000 2 405 – – –
23 1 4 11
871 003 900 872
2 405
41 646
The scheme provides the right to purchase shares in the company at the exercise price. One third of the options are exercisable per year after each of the third, fourth and fifth year from date of granting the option. Any balance not exercised after seven years from date of granting the option, will lapse. None of the non-executive directors have share incentive scheme interests.
Exercise price
NC Wentzel 15 July 2005 15 July 2006
R63,87 R77,75
MA Kingston
85 000
85 000
45 000 40 000
45 000 40 000
45 000
87 000 42 000 24 000 21 000
19 August 2004 15 July 2005 15 July 2006
R33,82 R63,87 R77,75
– 24 000 21 000 32 500
32 500
15 July 2005 15 July 2006
R63,87 R77,75
17 400 15 100
17 400 15 100
162 500
204 500
CE Schutte
Options exercised
NC Wentzel CE Schutte MA Kingston T Pritchard
Number of options 2008 2007
Number
Average price
– – 42 000 –
– – R139,71 –
Benefit received 2008 2007 R'000 R'000 – – 4 447 –
6 779 2 711 – 2 711
4 447
12 201
The scheme provides incentive remuneration based on the increase in the value of shares of the company. The right to receive payment based on the options granted, vests after three years and lapses after five years from the grant date.
Astral Foods Annual Report 2008
Share appreciation option scheme Options outstanding Grant date
37
DIRECTORS’ REMUNERATION REPORT
(continued)
for the year ended 30 September 2008
ISSUED SHARE CAPITAL INTEREST
Beneficial interests Non-executive directors M Macdonald CG van Veyeren JL van den Berg
Astral Foods Annual Report 2008
Executive directors NC Wentzel MA Kingston CE Schutte
38
Directly held number of shares 2008 2007
Indirectly held number of shares 2008 2007
– 4 860 –
– 4 860 –
60 000 – –
60 000 – 146 219
75 833 17 500 16 100
75 833 17 500 15 100
15 000 – –
15 000 – –
114 293
113 293
75 000
221 219
SEGMENT REPORT – GROUP for the year ended 30 September 2008
2008 R'000
2007 R'000
Animal Nutrition
5 138 064
Revenue 3 530 610
– South Africa – Other Africa
4 825 052 313 012
3 347 738 182 872
(1 774 073)
(1 324 106)
5 099 284 (279 070) 8 184 205
Poultry – South Africa and Swaziland – Intergroup
2007 R'000
Operating profit 384 922 332 707 339 052 45 870
294 752 37 955
4 382 651 (259 844)
162 864
475 531
6 329 311
547 786
808 238
Net finance expense Profit before income tax Income tax expense Profit for the year Assets
(49 401)
(1 591)
498 385 (164 159)
806 647 (261 089)
334 226
545 558
Liabilities
Animal Nutrition
1 172 300
923 615
596 545
686 724
– South Africa – Other Africa
1 010 086 162 214
826 690 96 925
519 444 77 101
640 684 46 040
Poultry – South Africa and Swaziland Set-off of intergroup balances
2 235 666 (250 752)
2 097 183 (154 090)
1 483 271 (250 752)
1 026 561 (154 090)
3 157 214
2 866 708
1 829 064
1 559 195
Capital expenditure
Depreciation, amortisation and impairment
Animal Nutrition
64 847
30 292
24 415
28 236
– South Africa – Other Africa
40 904 23 943
26 055 4 237
20 618 3 797
25 965 2 271
209 834
291 457
65 208
78 057
274 681
321 749
89 623
106 293
Poultry – South Africa and Swaziland
Astral Foods Annual Report 2008
– Intergroup
2008 R'000
39
ACCOUNTING POLICIES for the year ended 30 September 2008 The principal accounting policies applied in the preparation of these consolidated financial statements are set out below.
1.
BASIS OF PREPARATION The consolidated financial statements of Astral Foods Limited group have been prepared in accordance with International Financial Reporting Standards (IFRS) and the requirements of the South African Companies Act, as amended. The consolidated financial statements have been prepared under the historical cost convention, except as disclosed in the accounting policies below. The basis of preparation is consistent with the prior year, unless otherwise stated. The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It also requires management to exercise its judgment in the process of applying the group’s accounting policies. The areas involving a higher degree of judgment or complexity, or areas where assumptions and estimates are significant to the consolidated financial statements, are disclosed in note 26 of the accounting policies.
2.
NEW STANDARDS AND INTERPRETATIONS Accounting policy developments Accounting policy developments include new standards issued, amendments to standards, and interpretations issued on current standards. These developments resulted in the first time adoption of new standards and revised and additional disclosures required. Standards, amendments and interpretations effective in 2008 IFRS 7 Financial Instruments: Disclosures, and a complementary amendment to IAS 1 Presentation of Financial Statements – Capital Disclosures This statement, which was adopted as at 1 October 2007, introduces new disclosures relating to financial instruments. These disclosure requirements have been included in the financial statements. IFRIC 10 Interim Financial Reporting and Impairment IFRIC 10, effective for annual periods beginning on or after 1 November 2006, prohibits the impairment losses recognised in an interim period on goodwill, investments in equity instruments and investments in financial assets carried at cost to be reversed at a subsequent balance sheet date. This interpretation has had no effect on the financial statements of the company. IFRIC 11 IFRS 2 Group and Treasury Share Transactions This interpretation addresses issues on whether certain share-based payment transactions should be accounted for as equity-settled or as cash-settled under the requirements of IFRS 2, and where certain arrangements involve two or more entities within the same group. This interpretation is applicable to the company but no impact is currently expected on the company’s financial statements.
Astral Foods Annual Report 2008
Standards, amendments and interpretations not yet effective The company has evaluated the effect of all new standards, amendments and interpretations that have been issued but which are not yet effective. Based on the evaluation, management does not expect these standards, amendments and interpretations to have a significant impact on the company’s results and disclosures. The expected implications of applicable standards, amendments and interpretations are dealt with below.
40
IAS 1 (Revised) Presentation of Financial Statements The main objective of IAS 1 was to aggregate information in the financial statements on the basis of shared characteristics. The changes relate to disclosure in the financial statements and are unlikely to have a significant impact on the company’s financial statements. These changes are effective for the financial year commencing on 1 September 2009.
NEW STANDARDS AND INTERPRETATIONS (continued) Standards, amendments and interpretations not yet effective (continued) IAS 23 (Revised) Borrowing Costs Borrowing costs that are directly attributable to the acquisition, construction or production of a qualifying asset form part of the cost of that asset and may no longer be expensed. Other borrowing costs are recognised as an expense. IAS 27 (Revised) Consolidated and Separate Financial Statements The IAS 27 amendments related, primarily, to accounting for non-controlling interests and the loss of control of a subsidiary. IAS 27R and IFRS 3R Business Combinations have to be adopted in the same period. Both these standards are effective for the financial year commencing on 1 September 2009. IFRS 2 Amended Share-based Payments Vesting Conditions and Cancellations IFRS 2 was amended to provide more clarity on vesting conditions and cancellations. The effect of the amendment has been considered by management. IFRS 3 (Revised) Business Combinations The objective of the revised IFRS 3 is to enhance the relevance, reliability and comparability of the information that an entity provides in its financial statements about a business combination and its effects. It does that by establishing principles and requirements for how an acquirer: a)
recognises and measures in its financial statements the identifiable assets acquired, the liabilities assumed and any non-controlling interest in the acquiree;
b)
recognises and measures the goodwill acquired in the business combination or a gain from a bargain purchase; and
c)
determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination.
As the standard will only be applicable to acquisitions on or after 1 September 2009, no effect has yet been considered. IFRS 8 Operating Segments IFRS 8 sets out the requirements for disclosure of information about an entity’s operating segments also about the entity’s products and services, the geographical areas in which it operates, and its major customers. These changes are effective for the financial year commencing on 1 September 2009 and have no impact on these financial statements. IFRIC 12 Service Concession Arrangements This interpretation gives guidance on the accounting by operators for public-to-private service concession arrangements. This interpretation is not applicable to the company. IFRIC 13 Customer Loyalty Programme This interpretation addresses how companies that grant their customers loyalty awards credits when buying goods or services, should account for their obligation to provide free or discounted goods, or services, if and when customers redeem the points. This interpretation is not applicable to the company. Annual improvements project The IASB decided to initiate an annual improvements project in 2007 as a method of making necessary, but non-urgent, amendments to IFRS that will not be included as part of another major project. The IASB’s objective was to ease the burden for all concerned.
Astral Foods Annual Report 2008
2.
41
ACCOUNTING POLICIES
(continued)
for the year ended 30 September 2008
2.
NEW STANDARDS AND INTERPRETATIONS (continued) Standards, amendments and interpretations not yet effective (continued) Annual improvements project (continued) Unless otherwise specified the amendments are effective for annual periods beginning on or after 1 January 2009, although entities are permitted to adopt them earlier. The following standards have been affected by the project: IFRS 5 IAS 1 IAS 16 IAS 19 IAS 20 IAS 23 IAS 27 IAS 28 IAS 29 IAS 31 IAS 36 IAS 38 IAS 39 IAS 40 IAS 41
Non-current Assets Held for Sale and Discontinued Operations Presentation of Financial Statements Property, Plant and Equipment Employee Benefits Accounting for Government Grants and Disclosure of Government Assistance Borrowing Costs Consolidated and Separate Financial Statements Investments in Associates Financial Reporting in Hyperinflationary Economies Interests in Joint Ventures Impairment of Assets Intangible Assets Financial Instruments: Recognition and Measurement Investment Property Agriculture
Management is currently considering the effect of the changes.
3.
INTEREST IN GROUP ENTITIES Subsidiaries Subsidiaries are all entities (including special purpose entities) over which the group has the power to govern the financial and operating policies which generally accompany a shareholding of more than one half of the voting rights. Subsidiaries are fully consolidated from the date on which control is transferred to the group. They are de-consolidated from the date on which control ceases. 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, 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. Inter-company transactions, balances and unrealised gains on transactions between group companies are eliminated. Unrealised losses are also eliminated but considered an impairment indicator of the asset transferred. The investments in subsidiaries by the company are stated at cost less amounts written off.
Astral Foods Annual Report 2008
Subsidiaries’ accounting policies have been changed where necessary to ensure consistency with the policies adopted by the group.
42
Joint ventures The group’s interests in jointly controlled entities are accounted for by proportionate consolidation. The group combines its share of the jointly controlled entities’ individual income and expense, asset, liability and cash flow items on a line-by-line basis with similar items in the group’s financial statements.
3.
INTEREST IN GROUP ENTITIES (continued) Joint ventures (continued) 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. A loss on the transaction is recognised immediately if it provides evidence of a reduction in the net realisable value of current assets, or an impairment loss. Jointly controlled entities’ accounting policies have been changed where necessary to ensure consistency with the policies adopted by the group. Minority interest Minority interests are valued at the minorities’ portion of the acquirer’s identifiable assets, liabilities and contingent liabilities at the acquisition date, plus the minorities’ portion of post acquisition reserves. Minority interests are included in equity on the balance sheet and are also reconciled in the statement of changes in equity. Disposals to minority interests result in gains and losses for the group and are recorded in the income statement. Purchases from minority interests result in goodwill, being the difference between any consideration paid and the relevant share acquired of the carrying value of net assets of the subsidiary. Transactions with minority interests are treated as transactions with parties external to the group.
4.
SEGMENT REPORTING A primary segment is identified as a group of assets and operations engaged in providing products or services that are subject to risks and returns that are different from those of other business segments and is reported and managed separately from other segments. A secondary geographical segment is identified within the primary segments, in respect of that group of assets and operations engaged in providing products in an economic environment that are subject to risks and returns that are different from other economic environments.
FOREIGN CURRENCIES 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 Rand, which is the company’s functional and presentation currency. Transactions and balances of monetary items Transactions in a currency other than the functional currency are translated into the functional currency using the prevailing exchange rate at the date of the transaction. Monetary assets and liabilities denominated in a currency other than the functional currency are translated at the exchange rate ruling at the reporting date. Gains and losses resulting from the settlement of foreign currency transactions and from the translation at the 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 a qualifying cash flow hedge. Changes in the fair value of monetary securities denominated in foreign currency classified as available for sale are analysed between translation differences related to changes in the amortised cost resulting from changes in the amortised cost of the security, and other changes in the carrying amount of the security. Translation differences related to changes in the amortised cost are recognised in profit or loss, and other changes in carrying amount are recognised in equity. Translation differences on non-monetary financial assets and liabilities are reported as part of the fair value gain or loss. Translation differences on non-monetary financial assets and liabilities such as equities held at fair value through profit or loss are recognised in profit or loss as part of the fair value gain or loss. Translation differences on non-monetary financial assets such as equities classified as available for sale are included in the fair value reserve in equity.
Astral Foods Annual Report 2008
5.
43
ACCOUNTING POLICIES
(continued)
for the year ended 30 September 2008
5.
FOREIGN CURRENCIES (continued) Foreign operations The results and financial position of all group entities (none of which has the currency of a hyperinflationary economy) that have a functional currency different to the company’s presentation currency, are translated into the presentation currency as follows: (i)
Assets and liabilities at the closing exchange rate at the reporting date;
(ii)
Income and expense items are translated at the 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);
(iii) Equity items are translated at the exchange rates ruling when they arose. All resulting exchange differences are classified as a foreign currency translation reserve and recognised as a separate component of equity. On consolidation, exchange differences arising from the translation of the net investment in foreign operations, and of borrowings and other currency instruments designated as hedges of such investments, are taken to shareholders’ equity. On disposal of a foreign operation, exchange differences are recognised in the income statement as part of the gain or loss on sale. Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of the foreign entity and translated at the closing rate.
6.
PROPERTY, PLANT AND EQUIPMENT Land and buildings comprise mainly factories, poultry farms and offices. Land is not depreciated and is stated at historical cost. All other property, plant and equipment (PPE) are stated at historical cost less accumulated depreciation and impairment losses. Cost includes expenditure that is directly attributable to the acquisition of the items and may also include transfers from equity of any gains/losses on qualifying cash flow hedges of foreign currency purchases of PPE. 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. All other repairs and maintenance costs are charged to the income statement during the financial period in which they are incurred. Depreciation on assets 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
50 years
• Plant and machinery
8 – 25 years
• Equipment and motor vehicles
5 – 10 years
Astral Foods Annual Report 2008
Major renovations are depreciated over the remaining useful life of the related asset or to the date of the next major renovation, whichever is sooner.
44
Gains and losses on disposals are determined by comparing proceeds with the carrying amount. These are included in the income statement under other gains/losses. Borrowing costs incurred for the construction of any qualifying assets are capitalised during the period of time that is required to complete and prepare the asset for its intended use.
6.
7.
PROPERTY, PLANT AND EQUIPMENT (continued) The assets’ residual values and useful lives are reviewed annually and adjusted if appropriate, taking into account technology developments and maintenance programmes. Uniform depreciation and amortisation rates are established based on the straight-line method which may not represent the actual usage of the assets. 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. INTANGIBLE ASSETS Computer software Acquired computer software licences are capitalised on the basis of the costs incurred to acquire and bring to use the specific software. These costs are amortised over their estimated useful lives (three to five years). 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 costs of software development employees and an appropriate portion of relevant overheads. Computer software development costs recognised as assets are amortised over their estimated useful lives (three to five years). Research and development Research expenditure is recognised as an expense as incurred. Costs incurred on development projects (relating to the design and testing of new or improved products) 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 finite useful life and that have been capitalised are amortised from the commencement of the commercial production of the product on a straight-line basis over the period of its expected benefit, not exceeding five years.
8.
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 at the date of acquisition. Separately recognised goodwill is tested annually for impairment and carried at cost less accumulated impairment losses. Impairment losses on goodwill are not reversed. 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 the goodwill arose. Gains and losses on the disposal of an entity include the carrying amount of goodwill relating to the entity sold.
INVENTORIES Inventories are stated at the lower of cost and net realisable value. Cost is determined on the first-in, first-out (FIFO) method. The cost of finished goods and work in progress comprises all purchase costs of raw materials, direct labour, other direct costs and related production overheads (based on normal operating capacity) incurred in bringing the inventories to their present location and condition. Borrowing cost is excluded. Net realisable value is the estimated selling price in the ordinary course of business, less applicable variable selling expenses.
Astral Foods Annual Report 2008
9.
45
ACCOUNTING POLICIES
(continued)
for the year ended 30 September 2008
10. BIOLOGICAL ASSETS Live broiler chicks and hatching eggs are assessed based on fair values less estimated point-of-sale costs at appropriate reporting dates. Gains and losses arising from changes in the fair values are recorded in net profit or loss for the period in which they arise. The determination of fair value is based on active market values, where appropriate, or management’s assessment of the fair value based on available data and benchmark statistics. Breeding stock includes grandparent breeding and parent rearing and laying stock. Breeding stock is capitalised at cost at the beginning of its productive cycle and is amortised on a straight-line method over the anticipated productive cycle, to its estimated net realisable value. 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.
11. IMPAIRMENT OF NON-FINANCIAL ASSETS Assets that have an indefinite useful life are not subject to amortisation and are tested annually for impairment and whenever events or changes in circumstance indicate that the carrying amount may not be recoverable. Assets that are subject to amortisation are tested for impairment whenever events or changes in circumstance 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 impairment are reviewed for possible reversal of the impairment at each reporting date.
12. FINANCIAL ASSETS Financial assets are recognised when there is an obligation to transfer benefits. Such assets consist of cash, a contractual right to receive cash or another financial asset. Financial assets carried at reporting date include cash and bank balances, investments, loans, derivatives and receivables. The group classifies its financial assets in the following categories: • At fair value through profit and loss; • Loans and receivables; and • Available-for-sale. The classifications depend on the purpose for which the financial assets were acquired. Management determines the classification of its financial assets at initial recognition. At fair value through profit or loss Financial assets at fair value through profit and loss are financial assets so designated by management, or financial assets “held for trading”. A financial asset is classified as “held for trading” if acquired principally for the purpose of selling in the short term. Derivatives are also classified as “held for trading” unless they are designated as hedges.
Astral Foods Annual Report 2008
Assets in this category are classified as current if they are either held for trading or are expected to be realised within 12 months of the reporting date.
46
Financial assets carried at fair value through profit and loss are initially recognised at fair value and transaction costs are expensed in the income statement. Subsequent measurement is at fair value with gains or losses recognised in profit or loss. Loans and receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market and include “short-term loans”, “trade and other receivables” and “cash and cash equivalents”.
12. FINANCIAL ASSETS (continued) Loans and receivables (continued) They are included in current assets, except for maturities greater than 12 months after the balance sheet date which are classified as non-current assets. Loans and receivables are initially recognised at fair value plus transaction costs, and subsequently measured at amortised cost less impairment losses which are recognised in profit or loss. 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. Available-for-sale financial assets are initially recognised at fair value and are subsequently also measured at fair value through profit and loss. Regular purchases and sales of financial assets are recognised on trade date – the date on which the group commits to purchase or sell the asset. Financial assets 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.
13. FINANCIAL LIABILITIES Financial liabilities are recognised when there is an obligation to transfer benefits and that obligation is a contractual liability to deliver cash or another financial asset or to exchange financial instruments with another on potentially unfavourable terms. The group classifies its financial liabilities in the following categories: • At fair value through profit or loss; or • Other. At fair value through profit or loss Financial liabilities at fair value through profit or loss are initially recognised at fair value with transaction costs being expensed. Subsequent measurement is at fair value with changes recognised in profit or loss. Other Other financial liabilities are recognised at fair value plus transaction costs. Subsequent measurement is at amortised cost with changes recognised in profit or loss.
14. 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.
Adjustments in the provision for impairments are recognised in the income statement under administrative expenses. When a trade receivable is uncollectible it is written off in the income statement or when previously written off amounts are recovered it is credited in the income statement, both within administrative expenses.
15. CASH AND CASH EQUIVALENTS Cash and cash equivalents includes cash in hand, deposits held at call with banks, other short-term highly liquid investments with original maturities of three months or less, and bank overdrafts. Bank overdrafts are shown within borrowings in current liabilities on the balance sheet.
Astral Foods Annual Report 2008
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 and thereby represent a risk of non-payment.
47
ACCOUNTING POLICIES
(continued)
for the year ended 30 September 2008
16. TRADE PAYABLES Trade payables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method.
17. BORROWINGS Borrowings are recognised initially at fair value, net of transaction costs incurred. Borrowings are subsequently stated at amortised cost; any difference between the 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.
18. SHARE CAPITAL Ordinary shares are classified as equity. 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. Where any group company purchases the company’s equity share capital (treasury shares), the consideration paid, including any directly incremental costs, is deducted from equity attributable to the company’s equity holders until the shares are re-issued or disposed of. Where such shares are subsequently sold or re-issued, 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.
19. PROVISIONS Provisions are recognised when the group has a present legal or 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. Where there are a number of similar obligations, 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 obligations 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.
20. CURRENT AND DEFERRED INCOME TAX The charge for current income tax is based on results for the year as adjusted for income that is exempt and expenses that are not deductible using tax rates that are applicable to the taxable income.
Astral Foods Annual Report 2008
Deferred income tax is provided, 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. Deferred income tax is not accounted for if it 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. 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.
48
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, joint ventures and associates, except where the timing of the reversal of the temporary difference will not reverse in the foreseeable future.
21. DERIVATIVE FINANCIAL INSTRUMENTS The group uses derivative financial instruments to manage its exposure to foreign exchange and commodity price risks arising from operational activities. Derivatives are initially recognised at fair value on the date a derivative contract is entered into and are subsequently remeasured at 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. When the group designates certain derivatives as either: – hedges of the fair value of recognised assets or liabilities or a firm commitment (fair value hedge); or – hedges of highly probable forecast transactions (cash flow hedge); or – hedges of net investments in foreign operations, the relationship between hedging instruments and hedged items, as well as its risk management objective and strategy for undertaking various hedge transactions are documented at the inception of the transaction. The group also then 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. Fair value hedge Changes in the fair value of derivatives that are designated and qualify as fair value hedges are recorded under other income/expenses 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. 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 under other income/expenses 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 example, 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. Derivatives that do not qualify for hedge accounting Certain derivative instruments do not qualify for hedge accounting. Such derivatives are classified as at fair value through profit or loss, and changes in the fair value of any derivative instruments that do not qualify for hedge accounting are recognised immediately under other income/expenses in the income statement.
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.
Astral Foods Annual Report 2008
Over-the-counter (OTC) contracts The group enters into over-the-counter (OTC) forward purchases for the purchase of commodities for own use. These contracts are settled by taking physical delivery in the normal course of business and are therefore not regarded as financial instruments.
49
ACCOUNTING POLICIES
(continued)
for the year ended 30 September 2008
21. DERIVATIVE FINANCIAL INSTRUMENTS (continued) Fair value estimation (continued) 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 is 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.
22. EMPLOYEE BENEFITS Pension obligations The group operates defined contribution retirement schemes. A defined contribution scheme 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. Other post-employment benefit obligations The group provides post-retirement healthcare benefits to some of its retirees. The entitlement to these benefits is usually conditional on the employee remaining in service up to retirement age. The expected costs of these benefits are accrued over the period of employment using the same accounting methodology as used for defined benefit pension plans. Actuarial gains and losses arising from experience adjustments, and changes in actuarial assumptions, are charged or credited to income as they arise. These obligations are valued every year, and the assumptions are reviewed annually, by independent qualified actuaries. Termination benefits Termination benefits are payable when employment is terminated by the group before the normal retirement date, or when 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. 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. These profit-sharing and bonus plans are approved annually by the board.
Astral Foods Annual Report 2008
The group recognises a provision where contractually obliged or where there is a past practice that has created a constructive obligation.
50
Share-based plans The group’s management awards share options, from time to time, on a discretionary basis.
22. EMPLOYEE BENEFITS (continued) Share-based plans (continued) The share option scheme, which is equity-settled, provides the right to purchase shares in the company at the exercise price. The contractual life of options granted is between 7 and 10 years. The options vest one third after each of the third, fourth and fifth year of date of granting the option. No compensation cost is recognised for the fair value of the options granted before the effective date of accounting for share-based payments in terms of IFRS 2. 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. The fair value of the employee service received in exchange for the grant of the options is recognised as an expense with a corresponding increase in equity. 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 conditions. Non-market conditions are included in assumptions about the number of options that are expected to vest. It recognises the impact of the revision to original estimates, if any, in the income statement with a corresponding adjustment to equity. The share appreciation option scheme, which is cash-settled, is recognised as an expense in the income statement with a corresponding liability on the balance sheet. The fair value is measured at grant date and expensed over the period during which the employees becomes unconditionally entitled to the instruments, using generally accepted valuation techniques, taking into the account the terms and conditions upon which the instruments are granted, excluding the impact of non marketing conditions. The fair value is revisited at balance sheet date and recognises the impact of revised estimates in the income statement with a corresponding adjustment to liabilities.
23. REVENUE RECOGNITION Revenue comprises the fair value of the consideration received or receivable for the sale of goods and services in the ordinary course of the group’s activities. Revenue is shown net of value-added tax, returns, rebates and discounts and after eliminating sales within the group. The group recognises revenue when the amount of revenue can be reliably measured, it is probable that future economic benefits will flow to the entity and specific criteria have been met for each of the group’s activities as described below. The amount of revenue is not considered to be reliably measurable until all contingencies relating to the sale have been resolved. The group bases its estimates on historical results, taking into consideration the type of customer, the type of transaction and the specifics of each arrangement. Revenue is recognised as follows: 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. Goods delivered to contract growers whereby the risk for quality and quantity of the product is carried by the contract grower, is recognised as revenue.
Interest income Interest income is recognised on a time-proportion basis using the effective interest method. When a receivable is impaired, the group reduces the carrying amount to its recoverable amount, being the estimated future cash flow discounted at the original effective interest rate of the instrument, and continues unwinding the discount as interest income. Interest income on impaired loans is recognised using the original effective interest rate.
Astral Foods Annual Report 2008
Dividend income Dividend income is recognised when the right to receive payment is established.
51
ACCOUNTING POLICIES
(continued)
for the year ended 30 September 2008
24. LEASES 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 are depreciated over the shorter of the asset’s useful life and the lease term. Leases where the lessor retains substantially all the risks and rewards of ownership are classified as operating leases. Payments made under operating leases are charged to the income statement on a straight-line basis over the period of the lease.
25. 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 shareholders are entitled to the dividend.
26. CRITICAL ACCOUNTING ESTIMATES AND JUDGMENTS The preparation of the financial statements in accordance with IFRS requires the use of certain critical accounting estimates. It requires management to exercise judgment in the process of applying the group’s accounting policies. The areas involving a higher degree of judgment or complexity, or areas where assumptions and estimates are significant to the financial statements, are mainly the following; Impairment of trade receivables A provision for impairment is established when there is evidence of significant financial difficulties of the debtor, probability that the debtor will enter bankruptcy or financial reorganisation, and default or delinquency in payments. Impairment of goodwill Goodwill is assessed for impairment at each reporting date. The recoverable amount of the relevant cashgenerating units is determined based on value-in-use calculations. These calculations use cash flow projections per budgets and strategic plan forecasts. These plans are revisited every year and are compiled after considering market conditions and the strategic positioning of the business units within the markets in which they operate. Estimation of useful lives of property, plant and equipment and intangible assets The assets’ residual values and useful lives are reviewed annually and adjusted if appropriate, taking into account technology developments and maintenance programmes. Uniform depreciation and amortisation rates are established based on the straight-line method which may not represent the actual usage of the assets. 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.
Astral Foods Annual Report 2008
Fair value assessment of biological assets The determination of fair value is based on active market values, where appropriate, or management’s assessment of the fair value based on available data and benchmark statistics.
52
Fair value of retirement benefits The fair value calculation is based on the most recent relevant economic data available. The key estimates and assumptions relating to these areas are disclosed in the relevant note to the financial statements. Inventory net realisable value Inventory net realisable value is based on estimates of future market conditions and the ability to recover the cost of inventory.
26. CRITICAL ACCOUNTING ESTIMATES AND JUDGMENTS (continued) Deferred tax assets The recoverability of deferred tax assets is based on the future profitability of the relevant entity and the ability to generate future taxable income. Share-based payments The fair value of share options granted are based on market conditions, discount rates, share price volatility and estimated future forfeitures. These values may change from time to time and the eventual outcome may differ from the valuations. Financial instruments Financial instruments are fair valued at balance sheet date. The value of financial instruments are subject to material fluctuations and disclosed amounts may differ from values ultimately realised.
Astral Foods Annual Report 2008
All estimates and underlying assumptions are based on historical experience and various other factors that management believes are reasonable under the circumstances. The results of these estimates form the basis of judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates. The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised and any affected future periods.
53
BALANCE SHEET at 30 September 2008
GROUP
COMPANY 2008 2007 R’000 R’000
2008 R’000
2007 R’000
1 462 364 12 251 124 802 – 13 184 – 1 924
1 254 028 15 718 123 548 – 2 873 15 549 5 059
– – – 276 153 – – –
– – – 228 520 – – 1 220
1 614 525
1 416 775
276 153
229 740
368 308 490 318 555 894
– – – 74 – –
– – 23 74 – –
1 542 689
1 449 933
74
97
3 157 214
2 866 708
276 227
229 837
422 314 13 736 (204 435) 1 492 850
427 5 757 (437) (211 231) 1 492 547
422 314 6 033 – 124 181
427 5 757 503 – 182 779
Minority interest in equity
1 302 887 25 263
1 287 063 20 450
130 950 –
189 466 –
Total equity
1 328 150
1 307 513
130 950
189 466
19 757 301 756 68 710
6 228 256 326 64 460
– – –
– – –
390 223
327 014
–
–
1 101 544 – 9 471 326 870 956
957 326 – 14 651 259 415 789
272 123 300 – 20 749 956
285 33 137 – 6 160 789
1 438 841
1 232 181
145 277
40 371
Total liabilities
1 829 064
1 559 195
145 277
40 371
Total equity and liabilities
3 157 214
2 866 708
276 227
229 837
Notes
ASSETS Non-current assets Property, plant and equipment Intangible assets Goodwill Investment in subsidiaries and joint ventures Investments and loans Derivative financial instruments Deferred income tax asset
Current assets Inventories Biological assets Trade and other receivables Current income tax asset Derivative financial instruments Cash and cash equivalents
1 2 3 4 7 13
5 6 8 7 9
Total assets
300 318 723 33 7 160
124 218 128 924 201 094
249 282 772 22 16 106
EQUITY Capital and reserves attributable to equity holders of the company Ordinary shares Share premium Other reserves Treasury shares Retained earnings
10 10
LIABILITIES
Astral Foods Annual Report 2008
Non-current liabilities Borrowings Deferred income tax liabilities Retirement benefit obligations
54
Current liabilities Trade and other payables Loan from subsidiary Current income tax liabilities Borrowings Shareholders for dividend
12 13 14
15 31 12
INCOME STATEMENT for the year ended 30 September 2008
Notes Revenue Cost of sales
17
Gross profit Administrative expenses Distribution costs Marketing expenditure Other income Other gains/(losses)
21 22
Operating profit Finance income Finance expense
23 23
Profit before income tax Income tax expense
24
8 184 205 (6 951 375) 830 947) 906) 949) 800 958
6 329 311 (4 915 311) 1 414 (302 (257 (61 5 10
COMPANY 2008 2007 R’000 R’000 – –
– –
000 248) 497) 929) 393 519
– (1 706) – – 328 779 (17)
– (1 239) – – 362 505 (26)
547 786 10 762 (60 163)
808 238 9 407 (10 998)
327 056 67 (1 499)
361 240 58 (13)
498 385 (164 159)
806 647 (261 089)
325 624 (27 984)
361 285 (27 070)
Profit for the year
334 226
545 558
297 640
334 215
Attributable to: Equity holders of the company Minority interest
327 261 6 965
537 858 7 700
297 640 –
334 215 –
Profit for the year
334 226
545 558
297 640
334 215
858 858
1 387 1 385
Earnings per share for profit attributable to the equity holders of the company during the year: Earnings per ordinary share (cents) 25 Diluted earnings per share (cents) 25
1 232 (307 (318 (65 4 2
2007 R’000
Astral Foods Annual Report 2008
GROUP 2008 R’000
55
STATEMENT OF CHANGES IN EQUITY for the year ended 30 September 2008
Attributable to ordinary shareholders of Astral Foods Limited Share capital and premium R'000
Currency translation reserve R'000
Equity compensation reserve R'000
120 627
993
–
4 736 (119 179)
– –
– –
– 4 308
– – – – –
– – – – –
503 – – – –
–
(1 633)
–
Treasury shares R'000
Minority
Total
interest
equity
Retained earnings R'000
Total R'000
R'000
R'000
(215 539) 1 195 541
1 101 622
19 332
1 120 954
– –
4 736 (114 871)
– –
4 736 (114 871)
– – – – –
– – – 537 858 (240 852)
503 – – 537 858 (240 852)
–
–
–
(1 633)
–
(1 633)
(300)
–
–
–
(300)
300
–
6 184
(940)
503
(211 231) 1 492 547
1 287 063
20 450
1 307 513
6 184
( 940)
503
(211 231) 1 492 547
1 287 063
20 450
1 307 513
Group 2007
Balance at 1 October 2006 Shares issued (share options exercised) Shares bought back and cancelled Option value of share options granted Acquisition of subsidiary Loan due to minorities paid Profit for the year Dividends declared Currency translation differences arising in year Minority interest in translation differences Balance at 30 September 2007 2008 Balance at 1 October 2007 Shares issued (share options exercised) Shares bought back and cancelled Option value of share options granted Profit for the year Dividends declared Currency translation differences arising in year Minority interest in translation differences
Balance at 30 September 2008
441 (5 889)
– –
– –
– 6 796
– (60 053)
441 (59 146)
– – –
– – –
5 530 – –
– – –
– 327 261 (266 905)
5 530 327 261 (266 905)
–
8 789
–
–
–
–
–
–
–
(146)
(204 435) 1 492 850
8 789 (146)
736
7 703
6 033
1 302 887
120 627
–
–
–
116 241
236 868
4 736 (119 179)
– –
– –
– –
– –
4 736 (119 179)
– – –
– – –
503 – –
– – –
– 334 215 (267 677)
503 334 215 (267 677)
6 184
–
503
–
182 779
189 466
6 184
–
503
–
182 779
189 466
441 (5 889)
– –
– –
– –
– (60 053)
441 (65 942)
– – –
– – –
5 530 – –
– – –
– 297 640 (296 185)
5 530 297 640 (296 185)
736
–
6 033
–
124 181
130 950
Company 2007
Balance at 1 October 2006 Shares issued (share options exercised) Shares bought back and cancelled Option value of share options granted Profit for the year Dividends declared
Astral Foods Annual Report 2008
Balance at 30 September 2007
56
2008
Balance at 1 October 2007 Shares issued (share options exercised) Shares bought back and cancelled Option value of share options granted Profit for the year Dividends declared
Balance at 30 September 2008
1 (5 7 (3
407 250) 700 039)
– – 33 6 965 (2 331)
1 (5 545 (243
503 407 250) 558 891)
441 (59 146) 5 563 334 226 (269 236)
–
8 789
146
–
25 263
1 328 150
CASH FLOW STATEMENT for the year ended 30 September 2008
COMPANY 2008 2007 R’000 R’000
Notes
2007 R’000
Cash flows from operating activities Cash operating profit Changes in working capital
A B
660 736 111 433
913 454 (221 711)
327 056 9
361 240 (212)
Cash generated from operations Income tax paid
C
772 169 (133 138)
691 743 (243 790)
327 065 (26 764)
361 028 (28 374)
639 031 (269 803)
447 953 (336 550)
300 301 (42 590)
332 654 58
(180 713)
(240 070)
–
–
(92 691)
(79 676)
–
–
Total purchases Less: Interest capitalised
(273 404) 8 664
(319 746) 12 309
– –
– –
Net purchases of property, plant and equipment Costs incurred on intangibles Proceeds on disposal of property, plant and equipment Cost of acquisition of subsidiary Increase in loans and investments Investment income Proceeds from derivative instruments Investment in derivative instruments
(264 740) (1 277)
(307 437) (2 003)
– –
– –
Cash generated from operating activities Cash used in investing activities Purchase of property, plant and equipment to expand operations Purchase of property, plant and equipment to maintain operations
19 118 (33 505) (2 941) 10 762 3 041 (261)
344 518) 479) 407 – (32 864)
– – (42 657) 67 – –
– – – 58 – –
Cash generated for the year Cash flows to financing activities
369 228 (382 249)
111 403 (385 129)
257 711 (272 300)
332 712 (336 159)
Proceeds from issue of shares Shares repurchased Share delisting expenses Dividends paid to the company's shareholders Payments to minority interests Loan payments received from subsidiary Interest paid Increase in borrowings
441 (59 146) – (266 738) (2 331) – (68 827) 14 352
4 736 (114 669) (202) (240 818) (8 289) – (23 307) (2 580)
441 (65 942) – (296 018) – 90 718 (1 499) –
4 (118 ( (267
17 777 (3 425) –
– (2 438) (142)
(13 021) 3 512
(273 726) (1 912)
(14 589) –
(3 447) –
E
(2 621) (150 041)
5 974 119 623
– (6 160)
– (2 713)
9
(162 171)
(150 041)
(20 749)
(6 160)
E
D
Loans received Payment of long-term borrowings Payment of capital element of finance lease liabilities Net decrease in cash and cash equivalents Effects of exchange rate changes Cash and cash equivalents from acquisition of subsidiary Cash and cash equivalents at beginning of year Cash and cash equivalents at end of year
2 (4 (1 9
– – –
The prior year figures were reclassified to disclose interest received as an investing activity and interest paid as a financing activity.
736 977) 202) 643) – 45 940 (13) – – – –
Astral Foods Annual Report 2008
GROUP 2008 R’000
57
NOTES TO THE CASH FLOW STATEMENT for the year ended 30 September 2008
GROUP
COMPANY 2008 2007 R’000 R’000
2008 R’000
2007 R’000
Operating profit Adjustments for: Depreciation and amortisation Impairment of fixed assets Profit on disposal of fixed assets Increase/(decrease) in provision for retirement benefit obligations Fair value adjustment on derivative financial instruments Other non-cash flow items
547 786
808 238
327 056
361 240
106 293 – (746)
– – –
– – –
4 250 22 123 5 563
(467) – 136
– – –
– – –
Cash operating profit
660 736
913 454
327 056
361 240
Increase in inventories Increase in biological assets Decrease/(increase) in trade and other receivables Increase/(decrease) in trade and other payables
(45 (35 55 137
(50 (67 (323 220
Total change in working capital
111 433
(221 711)
7 667 (87 512) (29 294) (167) – 621 (24 453)
(55 (147 (30 (1
787) 635) 542) 823) (984) 648 (7 667)
74 – (26 764) – – – (74)
(10) (12) (28 278) – – – (74)
(133 138)
(243 790)
(26 764)
(28 374)
Balance at beginning of year Per statement of changes in equity Balance at end of year
(789) (266 905) 956
(755) (240 852) 789
(789) (296 185) 956
(755) (267 677) 789
Total dividends paid
(266 738)
(240 818)
(296 018)
(267 643)
A. CASH OPERATING PROFIT 88 935 688 (8 609)
B. CHANGES IN WORKING CAPITAL 749) 910) 689 403
174) 954) 698) 115
– – 23 (14)
– – (17) (195)
9
(212)
C. INCOME TAX PAID Balance at beginning of year Normal income tax provision Secondary tax on companies provision Withholding tax Acquisition of subsidiaries Translation differences Net balance at end of year Total income tax paid
D. DIVIDENDS PAID
Astral Foods Annual Report 2008
E. ACQUISITION OF SUBSIDIARY
58
Property, plant and equipment and intangibles Loans Inventory Trade and other receivables Minority interest Deferred income tax liability Trade and other payables Income tax liabilities Overdraft/(Cash and cash equivalents)
(24 (7 (5 (6
219) 370) 007) 327) – 1 236 6 815 – 2 621
(740) – (966) (761) 1 407 – 412 984 (5 974)
– – – – – – – – –
– – – – – – – – –
Net assets acquired Goodwill paid Excess net asset value over purchase consideration
(32 251) (1 254) –
(5 638) – 1 120
– – –
– – –
Total purchase consideration and related costs for interest in subsidiary (Overdraft)/Cash and cash equivalents acquired
(33 505) (2 621)
(4 518) 5 974
– –
– –
Cash flow on acquisition, net of overdraft and cash acquired
(36 126)
1 456
–
–
NOTES TO THE ANNUAL FINANCIAL STATEMENTS for the year ended 30 September 2008
Land and Plant, and buildings equipment R'000 R'000
Capitalised leased Vehicles assets R'000 R'000
695 948 (201 002)
924 354 (445 055)
131 806 (68 356)
1 453 1 753 561 (820) (715 233)
Net book amount at 1 October 2006 Changes for the year ended 30 September 2007: Exchange differences Reclassifications Additions – Expansion Additions – Replacement Acquisition of subsidiary Disposals Depreciation charge
494 946
479 299
63 450
633 1 038 328
(513) – 87 001 3 593 446 (79) (29 069)
(752) 352 151 488 56 897 288 (1 236) (61 698)
(99) – 1 581 19 188 – (285) (10 981)
– (352) – – – – (70)
Closing net book amount
556 325
624 638
72 854
211 1 254 028
Balance at 30 September 2007: Cost Accumulated depreciation
786 315 1 125 992 (229 990) (501 354)
148 755 (75 901)
562 2 061 624 (351) (807 596)
Closing net book amount
556 325
624 638
72 854
211 1 254 028
556 325
624 638
72 854
211 1 254 028
1 426 – 77 014 6 571 1 295 (553) – (14 304)
3 693 211 97 084 63 377 22 879 (1 858) (688) (56 891)
627 774
752 445
Total R'000
1. PROPERTY, PLANT AND EQUIPMENT
2008 Net book amount at 1 October 2007 Changes for the year ended 30 September 2008: Exchange differences Reclassifications Additions – Expansion Additions – Replacement Acquisition of joint venture Disposals Impairment Depreciation charge Closing net book amount Balance at 30 September 2008: Cost Accumulated depreciation Closing net book amount
873 066 1 312 818 (245 292) (560 373) 627 774
752 445
6 22 (8 (12
982 – 615 743 45 098) – 996)
– (211) – – – – – –
(1 364) – 240 070 79 678 734 (1 600) (101 818)
6 101 – 180 713 92 691 24 219 (10 509) (688) (84 191)
82 145
– 1 462 364
160 471 (78 326)
– 2 346 355 – (883 991)
82 145
– 1 462 364
Details of the individual properties are contained in a register, which is open for inspection by members or their nominees at the registered office of the company. Assets with a book value of R48 255 000 (2007: R10 696 000) are pledged as security for secured loans of R19 523 000 (2007: R8 708 000) (refer note 12). The estimated useful lives of certain assets were re-assessed at the beginning of the current financial year. Changes were made to the useful lives of buildings from 25 to 50 years and of certain plant items from 15 to 25 years.
Astral Foods Annual Report 2008
Group 2007 Balance at 1 October 2006: Cost Accumulated depreciation
59
NOTES TO THE ANNUAL FINANCIAL STATEMENTS
(continued)
for the year ended 30 September 2008
GROUP 2008 R’000
2007 R’000
Opening net book amount Changes for the year: Acquisition of subsidiary Capitalisation of costs incurred Amortisation
15 718
18 177
– 1 277 (4 744)
6 2 010 (4 475)
Closing net book amount
12 251
15 718
Cost Accumulated amortisation
25 524 (13 273)
24 210 (8 492)
Closing net book amount
12 251
15 718
Cost at beginning of year Cost incurred on acquisition of joint venture
123 548 1 254
123 548 –
Cost at end of year
124 802
123 548
13 244 111 558
11 990 111 558
124 802
123 548
COMPANY 2008 2007 R’000 R’000
2. INTANGIBLE ASSETS – SOFTWARE
3. GOODWILL
Impairment test for goodwill Goodwill is allocated to the group's cash-generating units identified according to business segment. A summary of goodwill per segment is as follows; Animal Nutrition Poultry Impairment tests were based on the following assumptions: – Growth rates up to 5% (2007: 10%) – Discount rates of 14,5% (2007: 13,5%) There would be a goodwill impairment of R1 million if the discount rate increased by 1%. The accounting estimates and judgments on which the impairment tests are based are set out in note 26 of the accounting policies.
4. INVESTMENTS IN SUBSIDIARIES AND JOINT VENTURES
Astral Foods Annual Report 2008
Shares at cost: Subsidiaries Joint ventures Indebtedness: Subsidiaries
60
222 121 11 375
Total
217 218 11 302
42 657
–
276 153
228 520
Details of joint ventures and subsidiaries are given in notes 30 and 31 respectively.
5. INVENTORIES Raw materials Finished goods and merchandise Consumable stores
149 960 98 109 52 055
141 083 70 948 37 337
– – –
– – –
300 124
249 368
–
–
Egg stock R'000
Breeding stock R'000
Broiler stock R'000
Total R'000
577 108 880) 500
129 624 327 611 (291 732) –
53 153 978 629 (961 339) 57
214 354 1 419 348 (1 353 951) 2 557
Fair value at 30 September 2007
46 305
165 503
70 500
282 308
2008 Fair value at 1 October 2007 Increase due to established costs Decrease due to harvest/sales Fair value adjustment
46 305 90 780 (87 749) (153)
165 503 444 690 (418 798) –
Fair value at 30 September 2008
49 183
191 395
6. BIOLOGICAL ASSETS Group 2007 Fair value at 1 October 2006 Increase due to established costs Decrease due to harvest/sales Fair value adjustment
31 113 (100 2
GROUP
70 500 1 218 688 (1 212 932) 1 384 77 640
282 308 1 754 158 (1 719 479) 1 231 318 218
COMPANY 2008 2007 R’000 R’000
2008 R’000
2007 R’000
Equity call option
6 940
32 104
–
–
Non-current portion Current portion
– 6 940
15 549 16 555
– –
– –
261
–
–
–
7 201
32 104
–
–
7. DERIVATIVE FINANCIAL INSTRUMENT
A wholly owned subsidiary entered into cash-settled call option contracts on the shares of the company. These contracts are recognised at fair value. Changes in the fair values to the amount are recognised in the income statement under other gains/losses (note 22). The current year's adjustment was a loss of R22 121 000 (2007: R760 000). The fair value of the contracts were determined using the Black and Scholes pricing model.
Currency option contracts These are contracts in underlying exchange rates. Currency option contracts are mark-to-market on a daily basis and gains or losses are immediately settled in cash, and recognised in the income statement under gains and losses. The current year's gain was R225 000 (2007: nil).
Derivative financial instruments are classified as held for trading.
Astral Foods Annual Report 2008
The significant inputs in the valuation model were: – strike price – R77,75 – risk free rate – 11,8% – volatility – 30% – dividend yield – 4% – period to lapse (years) – 0,75
61
NOTES TO THE ANNUAL FINANCIAL STATEMENTS
(continued)
for the year ended 30 September 2008
GROUP 2008 R’000
2007 R’000
COMPANY 2008 2007 R’000 R’000
8. TRADE AND OTHER RECEIVABLES Financial instruments Trade receivables Provision for impairment Trade receivables – net Other receivables Non-financial instruments Prepayments Other receivables
668 297 (3 499)
736 201 (4 500)
– –
– –
664 798 10 440
731 701 5 950
– –
– 23
3 390 44 500
5 514 29 325
– –
– –
723 128
772 490
–
23
A joint venture of the group ceded trade receivables with a book value of R5 755 000 (2007: R3 477 000) as security for its available borrowing facilities (refer note 12). The fair values of trade and other receivables approximate their carrying value. Provision for impairment is made in respect of overdue trade receivables which represent a risk of non-payment. The carrying amounts of the group's trade and other receivables are denominated in the following currencies: GROUP 2008 R’000 SA Rand Zambia Kwacha Mozambique Meticals Mauritius Rupees
705 5 1 10
676 081 780 591
723 128
2007 R’000 760 3 2 6
COMPANY 2008 2007 R’000 R’000
039 018 572 861
– – – –
23 – – –
772 490
–
23
Astral Foods Annual Report 2008
GROUP 2008 R'000
62
2007 R'000
Trade receivables are categorised per the following industries: – Farming – Retail – Wholesale – Other
237 151 258 20
– Total
668 297
736 201
Ageing profile of trade receivables: – Up to 30 days – 30 to 60 days – 60 days and longer
663 191 1 607 3 499
730 973 728 4 500
– Total
668 297
736 201
996 649 153 499
208 288 225 12
402 924 949 926
Provision for impairment: – Balance at 1 October – (Increase)/decrease charged (against)/to profit and loss – Impairment provision utilised against trade receivables – Acquisition of joint venture
(4 500) (427) 1 525 (97)
(9 518) 377 4 641 –
– Balance at 30 September
(3 499)
(4 500)
Ageing profile of provision for impairment: – 60 days and longer
(3 499)
(4 500)
Collateral security held against trade receivables: – Bank guarantees – Covering bonds over property – Notarial bonds – Credit Guarantee Insurance Cover
42 3 2 70
34 7 3 61
194 500 000 926
118 620
330 300 250 452
106 332
GROUP
COMPANY 2008 2007 R’000 R’000
2008 R’000
2007 R’000
132 114 27 980
92 388 14 506
– –
– –
160 094
106 894
–
–
10,4
8,4
9. CASH AND CASH EQUIVALENTS Cash at bank and in hand Short-term bank deposits
Short-term bank deposits are invested on call account at interest rates linked to the daily bank rate. Closing interest rate at end of year (%) Cash and cash equivalents include the following for purposes of the cash flow statement: Cash at bank and in hand and short-term bank deposits Bank overdrafts (note 12)
160 094 (322 265)
106 894 (256 935)
– (20 749)
– (6 160)
Cash and cash equivalents per cash flow statement
(162 171)
(150 041)
(20 749)
(6 160)
10. SHARE CAPITAL Authorised share capital 75 000 000 ordinary shares of 1 cent each (2007: 75 000 000 ordinary shares of 1 cent each)
750
750
750
750
Issued share capital 42 136 285 ordinary shares of 1 cent each (2007: 43 276 569 ordinary shares of 1 cent each)
422
427
422
427
Share premium
314
5 757
314
5 757
Total issued share capital and premium
736
6 184
736
6 184
Number of shares
Number of shares
Number of shares
Number of shares
Number of shares effectively in issue Issued shares Shares at beginning of year Shares issued (share options exercised) Shares cancelled
42 728 369 37 916 (630 000)
43 276 569 547 100 (1 095 300)
42 728 369 37 916 (630 000)
43 276 569 547 100 (1 095 300)
(300 000)
(1 036 886)
(630 000)
(1 095 300)
(330 000)
(58 414)
–
–
42 136 285 (4 088 577)
42 728 369 (4 268 577)
42 136 285 –
42 728 369 –
– Treasury shares at beginning of the year – Treasury shares transferred to holding company and cancelled – Shares bought back during the year
(4 268 577)
(4 326 991)
330 000 (150 000)
58 414 –
Shares at end of year
38 047 708
42 136 285
42 728 369
– Shares bought back and cancelled – Treasury shares previously held by subsidiary cancelled
Treasury shares held by subsidiary
Treasury shares Treasury shares are held by a wholly owned subsidiary of the company.
38 459 792
Astral Foods Annual Report 2008
All issued shares are fully paid.
63
NOTES TO THE ANNUAL FINANCIAL STATEMENTS
(continued)
for the year ended 30 September 2008
10. SHARE CAPITAL (continued) Buy-back of shares The group bought back 450 000 (2007: 1 036 886) of the company's shares at a cost of R59 146 000 (2007: R114 669 000) during the year (average cost per share: R131.44). These shares were subsequently delisted and cancelled. The number of shares which could be bought-back during the year by the company and its subsidiary was limited to 20% of the total number of shares in issue at the date of the Annual General Meeting on 14 February 2008. Unissued share capital 7,5% of the unissued shares were placed under the control of the directors until the next annual general meeting of the company. The number of shares available to be utilised for purposes of the share option scheme: GROUP
Number of share options beginning of year Number of share options Number of share options Number of share options during the year
2008 Number of shares
2007 Number of shares
3 436 984 (40 000) 70 400
3 695 384 (815 500) 10 000
COMPANY 2008 2007 Number Number of shares of shares
available at allocated forfeited exercised
Number of share options available at end of year Number of share options outstanding at end of year Number of shares under the control of directors for the purpose of the share option scheme at end of year
3 436 984 (40 000) 70 400
3 695 384 (815 500) 10 000
37 916
547 100
37 916
547 100
3 505 300
3 436 984
3 505 300
3 436 984
787 100
855 416
787 100
855 416
4 292 400
4 292 400
4 292 400
4 292 400
Share options forfeited were in respect of employees who left the employment of the group.
11. SHARE-BASED PAYMENTS The group had two share-based payment arrangements during the year: Share option scheme The scheme, an equity-settled incentive remuneration scheme, provides the right to purchase shares in the company at the exercise price. The contractual life of options granted prior to 28 August 2007 is ten years. Options not taken up will lapse on the tenth anniversary of the option date.
Astral Foods Annual Report 2008
The contractual life of options granted on or after 28 August 2007 is seven years. Options not taken up will lapse on the seventh anniversary of the option date.
64
The scheme allows one third of the share options to be exercised per year after each of the third, fourth and fifth year from date of granting the option. The exercise price of the granted options is equal to the market price of the shares on date of the grant.
11. SHARE-BASED PAYMENTS (continued) Movement during the year in the number of options is as follows:
Date 17 22 28 21
April 2001 May 2003 August 2007 May 2008
Number of options outstanding Exercise at beginning price of year R7,75 R15,00 R122,00 R88,49
Number of options allocated during the year
Number of options forfeited during the year
Number of Number of options options exercised outstanding during at end of the year the year
Number of options exercisable at end of year
19 716 20 200 815 500 –
– – – 40 000
– – (70 400) –
(17 716) (20 200) – –
2 000 – 745 100 40 000
2 000 – – –
855 416
40 000
(70 400)
(37 916)
787 100
2 000
Options were exercised during the year at a weighted average share price of R116,12. Value of share options outstanding at the end of the year at the exercise price amounts to R94 457 300 (2007: R99 946 799). The fair value of services received in return of share options granted during the year was determined using the Black and Scholes pricing model. The significant inputs in the valuation model were: Date of grant Share price at date of the grant Exercise price Volatility Dividend yield Risk free interest rate Contractual life from grant date The estimated average value of the options granted – per option
21 May 2008 R88,49 R88,49 29-30% 8,00% 11,50% 7 years R18,19
The total service cost of options granted during the year to be recognised over its vesting period (five years) amounts to R728 000. The service cost recognised in the current year in return for the cumulative share options granted to date to employees and directors amounts to R5 563 000 (2007: R496 000). No compensation cost has been recognised for the fair value of the options granted before the effective date of accounting for share-based payments in terms of IFRS 2. Share appreciation option scheme The scheme provides cash-settled incentive remuneration based on the increase in the value of shares of the company. The options are subject to a three year service vesting condition, and their fair value is recognised as an expense in the income statement and a liability on the balance sheet. The right to receive payment based on the options granted lapses after five years from the grant date. Movement during the year in the number of options is as follows:
19 19 18 15
August 2004 November 2004 July 2005 July 2006
Exercise price R33,82 R47,52 R63,87 R77,75
Number of options forfeited during the year
Number of options exercised during the year
700 500 200 100
– – (13 800) (15 900)
(97 700) (22 000) – –
754 500
(29 700)
(119 700)
138 25 286 304
Number of options outstanding at end of the year 41 3 272 288
Number of options exercisable at end of year
000 500 400 200
41 000 3 500 – –
605 100
44 500
Share appreciation options were exercised during the year at a weighted average share price of R141,13. The fair value of the liability in respect of the outstanding options at the end of the year, was determined using the Black and Scholes pricing model.
Astral Foods Annual Report 2008
Date
Number of options outstanding at beginning of year
65
NOTES TO THE ANNUAL FINANCIAL STATEMENTS
(continued)
for the year ended 30 September 2008
GROUP
COMPANY 2008 2007 R’000 R’000
2008 R’000
2007 R’000
17 969
28 044
2 439
36 349
– 19 523 4 839
14 8 694 –
– – –
– – –
24 362
8 708
–
–
(4 605)
(2 480)
–
–
19 757
6 228
–
–
322 265
256 935
20 749
6 160
11. SHARE-BASED PAYMENTS (continued) Closing balance of liability for share appreciation option scheme (disclosed as part of Trade and other payables) Fair value loss on cash-settled share-based payments to employees and directors recognised in the income statement
12. BORROWINGS Non-current Finance lease liabilities Secured loans Unsecured loans Total Less: Portion payable within one year included in current liabilities
Current Bank overdrafts Portion of non-current borrowings payable within one year
4 605
2 480
–
–
326 870
259 415
20 749
6 160
Total borrowings
346 627
265 643
20 749
6 160
The carrying amounts of the group's borrowings are denominated in the following currencies: SA Rand US Dollar Mauritius Rupees
326 921 15 632 4 074
254 697 7 674 3 272
20 749 – –
6 160 – –
346 627
265 643
20 749
6 160
Property Plant and equipment
24 245 24 051
10 485 211
– –
– –
Contractual maturity of payments of noncurrent borrowings Not later than one year Between one and five years Over five years
5 914 16 312 10 252
3 109 9 417 –
– –
– –
Less: Finance charges
32 478 (8 116)
12 526 (3 818)
– –
– –
24 362
8 708
–
–
740 700
502 500
–
–
All borrowings rates are variable, ranging between 15,5% and 7,1% during the year. The carrying amounts of both the long-term and short-term borrowings approximate their fair value.
Astral Foods Annual Report 2008
Assets with the following book values are pledged as security for secured loans (note 1):
66
Borrowing facilities The group has the following general borrowing facilities at floating interest rates The borrowing facilities are reviewed on an annual basis.
Borrowing powers No limit has been placed in the articles of association on the borrowing powers of the company.
GROUP
COMPANY 2008 2007 R’000 R’000
2008 R’000
2007 R’000
5 059 (129) (1 220) (2 840) 1 054
1 752 – (25) 3 332 –
1 924
5 059
–
1 220
(6 747) 8 290 – 381
(5 453) 10 227 1 220 (935)
– – – –
– – 1 220 –
1 924
5 059
–
1 220
(256 326) (143) 8 600 (1 236)
(171 906) (24) – –
– – – –
– – – –
(1 054) (51 597)
– (84 396)
– –
– –
At end of year
(301 756)
(256 326)
–
–
Analysis of deferred income tax liabilities: Accelerated income tax depreciation Lower tax value for livestock and farming consumables Assessed losses utilised to reduce deferred income tax Other temporary differences
(248 (92 2 36
973) 189) 783 623
(218 565) (82 349) 23 44 565
– – – –
– – – –
(301 756)
(256 326)
–
–
13. DEFERRED INCOME TAX Deferred income tax is calculated on all temporary differences under the liability method, using a principal tax rate of 28% (2007: 29%). Deferred income tax assets and liabilities are offset when there is a legally enforceable right to set off current income tax assets against current income tax liabilities and when deferred income taxes relate to the same fiscal authority. Deferred tax assets have been recognised in respect of available secondary tax on companies (STC) credits.
At end of year Analysis of deferred income tax assets: Accelerated income tax depreciation Assessed losses utilised STC credits Other temporary differences
Movement on the deferred income tax liability account is as follows: At beginning of year Exchange differences Reduction due to tax rate change Acquisition of business unit Transfer credit balance from deferred income tax asset Charged to the income statement
1 220 – (1 220) – –
– – 1 220 – –
Astral Foods Annual Report 2008
Movement on the deferred income tax asset account is as follows: At beginning of year Reduction due to tax rate change Decrease in deferred tax asset on STC credit (Charge)/credit to the income statement Transfer credit balance to deferred income tax liability
67
NOTES TO THE ANNUAL FINANCIAL STATEMENTS
(continued)
for the year ended 30 September 2008
GROUP 2008 R’000
2007 R’000
2 674 4 250
2 051 428
68 710
64 460
2 630
2 241
9,25 7,75 7.,25
8,5 7,25 6,75
COMPANY 2008 2007 R’000 R’000
14. RETIREMENT BENEFIT OBLIGATIONS Post-employment medical benefits The group provides post-retirement healthcare benefits to some of its retirees. Benefits paid and the movement in the provision are charged against profits in the current period. Amounts recognised in the income statement: Benefits paid Increase in the provision for the liability Provision for liability at balance sheet date Estimated employer benefits payable during next 12 months The liability recognised in the financial statements was actuarially valued at 30 September 2008 (previous valuation date: 30 September 2007). The liability was valued using the projected unit credit method. Discount rate (%) Healthcare inflation rate (%) Expected rates of salary increases (%) Pre-retirement mortality rates as per SA85-90 ultimate table Post-retirement mortality rates as per PA(90) ultimate table rated down two years and with 1% improvement from 2006. Present value of funded obligations per actuarial valuation at 30 September Balance at beginning of year Current service cost Interest costs Actuarial gains Expected benefit payments
64 460 1 506 5 360 (375) (2 241)
62 2 7 (5 (2
Balance at end of year
68 710
64 460
+ 1%
–1%
7 536
(7 748)
886
(954)
Astral Foods Annual Report 2008
The effect of a 1% movement in the assumed medical cost trend rate is as follows:
68
Increase/(decrease) in accrued liability at 30 September Increase/(decrease) in current service and interest costs The present value of the defined benefit obligation and the experience adjustment were as follows:
30 September 2008 30 September 2007 30 March 2006 Actuarial valuations were done only every third year prior to 30 March 2006.
830 629 011 072) 938)
R'000
Experience adjustment
68 710 64 460 62 830
0,6% 7,9% 3,4%
GROUP
COMPANY 2008 2007 R’000 R’000
2008 R’000
2007 R’000
763 186 164 307
629 256 124 995
– 272
– 285
156 082 17 969
175 031 28 044
– –
– –
1 101 544
957 326
272
285
Capital commitments Capital expenditure approved not contracted
84 856
72 782
–
–
Capital expenditure contracted but not recognised in the financial statements:
24 417
83 893
–
–
51 446 188 821 9 833
54 216 228 650 91 278
– – –
– – –
250 100
374 144
–
–
897 328
348 145
–
–
15. TRADE AND OTHER PAYABLES Financial instruments Trade payables Accruals and other payables Non-financial instruments Other payables Provision for share-based payments
16. CONTINGENCIES AND COMMITMENTS
The capital commitments will be financed by operating cash flow and borrowings well within the accepted gearing profile of the group. Operating lease commitments The group leases various properties, plant and equipment and vehicles under non-cancellable operating leases. Future lease payments are as follows: Not later than 1 year Later than I year and not later than 5 years Later than 5 years
Leases are contracted for periods ranging from 36 to 120 months with no renewal options. Rental escalations vary from nil to prime interest rate linked escalations. The lease expenditure charged to the income statement is disclosed in note 18.
Contracted amounts not recognised in the balance sheet are as follows:
The company guaranteed the payment obligations of its subsidiary, Astral Operations Limited, in respect of raw material purchases. The group entered into a feed supply agreement whereby an agreed quantity of raw materials are procured from a supplier at market related prices. The remaining period of the agreement is six years.
Astral Foods Annual Report 2008
Other commitments The group has contracted its raw-material requirements from various suppliers in terms of future supply agreements.
69
NOTES TO THE ANNUAL FINANCIAL STATEMENTS
(continued)
for the year ended 30 September 2008
GROUP
COMPANY 2008 2007 R’000 R’000
2008 R’000
2007 R’000
7 583
7 875
–
–
7 871 193
6 104 608
–
–
313 012
224 703
–
–
8 184 205
6 329 311
–
–
2 053 143
1 583 950
–
–
16. CONTINGENCIES AND COMMITMENTS (continued) Contingent liabilities The following contingent liabilities to be noted: – Contingent liability in respect of a guarantee given to a third party – A complaint was lodged against Astral Operations Limited and Elite Breeding Farms at the Competition Commission regarding anticompetitive behaviour relating to an existing supply agreement of parent stock. The Competition Commission referred the matter to the Competition Tribunal for determination. The group will oppose a claim and it is not anticipated that any material liabilities will arise from a claim. – Profile Feeds (Pty) Limited and Paarl Poultry Farms (Pty) Limited instituted claims against Astral Operations Limited on the basis of a purported cancellation of a long-term feed supply agreement in the sum of R42 million, alternatively R21 million, alternatively R3,7 million. The prospects for success of these claims are regarded as being remote and any possible financial loss has been estimated and provided for in the financial statements.
17. REVENUE Revenue from the sale of goods: Revenue of South African operations Revenue denominated in foreign functional currencies
Intergroup revenue excluded
Revenue is disclosed net of value-added tax, normal discounts and rebates, and returns.
Astral Foods Annual Report 2008
Revenue comprises the net value of the sales of animal feed and poultry related products.
70
GROUP
COMPANY 2008 2007 R’000 R’000
2008 R’000
2007 R’000
The following expense items by nature have been included in arriving at operating profit: Auditors' remuneration
4 455
3 902
–
–
Audit fees Management consulting services Taxation services Expenses
4 261 34 – 160
3 766 – 20 116
– – – –
– – – –
Fees paid for managerial, secretarial and technical services Impairment of plant and equipment Amortisation of intangible assets Depreciation on property, plant and equipment
9 019 688 4 744 84 191
7 803 – 4 475 101 818
111 – – –
104 – – –
Buildings Plant and equipment Vehicles Leased assets under finance leases
14 304 56 891 12 996 –
29 069 61 698 10 981 70
– – – –
– – – –
Operating lease payments
54 380
54 980
–
–
Property Plant and machinery Vehicles
14 128 2 472 37 780
12 962 2 392 39 626
– – –
– – –
5 265
4 573
–
–
1 231 9 058 697 328
2 557 13 929 621 384
– 1 087 –
– 924 –
2 439
36 349
–
–
5 563
496
–
–
5 838 – 1 150 583 6 852
6 528 4 095 1 304 668 53 847
14 423
66 442
1 487
1 334
Total directors' remuneration Less: Share options exercised
15 910 (6 852)
67 776 (53 847)
Less: Paid by subsidiary
9 058 (7 971)
13 929 (13 005)
18. EXPENSES BY NATURE
Research and development expenditure Biological assets – movement in fair value adjustment Directors' remuneration (note 19) Employee benefit expense (note 20) Provision for cash-settled share-based payments to employees and directors Cost recognised for share options granted to employees and directors
Executive directors Salaries Performance related bonuses Retirement fund contributions Other benefits Share options exercised Non-executive directors Fees
1 087 No share options in terms of the share option scheme were granted to the executive directors of the company during the year (2007: 164 100 options). No options in terms of the share appreciation option scheme were granted to the executive directors of the company during the year (2007: nil). Refer note 11 for details of the share-based payment schemes.
924
Astral Foods Annual Report 2008
19. DIRECTORS' REMUNERATION
71
NOTES TO THE ANNUAL FINANCIAL STATEMENTS
(continued)
for the year ended 30 September 2008
GROUP 2008 R’000
2007 R’000
COMPANY 2008 2007 R’000 R’000
20. EMPLOYEE BENEFIT EXPENSE Wages and salaries Termination benefits Retirement fund contributions Post-retirement benefits
642 2 49 2
326 393 935 674
569 2 47 2
485 385 463 051
– – – –
– – – –
697 328
621 384
–
–
18 599 2 974 1 209
– 390 3 859 1 144
328 779 – – –
362 505 – – –
4 800
5 393
328 779
362 505
Number of employees – Permanent employees: 8 049 (2007: 7 889) – Contracted labour: 721 (2007: 872)
21. OTHER INCOME Dividends received Scrap sold Storage fee income Rental received
22. OTHER GAINS/(LOSSES) Foreign exchange forward contract losses Foreign exchange gains on financial instruments Profit on sale of property, plant and equipment Fair value gains/(losses) on financial instruments and raw material contracts in respect of procurement not qualifying as effective hedges Fair value adjustment on equity call options Excess of the fair value of interest acquired in a subsidiary over cost Net of other gains and losses
(406) 744 8 609
(613) 696 746
– (17) –
2 800 (22 121)
2 457 (760)
– –
– –
– 13 332
1 120 6 873
– –
– –
2 958
10 519
Interest expense Bank borrowings Loans Other
67 194 876 757
21 534 116 1 657
– – 1 499
– – 13
Less: Interest capitalised
68 827 (8 664)
23 307 (12 309)
1 499 –
13 –
60 163
10 998
1 499
13
8 463 2 299
9 407 –
– 67
58 –
10 762
9 407
67
58
(49 401)
(1 591)
(17)
– (26) –
(26)
Astral Foods Annual Report 2008
23. NET FINANCE (EXPENSE)/INCOME
72
Interest income Bank deposits Other
Net finance (expense)/income
(1 432)
45
Interest was capitalised at an average rate of 14,2% in respect of expenditure on assets which took a substantial period of time to get ready for their intended use.
GROUP
COMPANY 2008 2007 R’000 R’000
2008 R’000
2007 R’000
87 169 55 682
149 085 81 687
– –
13 –
142 851 343 (1 245) 167 (8 471) 29 294
230 772 (1 450) (623) 1 823 – 30 542
– – – – – 26 764
13 (1) – – – 28 278
1 220
25
1 220
(1 220)
164 159
261 089
27 984
27 070
498 385
806 647
325 624
361 285
Income tax calculated at a rate of 28% (2007: 29%) Minority interest in income tax charge of consolidated partnership Effect of different income tax rates in other countries Expenses not deductible for income tax purposes Deferred income tax adjustment due to rate change Utilisation of income tax losses against normal and deferred income tax provision Adjustments to prior year's normal income tax provision Adjustments to prior year's tax base of assets and provisions Income not subject to tax Withholding tax Secondary tax on companies
139 548
233 928
91 175
104 773
(917) 1 042 – –
– – 883 –
– – 366 –
–
(2 670)
–
–
343
(1 450)
–
(1)
Income tax charge per income statement
164 159
24. INCOME TAX EXPENSE Current income tax Deferred income tax Income tax – prior year Deferred income tax – prior year Withholding tax Deferred income tax adjustment due to rate change Tax on dividends/Secondary tax on companies Secondary tax on companies deferred reversed/(raised)
The tax on the group's profit before tax differs from the theoretical amount that would arise using the basic income tax rate of South Africa: Profit before tax
(113) 2 075 5 024 (8 471)
(1 245) (3 683) 167 30 514
(623) (611) 1 823 30 567 261 089
– (92 058) – 27 984
– (105 126) – 27 058
27 984
27 070
Astral Foods Annual Report 2008
Further information about deferred income tax is presented in note 13.
73
NOTES TO THE ANNUAL FINANCIAL STATEMENTS
(continued)
for the year ended 30 September 2008
GROUP 2008 number of shares
2007 number of shares
Weighted average number of ordinary shares in issue during the year for calculating earnings per share Adjustments for share options
38 134 718 22 647
38 789 127 36 014
Weighted average number of ordinary shares for calculating diluted earnings per share
38 157 365
38 825 141
R'000
R'000
327 261
537 858
858 858
1 387 1 385
Net profit attributable to shareholders Adjusted for: Profit on sale of property, plant and equipment Impairment of assets Investment previously written off now reversed Excess of the fair value of interest acquired in a subsidiary over cost of investment
327 261
537 858
–
(1 120)
Headline earnings
320 385
535 521
840 840
1 381 1 379
COMPANY 2008 2007 number number of shares of shares
25. EARNINGS PER SHARE
Profit attributable to equity holders of the company used for calculating earnings per share and diluted earnings per share Basic earnings per ordinary share (cents) Diluted earnings per share (cents) Basic earnings per share Basic earnings per share is calculated by dividing the profit attributable to equity holders of the company by the weighted average number of ordinary shares during the year, reduced by ordinary shares purchased and held as treasury shares. Diluted earnings per share Diluted earnings per share is calculated by adjusting the weighted average number of ordinary shares outstanding to assume conversion of all dilutive potential ordinary shares from the exercise of share options. A calculation is done to determine the number of shares that could have been acquired at fair value (determined as the average annual market share price of the company's shares) based on the monetary value of the subscription rights attached to the outstanding share options. The number of shares calculated is compared with the number of shares that would have been issued assuming the exercise of the share options. No adjustment is made where the issue of share options has no dilutive effect on the number of shares in issue.
Astral Foods Annual Report 2008
26. HEADLINE EARNINGS
74
Headline earnings per share (cents) Diluted headline earnings per share (cents)
(7 371) 495 –
(503) – (714)
R'000
R'000
GROUP
COMPANY 2008 2007 R’000 R’000
2008 R’000
2007 R’000
98 924
100 778
167 410
169 223
266 334
270 001
7 201
32 104
–
–
13 184 675 238 160 094
2 873 737 651 106 894
42 657 – –
– 23 –
855 717
879 522
42 657
23
927 493 – 956 322 265 24 362
754 251 – 789 256 935 8 708
272 123 300 956 20 749 –
285 33 137 789 6 160 –
1 275 076
1 020 683
145 277
40 371
27. DIVIDENDS The following dividends were declared in respect of the current year's profits: Interim dividend (Dividend no 15) declared on 19 May 2008 in respect of the year ended 30 September 2008 of 260 cents per share (2007: 260 cents per share) – net of treasury shares Final dividend (Dividend no 16) declared on 13 November 2008 in respect of the year ended 30 September 2008 of 440 cents per share (2007: 440 cents per share) – net of treasury shares
The current financial statements do not include the final dividend. The dividends exclude any tax or withholding tax on dividends.
28.1 Financial instruments by category The financial instruments are classified as follows: Financial assets Assets at fair value through profit and loss Derivatives Loans and receivables Loans Trade and other receivables Cash and cash equivalents
Financial liabilities Other Accounts payable Loans from subsidiary Shareholders for dividend Bank overdrafts Borrowings
All financial instruments are initially recognised at fair value, and subsequently measured as follows: – Assets at fair value through profit and loss, at fair value – Loans and receivables at amortised costs – Other financial liabilities at amortised costs At 30 September 2008 the carrying amounts of loans and receivables and financial liabilities approximated their fair values due to the short-term maturities of these financial instruments.
Astral Foods Annual Report 2008
28. FINANCIAL INSTRUMENTS
75
NOTES TO THE ANNUAL FINANCIAL STATEMENTS
(continued)
for the year ended 30 September 2008
28. FINANCIAL INSTRUMENTS (continued) 28.2 Financial risk management The group is exposed to the following major financial risks: (A) Market risk Market risk is the risk that changes in market prices, such as interest rates and foreign exchange rates, will have on the value of financial instruments at year end and the resulting effect on the group's income. (i)
Interest rate risk The group's risk is limited to surplus funds on cash deposits, loan liabilities and funds borrowed on bank overdrafts. Interest is at variable rates which are linked to the bank prime lending rate. Cash flow exposure from interest rate fluctuations is hedged by entering into interest swap agreements when management regards it prudent. The group's main income and operating cash flows are substantially independent of changes in the market interest rates. Based on the financial instruments as at 30 September, the after tax effect of a 1% movement in the interest rates on the income statement and equity will be R1 572 000 (2007: R1 143 000).
(ii)
Foreign currency risk The group enters from time to time into transactions in currencies which are different from the functional currencies in which it conducts its business activities, and is as result exposed to foreign exchange rate fluctuations. Exposure to exchange rate fluctuations is managed by utilising forward exchange contracts and currency option contracts when management regards it prudent. Forward exchange contracts entered into are related to specific balance sheet items. The following rand value items reported in the financial statements are exposed to foreign exchange rate fluctuations at 30 September: Group 2008 Financial assets Financial liabilities
2007 Financial assets Financial liabilities
British Pound R'000
Euro R'000
US Dollar R'000
Total R'000
– (2 945)
938 (2 979)
18 914 (35 766)
19 852 (41 690)
(2 945)
(2 041)
(16 852)
(21 838)
– (746)
– (3 746)
22 249 (12 796)
22 249 (17 288)
(746)
(3 746)
9 453
4 961
A 10% movement in the ZAR against the relevant foreign currencies will result in a R1 572 000 after tax effect in the profits of the group (2007: R357 000). A weakening of the ZAR will result in lower profits and a corresponding reduction in net asset value in the event of net foreign exposed liabilities. Foreign exchange contracts at 30 September 2008 (2007: nil): Group
Astral Foods Annual Report 2008
Contract value – R'000 Fair value – R'000 Foreign currency value – '000 Average exchange rates Maturity
76
Currency option contracts at 30 September 2008 (2007: nil): Group Fair value – R'000 Foreign currency value–USD "000
Euro
US Dollar
1 769 1 859 151 R11,64 2 months
2 378 2 477 308 R7,71 2 months US Dollar 6 757 800
A 10% movement in the yield against the foreign currency will result in a R487 000 after tax effect in the profits of the group (2007: nil). A weakening of the yield will result in increased profits and a corresponding increase in the net asset value. The company had no exposure to foreign currency risk for both the current and previous year.
28. FINANCIAL INSTRUMENTS (continued) 28.2 Financial risk management (continued) (A) Market risk (continued) (iii) Commodity price risk The prices of commodities used by the group can fluctuate widely and in a competitive market it is not always possible to recover material commodity price increases from broiler customers. This can impact on the group's profitability. The group may suffer financial loss when a fluctuating price contract obligation is entered into and the commodity prices increase or when a fixed price agreement is entered into and commodity prices fall. Commodity price fluctuations are normally caused by factors such as supply conditions, weather, exchange rate fluctuations and other economic conditions. These risks are managed through an established process whereby the various conditions which influenced commodity prices are monitored on a daily basis. Decisions on the procurement of raw materials as well as the utilisation of derivative instruments to hedge against these risks are taken by executive management within board approved mandates given. Detailed statements of raw material contracts and hedging positions are prepared and submitted on a monthly basis to the chief executive officer. (B) Credit risk Credit risk is the risk of financial loss to the group if a counterparty to a financial instrument fails to meet its contractual obligations. Credit risk for the group arises on cash and cash equivalents, derivatives and trade receivables. Credit risk is managed on a group basis. Dealings with counterparties arising from money market and derivative instruments are limited to wellestablished financial institutions of high credit standing. The group's main credit risk is concentrated in the aggregate balance of trade receivables on balance sheet date. Exposure to trade receivables comprises a large, widespread customer base. These risks are controlled by the application of credit limits and credit controlling procedures. The largest single credit risk amounts to R137 million. The group does not consider there to be any significant concentration of credit risk that has not been adequately provided for at 30 September 2008. Details of the carrying amounts of trade receivables, impairments recognised as well as collateral security held, are contained in note 8. (C) Liquidity risk Liquidity risk is the risk that the group will not be able to meet its financial obligations as they fall due. The group's liquidity risk consists mainly of the amounts borrowed on long term to fund specific capital expenditure items, trade payables and amounts borrowed on general bank facilities. The expected cash flow is well within the confirmed facilities available to the group. The details of borrowings and undrawn facilities are disclosed in note 12. In terms of the articles of association, the group's borrowing powers are unlimited.
Astral Foods Annual Report 2008
The liquidity risk is managed through the management of working capital, by monitoring the daily borrowing levels and by conducting cash flow forecasts at regular intervals, in order to maintain sufficient funds to fund the business activities from cash generated by operations and funds available from committed credit facilities.
77
NOTES TO THE ANNUAL FINANCIAL STATEMENTS
(continued)
for the year ended 30 September 2008
28. FINANCIAL INSTRUMENTS (continued) 28.2 Financial risk management (continued) (C) Liquidity risk (continued) The maturity profile of the financial liabilities is analysed below: The amounts disclosed are undiscounted cashflows. Within Between 1 year 1 and 5 years R'000 R'000 Group 2008 Borrowings Trade and other payables Shareholders for dividend Bank*
2007 Borrowings Trade and other payables Shareholders for dividend Bank*
Company 2008 Trade and other payables Loans from subsidiary Shareholders for dividend Bank*
2007 Trade and other payables Loans from subsidiary Shareholders for dividend Bank*
More than 5 years R'000
Total R'000
5 914 927 493 – 322 265
16 312 – 956 –
10 252 – – –
32 478 927 493 956 322 265
1 255 672
17 268
10 252
1 283 192
3 109 754 251 – 256 935
9 417 – 789 –
– – – –
12 526 754 251 789 256 935
1 014 295
10 206
–
1 024 501
272 123 300 – 20 749
– – 956 –
– – – –
272 123 300 956 20 749
144 321
956
–
145 277
285 33 137 – 6 160
– – 789 –
– – – –
285 33 137 789 6 160
39 582
789
–
40 371
* Bank facilities are reviewed on an annual basis. The company intends to finance its financial liabilities with dividend income. 28.3 Capital risk management The group manages its capital to maintain a sound net debt position and to provide adequate return on capital employed. This is taken into account in deciding on the dividends to be paid to shareholders as well as to the extent capital is returned to shareholders by way of share repurchases. The group continuously monitors its net debt to equity ratio. Net debt is calculated as total debt less cash and cash equivalents. Equity comprises all components of equity as disclosed in the balance sheet. The net debt to equity ratio as at 30 September was as follows: GROUP
Astral Foods Annual Report 2008
2008 R'000
78
Total debt Less: Cash and cash equivalents
346 627 (160 094)
265 643 (106 894)
186 533
158 749
1 328 150
1 307 513
Net debt Total equity
2007 R'000
Net debt to equity ratio (%) The company manages its capital structure with dividend income from subsidiaries.
14,0%
12,1%
Group 2008 R'000
2007 R'000
7 057 58 668
10 996 43 204
8 690 7 183
3 529 2 090
29. RELATED PARTY TRANSACTIONS The group entered into transactions and has balances with related parties as listed below. These include joint ventures, entities under common control and directors. Transactions that are eliminated on consolidation are not included. Transactions with related parties are effected at arm's length. Sales of goods and services Sales to joint ventures Purchases from joint ventures Outstanding balances at year end: Receivables from joint ventures Trade payables to joint ventures
Directors' remuneration Details of directors' remuneration are given on page 36. Executive directors are eligible for an annual performance related bonus payment linked to appropriate group targets. The structure and payments of bonuses is decided by the human resources and remuneration committee. Details of share options granted to directors are given in the directors' remuneration report. Key management Employees fulfilling the role of key management are all appointed to the board of directors. Principal joint ventures and subsidiary undertakings Details of joint ventures and subsidiaries are set out in notes 30 and 31 to the financial statements.
Astral Foods Annual Report 2008
Cross guarantees Cross deed of suretyship in respect of borrowings has been given by Astral Foods Limited, Astral Operations Limited, County Fair Foods (Pty) Limited, Ross Poultry Breeders (Pty) Limited, National Veterinary Supplies (Pty) Limited, Meadow Feeds (Eastern Cape) (Pty) Limited and Central Analytical Laboratories (Pty) Limited in respect of borrowings.
79
NOTES TO THE ANNUAL FINANCIAL STATEMENTS
(continued)
for the year ended 30 September 2008
Group 2008 %
2007 %
50 33 50
50 33 –
R'000
R'000
42 536 75 224
17 014 41 834
117 760
58 848
Non-current liabilities
13 392
515
Interest bearing Non-interest bearing
13 392 –
302 213
Current liabilities
50 412
27 892
Interest bearing Non-interest bearing
3 655 46 757
2 970 24 922
2 293
882
Total liabilities
66 097
29 289
Net assets
51 663
29 559
189 503
118 812
30. INTEREST IN JOINT VENTURES The principal joint ventures of the group are: NuTec Southern Africa (Pty) Limited Meaders Feeds Limited (Mauritius) East Balt South Africa partnership The following amounts represent the group's share of assets and liabilities, revenue and expenses and cash flows of the joint ventures, and are included in the consolidated financial statements:
Assets and liabilities Non-current assets Current assets Total assets
Deferred income tax liability
Revenue and expenses Revenue Profit before tax Income taxes
20 216 (6 349)
14 762 (4 763)
Profit after tax
13 867
9 999
Cash flows Cash flow from operating activities Profit distribution/dividend paid Investing cash flows Financing cash flows
Astral Foods Annual Report 2008
Net cash flows
80
g d h
Capital commitments Capital expenditure approved not contracted Capital expenditure contracted but not recognised in the financial statements
9 (10 (4 4
761 273) 391) 186
12 042 (6 658) (944) (101)
(717)
4 339
28 000 750
– –
31. INTEREST IN SUBSIDIARY COMPANIES Details of the principal subsidiary companies of Astral Foods Limited are as follows: Issued ordinary capital 2008 2007 R'000 R'000 Unlisted investments Directly held: Astral Operations Limited National Chicks Limited County Fair Holdings (Pty) Limited Africa Feeds Limited (Zambia)^
Company's interest
Effective percentage holding 2008 2007 % %
Equity 2008 2007 R'000 R'000
Loans to/(from) 2008 2007 R'000 R'000
a b
12 23 720
12 23 720
100 100
100 100
158 003 63 993
153 183 63 993
c
–
20
–
100
–
29
–
–
d
24
24
100
100
125
13
–
–
222 121
217 218
Indirectly held: Meadow Feeds (Eastern Cape) (Pty) Limited d Meadow Moçambique Limitada* d Ross Poultry Breeders (Pty) Limited e Elite Breeding Farms e National Chicks Swaziland (Pty) Limited# f
–
–
100
100
8
8
80
80
1 –
1 –
90 82
90 82
1
1
67
67
(123 300) 42 657
(33 137) –
The directors' valuation of the investments in subsidiary companies is not less than their respective carrying values. ^ Incorporated in Zambia.
* Incorporated in Mozambique
# Incorporated in Swaziland
Nature of business
Animal feed and pre-mix production, broiler operations , production and sale of day-old broilers and hatching eggs, retailer of animal health products and analytical services
b c d e
Investment holding Dormant Animal feed production Broiler genetics and broiler breeding production
f
Production and sale of day-old broilers and hatching eggs g Animal feed pre-mixes h Manufacturer of baking products
Astral Foods Annual Report 2008
a
81
NOTES TO THE ANNUAL FINANCIAL STATEMENTS
(continued)
for the year ended 30 September 2008
GROUP 2008 R’000
2007 R’000
32. BUSINESS COMBINATION The group entered into an agreement during the year to acquire a 50% interest in East Balt South Africa partnership. The business of East Balt South Africa consists of manufacturing baking products, primarily for sale to fast food outlets. Payment of the purchase consideration was made at the beginning of July 2008, following approval from the competition authorities in terms of the Competition Act. The group assumed joint control of East Balt South Africa from 1 July 2008 and was proportionately consolidated from that date onwards, contributing the following to the group's results: (Comparative figures are in respect of the acquisition of Meadow Mozambique Limitada during the prior year.) Revenue Operating profit If the acquisition had occurred on 1 October 2007, the contribution to the group's results would have been as follows:
18 515 734
4 472 1 334
Revenue Operating profit
65 828 5 023
26 509 4 990
33 430 75 (32 251)
4 461 57 (5 638)
1 254
(1 120)
Detail of net assets acquired and the cost of the investment is as follows: Purchase consideration including acquiring of loan accounts Direct costs relating to the acquisition Fair value of interest acquired Goodwill/(excess fair value over cost of investment)
Refer to the note E of the cash flow statement for detail of the assets and liabilities acquired.
Astral Foods Annual Report 2008
The carrying amounts of the assets and liabilities acquired, determined in accordance with IFRS, equals the fair value of the interest acquired.
82
ANALYSIS OF ORDINARY SHAREHOLDERS at 30 September 2008
SHAREHOLDER SPREAD
1– 1 000 shares 1 001 – 10 000 shares 10 001 – 100 000 shares 100 001 – 1 000 000 shares 1 000 001 shares and over
Number of shareholders
%
3 478 1 047 230 69 5
72,02 21,68 4,76 1,43 0,11
4 829
Number of shares 1 3 8 16 12
203 132 031 936 832
%
791 550 115 704 125
2,86 7,43 19,06 40,20 30,45
100,00
42 136 285
100,00
Number of shareholders
%
Number of shares
%
77 64 38 3 363 42 17 8 132 744 52 128 151 12 1
1,59 1,32 0,79 69,64 0,87 0,35 0,17 2,73 15,41 1,08 2,65 3,13 0,25 0,02
4 829
DISTRIBUTION OF SHAREHOLDERS
Banks Close corporations Endowment funds Individuals Insurance companies Investment companies Medical aid schemes Mutual funds Nominees and trusts Other corporations Pension funds Private companies Public companies Share trusts
3 169 83 280 3 548 5 789 5 167 194 11 527 1 586 277 5 279 918 4 141 171
149 885 410 895 863 456 160 594 962 256 773 115 455 312
7,52 0,20 0,66 8,42 13,74 12,26 0,46 27,36 3,77 0,66 12,53 2,18 9,83 0,41
100,00
42 136 285
100,00
Number of shareholders
%
Number of shares
%
Non-public shareholders
8
0,17
4 449 182
10,60
Directors and associates of the company holdings Own holdings Share incentive schemes
6 1 1
0,13 0,02 0,02
189 293 4 088 577 171 312
0,45 9,70 0,41
4 821
99,83
37 687 103
89,40
4 829
100,00
42 136 285
100,00
Number of shares
%
Public shareholders
BENEFICIAL SHAREHOLDERS HOLDING 3% OR MORE
Astral Operations Limited Old Mutual Life Assurance Company SA Public Investment Corporation Nedgroup Investment Rainmaker Fund
4 3 2 1
088 305 946 346
577 159 229 828
9,70 7,84 6,99 3,20
Astral Foods Annual Report 2008
PUBLIC/NON-PUBLIC SHAREHOLDERS
83
NOTICE OF ANNUAL GENERAL MEETING
EIGHTH ANNUAL GENERAL MEETING Notice is hereby given that the eighth annual general meeting of members of Astral Foods Limited will be held in the Boardroom, Block 9, Boardwalk Office Park, 107 Haymeadow Crescent, Faerie Glen, Pretoria on Thursday, 12 February 2009 at 08:00, to transact the following business:
ORDINARY BUSINESS: CONSIDERATION OF ANNUAL FINANCIAL STATEMENTS Ordinary resolution no. 1 To present the annual financial statements for the company and the group for the year ended 30 September 2008, together with the directors’ and auditors’ reports.
RE-ELECTION OF DIRECTORS Ordinary resolution no. 2 To note that in terms of article 14 of the company’s articles of association, Ms. TCC Mampane, Dr. T Eloff and Mr. NC Wentzel retire by rotation at this annual general meeting but, being eligible, have offered themselves for re-election. It is proposed that any vacancies that occur as a result of the above directors not being available for re-election, will not be filled at the meeting and the normal nomination and selection processes as laid down by the company’s nominations committee will be followed for the appointment of new directors. Brief particulars of the qualifications and experience of the above are available on pages 7, 8 and 9 of this report.
NON-EXECUTIVE DIRECTORS’ FEES Ordinary resolution no. 3 To approve that in terms of article 13.5 of the company’s articles of association, with effect from 1 October 2008, the remuneration of the directors who hold office from time to time (other than those in the employ of the company) be determined as follows:
Chairman of the board Member of the board Chairman of the audit and risk management committee Member of the audit and risk management committee Chairman of the human resources and remuneration committee Member of the human resources and remuneration committee
Fixed fee per annum 2009 R’000
Fixed fee per annum 2008 R’000
324 162 119 65 119 65
300 150 110 60 110 60
The remuneration will be paid quarterly in arrears. Ordinary resolution no. 4 To re-appoint PricewaterhouseCoopers as auditors of the company (with IS Buys as the individual designated auditor) for the 2009 financial year.
SPECIAL BUSINESS: To consider and, if deemed fit, to pass, with or without modification, the following resolutions in the manner required by the Companies Act 61 of 1973, as amended (the Act) and subject to the Listing Requirements of the JSE Limited (JSE):
Astral Foods Annual Report 2008
AMENDMENT OF ARTICLES OF ASSOCIATION
84
Special resolution no. 1 “Resolved that the company’s articles of association be and are hereby amended by deleting the existing article 14.2 in its entirety and replacing it with the following new article 14.2: An annual general meeting or other general meeting of the company may fill any vacancy and a retiring director shall be eligible for re-election. If at any meeting at which an election of directors ought to take place the offices of the retiring directors are not filled, unless it is expressly resolved not to fill such vacancies, the meeting shall stand adjourned and the provisions of Article 10.3 and 10.5 shall apply mutatis mutandis to such adjournment, and if at such adjourned meeting the vacancies are not filled, the retiring directors or such of them as have not had their offices filled shall be deemed to have been re-elected at such adjourned meeting unless a resolution for the re-election of any such director shall have been put to the meeting and rejected.”
AMENDMENT OF ARTICLES OF ASSOCIATION (continued) The reason and effect of the amendment to the company’s articles of association is to bring the wording of the article in line with the wording contained in Schedule 1, Table A of the Companies Act, 1973, as amended.
GENERAL AUTHORITY TO REPURCHASE SHARES Special resolution no. 2 “Resolved that the company may, as a general approval in terms of section 85(2) of the Act, acquire from time to time, such of its securities at such price or prices and on such other terms and conditions as the directors may from time to time determine, but subject to the following requirements from time to time of the JSE: ! The repurchase of securities shall 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; ! The repurchase of securities is authorised by the company’s articles of association; ! The authority shall be valid only until the next annual general meeting of the company or for 15 months from the date on which this special resolution is passed, whichever is the shorter; ! Repurchases may not be made at a price more than 10% above the weighted average of the market value for the securities for the five business days immediately preceding the date on which the transaction is effected; ! At any one point in time, the company may only appoint one agent to effect any repurchase(s) on the company’s behalf; ! The company may only undertake a repurchase of the securities if, after such repurchase, it still complies with the Listings Requirements of the JSE concerning shareholder spread requirements; and ! The company or its subsidiaries may not repurchase the company’s shares during a prohibited period, as defined in the Listings Requirements of the JSE.” The reasons and effect of special resolution number 2 is to generally approve, in terms of section 85(2) of the Act, the acquisition by the company of securities issued by it, subject to the Listings Requirements of the JSE. The directors intend to utilise this authority at such time or times, in respect of such number of securities, at such price and on such terms as they may consider appropriate in the circumstances from time to time, provided that any repurchase of securities should not, in the aggregate, in this financial year, exceed 10% of the company’s issued securities of the class concerned. Accordingly the method by which the company intends to acquire its securities, the maximum number of securities which will be acquired and the price(s) and date(s) at which the acquisition(s) is (are) to take place are not presently known. In considering whether or not to act in terms of this general authority, the directors will ensure, for a period of 12 months after the date of the notice of the general meeting, that: ! The company and its subsidiaries (the group) will be able, in the ordinary course of business, to pay its debts; ! The assets of the company and the group will be in excess of the liabilities of the company and the group. For this purpose, the assets and liabilities will be recognised and measured in accordance with the accounting policies used in the latest audited annual group financial statements; ! The company and the group will have adequate capital and reserves; and
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, the company will publish an announcement giving details thereof in accordance with Rule 11.27 of the Listings Requirements of the JSE. The company undertakes that it will not enter the market to repurchase the company’s securities in terms of this general authority until such time as the company’s sponsor has provided written confirmation to the JSE regarding the adequacy of the company’s working capital in accordance with Schedule 25 of the Listings Requirements of the JSE.
Astral Foods Annual Report 2008
! The working capital of the company and the group will be adequate for ordinary business purposes.
85
NOTICE OF ANNUAL GENERAL MEETING
(continued)
GENERAL AUTHORITY TO REPURCHASE SHARES (continued) Directors’ responsibility statement The directors collectively and individually accept full responsibility for the accuracy of the information given in the financial statements and certify that to the best of their knowledge and belief there are no facts that have been omitted which would make the statement false or misleading. Material change There has been no material change in the financial or trading position of the company and its subsidiaries since the date of publication of the company’s annual results on 14 November 2008. Litigation The company and its subsidiaries are not, and have not in the twelve months preceding the date of this notice of annual general meeting been involved in any legal or arbitration proceedings which may have or have had a material effect on the financial position of the company and its subsidiaries, but have noted the following contingent liabilities: – A complaint was lodged against Astral Operations Limited and Elite Breeding Farms at the Competition Commission regarding anti-competitive behaviour relating to an existing supply agreement of parent stock. The Competition Commission referred the matter to the Competition Tribunal for determination. The group will oppose a claim and it is not anticipated that any material liabilities will arise from a claim. – Profile Feeds (Pty) Limited and Paarl Poultry Farms (Pty) Limited instituted claims against Astral Operations Limited on the basis of a purported cancellation of a long-term feed supply agreement in the sum of R42 million, alternatively R21 million, alternatively R3,7 million. The prospects for success of these claims are regarded as being remote and any possible financial loss has been estimated and provided for in the financial statements. The general information regarding the company, referred to Paragraph 11.26(b) of the Listings Requirements of the JSE, is contained elsewhere in this annual report as follows: Directors of the company and of material subsidiaries, on pages 7, 8, 9 and 88. Major shareholders, on page 83. Material changes since year end, on page 35. Directors’ interest in the company’s shares, on page 38. Company’s share capital, on pages 63 and 64. Directors’ responsibility statement, on page 30. Litigation, on page 35.
VOTING AND PROXIES On a show of hands a member of the company present in person or by proxy shall have only 1 (one) vote irrespective of the number of shares he holds or represents, provided that a proxy shall irrespective of the number of members he represents have only 1 (one) vote. On a poll a member who is present in person or represented by proxy shall be entitled to that proportion of the total votes in the company which the aggregate amount of the nominal value of the shares held by him bears to the aggregate amount of the nominal value of all the shares issued by the company. A member entitled to attend, speak and vote at the annual general meeting is entitled to appoint a proxy or proxies to attend, speak and vote in place of that member. A proxy need not be a member of the company. Registered holders of certificated Astral shares and holders of dematerialised Astral shares in their own name and who are unable to attend the annual general meeting and who wish to be represented at the meeting, must complete and return the attached form of proxy in accordance with the instructions contained in the form of proxy, so as to be received by the share registrars, Computershare Investor Services (Pty) Limited, 70 Marshall Street, Johannesburg, 2001 (PO Box 61051, Marshalltown, 2107) by no later than 08:00 on Wednesday, 11 February 2009.
Astral Foods Annual Report 2008
Holders of Astral shares (whether certificated or dematerialised) through a nominee should timeously make the necessary arrangements with that nominee or, if applicable, Central Securities Depository Participant (CSDP) or broker to enable them to attend and vote at the annual general meeting or to enable their votes in respect of their Astral shares to be cast at the annual general meeting by that nominee or a proxy or a representative.
86
By order of the board
MA Eloff Company Secretary Pretoria 13 November 2008
SHAREHOLDERS’ DIARY
Financial year end Annual general meeting
30 September 2008 12 February 2009
REPORTS AND ACCOUNTS Interim report for the six months ending 31 March 2009 Announcement of annual results for the year ending 30 September 2009 Annual report
May 2009 November 2009 December 2009
DIVIDENDS Interim dividend – March 2009 Declaration Payment
May 2009 June 2009
Final dividend – September 2009 November 2009 January 2010
Astral Foods Annual Report 2008
Declaration Payment
87
ADMINISTRATION ASTRAL FOODS LIMITED
MAJOR SUBSIDIARIES AND JOINT VENTURES
Registration No. 1978/003194/06 Share code: ARL ISIN number ZAE000029757
Astral Operations Limited Registration No. 1947/027453/06 Directors: NC Wentzel LW Hansen CE Schutte
REGISTERED OFFICE Block 9 Boardwalk Office Park,107 Haymeadow Crescent Faerie Glen Pretoria, 0043
POSTAL ADDRESS Postnet Suite 329 Private Bag X10 Elarduspark, 0047 Telephone (012) 990 8260 Telefax (012) 991 2381 e-mail:
[email protected]
WEBSITE ADDRESS http/www.astralfoods.com
AUDITORS PricewaterhouseCoopers Inc.
PRINCIPAL BANKER
Animal Feeds Limited (Zambia) Registration No. 36327 Directors: CE Schutte NR Mwanyungwi* DAR Phiri* CL Sexton RJ Steenkamp *Zambian Meadow Feeds (Eastern Cape) (Pty) Limited Registration No. 2003/021458/07 Directors: NC Wentzel LW Hansen CE Schutte Ross Poultry Breeders (Pty) Limited Registration No. 1999/027125/07 Directors: NC Wentzel TA Exley* CP Lea* *British
Nedcor Bank Limited
SPONSOR JPMorgan Equities Limited (Johannesburg Branch) 1 Fricker Road, Cnr. Hurlingham Road Illovo, Johannesburg, 2196 Private Bag X9936, Sandton, 2146 Telephone (011) 507 0430
TRANSFER SECRETARIES Computershare Investor Services (Pty) Limited 70 Marshall Street Johannesburg, 2001 PO Box 61051, Marshalltown, 2107
COMPANY SECRETARY MA Eloff
Astral Foods Annual Report 2008
MANAGEMENT
88
Corporate Office S Burger M Eloff D Ferreira L Hansen O Lukhele E Potgieter
Group credit manager Group company secretary Group financial manager Group human resources manager Group technical manager – veterinary services Group internal auditor
NuTec Southern Africa (Pty) Limited Registration No. 1996/002008/07 Directors: NC Wentzel R Raterink# #Dutch Meadow Moçambique Limitada Registration No. 5710/MP/G/2001 Directors: CE Schutte JR Tinga* RJ Steenkamp CL Sexton S Jager *Mozambican National Chicks Swaziland Registration No. 94/63894/07 Directors: R Packard* *Swazilander Meaders Feeds Limited Registration No. 10746 Directors: JHM De Marasse Enouf* RJB Montocchio* JB Wiehe* NC Wentzel JH Hong* *Mauritian
FORM OF PROXY
ASTRAL FOODS LIMITED (Incorporated in the Republic of South Africa) (Registration Number 1978/003194/06) (Share code: ARL) (ISIN code: ZAE000029757) Form of proxy for the use of shareholders, registered as such and who have not dematerialised their shares or hold own name dematerialised shares, at the eighth annual general meeting of the company to be held at Block 9, Boardwalk Office Park, 107 Haymeadow Crescent, Faerie Glen, Pretoria on Thursday, 12 February 2009 at 08:00 Shareholders who have dematerialised their shares must inform their CSDP or broker of their intention to attend the annual general meeting and request their CSDP or broker to issue them with the necessary authorisation to attend or provide their CSDP or broker with their voting instructions should they not wish to attend the annual general meeting in person. Such shareholders must not return this form of proxy to the transfer secretaries. I/We of (address) being the holder(s) of
shares in the company, do hereby appoint (see note 1) or failing him/her or failing him/her
the chairman of the meeting, as my/our proxy to vote for me/us on my/our behalf at the eighth annual general meeting of the company to be held on 12 February 2009 and at any adjournment thereof. Signed this
day of
2008/9
Signature (*indicate instructions to proxy by way of a cross in the space provided below) Unless otherwise instructed, my/our proxy may vote as he/she thinks fit or abstain from voting. *In favour
*Against
*Abstain
ORDINARY BUSINESS 1.
To adopt the annual financial statements for the year ended 30 September 2008
2.
(a) To re-elect Ms. TCC Mampane as a director (b) To re-elect Dr. T Eloff as a director
3.
To approve the remuneration of the non-executive directors
4.
To approve the re-appointment of PricewaterhouseCoopers as auditors for the 2009 financial year
SPECIAL BUSINESS 5.
Special resolution no. 1 To approve the amendment to the articles of association
6.
Special resolution no. 2 To approve the acquisition of shares issued by the company
Please refer to the notes on the reverse side of this form.
Astral Foods Annual Report 2008
(c) To re-elect Mr. NC Wentzel as a director
NOTES TO FORM OF PROXY A shareholder may insert the name or the names of two alternative proxies of his/her choice in the space provided, with or without deleting “the chairman of the meeting”. The person whose name stands first on the form of proxy and who is present at the annual general meeting will be entitled to act as proxy to the exclusion of those whose names follow. Any such proxy, who need not be a shareholder of the company, is entitled to attend, speak and vote on behalf of the shareholder. A proxy is entitled to one vote on a show of hands and, on a poll, one vote for each share held. A shareholder’s instructions to the proxy must be indicated in the appropriate spaces. If a shareholder does not indicate on this instrument that the proxy is to vote in favour of or against any resolution or to abstain from voting or gives contradictory instructions, or should any further resolution/s or any amendment/s which may be properly put before the annual general meeting be proposed, the proxy shall be entitled to vote as he thinks fit. This form of proxy must be received by the transfer secretaries, Computershare Investor Services (Pty) Limited, Ground Floor, 70 Marshall Street, Johannesburg, 2001 (PO Box 61051, Marshalltown, 2107) by no later than 08:00 on Wednesday, 11 February 2009. Documentary evidence establishing the authority of the person signing the proxy in a representative capacity must be attached hereto unless previously recorded by the company’s transfer secretaries. The completion and lodging of this form of proxy will not preclude a shareholder from attending the annual general meeting and speaking and voting in person thereat to the exclusion of any proxy appointed in terms of this proxy form. Any alteration or correction made to this form of proxy must be initialled by the signatory/ies. The chairman of the meeting may accept or reject any form of proxy, which is completed and/or received other than in accordance with these notes.
Astral Foods Annual Report 2008
Shareholders who have dematerialised their shares must inform their CSDP or broker of their intention to attend the annual general meeting and request their CSDP or broker to issue them with the necessary authorisation to attend the annual general meeting or provide their CSDP or broker with their voting instructions should they not wish to attend the annual general meeting in person but wish to be represented thereat. This must be done by the cut-off time as requested by the CSDP or broker.
Astral Foods Annual Report 2008
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