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Integrated Annual Report 2010

Growth the natural outcome

Financial highlights

Large maize crop contributes to improved results from AFGRI’s grain storage business

16% improvement in AFGRI Foods’ results following 2009 expansion

6%increase in headline earnings per share

AFGRI Financial Services returns to profitability

32% improvementin Group profit

Non-core assets disposed of and further investment in foods sector

R690 millionNet cash at 30 June 2010

Contents

IFC 2010 highlightsIFC AFGRI visionIFC About AFGRI’s integrated annual report

2 Group structure4 Contribution by segment5 Value added statement6 Five-year financial performance7 Key performance indicators8 Material issues summary

12 Group directorate

16 Chairman’s report22 Chief executive officer’s report30 Review of operations

30 AFGRI Financial Services34 AFGRI Agri-Services37 AFGRI Foods40 AFGRI Corporate and discontinued operations

42 Chief financial officers report48 Corporate responsibility60 Awards in 2010

62 Corporate governance70 Remuneration report73 Shareholder’s analysis74 GRI Index78 Audit and Risk Management Committee report

82 Directors’ responsibility for, and approval of, the annual

financial statements82 Certificate by Company Secretary83 Independent auditors’ report84 Directors’ report87 Accounting policies

108 Group balance sheet109 Group income statement110 Group statement of comprehensive income110 Group statement of changes in equity111 Group cash flow statement113 Business segment results118 Notes to the Group annual financial statements158 Appendix A159 Appendix B160 Appendix C160 Appendix D161 Separate Company annual financial statements168 Notice of annual general meeting175 Form of proxyIBC Administration

Group overview

2010 overview

Financial statements

Corporate governance

www.afgri.co.za

“Man, despite his artistic pretensions, his sophistication and many accomplishments, owes the fact of his existence to a six-inch layer of topsoil and the fact that it rains.”

– Anonymous –

About AFGRI’s integrated annual reportThe King Report on Governance for South Africa, 2009 (King III), introduces the concept of integrated reporting and disclosure demanded by the transparency and accountability principles of corporate governance. The principles supporting the ninth and final code of the King Committee’s report relating to integrated reporting and disclosure are:• that the Board should ensure the integrity of the

integrated report; • that sustainability reporting and disclosure are

integrated with a company’s financial reporting; and • that sustainability reporting and disclosure should be

independently assured.

In this, AFGRI’s first integrated report, the Board and management have sought to follow the principles provided for in King III wherever practical and feasible. Management have also adopted the Global Reporting Initiative (GRI) guidelines for the reporting of sustainability issues during the preparation of the integrated report.

Notwithstanding the progress made in many areas relating to the application of both King III and sustainability reporting practices, management acknowledges that this report and the supporting activities are the beginning of a continuous journey to ensure the sustainability of AFGRI through balancing long-term social, environmental and economic interests with the principle need to maximise the profits of the company, and acting as a responsible corporate citizen.

Our vision To be the leading food and agricultural company

in Africa.

Our mission Focusing on creating ONE AFGRI that supports

the food and agricultural value chain in which

our customers operate.

Our strategy Consolidate and grow our core competencies

in the food and agricultural sector

Focus on the food and agricultural value chain

Provide innovative products and services

to customers in the food and agricultural

value chain

Expand interest in the foods sector

Surpass shareholder expectations

Improve capital base through exiting under-

performing businesses and the disposal of

non-core assets.

1

AFGRI Limited Annual Report 2010

About AFGRI’s integrated annual report continued

Our valuesPassion

Teamwork

Innovation

Respect

Accountability

Integrity

Service excellence

Creating One AFGRI

The report addresses the need to look

beyond the interests of the Company

and shareholders, taking into account

the concerns and issues of its wider

stakeholder environment.

In particular we acknowledge that in terms of many environmental performance indicators and certain social performance indicators as identified by the GRI, AFGRI has historically ensured legal compliance rather than driving improvements in indicators or targeting ‘best practices’. During the coming year, the Group will identify appropriate performance indicators (applicable to either the Group or individual operations), establish a baseline position for these indicators and set targets for improvements on the baseline position. Therefore, as this report is not exhaustive with regard to sustainability issues or the appropriate performance indicators, we have chosen not to have its content independently assured. Reporting and management systems will continue to be developed in order to improve the application of the GRI principles in future periods.

Despite these shortcomings, the report addresses the need to look beyond the interests of the company and shareholders, taking into account the concerns and issues of its wider stakeholder environment, such as customers, suppliers, employees and broader society. Details of stakeholders, their identification and engagement can be found later in the report.

Eight strategic themes for the Group were identified. These strategic themes are ultimately governed by the Board although various subcommittees of the Board may be accountable for their management. Following the materiality principle of the GRI, these have been further subdivided into 30 issues that are deemed material to the business and its stakeholders. Where possible, GRI indicators relevant to these issues have been applied to measure the Group’s progress towards sustainability.

The King III Report came into effect in March 2010 and companies are required to comply by the end of the first financial year commencing thereafter. AFGRI has made considerable progress with regard to corporate governance over several years but there remains more to do. As such, the Group has not complied with the ‘apply or explain’ philosophy of King III in this report but will do so for the financial year ending 30 June 2011.

This report covers the South African operations of AFGRI Limited and its material subsidiaries, focusing on the business units that contribute most to the Group’s results and its investments in assets. The financial results of the Australian and Zambian subsidiaries are included in this report but comment on corporate responsibility matters is excluded as the impact that these subsidiaries’ have on social and environmental matters is considered immaterial. The governance and risk management practices discussed in this report are applied to foreign subsidiaries. The report covers the period of the financial year ended 30 June 2010. The activities of associate companies and joint ventures are similarly not considered sufficient to warrant inclusion in this report.

This integrated annual report is also available on the AFGRI website at www.afgri.co.za.For questions regarding this report, contact: Peter Harris – General Manager [email protected] 643 8284Niki van Wyk – Company [email protected] 643 8295

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Group structure

AFGRI FINANCIAL SERVICES AFGRI AGRI SERVICES

AFGRI CapitalThe largest business unit within AFGRI Capital is AFGRI Advances

which provides both producer and specialised lending within the

agricultural sector. In addition, the Group’s insurance brokerage

business is reported under the AFGRI Capital division. The division is

also responsible for conducting the Group’s treasury activities.

The business focuses on servicing the farmer through its producer

lending product line and the corporate sector through its specialised

lending business. Products are customised to agriculture in general

and often to meet the requirements of individual clients.

The insurance brokerage provides a diverse range of insurance

products, from crop insurance to life assurance, from homeowners’

to healthcare insurance products.

The above businesses are focused within South Africa’s main, high

producing grain growing regions of the Mpumalanga, North West,

Gauteng and Free State provinces.

As the provision of credit represents the most significant aspect of the

Group’s operations in Zambia, this subsidiary also reports into AFGRI

Capital. The Zambian subsidiary also supplies John Deere equipment

and services, handling and storage of grain and the procurement of

maize and wheat under mandate.

AFGRI BrokingAFGRI Broking provides a derivative broking service to clients based

on the mandated buying and selling of futures and options on the JSE

SAFEX exchange.

AFGRI FINANCIAL SERVICES

AFGRI Agri-Services is the composite of two further, identifiable segments

focused on the primary agricultural sector:

AFGRI RETAIL AND EQUIPMENT (formerly Producer Services) AFGRI RetailAFGRI Retail operates 35 branches branded ‘Town and Country’ and four Farm

City stores. Eleven dedicated John Deere workshop centres are strategically

distributed throughout AFGRI’s region. The entire retail network leverages off a

cost-effective import, wholesale and distribution operation centrally located in

Bethlehem.

The business unit provides an extensive range of farming requisites and home

and garden, DIY and outdoor products, including selected building materials.

The John Deere brand of agricultural mechanisation equipment and after sales

service is provided throughout the AFGRI region.

The Group’s Australian subsidiary, also a retailer of agricultural mechanisation

and vehicles, reports into this division.

Primary inputsPrimary inputs represents the direct delivery operation. Through a network of

agents and in conjunction with manufacturers and wholesalers of farming

requisites such as fertiliser, diesel, seed and chemicals direct on farm deliveries

are made.

Sales in both the Retail and Primary inputs business units are supported

through finance made available by AFGRI Advances.

AFGRI LOGISTICSLogisticsThe logistics division of AFGRI comprises two related business units: Handling

and Storage and Logistics.

The Handling and Storage business consists of 64 grain storage silo

installations, nine vertical bunker storage sites and 13 sites under collateral

management. In total, the division has some 4,3 million tons of storage

capacity. The Logistics business is composed of a relatively small fleet of

vehicles but through a close relationship with the Handling and Storage and

Trading operations is able to expedite efficient logistics services to consumers

of grain.

Once again, the operations are situated throughout the country’s major grain

growing areas.

AFGRI TradingThis subsidiary houses the Group’s physical commodity trading operation

providing a comprehensive grain supply chain management service backed by

tailor made supply and procurement contracts for the short and long term,

making use of innovative price hedging and finance solutions.

This division is also responsible for overseeing the AFGRI Foods’ commodity

procurement.

AFGRI AGRI-SERVICES

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2010 overview Corporate governanceGroup overview

AFGRI FOODS

Animal Feeds and BroilersThis division comprises both the Group’s animal feeds operation and

AFGRI Poultry, the successor to Daybreak Farms.

The Animal Feeds business unit operates throughout South Africa,

having eight production sites and a variety of strategically placed

distribution depots. Having a production capacity of over 1 million tons

per annum and access to world-class feed technology solutions, this

operation is one of South Africa’s leading animal feed manufacturers.

The expanded Daybreak abattoir and the recent acquisition of Rossgro

chickens have been rebranded AFGRI Poultry after reaching the

weekly capacity milestone of 1 million birds per week. The broiler and

abattoir operations are supported by the wholly owned Midway Chix, a

producer of day-old chicks. AFGRI Poultry’s production operations are

situated in Mpumalanga with Midway Chix’s breeder farms and

hatchery in the Limpopo province. The business unit delivers product

nationally.

Labworld, also included in this division, is a supplier of a wide range of

laboratory equipment used in the agricultural, food and beverage,

mining and petrochemical industries as well as academic institutions.

Oil and ProteinAFGRI’s Oil and Protein division trades under the name Nedan and

comprises soya and cotton oil extraction plants in Mokopane (Limpopo

province). Nedan processes oil and other raw materials into edible oils,

fats and high-protein textured vegetable products for the food

processing and fast food industries. Nedan is the market leader in

texturised soya protein for human consumption and oil cakes for the

animal feed industry. Nedan distributes to industrial food customers

nationally.

AFGRI FOODS

AFGRI value chain

PlanBefore planting, AFGRI Capital provides the farmer with the necessary confidence of finance throughout the growing season by providing seasonal finance. Subsequent to planting and post emergence, AFGRI Insurance is able to provide crop and hail insurance, further providing peace of mind to the farmer.

PlantDuring the planting and growing seasons AFGRI’s Retail and Equipment Services provides the farmer with all the primary inputs necessary for a successful crop. From seed and fertilisers to tractors, planters and combine harvesters. These key inputs can be sourced through the Group’s retail branches or delivered directly from the manufacturer or distributor. Advisory services and mechanisation spares and servicing support the farmer throughout the season.

HarvestThe storage facilities provided by AFGRI’s Handling and Storage division allow both producers and consumers of grain to manage their pricing. Farmers are able to settle their seasonal finance. AFGRI’s advanced logistics management system allows it to more accurately match production and consumption demands in specified locations whilst its Trading subsidiary undertakes physical trades and their execution.

TradeThroughout the year, AFGRI Broking, the single largest trader of agricultural commodities on the JSE SAFEX exchange, buys and sells derivative commodity instruments on behalf of producers and consumers of grain. AFGRI Capital looks for other opportunities to provide finance into the food and agricultural value chain.

SellAFGRI Foods plays a vital role in converting the raw grain, together with other key elements of protein and energy, into balanced feed for the livestock and dairy industries. At AFGRI Poultry, this is taken one step further with the integrated poultry operation producing frozen whole and individually quick frozen (IQF) portions from its own day-old chicks. Nedan processes cotton seed and soya beans into various oils and proteins.

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Contribution by business segment (continuing operations only)

%/R million/number

AFGRI Financial Services

AFGRI Agri-Services

AFGRI Foods

Corporate

* Before corporate and Group eliminations** South African operations only

Revenue* Operating profit* Profit before tax* Total assets* Headcount**

10% R848

52% R4 229

38% R3 083

2009

9% R712

49% R3 643

42% R3 171

2010

39% R463

35% R422

26% R308

2009

31% R332

37% R396

32% R344

2010

(4%) (R18)

65% R280

39% R169

2009

5% R24

52% R237

43% R197

2010

53% R5 335

30% R2 997

17% R1 683

2009

49% R4 019

31% R2 553

20% R1 673

2010

6% 226

64% 2 336

28% 1 019

2% 56

2009

6% 192

56% 1 827

36% 1 187

2% 72

2010

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Value added statement

Value added 2010: R2 008 million (2009: R2 054 million)

860 994 Employees 810 783

677 484 Capital providers 840 641

64 609 Central and local government 97 810

3 097 CSI 2 382

401 659 Reinvested 302 729

30 June2010

R’000

30 June2009

R’000

Revenue from continuing operations 7 258 840 8 017 223Paid to suppliers for material and services (5 330 066) (6 111 403)Value added 1 928 774 1 905 820Income from investments* 79 069 148 525 Total value created 2 007 843 2 054 345

Value distributionEmployees 860 994 810 783 Capital providers 677 484 840 641 Finance costs 456 071 665 758 Dividends to equityholders of the company 132 173 88 097 Payments to minorities– Agri Sizwe 78 056 84 942 – Other outside shareholders 11 184 1 844

Central and local government 64 609 97 810Company taxation 59 765 80 077 Secondary taxation on companies 249 13 627 Skills development levy 4 595 4 106

Corporate social investment (CSI)** 3 097 2 382Reinvested in Group to maintain and develop operations 401 659 302 729Depreciation 141 842 118 065Retained profit– Equityholders of the Company 172 482 144 976 – Agri Sizwe 51 148 24 891 – Other outside shareholders 22 073 9 179 Deferred taxation 14 114 5 618

2 007 843 2 054 345

Value added ratiosNumber of employees*** 3 575 2 983 Revenue per employee (Rand) 2 030 2 688Value created per employee (Rand) 562 689Corporate social investment – profit after tax (%) 0,7 0,7* Income from investments includes interest received and share of associates profit** CSI includes education, training and social upliftment projects*** Monthly average permanent group employees

2010 2009

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Five-year financial performance

2010Actual

Rm

2009Actual

Rm

2008*Actual

Rm

2007**Actual

Rm

2006**Actual

Rm

Cash flow informationNet cash (utilised in)/generated from operating activities 483,8 831,2 (143,2) 604,6 61,8 Net cash (utilised in)/generated from investing activities 55,2 (410,6) (424,7) (211,8) (214,8)Net cash (utilised in)/generated from financing activities (155,0) (193,5) (366,2) (236,4) 29,2

Increase/(decrease) 384,0 227,1 (201,7) 156,4 (143,8)

Movements in cash and cash equivalents

Beginning of year (115,9) (343,0) (141,3) (297,7) (153,9)Increase/(decrease) 384,0 227,1 (201,7) 156,4 (143,8)

End of period 268,1 (115,9) (343,0) (141,3) (297,7)

Income statement information

Total revenue 8 325,7 9 264,1 10 690,5 6 530,1 5 739,0

Profit before income tax 541,2 453,3 308,0 344,1 186,3 Income tax expense (74,1) (99,3) (9,5) (68,4) (14,4)

Profit for the period 467,1 354,0 298,5 275,7 171,9

Profit for the year attributable toEquityholders of the company 304,7 233,1 220,4 189,9 129,1 Minority interest 162,4 120,9 78,1 85,8 42,8

Profit for the period 467,1 354,0 298,5 275,7 171,9

Balance sheet information AssetsNon-current assets 2 080,1 2 121,2 1 803,8 1 477,4 1 255,9 Current assets 6 374,9 7 546,6 7 363,1 5 642,4 4 800,2 Assets of disposal groups classified as held-for-sale 22,6 157,4 7,1 – 86,4

Total assets 8 477,6 9 825,0 9 174,0 7 119,8 6 142,5

Equity and liabilitiesCapital and reserves 1 601,5 1 486,9 1 378,6 1 230,6 1 172,6 Minority interest 683,5 646,3 612,4 588,9 531,1 Non-current liabilities 347,2 328,5 322,0 298,9 233,0 Current liabilities 5 845,4 7 318,6 6 861,0 5 001,4 4 202,9 Liabilities associated with non-current assets held-for-sale – 44,7 – – 2,9

Total equity and liabilities 8 477,6 9 825,0 9 174,0 7 119,8 6 142,5

* 2008 figures have been calculated using the figures for the 16-month period ended 30 June 2008** 2007 and earlier figures are calculated using the 28 February year-end published figures

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Key performance indicators

2010Actual

2009Actual

2008*Actual

2007**Actual

2006**Restated

Financial ratiosCurrent ratio 1,1 1,0 1,1 1,1 1,1Acid test ratio 0,9 0,9 0,9 0,9 0,9Cash realisation rate 1,6 3,6 1,9 3,8 1,9Total liabilities to shareholders' equity 2,7 3,6 3,6 2,9 2,6Return on shareholders' equity (%) 19,7 16,3 16,9 15,8 11,6Return on total assets (%) 10,2 12,5 11,9 9,9 7,4Net asset value (cents per share) 451,4 463,5 436,5 389,7 370,6Effective tax rate (%) 19,6 29,9 4,1 26,5 10,1Net asset revenue (times) 3,2 4,1 5,3 3,6 3,4Net assets per employee (R’000) 639,1 715,1 527,9 381,5 388,1Revenue per employee (R’000) 2 030,4 2 992,4 2 804,1 1 369 1 307,3Value added (Rm) 1 954,7 2 040,8 1 939,2 1 370,3 1 089,0Earnings per share (cents) 94,7 72,7 69,5 59,9 41,2Headline earnings per share (cents) 78,6 74,4 73,7 65,1 39,3Cash flow per share (cents) 290,2 467,1 130,8 282,9 111,0

Shareholders' returnDividend and capital distribution 41,3 36,40 41,35 30,00 30,23– First interim 24,15 19,70 11,65 10,15 9,05– Second interim – – 21,70 – –– Final proposed 17,15 16,70 8,0 19,85 10,45– Special dividend – – – – 10,73Dividend cover compared to applicable year (times) 2,3 2,0 1,7 2,00 2,1

JSE Limited statisticsVolume of shares traded (m) 113,3 113,6 206,4 138,8 103,5Volume traded as % of number in issue 30,3 30,4 60,5 40,7 30,3Number of transactions 10 824 7 942 13 598 6 670 6 536Value of shares traded (Rm) 668,6 582,8 1 378,6 941,6 545,9Traded prices (cents per share)– last sale in year 625 499 615 650 640– high 710 640 784 780 700– low 400 300 609 490 450– average price per share traded 586 457 668 678 533

Key market performance ratiosEarnings yield (%) 12,2 14,6 11,3 9,2 6,4Dividend yield (%) 6,5 7,3 6,7 4,6 3,0 Price earnings ratio 8,2 6,9 8,5 10,9 15,5

* 2008 figures have been calculated using the figures for the 16-month period ended 30 June 2008** 2007 and earlier figures are calculated using the 28 February year-end published figures

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Material issues summary

Material issue Stakeholders Status Reference

1. New management structure InvestorsEmployeesCustomersSuppliersLenders

The Board of the Group’s operating company was restructured, removing a layer of line managers and introducing functional roles to the Board.

Pages 15, 23, 65

2. Implementation of strategy

– value chain alignment and

expansion into foods sector

In 2009 the Group began to more closely align its operations with the grain value chain and stated its desire to expand into the food sector. The disposal of assets not aligned with the Group’s value chain continued during the year and is now nearly complete. Following on from the expansions at AFGRI Poultry in 2009 the Group continued to expand existing capacities at both Animal Feeds and Nedan. Acquisitive expansion began with the purchase of the remaining minority interests in Midway Chix and the acquisition of Rossgro after year-end.

Pages 23, 24, 31, 34, 35, 37, 38, 40

3. One AFGRI philosophy The philosophy demands the integration of the diverse business units and resources to optimise the provision of seamless products and services across the value chain and the furtherance of a united AFGRI.

Pages 17, 21, 22, 26, 27, 28, 31, 32, 34, 42, 48, 49

4. Change management The multitude of developments within the Group demands appropriate change management. Management have responded to this requirement in a variety of ways, in particular improving communication and appointing change managers to supervise the IT implementation and the establishment of a Shared Services Centre.

Pages 24, 46, 68


1. Economic conditions –

internationally and locally

Restrictions on credit have eased although the cost of funding remains high, challenging the profitability of the Financial Services segment. The introduction of Basel III will introduce requirements for raising finance that may result in a further increase in borrowing costs.

Pages 17, 25, 30, 34, 38

2. Agricultural conditions and

prospects

Another good year for primary agriculture resulted in a near record crop and full silos. A small reduction in maize plantings is anticipated in light of the low grain prices. The Group’s expansion into the food sector will dilute the impact that changing climatic conditions have on its results.

Pages 17 – 20, 23, 24, 45

3. Regulation The Group conducts diverse operations in an increasingly complex regulatory environment. This results in greater risks and increased cost of compliance. The introduction of GMO export rules resulted in a decline in maize exports, already hampered by inadequate infrastructure.

Pages 31, 36, 53 – 57

Structuring for growth

External factors

9




1. Cost controls and cash

management

InvestorsEmployeesCustomersSuppliersLenders

Regrettably retrenchments were necessary in some of the services businesses where the credit crunch and unchecked organic growth had resulted in inefficient staffing levels. Staffing levels will continue to be reviewed to ensure that excellent customer service is achieved at the minimum cost.

Pages 24, 31, 32, 35, 39, 43, 44, 46

2. Business processes review During the coming year, AFGRI will implement a single, Group-wide ERP system to improve IT governance, reduce costs and improved customer service across the Group. A Shared Services Centre for the processing of large volume, recurring transactions will complement the single platform. A Procurement Council, supported by commodity procurement teams, will drive Group costs lower.

Pages 24, 46, 49, 52

3. Gearing and access to

funding

Efforts to improve the Group’s gearing continue, with a reduction in the size of the debtors book and funding more closely aligned with the underlying assets and the Group’s operational requirements. The sale of non-productive properties further improves the Group’s cash position and reduces the future administrative burden and holding costs

Pages 26, 31, 32, 44, 45


1. Skills development Employees As a precursor to employment equity, skills development will be a focus area in the coming year.

Pages 26, 49, 52

2. Remuneration and benefits A Group-wide grading and salary review was performed during the year. An entry level medical aid scheme was introduced for all staff at Paterson scale grades A and B.

Pages 26, 49, 51

3. Health and safety The Group applies strict health and safety considerations in all of its operations.

Pages 49 – 50, 53 – 55

Profitability and financial position

Human capital

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Material issues summary continued


1. Ownership InvestorsEmployeesSuppliersLendersGovernmentCivil society

The partnership agreement entered into with our Agri Sizwe partners in 2004 results in AFGRI achieving a score of 16.25 for this element of the BEE scorecard. (Points available: 20)

Pages 26, 51

2. Control Using 2008 information the Group scored a disappointing 1.41 for the control element of the scorecard. Improvements in this area have been made subsequently. (Points available: 10)

Page 51

3. Employment equity In 2008, AFGRI failed to reach the 40% sub-minimum for employment equity. Improvements have been made over the past two years but considerable effort is required before AFGRI achieves its goal. (Points available: 15)

Pages 51 – 53

4. Skills development This is another area in which AFGRI has poorly performed, achieving a 2008 score of 0.19. Significant effort will be invested in skills development in the coming year as a precursor to employment equity. (Points available: 15)

Pages 26, 49, 52

5. Preferential procurement AFGRI achieved a score of 9.70 for preferential procurement and will improve on this, in conjunction with enterprise development in 2011. (Points available: 20)

Page 52

6. Enterprise development Due to the significant investments made in the AFGRI Farming division in 2007 and 2008, the Group earned full points for enterprise development. For 2011, the Group has revised its approach to enterprise development. (Points available: 15)

Page 52

7. Socio-economic development For the socio-economic development element of the BEE scorecard, AFGRI recorded 2.16 points. (Points available: 5)

Page 52


1. Integrated products across

the value chain

CustomersGovernmentCivil society

The Group’s strategy demands that it provide products and services across the agricultural value chain, from inputs to primary agriculture to grain security for millers and processed primary agricultural products for inclusion in secondary agriculture.

Pages 2 – 3, 23, 27, 32, 36, 39

2. Food safety and ethical

production

The Group is involved with the production of animal feed and animal protein for human consumption. AFGRI strives to ensure the highest quality inputs and products throughout the food chain.

Pages 39, 53 – 55

3. Innovative and high calibre

products and services and

customer satisfaction

In order to entrench its leading position in the animal feed sector AFGRI partners with international leaders in feed technology. Other business units, including Financial Services and Retail and Mechanisation, constantly strive to produce improved and value-adding products and services to customers. AFGRI is committed to measuring the level of customer satisfaction.

Pages 27, 32, 36, 37

Transformation

Products and services

11




1. Management approach and

policy

GovernmentCommunitiesCivil society

AFGRI modified its environmental approach from one of ‘complying’ to playing an active role in minimising the impact its operations have on the environment. An environmental policy has been adopted and a Group-wide environmental management system is being developed.

Pages 27, 55

2. Identifying areas of impact

and determination of

baseline

In the coming year, baselines for various environmental indicators will be determined for business units which have a material impact on the environment and targets for improvements set. An indicative carbon footprint survey has already been completed.

Pages 27, 56

3. Climate change AFGRI does not contribute significantly to climate change. However, the sector that it serves has a significant impact on the environment and will experience the impact of climate change. For this reason, AFGRI will minimise its emissions and play an active role in publicising climate change.

Pages 19, 27, 56


1. Application of King III

guidelines

InvestorsGovernment

Changes to the composition of the Board, together with the introduction of various governance structures and strategies have already been implemented. Efforts to ensure AFGRI is in compliance with King III will continue 2011.

Pages 19, 28, 57

2. Risk management Risk management remains a focus of the Group. The identification of risk at all levels and in all business units, together with the integration of the sustainability issues, provide AFGRI with a solid foundation for the conduct of its business.

Pages 46, 62 – 68, 101

3. Competition Commission The Competition Commission has initiated a variety of investigations into agricultural and food sector industry bodies. AFGRI is cooperating fully with the Commission.

Pages 57, 157

4. Group ethics and business

conduct

During the year, senior employees and management committed to seven values, which drive the conduct of AFGRI. An ethics review is planned for the new year.

Pages 28, 57, 66

The environment


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Group directorate

Non-executive

One AFGRI – a philosophy that drives our strategy and has also revitalised our organisation through streamlining our operations and focusing the group on key growth drivers

1 2

3 4

5 6

7 8

9 10

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1. JPR Mbau (59) Positions: Chairman – AFGRI BoardChairman – Nomination CommitteeIndependent director

Qualification: Banking Diploma – Citi Corp CollegeBusiness Management Diploma – Pretoria UniversityExecutive Management Programme – Stellenbosch University

Experience: 21 years (1974 to 1995) of banking experience as vice-president in the corporate banking and investment-banking arena with major financial institutions including Citibank (UK and USA), First National Bank, Nedbank and Investec. In the late 1990s served as senior general manager at the Southern African Enterprise Development Fund, with direct responsibility for Zimbabwe, South Africa, Namibia, Lesotho and Swaziland, responsible for providing financial advice, deal negotiating and financial structuring. A co-founder of a black consortium which established Real Africa Investments, and serves on the Boards of Dominican Convent School, RSA Market Agents, Regent Insurance and Babcock Engineering. Chairman of the Land Bank from 2002 to 2005.

Four years on AFGRI Board

2. DD Barber (58) Positions: Chairman – Remuneration Committee Member – Audit and Risk Management CommitteeIndependent director

Qualification: FCA (England and Wales) AMP (Harvard)

Experience: Former global chief financial officer of Anglo Coal, a division of the Anglo American plc Group and chief financial officer of Anglo American Corporation of South Africa. Prior to the unbundling of Anglovaal Group, held the position of group chief financial officer. Chairs the audit committee of Murray & Roberts.

First year on AFGRI Board

3. JJ Claassen (60) Positions: Member – Credit Committee

Experience: A long-standing member of the AFGRI Limited Board and is currently the vice-chairman of the Management Committee of the Maize Board. A successful farmer in the Delmas region since 1969 and plays an active role in various industry committees and forums. In 1997 was named Farmer of the Year in the Northern Region, Potato Farmer of the Year in 1999 and has been recognised four times as the I&J Potato Producer of the Year. Former director of ABSA Bank, Mpumalanga.

22 years on AFGRI Board

4. DD de Beer (70)Positions: Chairman – Audit and Risk Management CommitteeChairman – Credit CommitteeMember – Remuneration CommitteeMember – Nomination CommitteeIndependent director

Qualification: CA(SA)

Experience: Qualified as a Chartered Accountant (SA) after studying at the University of the Witwatersrand and joined the Industrial Development Corporation as an investigating accountant after completing his

articles. Spent several years with the Malbak Group in various capacities and thereafter moved into merchant banking, primarily in corporate finance, in the employ of Volkskas Merchant Bank and Rand Merchant Bank. Subsequently moved into the mining industry and eventually retired at the end of 2001 as chief financial officer of Anglovaal Mining. Chairman of Kingfisher Insurance Company and former Chairman of Idion Technology.

Four years on AFGRI Board

5. L de Beer (41) Positions: Independent director

Qualification: CA(SA), MCom (Tax)

Experience: Independent financial reporting and corporate governance advisor and visiting professor in financial accounting at the University of the Witwatersrand. Qualified as a chartered accountant in 1991 and audit and tax manager at KPMG, joined the School of Accountancy at the University of Pretoria and then the South African Institute of Chartered Accountants (SAICA) – Senior Executive: Standards at SAICA until 2007. Subsequently held a position for 18 months as financial director at BEE private investment holding company. Currently a member (chairman elect) of the Consultative Advisory Group of the International Auditing and Assurance Standards Board; the King Committee on Corporate Governance in South Africa; the Issuer Services Advisory Committee of the JSE and the Committee for Auditing Standards of the Independent Regulatory Board for Auditors in South Africa. Also involved in directorship development and training.

First year on AFGRI Board

6. JJ Ferreira (57) Positions: Non-independent director

Qualification: BSc (Hons) Civ Eng

Experience: Began farming full-time in 1984 after working as a civil engineer for six years in Pretoria, settling on the farm Grootdraai in Harrismith. An active member of the farming community in the Eastern Free State over the years, holding positions in Vrystaat Landbou, Agri-SA and the Free State Premier’s Economic Advisory Board until 2005. Joined the AFGRI Board following AFGRI’s acquisition of the Sentraal Oos Kooperasie Limited in Bethlehem. Former Vice-chairman of SOK Limited.


7. LM Koyana (42) Positions: Member – Audit and Risk Management CommitteeMember – Remuneration CommitteeMember – Credit CommitteeIndependent director

Qualification: BCom, BCompt (Hons) CTA

Finished articles of clerkship with Coopers and Lybrand in 1992 and joined the University of Transkei as Chief Internal Auditor whilst acting as part time lecturer in Taxation and Auditing at the same institution. Left in 1994 to pursue a career in investments with Syfrets Managed Assets in Cape Town as Investment Analyst where he spent three years. Left Syfrets Managed Assets in 1998 to start Infinity Asset Management where he acted as Managing Director and Investment Analyst looking after the Retail, Food and Beverage Sectors. When Infinity was sold in 2001, he founded Nations Capital Advisors, a boutique

Corporate Finance and Advisory Services firm of which he is currently Chief Executive, bringing the total financial services and investments experience to a total of 16 years. First year on AFGRI Board

8. MM Moloele (54)Positions: Member – Nomination CommitteeDeputy Chairman – AFGRI Operations Limited Board

Qualification: Diploma in Business Management (USA & Damelin)

Experience: As a director of companies, led the development of the first BEE Charter in the Petroleum industry and co-founded the first black-owned petroleum company, Exel. Involved with the establishment and coordination of a strong National Black Fuel Retailers Association. Former directorships include Dudula Shipping, Dudula Freight Bulk, Exel Petroleum and Naledi Oil Holdings.

Six years on AFGRI Board

9. KL Thoka (47) Positions: Non-independent director

Qualification: B & Admin – University of the NorthHons (B&A) – University of Stellenbosch Business SchoolMBA – University of HullSEP – Harvard Business School

Experience: Businesswoman, entrepreneur, director of companies and a councillor of the University of Johannesburg. Previous positions include: managing director of the Courier Freight Group, group executive (HR) at the SA Post Office, general manager for Transformation at the Post Office, senior HR manager for Metrorail and marketing and communications manager for Metrorail.

Six years on AFGRI Board

10. FJ van der Merwe (53) Positions: Non-independent director

Qualification: BA, LLB – University of StellenboschMA (Jurisprudence) – University of Oxford

Experience: Following a period as a practising attorney specialising in commercial law, joined Allan Gray Investment Counsel (now Allan Gray Limited), first as legal adviser and later served as managing director. Continues as a non-executive director of Allan Gray. Over the years has served on a number of listed company boards including Real Africa Holdings Limited (as chairman), Business Connexion Group Limited and Johnnic Communications Limited (now ElementOne Limited as chairman). Other current Board appointments, apart from ElementOne and AFGRI, include Allan Gray Group Limited, Allan Gray Life Limited, Historical Homes of South Africa Limited and KLK Landbou Beperk.


14


Group directorate

Copy to come copy to come come copy to come come copy to come come copy to come come copy to come come copy to come come copy to come come copy to come come copy to come come copy to come come copy to come come copy to come

AFGRI is committed to the highest levels of corporate governance. The concepts of transparency, respect, ethics and integrity set the barriers for all aspects of management

Executive

Management1

2 3

4

5 6

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1. CP Venter (42) Positions: Group Chief Executive OfficerMember – Credit CommitteeChairman – AFGRI Operations Limited Board

Qualification: BA, MBA

Experience: Joined Standard Bank in 1992. Obtained valuable merchant banking experience during seven years with Standard Merchant Bank (now Standard Corporate and Investment Bank), involved primarily with the trade and project finance divisions and was appointed as Head of the Export Credit Finance Department during the last two years of his employment with SCIB.

Joined ABSA Corporate and Merchant Bank in 1999 as team leader of the Structured Trade and Commodity Finance team. In 2002 promoted to the position of general manager at ABSA Corporate and Merchant Bank and soon thereafter appointed as head of a newly established Structured Trade and Commodity Finance team based in New York. During three years in New York, focused on expanding the Structured Trade and Commodity Finance business to Latin America.

On returning to South Africa in December 2004 was appointed as head of the Global Structured Trade and Commodity Finance Team.

Joined AFGRI in June 2006 as managing director of AFGRI Financial Services and Insurance and assumed responsibility for the Group’s Treasury division. Appointed to various director positions, including chairman of Agricola and AFGRI Western Cape. Appointed to the Board of AFGRI Operations in July 2007 and appointed as Group Chief Executive Officer with effect from 1 October 2008.

Five years with the Group and second year on the Board

2. JA van der Schyff (47) Positions: Group Financial DirectorMember – Credit CommitteeMember – AFGRI Operations Limited Board

Qualification: BCom (Hons), CA(SA)

Experience: After completing articles with Arthur Andersen spent five years with the Central Energy Fund managing the Money Market Investment and Foreign Finance division.

Spent 12 years in the Mondi group, a wholly owned subsidiary of Anglo American PLC, holding various senior positions, initially as group treasurer and later as group financial manager. Promoted to the position of commercial manager for Mondi’s flagship, the Mondi Kraft division where responsibilities included Finance, Procurement, Customer Service and Logistics. During the restructuring of Mondi was responsible for centralising business units into a Shared Service Centre and was promoted to the position of Competency Centre Head: Finance & Procurement for Mondi Business Papers South Africa.

Joined AFGRI in March 2007 as Group finance manager and promoted to Group Chief Financial Officer and appointed to

the AFGRI Operations Limited Board. On 15 September 2008 appointed to the AFGRI Limited Board as Group Financial Director.

3 years with the Group and second year on the Board

3. MI Mogari (Dr) (43) Positions: Deputy managing director – AFGRI Animal FeedsNon-independent director

Qualification: MBChB, BSc (Med)(Hons) CPFA EDP MBA

Experience: Began career more than 15 years ago as an entrepreneurial medical practitioner in group practice. On the conversion of the medical group to a healthcare business was appointed as its managing director. After exiting the healthcare company was appointed as chief executive of the SA Medical Association.

Co-founded Agri Sizwe with three partners and played a key role in the AFGRI Agri Sizwe partnership finalisation and joined AFGRI in 2004, fulfilling several roles, including managing director of AFGRI Africa. In February 2008 was appointed as executive director of AFGRI Limited responsible for Corporate Affairs, New Business and Strategic Projects.

In June 2008 elected as deputy chairman of the SA Agricultural Business Chamber. Member of the Executive of the Agricultural Business Chamber and participates in a number of Agri Business working committees, including the Chief Executives Forums, the State Presidential Working Group, the Land Reform and Post Settlement Support Task team.

Five years with the Group and second year on the Board

AFGRI Operations Limited Operating Committee

4. PJP Badenhorst (40) Positions: Group Legal CounselMember – AFGRI Operations Limited Board

Qualification: BCom (Law) (Cum laude) BCom (Hons) LLB (Cum laude)LLM (Banking and Stock Exchange Law) Experience: Commenced candidate attorney training with Couzyn Hertzog & Horak Inc. in January 1995. Joined ABSA Bank Limited in January 1998 fulfilling various roles during the next ten years, including: legal adviser: Absa Corporate and Merchant Bank (1998 – 2000); senior legal adviser: ABSA Corporate and Merchant Bank (2000 – 2002); group legal counsel (S level) Absa Corporate and Merchant Bank (2002 – 2004); legal adviser: Specialised Finance Legal (2004 – 2005); programme manager: Legal Workstream: Barclays/Absa Integration Programme (June 2005 – January 2006); Head: Office of the General Counsel (January 2006 – October 2008); Head: Specialised Finance Legal (December 2006 – November 2008).

In December 2008, joined AFGRI as Group legal counsel and acted as company secretary during the period December 2008 – March 2009. Appointed as an executive director of AFGRI Operations Limited in October 2009.

5. GJ Geel (43) Group Chief Operating OfficerMember – AFGRI Operations Limited Board

Qualification: BCom (Hons) (Acc) CA(SA)

Experience: Appointed as audit manager at PricewaterhouseMeyernel (now PwC) after completing articles. Joined OTK (now AFGRI Operations Limited) in November 1995, fulfilling various senior positions. Joined the Industrial Equipment division of Eqstra Holdings in April 2008 as financial director only to return to AFGRI five months later when appointed as COO of Gro Capital a division of AFGRI in October 2008 and managing director of Deposita, an associate of AFGRI, in February 2009. Appointed to the position of Group Chief Operating Officer in November 2009 and as executive director of AFGRI Operations Limited in October 2009.

14 years with the Group

6. MM Manyama (53) Positions: Group Human Resources ExecutiveMember – AFGRI Operations Limited Board

Qualification: Diploma in Co-operative Management and Administration – University of ZululandPostgraduate Diploma in Co-operative Studies (Finance and Management) – Loughborough UniversityBachelor of Business Administration – Preston UniversityMBA – De Montfort UniversityMember of the South African Board of Personnel Practice (SABPP) and registered as a Chartered Human Resource Practitioner Experience: During the period 1993 – 2000, fulfilled the positions of chief training officer and manager: Training, Communication and Community Development for the Agricultural and Rural Development Corporation (formerly the Lebowa Development Corporation). In 2000, moved to MEEC (formerly the Mpumalanga Development Corporation) as human resources manager and later as human resource executive. Joined AFGRI in 2005 as Human Resources Manager for the Producer Services division and later appointed to the position of Human Resources Director for the Group’s Financial Services division. Appointed as Group executive: Human Resources in 2008 and as an executive director of AFGRI Operations Limited in October 2009.

Five years with the Group

16


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Jethro Mbau, Chairman

I wholly support the One AFGRI vision which aspires to a single, united AFGRI in all aspects of its existence.

IntroductionIn my first report as Chairman of AFGRI Limited, I’m proud to be able to announce such outstanding results for the AFGRI Group. The 32% year-on-year increase in profit from all operations is the combined result of a favourable agricultural year, benefits arising from restructuring and realignment activities and notable contributions by the Group’s management and employees.

With success of the 2010 Soccer World Cup still fresh in all of our minds, it’s also impossible not to be incredibly proud of our beautiful country and to believe that, as a nation, anything is possible. The ability of FIFA, the Local Organising Committee, government, local authorities, corporate South Africa and civil society to deliver on a common goal has been proven beyond doubt. The expectations of the world have been exceeded.

The success of the Soccer World Cup, being the third most attended tournament ever, is even more incredible with it coming less than 18 months after the most serious economic downturn in decades. The resilience of soccer fans mirrors the resilience of international markets and humankind in general. Although surrounded by prophets of doom, the world economy has continued to function and despite early concerns of a ‘double-dip’ recession it now appears that the recovery, although delayed, will take hold.

South African macro-economic policies, both leading up to the economic crisis and during it, have been both measured and conservative, allowing the country to avoid the very worst of the recession’s symptoms. The country has lost a significant number of jobs, witnessed a decline in markets and experienced a tightening of credit, but is a long way from the drastic cuts in public spending being

Chairman’s report

PIC TO

COMEPPPPPICICIC CIC TTTTTO O O OO O

CCOCOOCOCOCOCOMEMEMEMEMEMM

0

3

6

9

12

15

Maize: Production (Tons millions)

10090807

South AfricaAFGRI regions

06

12.7

3.3

11.6

3.3

13.3

3.3

1.8

7.1

1.7

6.6

17


Corporate governance2010 overviewGroup overview

experienced in many European countries, prompted by the threat of sovereign debt defaults.

The agricultural yearOnce again South Africa has experienced a generally favourable agricultural year, recording the second largest maize crop in history at 13.3 million tons. Late rains delayed the harvest of the summer crop and impacted upon the yields and quality of soya, but the overall crop production has been well above average. Although weather conditions play an important role in farming, it is often easy to overlook the competency and hard work of the country’s farmers, whether they practise commercial or subsistence farming. This group of committed people play a fundamental role in both the country’s food security and economy.

Good climatic conditions have not necessarily been mirrored by economic conditions. The worldwide recession together with generally good harvests internationally has resulted in lower grain prices. Although the strong Rand has led to a lowering in many input prices, the current economic scenario of low input and low crop prices is a challenge that the South African farmer may need to face for some time. The country’s limited logistics infrastructure, increasing grain production in the rest of Africa and the recently introduced administrative procedures for the export of GMO products will further test the ability of farmers to turn a profit as prices remain depressed. Many farmers believe that the immediate solution to this challenge is to plant less. However, the long-term sustainable solution to these challenges is economic growth. Positive growth and job creation will increase local consumption of primary and secondary agricultural products.

As sustainability becomes more and more pervasive in our society farmers face further challenges from consumers who demand farming operations that are environmentally friendly and production procedures that follow good farming practice. In the AFGRI area of operation, this is

in stark contrast to the potential damage being done to our environment by the immense coal mining activities necessary to generate the electricity required for economic growth. The loss of topsoil, water and dust pollution, and damage to infrastructure currently necessary to fuel economic growth must be balanced with the future sustainability of the farming industry, the jobs it creates and the food security it provides.

One AFGRIDuring the past two years, the recently appointed executive management team at AFGRI have driven the ‘One AFGRI’ vision. This vision aspires to a single, united AFGRI in all aspects of its existence:

A single, united company providing many diverse products to a wide range of customers within the agricultural and food sectors.

The seamless integration of various business units, sharing experience, customers and knowledge, resulting in the maximum level of service to customers whilst minimising costs.

A single, united workforce that has as its goal the success of AFGRI rather than individual business units.

I wholly support the One AFGRI vision.

This vision has given rise to a multitude of initiatives, making the 2010 year a very busy one, for both the Board and employees. Activities designed to promote the achievement of the vision include: approving a new strategy to grow in the food sector; evaluating and approving a single Group-wide ERP system; confirming management’s proposed corporate actions; restructuring the balance sheet to prepare for growth, welcoming new directors onto the AFGRI Limited Board as a response to the King III recommendations relating to director rotation and a balanced Board composition with sufficient independent directors; approving the restructure of the AFGRI Operations Board and the elimination of a superfluous reporting level; restructuring certain business units; revisiting the Group’s empowerment credentials;

Total JSE commodity contracts traded

Jan-08Mar-0

8Feb-08

Apr-08

Jun-08

May-08Jul-0

8

Sept-08

Aug-08Oct-0

8Dec-08

Nov-08Jan-09

Mar-09

Feb-09Apr-0

9Jun-09

May-09Jan-10

Mar-10

Feb-10Apr-1

0Jun-10

May-10Jul-0

9

Sept-09

Aug-09Oct-0

9Dec-09

Nov-09

18


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commencing our sustainability journey; planning the consolidation of offices; and ensuring preparedness for changes brought about by a variety of new legislation and corporate governance guidelines.

These activities, positive in themselves, have also resulted in the Board having a much closer working relationship with management, a relationship that is both respectful and transparent, and one that builds confidence in AFGRI’s future.

All of these activities, and more, are discussed in greater detail throughout this integrated report, which in itself is a first for AFGRI and again a response to King III. Whilst we embrace these requirements, adoption of all of them will take time. This report will provide the Group with a ‘snapshot’ of its current position in regard to corporate governance and sustainability and provide a roadmap for its future. Although many of the Global Reporting Initiative principles have been followed in this first integrated report, we acknowledge that their application has not been exhaustive or complete. The achievement of this will be one of the challenges for 2011.

Given the busy year, I must mention the high regard the Board has for all of the employees: a diverse group of people who through their positive work ethic contribute greatly to the Group on a daily basis. Their performance and morale make AFGRI a successful company. They remain our single biggest asset and over the course of the year a variety of initiatives have been adopted to further fulfil the aspirations of our workforce.

Transformation in South African agricultureThe farming sector and communities face many and varied challenges, including: climate change; climatic uncertainty; environmental management; globalisation of markets; competition for arable land; local economics; and crime. Added to these challenges is the national imperative of

transformation, together with all other sectors of the South African economy. Such transformation should include the redistribution of land to the previously disadvantaged, but must be supported through engagement with all stakeholders and address dignified working conditions, appropriate employment conditions and remuneration, skills transfer and development, appropriate compensation for land and access to resources.

The haphazard approach to land reform, the lack of adequate training and funding for post-settlement communities, the in-fighting amongst beneficiaries and the manipulation of the ‘willing buyer, willing seller’ concept to inflate land prices must all be addressed if reforms in the sector are to be successful.

The South African farming community supports food security, jobs, families and communities in areas away from the urban sprawl. These communities must continue to thrive in order to support the greater economic good. The destruction of farms and infrastructure will lead to the destruction of communities and drive an ever-increasing number of jobseekers to the cities whilst undermining the South African economy.

All members of South Africa’s farming community must be committed to the transformation of the agricultural sector in South Africa. Only through a committed partnership between landowners and employers, communities and employees, can such transformation be successful. Transformation cannot be forced, nor should it be resisted. The equitable access to resources is fundamental to the concept of the long-term sustainability of any economy, community or country.

AFGRI itself is committed to its own transformation journey and in 2009 established an AFGRI Operations Sustainability Committee. The committee reports to the Management’s Risk and Assurance Committee, which in turn reports to the

Chairman’s report continued

Total maize area planted and production

1980/81

1982/83

1981/82

1983/84

1986/87

1985/86

1987/88

1990/91

1988/89

1991/92

1993/94

1992/93

1994/95

1996/97

1995/96

1997/98

1999/00

1998/99

2006/07

2008/09

2007/08

2009/10

2000/01

2002/03

2001/02

2003/04

2005/06

2004/05

‘000 tons ‘000 Ha

19


Group’s Audit and Risk Management Committee. One responsibility of this committee is improving the Group’s empowerment credentials. Besides striving towards a ‘transformed AFGRI’, we welcome the opportunity to apply our skills, knowledge and infrastructure to contributing to the transformation of the industry and agricultural communities it strives to serve.

SustainabilitySustainability and transformation has taken route in AFGRI over the past year. The establishment of the AFGRI Operations Sustainability Committee will formalise the approach the Group adopts towards its investments in socio-economic development and enterprise development. This committee, in conjunction with the Board will also manage the Group’s BEE scorecard performance, an area in which the Group has performed poorly in the past.

Sustainability and transformation is not restricted to managing elements of the BEE Scorecard. The introduction of a clear strategy for the Group, to increase the proportion of earnings from the food sector to 60% is just one of a variety of initiatives to ensure the Group, having established a solid foundation, now goes from strength to strength.

Other traditional aspects of sustainability such as the environmental impact and environmental management will also be addressed by the committee. It has already begun the process of establishing a baseline to measure future improvements and it is hoped that by 2011 we will have introduced targets to many of the Group’s more ‘industrial’ business units. However, efforts to reduce emissions and energy usage have already begun.

Overall we anticipate that our environmental impact will be significantly lower than many observers would anticipate of a company involved in agriculture. It is for this reason that we must constantly reinforce the nature of AFGRI as a services and products provider to the agricultural sector and a food company rather than a farming operation.

The traditional ‘Sustainability’ report is missing from this year’s integrated annual report as management take the bold initiative of integrating ‘Material issues’ throughout, demonstrating the permanence and presence of sustainability in all that we do.

Corporate governanceAFGRI is fully committed to the principles of transparency, integrity and accountability and the Board recognises that it is primarily responsible for corporate governance. In this respect the Board has begun preparing an action plan to ensure compliance with all of the King III requirements by 30 June 2011. Progress towards achieving this goal is noted throughout this report.

Already the Board constantly compares its activities with the principles included in King III. I’d like to especially thank the Board and Company Secretary for their dedication to good corporate governance at AFGRI.

ProspectsThe past agricultural year provides AFGRI with a solid foundation for 2011. The large maize crop has resulted in there being nearly two million tons stored in AFGRI’s silos at 30 June 2010. However, the large maize crop and the lower crop prices pose a threat to the Group’s retail and mechanisation operations in 2011 should individual farmers decide to reduce their plantings. A 5% – 10% reduction in maize plantings is anticipated in the AFGRI area, although plantings of wheat and soya will most likely increase.

The recently adopted strategy for AFGRI is to grow the business into the foods sector, so diluting the impact that the cyclical nature of the Group’s traditional agriculturally focused operations has on its overall results. The recent disposal of the Lowveld and Natal regional retail stores and the Tsunami chemical business also focuses the Group’s remaining agricultural activities towards the grain value chain in a clearly demarcated region.

Changes were needed in the management and staffing levels in certain business units during the year, regrettably resulting in retrenchments. The changes were necessary to align the businesses more closely with the strategy and to ensure that costs are proportional to the business unit’s future activities. Further restructuring and alignment is anticipated during the current year and whilst job losses are always regrettable, the changes will not detract from the services and products offered by AFGRI nor undermine its investment proposition.

Corporate governance2010 overviewGroup overview

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Chairman’s report continued

AppreciationMr Dave de Beer stood down as Chairman of the Board with effect from 1 January 2010. Mr De Beer retained his role as Chairman of the Audit and Risk Committee. On behalf of all at AFGRI, I would like to thank Dave for the contribution made during his four years on the Board. Mr De Beer will retire at the annual general meeting and I wish him a long and fulfilled retirement.

I would also like to welcome Messrs Dave Barber and Lwazi Koyana who were appointed as independent non-executive directors with effect from 10 January 2010. Both have already made considerable contributions to the functioning of the Board.

Ms Linda de Beer was appointed as an independent non-executive director with effect from 19 May 2010 and we look forward to the contribution that this hugely experienced individual will bring to the Group.

Mr Clive Apsey resigned as a director with effect from 1 January 2010 due to ill health. Messrs Koot Claassen, Kiewiet Ferreira and Francois van der Merwe will retire

at the Company’s annual general meeting in October. Between them, these individuals have served AFGRI for more than 40 years and we would like to truly thank them for their considerable contributions during their long and loyal service.

I would like to extend my appreciation to the Group’s executive management, especially Messrs Chris Venter and Jan van der Schyff; my fellow non-executive directors; the executive directors of AFGRI Operations Limited; all of the Group’s employees; and its customers and suppliers; for making my first six months as Chairman both enjoyable and rewarding.

Jethro MbauChairman

31 August 2010

21


Group overview Corporate governance

COPY TO

COME

2010 overview

I am driven to constantly and consistently meet and exceed expectations of all stakeholders

I live my dreams (Goals are dreams with a deadline)

I perform my tasks with enthusiasm

I am an ambassador for AFGRI in all aspects

I courageously take on new opportunities. The wave of passion can become an unstoppable force

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Chris Venter, Chief Executive Officer

Chief executive officer’s report

Good results are not produced solely by a good maize crop or low interest rates, but by the hard work of our dedicated employees, the loyal support of our customers and the cooperation of our suppliers and financiers.

IntroductionFor AFGRI, as for South Africa, 2010 has been a momentous year. The third successive year of favourable agricultural conditions has contributed to a significantly improved performance from the Group. However, good results are not produced solely by a good maize crop or low interest rates, but by the hard work of our dedicated employees, the loyal support of our customers and the cooperation of our suppliers and financiers.

Almost as important as the results is the considerable progress made in implementing the One AFGRI strategy and philosophy. The disposal of five identifiable non-core business units (Seed, Tsunami, the Lowveld and Natal region’s retail stores, and the Western Cape debtors’ book) represents real progress towards aligning the Group with the stated aim to operate throughout the grain value chain in high production areas. The Group is also committed to growing its investment in the foods sector. A start was made in 2009 with the expansion of Daybreak Farms, increasing its capacity well beyond that of the business purchased in 2007, earning its new branding as AFGRI Poultry. This division was added to in 2010 with the buy-out of the remaining minorities in Midway Chix and the acquisition of Rossgro, subsequent to year-end.

A journey of a different kind began with the approval by the Board of a single, Group-wide ERP system. This will bring efficiencies and synergies otherwise impossible for a diverse operation such as AFGRI. The Group plans to ‘go-live’ with SAP in the fourth quarter of 2010. The rationalisation of six corporate and divisional offices into a single site in Centurion in October will contribute to the building of the One AFGRI culture and allow for the smooth transition to a ‘shared services’ centric organisation.

AFGRI silo capacity (Thousand tons)

1009080706

112222 297

5824

223

276 276

179179

AFGRI managed facilitiesAFGRI bunker facilitiesAFGRI silo facilities

3 938 3 938 3 9373 9383 938

23


Group overview Corporate governance2010 overview


Historically, the Board of AFGRI Operations Limited, the operating and investment

holding company of the AFGRI Group was composed of the senior operational

managers of the Group. These included the managing directors of AFGRI’s pillars

– Financial Services, Agri Services and Foods. In turn, these operational managers

were supported by divisional managing directors. In order to eliminate a layer of

unnecessary bureaucracy and to improve the functioning of the AFGRI

Operations’ Board, the Board was restructured. In some cases, the pillar managing

directors left AFGRI and others accepted roles as divisional managing directors.

All divisional managing directors now report directly to the Group Chief Executive

Officer. The AFGRI Operations Board is composed of the Group Chief Executive

Officer, the Group Financial Director, the Group’s Legal Council, the Group’s

Human Resources Executive, the Group Chief Operating Officer and two

non-executive directors appointed by Agri Sizwe. The executive directors of

AFGRI Operations manage the day-to-day operations of AFGRI, as the Operating

Committee.

This restructuring has improved the functioning of the AFGRI Operations Board by

allowing it to focus on strategic matters, having the correct functional inputs from

its members. It has eliminated the divisive nature of the pillar structure, clearly

demarcated responsibilities and shortened reporting lines, and provides me with

a direct line to the management of the individual business units. Many of the

year’s acquisitions and disposals have been managed by the Operations

Committee in conjunction with the relevant business unit managing director.

The Group’s mission, to “focus on creating One AFGRI that supports the food and

agricultural value chain in which our customers operate” has driven all of this

year’s restructuring of operations. Key elements of the strategy that support this

mission are “to focus on the food and agricultural value chain”, “expand interest

in the foods sector” and to “improve the capital base through exiting under-

performing businesses and the disposal of non-core assets”.

The Group’s areas of activity in the agricultural value chain have been focused

more clearly in the high grain producing areas of South Africa, namely the

Mpumalanga, Gauteng, North West and Free State provinces. Regional focus was

achieved through the disposal of the Lowveld and Natal regions retail stores

(resulting in improved profitability ratios for the remaining Retail and Equipment

stores) and the disposal of the Western Cape debtors book (reducing debt

requirements and operating costs for the Group).

The Group’s functional involvement in the agricultural value chain has been

limited to the provision of inputs, requisites, equipment and services by the

disposal of the Seed and Tsunami business units. The lead time and investment

required to produce varieties of seeds is beyond the scope of what AFGRI wishes

to achieve. The pre-season investment and the associated risks of the agricultural

chemical sector is an area that AFGRI believes is too volatile.

History has shown that crop production in South Africa is subject to significant

fluctuations due to the vagaries of the weather. This introduces an element of

cyclicality to an agricultural products and services business. The Group’s strategy

of greater focus on the high yielding areas of South Africa, in conjunction with

quality assets and a diverse range of products and services, is designed to

minimise AFGRI’s exposure to the normal and expected variances in weather

patterns. In order to increase further the stability of earnings, AFGRI has

embarked on its expansion into the food sector, with the stated goal to increase

its proportion of profits before tax from this sector to 60%.

AFGRI market share: Tractors and combine harvesters (%)

Combine harvestersTractors

3135

2932

28

4744

383834

2006 2007 2008 2009 2010

24


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Chief executive officer’s report continued

The expansion of the Daybreak Farms’ abattoir in 2009 has been a great success.

With the additional capacity and further efficiencies introduced this operation is

now processing nearly 700 000 broilers a week. Only the disappointing price of

chicken, resulting from the economic downturn and felt by the entire industry,

undermined what should have been an exceptional result from the rebranded

AFGRI Poultry. Already a vertically integrated business, having a breeder farm

producing day-old chicks, its own and contract grower grow-out farms, and the

abattoir, the immediate goal is to increase the production capacity to more than

one million birds per week. The recently announced purchase of the Rossgro

abattoir will allow the operation to meet and exceed this target, introduce

efficiencies and synergies between the two operations, and provide a second

processing location for the introduction of additional products. In time, the

additional feed volumes consumed by the combined operation will benefit the

Group’s animal feeds unit.

The operational footprint of AFGRI Animal Feeds was also grown during 2010 with

the acquisition of a feed mill in Pietermaritzburg and the opening of several

depots throughout the country.

Besides the disposals and acquisitions of business units and the expansion of

existing operations, the Group remains committed to building One AFGRI: a vision

of a single agricultural and foods business, the integration of which benefits

customers, shareholders and employees alike. The restructuring of the AFGRI

Operations Board was a first step in changing the culture to one that encourages

and rewards cooperation across business units, prioritises customer service and

maximises value.

When a group the size of AFGRI, with more than 4 000 full time and temporary

employees, embarks on a path to restructure for growth, there will, unfortunately,

be some casualties. During the year the Group retrenched a total of 57 employees

in various business units. These were all loyal and committed employees and we

are sorry to see them go. I wish them luck with their future endeavours. This

element, more than any other, highlights the need for proper change

management when exposing the Group to a multitude of corporate actions,

initiatives and restructurings. The current year’s restructuring has been managed

well by the Group’s Human Resources department.

The planned single ERP system initiative and the establishment of a Group Shared

Services Centre are being managed by a dedicated team of consultants, into

which many AFGRI staff members have been integrated. The consultants have

adopted an approved change control methodology so that the impact that this

initiative will have on all affected stakeholders is properly advised and managed.

Appropriate steps are planned to address customer, supplier and employee

issues. In particular, the creation of a Shared Service Centre within the new

Centurion building may result in a limited number of administrative job

redundancies. Staff attrition is anticipated prior to the relocation of certain

administrative functions to Centurion and alternate positions will be sort for

the remainder of the affected posts. The resulting redundancies will hopefully

be the last for some time.

World food production and security may be a reason to expand into Africa but

African food production and security is an even greater reason if one believes

that Africa’s time has come. The African continent presents many opportunities

for AFGRI to expand its operations through its skills base. The Group is committed 0

1

2

3

4

5

Average yields per ton: RSA vs AFGRI

1009080706

4.54

4.91

4.78 4.

97

4.86

4.76

2.712.79

3.984.

14

RSAAFGRI regions

25



to its existing Zambian operation and the search for

opportunities throughout the rest of Africa. Over the past

two years much effort has been invested into the search

for these opportunities by the individual business units. The

current non-executive chairman of the Zambian board has

now been tasked with the responsibility for coordinating

these efforts and of driving an AFGRI strategy for the rest

of Africa.

External factors

Climatic conditions for agriculture in South Africa have

generally been good for the past three years. However, in

an ever-changing globalised world, local climatic conditions

are not enough to guarantee prosperity for South Africa’s

farmers. Crop production elsewhere in the world, exchange

rates and economic conditions all impact on the

profitability of the country’s farmers. The response to the

third consecutive year of a good maize crop and the

resultant decline in prices is to plant less, to reduce the

carry over stock in 2011 and encourage a price recovery.

This is a short-term view. For as long as South African

farmers can produce grain they should produce as much

as possible. It is for the government and other sectors of

the economy to generate new markets and higher

consumption through improved export infrastructure and

economic growth, while efforts are made to eliminate

world crop surpluses arising from subsidised production.

The recently introduced controls on the export of GMO

products placed a further restriction on South Africa’s

ability to access new markets. These short notice

restrictions and their very small analytical tolerances,

together with the unpreparedness of counterparties in

foreign countries halted the export of grain crops from

South Africa for a period of nearly three months.

AFGRI remains aware of the challenges faced by South

African farmers and the agricultural sector as a whole and

manages the risk through ongoing interaction with

customers and sector bodies.

On a smaller scale the coal mining activities in the

Mpumalanga province are beginning to have an impact on

the agricultural sector and the farming community’s way of

life. Arable land, once mined can never be reclaimed, it is

lost forever. The quantum of the lost arable land at present

is relatively small; it is the peripheral impacts that threaten

agriculture, such as water and air pollution, increased wage

demands and the deterioration of arterial roads, vital for

the transport of agricultural products. A balance must be

found between the destruction of arable land and farming’s

goal of maximising nature’s gifts. The respective parties

must contribute fairly to the infrastructure they share in

proportion to the damage that they do.

The impact of higher electricity charges has already been

felt by AFGRI’s more industrial business units – silos, animal

feed factories, oil crushing plants and the abattoir. These

increases in administered prices (both past and planned)

will also impact on the farming community. The recently

negotiated above inflation state sector wage increases will

also impact the Group and the agricultural sector

negatively, driving wage demands and higher inflation.


Extensive comment is made throughout this report

regarding the Group’s and the individual business units’

results. The results of the individual businesses are very

satisfying with the exception of the grain trading subsidiary.

This operation continues to produce very volatile results

as it is impacted upon by agricultural conditions,

infrastructure challenges, execution cost increases and

the valuation of significant quantities of grain. A complete

review of the products and services of this subsidiary,

together with its processes and personnel has already

commenced.

The more traditional, agriculturally focused businesses of

grain handling and storage and the retail and equipment

divisions once again made a significant contribution to the

results. The results of the Logistics division, including the

grain handling and storage business unit, are underpinned

by successive high maize crops in the AFGRI area, and even

improved upon by the lower local consumption and

exports, resulting in higher stock levels, stored for longer

periods. The Retail and Equipment business unit, despite

seeing a drop in tractor sales met the recession and the

declining agricultural sales cycle head-on, improving

margins and cutting costs to ensure that it equalled its

2009 performance. Sales of non-productive property

assets in this division, and the disposal of 23 stores in the

Lowveld and Natal regions also contributed positively to

the Group’s cash flow.

The Foods sector of the business made an increased

contribution to the Group’s results through improved profits

at AFGRI Poultry and a repeat of the 2009 profits of the

Animal Feeds business unit. Both of these business units

have embarked on a growth strategy for 2011 with the

commissioning of a feed mill in Pietermaritzburg and the

acquisition of Rossgro chickens. The Oil and Protein

division, which trades as Nedan, produced considerably

improved results during 2010 and also has plans to expand

its product offering in the new year.

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The pleasing results for 2010 have been complemented by

the improved financial position of the Group. The greater

alignment of financing facilities with the assets funded and

the Group’s operational requirements, together with the

disposal of non-core business units and non-productive

property assets have contributed to a stronger balance

sheet – one which can support AFGRI’s growth into the

future.

With a proven track record, including five consecutive years

of profit growth (in both pre- and post-tax profits), the

improved balance sheet and a clear vision of the future

which includes the grain value chain, expansion into the

Foods sector and Africa, AFGRI has met the challenges of

poor agricultural years, management changes and the

global recession to emerge a stronger and more aligned

business dedicated to benefitting all stakeholders.

Human capital

AFGRI recognises the importance of its human capital and

adopts human resources management practices which are

geared towards building a community of inspirational

people, having a common purpose. The One AFGRI principle

is a cornerstone towards the building of that community.

Management acknowledge that, unlike business projects,

the management of human capital requires a constant

ongoing focus to ensure that appropriately skilled

employees consider AFGRI as their second home where

they are rewarded for applying those skills in a safe and

pleasant environment.

After the regretful retrenchment of a small proportion of

AFGRI’s employees during the year, it continues to employ

over 4 000 (full and part time) employees in South Africa

alone. A further 215 persons are employed in Zambia and

Australia. Each and every one of these 4 258 employees

represents an asset to this business.

Various initiatives were embarked upon during the past

year, some were completed and others will be a focus of

2011. A Group-wide review of job descriptions and grading

completed just before the year-end has allowed us to

clearly understand the composition of the workforce across

all of the individual business units. This will be a key input

into future recruitment and hiring policies.

An initiative that I am particularly proud of is the extension

of medical aid cover to all of AFGRI’s employees. Through

the medical aid division of AFGRI Insurance brokers, the

Group has provided all A and B Paterson scale grade

employees with medical aid membership benefits. Although

these benefits come at a cost to the Group, I believe the

goodwill generated and the improved health of the

workforce will pay handsome dividends in the future.

To address the need to improve skills development the

Human Resources department has created a dedicated

training and development position. This position is expected

to be filled before the end of September.

Transformation

I was shocked and disappointed when, in September 2009,

EmpowerDEX issued the Group’s BEE rating for 2008. AFGRI

had slipped from a level 6 to a level 7 contributor, missing

the level 6 required score by 0,29 points. Anticipating little

improvement during the 2009 year, the verification for this

period was scrapped and a thorough analysis of the 2008

scorecard undertaken.

AFGRI entered into a black empowerment structure with

our partners Agri Sizwe in 2004 and has been proud to

think of itself as one of the most empowered companies

in agriculture. The Group has even received awards in

this regard.

Despite being empowered AFGRI has struggled to

transform, especially in areas of employment equity and

skills development. But the BEE score becomes irrelevant

when one considers the disservice we are doing to

ourselves and our employees. In a rapidly transforming

society we cannot afford to be without an appropriately

skilled and diverse workforce.

I have little doubt that the Group will return to contributor

level 6 when the 2010 verification is performed. I also

appreciate the challenge of improving to a level 5. That’s

why AFGRI has prioritised skills development for 2011 as

a precursor to achieving significant employment equity

in later years.

The Agri Sizwe partners and structure have served the

Group well for nearly six years. The Company recently

approached shareholders to approve a restructuring of the

original transaction, providing for the exit of the original

founding members of Agri Sizwe, allowing them to exit with

the increase in value created during their involvement

through selling their future entitlements to Izitsalo (Pty)

Limited, the Company representing the interests of the

employee and employee charitable trusts. This transaction

was approved by shareholders on 27 August 2010 and has

an effective date of 31 May 2010. Although the Group’s

empowerment credentials do not change, a large number

of beneficiaries will benefit more from AFGRI’s future

growth.

As with our goal of seamless service to customers across

the value chain, the One AFGRI philosophy is the foundation

for a single, but culturally diverse AFGRI.

27




AFGRI is committed to serving all participants in the value

chain which underlies its strategy. Its Financial Services and

Agri-Services segments develop products for producers

and consumers of the primary agricultural products grown

in its areas of operations. It provides finance, inputs,

insurance, mechanisation equipment, secure storage and

broking products to farmers and finance, insurance, secure

storage and broking services to consumers such as millers.

The Group’s retail stores service customers beyond the

primary producer, reaching members of the rural and

peri-urban communities.

AFGRI constantly reviews its product offerings, from its

retail store shelves to its insurance and broking services in

order to address the variety of customer needs. In many

instances, products are developed to accommodate

individual customer needs.

The One AFGRI philosophy, together with strategically

aligned performance management programmes,

encourages all employees to maximise the service levels

and available product offerings to customers, even though

these may be offered by a different business unit. Thus,

storage customers will be supported with finance,

insurance and broking solutions.

Where possible, the services offered by the Financial

Services and Agri-Services segments of AFGRI are extended

to AFGRI Foods and the customers in the Foods sector.

In order to ensure customer satisfaction, AFGRI

concentrates on its core competencies, adopts world-class

practices driving continuous improvement and reviews its

product range regularly. A key aspect of the product range

review is having a comprehensive knowledge of our

customers’ needs and rating their satisfaction.

Each business unit is responsible for its product range,

customer engagement and satisfaction ratings. However,

the commonality of customers across the many business

units allows the Group to be alerted at an early stage to a

poorly performing product or business unit. In addition,

many customers interact with the Group’s Financial

Services division during the process of credit granting and

credit reviews. This allows for regular contact with

customers and an opportunity to gain valuable feedback.

At AFGRI Foods, product innovation is driven through

relationships with international leaders in technology and

processing and academic institutions. In particular, at

Animal Feeds, product development focuses on improving

the conversion of animal feed, mainly composed of

vegetable-based raw materials, to animal protein – eggs,

poultry meat, milk, etc. Improvements in product

specifications can be made through a variety of techniques,

including improving digestibility and absorption of nutrients

through improved formulations and manufacturing

processes.

The environment

As a company with its roots in agriculture, we have an

enormous respect for the environment and the gift that is

nature. The Group has always recognised its environmental

responsibilities under the law and more recently has begun

to identify opportunities whereby it can lessen its impact

on the environment, often saving costs or becoming more

efficient in the process.

The phenomenon of climate change has driven

environmental awareness and reporting requirements to

new heights. AFGRI is committed to improving the overall

quality and extent of its reporting, including environmental

and climate change matters. In compiling this integrated

annual report it has followed the Global Reporting Initiative

process, and has taken the first steps to enable it to

monitor its impact on the environment, and the setting

of targeted improvements. Few baselines had been

established at year-end but this will be a priority for 2011.

The Group has adopted an Environmental Policy and is

currently developing an Environmental Management

System for use throughout its operations. The Group’s

environmental shortcomings have been identified through

the conduct of a gap analysis and remedial action will be

prioritised in the new year.

Climate change has the potential to damage the productive

qualities of the regions in which AFGRI operates. As such,

although the Group believes it does not significantly

contribute to climate change itself, it will extend efforts to

reduce its emissions of greenhouse gases and also

promote awareness of climate change issues.


AFGRI is committed to the highest levels of corporate

governance. The concepts of transparency, respect, ethics

and integrity set the barriers for all aspects of management,

whether it is reporting to investors, engaging in corporate

actions, employee relationships or interaction with

colleagues. The release of King III and its requirements is

viewed by management as an opportunity to further define

and formalise the Group’s corporate governance structures.

We believe that compliance with the requirements of

King III by 30 June 2011 will provide AFGRI with considerable

benefits, not least of which will be a Board consisting of a

greater number of independent non-executive directors

and the skills these persons will introduce to the Group.

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The Group already substantially complies with the

requirements of King II and both the Board and

management constantly refer to King III regarding their

conduct. However, we are well aware of the history of weak

reporting when dealing with stakeholders, especially the

investment community. Efforts to address this began in

2009 with the early adoption of selected IFRS standards

and the introduction of a more ‘user friendly’ segment

statement. In 2010 training in the Global Reporting Initiative

was provided to staff members.

Subsequent to its release, this integrated annual report will

receive an independent review to identify a complete list of

shortcomings and omissions so that a more comprehensive

integrated report can be produced in 2011.

Appreciation

In an exciting year for a changing AFGRI I’d like to thank the

AFGRI Limited Board for their continued support and

dedication. Many of the Board members have been called

upon to participate beyond the expected Board and

committee meetings, which in themselves have been more

numerous this year than in previous years.

In particular, I’d like to express my appreciation to

Messrs Dave de Beer and Jethro Mbau, previous and

incumbent Chairmen of the AFGRI Limited Board who have

steered the Group with wisdom and insight.

To the many directors who are retiring at the annual

general meeting, thank you for staying the course with

AFGRI. To the new members of the Board: “welcome”,

I look forward to a productive relationship with you all.

My fellow directors on the AFGRI Operations Board have

been an invaluable source of guidance and debate for

which I am truly thankful.

Finally, to the more than 4 000 employees that are One

AFGRI – thank you for all your hard work and dedication.

Chris Venter

Chief executive officer

31 August 2010

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I can achieve more as a team member, combining our expertise to achieve our common objectives

I realise I cannot do everything on my own

I understand and accommodate the different personalities in the team, respect them and know that diverse teams are effective

I commit to the ONE AFGRI philosophy

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The results of the individual businesses are very satisfying with the exception of the grain trading subsidiary

Review of operations


AFGRI Financial ServicesAFGRI Advances provides both producer and specialised lending

within the agricultural sector through the wholly owned subsidiary

Gro Capital Financial Services (Pty) Ltd. In addition, this segment

of the Group’s operations provides insurance and commodity broking

services to both producers and consumers of primary agricultural

products.

The Group’s Treasury and Zambian operations are also included in this

segment.

External factors

Whilst the collapse of the US subprime market seems like a distant

memory its impact on the global economy continues to be felt.

In many European countries severe austerity plans to restrict

government spending by cutting public services have been

introduced. These cuts were made necessary by the huge debt

burdens which arose from the enormous sums invested in bailout

and stimulus programmes at the height of the credit crunch. These

measures may go some way to addressing the risk of sovereign debt

default and have averted the collapse of the Euro, but they will delay

and slow economic recovery, especially in the Euro-zone.

Domestically there have been some positive contributors to South

Africa’s economic growth including a lowering of interest rates, the

easing of credit criteria, wage increases above inflation, infrastructure

spend, and last but not least the FIFA 2010 Soccer World Cup™.

Despite these positive domestic factors, credit providers have

increased collateral requirements, priced aggressively for committed

facilities in line with regulatory requirements, and generally repriced

credit. These factors impacted on the operations of AFGRI Capital.

The large maize crop resulted in a lowering of crop values and lower

crop insurance income for AFGRI’s Insurance Broking division. The

division was also affected by a decline in sales of life assurance

products as the economic conditions resulted in ‘grudge purchases’

being the first to be cut from monthly expenditure.

The Zambian operation experienced difficult trading conditions due to

the lower crop prices in a poorly regulated market. Combined with a

restriction in funding by the holding company following the strict

application of country risk principles, a decline in volumes traded by

this subsidiary was recorded during the year. AFGRI Zambia provides

most of the products and services provided by the AFGRI operations

in South Africa, including John Deere equipment, input and asset

finance, storage and collateral management and grain sourcing and

procurement.

31



Depressed agricultural commodity prices (maize, wheat and

soya) arising from good worldwide harvests and lower

demand due to the recession resulted in a decline in

commodity trading activities on both the supply and

demand side. In South Africa, farmers financed silo

certificates in the hope that prices would improve while

millers waited for a further lowering of prices.

AFGRI Capital is perhaps the most regulated business unit

within the Group, and certainly has the greatest need for

compliance. The domestic regulators to which this

operation is responsible include the National Credit

Regulator, the Financial Services Board and the Reserve

Bank. Although Gro Capital is not an accountable

institution, the introduction of Basel III may lead to further

increases in borrowing costs.

Regulators dictate the majority of the business unit’s

compliance activities once a product and a customer have

been matched. The National Credit Regulator dictates the

approach to credit granting, marketer conduct, reporting

and customer communication practices, including the

ability to communicate in four official languages. To address

these compliance challenges AFGRI Capital employs

11 dedicated compliance officers.

Despite the number of regulators and the extent of the

compliance team, AFGRI Capital benefits greatly from these

regulations, not only by satisfying many of the Group’s risk

management requirements but often also satisfying

lenders’ concerns.


With the introduction in 2009 of the One AFGRI philosophy

and the alignment of the AFGRI Group to the maize value

chain various initiatives were adopted to reduce the

Group’s credit exposure to regions and commodities

outside of this value chain.

This resulted in the producer lending business divesting

in AFGRI Western Cape, reducing the debtors book by

R230 million and a concomitant year-on-year reduction

in profit of R4,3 million. The producer lending business

otherwise maintained its client base and managed to

increase margins through the repricing of its products in

line with the increase in funding costs. Going forward the

Group’s exit from the Lowveld and Natal regions may result

in a further reduction of the debtors book.

The specialised lending book was reduced through the

withdrawal from certain product lines, notably its debtors

discounting book, and through the strong performance of

the underlying debtors which led to the settlement of

facilities and the concomitant reduction in the book’s

concentration risk.

In total, the debtors book reduced year-on-year by more

than R1 billion.


With the reduction in the debtors book and the drive to

improve AFGRI Capital’s cost to income ratio, 19 employees

were retrenched towards the end of 2009 at a cost of

R1,2 million but resulting in annual savings of over

R5 million. It is always regrettable when loyal staff members

are asked to leave a company and AFGRI considered this

decision carefully. AFGRI Capital secured alternate positions

for a further three employees.

AFGRI Capital also houses the Group’s treasury activities

where day-to-day cash management is undertaken. These

activities not only include the distribution of daily cash

positions to senior management but also ensure the most

efficient utilisation of facilities. Throughout the Group a

variety of funding requirements are met by AFGRI Capital,

securing debtors’ funding (which is both ringfenced and

focused), general banking facilities and specialist lending

products for commodities.

In line with an earlier adopted strategy to grow the debtors

book and in response to the 2008 credit crunch, the Group

finalised certain long-term funding arrangements to ensure

liquidity. By June 2009, AFGRI Capital had secured

R5,4 billion of long tenure debtors’ facilities necessary to

meet its obligations to customers. These facilities were

arranged with several lenders, thus managing its liquidity

and pricing risk.

Now, with the reduction in the debtors book and an easing

of credit, the Group finds itself with surplus capacity. Facility

utilisation averaged 63% for the year. Whilst liquidity was

secured, the excess capacity came at a cost of R6,9 million

to the business. Efforts are already under way to

restructure the various facilities to bring them in line with

the Group’s requirements.

Interest income declined by 34% in line with the reduced

debtors book and lower interest rates whilst finance costs

declined by 39%, resulting in a much improved margin for

AFGRI Advances and a return to profitability.

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Sales of goods and services for this segment include

insurance and commodity broking commission income,

fee income for AFGRI Advances, and sales of goods and

services in Zambia. The increase of 23% is the result of a

33% increase in fee income earned by AFGRI Advances,

a doubling of commodity broking commissions and a

17% increase in the Zambian subsidiary’s turnover.

The reduction in other operating income is the result of the

unwinding of a preference share investment structure

with a client. This is also reflected in the approximate

R100 million reduction in non-current assets and liabilities

in the segment’s balance sheet. Refer to note 8 of the

annual financial statements.

Increased depreciation and amortisation is the result of

amortisation on the Treasury administrative software

implemented in 2009 and the intellectual property right,

trademark and patent on automated banking machines

acquired in 2009. Refer to note 4 of the annual financial

statements.

Careful margin management, improved non-interest

income and cost-cutting measures resulted in the AFGRI

Advances division returning to profitability in 2010. A

considerable improvement from the Broking division and

an increase in profitability of the Treasury division resulted

in the segment reporting a profit before tax of R23,9 million,

an increase of R41,8 million.

Despite an increase in cash collateral percentages

demanded from financiers, the overall reduction in the

utilisation of facilities resulted in a reduction in cash and

cash equivalents and cash collateral deposits of over

R140 million.

The large maize crop and the resulting decline in prices,

and therefore insured values, resulted in a reduction in

crop insurance commissions. Also, the challenging

economic climate resulted in a reduction in the sales of life

assurance products. Notwithstanding these factors, AFGRI

Insurance maintained its earnings level through improved

sales of employee benefits and general insurance products.

The Zambian operation experienced lower international

grain trading volumes, resulting in a 54% reduction in profit

before tax.

Review of operations continued


The One AFGRI philosophy encourages business units

across the value chain to cooperate in an effort to provide

a complete service to common customers. In this regard

AFGRI Capital provides various financial services to

customers of many of the other business units, including

AFGRI Retail and Mechanisation, AFGRI Trading, AFGRI

Animal Feeds (for capital funding), AFGRI Handling and

Storage and AFGRI Broking.

The business continued to focus on servicing the farmer

through its producer lending product line and the corporate

sector through its specialised lending business. Products

are customised to agriculture in general and often to meet

the requirements of individual clients.

During the year, AFGRI Capital’s treasury arm secured the

right to act as agents for customers wishing to transact in

foreign exchange, allowing it to enter into this profitable

market and provide additional services and products to its

existing clients and target new customers.

Similarly, AFGRI Zambia secured a non-deposit taking

banking licence from the Zambian Central Bank. This

licence will be housed in a wholly owned subsidiary of the

Zambian company and will allow the operation to expand

its current finance product offerings.

AFGRI’s Financial Services division fosters long-term quality

relationships with its clients through a branch network

embedded in rural areas, supporting customer visits by

marketers. Marketers also attend regularly scheduled

farmer forums organised by the other business units,

notably the Retail and Equipment division. The knowledge

gained at such forums is invaluable in identifying customer

needs and product opportunities.

All customers of the Financial Services division complete a

financial needs analysis, further targeting the specific needs

of a customer. These analyses are conducted well ahead of

the planting season, making available ‘preapproved’ credit,

allowing the client to concentrate on his core business.

Staff training is given to ensure regulatory compliance and

to ensure high levels of customer service.

33



I always strive for continuous improvement

I encourage new and challenging ideas

I embrace cutting-edge technology

I constantly challenge the status quo

I am committed to an environment of creativity and innovation

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AFGRI Agri-ServicesThe Agri-Services business of the AFGRI Group comprises

the Retail and Equipment (formally Producer Services) and

the Logistics Services divisions. Both divisions focus on

serving the primary agricultural production sector within

AFGRI’s geographical area. This area, including the

Mpumalanga, Gauteng, North West and Free State

provinces are South Africa’s key grain growing areas,

especially for maize and wheat but also include

soya and sunflower.

Retail and Equipment, consisting of the Retail (including

equipment) and Primary Inputs business units provide

farming inputs, requisites and John Deere equipment to

farmers, and through its expanding Farm City network, the

general public. The division operates 35 branches branded

‘Town and Country’ and four Farm City stores. Eleven

dedicated John Deere workshop centres are strategically

distributed throughout AFGRI’s region. The entire retail

network leverages off a cost-effective import, wholesale

and distribution operation centrally located in Bethlehem.

Retail sales are further supported by the availability of

credit from AFGRI Financial Services in the stores. Over

70% of Town and Country store sales are on credit.

The Logistics Services division is composed of the Group’s

grain Handling and Storage business unit, the associated

Logistics business, and AFGRI’s grain trading arm. The

Handling and Storage business consists of 64 grain storage

silo installations, nine vertical bunker storage sites and

13 sites under collateral management. In total, the division

has some 4,3 million tons of storage capacity. The Logistics

business is composed of a relatively small fleet of vehicles

but through a close relationship with the Handling and

Storage and Trading operations is able to expedite efficient

logistics services to consumers of grain.

External factors

The operations and results of both divisions’ of AFGRI

Agri-Services are driven by agricultural conditions within

AFGRI’s region, often in a counter-cyclical manner. A large

maize crop in one year may lead to fuller silos and longer

storage periods in the next. However, a large crop is often

followed by lower grain prices and reduced plantings. This

counter-cyclicality is never exact as farmers rotate crops

and more recently trade ‘paper’.

AFGRI AGRI SERVICES

The South African maize crop in 2010 will be the second

largest ever, at 13,3 million tons. The all-time record for

South African maize production of 14 million tons in 1983

was achieved on a planted area of 4,3 million hectares at

an average yield of 3,3 tons/ha. The current year’s crop will

have been produced on 2,7 million hectares at an average

yield of nearly 5 tons/ha. This increase in yield has been

driven by a variety of factors, including cultivars (including

GMO), reduced plantings on marginal lands, and much

improved farming practices.

South Africa has now experienced three very good crop

growing years and a considerable surplus of maize is

available in the market (the carry-over stock is estimated at

between 3 and 3,5 million tons). This has depressed prices

to approximate export parity and may lead to a reduction in

the area to be planted for the 2011 crop. In addition, there

is every indication of relatively good grain crops in

neighbouring countries, reducing the demand for regional

exports. Early indications are that maize plantings in the

AFGRI area may be reduced by between 5% and 10%,

although soya may be planted in its place.

Deep sea exports of grain were restricted by legislation,

national infrastructure limitations and the sharp fall in

international freight costs. The recently introduced

Genetically Modified Organisms Amendment Act, No 23 of

2006 has resulted in a reduction in the number of countries

to which South Africa can export grain. Inefficiencies within

Transnet and the resultant poor rail delivery service and

reduced rail capacity for grains has resulted in the industry

increasing deliveries by road, resulting in higher execution

costs.

Reduced exports and the larger crop had a positive impact

on the Handling and Storage business.

After the exceptional price increases in agricultural inputs

during 2008 and 2009, the agricultural economy now finds

itself in a period of deflation. Farmers respond quickly to

international prices and exchange rates and anticipate

price increases. Farmers also defer purchases during a

period of declining prices. As such, the Retail and

Equipment division finds itself exposed to even greater

volatility in sales, with key selling periods becoming ever

shorter during the planting and growing seasons.


The Retail and Equipment business unit disposed of 23 of

its retail operations during the year. This disposal of stores

in the Lowveld and Natal regions further aligned the

business unit with the One AFGRI philosophy, more closely

focusing efforts on South Africa’s key grain growing areas.

The disposal of these stores reduced the business unit’s

headcount by more than 30% whilst reducing its retail area

35



by some 33%. The disposal of these branches led to the

overall trade density per square metre in the retail stores

increasing by 4,8% and in the spares areas by 14,4%.

The Handling and Storage division increased its available

capacity by 104 000 tons during the year, or 2%. This growth

was achieved through the construction of three new

permanent bunker facilities in the traditional grain storage

area. A total of 2 000 tons of storage capacity was lost

when a silo was broken down following the sale of the land

under a land claims settlement.

AFGRI also manages a further 276 000 tons of storage on

behalf of clients. The target for the 2011 financial year is to

increase the Group’s storage capacity by an additional

100 000 tons through the construction of three more

permanent bunker installations. In addition, the silo facilities

at the recently acquired Pietermaritzburg animal feed

factory provide access to a further 18 000 tons of storage

capacity in this area.

AFGRI’s reputation for quantity and quality control ensures

that it is strategically positioned to act as collateral manager

of Food Security actions in conjunction with banks,

investors, non-governmental organisations and government.

AFGRI Trading introduced a new administrative and

accounting system during the year. This in turn resulted

in greater automation of processes, leading to the

redundancy of 16 positions and a saving of approximately

R2 million per annum in personnel costs. In light of the

challenges faced by the trading operation it has committed

to a review of its trading model. Competition remains fierce

and a change to the current logistical environment does

not seem likely. The business must adopt a more

streamlined approach, reducing the costs and stock levels

to mitigate market influences. The division will adopt an

ALCO (assets and liabilities committee) model in the

coming months.


Retail and Equipment recorded a 16% decline in turnover

(after adjusting for the disposal of the Lowveld and Natal

retail stores). A significant portion of this decline can be

attributed to the 25% to 40% reductions in fertiliser and

animal feed retail prices. Sales volumes for the division’s

retail lines remained in line with the prior year but bulk

store sales (fertilisers etc) and direct sales reported

volumes lower than 2009.

In anticipation of a slower sales cycle an increased focus

was placed on stock management, reducing large orders of

high value items, and cost control. Operating expenses for

the division were reduced by 4% during the year whilst

margins were improved despite declining prices.

Productivity in workshops was increased from 80% to 85%

and this in turn led to an improvement in the Customer

Satisfaction Index (CSI) from 86% to 88%, well above the

national average.

The Equipment division sold 418 tractors (2009: 641) at

a regional market share of 31% (2009: 35%) and 40 combine

harvesters (2009: 48) at a regional market share of

47% (2009: 44%). The decline in new equipment sales had

a marked impact on the division’s results that was partly

offset by higher spares sales which reflected a year-on-year

increase of 7%.

Only the more urban located Farm Cities disappointed as

consumer spending was restricted by economic conditions.

Failure to grow market share in these stores however did

not mean a deterioration in results, as cost-cutting

measures and improved margins saw a reduction in the

loss made by these businesses to R4,2 million

(2009: R11,8 million).

The import, wholesale and distribution operation in

Bethlehem reported pleasing results as it grew market

share and margins. The operation services other

cooperatives throughout the country and has recently

secured the distribution rights for John Deere clothing and

novelties.

Despite the decline in commodity prices and the resulting

reduction in turnover, the Retail and Equipment division

improved its operating margin during the year through

proactive cost management. In terms of International

Financial Reporting Standards, once assets are classified as

held-for-sale, no further depreciation should be provided on

them. This resulted in a reduction in the division’s

depreciation charge for the year.

The Australia subsidiary, whose results are included with

those of the Retail business unit, reported a 13% reduction

in profit before tax due to lower margins in a very

competitive sales environment following the introduction of

state subsidies for the purchase of new equipment.

When considering the overall profitability of the Retail and

Equipment division, it is important to consider the

significant once-off items included in both the 2009 and

2010 results. In 2009 the Group reported a R29,6 million

pre-tax gain due to negative goodwill arising on the

acquisition of the share in a tobacco associate. During 2010

the division sold non-productive properties, realising capital

profits of approximately R12,6 million. The comparative

capital profits figure for 2009 was R29,1 million. These

capital and once-off items must be eliminated from both

the current and prior years’ results for the purposes of

36


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drawing comparisons. Other capital profits were realised by

the division through the sale of business units and

subsidiaries but these are reported under the results of

discontinuing operations.

The Retail and Equipment division reported a profit before

tax of R86,3 million including capital profits. After adjusting

both the current and prior year for capital profits and

once-off items, the division achieved a 5,4% increase in

profit before tax (after a reduced allocation of corporate

costs), a satisfactory result given the market conditions.

AFGRI’s Handling and Storage business unit once again

produced an excellent year. High opening stock levels and

increased storage periods of up to 15% supported a fine

performance where efficiency improvements and cost

containment also make valuable contributions. However,

longer storage periods also mean fewer dispatches and a

reduction in handling revenue. The net effect of the higher

stock levels and lower dispatches approximates

R20 million.

Despite only a 9% increase in revenue, the combined

Handling and Storage and Logistics business units reported

a profit before tax of R184,3 million, an increase of 33% on

2009.

The grain trading division sold some 2,8 million tons of

grain, of which 65% was sold on a delivered basis. Poor rail

delivery service resulted in only 10% of these commitments

being executed by rail, with the remaining balance

delivered by road. The impact of this is severe, with an

increase in delivery costs and time delays experienced

across the supply chain. Stock holding costs increased as

stock, acquired for export, was held for longer periods until

it could be utilised locally. A shortage of stock in certain key

locations resulted in higher procurement premiums being

incurred in order to meet obligations.

Turnover declined by 35% compared to 2009, which

included substantial maize exports to east Africa. Sales

commission percentages also decreased in 2010. More

importantly, execution costs (transport and carry or holding

costs) increased due to poor rail infrastructure, lower

exports and strikes.

A variety of once-off costs, including a loss of R3,8 million

on a soya shipment (due to the introduction of GMO export

legislation), an increase of R11 million in transport costs

due to the rail strike and transport impairments and

retrenchment costs negatively impacted on the operation.

The introduction of the long awaited new administration

system, whilst improving the division’s reporting

capabilities, came at a price – higher software amortisation.

Higher net assets throughout the year and the daily

calculation of balances by the newly introduced treasury

software resulted in a substantial increase in the business

unit’s internal interest charge.

Overall the Group’s trading subsidiary reported a loss

before tax of R33,9 million (2009: profit before tax

R12,5 million).


For the Retail and Equipment division, customer service

begins with knowing all of the customers in the stores

‘catchment’ area and regular farm visits and attendance at

farmer forums. Floor staff in the stores is trained in

customer service and product awareness. Similarly, point of

sale staff is trained to offer friendly and efficient service.

On the equipment side, prospective John Deere technicians

attend a training academy whilst receiving practical training

in the division’s workshops. The division participates in the

John Deere international Customer Satisfaction Index and

constantly strives to improve its score.

As farms become bigger and more independent of

agri-businesses it is vital to engage with customers at a

senior level to ensure that AFGRI adds value to these large

operations. Top clients of AFGRI are visited on a regular

basis by senior executives of the Group to obtain feedback

on customer service and satisfaction, ensure the products

and services meet the customers’ needs, identify product

enhancement possibilities and note any product, service or

personnel complaints.

The primary responsibility of Handling and Storage is to

guarantee the quality and quantity of grain under its

management. The provision of excellent service is vital to

the division’s future. Service excellence is achieved through

proper customer engagement and staff training. Contact

with customers is achieved through formal meetings such

as farmer union meetings and forum meetings as well as

personal visits by senior silo personnel. All staff members

at Handling and Storage are formally qualified through

attendance at relevant industry courses.

37



AFGRI FoodsThe AFGRI Foods segment consists of the Animal Protein

and the Oil and Protein divisions. The Animal Protein

division is represented by AFGRI Animal Feeds, AFGRI

Poultry (formally Daybreak) and Labworld.

AFGRI Animal Feeds boasts an annual manufacturing

capacity of over one million tons, ranging from poultry

to dairy to dogfood to fish and prawn feed. With

manufacturing operations in six provinces and several

strategically located depots, high quality livestock feed is

available throughout South Africa.

AFGRI Poultry, a vertically integrated broiler production and

processing business, having a capacity of over 675 000

birds per week produces individually quick frozen (IQF)

products for both wholesale and retail customers.

Labworld is a supplier of a wide range of laboratory

equipment used in the agricultural, food and beverage,

mining and petrochemical industries as well as academic

institutions.

AFGRI’s Oil and Protein division trades under the name

Nedan and comprises soya and cotton oil extraction plants

in Mokopane. Nedan processes the oil and other raw

materials into edible oils, fats and high-protein textured

vegetable products for the food processing and fast food

industries. Nedan is the market leader in texturised soya

protein for human consumption and oil cakes for the

animal feed industry.


The sustainability and growth of AFGRI Animal Feeds is

underpinned by its mission to be a world-class supplier

of technologically advanced products and value-added

services. As such, there is a drive to constantly improve

efficiencies and expand production capacity. This division

began the financial year operating six traditional animal

feed mills in Mpumalanga, Gauteng, Free State, Eastern

and Western Cape.

During 2010 the division has invested R56 million on

expanding production capacity. The most significant

investment was the acquisition of an additional feed mill in

Pietermaritzburg. In the Western Cape, a roughage plant

was commissioned and the capacity of the rendering plant

in Mpumalanga was increased.

AFGRI FOODS

In addition to the capacity expansions an additional

R32 million was expended on increasing efficiencies and

investments in new technologies. Certain of these

investments contribute to a more environmentally friendly

AFGRI Animal Feeds, through reductions in coal and

electricity consumption.

The division has also enhanced its distribution channels

through the opening of new depots in Bloemfontein,

George and Swellendam, providing the business access

to additional sales volumes of 60 000 tons per annum.

The division continues with its international expansion drive

through the Watertown, New York (USA) joint venture. The

resulting plant affords AFGRI access to the United States

dairy market, estimated at over nine million cows. The

plant, for which environmental clearance has been

obtained, will produce Aminomax and have a capacity of

48 000 tons per annum.

The division also has a small presence in the United

Kingdom through a joint venture.

During 2010 the AFGRI Poultry operation bedded down

the 2009 expansion to the Daybreak abattoir and began

further expansion. Efficiencies in the factory increased

throughput to 675 000 birds per week and plans currently

exist to increase this to 770 000 birds by the addition of a

weekend shift. Also during the year, the business acquired

the rights to the Hubbard breed, a bird bred specifically for

South African conditions and which will be introduced

throughout the AFGRI Poultry operation over the next

18 months.

AFGRI Poultry’s day-old chicks are produced by Midway

Chix which, with egg production from two farms allows the

hatchery to produce 875 000 chicks per week. During the

year AFGRI Poultry acquired the remaining interest in

Midway Chix. Surplus chicks are sold to third parties.

Eclipsing all of these expansion activities was the

acquisition by AFGRI Poultry after year-end of Rossgro, a

poultry abattoir located near to the original Daybreak

operation and having a capacity of 350 000 birds per week

and the secured supply of birds from contract growers. This

acquisition elevates AFGRI Poultry to a capacity in excess

of 1 million birds per week, a milestone for marketing and

distribution in this competitive industry.

During 2010, AFGRI Poultry increased its feed volumes

taken from Animal Feeds by 26,7% and is likely to repeat

this in 2011.

The completion of the abattoir expansion in 2009 allowed

the Group access to the retail market. Sales commenced to

three of South Africa’s large retail chains after passing

quality and food safety audits.

38


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At the two Nedan plants the focus has been the restoration

of the plants to their original design capacities and process

improvements. During the year, between 40 and

50 improvement initiatives have been implemented at

the plants, ranging from refurbishment of the extraction

plants to improving the oil packing line process flow.

Plans for the 2011 financial year include the introduction of

a continuous bleaching process within the soya refinery

and the crushing of sunflower seed at the existing cotton

plant.

The possibility of erecting a bunker storage facility on the

neighbouring site was investigated in conjunction with

Handling and Storage. The project was approved and the

site acquired.

These initiatives will enable Nedan to process a significant

portion of the local soya bean and sunflower seed crops.

Nedan is the only entity in the country that can process

cotton seed. The initiatives will also contribute to yield and

efficiency improvements and a reduction in consumables

usage.

Many of the current and future initiatives also address

operational risk and environmental issues which are

discussed elsewhere in this report.

External factors

The key external drivers impacting on AFGRI Foods is GDP

growth and consumer spending. Both of these factors have

negatively impacted upon the foods sector in the current

year although AFGRI Foods has reported improved results

overall.

A notable symptom of the poor economic conditions was

the price of poultry products which declined by an average

of 9,7% year-on-year. This was, in part, offset by lower raw

material ingredient prices. Selling prices were also driven

down by capacity expansion within the local industry.

Imported poultry products had less of an impact on prices

than in previous years.

Although the foods sector is not subject to the same

volatility as the agricultural sector these operations

represent a significant investment in assets (59% of the

Group’s fixed assets) and a commitment to maintenance

and fixed costs. Growth in this sector will be dictated by

improvements in per capita GDP. As disposable incomes

increase in line with an overall improvement in living

conditions, consumption moves away from vegetable

products to animal protein.

AFGRI Foods, together with the Group’s Handling and

Storage operations, consume significant quantities of

electricity, the availability and price of which impacts

directly on the results of these operations.

Municipal and provincial infrastructure poses a challenge

to the ability of these business units to operate and impacts

on the costs of doing business. In Mpumalanga and the

Free State, the conditions of roads have already led to an

increase in fleet maintenance costs. Availability of water

and the functioning of sewage systems have impacted

operations in both the Limpopo and Eastern Cape

provinces.


Animal Feeds’ volumes increased by 3,6% during the year

driven in the main by the expansion at AFGRI Poultry in

2009. Despite declining prices, margins were maintained

through improved manufacturing techniques and managed

procurement. Noteworthy is the additional R7,9 million

electricity cost, a factor of tariff increases, and representing

nearly 70% of the current year’s increase in costs.

Broiler feed prices declined by 7,1% during the year but

failed to offset the 9,7% decline in poultry selling prices.

Based on volumes, a R0,50 improvement in the net sales

value at AFGRI Poultry would have contributed an

additional R42 million to the Group’s operating profit.

On farm performance and abattoir efficiencies resulted in

AFGRI Poultry producing an improved result, contrary to

others in the industry. During April the farms exceeded a

PEF ratio (a ratio combining various aspects of farm

performance) of 300 although this has subsequently

declined slightly. For the year, farms’ performance averaged

a PEF of 271.

39



AFGRI Poultry also experienced the impact of significant

electricity tariff hikes, with this line item exceeding the

budgeted cost by 36%.

Higher volumes counteracted lower feed and chicken

selling prices, leading to a 2% increase in turnover for the

combined Animal Feeds and Broiler division. The division

improved its operating margin from 10,8% to 11,5% through

greater manufacturing efficiencies, feed formulation and

cost control. Higher depreciation and internal interest

charges are the result of investments made in the prior and

current years.

In total, the division reported a profit before tax of

R171,2 million, an increase of 11% on 2009’s R153,7 million.

Nedan’s results were driven by a 28% increase in sales

volumes and a 33% improvement in its gross margin

percentage, achieved through product mix variations –

a factor of unusual market conditions. In total, the Oil and

Protein division reported a 69% increase in profit before

tax, achieving R25,3 million (2009: R15,0 million).


For the foods sector businesses, customer satisfaction is

determined by product quality.

AFGRI Animal Feeds’ mission is to supply technologically

driven feeds and value-added services to clients to improve

the efficiencies and performances at farm level. This is

achieved through a sound scientific approach, focusing on

feed and food safety and quality, value addition to clients

through a process of training and empowering of highly

skilled technical advisers. Technology agreements with the

Dutch (Nutreco) and American (Agricultural Modelling and

Training Systems) companies play an important role in this

regard.

The broiler feed trial facility at AFGRI Poultry is an important

element in the success of AFGRI’s broiler feeds. As a

company that focuses on the newest technology, the

facilities are used to research various products and aspects

that can lead to reduced feed costs and improved

performance. The research of the last 18 months produced

two Master of Science theses, an indication of the quality of

research undertaken.

In the dairy sector, AFGRI Animal Feeds has become a

leading brand. The introduction of a revolutionary feeding

system, known as Kempen, has further entrenched the

business as an industry leader.

Considerable effort is also invested in the optimisation and

improvement of feed production processes in

manufacturing facilities to improve feed quality, animal

performance, and to supply ‘Safe Feed for Safe Food’. New

formulation strategies through highly skilled people are

employed to improve food performance and profitability.

AFGRI Poultry produces individually quick frozen (IQF)

chicken portions for a range of customers, ranging from

small independent wholesalers to the country’s large

retailers. After food safety and product quality, customer

service hinges on providing the optimal product mix

through efficient distribution channels.

At Nedan, customer service is focused around service

delivery out of model stocks and in line with product

specifications. Regular customer visits are undertaken to

ensure the divisions product range meets customer

expectations. Key initiatives are also undertaken to develop

specific products that meet customers’ functional

requirements.

All of the foods business units have product complaint

monitoring systems that ensure that all product complaints

are logged and followed up. Remedial action is taken where

necessary.

40


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AFGRI CorporateThe AFGRI Corporate office performs a variety of tasks for

the individual business units, as well as housing the Group’s

executive office. Besides the traditional accounting and

secretarial services provided to Group divisions and

subsidiaries, the Corporate office also provides legal

counsel and corporate finance services, performs the

central HR and payroll functions. The strategic elements of

Information Technology, in terms of both services and

infrastructure, are also centralised in the Corporate office.


The Corporate office also collects a significant number of

business unit costs. Where these costs can be directly

attributed to individual businesses, they are recharged.

During 2010 a new model for the recovery of IT

infrastructure related costs was introduced, resulting in

an increase in the charges to the business units and a

reduction of unallocated costs attributed to the Corporate

office. In the Group’s segment report, these unallocated

costs are apportioned to the business units on a basis

consistent with prior years.

In addition, AFGRI Limited unwound its HY Investments

2B (Pty) Limited Preference Share investment (refer to the

note 2 of the company annual financial statements). This

led to a reduction in other operating income and a similar

reduction in finance costs.

The 2009 results include a R58,6 million surplus due to the

apportionment of the Group’s pension fund surplus.

The more complete charging to business units of directly

attributable costs resulted in reduction in the corporate

costs allocated on the segment report, from R142,9 million

to R105,9 million.

Discontinued operations Structuring for growth

During the year the Group disposed of the following

operating units as going concerns:

AFGRI Seed to Klein Karoo Seed Marketing (Pty) Limited

Retail branches in the Lowveld region to MGK Operating

Company (Pty) Limited

Retail branches in the Natal region to TWK Industries

(Pty) Limited

The assets and business of Tsunami Crop Care (Pty)

Limited and Tsunami Plant Protection (Pty) Limited to

Arysta Life Science South Africa

The debtors book and business of Capital Harvest (Pty)

Limited, the Western Cape operation of AFGRI Advances,

to management.


A summary of the results of the individual business units

disposed of during the year appears in note 29 of the

annual financial statements. Included in the results are

pre-tax capital profits realised on the disposal of these

businesses and their associated assets of R37 million.

41



I acknowledge and respect diversity, promote equal opportunity and fairness

I respect and care about the environment and the community

I listen, consider and respect other people’s point of view

I appreciate other people’s strengths and weaknesses

I am on time for appointments and arrive prepared

42


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Jan van der Schyff, Chief Financial Officer

AFGRI will remain committed to South African agriculture whilst its growth into Africa and the foods sector will benefit all of its stakeholders, from investors, to customers, to employees.

IntroductionThe Group’s 32% increase in after tax profit follows on from the 19% improvement reported in 2009 and represents the fifth consecutive year in which AFGRI has reported a growth in profits. Underlying this performance are the individual results on the business units, detailed in the “Review of operations” appearing on pages 30 to 40 of this report.

Many years of restructuring have preceded this year’s results. AFGRI has historically been beset with poorly performing business units, some inherited as the result of debt default by the previous owners and others through an exposure to the cyclical nature of the agricultural sector in which AFGRI predominantly operates.

Restructuring continued this year with the disposal of business units outside of the value chain or region that AFGRI wishes to serve – businesses outside of the vision of One AFGRI. But, for the first time since 2005 the discontinued line reflects an after tax profit as opposed to the losses made in previous years. This indicates that the disposal of underperforming businesses has reached, or nearly reached, its conclusion. With one or two minor exceptions, future corporate activity at AFGRI will be more positively focused on growing the business.

In the current year’s results, it is only the grain trading business that disappointed. In a difficult year for AFGRI Trading in which execution costs increased and export volumes declined steps have already been taken to rationalise the operations of this business unit. Despite its name, AFGRI Trading does not actively assume open positions and merely manages the procurement and delivery against predefined contract terms. This operation’s losses are the result of increased

Chief financial officer’s report

0

100

200

300

400

500

600

Pre-tax profit (R million)

100908*0706

541,

2

453,

3

308,

0

344,

1

186,

3

0

2 000

4 000

6 000

8 000

10 000

12 000

Total revenue (R million)

100908*0706

8 32

5,7

9 26

4,110

690

,5

6 53

0,1

5 73

9,0

*16 month period

*16 month period

43



costs; changes in the valuation model applied to stock and certain once-off items,

and not from trading losses.

The return to profitability of AFGRI Capital is perhaps the most pleasing aspect of

this year’s result. After the credit crunch and the liquidity constraints which

peaked in December 2008, it is both satisfying and a relief, to see that the steps

taken in the midst of the crisis have enabled this business unit to continue to

provide finance to both producers and processors of food for the nation. The

smaller debtors book allows a greater focus on cost control and service levels.

During the current year this came at a cost – that related to unutilised facilities.

The ongoing alignment of the Group’s funding with its financing needs will

improve this situation.

The grain handling and storage division often does not receive the credit it

deserves. The consecutive years of good agricultural conditions have almost

made good performances from this division the expected norm. Partly these

ongoing results have been the result of a diversification of the business into other

products and services which complement the handling and storage of grain. In

order to ensure these results into the future the division will need to diversify

further, extending its footprint (both regionally and by product) through the

promotion of the use of bunker storage facilities.

Finally, the Group’s stated strategy to expand into the foods sector has been

endorsed not only by the satisfying results from the Animal Feeds and Poultry

division but the significant improvement in results from the Oil and Protein

division. The Oil and Protein results were, in part, due to an unusual year of oil and

seed prices, although exciting plans for the Mokopane operation will see this

division move from strength to strength. With the capacity of AFGRI Poultry now

surpassing the one million birds per week target a return to strong economic

growth should see the segment’s contribution to the Group increase significantly.

Group performanceDuring the year ended 30 June 2010, the Group’s revenue from continuing

operations declined by 9% to R7,3 billion. This decline was driven by lower

commodity prices (fertiliser and animal feeds) at the retail and primary inputs

businesses and a decrease in interest income due to lower interest rates and a

reduction in the size of AFGRI Capital’s debtors book.

The disposal of the Lowveld and Natal retail branches and the Tsunami chemical

subsidiaries saw the allocation of approximately R1,1 billion (2009: R1,2 billion) of

revenue to discontinued operations.

The Group’s gross profit of R2,2 billion reflects a decline of 3% or R61 million on

the 2009 result after the restatement of discontinuing operations. This is not due

to a deteriorating gross profit but rather is the result of the Group’s practice of

disclosing interest income for the AFGRI Capital business unit as turnover whilst

the interest costs associated with this business unit’s debtors’ funding activities

are reported under “Finance costs”. In total, the interest income for AFGRI Capital

declined by R196 million.

Other operating income from continuing operations of R79 million

(2009: R116 million) has reduced due to the unwinding of two preference share

investments in both AFGRI Capital and AFGRI Limited. This resulted in a reduction

in preference dividends earned, but also a reduction in finance costs.

Selling and administration costs, which include other operating costs, for the

Group’s continuing operations of R1,37 billion (2009: R1,25 billion) reflect a

0

100

200

300

400

500

Net asset value (cents per share)

1009080706

451

430

404

361

355

0

100

200

300

400

500

Profit for the year (R million)

100908*0706

467,

1

354,

0

298,

5

275,

7,1

171,

9

0

5

10

15

20

Return on shareholders equity (%)

100908*0706

19,7

0

16,3

0

16,9

0

15,8

0

11,7

0

*16 month period

*16 month period

44


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Chief financial officer’s report continued

10% increase. Key elements driving this increase include:

increased volumes and headcount at AFGRI Poultry arising

from the 2009 expansion; higher distribution costs arising

from increased AFGRI Poultry volumes and also increased

fleet maintenance due to the poor conditions of certain

roads; redundancy costs of approximately R15 million; the

amortisation of the intellectual property intangible asset

acquired in 2009; the depreciation of various capital items

commissioned in 2009 (especially at AFGRI Poultry and

Animal Feeds); increases in administered prices (notably

electricity) and a swing of approximately R29 million of

foreign exchange differences across the Group.

The decline in finance costs from R666 million to

R456 million is the result of lower interest rates, a reduction

in the Group’s average debtors book and a greater

alignment between facilities and the Group’s funding

needs, reducing the overall cost of debt.

The profit before tax from continuing operations of

R453,7 million reflects a decrease of 8,5% on the 2009

result. However, the 2009 result includes the once-off

results arising from the apportionment of the Group’s

Pension Fund surplus of R58,6 million and the negative

goodwill arising from the acquisition of a share in the

Group’s tobacco associate of R29,6 million. Adjusting for

these two factors, the current year’s result represents an

11% increase in pre-tax profit from continuing operations.

In terms of the partnership agreement between AFGRI

Operations Limited and Agri Sizwe, the Group’s BEE partner,

the allocation of profits between the partners takes place at

the income before tax level of AFGRI Operations Limited.

Any profit or loss in AFGRI Limited is excluded from the

profit apportionment calculation. The unwinding of the

preference share investment by AFGRI Limited during the

year resulted in a once-off R9 million loss in AFGRI Limited,

resulting in the proportion of the Group’s pre-tax profit

(from both continuing and discontinuing operations) being

apportioned to Agri Sizwe, decreasing from 24,1% in 2009

to 23,9% during the current year.

After subtracting the Agri Sizwe profit share and the other

minorities, the effective tax rate for the AFGRI group of

companies during 2010 amounted to 19,6%. The reduction

in the Group’s average tax rate compared to the legislated

rate of 28% is the result of various factors, including a once-

off STC credit of approximately R26 million arising from the

unwinding of the preference share investment in AFGRI

Limited, capital profits on the disposal of assets, the

remaining tax benefits of the preference share investment

held in Gro Capital, and the derecognition of deferred tax

asset in a foreign subsidiary. The Group does not expect

to be able to maintain such a low tax rate and future tax

charges should approximate the legislated rate.

Overall, AFGRI recorded a profit for the period from

continuing operations of R392,5 million, a decrease of 2,7%.

Once again, adjusting for the once-off items in 2009, a more

correct indicator of the Group’s performance suggests a

growth of 24,5% in continuing operations’ profits.

The contribution to the Group’s profit before tax from

continuing operations from the foods segment of

R196,5 million represents 43% (2009: 34%) of the total

pre-tax profit from continuing operations. It is the stated

intention to expand into the foods sector with the goal of

increasing its contribution to 60%.

Details of the results from AFGRI’s discontinuing operations

can be found in note 29 of the annual financial statements.

In summary the Group disposed of mainly profitable

operations, at a profit, but which did not meet with the

Group’s strategy.

Profit for the period from all operations of R467,1 million

represents an increase of 32%. This amounts to earnings

per share of 94,7 cents per share (2009: 72,70 cents per

share). After considering the reinvestment of cash realised

from the disposal of non-core businesses, and the Group’s

policy of declaring a dividend that would be covered

between two and three times by earnings, the Board of

Directors have declared a final dividend of 17,15 cents

per share (2009: 16,70 cents per share), bringing the

total dividend for the year to 41,3 cents per share

(2009: 36,40 cents per share), a 13% increase.

Group position and cash flowsOne of the material issues running through this year’s

integrated annual report is ‘Structuring for Growth’. A great

deal of this restructuring has focused on value chain and

regional alignment, non-productive assets and achieving

balanced staffing levels. All of these aspects contribute to a

stronger balance sheet – one in which the Group has

increased interest cover through the greater alignment of

the funding needs of the different elements of the diverse

AFGRI group.

During 2009 the Group entered into agreements with

financiers specifically to secure funding for the debtors

book which had a long tenure. Once the future of the

lending activities of the Group had been secured, greater

attention was paid to funding the balance of the Group’s

activities, ensuring as little cross-funding as possible. At

AFGRI we clearly differentiate between the funding

requirements of AFGRI Capital and the remainder of the

business.

AFGRI Capital fundamentally uses 100% debt, less the

equity advanced to financiers as cash collateral deposits, to

fund its lending activities. This equity contribution, funded

45



by the Group, is charged to the division on the same basis

as equity applied in the Group’s other business activities,

on the basis of a 30% interest-free loan and a 70%

interest-bearing loan. The alignment of the debtors book

with the Group’s targeted value chain saw significant

reductions in the Group’s debtors book over the past

18 months, from R4,9 billion at 31 December 2008 and

R5,0 billion at 30 June 2009 to the current level of

R3,9 billion. Despite cash collateral requirements being

increased by the funders of AFGRI Capital during this

period, the cash collateral deposits, or equity invested

in AFGRI Capital has reduced from R702 million at

31 December 2008 to R422 million at 30 June 2010 as

a consequence of the reduced debtors book.

The improved understanding AFGRI Capital has with

its lenders, the longer tenure of the debt and the

restructuring of the business in general has allowed the

division to return to profitability during the current year.

Negotiations are ongoing to further match the division’s

funding requirements with the facilities arranged, ensuring

a higher facility utilisation rate and the reduction in

undrawn facility fees.

The improved financial position of AFGRI Capital has also

resulted in other benefits, including a reduction in the cost

of general banking facilities. Some of these facilities are

now cheaper than the debtors specific funding. As such,

the Group has employed more general banking facilities to

finance trade debtors, resulting in an increase in “trade and

other receivables” not financed by banks and a further

reduction in cash collateral deposits.

Overall the Group’s gearing has improved from 78% to 73%

and its interest cover from 1,7 times to 2,0 times.

By excluding the debtors’ lending activities of AFGRI Capital

from the Group’s financial statements it is possible to

determine the gearing and debt position of the remainder

of the business. Although there are a few minor exceptions

to the rule, traditionally the Group has not used long-term

funding to finance any assets. The balance of AFGRI’s

operations are funded by short-term overdrafts and loans,

matching the short-term nature of the Group’s assets if one

assumes that the Group’s equity finances the property,

plant and equipment. The Group’s calculated “natural

gearing”, after excluding the balance sheet of the debtors

lending business unit, has improved from 70% to 67%

during the year. However, the interest cover for the

continuing operations of the Group excluding the financed

debtors book has deteriorated slightly from 5,25 times to

4,80 times. In part this is a function of the reclassification

of Tsunami to discontinuing operations.

Growth into the foods sector was achieved during 2009

and 2010 by adding to existing operations, in the form of

expanding the AFGRI Poultry abattoir capacity, acquiring the

remaining minority interests in the Midway Chix business

and, subsequent to year-end, acquiring the processing and

marketing elements of Rossgro, a poultry operation situated

close to the existing operations in Sundra, Mpumalanga.

Besides an insignificant amount of long-term debt raised

to finance the expansion at AFGRI Poultry’s abattoir, the

balance of this expansion has been paid for with cash.

Improved cash management, the disposal of non-core

business units (Tsunami and retail branches in the Lowveld

and Natal regions) and the sale of non-productive property

assets all contributed to the Group’s improved cash position.

The current year’s acquisitions will have a positive effect on

the Group’s earnings through the introduction of synergies

and will more importantly, increase the proportion of

earnings from the foods sector, considered less cyclical

than the primary agriculture sector. However, they

represent a small beginning when considering the Group’s

greater aim – to increase the proportion of earnings from

the foods sector to 60%. All things being equal, this would

require a R185 million increase in the food segment’s

profits in the current year. Acquiring new business that will

provide the potential to achieve the Group’s goals will

require the introduction of additional funding to AFGRI

– funding that, contrary to the AFGRI’s record of not making

use of long-term debt, may well be founded on the Group’s

quality fixed assets.

As already alluded to, the Group’s cash position improved

through a combination of improved funding terms,

increased profitability and a greater alignment to the

targeted value chain. Another critical element of AFGRI’s

cash management during the year includes the realisation

of R140 million of cash from the sale of surplus, non-

productive assets. Combined with the R104 million realised

in 2009, the Group is now only R6 million from its target of

R250 million. The sale of Tsunami and the retail branches

resulted in a further R270 million of cash funds.

A significant proportion of the cash generated by, and

utilised in working capital is represented by the changes to

the financed debtors and the bank funding arranged for this

purpose. The movement in the unfunded debtors’ balance

from R483 million to R545 million arises because of an

improvement in the cost of general banking facilities as

opposed to specific borrowings against debtors.

The Group invested some R356 million in fixed and

intangible assets during the year. Major items included in

this spend are the feed mill in Pietermaritzburg, an

optimiser at the Isando feed factory, a roughage plant in the

Klipheuwel feed factory and a fat coater at the Bethlehem

feed factory, various items of equipment at AFGRI Poultry’s

abattoir, five additional grain storage bunkers throughout

the country and the capitalisation of costs associated with

the planned SAP implementation.

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Chief financial officer’s report continued

Financial risks and AFGRI’s responseAFGRI has always implemented strong risk management, internal controls and internal audit processes to minimise the risk of loss through a structured approach driven by a bi-directional (top-down and bottom-up) approach to risk identification. The Group has substantially complied with all of the requirements of the King II Report on Corporate Governance. AFGRI is committed to further strengthening the Group’s management of risk through compliance with King III, thereby extending the Group’s risk management framework. More details regarding AFGRI’s risk management is provided in the Corporate Governance report beginning on page 62. Details of the Group’s management of financial risks are provided in the Financial Risk Management Accounting Policy on page 101.

Several initiatives were undertaken during the year to reduce underlying cost structures and to increase efficiencies throughout the business. The most regrettable of these was the retrenchment of employees in several of AFGRI’s business units. The disposal of the Lowveld and Natal regions retail stores and non-productive properties also resulted in a permanent reduction in overhead costs. Regular prizes are awarded for implemented cost-saving suggestions and the annual Chairman’s award for exceptional contributions to the Group also encourages efficiency drives throughout AFGRI.

Perhaps the initiative that will have the most significant and lasting impact on the Group’s cost structure, which began in 2010, is the planned implementation of SAP across a significant portion of AFGRI’s operating units and the establishment of a centralised Shared Services Centre for the processing of repetitive transactions, such as debtor receipts processing, creditor invoice capturing and payments, fixed asset and cash book management. The software and the re-engineering of processes will allow for improved internal controls and segregation of duties, the application of common policies and procedures across the Group, faster reporting and greater visibility of cost line items across AFGRI’s business units.

In addition to the Shared Services Centre, definitive Centres of Excellence, some of which already exist, will be established for Human Resources and Payroll, Taxation, Corporate Finance, Financial Accounting and Legal and Secretarial Services. The Centres of Excellence and the Shared Services Centre will all be located in the new AFGRI building in Centurion, introducing a level of efficiency never before possible.

With a debtors book of more than R3,5 billion, funded approximately 88% by financial institutions, credit control is perhaps the most significant financial risk facing AFGRI. Details of the credit control process are provided in the Financial Risk Management Accounting Policy on page 101.

The efficacy of these procedures and controls is reflected in AFGRI’s enviable bad debt history. During 2010 AFGRI Financial Services wrote off only 0,5% of the average debtors book value. The division’s impairment allowance was increased by R4,3 million to R128,5 million (2009: R124,2 million).

The global credit crunch towards the end of 2008 highlighted AFGRI’s exposure to the credit markets, in particular liquidity and interest rate risks. Early in 2009 management began a process to reduce this exposure and employed a variety of tactics to achieve this. Firstly, existing credit customers were repriced as soon as agreements allowed. New credit applications were priced according to the Group’s cost of funding. Reducing the size of the debtors book became an imperative for AFGRI and this was achieved through the alignment of the book with the value chains and regions in which AFGRI wishes to conduct business. Finally, existing and new financiers were approached to provide funding that had a longer tenure and improved terms. The diversification of lenders and the careful matching of the funded assets with the funding has mitigated AFGRI’s exposure to the credit markets and reduced the overall cost of funding for the Group. At present, surplus funding capacity exists, resulting in undrawn facility fees. This is currently being addressed with the Group’s lenders.

ConclusionAs the Group nears the completion of its restructuring programme, the remaining core operations provide it with a diversity of products and services and a broad and loyal customer base. AFGRI will remain committed to South African agriculture whilst its growth into Africa and the foods sector will benefit all of its stakeholders, from investors, to customers, to employees.

Jan van der SchyffChief financial officer

31 August 2010

47



I take full responsibility for my actions

I enforce discipline

I act and behave in a disciplined manner

I embrace my job function and execute it to the best of my ability

I adhere to Group policies and procedures

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As with our goal of seamless service to customers across the value chain, the One AFGRI philosophy is the foundation for a single, but culturally diverse AFGRI.

IntroductionThe previous chapters of this integrated annual report have, to a great

extent, focused on AFGRI’s commercial operations and the results of

these operations. AFGRI recognises that its diverse businesses do not

operate in isolation from the broader society nor are they able to

operate without committed and skilled employees. For this reason

AFGRI has, in its first integrated report, identified material issues that

are fundamental to its long-term sustainability and that have been,

and will continue to be, cornerstones of AFGRI’s operations.

Although the business units themselves are responsible for

implementing many of the activities discussed in this chapter, all are

driven by AFGRI’s Operating Committee, a subcommittee of the AFGRI

Operations Limited Board.

StakeholdersSpecific stakeholders were identified for each individual business unit

and through ongoing stakeholder engagement at business unit level

potential issues relating to these stakeholders were listed. Through

the application of GRI principles specific stakeholders were grouped

together and then prioritised in terms of their influence on AFGRI and

AFGRI’s influence on them. Stakeholders were prioritised as follows:

Shareholders and the wider investor community

Employees

Customers

Lenders

Suppliers

Regulators, including government departments

Civil society.

Corporate responsibility

Committed to

the ONE AFGRI philosophy

49



Again, using the various principles of the GRI, including

materiality, inclusiveness and sustainability context the

material issues as tabled on pages 8 to 11 were selected

for inclusion in this integrated report.

Engagement with stakeholders takes a variety of forms, a

summary of which appears below:

Investor

community

Bi-annual results presentations, roadshows, annual report, bi-annual investor surveys, one-on-one meetings, annual open days, ad hoc JSE SENS.

Employees Divisional meetings, monthly newsletter and quarterly CEO letter, union and workplace representatives, collective bargaining council negotiations, functional committees.

Customers One-on-one business dealings, forums, physical and electronic correspondence, annual credit reviews, customer surveys, farmers’ days and other events.

Lenders Various reports as dictated by facility letters, one-on-one business dealings, written correspondence.

Suppliers Supplier appraisals, one-on-one business dealings, correspondence.

Regulators Formal and informal meetings, reporting, correspondence.

Civil society Consultations with communities, workshops, conferences and CSI activities.

Human capital

AFGRI employs over 4 000 full time and temporary

employees, with the vast majority in South Africa, and is

committed to fair employment practices. The relationship

between employer and employee is governed by a recently

revised set of human resources policies and procedures.

The current year’s review of these policies and procedures

was undertaken to ensure compliance with South African

legislation on labour practices and involved extensive

consultation with employees across the Group.

AFGRI’s labour turnover for 2010 is calculated at 8,4%.

During the current year the Group reported an overall

decline in headcount of 426 employees. This decline was

driven in the main by the disposal of non-core businesses

and the non-renewal of contracts for part-time (seasonal

and casual) employees. Altogether 276 employees resigned

during the year and a further 68 retired or passed away.

A total of 57 employees were retrenched.

Included with the human resources policies and

procedures are grievance and disciplinary policies and

procedures. These policies and procedures exist purely to

Stakeholder grouping Forms of engagement

ensure fairness when dealing with grievances and

disciplinary matters. During 2010, 276 disciplinary actions

were taken. Of these actions 140 resulted in the employee’s

dismissal. Only one grievance against the Company was

lodged during the period. Two employees were dismissed

for racism.

Collective bargaining agreements exist with FAWU and

SATAWU and apply to less than 10% of the Group’s

workforce. The Group complies with the Labour Relations

Act and its requirements for operational changes.

During the financial year 2 126 or 50% of AFGRI employees

received some form of training or skills development.

White employees, who comprise 34% of the workforce,

represented a disproportionate 922 or 43% of the

employees trained. Whilst AFGRI recognises the importance

of ensuring all employees are adequately trained, future

training and development focus will be predisposed to

black employees, in order to meet the Group’s obligations

for skills development and, in time, employment equity.

To this end, all training and development endeavours have

been centralised as part of driving the One AFGRI principle,

and enabling the monitoring and recording of all training.

Succession plans for each business unit’s key positions are

reviewed on an annual basis to ensure that the Group has

an adequate depth of experience and skills. Employment

equity is also considered during divisional and Group

succession planning. During the year 40 employees

participated in in-house Management Development

Programmes.

AFGRI’s philosophy is to remunerate its employees

equitably and to reward based on individual performance.

During the year a Group-wide review of job descriptions

and job grades was completed. In November 2009 all A and

B graded staff were awarded an above inflation increase in

order to address discrepancies that had developed over

time. With the completion of the grading exercise review,

a full review of compensation and benefits for each grade

and position will be undertaken in the new year.

Performance management systems exist throughout the

Group and are used to determine annual increases and,

where applicable bonuses, for individual employees.

The centralisation of the presently decentralised human

resources administrators, planned for October 2010, will

allow for greater consistency between these systems and

move the Group closer to its One AFGRI goal.

AFGRI Capital engaged in a restructuring exercise in

October 2009. The Trading and Logistics restructuring

was completed before 30 June 2010. The restructuring

exercise will continue with Financial Services and

throughout the administrative functions of the Group

with the establishment of a Shared Services Centre. It is

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Corporate responsibility continued

AFGRI Poultry provides mentorship to poultry contract growers

Sinamuva is a broiler farm situated between Delmas and Bronkhorstspruit.

The three chicken houses on the farm are subsidised by the Mpumalanga

Department of Agriculture and Land Affairs. The chicken houses came into

production during May 2009. Ownership of the farm is in the form of a trust and

11 black workers on the farm are trustees.

Sinamuva has a contract with AFGRI Poultry to produce 120 000 broilers per cycle.

They receive day-old chicks from AFGRI’s Midway Chix and broiler feed from

AFGRI Animal Feeds. The Mpumalanga Department of Agriculture and Land Affairs approached AFGRI Poultry to identify

a BEE partner to manage the farm. Through various consultation processes, Sinamuva was subsequently selected.

AFGRI Poultry provides management, technical and financial support and mentoring including business administration,

house preparation, placement of chickens and cleaning of houses. The support and knowledge from AFGRI Poultry,

coupled with the state-of-the-art equipment installed in the houses has enabled Sinamuva to produce superior quality

broilers. The trustees also work diligently, contributing to a good working spirit.

The manager and the trustees admit that one of the main challenges is disease control and maintaining bio-security at

all times. This is what they had to say: “Contract growers should not compromise on the infrastructure of quality

chicken houses. A quality controlled environment minimises human error. In the broiler industry, broilers are bred to

reach certain standards at specific ages. For this reason, the birds are extremely sensitive to temperature fluctuations

and ventilation. Above all, one needs to be a good observer of chicks’ behaviour and be able to implement necessary

changes to ensure perfect conditions for the birds. Lastly, it is possible to have a successful and prosperous BEE

project and we would like to be rolemodels for other partnership projects like this”.

(The literal translation of Sinamuva in this context means that those who were disadvantaged before are now being

empowered to move forward.)

51



envisaged that this process will be complete by the end

of September 2010.

The Group is committed to the provision of a safe and

healthy working environment for its employees. All

workplaces comply with the requirements of the

Occupational Health and Safety Act. AFGRI utilises the

services of an external service provider to conduct

operational risk audits. During the year 76 incidents

(2009: 48) were reported resulting in time lost due to

injuries. No incidents of permanent disability were

reported (2009: 1).

Management acknowledges that more can be done to

minimise injuries at the workplace. One of the initiatives for

2011 will be to retrain Safety and Health representatives,

including supervisors.

Transformation

AFGRI employs the services of EmpowerDEX Economic

Empowerment Rating Agency to verify its B-BBEE generic

scorecard (the scorecard) rating. The latest verification

report was issued on 18 September 2009 but is based on

information for the 2008 financial year. Because of the

delay in issuing this report, management have decided not

to prepare a scorecard based on the 2009 financial year

and to delay the verification of the 2010 scorecard until the

finalisation of the 2010 integrated annual report.

As such, many of the scores discussed below are outdated

and will be revised before the end of October 2010 (the

target date to complete the next verification exercise).

Where management believe there has been a material

change to the scorecard based on recently introduced

internal ‘shadow’ rating reports, this is noted.

OwnershipAFGRI’s transformation journey began in 2004 when it

concluded the disposal of a 26,77% undivided interest in

the business of AFGRI Operations Limited to the Agri Sizwe

Empowerment Trust. AFGRI Operations Limited and the

trust are co-owners of the entire business undertaking

conducted as a going concern by AFGRI Operations Limited

and AFGRI Operations Limited continues to manage the

entire business undertaking in a partnership.

Included as beneficiaries of the Agri Sizwe Empowerment

Trust are trusts formed for the benefit of historically

disadvantaged employees of the AFGRI Group and a trust

to establish a fund for charitable and educational purposes

for the benefit of historically disadvantaged employees

earning below an annually predetermined wage, retired

employees and the immediate dependants of employees.

This ownership structure results in AFGRI Operations

Limited recording 16,25 points in the ownership element of

the scorecard.

AFGRI issued a SENS announcement on 13 May 2010, which was renewed on 25 June 2010, advising shareholders that it was in discussions regarding the potential restructuring of this empowerment shareholding. More recently the Group distributed a circular to shareholders describing a planned restructure of this empowerment shareholding. This restructuring was approved by shareholders at a special general meeting held on 27 August 2010. This restructuring will not reduce AFGRI’s empowerment credentials in terms of the scorecard.

ControlAt the end of June 2008 the AFGRI Limited Board of ten members included three black males and one black female. The Board of AFGRI Operations Limited reflected only a single black male in its composition of eight members. These Board compositions resulted in AFGRI Operations Limited only achieving a score of 1,41 points in the control element of the scorecard.

During the current financial year key changes have been made, especially to the AFGRI Operations Limited Board, which now includes three black males out of a total membership of seven, a 43% representation. As such, management believe that the points achieved for the management element of the scorecard will improve for 2010.

The restructuring of the empowerment shareholding discussed above, together with the retirement of several members of the AFGRI Limited Board at the forthcoming annual general meeting will result in changes to both the AFGRI Limited and AFGRI Operations Limited boards. Preference will be given to the appointment of independent black directors to both boards in order to at least maintain the improved score for this element.

Employment equityManagement and the Board acknowledge that the Group has failed to transform its workforce to even a minimum level. At 30 June 2008 AFGRI did not reach any of the sub-minimum targets for employment equity dictated by the B-BBEE Codes of Good Practice. As such it failed to score any points for this element of the scorecard.

Although some progress has been made, it is expected that this situation will recur for the year ended 30 June 2010.

The Group’s Human Resources department has invested considerable effort during the year in finalising job descriptions, completing a full re-grading exercise and reviewing levels of pay for the lowest paid members of staff. The re-grading exercise, together with knowledge about staff turnover will form the basis of the Group’s employment equity plan for the next five years. In order to achieve the sub-minimum targets at all three levels of management by June 2011 this plan will need to be uncompromising and will be supported by an extensive skills development plan.

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Skills developmentAFGRI’s poor performance in employment equity is

mirrored by, and partly the result of, its poor performance in

the area of skills development. Achieving a score of only

0,19 for this element of the scorecard, skills development,

together with employment equity, have been elevated to

the top of the Group’s priorities for 2011 and 2012. Senior

management’s key performance areas have been

expanded to include skills and employment transformation

within individual business units.

A Group Training Manager will be appointed to drive the

workplace skills plan and manage the appropriation of a

significant budget in the coming years.

Preferential procurementThe Group had more success in targeting its procurement

towards empowered entities. In 2008 AFGRI recorded

9,70 points in this element of the scorecard.

2010 saw the introduction of a Procurement Council to the

Group. Besides the introduction of commodity buying

teams, centralising procurement of consumables and

services and the assessment of suppliers, this council will

manage the Group’s procurement practices, including the

introduction of a Procurement Policy which dictates that

preference will be given to level 4 and higher contributors.

Enterprise developmentThe Group invested considerable sums in an enterprise

development strategy known as AFGRI Farming in the

2007/2008/2009 financial years. The programme called for

the utilisation of AFGRI’s farming inputs (seed and fertiliser

etc) to commercially farm in partnership with communities

in rural areas having access to either communal agricultural

land or land obtained through the government’s land

reform programmes. For various reasons, not least of which

being a lack of appropriate skills and management, the

farming of dry lands, and unchecked expansion to

thousands of hectares, the various partnership projects

failed and the entire programme was closed towards the

end of 2008.

These efforts and the funds invested directly into these

communities allowed AFGRI to achieve full points for the

enterprise development element of the scorecard. As

enterprise development spend is measured cumulatively,

it is estimated that the Group does not need to invest any

more funds during the coming year in order to repeat this

achievement.

In the current year, AFGRI’s enterprise development efforts

were restricted to proving a model for irrigated, two crop

farming on small parcels of land. This was done in

conjunction with a black farmer in the Brits area and

several farming input companies who provided technical

advice on irrigation, land preparation, planting, fertilisation

and pest control. Two junior farm technicians are also

employed to obtain the necessary experience to act as

extension or training officers should the project prove to be

successful and rolled out to other areas.

During the 2011 financial year, AFGRI will revisit its

objectives regarding enterprise development. A proposal

has been submitted to the Board recommending that future

projects be focused on the Group’s core expertise and not

restricted to primary agricultural production, that projects

be undertaken in conjunction with individual business units

ensuring the creation of a market (either demand or

supply), that projects are supported by a budget and

measureable outcomes, appropriately scaled and managed.

Socio-economic developmentAFGRI’s CSI (Corporate Social Investment) Manager is

responsible for the success of the Group’s socio-economic

development activities. With spend focused on a restricted


Male

Occupational levels African Coloured Indian White

Top management 2 – – 4

Senior management – – – 19

Middle management – professionally qualified and specialists 8 1 4 183

Junior management – academic qualified and skilled technicians 145 22 17 494

Semi-skilled and discretionary decision making 558 27 5 95

Unskilled and defined decision making 801 10 1 12

Total permanent workforce 1 514 60 27 807

At 30 June 2010, the racial and gender profiles of the Group’s permanent South African workforce were:

53



Female Total SA

work-force

% black

representation

% black

female representationAfrican Coloured Indian White

– – – – 6 33 –

– – – – 19 – –

1 2 2 23 224 8 2

31 9 5 249 972 24 5

126 23 11 231 1 076 70 15

150 6 – 1 981 99 16

308 40 18 504 3 278 60 11

number of projects in the areas of: agriculture and food

security; education; the environment; and poverty

alleviation and welfare, AFGRI strives to have a meaningful

impact on communities closely associated with its

activities.

At June 2008 AFGRI recorded a score of 2,16 points for the

SED element of the scorecard. In 2010 the Group spent

some R3,1 million on socio-economic development

projects (approximately 0,7% of its profit after tax) and

therefore expects its points for this element to increase

when the 2010 verification exercise is complete.

Contributor statusIn total, AFGRI recorded a score of 44,71 points at 30 June

2008 resulting in its classification as a level seven

contributor. It is disappointing that the Group missed the

classification as a level six contributor by 0,29 points.

Management are confident that the 2010 rating verification

will confirm AFGRI’s status as a level six contributor and are

developing plans for employment equity; skills

development; and preferential procurement which should

see AFGRI achieve classification as a level five contributor

by June 2012.


Food safety and ethical productionWithin AFGRI’s grain Handling and Storage division a focus

on guaranteeing quantity and quality has always

underpinned the service of secure storage to clients. All but

two of the Group’s 67 silo installations have been certified

as complying with the Agricultural Product Standards Act.

The two outstanding silos are scheduled for audits by the

PPECB (Perishable Products Export Control Board) in

November 2010, following which they will be certified as

export facilities. All of the division’s bunker facilities are also

HACCP certified except for the three that were completed

in the second quarter of 2010.

As AFGRI targets expansion into the food sector, its record

of food safety and ethical production within its existing

operations provides investors, customers and society in

large with a degree of comfort, as it demonstrates

commitment to these critical aspects of food production.

Employees at the eight AFGRI Animal Feeds installations

live by the motto ‘Safe Feed for Safe Food’. Various quality

control and feed safety systems have been introduced,

ranging from compliance with the guidelines included in

Act 36 of 1947 (Fertilisers, Farm Feeds, Agricultural

Remedies and Stock Remedies Act) to ISO 9000 certification

and HACCP (Hazard Analysis and Critical Control Points)

principles. AFGRI was the first company in South Africa to

be awarded Platinum status by the industry body AFMA

(Animal Feeds Manufacturers Association) for its ‘Safe Feed

for Safe Food’ production standards.

The division also applies good manufacturing practices

(GMP) including a supplier approval process based on

selective audits, selected suppliers’ production plant

certifications (ISO, HACCP or GMP), legal requirements and

AFGRI specific demands. This ensures that the raw

materials used are of the highest standard. Feed inputs are

then managed using a centrally controlled set of quality

parameters that meet the need for customer preferences

and ideal animal performance. Quality control parameters

include testing for physical, chemical and microbiological

contamination.

AFGRI Animal Feeds ISO 9000 certification is provided by an

EU accredited company. ISO 9000 is a management system

based on the quality of the manufactured product and

introduces a culture of continuous improvement of quality

and business processes.

By the third quarter of 2011 AFGRI Animal Feeds hopes to

be ISO 22000 certified. ISO 22000 is an accepted food safety

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Buhle Farmers’ Academy – a recipient of AFGRI CSI funds

Located in Delmas, Buhle Farmers’ Academy (BFA) was established during 2000

to empower emerging farmers to establish themselves in viable farming

businesses through effective training and support programmes. BFA’s approach

provides aspirant farmers with a sound theoretical knowledge base, hands-on

practical production skills, training in farm business management and lifeskills.

Courses offered include livestock, vegetable, poultry and crop production.

Supplementary courses include nutrition and project management. Over

100 courses have been run since inception and over 2 000 potential farmers

trained. A total of 43% of past students are women.

The importance of a viable and sustainable black commercial farming sector is of relevance for the long-term

sustainability of national agricultural, economic growth and food security. AFGRI recognises its responsibility as an

active participant in support of skills development in the sector. For this purpose AFGRI has established a dedicated

poultry training facility comprising six houses with 400 chickens each. Each student is responsible for maintaining

100 chickens.

AFGRI’s intervention has:

Greatly improved the production tasks and learning conditions for trainers and students alike as both are

together in one area

Ventilation is improved and manageable, reducing mortality rates

Facilities adhere to the basic principles of broiler production and provide students with a working example of

a unit that can easily be constructed on their farms.

In addition to the poultry training facility, AFGRI sponsored a furnished student centre which was officially opened

in June 2010. While the students live and work on the training farm, learning and performing all the practical work

required for skills development, it also means that they remain on the farm after hours and over weekends. The AFGRI

student centre has provided an attractive venue in which to socialise and relax, which helps to provide an improved

learning environment.

Morongwa Mokola completed a Poultry Course at BFT in 2003 but then struggled to secure funding to work the land

allocated to her. In 2005 the Moretele Municipality cleared the piece of land and assisted her to drill a borehole, erect

and equip poultry houses and obtained the first batch of 2 500 chickens and feed through the National Department of

Agriculture Comprehensive Agricultural Support Programme (CASP). She has trained her own staff and is now about to

expand the number of chicken houses to five as demand for chicken increases. Morongwa also provides Adult Basic

Education & Training (ABET) classes to her community, sponsored by the Department of Education.

standard but is also applicable to the animal feeds industry

in many instances. One of the focuses of obtaining the

ISO 22000 certification will be the improvement of

traceability and recall practices and minimising the risk of

medication residues in feed entering the food chain.

AFGRI prides itself on producing animal feeds that

contribute to the well being of livestock by reducing the

incidence of disease and increasing the longevity for

certain animals through improving their productive ability.

The Daybreak operation of AFGRI Poultry employs a

Hygiene Management System (certified by the Provincial

Executive Officer of the Department of Agriculture) which

identifies all potential biological, physical and chemical

hazards throughout the abattoir.

Hygiene Management Programmes (HMP) monitor

production for hazards and deviations and demand

immediate corrective action and ensure compliance with

the Meat Safety Act, the Health Act and the Foodstuffs,

Cosmetics and Disinfectant Act. Programmes are

implemented at many points throughout the production

process, including ante mortem and meat inspections.

Programmes also exist for the personal hygiene and the

medical fitness of employees, continuous cleaning, water

quality, vermin control, waste disposal, maintenance and

thermo-control.

55



A detailed sampling programme exists for constant

verification of in-process and final product microbiology.

Product quality is assured through inspections against

documented specifications. Special attention is given to

barcode quality and label information quality to assist with

traceability. Traceability of product back to the farm of origin

is achieved through load certificates. Forward traceability is

to be improved with the anticipated introduction of a new

production recording system.

The HMP establish a sound platform for the prerequisite

programmes required for the implementation of HACCP,

AFGRI Poultry’s next phase of its ‘Safe Food’ focus.

The development of a master training programme for

processing employees through all aspects of production,

from hygiene to product quality, has been developed and

will be introduced throughout the abattoir in the new year.

During the year, AFGRI Poultry’s processes and procedures

were successfully audited by a large retail group, increasing

its opportunities to improve its market penetration.

Good farming practices are applied at all of the division’s

29 broiler production units with the clear objective of

supplying the healthiest product to the abattoir through a

focus on disease management and bio-security. In order to

obtain an SADC export licence each production unit was

visited by the Mpumalanga state veterinarian. Disease

control is achieved through the vaccination of breeders and

day-old chicks at Midway Chix and broilers at Daybreak.

Bio-security has been strengthened during the year by the

erection of ablution facilities and improved physical

security at all farms.

Overcrowding and poor handling during harvests contribute

to poor quality product delivered to the abattoir. Both

practices are avoided and growing conditions in the

houses, such as ventilation and water, are constantly

monitored and managed in order to achieve the highest

quality of broilers.

Nedan, the Group’s oil and protein operation, supplies oil

to a large fast food franchise which applies strict quality

control to all of its suppliers. Nedan is committed to

exceeding the requirement of this Supplier Tracking

Assessment and Recognition (STAR) programme, a rating

system that enjoys international recognition and which

exceeds ISO 9000 and HACCP standards.

Nedan is often awarded ‘preferred’ and ‘approved’ supplier

status following other large multinational FMCG customer

audits.

An integrated approach to safety and quality has been

adopted but the singular requirements of independent

audit systems food safety initiatives are easily

accommodated, being incorporated into a dynamic food

safety and quality assurance system.

Nedan has its own supplier management programme

which sets specific measurable requirements for

prospective suppliers of raw materials, ingredients, packing

material or processing chemicals. Supplier performance

against these requirements is constantly monitored.

Standard operating procedures (SOPs) are documented

and designed to ensure compliance with the demanding

standards of human food production and address all

aspects of production.

The environment

The Group’s approach to the environment is currently

governed by the combined Risk Management Philosophy

and Environmental Policy adopted in 2008. This states that

AFGRI is strongly committed to a Risk Management

Programme that maintains the highest health and safety,

environmental and other risk control standards.

The Group has begun the process of separating its

management of operational risk and environmental

responsibilities by developing a standalone Environmental

Policy to be finalised in the coming year. The adoption of

the Group Environmental Policy will be closely followed and

supported by the approval of an Environmental

Management System, including Best Practices Guidelines.

Under the existing Risk Management philosophy Alexander

Forbes conducts operational risk audits at all of AFGRI’s

installations on a predetermined cycle. Individual audit

templates exist for factories, silos, stores and abattoirs.

Each template addresses six disciplines of risk control:

Risk control organisation

Fire defence

Site security

Emergency planning

Occupational health and safety

Motor vehicle risk control.

For all six disciplines the templates consider legal

compliance and Group best practices, being accepted risk

control standards.

The environmental issues addressed by the risk audits

(eg major hazardous installations, the handling and storage

of hazardous waste), together with insurance underwriter

inspections, is the extent of AFGRI’s active environmental

management. During 2011, environment specific templates

will be developed for the conduct of environmental audits.

During 2009 the Group completed an environmental gap

analysis in order to identify shortcomings and risks

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associated with its interaction with the environment. The

five most significant issues that need to be addressed are:

Oil management and disposal at workshops and wash

bays

Hazardous waste disposal, including fluorescent lights

and fumigation toxins

General waste management, including the separation

and separate disposal

Dust filters at grain intake pits

Water consumption and recycling at AFGRI Poultry.

A more complete study will be performed on each of the

above areas in 2011 in order to determining the extent of

the impact on the environment, the financial risk to AFGRI

and the cost to resolve the matter. The issues will then be

prioritised and a plan of action presented in next year’s

integrated annual report.

AFGRI business units, especially those in the foods sector,

have already commenced various initiatives in order to

minimise the impact they have on the environment. These

initiatives include:

The introduction of variable start motors and

modifications to the pellet presses to reduce peak

electricity consumption at Animal Feeds

The automation of boilers at the Isando and Kinross feed

factories to optimise coal and electricity consumption

The use of boiler steam to heat water for the factories

ablution blocks

The introduction of CO2 scrubbers on all Animal Feed

boilers

Reducing the water consumed per bird at AFGRI Poultry

to 11 litres, a reduction of 27% on the industry average

A reduction in the amount of solid and blood waste in

the effluent water at AFGRI Poultry dispatched to the

settling dams

R0,6 million invested in an investigation to introduce

water treatment to the extent that water effluent can be

used for irrigation purposes

The approval of capital expenditure to install a cyclonic

burner and back-up boiler at Nedan which will utilise

sunflower hulls as fuel, reducing coal usage and

emissions.

The Group is aware of the potential impact climate change

could have on the agricultural sector underlying a

significant portion of its business activities. Besides

adopting a responsible environmental policy and

minimising its own emissions, AFGRI will support, through

its CSI activities, a climate change information project, and

also include climate change on its agendas when meeting

farmer groups. Opportunities to address climate change

issues will be identified and assessed on an ongoing basis.

AFGRI commissioned Alexander Forbes to prepare an

indicative carbon footprint study by assessing emissions at

selected installations of its various divisions (factories, silos,


Fundisisa Combined School

Fundisisa Combined School is situated in the Dryden

area and was established by a local farmer 17 years

ago for farmworkers’ children. The school has a

current enrolment of approximately 200 learners,

ranging from 5 to 17 years old. AFGRI has sponsored

an infrastructural upliftment initiative, providing the

school with a new entrance gate, renovation of nine

classrooms ablution blocks, library, a netball court,

new desks and chairs, computer and a security

perimeter wall. In addition, a vegetable garden has

been established to supplement the school’s

nutritional programme.

As a result of AFGRI’s assistance, the school’s

headmaster won the first prize of the Regional

Teacher Award in the Primary School Leadership

category at a function held during August 2009.

He acknowledged that this achievement was as

a result of AFGRI improving the school’s working

and learning environment. Not only has AFGRI’s

intervention provided pleasant premises and

improved the teaching and learning environment;

learners are respected as human beings and their

right to learn is acknowledged and recognised.

In addition to the infrastructural improvements made

to the school, AFGRI continues to provide

management support through mentoring and site

visits. AFGRI celebrated 2009 World Aids Day at the

school in order to sensitise the learners on the need

to battle the stigma, fear and shame regarding the

pandemic and to continually empower themselves

with information.

57



retail stores). The results of this survey are expected to be

presented at the end of August 2010.


Management acknowledges their position as interim

trustees of the assets and resources of the Company and

recognise the shareholders as the owners of the Company.

Management embraces good corporate governance as it

provides guidance and oversight of the activities of the

Company, its directors, managers and employees. It

provides a sound foundation, supporting the establishment

of One AFGRI. Directors and managers are guided by the

King Report series, including both King II and now King III.

A programme to ensure that the Group is fully compliant

with the requirements of King III by June 2011 is currently

being prepared by the Board. Full disclosure of AFGRI’s

compliance with the King III requirements, or reasons for

its deviating from them, will be provided in the 2011


The Board has satisfied itself that AFGRI has complied

throughout the period in all material aspects with King II as

well as the Listings Requirements of the JSE. The corporate

governance report is set out on pages 62 to 68 of this


The Board of Directors is accountable for risk management.

The AFGRI Limited Board Charter outlines the directors’

responsibilities for the management of risk within the

Group. These responsibilities can be summarised as:

the total process of risk management, as well as for

forming its own opinion on the effectiveness of the

process (management is accountable to the Board for

designing, implementing and monitoring the process of

risk management)

the disclosure of how it satisfied itself that risk

assessments, responses and interventions are effective;

identify and fully appreciate the business risk issues and

key performance indicators affecting the ability of the

Group to achieve its strategic purpose and objectives

ensure that management establish appropriate systems

to manage the identified risks, measure the impact and

to proactively manage it, so that the Group’s assets and

reputation are suitably protected.

The Board can delegate some of these responsibilities to

the Audit and Risk Management Committee, but retains

overall accountability. For more information on corporate

governance and risk management refer to the corporate

governance report on pages 62 to 68.

The existing AFGRI code of ethics, gifts and entertainment

policy details the Group’s position on corruption, bribery

and ethics. Offering, giving, soliciting or accepting any form

of bribe is prohibited. All business units are required to

have written codes of conduct and a complaints procedure.

An independent and confidential ‘tip-offs anonymous”

hotline facility is available to all employees for the purposes

of reporting suspected breaches in the Group’s codes of

behaviour.

The Board of Directors requested that a review and survey

of the Group’s ethics be conducted. This review is being

managed by an independent contractor and is based on

employee questionnaires distributed throughout AFGRI.

The results will be presented at the next meeting of the

Audit and Risk Management Committee.

During a facilitated management workshop earlier in the

year, senior managers of AFGRI identified seven values,

defining what it meant to work for AFGRI. Each of these

seven values has been expanded upon throughout this

report. The managers attending the workshop committed

to these values and the communication of them to all levels

of the business. More and more, these values are referred

to during day-to-day activities and are becoming central

to everything we do. They are: Integrity; Passion,

Accountability; Respect; Teamwork; Innovation; Service

Excellence.

The Competition Commission, as part of its larger focus on

the food and agricultural industries has investigated or is

investigating various industry bodies in these industries.

AFGRI, as a member of the Grain Storage Industry (GSI);

Animal Feeds Manufacturers Association (AFMA); the South

African Poultry Association (SAPA); and the South African

Oil and Protein Association (SAOPA), has cooperated freely

and fully with the Commission in such investigations.

AFGRI is committed to complying with the provisions of

the Competition Act No 89 of 1998 in respect of all its

business activities. To this end, the Group has introduced

a Competition Law Compliance Programme, in terms of

which each division must continuously receive training on

the relevant provisions of the act.

In addition, a Competition Law Compliance Manual has

been developed and distributed throughout the Group.

All relevant employees are required to attest that they are

familiar with the provisions of the Compliance Manual and

annually attest that they have complied with all applicable

provisions of the Competition Act.

AFGRI is committed to cooperating with the Competition

Commission regarding any possible contravention of the

Competition Act.

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AFGRI Cup 2010

In celebration of the 2010 FIFA World Cup™ in South

Africa, AFGRI held its own soccer tournament during

May 2010. This was the first Group-wide social

interaction in AFGRI’s history and the winners were

allowed to apply R80 000 of the Group’s CSI budget

to a deserving cause of their choice. Various soccer

activities were held as a build-up to the tournament.

A total of 16 teams from the various business units

participated in the male tournament, while six

groups took part in women exhibition matches. The

AFGRI management team also played the “beautiful

game” at kick-off. After the quarter and semi-finals

were played, the final was contested by the Superior

Boys (AFGRI Poultry) and Bethlehem Warriors

(Animal Feeds). The winners of the tournament,

Superior Boys, selected Siyonqoba Care Centre for

the Disabled as their charity of choice. Sheri

‘Shadow’ Ndaule was chosen ‘Man of the

Tournament’ and walked away with an Ivolve

(AFGRI’s personal computer supplier) sponsored

computer.

AFGRI Animal Feeds Driver of the Year Competition

Since 2008, AFGRI Animal Feeds, in association with

Driving Sense, has run a ‘Driver of the Year’

competition to recognise their drivers. Driving Sense

is a company with more than 15 years’ experience

in skills development with transport related

industries.

The division always views their drivers as key to

its success. Each one of them is in fact a key

accounts manager with a company car worth

more than R1 million. Contestants are selected

from six factories: Eloff, Klipheuwel, Paterson,

Isando, Kinross and Bethlehem. These contestants

are individually judged on different practical driving

skills. Michael Ralinala (Isando factory) won the 2010

driver of the year award, followed by James Mavuso

(Eloff factory) and third place went to Jannie

Pretorius (Paterson factory).

Project Bright Spark

During 2009, AFGRI embarked on ‘Project Bright Spark’ across the Group. The

purpose of the project was to encourage and motivate all AFGRInites to identify

and implement ideas and initiatives to improve cost saving throughout the Group.

The project was particularly relevant in the economic climate at the time.

Innovative ideas and initiatives were identified and implemented and winners

were announced and awarded prizes per category of idea. The final winner was

revealed at a function held during October 2009. Rick Cloete won the annual prize

– a trip to Mauritius!

Rick is a supervisor at the ‘Water Works’, AFGRI Poultry’s water treatment plant. The feather pump used in the feather

pit at the factory ensures that discarded water is pumped away. Wood and metal can cause blockage, resulting in the

failure of the pump’s motors. The motor would then have to be rewound and eventually replaced. This caused

downtime in the factory. Rick installed a funnel at the pump’s intake which ensured that the pump sucks water from

slightly above the floor thus preventing the intake of particles on the floor. This prolongs the pump’s lifespan. The pit is

cleaned over weekends. An annual saving of R738 000 was attributable to Rick’s simple but innovative idea.

59


Group overview Corporate governance

PIC TO

COME

2010 overview

I am always honest and behave ethically

I do not promote self-interest or nepotism

I declare conflicting interests as they arise

I maintain fair business practices

I am reliable and dependable

60


Awards in 2010

AFGRI Poultry

July 2009: Passed the SAFSIS audit in order to be listed as a Pick n Pay supplier and subsequently listed as a SPAR supplier.

October 2009: Obtained Export Certification.

October 2009: Documented Hygiene Management System certified by Provincial Executive Officer of Mpumalanga.

March 2010 and June 2010: Passed the National Abattoir Rating Scheme (NARS) audit with 83% and 89% respectively, aiming to be the provincial winner for 2010.

Nedan

Official vegetable oil supplier to Yum International (KFC) South Africa, and awarded with:

Star Audit Achievers Award, with audit results above 85%.

Breakthrough Results Award.

Insurance

The division was awarded the Top Agri Insurance Broker nationally, with Bethal and Standerton branches obtaining second and third positions respectively.

Animal Feeds

The division received the AFRI Compliance Platinum certification and Animal Feed Manufacturers Association (AFMA) Code of Conduct Award for all of its commissioned factories.

AFRI Compliance has developed a unique protocol for animal feed plants in Southern African Development Community (SADC) countries, which ensures compliance with local regulatory requirement certification. This protocol deals with specific legal technical risks which are not addressed by existing certification programmes. Approximately 120 companies in the food and agricultural related sectors in South Africa are currently supporting the AFRI Compliance certification programme.

AFRI Compliance Platinum certification was awarded after an extensive audit was conducted at all AFGRI Animal Feeds plants which included a loco inspection and a 150 point audit control.

The AFMA Award is presented to individuals or organisations that have made an exceptional contribution to the feed manufacturing industry.

61



I am committed to service excellence

I am proud about AFGRI when engaging with the client/customer

I listen to my client/customer and keep my promises

I will admit when I am wrong and correct my mistakes

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The AFGRI Limited Board The AFGRI Limited Board has a unitary board structure that

is in control of the affairs of the Company. The Board

consists of 13 members. Of these, five directors are

classified as independent non-executive directors. Three

are executive directors and another three directors

represent the interest of AFGRI’s BEE partners, Agri Sizwe.

Of the independent non-executive directors, two are black

and one is female.

The Board is chaired by Jethro Mbau, an independent

director. A register of directors’ interests is maintained and

updated at Board meetings.

On 1 January 2010, Mr Clive Apsey retired as a non-

executive director after five years of service. Mr Apsey

retired due to ill health.

On 10 January 2010, Messrs Dave Barber and Lwazi Koyana

were appointed to the AFGRI Board; further strengthening

the skills base of the Board. Both these directors are

independent non-executive directors.

On 20 May 2010 Linda de Beer was appointed to the AFGRI

Board. Linda is also an independent non-executive director.

The Board at its meeting on 31 August 2010 adopted a

Board Charter setting out its roles and responsibilities.

In terms of this charter, an evaluation of the Board, its

committees and individual directors, including the

chairman, must be performed annually.

Management acknowledges the rights of AFGRI’s

shareholders as the real owners of the Company and

understands its own role as trustees on behalf of the

shareholders. Corporate governance provides guidance

and oversight as the Company seeks to find balance

between conformance with governance principles and

superior performance in terms of a sustainable return on

shareholders’ investments. AFGRI’s journey towards

sustainability has been guided by the King Report series,

including both King II, which created an open environment

for institutional activism in 2002, and now King III, requiring

the application of an inclusive range of governance

principles, or reasons for deviating from these principles.

What follows is a brief overview of the roles and

responsibilities of the AFGRI Board and its committees,

including important developments for the year under review.


The AFGRI governance structure can be illustrated as follows:

AFGRI Operations

Limited Board

OPCO

External audit

Internal audit

CEOAudit and Risk Management Committee

Credit Committee

Remuneration Committee

Nomination Committee

AFGRI Limited Board

Sustainability Committee

Country Risk Committee

Group Risk and Assurance

Committee

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Group overview 2010 overview Corporate governance

Board committees

The Board established various committees on which

non-executive directors play important roles. Terms of

reference have been drafted for all these committees. All

terms of reference are in the process of being reviewed to

ensure that they meet the requirements contained in

King III. All committees are chaired by independent

non-executive directors.

The terms of reference of the committees are available

from the AFGRI Group Company Secretary on request.

Members of the various Board committees are re-elected

at the first meeting after the annual general meeting,

generally in November of every year.

In view of the fact that the Audit Committee will become

a statutory committee once the new Companies Act

becomes law and in terms of the recommendations set out

in King III, shareholders will now be required to elect the

members of the AFGRI Audit and Risk Management

Committee at the Company’s 2010 annual general meeting.

Audit and Risk Management Committee

The Audit and Risk Management Committee of the Board

has a dual role and fulfils the duties of an Audit Committee

as well as a Risk Management Committee.

The Audit and Risk Management Committee reviews the

effectiveness of the risk management process and internal

control in the Group with reference to the findings of both

the internal and external auditors. Other areas covered

include the review of important accounting issues,

including specific disclosures in the financial statements, a

review of the major audit recommendations and all matters

required in terms of legislation.

The internal and external auditors have direct access to the

Audit and Risk Management Committee and are invited to

all meetings of the committee.

The committee meets four times per annum. Members of

the Operating Committee who are ultimately responsible

for risk management attend these meetings as attendees

but are not allowed to vote.

The committee is chaired by an independent non-executive

director. The committee consists of two additional

members and both of these are independent non-executive

directors as required by the new Companies Act. The

composition of the committee was changed during the

year under review to ensure that the committee consists of

only independent non-executive directors. Members of the

committee are Dave de Beer (Chairman), Dave Barber and

Lwazi Koyana.

The functions of the committee include:

Overseeing integrated reporting

Managing risk

Reviewing the annual financial statements

Considering the sustainability of the Group

Appointing external auditors

Overseeing the internal audit function

Ensuring the application of the combined assurance

model

Implementing a whistle-blowing mechanism

Monitoring Group ethics

Monitoring the relationship with the Group’s external

auditor

Approving the internal audit plan

Approving and monitoring a policy for non-audit services

Considering environmental and social issues

Monitoring country risk

Board meetings and attendance Five Board meetings and two strategy sessions took place during the year under review. Details of attendance at these

meetings are as follows:

Board member 1 Sept 2009

23 Nov 2009*

24 Nov 2009

22 Feb 2010*

23 Feb 2010

7 May 2010**

18 May 2010

C Apsey*** √ Apology √JPR Mbau √ √ √ √ √ √ √JJ Claassen Apology √ √ √ √ Apology √DD Barber**** Apology √ √ √DD De Beer √ √ √ √ √ √ √L De Beer*****JJ Ferreira √ √ √ √ √ Apology √LM Koyana**** √ √ √ √ √MI Mogari √ √ √ √ √ √ Apology MM Moloele √ √ √ √ √ √ √KL Thoka √ √ √ √ √ √ √FJ van der Merwe √ Apology √ √ √ Apology √JA van der Schyff √ √ √ √ √ √ √CP Venter √ √ √ √ √ √ √

* Strategic sessions ** Special meeting *** Retired on 1 January 2010 **** Appointed on 10 January 2010 ***** Appointed on 19 May 2010

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Attendance at meetings:

Name of member 27 Aug

2010 18 Nov

2009 17 Feb

2010 12 May

2010

JPR Mbau* √ √ Apology

DD De Beer √ √ √ √

LM Koyana** √ √

DD Barber** √ √

JJ Claassen* √ √ √

FJ van der Merwe* √ Apology √

* Not reappointed to the committee with effect from 22 February 2010 ** Appointed with effect from 22 February 2010

Corporate governance continued

Remuneration Committee The Remuneration Committee of AFGRI is concerned with executive remuneration. The members of the committee are Dave Barber (Chairman), Dave de Beer and Lwazi Koyana.

The Remuneration Committee met three times during the year under review, and the main task of the committee in 2009/2010 was to recommend a new executive reward scheme as the previous EVA scheme was terminated in 2009.

The committee was assisted by independent advisors.

Attendance at meetings:

Name of member 7 Dec 2009

22 Feb 2010

2 Jun2010

DD Barber* √

DD De Beer √ √ √

LM Koyana* √

C Apsey** √

JPR Mbau*** √ √

* Appointed as committee member with effect from 22 February

2010

** Retired 1 January 2010

*** Stepped down as member of Remuneration Committee with

effect from 22 February 2010

The functions of this committee include: Ensuring that the Company remunerates fairly and responsibly

Ensuring that remuneration is disclosed in accordance with legislation

Overseeing the establishment and implementation of remuneration policies in relation to non-executive directors, executive directors and other executives’ remuneration

Reviewing the outcomes of the implementation of these policies as to whether they promote the achievement of strategic objectives and encourage individual performance

For further details on the remuneration of AFGRI’s executive and non-executive directors, as well as AFGRI’s

remuneration philosophy and policies, see the

Remuneration Report on pages 70 to 72 of this integrated

annual report.

Nomination Committee

The appointment of directors is a transparent and formal

procedure governed by the Nomination Committee’s

mandate and terms of reference as well as by the Board

Charter. This mandate and terms of reference were

updated earlier this year to align them with the

requirements of King III. Factors influencing the selection

process include skills, knowledge and qualifications, and

are examined against the backdrop of specific areas of

responsibility including:

Ensuring the Board has the appropriate composition

for it to execute its duties effectively

Ensuring directors are appointed through a formal

process

Ensuring the induction and ongoing training and

development of directors

Ensuring that formal succession plans for the Board,

Chief Executive Officer and senior management

appointments are in place

Considering availability, the number of external Board

appointments, diversity, demographics and experience

in relevant sectors

The Chairman of the Nomination Committee is also the

Chairman of the Board as required in terms of the JSE

Listings Requirements. The other members of the

committee are Dave de Beer and Moses Moloele.

The Credit Committee

The committee consists of three non-executive directors

(two being independent) and two executive directors. The

Credit Committee is responsible for the development and

implementation of credit policy and procedures throughout

the Group.

The members of the Credit Committee are Dave de Beer

(Chairman), Koot Claassen, Lwazi Koyana, Jan van der

Schyff and Chris Venter.

65



The committee meets at least quarterly to review the Group’s

credit exposure and to ensure that the necessary procedures

are in place to limit credit risk to both existing and prospective

customers. More detail regarding the management of credit

risk is provided in the accounting policies under “Financial risk

management”. Refer to page 101.

The main functions of the Credit Committee are:

Credit applications in excess of R100 million must be

referred to the AFGRI Limited Board for noting. All

facilities in excess of R500 million must be referred to

the AFGRI Limited Board for approval

Review and approve all operational credit policies

The AFGRI Operations Limited Board has a number of

subcommittees namely the Operating Committee, the

Sustainability Committee, the Country Risk Committee and

the Risk and Assurance Committee.

Operating Committee (OPCO)

This committee is responsible for the operating activities of

the Group, developing strategy and policy proposals for

consideration by the Board and implementing the Board’s

directives.

The committee is chaired by the Chief Executive Officer

and consists of the following members:

Chris Venter (CEO), Pieter Badenhorst (Group Legal

Director), Johan Geel (COO), Mulco Manyama (Group HR

Director) and Jan van der Schyff (FD).

Review and monitor large exposures (the Chairman of

the committee, Group Chief Executive Officer and Group

Financial Director may approve exposures greater than

R50 million)

Monitor management actions and decisions, ensure

compliance to facilities and guidelines

Evaluate the overall quality of the debtors book and

lending activities and to take corrective action where

necessary

To conduct meetings as a governance tool

Monitor problematic accounts with exposures above

R50 million or other amount as decided on from time to

time

The committee meets weekly. The purpose of OPCO is

to assist the Chief Executive Officer in the fulfilment of

his duties that include:

Meeting the Company’s financial and operating goals

and objectives

Ensuring day-to-day business affairs are properly

managed

Developing long-term strategy and creating added value

for and positive relations with stakeholders

Maintaining positive and constructive work climate to

attract, retain and motivate employees at all levels

Ensuring a corporate culture that promotes sustainable

ethical practices, encourages individual integrity and

fulfils social responsibility objectives and imperatives

Developing strategy

Preparing the budget

AFGRI Operations Limited BoardThe Board of AFGRI Operations Limited consists of Chris Venter (CEO), Moses Moloele, Pieter Badenhorst

(Group Legal Director), Johan Geel (COO), Mulco Manyama (Group HR Director), Jan van der Schyff (FD) and Moji Mogari.

The Board met four times during the period under review.

The main focus areas of this Board are to implement the strategy as approved by the AFGRI Limited Board and meeting the

governance obligations of AFGRI Operations Limited.

Name of Board member 18 Aug 2009 10 Nov 2009 9 Feb 2010 4 May 2010

CP Venter √ √ √ √

JA van der Schyff √ √ √ √

PJP Badenhorst* √ √ √

MM Manyama* √ √ √

GJ Geel* √ √ √

MM Moloele* √ √ Apology

MI Mogari √ √ √ Apology

HD Bloem** √

WW Mentz** √

LTS Smit** √

L Wolthers** √

* Appointed 22/10/2009 ** Resigned 22/10/2009

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Ensuring compliance

Setting the ethical leadership tone

Group Risk and Assurance Committee

The Group Risk and Assurance Committee is a

management committee formed for the purpose of

implementing the combined assurance model. More detail

on the management of risk is provided below.

Sustainability Committee

The Sustainability Committee of AFGRI is a management

committee. The committee reports to the Chief Executive

Officer and drives the AFGRI sustainability strategy across

the Group. The committee’s current focus is on the

Broad-Based Black Economic Empowerment Act Codes

of Good Practice in order to improve the Group’s

transformation, the verification of the Group’s BEE

credentials, the Group’s impact on the environment and

determining an indicative carbon footprint.

Country Risk Committee

Investments (including credit facilities) in countries outside

South Africa have to be authorised by the Country Risk

Committee. The Country Risk Committee is a management

committee that reports to the Audit and Risk Management

Committee. Investments should comply with the limits set

for the Group as a whole and should take into account the

country risk profile.

Company Secretary To enable the Board to function effectively, all directors

have full and timely access to all information that may be

relevant to the proper discharge of their duties and

obligations. This includes information such as agenda items

for Board meetings, corporate announcements, investor

communications and any other developments, which may

affect AFGRI or its operations.

The office of the Group Company Secretary is responsible

for facilitating this access. Counsel and guidance is

provided to the Board on their powers and duties,

individually and collectively, by the Group Company

Secretary who is also responsible for the development of

director training. All new directors are appropriately

inducted to AFGRI by the Group Company Secretary as well

as induction visits to Group operations around South Africa.

The Group Company Secretary is not a director of any of

the AFGRI Group’s operations and accordingly maintains an

arm’s length relationship with the Board and its directors.

In addition to reporting to the Chief Executive Officer and

having a direct channel of communication to the Chairman,

the Group Company Secretary interacts with the Chairman

before Board and general meetings to prepare for and

discuss important issues and agree on the agenda.

Furthermore, the Group Company Secretary assists the

Chairman of the Board and committee chairmen in the

drafting of work plans.

The Group Company Secretary is responsible for the

functions specified in section 268(G) of the Companies

Act of 1973 (as amended) (the Act). All meetings of

shareholders, directors and Board subcommittees are

properly recorded as per the requirements of section 242

of the Act. The removal of the Group Company Secretary

would be a matter for the Board as a whole.

Risk managementRisk management policy and framework

In terms of the risk management philosophy statement

issued by the Chief Executive Officer and Financial Director

and endorsed by the Board of Directors, the Group is

committed to developing and maintaining an integrated risk

management programme to manage operational, insurable

and business risks and opportunities in the interest of all

stakeholders.

The Group has established a culture of managing risk. A

significant number of embedded processes, resources and

structures are in place to address risk management needs.

These range from internal audit systems, insurance and risk

finance, IT security, compliance processes, quality

management and a range of other line management

interventions.

The risk management framework adopted by the Group

sets out a structured and consistent approach for

implementing a systematic process to manage risk across

the Group.

Risk governance structure

A number of committees and forums identify and manage

risk at both a business unit level and at a group level. These

committees and forums operate together with Group Risk

Management and are mandated by the Board. A diagram of

the governance structure is provided on the next page.

67



Risk management process

The risk management process requires management to

identify, analyse and evaluate the risks associated with

activities under their control, mitigate and control these

risks, take corrective actions, accept and monitor the risks.

This acts to stimulate and reinforce accountability. The

context of all the risk management activities is always the

achievement of the business plan and strategic objectives.

The Group (top-down) and each business unit and

subsidiary (bottom-up) have undergone an objective

process of business risk assessment during the period

under review, facilitated by Group Risk Management and

external consultants. These risk assessments highlighted

areas where further control action was required and which

is now being undertaken.

The management of operational and insurable risks covers

many diverse dimensions such as security, health and

safety, risk control organisation, emergency planning,

vehicle fleet, fire defence. Comprehensive programmes

are in place to identify and evaluate operational risks,

implement process improvements and monitor the status

of key risks. The Board of Directors has appointed external

consultants to audit these programmes. The audits are

completed on a predetermined basis as set out in the

formal Group policy relating to operational risks. Certain

business units are audited annually while others are on a

rotation basis which can either be every second/third/fifth

year. Standards are based on applicable legal requirements

and best practice principles for each risk and form the

basis for external and internal audits. Detailed audit reports

are made available to each site. Summarised reports of the

material findings including comments on controls and

systems are made to the Risk and Assurance Committee,

while an executive summary is presented to the Audit

and Risk Management Committee.

Risk governance structure

Integrated report

Board of Directors

(AFGRI Limited)

Audit and Risk Management Committee

(AFGRI Limited)

• AFGRI Group risks• Risk policy, framework and plan• Appetite and tolerance level

• AFGRI Group risks• Material risks per business unit• Risk plan, policy, framework, appetite

and tolerance level

• Operational risk review reports• Risk plan, policy, framework, appetite and

tolerance level

Business units/subsidiaries

Risk and Assurance Committee

Business risks Insurable risks

• Strategic and operational risks per business unit

• Insurers• Risk control organisation• Fire and defence• Security• Emergency planning• Health and safety• Motor fleet• Environmental

• AFGRI Group risks• Risk dashboards and top five • Summary of management options

Other management committees

• Country Risk• Credit Risk• Sustainability Risk

Role players

• Risk management• Internal audit• Management• External audit • Insurance brokers• Other third parties

Bottom-up risk review per business unit/subsidiary

• At least once per annum (internally)• Externally every second year

Top-down risk identification for the Group

• Performed on an annual basis

68


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The Group has comprehensive risk and loss control

procedures in place, which form an integral part of a

sophisticated self-insurance programme. The layered

structure of the programme allows the Group to cost-

effectively protect itself from major losses through

local insurance.

An overview of key risks

In its ordinary course of business the Group faces a

number of risks that could affect business operations.

The top ten risks, as identified during May 2010 are:

Information technology

Regulatory and legal non-compliance

Global and local economic environment

Changing socio-political environment

Increased market volatility

Change management

Access to affordable funding without excessive

concentration

Credit risk

Inability to attract and retain staff in key positions

Competitive environment

Additional risks and uncertainties not presently known to

the Group or that the Group deem immaterial may in future

also impair business operations. The business, financial

condition or results of operations could be adversely

affected by any of these risk factors.

Combined assurance

AFGRI’s combined assurance plan provides a framework for

the various sources of assurance (assurance providers) to

work together to provide assurance to the Board, via the

Audit and Risk Management Committee, that key risks are

managed and that assurance activities are coordinated in

the most efficient and effective manner.

The combined assurance plan consists of three ‘levels of

defence’ wherein the assurance on the risk management

and related controls in the Group is reported. The three

layers of defence are management, corporate functions

and independent assurance providers. The level of

assurance required by the Board, and who should provide

that assurance, varies depending on the risk.

A graphical representation of the assurance process and

the assurance providers appears below.

Donations to political parties During the year under review, AFGRI did not make any

donations to political parties.


Assurance process

Risk assessm

ents

Risks

Co

ntro

ls

Co

rrective action

s

Rep

ortin

g

Assurance providers

Management

Reviews

KPIs

CSA

Sign-offs

Central functions

Bu

siness p

lans

Tax

Legal

HR and payroll

Risk managem

ent

Finance

Independent assurance

Internal audit

External audit

Specialists

Insurance

Com

pliance

Other third-party assurance

Assurance plans

Combined assurance

Communication

Organ

isation

al structu

re

IT

69



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70


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Remuneration report

Annual bonusThe EVA bonus which had been in place since 2004 was

terminated during 2009. During the course of the year, the

Remuneration Committee has discussed various options

and requirements for a replacement scheme in conjunction

with executive management and external consultants. The

result of these discussions is the proposal for a new,

combined bonus and share incentive scheme. The salient

points of this proposed scheme appear in the notice of

annual general meeting on pages 168 to 174, and at which

shareholder approval for the scheme will be sought.

Share incentive schemeUntil 2009, executive directors and members of Group

management participate in the AFGRI Limited Share

Incentive Scheme. The options, which were allocated at the

average market price for the 90 days prior to the date of

allocation, are exercised immediately and vest after

stipulated periods. The number of share options granted

was based on a multiple of total cost to company divided

by the ruling share price, prior to the grant. With the

proposed, combined bonus and share incentive scheme,

the existing deferred share incentive scheme will be

allowed to run out over the next four years and no more

share options will be awarded.

Other benefitsExecutives are remunerated on a cost-to-company basis

and as part of their package are entitled to a car allowance,

medical insurance, death and disability insurance and

reimbursement of reasonable business expenses.

Non-executive directorsThe Remuneration Committee recommends fees payable

to the non-executive chairman and directors for approval

by the shareholders. Fees are approved for an annual

period commencing on 1 November each year. The revised

fees of the non-executive directors will be submitted to the

shareholders for approval at the next annual general

meeting on 15 October 2010.

The proposed fees for non-executive directors for the

period 1 November 2010 to 31 October 2011 are based on

best practice and market information and comprise a

combination of a retainer as well as a deduction for

non-attendance of meetings.

A non-executive is required to retire at the end of the year

in which the director turns 70.

Details of the proposed fees are set out in the notice of the annual general meeting appearing on pages 168 to 170 of this report.

The Remuneration CommitteeThis committee operates under the delegated authority of

the AFGRI Limited Board. The function of the committee is

to approve a broad remuneration strategy for the Group

and to ensure that directors and senior executives are

adequately remunerated for their contribution to AFGRI’s

operating and financial performance.

The Remuneration Committee is responsible for

considering and making recommendations to the Board on:

significant changes in personnel policy

approval of remuneration and benefits of executive

directors

remuneration and incentives of directors and other

employees of subsidiaries

significant changes to the Group pension and provident

funds and medical aid schemes

share incentive schemes and recommending significant

changes

executive succession and

increases in non-executive directors’ fees

At 30 June 2010, the membership of this committee was:

DD Barber – Independent director (Chairman)

DD de Beer – Independent director

LM Koyana – Independent director

The committee met three times during the period of this

report.

Principles of directors’ fees and remunerationAFGRI’s remuneration policy is formulated to attract and

retain high-calibre executives and motivate them to

develop and implement the Company’s business strategy

in order to optimise long-term shareholder value creation.

The purpose of remuneration is to ensure that executive

directors and senior managers receive remuneration that is

appropriate to their scope of responsibility and contribution

to the Group’s operating and financial performance, taking

into account industry norms and external market

benchmarks.

Elements of executive remunerationExecutive director and management remuneration

comprises the following four principal elements:

• Basic salary

• Annual financial performance

• Share incentive scheme, and

• Other benefits.

Basic salaryThe basic salary is subject to annual review and is set with

reference to the individual’s responsibilities, performance

and experience and the external market practice.

71



Directors’ emolumentsThe tables below provide an analysis of the emoluments paid to non-executive and executive directors for the year ended 30 June 2010 and 30 June 2009.

30 June 2010Non-executive directors

Board member

(Rands)

Audit and Risk

Committee(Rands)

RemunerationCommittee

(Rands)

CreditCommittee

(Rands)Other*

(Rands)Total

(Rands)

CA Apsey 66 627 – 4 583 – – 71 210

DD Barber 65 935 23 167 27 833 – – 116 935

JJ Claassen 357 083 44 897 – 54 384 – 456 364

DD de Beer 269 297 203 857 32 375 63 717 – 569 246

L de Beer 11 583 – – – – 11 583

JJ Ferreira 136 127 – 20 799 – – 156 926

L Koyana 65 935 23 167 18 500 18 500 – 126 102

J Mbau 383 083 44 897 18 542 53 909 – 500 431

MM Moloele 136 127 – 20 799 – 825 241 982 167

KL Thoka 136 127 – 20 799 – – 156 926

FJ van der Merwe 136 127 44 897 31 214 – – 212 238

Total 1 764 051 384 882 195 444 190 510 825 241 3 360 128

* Deputy Chairman of the AFGRI Operations Limited Board and Chairman of the Sustainability Committee.

Executive directorsBasic

salary andallowances

(Rands)Bonuses*

(Rands)

Share-basedpayments

(Rands)

Expenseallowances

(Rands)

Companycontributions

(Rands)Total

(Rands)

CP Venter 2 690 015 4 513 106 – 23 539 647 325 7 873 985

JA van der Schyff 1 913 606 3 243 404 – 27 281 478 410 5 662 701

MI Mogari 1 575 458 1 926 630 – 44 111 391 264 3 937 463

Total 6 179 079 9 683 140 – 94 931 1 516 999 17 474 149

* During 2009 the EVA bonus scheme was terminated, resulting in the distribution of all accumulated bonus amounts to participants of the scheme. The AFGRI Executive Share Award Scheme will be proposed to the shareholders at the annual general meeting and if approved will replace both the EVA bonus scheme and the Deferred Scheme Incentive scheme. No options were awarded under the Deferred Share Incentive Scheme during the current financial year.

30 June 2009Non-executive directors

Board member

(Rands)

Audit andRisk

Committee(Rands)

RemunerationCommittee

(Rands)

AcquisitionCommittee*

(Rands)

CreditCommittee

(Rands)Total

(Rands)

CA Apsey 127 920 – – 31 119 – 159 039

JJ Claassen 335 790 63 960 – 20 746 51 168 471 664

DD de Beer 383 760 191 880 – – 51 168 626 808

JJ Ferreira 127 920 – 51 168 – – 179 088

J Mbau 335 790 63 960 – – 76 752 476 502

MM Moloele 127 920 – 51 168 20 746 – 199 834

KL Thoka 127 920 – 51 168 20 746 – 199 834

FJ van der Merwe 127 920 63 960 76 752 20 746 289 378

Total 1 694 940 383 760 230 256 114 103 179 088 2 062 147

* The Acquisitions Committee was disbanded in September 2008.

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Remuneration report continued

Executive directorsBasic

salary andallowances

(Rands)Bonuses

(Rands)

Share-basedpayments

(Rands)

Expenseallowances

(Rands)

Companycontributions

(Rands)Total

(Rands)

CP Venter 1 875 447 – – 24 184 394 448 2 294 079

JA van der Schyff 1 670 100 138 297 – 23 984 389 359 2 221 740

MI Mogari 1 352 772 127 467 – 60 138 352 166 1 892 543

Total 4 898 319 265 764 – 108 306 1 135 973 6 408 362

Directors’ service contracts and restraint of tradeCP Venter, MI Mogari and JA van der Schyff are subject to written employment agreements. The employment agreements

regulate the duties, remuneration, allowances, restraints, leave and notice periods of these executives. None of the service

contracts exceed a three-year period.

Share incentive optionsDetails of directors’ share options for the year ended 30 June 2010, were as follows and no share options have been granted

to the directors since that date:

Under contract 1 July 2009CP Venter JA van der Schyff MI Mogari

18/11/2005: 538 cents 350 000 – 145 600

17/11/2006: 666 cents 228 200 – 193 000

13/11/2007: 643 cents 181 000 – 153 000

11/12/2008: 462 cents 384 700 502 000 229 200

Total 1 143 900 502 000 720 800

Share options granted and exercised during the yearNo share options were granted and exercised during the year under review.

Implemented during the yearNo share options were implemented during the year under review.

Share options forfeited during the yearNone of the current executive directors forfeited any of their share options during the year.

Under contract at 30 June 2010CP Venter JA van der Schyff MI Mogari

18/11/2005: 538 cents 350 000 – 145 600

17/11/2006: 666 cents 228 200 – 193 000

13/11/2007: 643 cents 181 000 – 153 000

11/12/2008: 462 cents 384 700 502 000 229 200

Total 1 143 900 502 000 720 800

73



Shareholder analysisNo of

shareholdings %No of

shares %

SHAREHOLDER SPREAD

1 – 1 000 shares 2 219 45,60 779 414 0,21

1 001 – 10 000 shares 1 906 39,17 6 822 486 1,83

10 001 – 100 000 shares 476 9,78 14 855 321 3,97

100 001 – 1 000 000 shares 196 4,03 65 801 311 17,60

1 000 001 shares and over 69 1,42 285 535 468 76,39

Totals 4 866 100,00 373 794 000 100,00

DISTRIBUTION OF SHAREHOLDERS

Banks 31 0,64 8 210 547 2,20

Close Corporations 130 2,67 961 432 0,26

Endowment Fund 13 0,27 933 306 0,25

Individuals 3 908 80,31 32 000 258 8,56

Insurance Companies 38 0,78 29 069 594 7,78

Investment Company 7 0,14 1 352 398 0,36

Medical Schemes 6 0,12 569 299 0,15

Mutual Fund 128 2,63 160 801 932 43,02

Nominees & Trusts 293 6,02 5 002 861 1,34

Other Corporations 20 0,41 485 529 0,13

Private Companies 134 2,75 2 896 223 0,77

Public Companies 4 0,08 228 370 0,06

Retirement Funds 152 3,12 82 450 549 22,06

Share Trust 1 0,02 29 831 956 7,98

Treasury Shares 1 0,02 18 999 746 5,08

Totals 4 866 100,00 373 794 000 100,00

PUBLIC/NON-PUBLIC SHAREHOLDERS

Non-public shareholders 5 0,10 48 974 353 13,10

Directors of the company 3 0,06 142 651 0,04

Share Trust – AFGRI Limited Trust 1 0,02 29 831 956 7,98

Treasury Shares – OTK Investment House 1 0,02 18 999 746 5,08

Public shareholders 4 851 99,90 324 819 647 86,90

Totals 4 866 100,00 373 794 000 100,00

No of shares %

BENEFICIAL SHAREHOLDERS HOLDING 5% OR MORE

Allan Gray Life Limited (policy holder portfolios) and Allan Gray Trust Funds 39 376 412 10,53

Old Mutual 34 888 641 9,33

Sanlam 32 422 292 8,67

AFGRI Limited Trust 29 831 956 7,98

Government Employees Pension Fund 26 551 004 7,10

OTK Investment House 18 999 746 5,08

Totals 182 070 051 48,71

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GRI index

Section G3 indicator

Description Reference

Strategy 1.1 Statement from senior decision-maker about the relevance and importance of sustainability to AFGRI, the overall vision and strategy for the short term, medium term and long term, particularly with regard to managing the key challenges associated with economic, environmental and social performance

Pages 19, 22 – 28

1.2 Description of key impact, risk and opportunities IFC, 1, 8 – 11, 48 – 58

Organisational profile

2.1 Name of the organisation Front cover

2.2 Primary products, brands and/or services 2 – 3, 30 – 40

2.3 Operational structure of the organisation 2 – 3, 23, 62 – 68

2.4 Head office location IBC

2.5 Number of countries where AFGRI operates, and names of countries with major operations relevant to the sustainability issues covered in this report

2 – 3

2.6 Nature of ownership 51, 73, 158 – 160

2.7 Market served 2 – 3, 22 – 28

2.8 Scale of reporting organisation including: number of employees net sales total capitalisation broken down in terms of debt and equity quantity of products or services provided

4 – 7, 30 – 40, 42 – 46, 52 - 53

2.9 Significant changes in the reporting organisation during period under review

22 – 28, 40, 42 – 45

2.10 Awards received during the reporting period 60

Report scope and boundary

3.1 Reporting period IFC, 1

3.2 Date of most recent previous report 30 June 2009

3.3 Reporting cycle 1

3.4 Contact details for further information about this report 1

3.5 Process for determining materiality process for prioritising topics in the report identifying stakeholders expected to use this report

48 – 49

3.6 Report boundary IFC, 1

3.7 Limitations on the scope or boundary of the report IFC, 1

3.8 Basis for reporting on joint ventures, subsidiaries, leased facilities and outsourced operations

IFC, 1

3.9 Data measurement techniques and the bases of calculations, including assumptions and techniques underlying estimations applied to the compilation of the indicators and other information in the report

IFC, 1

3.10 Explanation of the effect of any restatements of information provided in earlier reports, and the reasons for such restatement

Not applicable

3.11 Significant changes from previous reporting periods in the scope, boundary, or measurement methods applied in the report

IFC, 1

3.12 GRI table 73 – 75

3.13 Policy and current practice with regard to seeking external assurance for the report

IFC, 1, 28

75





Governance 4.1 Governance structure of the organisation 62 – 68

4.2 Indicate whether the chairman is also an executive officer and, reasons for this arrangement

12 – 13, 62

4.3 Number of independent and/or non-executive members 12 – 13, 62 – 68

4.4 Mechanisms for shareholders and employees to provide recommendations or directions to the Board

49

4.5 Linkage between compensation for members of the highest governance body, senior managers and executives

64, 69 – 71

Governance (continued)

4.6 Processes in place for the highest governance body to ensure conflicts of interest are avoided

62

4.7 Process for determining the qualifications and expertise of the members of the highest governance body for guiding the organisation’s strategy on economic, environmental, and social topics

64

4.8 Internally developed statements of missions or values, codes of conduct, and principles relevant to economic, environmental, and social performance, and the status of their implementation

IFC, 1, 27, 51, 53, 55, 57

4.9 Procedures of the highest governance body of overseeing the organisation’s identification and management of economic, environmental and social performance, including relevant risks and opportunities, and adherence to or compliance with internationally agreed standards, codes of conduct and principles

63, 66 – 68

4.10 Processes for evaluating the highest governance body’s own performance, particularly with respect to economic, environmental and social performance

62

4.11 Explanation of whether and how the precautionary approach or principles are addressed by the organisation

Not addressed

4.12 Externally developed economic, environmental and social charters, principles, or other initiatives to which the organisation subscribes or endorses

None

4.13 Memberships in associations (such as industry associations) and/or national/international advocacy organisations in which the organisation:

has positions in governance bodies; participates in projects or committees; provides substantive funding beyond routine membership dues; or

views membership as strategic.

57

4.14 List of stakeholder groups engaged by the organisation 49

4.15 Basis for identification and selection of stakeholders with whom to engage

49

4.16 Approaches to stakeholder engagement, including frequency of engagement by type and by stakeholder group

49

4.17 Key topics and concerns that have been raised through stakeholder engagement, and how the organisation has responded to those key topics and concerns, including through its reporting

8 – 11

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GRI index continued



Disclosures on management approach

DMA EC The disclosures on management approach relate to the individual aspects reported on, including:EC1 – Direct economic value generated and distributedEC2 – Impacts of climate changeEC6 – Spending on locally based suppliersEC7 – Local hiring, including at senior management levelEC8, EC9 – Economic impacts

527 – 28, 5652Not addressed48 – 58

DMA EN The disclosures on management approach for all environmental aspects reported on

IFC, 1, 55

DMA LA The disclosures on management approach relating to labour practices and decent work reported on

49

DMA HR The disclosures on management approach relating to human rights reported on

Not addressed

DMA SO The disclosures on management approach relating to society reported on

48, 52

DMA PR The disclosures on management approach relating to individual aspects reported on:PR1, PR2 – Product health and safety impactsPR4, PR5, PR8 – Customer satisfaction and privacy of data and non-compliance with regulations

53 – 55

Performance indicators

EC1 Direct economic value generated and distribution, including revenue, operating cost, employment compensation, donation and other community investments, retained earnings and payments to capital providers and governments

5

EC6 Policy, practices and proportion of spending on locally based suppliers at significant locations of operations

52

EC8 Development and impact of infrastructure investments and services provided primarily for public benefit through commercial, in kind, or pro bono engagement

48 – 58

EC9 Understanding and describing significant indirect economic impacts, including the extent of impacts

Not addressed

EN2 Percentage of materials used that are recycled input materials Not addressed

EN3 Direct energy consumption by source Not addressed

EN8 Total water withdrawal by source Not addressed

EN12 Description of significant impacts of activities, and services on biodiversity in protected areas and areas of high biodiversity value outside protected areas

Not addressed

EN16 Total direct and indirect greenhouse gas emissions by weight Not addressed

EN22 Total weight of waste by type and disposal method Not addressed

EN23 Total number and volume of significant spills None

EN26 Initiatives to mitigate environmental impacts of products and services and extent of impact mitigation

56

EN27 Percentage of products sold and their packaging materials that are reclaimed by category

Not addressed

EN28 Monetary value of significant fines and total number of non-monetary sanctions for non-compliance with environmental laws and regulations

None

LA1 Total workforce by employment type, employment contract and region

52 – 53

LA4 Percentage of employees covered by collective bargaining agreements

49

LA5 Minimum notice period(s) regarding operational changes, including whether it is specified in collective agreements

49

LA7 Rates of injury, occupational diseases, last days and absenteeism, and total number of work-related fatalities by region

49

77





LA8 Education, training, counselling, prevention and risk control programmes in place to assist workforce members, their families or community members, regarding serious diseases

49

LA11 Programmes for skills management and lifelong learning that support the continued employability of employees and assist them in management career endings

49, 52

LA13 Composition of governance bodies in terms of diversity and breakdown of employees per category according to gender and other relevant indicators of diversity

12 – 15

SO3 Percentage of employees trained in organisation’s anti-corruption policies and procedures

Not addressed

SO7 Total number of legal actions for anti-competitive behaviour, anti-trust, and monopoly practices and their outcomes

57

PR4 Total number of incidents of non-compliance with regulations and voluntary codes concerning product and service information and labelling, by type of outcomes

Not addressed

PR5 Practices related to customer satisfaction, including results of surveys measuring customer satisfaction

32, 35, 39, 53 – 55

HR4 Total number of incidents of discriminations and actions taken 49

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Audit and risk management committee report

We are pleased to present our report for the financial year

ended 30 June 2010.

AUDIT AND RISK MANAGEMENT COMMITTEE TERMS OF REFERENCEThe AFGRI Limited Audit and Risk Management Committee

(the Committee) has adopted a formal Terms of Reference

that has been approved by the Board of Directors. The

Committee has conducted its affairs in compliance with

these Terms of Reference and has discharged its

responsibilities contained therein. The Terms of Reference

are available from the Group Company Secretary on request.

AUDIT AND RISK MANAGEMENT COMMITTEE MEMBERS AND ATTENDANCE AT MEETINGSThe composition of the Committee was changed during the

year under review to ensure compliance with the

requirements of the new Companies Act. The Committee

consists of three independent, non-executive directors and

meets at least four times per annum as per the Committee

Terms of Reference. The Group chief executive, Group

financial director, AFGRI Operations‘ COO, AFGRI Operations’

legal director and AFGRI Operations‘ HR director, Internal

Audit, external auditor and other assurance providers of

AFGRI attend all meetings by invitation.

During the year under review four meetings were held.

Name of member 27 August 2009

18 November2009

17 February 2010

12 May 2010

JPR Mbau* Banking Diploma, Business

Management Diploma, Executive

Management Programme √ √ Apology

DD de Beer CA(SA) √ √ √ √

LM Koyana** BCom, BCompt (Hons) √ √

DD Barber** FCA (England and Wales) √ √

JJ Claassen* √ √ √

FJ van der Merwe* BA LLB MA √ Apology √

** Appointed with effect from 22 February 2010 * Not reappointed to the Committee with effect from 22 February 2010

ROLE AND RESPONSIBILITIESThe Committee’s role and responsibilities include its

statutory duties as per the Corporate Laws Amendment Act,

2006, and the responsibilities assigned to it by the Board.

Statutory duties

In the conduct of its duties, the Committee has performed

the following statutory duties:

• Nominated for appointment as external auditor of the

Company, PricewaterhouseCoopers Inc a registered

auditor who, in the opinion of the Committee, is

independent of the Company;

• Determined the fees to be paid to the external auditor

and his terms of engagement;

• Ensured that the appointment of the external auditor

complies with the Corporate Laws Amendment Act, 2006

and any other legislation relating to the appointment of

auditors;

• Determined the nature and extent of any non-audit

services that the external auditor may provide to the

Company (and the AFGRI Limited Group); and

• Pre-approved any proposed agreement with the external

auditor for the provision of non-audit services to the

company (and the AFGRI Limited Group).

79



Financial statements (including accounting practices)

The Committee has reviewed the financial statements of the

Company and the AFGRI Limited Group and is satisfied that

they comply with International Financial Reporting Standards.

Going concern

The Committee reviewed a documented assessment by

management of the going-concern premise of the Company

and the AFGRI Limited Group before concluding to the Board

that the Company, as well as the AFGRI Limited Group will be

a going concern in the foreseeable future.

Expertise and experience of financial director and finance

function

The Committee has satisfied itself that the financial director

of AFGRI Limited has appropriate expertise and experience.

The Committee has considered, and has satisfied itself of the

appropriateness of the expertise and adequacy of resources

of the AFGRI Limited Group’s finance function and

experience of the senior members of management

responsible for the financial function.

Duties assigned by the Board

The Committee fulfils an oversight role regarding the

Company’s integrated annual report and the reporting

process, including the system of internal financial control. It

is responsible for ensuring that the Company and the AFGRI

Limited Group’s internal audit function is independent and

has the necessary resources, standing and authority within

the organisation to enable it to effectively discharge its

duties. Furthermore, the Committee oversees co-operation

between the internal and external auditors, and serves as a

link between the Board of Directors and these functions.

During the year under review, the Committee met with the

external auditor and with the head of internal audit without

management being present. The Committee is satisfied that

it has complied with its legal, regulatory and other

responsibilities.

External auditor

The Committee has satisfied itself that the external auditor,

PricewaterhouseCoopers Inc. was independent of the

Company, as set out in section 270A (5) of the Corporate

Laws Amendment Act, 2006, which includes consideration

of compliance with criteria relating to independence or

conflicts of interest as prescribed by the Independent

Regulatory Board for Auditors. Requisite assurance was

sought and provided by the external auditor that internal

governance processes within PricewaterhouseCoopers Inc.

support and demonstrate their claim to independence.

The Committee, in consultation with executive management,

agreed to the engagement letter, terms, audit plan and

budgeted audit fees for the 2009/2010 financial year. All

non-audit services provided by the external auditor must be

approved by the Chairman of the Committee. The Committee

ratified the nature and extent of non-audit services that the

external auditor provided.

The Committee has nominated, for approval at the annual

general meeting, PricewaterhouseCoopers Inc. as the

external auditor and Mr JL Roos as the designated auditor,

for the 2010/2011 financial year. It has further satisfied itself

that the audit firm and designated auditor are accredited to

appear on the JSE List of Accredited Auditors.

Internal financial controls

Based on the reports provided to the Committee by internal

audit of the reviews conducted by them during the year and,

in addition, considering information and explanations

provided by management plus discussions held with the

external auditor on the results of their audit, the Committee

is of the opinion that the AFGRI Limited Group’s system of

internal financial controls is effective and forms a basis for

the preparation of reliable financial statements.

A formal documented review of the design, implementation

and effectiveness of the AFGRI Limited Group’s system of

internal financial controls will be conducted by internal audit

during the 2010/2011 financial year.

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Audit and risk management committee report continued

Risk management

The Board has assigned oversight of the Company’s

(including the AFGRI Limited Group’s) risk management

function to the Audit and Risk Management Committee. The

Committee fulfils an oversight role regarding financial

reporting risks, internal financial controls, fraud risk as it

relates to financial reporting and information technology

risks as it relates to financial reporting.

Internal audit

Internal audit function’s annual audit plan was approved by

the Committee. The internal audit function has been

outsourced to KPMG and has responsibility for reviewing and

providing assurance on the adequacy of the internal control

environment across all of the AFGRI Limited Group’s

operations. Internal audit is responsible for reporting the

findings of the internal audit work against the agreed internal

audit plan to the Committee on a regular basis. Internal audit

has direct access to the Committee, primarily through its

Chairman.

Whistle-blowing

The Committee is satisfied that instances of whistle-blowing

were appropriately dealt with during the period under review.

Recommendation of the integrated annual report for

approval by the Board

The Committee recommended the annual financial

statements for approval by the Board of Directors on

31 August 2010.

The responsibility of the Audit and Risk Management

Committee has recently been extended to include

governance over the integrity of the integrated annual

report. This is the first year in which AFGRI has prepared

such a report and the Committee has considered the broad

process under which the report has been prepared. In the

forthcoming year, the Committee will introduce further

processes to enable it to evaluate the non-financial

information provided therein.

DD de Beer

Chairman

AFGRI Limited Audit and Risk Management Committee

31 August 2010



financial statements

82 Certificate by Company Secretary

83 Independent auditors’ report

84 Directors’ report

87 Accounting policies

108 Group balance sheet

109 Group income statement

110 Group statement of comprehensive income

110 Group statement of changes in equity

111 Group cash flow statement

113 Business segment results

118 Notes to the Group annual financial statements

158 Appendix A

159 Appendix B

160 Appendix C

160 Appendix D

161 Separate Company annual financial statements



financial statements

82 Certificate by Company Secretary

83 Independent auditors’ report

84 Directors’ report

87 Accounting policies

108 Group balance sheet

109 Group income statement

110 Group statement of comprehensive income

110 Group statement of changes in equity

111 Group cash flow statement

113 Business segment results

118 Notes to the Group annual financial statements

158 Appendix A

159 Appendix B

160 Appendix C

160 Appendix D

161 Separate Company annual financial statements

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Directors’ responsibility for, and approval of, the annual financial statements

The directors are responsible for the preparation, integrity

and fair presentation of the financial statements of AFGRI

Limited and its subsidiaries. The financial statements

presented on pages 84 to 167 have been prepared in

accordance with International Financial Reporting

Standards and in the manner required by the Companies

Act of South Africa, and include amounts based on

judgements and estimates made by management. The

directors also prepared the other information included in

the annual report and are responsible for both its accuracy

and its consistency with the financial statements.

The going-concern basis has been adopted in preparing

the financial statements. The directors have no reason to

believe that the Group or any Company within the Group

will not be going concerns in the foreseeable future based

on forecasts and available cash resources. These financial

statements support the viability of the Company and the

Group.

The financial statements have been audited by the

independent auditing firm, PricewaterhouseCoopers

Incorporated, who were given unrestricted access to

all financial records and related data, including minutes

of all meetings of shareholders, the Board of Directors

and committees of the Board. The directors believe

that all representations made to the independent

auditors during their audit are valid and appropriate.

PricewaterhouseCoopers Incorporated audit report is

presented on page 83.

The financial statements were approved by the Board

of Directors on 31 August 2010 and are signed on its

behalf by:

JPR Mbau

Chairman

CP Venter

Chief Executive Officer

JA van der Schyff

Group Financial Director

Centurion

31 August 2010

In my capacity as Company Secretary, I hereby confirm that the Company has lodged with the Registrar of Companies all such

returns as are required of a public company in terms of section 268 G(d) of the Companies Act, 1973, as amended and that

such returns are true, correct and up to date.

N van Wyk

Company Secretary

Centurion

31 August 2010

Certificate by Company Secretary

83


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.

OpinionIn our opinion, the financial statements present fairly, in all

material respects, the consolidated and separate financial

position of AFGRI Limited as at 30 June 2010, and its

consolidated and separate financial performance and its

consolidated and separate cash flows for the year then

ended in accordance with International Financial Reporting

Standards and in the manner required by the Companies

Act of South Africa.

PricewaterhouseCoopers Inc Director: JL Roos

Registered Auditor

Pretoria

31 August 2010

We have audited the Group annual financial statements

and annual financial statements of AFGRI Limited, which

comprise the consolidated and separate balance sheets as

at 30 June 2010, and the consolidated income statement,

the consolidated and separate statements of

comprehensive income, the consolidated and separate

statements of changes in equity and consolidated and

separate cash flow statements for the year then ended,

and a summary of significant accounting policies and other

explanatory notes, and the directors’ report, as set out on

pages 84 to 167.

Directors’ responsibility for the financial statementsThe 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.

Auditors’ responsibilityOur 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

Independent auditors’ reportTO THE MEMBERS OF AFGRI LIMITED

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Directors’ report

To the members of AFGRI Limited (“AFGRI” or “the Company”)The directors have pleasure in submitting the annual financial statements of AFGRI Group for the year ended 30 June 2010.

NATURE OF BUSINESSAFGRI offers a wide range of world-class products and services to South African agriculture, focused on the grain value chain in high production areas and has extensive investments in secondary agriculture, including animal feeds, oil pressing and poultry production.

FINANCIAL RESULTS AFGRI reported revenue from continuing operations for the year ended 30 June 2010 of R7,258 billion (2009: R8,017 billion). Profit before tax from continuing operations amounted to R453,7 million (2009: R495,6 million). The income tax expense relating to continuing operations amounted to R61,2 million (2009: R91,9 million), resulting in a profit for the period from continuing operations of R392,5 million (2009: R403,6 million).

For the year, AFGRI realised an after tax profit from discontinued operations of R74,6 million (2009: after tax loss of R49,7 million).

The Group’s profit from all operations for the year amounted to R467,1 million (2009: R353,9 million).

DIVIDENDSThe following dividends were declared in respect of the year ended 30 June 2010:• Interim dividend No 20 of 24,15 cents per share paid

on 14 May 2010• Final dividend No 21 of 17,15 cents per share payable

on 22 November 2010

SUBSIDIARIES, ASSOCIATE COMPANIES AND OTHER INVESTMENTSParticulars of the principal subsidiaries of the AFGRI Group are given on page 158, whilst particulars of the associate companies, joint ventures and other investments are provided in Appendices B and C on pages 159 and 160.

The attributable interest of the Group in the profits and losses of its subsidiaries for the year ended 30 June 2010 is available in the financial statements, please refer to page 141.

CORPORATE ACTIVITY DURING THE YEAROn 26 January 2010 the Group concluded the sale agreement of the Tsunami business unit with Oninamix

(Pty) Limited trading as Arysta Life Science South Africa.

Certain of the business unit’s assets will only be transferred

over the next 12 months and are therefore disclosed under

assets of disposal groups classified as held-for-sale.

The trading results are included with the results from

discontinued operations. These assets contributed

R645 million (2009: R438 million) to the Group’s revenue

and R70 million (2009: R31 million) to the Group’s profit

before tax. More details regarding this transaction were

published on SENS on 1 February 2010.

On 4 February 2010, the Group entered into a sale

agreement with Capital Harvest to sell the Western Cape

debtors book owned by Gro Capital and the assets and

liabilities of the AFGRI Western Cape business unit. These

assets contributed R29 million (2009: R39 million) to the

Group’s revenue and R4 million (2009: R10 million) to the

Group’s profit before tax. More details regarding this

transaction were published on SENS on 5 February 2010.

During the year the Group concluded a sale agreement

with MGK Operating Company (Pty) Limited regarding the

sale of 10 of its retail stores in the Lowveld region. The

Group further concluded a sale agreement to dispose of

13 of its retail branches in the Natal region to TWK Landbou

Limited. These combined assets contributed R393 million

(2009: R694 million) to the Group’s revenue and R13 million

(2009: R20 million) to the Group’s profit before tax.

The trading results of the Tsunami business unit, the

Lowveld and Natal retail stores and Capital Harvest are

disclosed as discontinuing operations. The comparative

reclassification between continuing and discontinuing

operations in the income statement and business segment

results has been made.

On 1 June 2010 the Group acquired the remaining minority

interest in Midway Chix (Pty) Limited as part of its

expansion into the foods sector.

85


CORPORATE ACTIVITY AFTER THE BALANCE

SHEET DATE

Subsequent to 30 June 2010 the Group concluded

discussions regarding the restructuring of its black

economic empowerment interest. Izitsalo Employee

Investments (Pty) Limited, one of the current beneficiaries

of the Agri Sizwe Empowerment Trust with an undivided

interest of 19,9% in relation to distributions of capital and

interest by the Agri Sizwe Trust will, by agreement, acquire

the 80,1% Agri Sizwe Trust beneficiary interests of all of

the remaining beneficiaries of the Agri Sizwe Trust.

As part of its growth strategy the Group entered into a

purchase agreement on 6 August 2010 to obtain the

business of Rossgro Chickens (Pty) Limited as a going

concern. The transaction is pending approval by the

South African competition authorities.

SHARE CAPITALFull details of the authorised, issued and unissued share

capital of the Company at 30 June 2010 are contained in

note 15 to the financial statements.

Particulars relating to AFGRI’s share incentive schemes are

set out in notes 17 and 18 to the financial statements.

At the date of this report, a total of 7 547 444 ordinary

shares remain reserved for the purposes of the Company’s

various employee share incentive schemes.

The remaining unissued ordinary shares are the subject

of a general authority granted to the directors in terms of

section 221 of the Companies Act, 1973, as amended, and

which authority remains valid only until the next annual

general meeting which will be held on Friday 15 October

2010. At that meeting, shareholders will be asked to place the

unissued ordinary share capital under the control of the

directors. Shareholders will be asked to place the unissued

share capital under the control of the directors to enable

them to allot and issue ordinary shares which may be

allocated during the year to certain employees and directors

in terms of employee share schemes to a maximum of 10%

of issued share capital.

DIRECTORATEMr DD de Beer stood down as Chairman of the Board

with effect from 1 January 2010 and was replaced by

Mr JPR Mbau.

Mr CA Apsey resigned as a director with effect from

1 January 2010 due to ill health and Messrs DD Barber and

LM Koyana were appointed as independent non-executive

directors with effect from 10 January 2010.

Ms L de Beer was appointed as an independent non-

executive director with effect from 19 May 2010.

SECRETARYMs N van Wyk acts as Secretary to the Company. The

secretary’s business and postal addresses appear on the

inside back cover of this integrated annual report.

SEGMENTAL REPORTINGRefer to the financial statements on pages 113 to 116.

DIRECTORS’ INTERESTSDetails of beneficial shares held per individual director are listed below.

Name of director Direct beneficial Indirect beneficial

CP Venter – 113 251

Biuma Trade CC (c/o) KL Thoka – 19 400

GJ Geel – 6 000

Details of share options of executive directors of the Company appear in the Remuneration report on pages 70 to 72.

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Directors’ report continued

SPECIAL RESOLUTIONSThe Company passed and registered one special resolution

on 16 October 2009, authorising the Board by way of a

renewable general authority contemplated in sections 85 to

89 of the Companies Act to acquire shares in the Company.

CORPORATE GOVERNANCEThe Board has previously endorsed the Code of Good

Corporate Practices and Conduct as contained in the King II

Report on Corporate Governance (“the Code”) and

endorses the contents of the King Report on Governance

for South Africa, 2009 (“King III”), as well as the King Code

of Governances Principles for South Africa, 2009.

Details of the Group’s borrowing facilities are provided in

note 40 of the annual financial statements. In terms of the

Company’s articles of association, the Group’s borrowing

powers are unlimited, but certain limits on borrowing levels

have been fixed by the Board of Directors.

AUDITORSPricewaterhouseCoopers Inc has expressed their

willingness to continue in office and resolutions proposing

their reappointment will be submitted at the forthcoming

annual general meeting.

87


Accounting policies

including time value in the one-sided hedged

risk when designating options as hedges.

• IFRS 3 (Revised) Business Combinations: The

revision continues to apply the acquisition method

to business combinations, with some significant

changes. For example, all payments to purchase

a business are to be recorded at fair value at the

acquisition date, with some contingent payments

subsequently remeasured at fair value through

profit or loss. Goodwill may be calculated based

on the parent’s share of net assets or it may

include goodwill related to the minority interest.

All transaction costs will be expensed.

• IAS 27 (Revised) Consolidated and Separate

Financial Statements: The revision requires the

effects of all transactions with non-controlling

interests to be recorded in equity if there is no

change in control. These transactions will no longer

result in goodwill or gains and losses. The standard

also specifies the accounting treatment when

control is lost. Any remaining interest in the entity

is remeasured to fair value and a gain or loss is

recognised in profit or loss.

• IFRIC 16 Hedges of a Net Investment in a Foreign

Operation: The interpretation provides guidance on

identifying the foreign currency risks that qualify as

a hedged risk (in the hedge of a net investment in a

foreign operation). Secondly, it provides guidance

on where, within a group, hedging instruments that

are hedges of a net investment in a foreign

operation can be held to qualify for hedge

accounting. Thirdly, it provides guidance on how an

entity should determine the amounts to be

reclassified from equity to profit or loss for both the

hedging instruments and the hedged item.

• IFRIC 17 Distributions of Non-cash Assets to

Owners: The interpretation applies to the

distributions of non-cash assets (commonly

referred to as dividends in specie) to the owners of

an entity. The interpretation clarifies that: a dividend

payable should be recognised when the dividend is

appropriately authorised and is no longer at the

discretion of the entity; an entity should measure

the dividend payable at the fair value of the net

assets to be distributed; and an entity should

recognise the difference between the dividend paid

and the carrying amount of the net assets

distributed in profit or loss.

The principal accounting policies adopted in the

preparation of these consolidated annual financial

statements are set out below and are consistent with those

of the previous year, except where indicated otherwise.

1 BASIS OF PREPARATION

These consolidated financial statements of AFGRI

Limited have been prepared in accordance with

International Financial Reporting Standards (IFRS).

These consolidated financial statements have been

prepared under the historical cost convention, as

modified by the revaluation of available-for-sale

financial assets, financial assets and financial

liabilities (including derivative instruments) and

biological assets at fair value through profit or loss.

The preparation of financial statements in conformity

with IFRS requires the use of certain critical

accounting estimates. It also requires management to

exercise its judgement in the process of applying the

Company’s and Group’s accounting policies. The

areas involving a higher degree of judgement or

complexity, or areas where assumptions and

estimates are significant to the consolidated financial

statements are disclosed in note 1 (Critical

accounting estimates and judgements).

New standards, interpretations and

amendments to published standards effective

in 2010 and adopted by the Group

• IFRS 7 (Amendment) Financial Instruments:

Disclosures. The amendment requires enhanced

disclosures about fair value measurement and

liquidity risk. In particular, the amendment requires

the disclosure of fair value measurements by level

of a fair value hierarchy.

• IFRS 2 (Amendment) Share-based Payment: The

amendment deals with two matters. It clarifies that

vesting conditions are service conditions and

performance conditions only. Other features of a

share-based payment are not vesting conditions. It

also specifies that all cancellations, whether by the

entity or by other parties, should receive the same

accounting treatment.

• IAS 39 (Amendment) Financial Instruments:

Recognition and Measurement: The amendment

prohibits both designating inflation as a hedgeable

component of a fixed rate debt instrument and

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Accounting policies continued

• AC 504 – IAS 19 The Limit on a Defined Benefit

Asset, Minimum Funding Requirements and their

Interaction in the South African Pension Fund

Environment: The interpretation provides guidance

on the application of IFRIC 14 in South Africa in

relation to defined benefit pension obligations

(governed by the Pension Funds Act, 1956) within

the scope of IAS 19.



in 2011 and relevant to the Group

• IFRS 2 (Amendment) Group Cash-Settled Share-

Based Payment Transactions (effective from

1 January 2010): The amendment clarifies the

accounting for Group cash-settled share-based

payment transactions. The entity receiving the

goods or services shall measure the share-based

payment transaction as equity-settled only when

the awards granted are its own equity instruments,

or the entity has no obligation to settle the

share-based payment transaction. The entity

settling a share-based payment transaction when

another entity in the Group receives the goods or

services recognises the transaction as equity-

settled only if it is settled in its own equity

instruments. In all other cases, the transaction is

accounted for as cash-settled.

• IFRIC 19 Extinguishing Financial Liabilities with

Equity Instruments (effective from 1 July 2010): The

interpretation clarifies the accounting when an

entity renegotiates the terms of its debt with the

result that the liability is extinguished through the

debtor issuing its own equity instruments to the

creditor. A gain or loss is recognised in the profit

and loss account based on the fair value of the

equity instruments compared to the carrying

amount of the debt.



2011 but not relevant for the Group’s

operations

• IAS 32 (Amendment) Classification of Rights Issues

(effective from 1 February 2010): The amendment

clarifies the accounting treatment when rights

issues are denominated in a currency other than

the functional currency of the issuer. The

amendment states that if such rights are issued pro

rata to an entity’s existing shareholders for a fixed

amount of currency, they should be classified as

1 BASIS OF PREPARATION (continued)


amendments to published standards, effective

in 2010 but not relevant to the Group’s

operations

• IAS 32 (Amendment) Financial Instruments:

Presentation and IAS 1 Presentation of Financial

Statements – Puttable Financial Instruments and

Obligations Arising on Liquidation: The

amendments require entities to classify the

following types of financial instruments as equity,

provided they have particular features and meet

specific conditions: (a) puttable financial

instruments (for example, some shares issued by

cooperative entities); (b) instruments, or

components of instruments, that impose on the

entity an obligation to deliver to another party a pro

rata share of the net assets of the entity only on

liquidation (for example, some partnership interests

and some shares issued by limited life entities).

Additional disclosure is required about the

instruments affected by the amendments.

• AC 503 (Revised) Accounting for Black Economic

Empowerment Transactions: The Accounting

Practices Committee has revisited AC 503 in light of

the amendments to IFRS 2. As a result of these

amendments, paragraphs 18 to 25 and the related

Illustrative Examples and Basis for Conclusions of

AC 503 have been revised to take into account the

amended definition of vesting conditions and the

accounting treatment of non-vesting conditions.

• IFRIC 18 Transfers of Assets from Customers: The

interpretation clarifies the accounting treatment for

the transfers of property, plant and equipment

received from customers. This interpretation

applies to agreements with customers in which the

entity receives cash from a customer when that

amount of cash must be used only to construct or

acquire an item of property, plant or equipment and

the entity must then use the item of property, plant

or equipment either to connect the customer with

ongoing access to a supply of goods and services

or do both.

• IFRIC 15 Agreement for the Construction of Real

Estate: The interpretation addresses diversity in

accounting for real estate sales. It clarifies how to

determine whether an agreement is within the

scope of IAS 11 Construction Contracts or IAS 18

Revenue and when revenue from construction

should be recognised. The guidance replaces

example 9 in the appendix to IAS 18.

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• IAS 23 Borrowing Costs: The definition of borrowing

costs is revised to align with IAS 39 by referring to

the use of an effective interest rate, as described

by IAS 39, as a component of borrowing costs.

• IAS 41 Agriculture: The amendment replaces the

term “pre-tax” discount rate with “market-

determined” discount rate, clarifying that a fair

value measurement should take into account all

attributes, including tax attributes, that a market

participant would consider when pricing an asset

or liability. The standard also allows the

consideration of additional biological

transformation when determining the fair value.

• IAS 18 Revenue: New guidance accompanies the

standard to determine whether an entity is acting

as a principal or as an agent. The features to

consider are whether the entity:

– Has primary responsibility for providing the

goods or service

– Has inventory risk

– Has discretion in establishing prices

– Bears the credit risk.

Other amendments resulting from the improvements

to IFRS project to the following standards did not have

any impact on the accounting policies, financial

position or performance of the Group:

• IFRS 2 Share-based Payment

• IFRS 5 Non-current Assets Held-for-Sale and

Discontinued Operations (issued May 2008)

• IFRS 7 Financial Instruments: Disclosures

• IAS 8 Accounting Policies, Change in Accounting

Estimates and Errors

• IAS 10 Events after the Reporting Period

• IAS 18 Revenue (issued May 2008)

• IAS 19 Employee Benefits

• IAS 20 Accounting for Government Grants and

Disclosures of Government Assistance

• IAS 29 Financial Reporting in Hyperinflationary

Economies

• IAS 34 Interim Financial Reporting

• IAS 38 Intangible Assets

• IAS 39 Financial Instruments: Recognition and

Measurement

• IAS 40 Investment Property

• IFRIC 9 Reassessment of Embedded Derivatives

• IFRIC 16 Hedges of a Net Investment in a Foreign

Operation.

equity regardless of the currency in which the

exercise price is denominated.

• IFRIC 14 (Amendment) Prepayments of a Minimum

Funding Requirement (effective from 1 January

2011): This amendment will have a limited impact

as it applies only to companies that are required to

make minimum funding contributions to a defined

benefit pension plan. It removes an unintended

consequence of IFRIC 14 (AC 447) related to

voluntary pension prepayments when there is a

minimum funding requirement.


amendments to published standards not yet

effective

• IAS 24 (Amendment) Related Party Disclosures

(effective from 1 January 2011): This amendment

provides partial relief from the requirement for

government-related entities to disclose details of

all transactions with the government and other

government-related entities. It also clarifies and

simplifies the definition of a related party.

• IFRS 9 Financial Instruments (effective 1 January

2013): This IFRS is part of the IASB’s project to

replace IAS 39. IFRS 9 addresses classification and

measurement of financial assets and replaces the

multiple classification and measurement models

in IAS 39 with a single model that has only

two classification categories: amortised cost

and fair value.

Improvements to IFRS

In May 2008 and April 2009 the International

Accounting Standards Board issued an omnibus of

amendments to its standards, primarily with a view to

removing inconsistencies and clarify wording. There

are separate transitional provisions for each standard.

The adoption of the following amendments resulted

in changes to accounting policies but did not have

any impact on the financial position or performance

of the Group:

• IAS 1 Presentation of Financial Statements: Assets

and liabilities classified as held-for-trading in

accordance with IAS 39 Financial Instruments:

Recognition and Measurement are not

automatically classified as current in the statement

of financial position.

• IAS 16 Property, Plant and Equipment: The

amendment replaces the term “net selling price”

with “fair value less costs to sell”.

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interest in the acquiree is remeasured to fair value as

at the acquisition date directly through profit or loss.

The Group applies a policy of treating transactions

with minority interests as transactions with equity

owners of the Group. For purchases of additional

interests in subsidiaries from minorities, the

difference between any consideration paid and the

relevant share acquired of the carrying value of net

assets of the subsidiary is added to, or deducted

from, equity. For disposals of minority interests,

differences between any proceeds received and the

relevant share of minority interests are also recorded

in equity.

Intercompany transactions, balances and unrealised

gains on transactions between Group companies are

eliminated. Unrealised losses are also eliminated

unless the transaction provides evidence of an

impairment of the asset transferred.

Accounting policies of subsidiaries have been

changed where necessary to ensure consistency with

the policies adopted by the Group.

2.2 Associates

Associates are all entities over which the Group has

significant influence but not control, generally

accompanying a shareholding of between 20% and

50% of the voting rights. Investments in associates

are accounted for under the equity method of

accounting and are initially recognised at cost.

The Group’s investment in associates includes

goodwill identified on acquisition.

The Group’s share of its associates’ post-acquisition

profits or losses is recognised in profit or loss, and its

share of post-acquisition movements in reserves is

recognised in other comprehensive income. The

cumulative post-acquisition movements are adjusted

against the carrying amount of the investment.

When the Group’s share of losses in an associate

equals or exceeds its interest in the associate,

including any other unsecured receivables, the Group

does not recognise further losses, unless it has

incurred obligations or made payments on behalf of

the associate.

1 BASIS OF PREPARATION (continued)

Improvements to IFRS (continued)

The amendments to the following standards are not

yet effective and management is assessing the

impact on the accounting policies of the Group:

• IFRS 5 Non-current Assets Held-for-Sale and

Discontinued Operations (issued April 2009)

• IFRS 8 Operating Segments

• IAS 1 Presentation of Financial Statements

• IAS 7 Statement of Cash Flows

• IAS 17 Leases

• IAS 36 Impairment of Assets

• IAS 39 Financial Instruments: Recognition and

Measurement.

2 INTERESTS IN GROUP ENTITIES

2.1 Subsidiaries

Subsidiaries are entities (including special purpose

entities) over which the Group has the power to

govern the financial and operating policies. The

existence and effect of potential voting rights that are

currently exercisable or convertible are considered

when assessing whether the Group controls another

entity.

Subsidiaries are fully consolidated from the date on

which control is transferred to the Group. They are

deconsolidated from the date that control ceases.

The cost of an acquisition is measured as the

aggregate of the consideration transferred, measured

at acquisition date fair value and the amount of any

minority interest in the acquiree. For each acquisition,

the acquirer measures the minority interest in the

acquiree either at fair value or at the proportionate

share of the acquiree’s identifiable net assets.

Acquisition costs incurred are recognised directly in

profit or loss. Any contingent consideration to be

transferred by the acquirer will be recognised at fair

value at the acquisition date. Subsequent changes to

the fair value of the contingent consideration which is

deemed to be an asset or liability, will be recognised

in accordance with IAS 39 either directly in profit or

loss or in other comprehensive income. If the

contingent consideration is classified as equity, it shall

not be remeasured until it is finally settled within

equity.

If the acquisition is achieved in stages, the acquisition

date fair value of the acquirer’s previously held equity

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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

expenditures are charged to profit or loss during the

financial period in which they are incurred.

Depreciation is calculated using the straight-line

method to allocate the cost of each asset to its

residual value over its estimated useful life as follows:

• Buildings 25 – 100 years

• Plant and machinery 5 – 100 years

• Equipment and motor vehicles 5 – 50 years

• Land is not depreciated

Major renovations are depreciated over the remaining

useful life of the related asset or to the date of the

next major renovation, whichever is the earlier. Grain

silos are maintained annually to a fixed programme.

The assets’ residual values and useful lives are

reviewed annually and adjusted if appropriate. An

asset’s carrying amount is written down immediately

to its recoverable amount if the asset’s carrying

amount is greater than its estimated recoverable

amount.

Borrowing costs incurred for the construction of any

qualifying asset are capitalised during the period of

time that is required to complete and prepare the

asset for its intended use. Other borrowing costs are

expensed.

Gains and losses on disposals are determined by

comparing proceeds with the carrying amount. These

are included in profit or loss. When revalued assets

are sold, the amounts included in other reserves are

transferred to retained earnings.

4 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 business/

subsidiary/associate or joint venture at the date of

acquisition, and liabilities assumed. Goodwill on

acquisitions of associates is included in investments

in associates. Goodwill is tested annually for

impairment and carried at cost less accumulated

impairment losses and is not amortised.

Unrealised gains on transactions between the Group

and its associates are eliminated to the extent of the

Group’s interest in the associates. Unrealised losses

are also eliminated unless the transaction provides

evidence of an impairment of the asset transferred.

Accounting policies of associates have been changed

where necessary to ensure consistency with the

policies adopted by the Group.

2.3 Joint ventures

The Group’s interests in jointly controlled entities are

accounted for by proportionate consolidation.

The Group combines its proportionate share of each

of the assets, liabilities, income and expenses of the

joint venture with similar items, line by line, in the

Group’s financial statements.

The Group recognises the portion of gains or losses

on the sale of assets by the Group to the joint venture

that is attributable to the other ventures. The Group

does not recognise its share of profits or losses from

the joint venture that result from the Group’s

purchase of assets from the joint venture until it

resells the assets to an independent party. However, a

loss on the transaction is recognised immediately if

the loss provides evidence of a reduction in the net

realisable value of current assets, or an impairment

loss.

Accounting policies of joint ventures have been

changed where necessary to ensure consistency with

the policies adopted by the Group.

3 PROPERTY, PLANT AND EQUIPMENT

Land and buildings comprise mainly factories, retail

outlets and offices. All property, plant and equipment

are shown at cost, less subsequent depreciation and

impairment, except for land, which is shown at cost

less impairment.

Cost includes expenditure that is directly attributable

to the acquisition of the items. Cost may also include

transfers from equity of any gains/losses on qualifying

cash flow hedges of foreign currency purchases of

property, plant and equipment.

Subsequent costs are included in the asset’s carrying

amount or recognised as a separate asset, as

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and that will probably generate economic benefits

exceeding costs beyond one year, are recognised as

intangible assets. Direct costs include the software

development employee costs and an appropriate

portion of relevant overheads.

Computer software development costs recognised as

assets are amortised using the straight-line method

over their estimated useful lives (not exceeding

five years).

5.3 Trademarks, licences and other intellectual

property

Trademarks and licences are recognised at historical

cost less accumulated amortisation and impairment.

Trademarks and licences with finite useful lives are

amortised on a straight-line basis over the estimated

useful lives. Other intellectual property acquired as

part of a business combination such as know-how or

customer lists is recognised at fair value. These

intangible assets have a finite useful life and are

carried at cost less accumulated amortisation.

Amortisation is calculated using the straight-line

method over the estimated useful life of the assets.

The amortisation method and estimated remaining

useful lives are reviewed at least annually.

Amortisation rates applied are provided on pages 123

to 125.

6 IMPAIRMENTS OF NON-FINANCIAL ASSETS

Goodwill and intangible assets that have an indefinite

useful life are not subject to amortisation and are

tested annually for impairment. Assets that are

subject to amortisation or depreciation are reviewed

for impairment whenever events or changes in

circumstances indicate that the carrying amount may

not be recoverable. An impairment loss is recognised

for the amount by which the asset’s carrying amount

exceeds its recoverable amount. The recoverable

amount is the higher of an asset’s fair value less costs

to sell and value in use.

For the purposes of assessing impairment, assets are

grouped at the lowest levels for which there are

separately identifiable cash flows (cash-generating

units). Non-financial assets other than goodwill that

were previously impaired are reviewed for possible

reversal of the impairment at each reporting date.

4 GOODWILL (continued)

Gains and losses on the disposal of an entity, other

than goodwill in associates, include the carrying

amount of goodwill relating to the entity sold. If, on a

business combination, the fair value of the Group’s

interest in the identifiable assets, liabilities and

contingent liabilities exceeds the cost of the

acquisition, the excess is recognised in profit or loss

immediately.

Goodwill is allocated to cash-generating units for the

purpose of impairment assessment. The allocation is

made to those cash-generating units or groups of

cash-generating units that are expected to benefit

from the business combination in which goodwill

arose. AFGRI allocates goodwill to each operating

segment in each country in which it operates.

5 OTHER INTANGIBLE ASSETS

5.1 Research and development

Research expenditure is recognised in profit or loss

as incurred. Costs incurred on development projects

are recognised as intangible assets when it is

probable that the project will be a success,

considering its commercial and technological

feasibility, and costs can be measured reliably. Other

development expenditures are recognised in profit or

loss as incurred. Development costs previously

recognised as an expense are not recognised as an

asset in a subsequent period. Development costs that

have a definite useful life and have been capitalised

are amortised from the commencement of

commercial production of the product on a straight-

line basis over the period of its expected benefit (not

exceeding 10 years).

5.2 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 using the straight-line method over their

estimated useful lives. Amortisation rates applied are

provided on pages 123 and 125.

Costs associated with developing or maintaining

computer software programmes are recognised in

profit or loss as incurred. Costs that are directly

associated with the production of identifiable and

unique software products controlled by the Group,

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include financial receivables (excluding held-to-

maturity investments), trade and other receivables

(excluding prepayments), trade receivables financed

by banks, cash collateral deposits and cash and cash

equivalents.

Cash and cash equivalents comprise cash on hand,

deposits held at call with banks and other short-term,

highly liquid investments with original maturities of

three months or less. Bank overdrafts are shown with

borrowings. Loans and receivables are included in

current assets, except for financial receivables having

maturities greater than 12 months after the balance

sheet date. These are classified as non-current assets.

Available-for-sale financial assets

Available-for-sale financial assets are non-derivatives

that are 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.

7.2 Measurement

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 initially measured at fair value

plus transaction costs. However, transaction costs in

respect of financial assets classified as at fair value

through profit or loss are expensed to profit or loss

immediately. Transaction costs are incremental costs

that are directly attributable to the acquisition of a

financial asset i.e. those costs that would not have

been incurred had the asset not been acquired.

The fair values of quoted investments are based on

current bid prices. If the market for a financial asset

is not active (and for unlisted securities), the Group

establishes fair value by using valuation techniques.

These include the use of recent arm’s-length

transactions, reference to other instruments that are

substantially the same, discounted cash flow analysis,

and option pricing models refined to reflect the

issuer’s specific circumstances.

Financial assets and liabilities are offset where the

Group currently has a legally enforceable right to

offset the recognised amounts and intends to settle

on a net basis.

7 FINANCIAL ASSETS

A financial asset is any asset that is cash, an equity

instrument of another entity, a contractual right to

receive cash or another financial asset from another

entity or to exchange financial assets or financial

liabilities with another entity under conditions that are

potentially favourable.

7.1 Classification

The classification depends on the purpose for which

the financial assets were acquired. Management

determines the classification of its financial assets at

initial recognition. The Group classifies its financial

assets in the following categories:

Financial assets at fair value through profit or loss

Financial assets at fair value through profit or loss are

financial assets held-for-trading and financial assets

designated upon initial recognition at fair value

through profit or loss. A financial asset is classified as

held-for-trading if acquired principally for the purpose

of selling in the short term. This category includes

derivatives (refer to note 13) unless they are

designated as hedges. Assets in this category are

classified as current if they are expected to be

realised within 12 months of the balance sheet date.

The Group enters into various OTC (over-the-counter)

forward purchases and sales contracts for the

purchase and sale of commodities. Although certain

of these contracts are settled by taking or making

physical delivery in the normal course of business,

the OTC contracts are regarded as financial

instruments and are accounted for at fair value under

IAS 39, where the Group has a substantive past

practice of net settlement (either with the

counterparty or by entering into offsetting contracts).

Held-to-maturity investments

Held-to-maturity investments are non-derivative

financial assets with fixed or determinable payments

and fixed maturities where there is a positive

intention and ability to hold them to maturity.

Held-to-maturity investments are included with

financial receivables on the face of the balance sheet.

Loans and receivables

Loans and receivables are non-derivative financial

assets with fixed or determinable payments that are

not quoted in an active market. Loans and receivables

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Available-for-sale financial assets

Available-for-sale financial assets are measured at fair

value with unrealised gains or losses being recognised

in other comprehensive income. Fair value, for this

purpose, is the quoted price if listed or a value arrived

at by using appropriate valuation models if unlisted.

7.3 Impairment

The Group assesses at each balance sheet date

whether there is objective evidence that a financial

asset or a group of financial assets is impaired.

Objective evidence would include, but not be limited

to: a decline in the financial asset’s ability to generate

future cash flows, deterioration in the counterparty’s

credit profile, the ability to collect all amounts due

according to the original terms, or the anticipated

non-performance on a contract.

If any such evidence exists for available-for-sale

financial assets, the cumulative loss – measured as

the difference between the acquisition cost and the

current fair value, less any impairment loss on that

financial asset previously recognised in profit or loss

– is removed from other comprehensive income

and recognised in profit or loss. Impairment losses

recognised in profit or loss on equity instruments are

not reversed through profit or loss, increases in their

fair value after impairment are recognised directly in

other comprehensive income.

In the case of equity investments classified as

available-for-sale, a significant or prolonged decline in

the fair value of the security below its cost is also

evidence that the assets are impaired.

8 FINANCIAL LIABILITIES

A financial liability is a contractual obligation to

deliver cash or another financial asset to another

entity or to exchange financial assets or financial

liabilities with another entity under conditions that are

potentially unfavourable; or a contract that may be

settled in the entity’s own equity instruments and is

a non-derivative for which the entity is or may be

obliged to deliver a variable number of the entity’s

own equity instruments or a derivative (refer to

note 13) that will or may be settled other than by the

exchange of a fixed amount of cash or another

financial asset for a fixed number of the entity’s own

equity instruments.

7 FINANCIAL ASSETS (continued)

7.2 Measurement (continued)

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.

Financial assets at fair value through profit or loss

Financial assets at fair value through profit or loss are

measured at fair value with gains or losses being

recognised in profit or loss. Fair value, for this

purpose, is the quoted price if listed or a value arrived

at by using the discounted cash flow valuation model

if unlisted.

Over-the-counter contracts are initially recognised in

the balance sheet at fair value and are subsequently

remeasured to their fair value. These derivative

transactions, while providing effective economic

hedges under the Group’s risk management policies,

do not qualify for hedge accounting under the

specific rules in IAS 39. Changes in the fair value of

any derivative instruments that do not qualify for

hedge accounting under IAS 39 are recognised

immediately in profit or loss.

Held-to-maturity investments

Financial assets classified as held-to-maturity

financial assets are measured at amortised cost less

any impairment losses recognised in profit or loss to

reflect irrecoverable amounts.

Loans and receivables

Loans and receivables (including those financed by

the Land Bank) are recognised initially at fair value

and subsequently measured at amortised cost using

the effective interest method, less provision for

impairment. The amount of the provision is the

difference between the asset’s carrying amount and

the present value of estimated future cash flows,

discounted at the original effective interest rate. The

carrying amount of the asset is reduced through the

use of an allowance account, and the amount of the

loss is recognised in profit or loss. When a loan or

receivable is uncollectible, it is written off against the

allowance account. Subsequent recoveries of

amounts previously written off are credited to profit

or loss.

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settlement of the liability for at least 12 months after

the balance sheet date.

Trade payables are recognised initially at fair value

and subsequently measured at amortised cost using

the effective interest rate method.

9 DERIVATIVE FINANCIAL INSTRUMENTS AND

HEDGING ACTIVITIES

Derivatives are initially recognised at fair value on the

date on which a derivative contract is entered into

and are subsequently remeasured at their fair value.

The method of recognising the resulting gain or loss

depends on whether the derivative is designated as

a hedging instrument, and if so, the nature of the item

being hedged. The Group designates certain

derivatives as either: (1) hedges of the fair value of

recognised assets or liabilities or a firm commitment

(fair value hedge); (2) hedges of highly probable

forecast transactions (cash flow hedges); or

(3) hedges of net investments in foreign operations.

The Group documents at the inception of the

transaction the relationship between hedging

instruments and hedged items, as well as its risk

management objective and strategy for undertaking

various hedge transactions. The Group also documents

its assessment, both at hedge inception and on an

ongoing basis, of whether the derivatives that are used

in hedging transactions are highly effective in offsetting

changes in fair values or cash flows of hedged items.

The fair values of various derivative instruments are

disclosed in note 13 (Derivative financial instruments).

Movements on the hedging reserve in shareholders’

equity are shown in note 18 (Fair value and other

reserves). The full fair value of a hedging derivative is

classified as a non-current asset or liability when the

remaining hedged item is more than 12 months; it is

classified as a current asset or liability when the

remaining maturity of the hedged item is less than

12 months. Trading derivatives are classified as a

current asset or liability if they are expected to be

realised within 12 months of the balance sheet date.

(a) Fair value hedge

Changes in the fair value of derivatives that are

designated and qualify as fair value hedges are

recorded in the income statement, together with any

changes in the fair value of the hedged asset or

liability that are attributable to the hedged risk.

A financial liability at fair value through profit or loss is

a financial liability that is classified as held-for-trading

or is designated as such on initial recognition. A

financial liability held-for-trading is one that is incurred

as part of a portfolio of identified financial instruments

that are managed together and for which there is

evidence of a recent actual pattern of short-term

profit-taking or a derivative (except for a derivative

that is a designated and effective hedging

instrument).

Financial liabilities are initially measured at fair value

plus transaction costs. However, transaction costs in

respect of financial liabilities classified as at fair value

through profit or loss are expensed immediately.

Transaction costs are those costs that are directly

attributable to the issue of a financial liability, i.e.

those that would not have been incurred if the liability

had not been issued.

Financial liabilities that are not classified or

designated on initial recognition as financial liabilities

at fair value through profit or loss are measured at

amortised cost.

Financial liabilities that are classified or designated on

initial recognition as financial liabilities at fair value

through profit or loss are measured at fair value, with

changes in fair value being recognised in profit or loss.

Preference shares, which are mandatorily

redeemable on a specific date, are classified as

liabilities. The dividends on these preference shares

are recognised in the income statement as interest

expense.

Derivative liabilities are measured at fair value, with

changes in fair value being recognised in profit or loss

other than those designated as cash flow hedges.

Borrowings (including call loans and bank overdrafts)

are recognised initially at fair value, net of transaction

costs incurred. Borrowings are subsequently stated at

amortised cost; any difference between proceeds

(net of transaction costs) and the redemption value

is recognised in profit or loss over the period of the

borrowings using the effective interest rate method.

Borrowings are classified as current liabilities unless

the Group has an unconditional right to defer

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10 INVENTORIES

Inventories are stated at the lower of cost and net

realisable value. Cost is determined using the first-in

first-out (FIFO) method. The cost of finished goods

and work in progress comprises design costs, raw

materials, direct labour, other direct costs and related

production overheads (based on normal operating

capacity). It excludes borrowing costs.

Net realisable value is the estimated selling price

in the ordinary course of business, less applicable

variable selling expenses.

11 BIOLOGICAL ASSETS

A biological asset is a living animal or plant and an

agricultural activity is the biological transformation of

biological assets for sale, into agricultural produce or

into additional biological assets.

Biological assets are recognised at fair value less

estimated costs to sell. Fair value is measured with

reference to an active market adjusted for its present

location and condition. Fair value changes are

recognised in profit or loss. All the expenses incurred

in establishing and maintaining the assets is

recognised in profit or loss. Finance charges are not

capitalised.

12 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 attributable

incremental costs (net of income taxes), is deducted

from equity attributable to the Company’s

equityholders until the shares are cancelled, reissued

or disposed of. Where such shares are subsequently

sold or reissued, any consideration received, net of

any directly attributable incremental transaction costs

and the related income tax effects, and are included in

equity attributable to the Company’s equityholders.

Shares in the Company are held by the AFGRI Limited

Trust. The cost price of these shares is deducted from

equity attributable to the Company’s equityholders

9 DERIVATIVE FINANCIAL INSTRUMENTS AND

HEDGING ACTIVITIES (continued)

(b) Cash flow hedge

The effective portion of changes in the fair value of

derivatives that are designated and qualify as cash

flow hedges are recognised in other comprehensive

income. The gain or loss relating to the ineffective

portion is recognised immediately in profit or loss.

Amounts accumulated in equity are recycled in the

income statement in the periods when the hedged

item will affect profit or loss (for instance when the

forecast sale that is hedged takes place). However,

when the forecast transaction that is hedged results

in the recognition of a non-financial asset (for

example, inventory) or a liability, the gains and losses

previously deferred in equity are transferred from

equity and included in the initial measurement of the

cost of the asset or liability.

When a hedging instrument expires or is sold, or

when a hedge no longer meets the criteria for hedge

accounting, any cumulative gain or loss existing in

equity at that time remains in equity and is

recognised when the forecast transaction is

ultimately recognised in profit or loss. When a

forecast transaction is no longer expected to occur,

the cumulative gain or loss that was reported in

equity is immediately transferred to profit or loss.

(c) Net investment hedge

Hedges of net investments in foreign operations are

accounted for similarly to cash flow hedges. Any gain

or loss on the hedging instrument relating to the

effective portion of the hedge is recognised as other

comprehensive income in equity; the gain or loss

relating to the ineffective portion is recognised

immediately in profit or loss.

Gains and losses accumulated in equity are included

in profit or loss when the foreign operation is

disposed of.

(d) Derivatives that do not qualify for hedge

accounting

Certain derivative instruments do not qualify for

hedge accounting. Changes in the fair value of any

derivative instruments that do not qualify for hedge

accounting are recognised immediately in profit

or loss.

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Deferred income tax assets are only recognised to

the extent that it is probable that taxable profits will

be available against which temporary differences can

be utilised, unless specifically exempted.

Deferred income tax is recognised on temporary

differences arising on investments in subsidiaries and

associates, except where the timing of the reversal of

the temporary difference is controlled by the Group

and it is probable that the temporary difference will

not reverse in the foreseeable future.

15 FOREIGN CURRENCY TRANSLATION

15.1 Functional and presentation currency

Items included in the financial statements of each of

the Group’s entities are measured using the currency

in which the business operates (the functional

currency). The consolidated financial statements are

presented in Rand, which is the Company’s and

Group’s functional and presentation currency.

15.2 Transactions and balances

Foreign currency transactions are translated into

the functional currency using the exchange rates

prevailing at the dates of the transactions. Foreign

exchange gains and losses resulting from the

settlement of such transactions and from the

translation at year-end exchange rates of monetary

assets and liabilities denominated in foreign

currencies are recognised in profit or loss, except

when deferred in equity as qualifying cash flow

hedges and qualifying net investment hedges.

Translation differences on financial assets held at fair

value through profit or loss are reported as part of the

fair value gain or loss. Translation differences on

financial assets classified as available-for-sale

financial assets are included in the fair value reserve

in equity.

15.3 Group companies

The results and financial position of all the Group

entities (none of which has the currency of a

hyperinflationary economy) that have a functional

currency different from the presentation currency are

translated into the presentation currency as follows:

• assets and liabilities are translated at the closing

rate at the date of the balance sheet;

• the opening equity is translated at the historical

rate;

(incentive trust shares). The AFGRI Limited Trust is

consolidated as if it were a wholly owned subsidiary.

13 BLACK ECONOMIC EMPOWERMENT

TRANSACTION

AFGRI’s black economic empowerment transaction

includes the following:

• Initial disposal of a 26,77% undivided interest in the

business of AFGRI Operations Limited to the Agri

Sizwe Empowerment Trust.

• AFGRI Operations Limited and the Trust are

co-owners of the entire business undertaking

conducted as a going concern by AFGRI Operations

Limited.

• AFGRI Operations Limited continues to manage the

entire business undertaking in a partnership.

The transaction is not treated as a disposal of assets.

The partnership is consolidated as a whole and the

BEE share is disclosed as a minority interest on the

balance sheet. The portion of the income before tax

is disclosed as minority interest in the income

statement and credited to minority interest on the

balance sheet.

AFGRI Operations Limited has the right to call on the

Trust to sell to AFGRI Operations Limited its undivided

interest in the entire business of AFGRI Operations

Limited. The call option price will be settled in cash or

by allotting and issuing of new AFGRI Operations

Limited shares or new AFGRI shares.

14 DEFERRED INCOME TAX

Deferred income tax is provided using the liability

method on all temporary differences at the reporting

date arising between the tax bases of assets and

liabilities and their carrying amounts in the

consolidated financial statements. However, if the

deferred income tax arises from initial recognition

of an asset or liability in a transaction other than a

business combination that at the time of the

transaction affects neither accounting nor taxable

profit nor loss, it is not accounted for.

Deferred income tax is determined using tax rates

(and laws) that have been enacted or substantially

enacted by the balance sheet date and are expected

to apply when the related deferred income tax asset

is realised or the deferred income tax liability is

settled.

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representative of the time pattern of the user’s

benefit.

Contingent rentals are recognised in profit or loss as

they accrue.

16.3 In the capacity of a lessee

Finance leases are recognised as assets and liabilities

at the lower of the fair value of the asset and the

present value of the minimum lease payments at the

date of acquisition, being payments over the lease

term, excluding contingent rent, costs for services

and taxes to be paid by and reimbursed to the lessor

including any amounts guaranteed by the Company

or by a party related to the Company.

Finance costs represent the difference between the

total leasing commitments and the fair value of the

assets acquired.

Finance costs are charged to profit or loss over the

term of the lease at interest rates applicable to the

lease on the remaining balance of the obligations.

Rentals payable under operating leases are

recognised in profit or loss on a straight-line basis

over the term of the relevant lease or another basis

if more representative of the time pattern of the

user’s benefit.

Contingent rentals are recognised in profit or loss as

they accrue.

17 EMPLOYEE BENEFITS

17.1 Pension obligations

Group companies operate various defined

contribution pension schemes. A defined contribution

plan is a pension plan under which the Group pays

fixed contributions into a separate entity. The Group

has no legal or constructive obligations to pay further

contributions if the fund does not hold sufficient

assets to pay all employees the benefits relating to

employee service in the current and prior periods.

The Group pays contributions to publicly or privately

administered pension insurance plans on a

mandatory and contractual basis. The Group has no

further payment obligations once the contributions

have been paid. The contributions are recognised as

employee benefit expense when they are due.

15 FOREIGN CURRENCY TRANSLATION (continued)

15.3 Group companies (continued)

• income and expenses for each profit or loss are

translated at average exchange rates (unless this

average is not a reasonable approximation of the

cumulative effect of the rates prevailing on the

transaction dates, in which case income and

expenses are translated at the dates of the

transactions); and

• all resulting exchange differences are recognised

as a separate component of equity.

On consolidation, exchange differences arising from

the translation of the net investment in foreign

entities, and of borrowings and other currency

instruments designated as hedges of such

investments, are taken to shareholders’ equity. When

a foreign operation is sold, such exchange differences

are recognised in profit or loss as part of the gain or

loss on sale.

16 LEASES

16.1 Classification

A finance lease is a lease that transfers substantially

all the risks and rewards incidental to ownership of an

asset. Title may or may not eventually be transferred.

An operating lease is a lease other than a finance

lease.

Leases are classified as finance leases or operating

leases at the inception of the lease.

16.2 In the capacity of a lessor

Amounts due from a lessee under a finance lease are

recognised as receivables at the amount of the net

investment in the lease, being the gross investment in

the lease discounted at the interest rate implicit in the

lease, which includes initial direct costs. The gross

investment in a lease is the aggregate of the

minimum lease payments receivable and any

unguaranteed residual value. The minimum lease

payments exclude contingent rent and costs for

services and includes any residual value guarantees

by the lessee, a party related to the lessee or a third

party unrelated to the lessor.

Rental income from operating leases is recognised in

profit or loss on a straight-line basis over the term of

the relevant lease or another basis if more

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whenever an employee accepts voluntary

redundancy in exchange for these benefits.

The Group recognises termination benefits when it

is demonstrably committed to either: terminating the

employment of current employees according to a

detailed formal plan without possibility of withdrawal;

or providing termination benefits as a result of an

offer made to encourage voluntary redundancy.

Benefits falling due more than 12 months after

balance sheet date are discounted to present value.

17.4 Short-term benefits

The cost of short-term employee benefits, such as

salaries, leave pay, bonuses, medical aid and other

contributions, is recognised during the period in

which the employee renders the service.

18 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 –

for example, in the case of product warranties – the

likelihood that an outflow will be required in

settlement is determined by considering the class

of obligations as a whole. A provision is recognised

even if the likelihood of an outflow with respect to

any one item included in the same class of

obligations may be small.

Provisions are measured at the present value of the

expenditures expected to be required to settle the

obligation using a pre-tax rate that reflects current

market assessments of the time value of money and

the risks specific to the obligation. The increase in the

provision due to passage of time is recognised as

interest expense.

Prepaid contributions are recognised as an asset to

the extent that a cash refund or a reduction in the

future payments is available.

17.2 Share-based payment

The Group operates two equity-settled share-based

compensation plans. The AFGRI Share Incentive

Scheme allows senior employees the option to

acquire shares in AFGRI Limited over a prescribed

period at a specific strike price. The AFGRI Restricted

Share Incentive Scheme remunerates senior

employees with AFGRI Limited shares partially for

services rendered, and partially for future services

and performance conditions.

AFGRI Share Incentive Scheme

These options are settled by means of the issue of

shares by AFGRI Limited or through the acquisition of

shares in the open market by the AFGRI Limited Trust.

The fair value of the employee services received in

exchange for the grant of the options is recognised as

an expense. The total amount to be expensed over

the vesting period is determined by reference to the

fair value of the options granted, excluding the impact

of any non-market vesting conditions. Non-market

vesting conditions are included in assumptions about

the number of options that are expected to vest. It

recognises the impact of the revision, if any, in profit

or loss, with a corresponding adjustment to equity.

Fair value is measured using the Black-Scholes pricing

model.

AFGRI Restricted share incentive scheme

The fair value of the employee services received in

exchange for the issue of the shares is recognised as

an expense. The total amount to be expensed over

the vesting period is determined by reference to the

fair value of the shares issued, excluding the impact

of any non-market vesting conditions. Non-market

vesting conditions are included in assumptions about

the number of restricted shares that are expected to

vest as unrestricted shares. It recognises the impact

of the revision, if any, in profit or loss, with a

corresponding adjustment to equity. Fair value is the

quoted price of the shares on grant date.

17.3 Termination benefits

Termination benefits are payable when employment

is terminated before the normal retirement date, or

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21 REVENUE RECOGNITION

Revenue comprises the fair value for the sale of

goods and services, net of value added tax, rebates

and cash and settlement discounts and after

eliminated sales within the Group. The Group

assesses its revenue arrangements in order to

determine if it is acting as principal or agent.

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.

21.1 Sales of goods

Sales of goods are recognised when a Group entity

has delivered products to the customer, the customer

has accepted the products and collectibility of the

related receivables is reasonably assured.

21.2 Rendering of services

Rendering of services is recognised in the accounting

period in which the services are rendered, by

reference to completion of the specific transaction

assessed on the basis of the actual service provided

as a proportion of the total services to be provided.

21.3 Interest income

Interest income is recognised on a time-proportion

basis using the effective interest rate method. When

a receivable is impaired, the Group reduces the

carrying amount to its recoverable amount – being

the estimated future cash flow discounted at original

effective interest rate of the instrument – and

continues unwinding the discount as interest income.

Interest income on impaired loans is recognised

either as cash is collected or on a cost-recovery basis

as conditions warrant.

21.4 Royalty income

Royalty income is recognised on an accruals basis in

accordance with the substance of the relevant

agreements.

19 NON-CURRENT ASSETS OR DISPOSAL GROUPS

HELD-FOR-SALE AND DISCONTINUED

OPERATIONS

Non-current assets or disposal groups are classified

as held-for-sale if their carrying amount will be

recoverable principally through a sale transaction, not

through continuing use. The condition is regarded as

met only when the sale is highly probable and the

asset is available for immediate sale in its present

condition.

These assets may be a component of an entity, a

disposal group or an individual non-current asset.

Upon initial classification as held-for-sale, non-current

assets and disposal groups are recognised at the

lower of carrying amount and fair values less cost

to sell.

A discontinued operation is a significant

distinguishable component of the Group’s business

that is abandoned or terminated pursuant to a single

formal plan, and which represents a separate major

line of business or geographical area of operation.

Classification as a discontinued operation occurs

upon disposal or when the operation meets the

criteria to be classified as held-for sale. A disposal

group that is to be abandoned may also qualify

as a discontinued operation, but not as assets

held-for-sale.

The profit or loss on sale or abandonment of a

discontinued operation is determined from the

formalised discontinuance date. Discontinued

operations are separately recognised in the financial

statements once management has made a

commitment to discontinue the operation without a

realistic possibility of withdrawal which should be

expected to qualify for recognition as a completed

sale within one year of classification.

20 CONTINGENCIES AND COMMITMENTS

Transactions are classified as contingencies where

the Group’s obligation depends on uncertain future

events.

Items are classified as commitments where the Group

commits itself to future transactions or if the items

will result in the acquisition of assets.

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25 FINANCIAL RISK MANAGEMENT

25.1 Financial risk factors

The Group’s activities expose it to a variety of

financial risks:

(a) Market risk (including foreign exchange risk, cash

flow and fair value interest rate risk, equity and

commodity price risks);

(b) Credit risk;

(c) Liquidity risk; and

(d) Capital risk.

The Board provides written principles for overall risk

management, as well as written policies covering

specific areas, such as foreign exchange risk, credit

risk, use of derivative financial instruments and

non-derivative financial instruments, and investing

excess liquidity.

The Group’s overall financial risk management

programme focuses on the unpredictability of

financial markets and seeks to minimise potential

adverse effects on the Group’s financial performance.

The Group uses derivative financial instruments to

hedge certain risk exposures. These derivative

financial instruments are used exclusively as hedging

instruments and not for trading or other speculative

purposes.

(a) Market risk

The management of those market risks not related to

commodity prices is performed by a central treasury

department (Group treasury) under policies approved

by the Board of Directors. Group treasury identifies,

evaluates and hedges financial risks in close

cooperation with the Group’s operating units.

(i) Foreign exchange risk

The Group operates internationally and is exposed to

foreign exchange risk arising from various currency

exposures, primarily with respect to the US Dollar,

Euro, Sterling and Japanese Yen.

Foreign exchange risk arises from future commercial

transactions, recognised assets and liabilities and net

investments in foreign operations which are

denominated in a currency that is not the entity’s

functional currency.

21.5 Dividend income

Dividend income is recognised when the right to

receive payment is established.

22 DIVIDENDS PAYABLE

Dividends payable and the related tax thereon to the

Company’s shareholders are recognised as a liability

in the Group’s financial statements in the period in

which the dividends are declared by the Company’s

shareholders.

23 INCOME TAX

The income tax charge for current tax is on net

income before tax for the year as adjusted for income

that is exempt and expenses that are not deductible

using enacted tax rates.

Deferred tax is recognised for all temporary

differences, unless specifically exempt, at the tax

rates that have been enacted or substantially enacted

at the balance sheet date.

24 SEGMENTAL ANALYSIS

Reportable segments are operating segments or

aggregations of operating segments that represent at

least 10% of Group revenues, profit before tax or

gross assets or, at the discretion of management,

represent a separately identifiable line of business.

Operating segments are the components of the

Group about which separate financial information is

available and that is evaluated regularly by the

Group’s executive management in deciding how to

allocate resources and in assessing performance.

The Group identifies its operating segments on the

basis of products and services offered, the dominant

customer basis and the economic sector in which they

operate. Geographical areas in which the operating

segments operate are of secondary concern.

Head office expenses are allocated to the operating

segments based on a combination of sales, operating

profit and time spent by executive management,

except where information technology costs can be

directly allocated. Internal treasury interest is levied

on approximately two-thirds of the operating

segment’s internal debt and is disclosed within

finance costs in the segment report. Treasury interest

is charged at the Group’s weighted average cost of

capital plus a margin to recover treasury costs.

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Although variable, the basis on which interest is

earned or incurred may differ between advances and

borrowings (e.g. JIBAR versus prime). As such the

Group is exposed to interest rate basis risk. The

Group’s cash flow and interest rate risk is managed

using an ALCO model under the supervision of an

ALCO Committee.

A principal function of the ALCO Committee’s

management of interest rate risk is to monitor the

sensitivity of projected net interest income under

varying interest rate scenarios. The Group aims to

mitigate the impact of prospective interest rate

movements which could reduce future net interest

income, whilst balancing the cost of such hedging

activities on the current net revenue stream.

(iii) Equity price risk

The Group is not exposed to material equity securities

price risk.

(iv) Commodity price risk

Commodity price risk arises from the Group’s

significant consumption of agricultural commodities,

its trading in physical agricultural commodities and its

use of derivative financial instruments linked to

underlying agricultural commodity prices. The Group

may suffer financial loss when a fluctuating price

contract obligation is entered into and the commodity

price increases or when a fixed price agreement is

entered into and the commodity price falls.

Commodity price risk arises from fluctuating supply

conditions, weather, economic conditions and other

factors. The management of the Group’s market risk

related to commodity prices is undertaken by AFGRI

Trading (Pty) Limited, a wholly owned subsidiary of

AFGRI Operations Limited, through the application

of policies and guidelines approved by the Board

of Directors.

The strategic raw materials acquired by the Group for

its operations include maize, wheat, cotton seed,

soya-oil cake and fishmeal. The procurement of

strategic commodities for utilisation by the Group’s

subsidiaries and divisions is subject to a 100%

hedging policy and uses financial instruments such as

commodity futures, option contracts, and other

derivative instruments to reduce the volatility of input

prices of these raw materials and therefore mitigate

against market risk.

25 FINANCIAL RISK MANAGEMENT (continued)

25.1 Financial risk factors (continued)

(a) Market risk (continued)

(i) Foreign exchange risk (continued)

To manage its foreign exchange risk arising from

future commercial transactions, recognised assets

and liabilities, entities in the Group use forward

contracts, transacted with Group treasury. Group

treasury is responsible for managing the net position

in each foreign currency by using external forward

foreign exchange contracts. These external forward

foreign exchange contracts are designated at Group

level as hedges of foreign exchange risk on specific

assets, liabilities or future transactions on a Group

basis. The Group’s risk management policy is to

hedge 100% of all committed transactions in each

major currency.

The Group has certain investments in foreign

operations whose net assets are exposed to foreign

currency translation risk. The currency risk resulting

from the translation of foreign operations into the

Group’s reporting currency is not hedged. A monetary

item that is receivable from or payable to a foreign

operation and for which settlement is neither planned

nor likely in the foreseeable future is considered as

part of the Group’s net investment in that foreign

operation. These monetary items are not hedged.

Monetary items receivable from or payable to a

foreign operation, made on commercial terms, are

subject to the same hedging policy as other

commercial transactions and are hedged using

forward foreign exchange contracts.

The Audit and Risk Committee has issued investment

guidelines for any additional investments in foreign

countries. Country risk is monitored on a monthly

basis by the Asset and Liability Committee (ALCO

Committee).

(ii) Cash flow and fair value interest rate risk

The Group’s income and operating cash flows are

substantially independent of changes in market

interest rates. Financial assets and liabilities at

variable rates expose the Group to cash flow interest

rate risk. The Group raises only short-term debt at

variable rates to match the interest and capital

repayment by clients. The Group is not exposed to fair

value interest rate risk as all material borrowings are

at variable rates.

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The AFGRI Financial Services division, where the bulk

of credit exposure arises, supported by the credit and

compliance department, manages Group credit

exposures and in conjunction with the Credit

Committee oversees the development and

application of credit risk mitigating practices

throughout the Group. Similarly, the validity and

financial stability of counterparties must be

determined by AFGRI Financial Services before

forward purchase contracts are entered into.

Key elements of the control environment established

to manage credit risk include:

• the establishment of mandates for the Credit

Committee and senior line managers within AFGRI

Financial Services

• divisional and subsidiary credit policies

• evaluation and scoring models, allowing for the

categorisation of credit applications into pre-

defined risk categories

• predefined security requirements and Group

guidelines for the valuation of collateral

• compliance with both the NCA and FICA

• where applicable, farmer debtors are covered by

credit life insurance

• the individual credit management of both

individually large and corporate customers

• documented procedures to elevate “out of

mandate” decisions

• controlling cross-border exposures

• regular reviews of performance and effectiveness

of divisions’ and subsidiaries’ credit approval

processes

• a workout and recovery unit to avoid default

wherever possible.

The Credit Committee meets quarterly and is

provided with the following reports to enable it to

assess the Group’s exposure to credit risk and the

effectiveness of the control environment:

• overview of risk concentrations

• customer portfolio exposure

• large-customer-group exposures

• impairment allowance balances

• impairment charges to the income statement

• new credit facilities approved

• individual reports on significant facilities

• recommended changes to credit policies

• divisional and subsidiary credit balances and age

analysis

The Group’s agricultural commodity trading activities

include the procurement of product from producers

and the marketing of this product to consumers of

agricultural commodities. A timing difference arises

between the procurement and the supply of the

product. During this period both the procurement and

supply positions are fully hedged.

The monitoring and management of the positions and

corresponding hedges is performed on a daily basis

by the AFGRI Trading management team. It is the

responsibility of the MD: AFGRI Trading to ensure that

all trades are within the approved exposure limits and

also conform to the agreed strategies on a daily basis.

The Group offers brokerage services to producers

and consumers of agricultural commodities such as

wheat, sunflower, maize and soya. This offering

generates no exposure to market risk due to the

back-to-back nature of the transactions.

(b) Credit risk

The Group is exposed to the agricultural and food

industries and has concentrations of credit risk in this

regard. Credit risk is the risk of financial loss if a

customer or counterparty fails to meet an obligation

under a contract and arises principally from trade

(current), seasonal, capital goods financing, and

forward purchase contracts for agricultural

commodities.

The Group’s maximum exposure to credit risk can be

considered to be the sum of the following financial

assets:

• Financial receivables

• Trade and other receivables including those

financed by banks, (excluding prepayments)

• Cash and cash equivalents and cash collateral

deposits

• Derivative financial instruments.

The Group has policies and procedures in place to

ensure that sales of products are made to customers

after an appropriate credit assessment. The Board

delegates the responsibility for the management of

credit risk to the Credit Committee. Line managers

within the Group are awarded mandates in terms of

divisional credit policies in order to manage the

day-to-day credit decisions necessary to conduct

business.

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Counterparty performance is also encouraged

through the deployment of compliance teams during

harvesting periods.

Broking clients are required to make upfront cash

deposits within the predetermined minimum levels

prescribed by SAFEX, for initial margin plus two day’s

market movement. The client is also required to make

cash deposits for the minimum variation margin

requirement and/or the amount exceeding the

trading limit by midday of the following business day.

Failure to meet these requirements results in the

client’s position being closed immediately.

The Group also has guidelines that limit the amount

of credit exposure to any financial institution.

Divisions and subsidiaries are required to implement

guidelines on the acceptability of specific classes of

collateral for credit risk mitigation, and determine

suitable valuation parameters. Such parameters are

expected to be conservative, reviewed regularly and

supported by empirical evidence such as the

realisable value in case of default. Security structures

and legal covenants are required to be subject to

regular review to ensure that they continue to fulfil

their intended purpose and remain in line with local

market practice. The principal types of collateral are

as follows:

• mortgages over agricultural and residential

properties, and charges over movable assets and

debtors in the personal sector; and

• charges over business assets such as premises,

inventory (including agricultural produce) and

debtors in the corporate sector.

The Group’s credit grading systems are designed

to highlight exposures which require closer

management attention because of their greater

probability of default and potential loss. Risk ratings

are reviewed regularly and amendments, where

necessary, are implemented promptly.

The credit quality of unimpaired loans and receivables

is assessed by reference to the grading system. Loans

and receivables are treated as impaired as soon as

there is objective evidence that an impairment loss

has been incurred. The criteria used by the Group to



(b) Credit risk (continued)

• the number and value of debtors refinanced

through external financiers.

The Group categorises its trade receivables into three

classes, namely current, seasonal and capital goods.

Current represents those trade receivables which are

offered on normal trading terms such as 30, 60 and

90 days. Seasonal includes trade receivables which

have been provided to finance primary producers’

crops during a given season. Capital goods represent

credit offered to purchase capital agricultural goods

such as tractors.

All three classes of credit are available to both

primary producers and corporate customers, bearing

in mind that many primary production activities are

conducted by incorporated entities.

It is the Group’s policy to ensure that loans and

receivables are within the customer’s capacity to

repay. Loans are only granted if they can be secured.

Depending on the customer’s standing and the type

of product, receivable facilities may be unsecured.

This will typically relate to clients with high net worth

and proven repayment ability. Nevertheless, collateral

is an important mitigant of credit risk.

To mitigate against credit risk in the commodity trading

environment, the validity and financial stability of all

counterparties is determined by AFGRI Financial

Services in terms of the Group’s credit policy. In

addition, a regular comparison is performed between

AFGRI Trading (Pty) Limited’s forward contract book

and the handed-over-for-legal-collection list maintained

by the workout and recoveries department.

Counterparty performance is monitored throughout

the crop season in order to identify at an early stage

potential default. In addition, management reviews

the Group’s concentration of risk in terms of market

sector, geographic region and agricultural commodity,

especially maize. The Group’s policy requires that

plant, emergence and crop estimate reports are

obtained at regular intervals and default risk be

communicated to management at an early stage.

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when they fall due or that such resources will only

be available at excessive costs. This risk arises from

mismatches in the timing of cash flows. Funding risk

(a particular form of liquidity risk) arises when the

necessary liquidity to fund illiquid asset positions

cannot be obtained at the expected terms when

required.

Prudent liquidity risk management implies

maintaining sufficient cash and marketable securities,

the availability of funding through an adequate

amount of committed credit facilities and the ability

to close out market positions. Due to the dynamic

nature of the underlying businesses, Group treasury

aims to maintain flexibility in funding by keeping

committed credit lines available.

The objective of the Group’s liquidity and funding

management is to ensure that all foreseeable funding

commitments can be met when due, and that funding

market access is coordinated and cost effective. It is

the Group’s objective to maintain a diversified and

stable funding base comprised of retail and

institutional funding facilities with the objective of

enabling the Group to respond quickly and smoothly

to any unforeseen liquidity requirements.

The Group strives to maintain a strong liquidity

position and to manage the liquidity profile of its

assets, liabilities and commitments with the objective

of ensuring that cash flows are appropriately

balanced and all obligations are met when due.

The management of liquidity and funding is

performed centrally by Group Treasury in accordance

with practices and limits set by the Board and the

process includes:

• projecting cash flows and establishing the level of

liquidity facilities necessary

• monitoring balance sheet liquidity ratios against

internal requirements

• maintaining a diverse range of funding sources

• managing the concentration and profile of debt

maturities

• maintaining debt financing plans

• monitoring lender concentrations in order to avoid

undue reliance on individual lenders and ensuring a

satisfactory overall funding mix

• maintaining liquidity and funding contingency plans.

determine that there is such objective evidence

include, inter alia:

• known cash flow difficulties experienced by the

borrower

• overdue contractual payments of either principal

or interest

• breach of loan covenants or conditions

• the probability that the borrower will enter

bankruptcy or other financial realisation

• a downgrading in credit rating by an external credit

rating agency.

The Group’s policy is that each division and subsidiary

makes allowances for impaired loans and receivables

promptly and on a consistent basis.

Loans and receivables are assessed for impairment

on an individual basis. In determining allowances on

individually assessed accounts, the outstanding credit

amounts are compared with the recoverable

securities. Security values are adjusted for the time

value of money excluding all securities realised within

12 months and bonds.

Group policy requires the level of impairment

allowances on individual facilities that are above a

materiality threshold be reviewed at least semi-

annually, and more regularly when individual

circumstances require.

When impairment losses occur, the Group reduces

the carrying amount of loans and receivables and

held-to-maturity financial investments through the

use of an allowance account. When impairment of

available-for-sale financial assets occurs, the carrying

amount of the asset is reduced directly.

Management regularly evaluates the adequacy of

the established allowances for impaired loans and

receivables by conducting a detailed review of the

portfolio, comparing performance and delinquency

statistics with historical trends and assessing the

impact of current economic conditions. Any

calculated shortfall between the total individual

impairment allowance account and the estimated

portfolio impairment is adjusted for.

(c) Liquidity risk

Liquidity risk is the risk that the Group has insufficient

financial resources to meet its obligations as and

106


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(d) Capital risk

The Group manages its capital (being the capital

and reserves attributable to the Company’s

equityholders) centrally in terms of rates of returns

(either ROCE or RONA) established for each of the

Group’s various operating segments. Operating

segments are re-geared annually, allocating Group

equity equitably.

The Group monitors its level of borrowings and

anticipates future requirements through the

application of an ALCO model. The ALCO Committee

meets regularly and advises management and the

Board. The committee also confirms the Group’s

weighted average cost of capital, a key consideration

when setting return targets for operating segments.

In the main, the Group funds its operations through a

combination of equity and short-term debt. The

utilisation of long-term debt is minimised, and is

usually only raised against individual capital projects.

Short-term borrowings, including trade payables, are

matched with the current assets of the Group, being

in the main, trade receivables and stock balances.

Historically, the Group has not raised debt against its

non-current core assets. Trade receivables resulting

from the Group’s lending activities are financed with

specific facilities which have been negotiated for fixed

or extended periods of time.

In terms of certain funding agreements, the Group is

obliged to meet various capital ratios and levels of

unencumbered assets. Compliance with these

covenants is checked on a regular basis. A registered

member on SAFEX must have, at all times, own funds

equal to the greater of either R400 000 or 13 weeks of

operating costs plus position, settlement, large

exposure and foreign exchange risk requirements.

AFGRI Broking (Pty) Limited submits monthly capital

returns demonstrating compliance with this

requirement.

During the year the Group was in compliance with all

the financial covenants relating to its material

borrowings.

25.2 Fair value estimation

The fair value of financial instruments traded in active

markets (such as publicly traded derivatives, and

trading and available-for-sale securities) is based on

quoted market prices at the balance sheet date.

The fair value of financial instruments that are not

traded in an active market (for example, over-the-

counter derivatives) is determined by using

appropriate valuation techniques. Such valuation

techniques include the discounted cash flow method

with assumptions that are based on market

conditions existing at each balance sheet date.

The fair value of forward foreign exchange contracts

is determined using quoted forward exchange market

rates at the balance sheet date.

The carrying amount (net of impairment where

relevant) of trade receivables and payables 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.

Fair value estimations are classified into the following

hierarchies, based on the method use to determine

fair value:

• Level 1 – unadjusted quoted prices in active

markets.

• Level 2 – valuation techniques using market

observable inputs.

• Level 3 – valuation techniques for which not all

inputs are market observable prices or rates.

107


26 GOVERNMENT GRANTS AND ASSISTANCE

Grants from the government are recognised at their

fair value where there is reasonable assurance that

the grant will be received and the Group will comply

with all attached conditions.

Government includes government agencies and

similar bodies whether local, national or international.

Government assistance is action by government

designed to provide an economic benefit specific to

an entity or range of entities qualifying under certain

criteria. A government grant is assistance by

government in the form of transfers of resources.

When the conditions attaching to government grants

have been met and have been received, they are

recognised in profit or loss on a systematic basis over

the periods necessary to match them with the related

costs. When they are for expenses or losses already

incurred, they are recognised in profit or loss

immediately. The unrecognised portion at the balance

sheet date is presented as deferred income (as a

deduction from the asset to which it relates). No value

is recognised for government assistance.

27 COMPARATIVE FIGURES

Comparative figures are restated in the event of a

change in accounting policy, prior period error or

reclassification.

108


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Group balance sheetat 30 June 2010

Note

30 June2010

R’000

30 June2009

R’000

ASSETS

Non-current assets 2 080 119 2 121 209

Property, plant and equipment 2 1 394 815 1 346 428

Goodwill 3 36 592 37 676

Other intangible assets 4 241 409 237 547

Investments in associates 5 35 983 35 615

Other financial assets 6/7 51 978 40 973

Financial receivables 6/8 203 298 265 857

Deferred income tax assets 21 116 044 157 113

Current assets 6 374 871 7 546 384

Inventories 9 900 086 1 022 572

Biological assets 10 57 422 53 130

Trade and other receivables 6/11 544 696 483 283

Trade receivables financed by banks 6/11/12 3 898 425 5 014 819

Derivative financial instruments 6/13 49 689 107 426

Income tax assets 28 065 20 981

Cash and cash equivalents and cash collateral deposits 6 896 488 844 173

Cash collateral deposits 14 421 852 597 342

Cash and cash equivalents 14 474 636 246 831

Assets of disposal groups classified as held-for-sale 29 22 634 157 357

Total assets 8 477 624 9 824 950

EQUITY AND LIABILITIES

Capital and reserves attributable to the Company’s equityholders 1 601 479 1 486 866

Share capital 15 4 4

Treasury shares 16 (90 456) (90 456)

Incentive trust shares 17 (170 918) (191 587)

Fair value and other reserves 18 42 457 47 103

Retained earnings 19 1 820 392 1 721 802

Minority interest 683 461 646 478

Total equity 2 284 940 2 133 344

Non-current liabilities 347 248 328 479

Borrowings 6/20 173 412 127 643

Deferred income tax liabilities 21 173 836 200 836

Current liabilities 5 845 436 7 318 392

Trade and other payables 6/22 1 563 728 1 797 057

Derivative financial instruments 6/13 72 029 89 746

Income and other tax liabilities 2 305 6 171

Short-term borrowings 6/23 105 742 58 662

Call loans and bank overdrafts 6/14 206 515 362 741

Borrowings from banks to finance trade receivables 6/12 3 895 117 5 004 015

Liabilities of disposal groups classified as held-for-sale 29 – 44 735

Total liabilities 6 192 684 7 691 606

Total equity and liabilities 8 477 624 9 824 950

109


Group income statementfor the year ended 30 June 2010

Note

Yearended

30 June2010

R’000

Yearended

30 June2009

R’000

CONTINUING OPERATIONS:

Sales of goods and rendering of services 6 876 013 7 438 155

Interest on trade receivables financed by banks 332 311 476 904

Interest on other trade receivables 50 516 102 164

Total revenue 24 7 258 840 8 017 223

Cost of sales (5 059 570) (5 756 925)

Gross profit 2 199 270 2 260 298

Other operating income 78 711 115 783

Selling and administration expenses (1 368 562) (1 247 494)

Operating profit 25 909 419 1 128 587

Finance costs 26 (456 071) (665 758)

Share of profit of associates 358 32 742

Profit before income tax 453 706 495 571

Income tax expense 28 (61 158) (91 980)

Profit for the year from continuing operations 392 548 403 591

DISCONTINUED OPERATIONS:

Profit/(loss) for the year from discontinued operations 29 74 568 (49 662)

Profit for the year 467 116 353 929

Profit for the year attributable to:

Equityholders of the Company 304 655 233 073

Minority interest

– Agri Sizwe partners 129 204 109 833

– Other outside shareholders’ interest 33 257 11 023


Earnings per share from continuing operations attributable to the equityholders of the Company during the year (cents per share) 77,7 84,0

Profit/(loss) per share form discontinued operations attributable to the equityholders of the Company during the year (cents per share) 17,0 (11,3)

Earnings per share from all operations attributable to the equityholders of the Company during the year (cents per share) 30 94,7 72,7

Diluted earnings per share from continuing operations attributable to the equityholders of the Company during the year (cents per share) 70,5 77,9

Diluted profit/(loss) per share from discontinued operations attributable to the equityholders of the Company during the year (cents per share) 15,4 (10,6)

Diluted earnings per share from all operations attributable to the equityholders of the Company during the year (cents per share) 31 85,9 67,3

110


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Group statement of comprehensive incomefor the year ended 30 June 2010

Group statement of changes in equityfor the year ended 30 June 2010

Yearended

30 June2010

R’000

Yearended

30 June2009

R’000


Other comprehensive income:

Exchange differences on translating foreign operations 3 180 (52 605)

Cash flow hedges (16 409) 11 967

Income tax relating to components of other comprehensive income – –

Other comprehensive income for the year, net of tax (13 229) (40 638)

Total comprehensive income for the year 453 887 313 291

Total comprehensive income attributable to:

Equityholders of the Company 291 426 192 435

Minority interest

– Agri Sizwe partners 129 204 109 833

– Other outside shareholders’ interest 33 257 11 023

453 887 313 291

R’000Share

capital

Fair value

and other

reservesRetainedearnings

Treasuryshares

In-centive

trustshares

Total share-

holdersequity

AgriSizwe

partners

Otheroutsideshare-

holders’interest

Totalequity

Balance 30 June 2008 4 80 493 1 577 636 (155 371) (124 111) 1 378 651 593 289 19 119 1 991 059

Total comprehensive income for the year – (40 638) 233 073 – – 192 435 109 833 11 023 313 291

Payment to minorities – – – – – – (84 942) (1 844) (86 786)

Share-based payments – 7 248 – – – 7 248 – – 7 248

Dividends paid – – (88 907) – – (88 907) – – (88 907)

Transfer of Group shares – – – 64 915 (64 915) – – – –

Purchase of incentive shares – – – – (2 561) (2 561) – – (2 561)

Balance

30 June 2009 4 47 103 1 721 802 (90 456) (191 587) 1 486 866 618 180 28 298 2 133 344

Total comprehensive income for the year – (13 229) 304 655 – – 291 426 129 204 33 257 453 887 Payment to minorities – – – – – – (78 056) (11 184) (89 240)Share-based payments – 8 583 – – – 8 583 – – 8 583 Dividends paid – – (132 173) – – (132 173) – – (132 173)Purchase of minority interest in subsidiaries – – (60 625) – – (60 625) – (36 238) (96 863)Recognition of option agreement with minorities – – (13 267) – – (13 267) – – (13 267)Disposal of incentive shares – – – – 20 669 20 669 – – 20 669

Balance

30 June 2010 4 42 457 1 820 392 (90 456) (170 918) 1 601 479 669 328 14 133 2 284 940

111


Group cash flow statementfor the year ended 30 June 2010

Note

Yearended

30 June2010

R’000

Yearended

30 June2009

R’000

Operating activities

Cash generated from operations 35.1 933 641 1 497 983

Finance costs (456 071) (720 162)

Interest received 77 171 106 568

Income tax paid 35.3 (70 964) (53 227)

Net cash generated from operating activities 483 777 831 162

Investing activities

Purchase of property, plant and equipment 35.4 (282 195) (384 447)

Purchase and acquisition of intangible assets (73 797) (91 007)

Proceeds from disposal of property, plant and equipment 35.5 140 463 104 364

Financial receivables granted – (100 542)

Financial receivables repaid 62 559 –

Dividends from investments 40 980 65 576

Purchase of other financial assets (11 005) (4 475)

Purchase of minorities' share of subsidiary (91 863) –

Proceeds from disposal of business – net of cash disposed 35.6 270 087 –

Net cash generated from/(utilised in) investing activities 55 229 (410 531)

Financing activities

Profit share paid to Agri Sizwe partners (78 056) (84 942)

Dividends paid 35.2 (132 173) (88 907)

Payments made to minorities (11 184) –

Acquisition of shares by incentive trust – (64 915)

Proceeds from disposal of treasury shares – 64 915

Proceeds from disposal of incentive trust shares 20 669 (2 562)

Proceeds/(repayment of) from borrowings 45 769 (17 129)

Net cash utilised in financing activities (154 975) (193 540)

Net increase in cash and cash equivalents 384 031 227 091

Cash and cash equivalents at beginning of year (115 910) (343 001)

Cash and cash equivalents at end of year 14 268 121 (115 910)

Cash collateral deposits 421 852 597 342

Cash and cash equivalents and cash collateral deposits 689 973 481 432


113


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Business segment resultsfor the year ended 30 June


Capital Broking

2010R’000

2009R’000

2010R’000

2009R’000

Gross segment revenue 693 310 838 556 18 574 9 066

– Sales of goods and services 310 483 259 488 18 574 9 066

– Interest 382 827 579 068 – –

Operating profit (before Corp Costs) 324 215 456 600 8 194 6 041

Other amounts included in operating profit 6 821 35 541 (3 496) (4 717)

– other operating income 60 180 80 775 – (1)

– pension fund surplus – – – –

– depreciation and amortisation (28 893) (12 221) (1) –

– allocation of corporate costs (24 466) (33 013) (3 495) (4 716)

Operating profit (after Corp Costs) 331 036 492 141 4 698 1 324

Other items of profit and loss – – – –

Fair value adjustment to disposal group assets – – – –

Share of profit on associates – – – –

Profit before finance costs 331 036 492 141 4 698 1 324

Finance costs (314 498) (511 744) 2 622 372

Profit before income tax 16 538 (19 603) 7 320 1 696

Income tax expense

Profit after income tax

Capital Broking

Assets 4 017 869 5 333 830 1 497 1 449

Non-current assets 215 315 328 445 97 174

Other current assets 43 762 91 145 – 172

Trade and other receivables 3 321 539 4 337 900 372 388

Cash and cash equivalents and cash collateral deposits 437 253 576 340 1 028 715

Liabilities 3 273 779 4 627 367 1 150 1 036

Non-current liabilities 12 790 113 815 – –

Other current liabilities 319 145 399 670 1 150 1 036

Borrowings to finance trade receivables 2 937 097 4 113 882 – –

Call loans and bank overdrafts 4 747 – – –

Capital expenditure 29 861 168 163 9 –

Basis of organisation AFGRI Capital houses the Group’s Advances, Insurance Broking, Treasury and Africa businesses. The Africa division includes its own Advances division as well as Handling and Storage and John Deere equipment divisions located in Zambia. Inter-Africa grain trading results are included under the Trading division.

AFGRI Broking represents the Group’s derivative broking operation.

Products and services provided The division provides tailor made financial solutions and insurance products, including structured, corporate and producer lines of credit. Insurance products include crop and hall insurance, credit life and other personal insurance requirements. The division also provides treasury services to customers whilst managing the Group’s capital requirements and treasury functions.

Mandated buying and selling of futures and options of JSE SAFEX exchange.

Customers Farmers, processors and consumers of agricultural commodities as well as members of the public.

Farmers, agricultural commodity processors and in-house AFGRI Trading and AFGRI Foods.

Geographical area South Africa and Zambia. South Africa.

114


AFGRI AGRI SERVICESRetail and Equipment Logistic Services

Primary Inputs Retail Logistics Trading

2010R’000

2009R’000

2010R’000

2009R’000

2010R’000

2009R’000

2010R’000

2009R’000

419 885 658 683 2 651 094 2 983 291 469 379 430 779 102 089 156 645

419 885 658 683 2 651 094 2 983 291 469 379 430 779 102 089 156 645

– – – – – – – –

14 762 13 515 149 312 173 941 237 504 207 479 (6 031) 26 562

(6 612) (8 921) (27 976) (38 497) (40 470) (47 233) (10 728) (9 432)

– – – – – 29 – –

– – – – – – – –

– – (10 545) (14 977) (16 427) (14 820) (3 738) –

(6 612) (8 921) (17 431) (23 520) (24 043) (32 442) (6 990) (9 432)

8 150 4 594 121 336 135 444 197 034 160 246 (16 759) 17 130

– – – 31 492 358 1 250 – –

– – – – – – – –

– – – 31 492 358 1 250 – –

8 150 4 594 121 336 166 936 197 392 161 496 (16 759) 17 130

(737) (998) (42 455) (41 896) (13 078) (22 601) (17 160) (4 597)

7 413 3 596 78 881 125 040 184 314 138 895 (33 919) 12 533

Primary Inputs Retail Logistics Trading

147 969 254 542 1 393 950 1 557 190 461 455 389 762 549 021 795 757

796 57 539 216 473 284 616 364 725 321 690 80 496 39 377

78 375 122 074 730 362 945 393 44 307 8 885 103 554 172 156

53 452 59 346 434 840 303 914 52 118 58 881 292 997 526 514

15 346 15 583 12 275 23 267 305 306 71 974 57 710

84 604 146 152 728 898 889 545 72 669 54 360 481 100 486 951

962 3 371 2 394 4 850 20 140 299 – –

83 642 142 781 726 504 884 695 52 529 54 061 481 100 486 951

– – – – – – – –

– – – – – – – –

5 754 13 628 27 458 38 359 56 658 25 898 2 781 3 443

AFGRI Primary inputs includes the direct delivery operation of AFGRI Retail and Equipment.

AFGRI Retail encompasses the Group’s 35 retail stores, including the four new concept Farm City stores. The Group’s John Deere agency, operating through 11 centres of excellence is also included here. The Group’s Australia subsidiary is also reported here.

AFGRI Logistics houses the Group’s Handling and Storage and Logistics division. Having 64 silo complexes and nine strategically placed bunker facilities, the Handling and Storage division has in excess of four million tons of storage capacity. The Logistics division represents the Group’s third and fourth party logistics operations.

AFGRI Trading represents the Group’s physical agricultural commodity trading house.

Through a network of agents and in conjunction with primary producers, AFGRI Primary Inputs sources and supplies diesel, fertiliser, seed and agricultural chemicals.

Fundamentally a provider of farming requisites, the AFGRI Retail stores offer an extensive range of agricultural, home and garden, outdoor and DIY products, including selected building materials. John Deere mechanisation equipment sales and services are offered through regional structures.

Secure grain handling and storage Logistics. Collateral management.

A comprehensive grain supply chain management service backed by tailor-made supply and procurement contracts for the short and long term, making use of innovative price, hedging and finance solutions. This division’s responsibilities also include managing the Group’s commodity procurement.

Farmers and primary agricultural producers. Farmers and members of the general public. Agricultural industry: producers, processors and traders. Farmers, agricultural commodity processors and in-house AFGRI Foods.

Mpumalanga, Free State, KwaZulu-Natal, Gauteng and North West Provinces.

Mpumalanga, Gauteng, KwaZulu-Natal and Free State provinces and Australia.

Mpumalanga, North West, Gauteng, KwaZulu-Natal, Free State, Western Cape and Eastern Cape provinces and Zambia.

Operations extend throughout Africa with origination from Africa and other international markets.

115


AFGRI FOODS OTHER

Animal Feeds and Broilers Oil and Protein Corporate Inter-group eliminations

2010R’000

2009R’000

2010R’000

2009R’000

2010R’000

2009R’000

2010R’000

2009R’000

2 626 916 2 582 104 544 436 501 441 947 2 562 (267 790) (145 904)

2 626 916 2 582 104 544 436 501 441 947 2 562 (267 790) (145 904)

– – – – – – – –

301 226 277 965 42 722 30 105 (105 269) (129 796) – –

(74 557) (73 115) (13 831) (14 241) 113 633 226 790 – –

– – – – 18 531 34 980 – –

– – – – – 58 615 – –

(58 039) (50 827) (7 471) (5 659) (10 813) (9 719) – –

(16 518) (22 288) (6 360) (8 582) 105 915 142 914 – –

226 669 204 850 28 891 15 864 8 364 96 994 – –

– – – – – – – –

– – – – – – – –

– – – – – – – –

226 669 204 850 28 891 15 864 8 364 96 994 – –

(55 515) (51 171) (3 546) (909) (11 704) (32 214) – –

171 154 153 679 25 345 14 955 (3 340) 64 780 – –

Animal Feeds and Broilers

Oil and Protein Corporate Inter–group eliminations

1 523 199 1 429 711 150 031 253 552 736 215 548 077 (503 582) (738 920)

881 694 811 550 77 425 104 082 257 709 173 736 (14 611) –

240 461 263 763 26 136 67 242 48 993 103 092 (258 054) (412 456)

395 031 346 938 46 208 78 131 77 481 112 554 (230 917) (326 464)

6 013 7 460 262 4 097 352 032 158 695 – –

674 746 662 040 76 801 121 652 1 276 395 1 400 804 (477 458) (698 301)

252 531 141 099 6 688 8 972 66 354 56 073 (14 611) –

422 215 520 941 70 113 112 680 50 253 91 857 (462 847) (698 301)

– – – – 958 020 890 133 – –

– – – – 201 768 362 741 – –

145 531 212 535 21 130 3 506 66 810 9 922 – –

The Animal Protein segment includes AFGRI Animal Feeds and AFGRI Poultry operations. The Animal Feeds division has a production capacity of approximately 1,2 million tons at eight installations. The Integrated AFGRI Poultry has a capacity of approximately 675 000 birds per week.

The Oil and Protein segment includes the Nedan division. The Corporate office houses certain of the Group’s financing structures, CSI, secretarial, compliance and internal audit functions, treasury and incentive shares, and incubates new projects. Corporate costs are allocated to the divisions where appropriate.

Intergroup eliminations comprise the elimination of inter segment revenues as well as inter segment accounts receivables and accounts payables.

Animal feed technology, formulation and production for most species, including poultry, dairy cows, beef cattle, pigs, dogs, ostriches, horses, game and aquatic animals.

Day old chicks, frozen whole birds and IQF portions.

Nedan is a bulk supplier of edible oils and fats, soya and cotton protein for animal feed, high protein defatted soya flour and texturised soya protein for human consumption.

Livestock farmers, dairy producers, feedlots. fish and prawn farms, wholesalers and retailers.

Industrial food manufacturers. Laboratories in many varied industries.

AFGRI Animal Feeds has production facilities in the Mpumalanga, Gauteng, KwaZulu-Natal, Free State, Eastern Cape and Western Cape provinces from where it distributes throughout South Africa.

AFGRI Poultry is situated in Sundra near the Gauteng market.

Nedan’s production facilities are situated in the Limpopo province from where it distributes nationally.

116


TOTAL TOTAL

Continuing Operations Discontinued Operations All Operations

2010R’000

2009R’000

2010R’000

2009R’000

2010R’000

2009R’000

7 258 840 8 017 223 1 066 817 1 246 898 8 325 657 9 264 121

6 876 013 7 438 155 1 040 381 1 219 124 7 916 394 8 657 279

382 827 579 068 26 436 27 774 409 263 606 842

966 635 1 062 412 123 836 96 262 1 090 471 1 158 674

(57 216) 66 175 (3 724) (6 812) (60 940) 59 363

78 711 115 783 2 191 3 030 80 902 118 813

– 58 615 – – – 58 615

(135 927) (108 223) (5 915) (9 842) (141 842) (118 065)

– – – – – –

909 419 1 128 587 120 112 89 450 1 029 531 1 218 037

358 32 742 – (47 190) 358 (14 448)

– – – (46 213) – (46 213)

358 32 742 – (977) 358 31 765

909 777 1 161 329 120 112 42 260 1 029 889 1 203 589

(456 071) (665 758) (32 574) (84 580) (488 645) (750 338)

453 706 495 571 87 538 (42 320) 541 244 453 251

(61 158) (91 980) (12 970) (7 342) (74 128) (99 322)

392 548 403 591 74 568 (49 662) 467 116 353 929

8 477 624 9 824 950 8 477 624 9 824 950

2 080 119 2 121 209 2 080 119 2 121 209

1 057 896 1 361 466 1 057 896 1 361 466

4 443 121 5 498 102 4 443 121 5 498 102

896 488 844 173 896 488 844 173

6 192 684 7 691 606 6 192 684 7 691 606

347 248 328 479 347 248 328 479

1 743 804 1 996 371 1 743 804 1 996 371

3 895 117 5 004 015 3 895 117 5 004 015

206 515 362 741 206 515 362 741

355 992 475 454 355 992 475 454

AFGRI’s stated intention is to focus on its core businesses and as such the Group embarked on the sale of non-core assets and underperforming businesses.


118


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Notes to the Group annual financial statementsfor the year ended 30 June 2010

1 CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTSEstimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances.

The Group makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, rarely equal the related actual results. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below.

1.1 Impairment of debtorsA provision for impairment of trade receivables is established when there is objective evidence that the Group will not be able to collect all amounts due according to the original terms of the receivables. The amount of the provision is the difference between the asset’s carrying amount and the present value of estimated future cash flows, discounted at the original effective interest rate.

Management considers the following when estimating the provision to be recognised in the income statement:

• Identification of specific non-performing debtors The provision for individual debtors only takes the difference between total debt less security available into

account. Security required was initially established as part of the credit granting policy and the risk profile of the debtor.

• Time value of security available from specific non-performing debtors The recovery period after identifying a specific non-performing debt is assessed. Based on experience,

management discounts the security that will eventually be obtained to its current value. As a result, the value of the security is reduced. These in turn result in a top-up portion being provided for to accrue for the time value shortfall.

• Review of the recovery history of securities Management assesses the recoverability of securities based on past experience and may adjust the security

downward. The shortfall would result in an increase in the provision required.

1.2 Estimates of assets’ lives, residual values and depreciation methodsProperty, plant and equipment are depreciated over their useful lives taking into account residual values. Useful lives and residual values are assessed annually. Useful lives are affected by technology innovations, maintenance programmes and future productivity. Depreciation is calculated on a straight line which may not represent the actual usage of the asset.

1.3 Impairment assessments of assets and intangiblesImpairment assessments on property, plant and equipment are only performed once there are impairment indicators. Goodwill and other intangible assets are assessed for impairment annually. Future cash flows are based on management’s estimate of future market conditions. Such cash flow projections are then discounted and compared to the current carrying value, and if lower the assets are impaired to the present value of the cash flows. Impairment assessments are based on information available at the time and these conditions may change after year-end.

1.4 Recognition and de-recognition of deferred tax assetsThe recognition of deferred tax assets is appraised semi-annually. Future cash flows are based on management’s estimate of future market conditions. The tax impact of such cash flow projections are compared to the carrying value, and if lower the deferred tax assets, the assets are derecognised. These assessments are based on information available at the time and these conditions may change after year-end.

1.5 Inventory net realisable values and impairment assessmentsInventory is valued at the lower of cost or net realisable value. Assessments are performed semi-annually and are based on management’s estimates of future market conditions.

1.6 Valuation of financial instrumentsFinancial instruments are fair valued at balance sheet date. The value of financial instruments are subject to material fluctuations and therefore disclosed amounts may differ from the value ultimately realised.

1.7 Valuation of share-based paymentsThe Group has a share incentive scheme. The fair value of the scheme is determined on inception based on assumptions of market conditions, discount rates and share price volatility. The market conditions at inception may differ significantly from the eventual outcome. A new, restricted share incentive scheme has been proposed by the Remuneration Committee and shareholder approval will be sought at the annual general meeting for this scheme. These financial statements have been prepared on the basis that this approval will be forthcoming.

119


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30 June2010

R’000

Yearended

30 June2009

R’000

2 PROPERTY, PLANT AND EQUIPMENT

2.1 Cost 1 930 314 1 835 576

Land 55 118 63 262

Buildings and improvements 780 557 720 961

Machinery and equipment 903 643 882 548

Vehicles 190 996 168 805

2.2 Accumulated depreciation and impairments (535 499) (489 148)

Buildings and improvements (171 022) (154 172)

Machinery and equipment (306 083) (280 364)

Vehicles (58 394) (54 612)

2.3 Net carrying value 1 394 815 1 346 428

Land 55 118 63 262



Vehicles 132 602 114 193

2.4 The registers of land and buildings are available for inspection at the registered offices of the respective companies.

2.5 Included in buildings and improvements are silo facilities with a book value of R192,3 million (2009: R196,1 million). These silo facilities are a major income generating asset of the Group. The replacement value of these facilities is estimated at R3 991,3 million (2009: R3 765,4 million).

2.6 Refer to note 39.1 for the Group’s commitments for the acquisition of property, plant and equipment.

2.7 Included in machinery and equipment and vehicles are leased assets to the value of R220,9 million (2009: R35,1 million). These assets serve as security for finance leases (refer note 20.3).

2.8 Movements for the yearOpening carrying value 1 346 428 1 175 375

Land 63 262 71 393



Vehicles 114 193 101 832

Additions at cost 282 195 384 447

Land 10 746 –



Vehicles 37 865 40 144

Transfers – –

Land 5 710 (1 098)

Buildings and improvements 43 783 (1 531)

Machinery and equipment (51 153) 3 994

Vehicles 1 660 (1 365)

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Notes to the Group annual financial statements continued

for the year ended 30 June 2010

Yearended

30 June2010

R’000

Yearended

30 June2009

R’000

2 PROPERTY, PLANT AND EQUIPMENT (continued)

2.8 Movements for the year (continued)

Exchange differences 963 (9 396)

Land 267 (1 608)

Buildings and improvements 529 (4 381)

Machinery and equipment 20 (2 464)

Vehicles 147 (943)

Disposals at book value (101 788) (72 101)

Land (22 409) (2 299)



Vehicles (2 037) (3 567)

Depreciation charge (98 550) (86 500)



Vehicles (17 270) (15 366)

Disposal of business (14 588) –

Land (136) –

Buildings and improvements (9 517) –

Machinery and equipment (2 979) –

Vehicles (1 956) –

Assets classified as held-for-sale (17 198) (38 847)

Land (2 322) (3 042)



Vehicles – (2 028)

Impairment charge (2 647) (6 550)

Land – (84)


Machinery and equipment – 877


Closing carrying value 1 394 815 1 346 428

Land 55 118 63 262



Vehicles 132 602 114 193

121


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30 June2009

R’000

3 GOODWILL

3.1 Cost 53 955 55 039

3.2 Impairments (17 363) (17 363)

3.3 Net carrying value 36 592 37 676

3.4 Movement for the year

Opening carrying value 37 676 44 682

Transfer to other intangibles (1 526) (4 270)

Exchange differences 442 (2 736)

Closing carrying value 36 592 37 676

3.5 Impairment assessments for goodwill

Goodwill is allocated to the Group’s cash-generating units identified according to operating segments.

3.5.1 A segment-level summary of the goodwill allocation is presented below:

Financial Services: 8 584 10 110

Insurance 8 584 10 110

Agri-Services: 18 675 18 233

Producer Services (retail) 1 707 1 707

Australia 16 968 16 526

Foods: 9 333 9 333

Animal protein 4 200 4 200

Oil and protein 5 133 5 133

Group 36 592 37 676

The recoverable amount of an operating segment is determined based on value-in-use calculations. These calculations use cash flow projections based on financial budgets approved by management covering a five-year period. Cash flows beyond the five-year period are extrapolated using estimated growth rates stated below. The growth rate does not exceed the long-term average growth rate for the business segment in which the operating segment operates.

3.5.2 Key assumptions used for value-in-use

calculations

Gross margin1 Growth rate2 Discount rate3

Financial Services 100,0% 6,0% 21,8%

Agri-Services 28,6% 8,0% 11,7%

Foods 20,6% 6,0% 12,6%

These assumptions have been used for the analysis of each cash-generating unit within the business segment.

1 Budgeted gross margin.2 Weighted average growth rate used to extrapolate cash flows beyond the budget period.3 Pre-tax discount rate applied to the cash flow projections.

Management determined the budgeted gross margin based on past performance and its expectations for market development. The weighted average growth rates used are consistent with the forecasts included in industry reports. The discount rates used are pre-tax and reflect the risks.

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30 June2010

R’000

Yearended

30 June2009

R’000

4 OTHER INTANGIBLE ASSETS4.1 Cost 355 456 349 944

Trademarks and patents 163 026 194 690Computer software 119 044 146 447Other 73 386 8 807

4.2 Accumulated amortisation and impairments (114 047) (112 397)

Trademarks and patents (40 515) (31 320)Computer software (66 086) (72 270)Other (7 446) (8 807)

4.3 Net carrying value 241 409 237 547

Trademarks and patents 122 511 163 370Computer software 52 958 74 177Other 65 940 –

4.4 Movement for the yearOpening carrying value 237 547 219 741

Trademarks and patents 163 370 134 720 Computer software 74 177 77 085 Other – 7 936

Additions at cost 73 797 91 007

Trademarks and patents 3 754 71 558 Computer software 4 103 19 028 Other 65 940 421

Transfers 1 526 4 270

Trademarks and patents 1 526 2 261 Computer software – 1 634 Other – 375

Amortisation charge (43 292) (31 565)

Trademarks and patents (17 986) (13 629) Computer software (25 306) (17 411) Other – (525)

Disposals of business (28 146) –

Trademarks and patents (28 146) –Exchange differences 9 33

Trademarks and patents (7) (36) Computer software 16 69Impairment charge (32) (22 601)

Trademarks and patents – (8 166) Computer software (32) (6 228) Other – (8 207)

Assets classified as held-for-sale – (23 338)

Trademarks and patents – (23 338)

Closing carrying value 241 409 237 547

Trademarks and patents 122 511 163 370 Computer software 52 958 74 177 Other 65 940 –

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30 June2009

R’000

4 OTHER INTANGIBLE ASSETS (continued)

4.5 Included under trademarks and patents are the following:

Financial Services

Capital 61 647 68 744

SAP licences having a useful life of five years and a remaining useful life of two years 1 563 2 233

Intellectual property right, trademark and patent on automated banking machines registered as “Deposita” having a useful life of ten years and a remaining useful life of nine years 56 430 62 700

Insurance customer lists having useful lives of between three and five years and remaining useful lives of between three years and one year 3 654 3 811

Broking – –

61 647 68 744

Retail and Equipment

Primary inputs – 26 183

Chemical trademark registrations had a useful life of ten years. These trademark registrations were sold during the year with the sale of the Tsunami business unit – 26 183

Retail – –

– 26 183

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30 June2010

R’000

Yearended

30 June2009

R’000


4.5 Included under trademarks and patents are the following (continued):

Foods


Animal Feeds bypass protein technology having a useful life of ten years with a remaining useful life of seven years and eight months 2 337 3 336

Daybreak Superior trademark having a useful life of 30 years and a remaining useful life of 25 years 58 496 60 884

Daybreak customer relations list having a useful life of five years. The list was fully amortised during the year – 4 150

Labworld patent registrations 31 73

Oil and protein – –

60 864 68 443

Group 122 511 163 370

4.6 Included under computer software are the following:

Financial Services

Capital 13 949 18 667

SAP software having a useful life of five years and a remaining useful life of two years 10 951 14 528

Trading software (Zambia) 252 532

Insurance administrative software 337 526

Treasury operations software 2 409 3 081

Broking – –

13 949 18 667

Logistic Services

Logistics 6 950 6 068

Handling and storage operations software 6 083 4 907

Logistics operations software 867 1 161

Trading 10 688 11 645

Trading and administrative software, both purchased and internally developed, commissioned during 2009 and having useful lives of between five and eight years. 10 688 11 645

17 638 17 713

Retail and Equipment

Primary inputs – –

Retail 6 392 9 009

Internally developed computer software having a useful life of five years and a remaining useful life of two years 6 392 9 009

6 392 9 009

125


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30 June2010

R’000

Yearended

30 June2009

R’000


4.6 Included under computer software are the following (continued):

Foods


Internally developed computer software for the Animal Feeds division having a useful life of five years and a remaining useful life of eight months 1 625 3 703

Daybreak administrative software 339 619


1 964 4 322

Other

Corporate 13 015 24 466

Group internally developed computer software having a useful life of five years and a remaining useful life of less than one year 12 105 23 640

Group consolidation software 910 826

13 015 24 466

Group 52 958 74 177

4.7 Included under other are the following:

Foods

Animal protein 417 –

Afgri Poultry 417 –


417 –

Other

Corporate 65 523 –

Licence fees, capitalised development and implementation costs, and maintenance costs associated with the Group’s planned implementation of SAP. Amortisation will only commence once the system has been commissioned, at which time the asset will be transferred into the software category 65 523 –

–

Group 65 940 –

Total 241 409 237 547

126


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Yearended

30 June2010

R’000

Yearended

30 June2009

R’000

5 INVESTMENTS IN ASSOCIATES

5.1 Shares in unlisted associates (refer Appendix C)

Opening carrying amount 35 615 2 873

Exchange differences 10 –

Share of profit after income tax and minority interest 358 32 742

Closing carrying amount 35 983 35 615

On 25 September 2008 the Group acquired a 45% shareholding in LTP Holdings Limited for nil consideration. The associate company’s underlying assets, consisting of property, plant and equipment, were fair valued and negative goodwill of R29,6 million (after tax) identified. The fair value includes a notional liability for an onerous lease contract over the property.

The Group has not recognised losses amounting to R9,1 million (2009: R34,8 million) for Deposita Systems (Pty) Ltd. The accumulated losses not recognised were R43,9 million. During the 2009 financial year the Group bought the intellectual property rights, trademark and patent on automated banking machines registered as “Deposita” from Deposita Systems (Pty) Ltd for an amount of R62,7 million (refer note 4.5). The Group also issued a financial guarantee in favour of the associate’s bankers to the value of R33,5 million.

5.2 The summarised financial information of associates, is as follows:

Assets 233 392 243 017

Liabilities (155 109) (145 214)

Sales 132 155 109 105

Loss for the year (21 420) (23 104)

There are no contingent liabilities relating to the Group’s and Company’s interest in the associates. – –

127


6 FINANCIAL INSTRUMENTS BY CATEGORY

30 June 2010R’000

Loans andreceivables

Assets atfair value

throughprofit

or loss

Derivativesdesignated as hedges

Available-for-sale

Held-to-maturity Total

Assets as per balance sheet

Other financial assets – 11 013 – 40 965 – 51 978

Financial receivables 100 979 – – – 102 319 203 298

Derivative financial instruments – 32 723 16 966 – – 49 689

Trade and other receivables 437 522 – – – – 437 522

Trade receivables financed by banks 3 898 425 – – – – 3 898 425

Cash and cash equivalents 896 488 – – – – 896 488

Total 5 333 414 43 736 16 966 40 965 102 319 5 537 400

R’000

Liabilities at fair value

through profit

or loss


Other financial liabilities Total

Liabilities as per balance sheet

Borrowings – – 173 412 173 412

Derivative financial instruments 50 485 21 544 – 72 029

Trade and other payables – – 1 563 728 1 563 728

Short-term borrowings – – 105 742 105 742

Call loans and bank overdrafts – – 206 515 206 515

Borrowings from banks to finance trade receivables – – 3 895 117 3 895 117

Total 50 485 21 544 5 944 514 6 016 543

128


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6 FINANCIAL INSTRUMENTS BY CATEGORY (continued)

30 June 2009R’000

Loans andreceivables

Assets atfair value

throughprofit

or loss


Available-for-sale

Held-to-maturity Total

Assets as per balance sheet

Other financial assets – – – 40 973 – 40 973

Financial receivables 61 740 – – – 204 117 265 857

Derivative financial instruments – 88 725 18 701 – – 107 426

Trade and other receivables 361 607 – – – – 361 607

Trade receivables financed by banks 5 014 819 – – – – 5 014 819

Cash and cash equivalents and cash collateral deposits 844 173 – – – – 844 173

Total 6 282 339 88 725 18 701 40 973 204 117 6 634 855

R’000

Liabilities at fair value

through profit or loss


Other financial liabilities Total

Liabilities as per balance sheet

Borrowings – – 127 643 127 643

Derivative financial instruments 77 301 12 445 – 89 746

Trade and other payables – – 1 797 056 1 797 056

Short-term borrowings – – 58 662 58 662

Call loans and bank overdrafts – – 362 741 362 741

Borrowings from banks to finance trade receivables – – 5 004 015 5 004 015

Total 77 301 12 445 7 350 117 7 439 863

129


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30 June2010

R’000

Yearended

30 June2009

R’000

7 OTHER FINANCIAL ASSETS

7.1 Available-for-sale financial assets

7.1.1 Interest in unlisted investments (refer Appendix D) 40 965 40 973

40 965 40 973

7.1.2 For fair value determination, refer to note 38.

7.1.3 The registers of investments are available for inspection at the registered offices of the respective companies.

7.2 Financial assets at fair value through profit or loss (excluding derivatives)

7.2.1 Listed investments 11 013 –

11 013 –

7.2.2 An investment in the Barak Structured Trade Finance Fund, managed by Barak Fund Management Ltd, a company listed on the Irish Stock Exchange. The fund is market neutral, providing asset backed debt in agricultural trade finance transactions. The fund is dollar-denominated and does not take proprietary positions. The fund’s assets allocation by commodity is mainly white maize, and wheat (83%) but has a smaller allocation to coffee, rice, and cash (27%). The fund operates mainly in Africa. The investment is designated as a financial asset at fair value through profit or loss; this designation provides more relevant information as it eliminates the recognition mismatch that would otherwise arise from recognising the gains and losses on such assets and liabilities on a different basis. The investment is classified as long term, as management have no intention of selling it in the near future.

51 978 40 973

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30 June2010

R’000

Yearended

30 June2009

R’000

8 FINANCIAL RECEIVABLES

Loans to unlisted joint ventures 1 082 1 054

Loans to unlisted associates (refer Appendix C) 4 233 5 839

Other loans to unlisted investments (refer Appendix D) 4 168 9 059

Held-to-maturity investments 103 883 204 117

Loans and receivables investments 99 839 60 590

Total financial receivables 213 205 280 659

Impairment of loans to unlisted investments (refer Appendix D) (2 893) (2 478)

Short-term portion of held-to-maturity investments (refer note 11) (1 564) (1 877)

Short-term portion of interest-free loans (refer note 11) (5 450) (10 447)

203 298 265 857

8.1 Loans to unlisted joint ventures, associates and unlisted investments

These loans have no fixed terms of repayment and are interest free. All are considered to be fully performing, except as indicated in Appendix C and D and against which an impairment has been recorded.

8.2 The held-to-maturity investments are:

8.2.1 A preference share investment at Depfin Investments (Pty) Ltd of R100 million. The preference shares earn dividends at a variable rate of 65% of the prime lending rate (currently 10,5%) payable semi-annually on 31 March and 30 September. The final redemption date is 24 February 2024. These preference shares have been ceded to the Land and Agricultural Development Bank in terms of the Agri Sizwe transaction. The dividends received of R6,9 million (2009: R0,8 million) are in turn placed with the Land and Agricultural Development Bank as additional security.

8.2.2 A preference share investment at National Cereal Holdings Limited of R100 million. These preference shares earn dividends at variable rates linked to prime bank rate and payable quarterly. The preference share was originally redeemable on 9 July 2010 but was repaid by the issuer on 25 May 2010.

8.3 Loans and receivables investments

8.3.1 A preference share investment at Premier Foods Limited of R50 million. The preference shares earn dividends at variable rates linked to the prime bank rate and payable quarterly. The investment has no fixed redemption date. None of the preference dividends is in arrears and the overall credit risk associated with the investment is considered to be low. The carrying amount is considered to approximate the fair value.

8.3.2 Amount owing from Boereportefeulje Bestuurs Maatskappy (Pty) Ltd as a result of the renegotiation of repayment terms with this debtor. This loan carries interest at a fixed rate of 12% and is repayable in 10 annual instalments of R9,2 million each. Final payment is due on 28 February 2020.

131


Yearended

30 June2010

R’000

Yearended

30 June2009

R’000

9 INVENTORIES

Merchandise 696 954 693 108

Raw materials 129 367 148 514

Finished goods 65 502 172 248

Consumable goods 8 263 8 702

900 086 1 022 572

9.1 Included in merchandise is R108,1 million (2009: R147,8 million) for purchases financed on a floor plan basis, which serve as security for such trade payables. (Refer note 22.1)

9.2 The following inventory is valued at net realisable value:

Merchandise 57 883 108 941

Raw materials 2 558 1 523

Consumable goods 1 134 239

61 575 110 703

9.3 An amount of R9,1 million (2009: R13,2 million) of inventory was written off and recognised as an expense during the year. This related to stock count variances and physical obsolescence in various business segments.

10 BIOLOGICAL ASSETS

Opening carrying amount 53 130 61 270

Increase due to feed and production costs 338 635 301 409

Decrease due to sales (334 343) (309 549)

Closing carrying amount 57 422 53 130

10.1 The biological assets consist of live breeding chicken birds and live broilers in various phases of growth. The fair value is based on market prices less selling expenses.

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30 June2010

R’000

Yearended

30 June2009

R’000

11 TRADE AND OTHER RECEIVABLES

11.1 Trade receivables (financed and not financed by banks)

11.1.1 Trade receivables not financed by banks 609 647 557 336

– Current 419 516 358 572

– Season 178 967 141 469

– Capital goods 11 164 57 295

Trade receivables financed by banks 3 898 425 5 014 819

– Current 1 222 327 2 140 987

– Season 1 973 720 2 292 916

– Capital goods 702 378 580 916

Prepayments 107 174 121 676

Short-term portion of held-to-maturity investments (refer note 8) 1 564 1 877

Short-term portion of interest free loans (refer note 8) 5 450 10 447

Total receivables 4 622 260 5 706 155

Less: Impairments (179 139) (208 053)

4 443 121 5 498 102

11.1.2 Quality per category

Past due 376 562 412 059

– Current 133 274 212 897

– Seasonal 216 088 150 979

– Capital 27 200 48 183

Impaired 279 802 272 983

– Current 69 338 104 957

– Seasonal 128 263 109 317

– Capital 82 201 58 709

The determination of the above categorisation is consistent with the Group’s credit risk management.

11.1.3 Estimated collateral held as security

Past due 229 092 194 035

– Current 9 624 8 806

– Seasonal 188 767 139 145

– Capital 30 701 46 084

Impaired 148 525 97 809

– Current 12 137 17 171

– Seasonal 81 001 53 141

– Capital 55 387 27 497

The abovementioned collateral consists of mortgage, notarial and special notarial bonds, cessions and credit life insurance.

133


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30 June2010

R’000

Yearended

30 June2009

R’000

11 TRADE AND OTHER RECEIVABLES (continued)

11.1 Trade receivables (financed and not financed by banks) (continued)

11.1.4 Trade receivables that were neither past due nor impaired

The credit quality of the portfolio of trade receivables that were neither past due nor impaired can be assessed by reference to the Group’s standard credit grading system, as described in Financial Risk Management accounting policy. The following information is based on that system.

Trade receivables

Satisfactory risk 3 733 221 4 802 349

– Current 1 434 794 2 171 785

– Seasonal 1 741 623 2 145 706

– Capital 556 804 484 858

Elevated risk 118 487 84 764

– Current 4 437 9 920

– Seasonal 66 713 28 383

– Capital 47 337 46 461

Collateral in the form of mortgages, notarial and special notarial bonds, cessions and credit life assurance, between 0% and 100% of their fair value, depending on the risk profile and term of the facility of these trade receivables is held by the Group.

3 851 708 4 887 113

11.1.5 Carrying amount of trade receivables that would otherwise be past due or impaired, whose terms have been renegotiated.

156 998 452 001

– Current – 399 817

– Seasonal 156 998 52 184

– Capital – –

156 998 452 001

134


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30 June2010

R’000

Yearended

30 June2009

R’000



11.1.6 Trade receivables which were past due but not impaired

Past due to 90 days 45 981 44 257

– Current 40 323 42 397

– Seasonal 3 937 –

– Capital 1 721 1 860

Past due from 91 days to one year 43 787 12 145

– Current 12 859 12 145


– Capital 14 930 –

Exceeding one year but not two years 17 341 278 301

– Current 14 543 80 999

– Seasonal 719 150 979

– Capital 2 079 46 323

Exceeding two years 269 453 77 356

– Current 65 549 77 356


– Capital 8 470 –

376 562 412 059

135




11.1.7 Allowance for impairment of trade receivables

TotalR’000

CurrentR’000

SeasonalR’000

CapitalR’000

At 1 July 2009 (208 053) (102 125) (68 065) (37 863)

Amounts written off 47 177 23 934 14 904 8 339

Recoveries of amounts provided 2 696 522 1 394 780

Current year charge to income statement (32 464) (4 881) (16 778) (10 805)

Reversal of prior year charge to income statement 10 167 10 167 – –

Exchange and other movements 1 338 946 392 –

At 30 June 2010 (179 139) (71 437) (68 153) (39 549)

At 1 July 2008 (170 235) (71 756) (98 479) –

Amounts written off 24 049 8 037 10 267 5 745

Recoveries of amounts provided 303 155 148 –

Current year charge to income statement (73 833) (36 711) (23 804) (13 318)

Reversal of prior year charge to income statement (2 537) (2 537) – –

Exchange and other movements 14 200 687 43 803 (30 290)

At 30 June 2009 (208 053) (102 125) (68 065) (37 863)

11.2 Accounts for the financing of capital goods can be paid over periods of more than 12 months. The underlying capital goods serve as security for the debt. The total amount expected to be paid over periods of more than 12 months is R542,8 million (2009: R525 million).

11.3 Season and capital goods accounts bear interest at rates varying between prime bank rate less 2% and prime bank rate plus 5,5%.

11.4 The amortised cost of trade and other receivables approximates the fair value because of the short period to maturity of those instruments and market related interest being charged.

11.5 The average effective interest rate charged on trade receivables not financed by banks is 8,6% (2009: 12,8%).

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Yearended

30 June2010

R’000

Yearended

30 June2009

R’000

12 TRADE RECEIVABLES FINANCED BY BANKS

12.1 Asset

12.1.1 Trade receivables financed by banks 3 898 425 5 014 819

12.2 Liability

12.2.1 Borrowings from banks to finance trade receivables 3 895 117 5 004 015

12.3 Any difference between the amounts is due to the daily set-off and timing differences on the last day of the month.

12.4 The amortised cost of these trade receivables as well as the related liability approximates the fair value because of the short term to maturity of those instruments and market related interest being charged.

12.5 The average effective interest charged on the interest-bearing trade receivables is 9,7% (2009: 13,7%).

12.6 The only security for the liability is the trade receivables themselves, and in certain cases, additional cash collateral deposits or cash trade receivables of between 10% and 15% and/or cash trade receivables of up to 20% of the facility. The Group carries the risk of loss on these trade receivables. The total value of additional debtors encumbered for these facilities is R305 million (2009: R250 million).

13 DERIVATIVE FINANCIAL INSTRUMENTS

13.1 Derivative financial instruments

Assets

– Forward purchase contracts – 58 832

– Forward sale contracts 31 316 48 130

– Options – –

– Interest rate swaps – 185

– Foreign currency futures 18 373 279

49 689 107 426

Liabilities

– Forward purchase contracts 34 516 86 655

– Forward sale contracts – 3 083

– Options 7 000 –

– Interest rate swaps 4 181 –

– Foreign currency futures 26 332 8

72 029 89 746

137


13 DERIVATIVE FINANCIAL INSTRUMENTS (continued)

13.2 Forward purchase and sale contractsThe forward purchase contracts represent contracts with producers for the procurement of physical commodities in the future. The forward sale contracts represent contracts with millers and other clients for the sale of physical commodities in the future.

13.3 OptionsOptions represent derivative financial instruments receivable from farmers which are recovered on physical delivery of commodities. Also included in the current financial year is the option contract with minorities as a result of the transaction with the minority shareholders in Tsunami.

13.4 Foreign currency futuresThe fair value adjustment on foreign currency futures is included in equity to the extent that these derivatives are designated and qualify as cash flow hedges, and are effective (refer note 18.3). Where foreign currency futures do not qualify for hedge accounting, the fair value adjustment is recognised immediately in profit or loss.

The hedged cash flows are expected to occur at various dates during the 12 months following the balance sheet date. Gains and losses recognised in the revaluation reserve for cash flow hedges (refer note 18.3) as of balance sheet date are recognised in the income statement in the period or periods during which the hedged forecast transaction affects the income statement. This is generally within 12 months from the balance sheet date unless the gain or loss is included in the initial amount recognised for the purchase of fixed assets, in which case recognition is over the lifetime of the asset (five to ten years). During the current year a significant export transaction was cancelled due to the introduction of new GMO legislation. Without the underlying transaction, the R5,9 million loss on the foreign exchange contract has been recognised in profit and loss, as the hedge was no longer effective (2009: Rnil).

Outstanding foreign currency futures at balance sheet date comprised the following:

30 June 2010 30 June 2009

R’000Contract

valueMarket

valueFair

valueContract

valueMarket

valueFair

value

Sold

Euro 8 444 8 149 (295) – – –

Pound Sterling 470 475 5 – – –

Japanese Yen 12 526 13 034 508 – – –

US Dollar 248 733 249 104 371 199 905 181 204 (18 701)

Australian Dollar 1 782 1 752 (30) – – –

271 955 272 514 559 199 905 181 204 (18 701)

Purchased

Euro 10 10 – 10 295 9 379 916

Pound Sterling – – – – – –

Japanese Yen 343 366 (23) 7 083 5 432 1 651

US Dollar 790 532 798 619 (8 087) 105 437 95 576 9 861

Australian Dollar – – – 1 154 1 136 18

790 885 798 995 (8 110) 123 969 111 523 12 446

Net fair value (7 551) (6 255)

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R’000

Yearended

30 June2009

R’000

14 CASH AND CASH EQUIVALENTS AND CASH COLLATERAL DEPOSITS

Cash on hand 210 355 7 309

Bank balance 264 281 239 522

474 636 246 831

Short-term borrowings and bank overdrafts (206 515) (362 741)

Short-term borrowings (206 515) –

Bank overdrafts – (362 741)

Cash and cash equivalents 268 121 (115 910)

Cash collateral deposits 421 852 597 342

Balance at end of year 689 973 481 432

14.1 Cash and cash equivalents are the same for cash flow statement purposes.

14.2 The cash collateral deposits consist of cash deposits at financial institutions and serve as security for bad debts, up to a maximum of 15% (2009: 15%) of the debtors administered on behalf of third parties by AFGRI or debtors financed by the banks (refer note 12). The deposits bear interest at market-related cash deposit rates. The average interest earned on cash collateral deposits is 6,3% (2009: 9,7%). The deposits bear interest at market-related cash deposit rates.

14.3 The short-term borrowings and bank overdrafts bear interest at a variable rate of 8,5% (2009: 9,8%). All amounts are repayable within the next 12 months.

15 SHARE CAPITAL

Number ofshares

Ordinaryshares Total

Balance at 30 June 2008 373 794 000 4 4

Changes during the year – – –

Balance at 30 June 2009 373 794 000 4 4

Changes during the year – – –

Balance at 30 June 2010 373 794 000 4 4

15.1 The total authorised number of ordinary shares is 515 million shares with a par value of 0,001 cents per share. All issued shares are fully paid.

139


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30 June2010

Yearended

30 June2009

16 TREASURY SHARES

The treasury shares are purchased by a subsidiary, OTK Investment House (Pty) Limited. Treasury shares are disclosed as a reduction of equity in the statement of changes in equity.

The following shares were sold in terms of a general authorisation:

Number Number

Beginning of year 18 999 746 32 608 635

During the year – (13 608 889)

Balance end of year 18 999 746 18 999 746

Average price of shares sold during the year – R4,77

Average purchase price of all shares R4,76 R4,76

Total number of shares held as a percentage of total issued shares 5,1% 5,1%

17 INCENTIVE TRUST SHARES

In terms of the AFGRI Limited Deferred Share Incentive Scheme, a maximum of 10% of the issued share capital can be issued to the deferred delivery scheme. Shares for deferred options exercised have been issued to AFGRI Limited Trust, which administers the AFGRI Deferred Share Incentive Scheme. Registration in the name of the employee is deferred until future dates and will be transferred after payment of the subscription price. At 30 June 2010 a total number of 29 831 956 – 8% (2009: 33 986 684 – 9,1%) shares are held in trust for the Deferred Share Incentive Scheme. The 7 547 444 (2009: 3 392 716) unissued shares which have been reserved for the AFGRI Limited Deferred Share Incentive Scheme, are under the control of the directors.

The Board of AFGRI Limited approved the implementation of the AFGRI Executive Share Award Scheme which will replace the Deferred Share Incentive Scheme. The AFGRI Deferred Share Incentive Scheme will be allowed to run out over the next four years. Further approval for the AFGRI Executive Share Award Share Incentive Scheme has been obtained from the JSE. Shareholder approval for the AFGRI Executive Share Award Scheme will be sought at the Company’s annual general meeting.

No shares for the AFGRI Executive Share Award Scheme had been purchased or issued at 30 June 2010 as shareholder approval for the Scheme is pending. Should the Scheme be approved, shares will be purchased or issued and awarded to the employees as restricted shares. Kagiso Securities Limited (Pty) Ltd will administer the AFGRI Executive Share Award Scheme and will manage the status of shares (restricted and unrestricted) over the vesting period per the vesting conditions. Had approval for the Scheme been finalised at 30 June 2010 a total number of 1 729 742 shares would have been awarded to employees of which 1 729 742 shares would have been restricted. All restricted shares are reflected as a reduction of equity.

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30 June2010

R’000

Yearended

30 June2009

R’000

18 FAIR VALUE AND OTHER RESERVES

18.1 Share-based equity valuation reserve

Opening balance 32 490 25 242

Movement for the year 8 583 7 248

Closing balance 41 073 32 490

The AFGRI Executive Share Award Scheme was approved by the Board and the JSE during the year. Shareholder approval for the Scheme will be sought at the annual general meeting. For purposes of preparing the annual financial statements, it has been assumed that shareholder approval was obtained.

The AFGRI Executive Share Award Scheme contains both a cash portion payable immediately and an equity portion. Vesting conditions include both service and performance elements. The fair value of shares that would have been granted had shareholder approval been obtained, was determined using the market value of the shares on grant date. The total amount to be expensed over the vesting period is determined using the fair value on grant date, adjusted for the number of shares expected to vest as unrestricted shares. Fair value determined on grant date was R10,8 million with a vesting period of five years (including the current financial year). This resulted in an amount of R2,1 million recognised as staff costs in the current financial year. R8,7 million will be recognised over the remaining vesting period of four years.

As a result of the introduction of the AFGRI Executive Share Award Scheme of senior personnel, no new options have been granted during the year under the AFGRI Deferred Share Incentive Scheme. The fair value of options granted during the prior year determined using the Black-Scholes valuation model was R12,8 million. The significant inputs into the model were a share price of R3,78, at the grant date, standard deviation of expected share price returns of 42,7%, dividend yield of 6%, option life of two – five years and annual risk-free interest of 7,5%. The volatility measured at the standard deviation of expected share price returns is based on statistical analysis of daily share prices over the last three years.

18.2 Foreign currency translation reserve

Opening balance 2 646 55 251

Exchange differences on translating of foreign operations 3 180 (52 605)

Closing balance 5 826 2 646

18.3 Revaluation reserve for cash flow hedges

Opening balance 11 967 –

Fair value (losses)/gains (16 409) 11 967

Closing balance (4 442) 11 967

Total 42 457 47 103

141


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30 June2010

R’000

Yearended

30 June 2009

R’000

19 RETAINED EARNINGS

Comprises

Company 19 126 14 650

Subsidiaries 1 771 131 1 678 285

Joint ventures 781 (129)

Associates 29 354 28 996

Balance end of year 1 820 392 1 721 802

20 BORROWINGS

20.1 Interest-bearing loans 6 543 108 788

Depfin Investments (Pty) Ltd – 100 000

Balance – 100 000

Short-term portion – –

MHA Broking Services (Pty) Ltd 5 845 5 845

Balance 5 845 5 845

Short-term portion – –

Stanbic – 1 281

Balance 1 731 3 649

Short-term portion (1 731) (2 368)

Iskhus Financing (Pty) Ltd 75 279

Balance 264 399

Short-term portion (189) (120)

Stannic 623 1 383

Balance 1 379 1 971

Short-term portion (756) (588)

20.1.1 The Depfin preference share borrowing was settled early on 25 May 2010.

20.1.2 The MHA Broking Services (Pty) Limited preference shares borrowing is denominated in SA Rand and is cumulative, convertible or redeemable on 31 May 2013 and bears interest at a variable rate linked to the performance of the underlying business acquired. The loan is not secured.

20.1.3 The Stanbic loan is denominated in US Dollars and is not hedged. The loan is repayable in annual instalments of R1 730 996 (2009: R1 806 367). The last payment is due in April 2011. Interest is charged at variable rates and is currently 12% per annum. The loan is secured by account receivables with a carrying value of R1,8 million (2009: R11,3 million).

20.1.4 The Iskhus loan is denominated in SA Rand and secured by property, plant and equipment with a carrying value of R0,1 million. The loan is repayable in monthly instalments of R15 694. The last payment is due in March 2012. Interest is charged at variable rate of 10,0% per annum.

20.1.5 The Stannic loan is denominated in SA Rand and secured by property, plant and equipment with a carrying value of R2,0 million. The loan is repayable in monthly instalments of R63 015. The last payment is due in June 2012. Interest is charged at variable rate of 9,75% per annum.

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30 June2010

R’000

Yearended

30 June 2009

R’000

20 BORROWINGS (continued)

20.2 Interest-free loans

Other loans 70 000 50 000

Short-term portion of interest-free loans (70 000) (50 000)

– –

20.3 Finance leases

20.3.1 Finance lease included under borrowings

Minimum lease payments 166 869 18 855

– Not later than one year 51 416 8 412

– Later than one year and not later than five years 203 585 20 409

255 001 28 821

Future finance charges on finance leases (55 066) (4 380)

Present value of finance lease liabilities 199 935 24 441

Short-term portion of finance leases (33 066) (5 586)

20.3.2 The leases consist of computer hardware, machinery and equipment and vehicles and all the assets will be returned at the end of the lease term.

20.3.3 The finance leases are repayable in monthly instalments varying from R4 555 to R1 397 722 (2009: R1 596 to R385 796) and bear interest at rates varying between 9,5% and 10,75% (2009: 10% and 12%). Finance leases are secured by machinery and equipment and vehicles with a carrying value of R220,9 million (2009: R35,1 million) under commercially accepted terms and conditions (refer note 2.7)

Total borrowings 173 412 127 643

21 DEFERRED INCOME TAX

21.1 Movement in deferred income tax

Balance beginning of year 43 723 33 145

Purchase of subsidiaries – –

Tax rate adjustment – –

Income statement debit 14 114 5 618

Foreign currency differences (17) 9 385

Other (28) (4 425)

End of year 57 792 43 723

21.2 Analysis of deferred income tax

Deferred income tax liabilities

Property, plant and equipment 148 949 166 570

Trade and other receivables 20 403 33 660

Biological assets 4 484 606

Total 173 836 200 836

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30 June 2009

R’000

21 DEFERRED INCOME TAX (continued)

Deferred income tax assets

Property, plant and equipment (4 044) (1 676)

Provisions (48 147) (76 297)

Trade and other receivables (1 527) (184)

Income tax losses (47 875) (36 888)

Other (14 451) (42 068)

Total (116 044) (157 113)

21.3 All deductible temporary differences, unused tax losses and used tax credits and temporary differences associated with investments in subsidiaries, branches and associates and interests in joint ventures have been recognised for deferred tax.

22 TRADE AND OTHER PAYABLES

Trade accounts payable 1 364 558 1 475 369

Other payables and accruals 199 170 321 688

1 563 728 1 797 057

22.1 Included in trade accounts payable is R108,1 million (2009: R147,8 million) for purchases financed on a floor plan basis. These payables are secured by merchandise included in note 9.1.

23 SHORT-TERM BORROWINGS

Short-term portion of borrowings

– interest-bearing loans 2 676 3 076

– finance leases 33 066 5 586

– interest-free loans 70 000 50 000

105 742 58 662

24 REVENUE

Revenue from continuing operations 7 258 840 8 017 223

Sale of goods 6 360 597 6 927 928

Services rendered 515 416 510 227

Interest income-debtor financing 382 827 579 068

Revenue from discontinued operations

Sale of goods 1 066 817 1 246 898

Gross revenue from operations 8 325 657 9 264 121

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Yearended

30 June2010

R’000

Yearended

30 June2009

R’000

25 OPERATING PROFITThe operating profit is stated after taking into account the following:

25.1 Net profit on disposal of property, plant and equipment 38 675 32 263

25.2 Payments to non-employeesManagerial, technical, administrative and secretarial fees (6 482) (6 920)

Outsourcing of IT, personnel and internal audit functions (50 090) (39 481)

(56 572) (46 401)

25.3 Impairment of trade and other receivables 27 576 (37 818)

25.4 Fair value gains/(losses) on derivative financial instruments– Forward purchase contracts 74 831 47 593

– Forward-sale contracts (96 992) (81 940)

(22 161) (34 347)

25.5 DepreciationBuildings and improvements (23 665) (19 005)


Vehicles (17 270) (15 366)

(98 550) (86 500)

25.6 Impairments of property, plant and equipment and intangible assetsLand – (84)


Machinery and equipment – 877


Trademarks and patents – (8 166)

Computer software (32) (6 228)

Other intangibles – (8 207)

(2 679) (29 151)

25.7 Amortisation of intangible assetsTrademarks and patents (17 986) (13 629)

Computer software (25 306) (17 411)

Other – (525)

(43 292) (31 565)

25.8 Foreign currency profits (4 825) 51 717

145


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30 June2010

R’000

Yearended

30 June2009

R’000

25 OPERATING PROFIT (continued)

25.9 Auditors’ remuneration– current period (7 631) (7 351)

– previous year (2 116) (513)

Other services and expenses (170) (1 082)

(9 917) (8 946)

25.10 Operating lease payments– Buildings (53 179) (45 813)

– Plant and machinery (439) (437)

– Motor vehicles (438) (1 628)

– Equipment (6 652) (8 927)

(60 708) (56 805)

25.11 Share-based payment expense (8 583) (7 248)

26 FINANCE COST

Continuing operations

Interest paid to banks for trade receivables financing (366 422) (533 581)

Interest paid to financial institutions (65 444) (97 327)

Independent third parties (20 071) (31 712)

Interest paid on leases (4 134) (3 138)

Finance cost for continuing operations (income statement) (456 071) (665 758)

Discontinued operations

Interest paid to financial institutions (32 574) (84 580)

Total finance cost (488 645) (750 338)

27 STAFF COSTS

Salaries and wages 808 589 766 056

Pension costs – defined contribution plans 43 917 38 643

Termination benefits 8 488 6 084

860 994 810 783

Number

Average monthly number of employees employed by the Group during the year:

Full-time 3 575 2 983

Part-time 1 506 1 486

5 081 4 469

South Africa 4 865 4 267

Other African countries 104 101

Australia 112 101

5 081 4 469

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Yearended

30 June2010

R’000

Yearended

30 June2009

R’000

28 INCOME TAX EXPENSE28.1 Income tax expense

South African normal income tax (59 765) (80 077) Current year (74 287) (71 482) Previous year over/(under)provision 14 522 (8 595)Deferred income tax (14 114) (5 618) Current year (22 606) (5 116) Previous year over/(under)provision 8 492 (502)Secondary tax on companies (249) (13 627)Income tax charge (74 128) (99 322)Continuing operations (61 158) (91 980)Discontinued operations (12 970) (7 342)Income tax charge (74 128) (99 322)

28.2 Reconciliation of income tax rate Profit before Agri Sizwe partners share 507 986 442 228Agri Sizwe partners share (129 204) (109 833)Profit before income tax, all operations, before other minorities 378 782 332 395Income tax for the year as a percentage of income before income tax 20 30Income tax effect of:Non-deductible expenditure (3) (17)Dividends received 3 6Prior year overprovision 6 7Difference in tax rates – 1Income tax losses (reversed)/raised 2 1Standard rate 28 28

28.3 Secondary tax on companies – STC on dividends to shareholders that were proposed or declared

before the financial statements were authorised for issue, but are not recognised as a liability in the financial statements. 927 5 341

29 HELD-FOR-SALE AND DISCONTINUED OPERATIONS29.1 Assets and liabilities of disposal groups classified as held-for-sale

On 26 January 2010 the Group concluded the sale agreement of the Tsunami business unit with Oninamix (Pty) Ltd trading as Arysta Lifescience South Africa. Certain of the business units assets will only be transferred over the next 12 months and are therefore disclosed as held-for-sale.Assets of disposal groups classified as held-for-saleProperty, plant and equipment 17 198 38 847Intangible assets – 23 338Inventory – 92 376Other current assets 5 436 2 796

Total assets 22 634 157 357Liabilities of disposal groups classified as held-for-saleTrade and other payables – 44 735Other current liabilities – –Provisions – –

Total liabilities – 44 735

147


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30 June2010

R’000

Yearended

30 June2009

R’000

29 HELD-FOR-SALE AND DISCONTINUED OPERATIONS (continued)

29.2 Analysis of the results of discontinued operations and the results recognised on the remeasurement of assets of disposal groups, is as follows:

During the year the Group disposed of the following operating units as going concerns:– AFGRI Seed to Klein Karoo Seed Marketing (Pty) Ltd– Retail branches in the Lowveld region to MGK Operating Company (Pty)

Ltd.– Retail branches in the Natal region to TWK Industries (Pty) Ltd– The assets and business of Tsunami Crop Care (Pty) Ltd and Tsunami

Plant Protection (Pty) Ltd to Arysta Life Sciences– The debtors book and business of Capital Harvest (Pty) Ltd, the Western

Cape operation of AFGRI Credit, to management

The results from these business units are included in the profit from discontinued operations of R74,6 million (2009: loss of R49,6 million)

Revenue 1 066 817 1 246 898

Expenses (979 279) (1 243 005)

Profit before tax of discontinued operations 87 538 3 893

Tax (12 970) (9 950)

Profit/(loss) after tax of discontinued operations 74 568 (6 057)

Pre-tax loss recognised on the remeasurement of assets of disposal groups

– (46 213)

Tax – 2 608

After-tax loss on the remeasurement of assets of disposal groups – (43 605)

Profit/(loss) for the year from discontinued operations 74 568 (49 662)

Lowveld and Natal branches 14 733 15 706

Tsunami 56 441 22 644

Capital Harvest 3 394 8 201

Citrifruit – (1 263)

Snacks & Redo’s – (12 387)

Seed – (61 636)

Deposita – (977)

Cotton – (1 918)

Farming – (18 032)

Profit/(loss) for the year from discontinued operations 74 568 (49 662)

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Yearended

30 June2010

R’000

Yearended

30 June2009

R’000

30 EARNINGS PER SHARE

Basic earnings per share is calculated by dividing the profit attributable to shareholders by the weighted average number of ordinary shares in issue during the year after taking the treasury shares and the share incentive trust shares into account.

Profit attributable to equityholders of the Company 304 655 233 073

Weighted average number of ordinary shares in issue (thousands) 321 721 320 721

Earnings per share (cents) 94,7 72,7

31 DILUTED EARNINGS PER SHARE

Diluted earnings per share reflect the potential dilution that would occur when all of the Group’s outstanding share incentive contracts were implemented. The number of shares outstanding is adjusted to show the potential dilution if employee share option contracts are implemented and are no longer reduced on consolidation of the AFGRI Limited Trust. No adjustments were made to reported earnings attributable to shareholders in the computation of diluted earnings per share.

Number of shares

2010 2009

Weighted average number of shares 321 721 320 721

Potential dilutive effect of outstanding share option contracts 33 073 25 350

Diluted weighted average number of shares 354 794 346 071

Diluted earnings per share (cents) 85,9 67,3

149


32 HEADLINE EARNINGS PER SHAREThe headline earnings per share has been calculated on profit of R252 764 million (2009: R238 495 million) and weighted average issued shares of 321 721 357 (2009: 320 720 839) at 30 June.

Profit beforeincome tax

Minorityinterest

Incometax Headline earnings

R’000 2010 2009

Profit per financial statements 541 244 (162 461) (74 128) 304 655 233 073

Financial Services

Capital 29 (8) (8) 13 3 120

Net loss on disposal of businesses and assets 29 (8) (8) 13 55

Net profit on disposal of investment – – – – (1 920)

Loss on discontinued operations – – – – 4 540

Impairment of assets – – – – 445

Agri ServicesLogistic services (631) 169 46 (416) 26 528

Net profit on disposal of business and assets (631) 169 46 (416) –


Impairment of assets – – – – 2 162

Producer services (73 593) 19 701 9 908 (43 984) (39 551)

Net profit on disposal of business and assets (85 203) 22 809 10 653 (51 741) (17 639)

Negative goodwill on acquisition of associate – – – – (23 062)

Impairment of assets 11 610 (3 108) (745) 7 757 1 150

Foods (443) 119 221 (103) 16 145

Net loss/(profit) on disposal of business and assets (443) 119 221 (103) 12 259

Impairment of assets – – – – 3 886

Other (10 560) 2 827 332 (7 401) (820)

Net profit on disposal of business and assets (10 586) 2 834 332 (7 420) (1 820)

Impairment of assets 26 (7) – 19 1 000

Group (85 198) 22 808 10 499 (51 891) 5 422

Net profit on disposal of business and assets (96 834) 25 923 11 244 (59 667) (7 145)

Net profit on disposal of investment – – – – (1 920)

Negative goodwill on acquisition of subsidiaries – – – – (23 062)


Impairment of assets 11 636 (3 115) (745) 7 776 8 643

Headline earnings 252 764 238 495

Headline earnings per share (cents) 78,6 74,4

Diluted headline earnings per share (cents) 71,2 68,9

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Year ended 30 June 2010 Year ended 30 June 2009

Beforetax

amount

Tax(expense)

benefit

Net oftax

amount

Beforetax

amount

Tax(expense)

benefit

Net of tax

amount

33 TAX EFFECTS RELATING TO EACH COMPONENT OF OTHER COMPREHENSIVE INCOME

Exchange differences on translating foreign operations 3 180 – 3 180 (52 605) – (52 605)

Cash flow hedges (16 409) – (16 409) 11 967 – 11 967

Other comprehensive income for the year (13 229) – (13 229) (40 638) – (40 638)

Yearended

30 June2010

R’000

Yearended

30 June2009

R’000

34 DIVIDENDS

Final of 16,70 cents per share for 2009 year 53 693 –

Special of 8,0 cents per share for 2008 period – 25 665

First interim of 24,15 cents per share for 2010 (2009: 19,7 cents per share) 78 480 63 242

132 173 88 907

35 NOTES TO THE CASH FLOW STATEMENT

35.1 Cash generated from operations


Adjusted for:

Depreciation 98 550 86 500

Impairment of property, plant and equipment 2 647 6 550

Amortisation of intangible assets 43 292 31 565

Impairment of intangible assets 32 22 601

Dividends from investments (40 980) (65 576)

Interest received (77 171) (106 568)

Finance cost 456 071 720 162

Net profit on disposal of property, plant and equipment (38 675) (32 263)

Profit on the sale of business (65 095) –

Pension fund surplus – (58 615)

Negative goodwill arising on acquisition of share of associate – (31 492)

Share of profit of associate (358) (1 250)

Adjustment for other non-cash items (19 382) (7 150)

Working capital changes:

Inventories (10 521) (12 742)

Biological assets (4 292) 8 140

Decrease/(increase) in collateral guarantee deposits1 175 490 (43 832)

Trade, other receivables and financial assets 922 437 (701 827)

Trade, other payables and financial liabilities (1 049 647) 1 241 552

933 641 1 497 9831 The comparative has been reclassified from investing activities.

151


Yearended

30 June2010

R’000

Yearended

30 June2009

R’000

35 NOTES TO THE CASH FLOW STATEMENT (continued)

35.2 Dividends paid

Prior year final dividend paid (53 693) (25 665)

Interim dividends paid (78 480) (63 242)

(132 173) (88 907)

35.3 Income tax paidUnpaid amounts beginning of year 14 810 55 287Normal income tax charges for year (59 765) (80 077)Secondary tax on companies charged for year (249) (13 627)Capital gains tax charged for year – –Unpaid amounts at end of year (25 760) (14 810)

(70 964) (53 227)

35.4 Purchase of property, plant and equipment Land (10 746) –Buildings and improvements (89 173) (50 449)Machinery and equipment (144 411) (293 854)Vehicles (37 865) (40 144)

(282 195) (384 447)

35.5 Proceeds from disposal of property, plant and equipmentBook value 101 788 72 101Profit on disposal 38 675 32 263

140 463 104 364

35.6 Disposal of business – net of cash disposedProperty, plant and equipment 14 588 –Intangible assets 28 146 –Inventories 155 674 –Trade and other receivables 184 844 –Trade and other payables (268 215) –Assets held-for-sale 89 955 –Profit on disposal 65 095 –

Total proceeds on disposal 270 087 –Cash and cash equivalents – –

Net cash flow on acquisition 270 087 –

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36 MATURITY PROFILE OF FINANCIAL INSTRUMENTSThe maturities of financial assets are based on carrying amounts (excluding projected future interest cash inflows) at balance sheet date and have been disclosed to demonstrate the Group’s management of liquidity risk. The maturities of financial liabilities include both the contractual principle and interest cash outflows. The cash inflows associated with non-financial assets (inventory and biological assets) are not reflected in the table below.

The maturity profile of financial assets and liabilities is summarised as:

R’000 <90 days <1 year 1 – 4 years >4 years Total

30 June 2010Financial assetsFinancial receivables 375 6 639 38 977 157 307 203 298 Derivative financial instruments – hedge accounted (designated as hedges) 16 966 – – – 16 966 Derivative financial instruments – not hedge accounted (held for trading) 22 673 10 050 – – 32 723 Trade and other receivables 186 923 90 003 159 209 1 387 437 522 Trade receivables financed by banks 1 436 603 1 566 527 430 517 464 777 3 898 424 Cash and cash equivalents 896 488 – – – 896 488

2 560 028 1 673 219 628 703 623 471 5 485 421

Financial liabilitiesBorrowings– Interest-bearing loans 237 711 6 745 – 7 693 – Finance lease 1 076 50 340 181 920 21 665 255 001 Derivative financial instruments – hedge accounted (designated as hedges) 21 544 – – – 21 544Derivative financial instruments – not hedge accounted (held for trading) 43 671 6 814 – – 50 485Trade and other payables 1 593 216 76 254 – – 1 669 470 Call loans and bank overdrafts 206 515 – – – 206 515 Borrowings from banks to finance trade receivables 1 301 041 159 519 2 735 746 – 4 196 306

3 167 300 293 638 2 924 411 21 665 6 407 014

30 June 2009Financial assetsFinancial receivables 2 548 55 182 105 887 102 240 265 857Derivative financial instruments – hedge accounted (designated as hedges) 18 623 78 – – 18 701Derivative financial instruments – not hedge accounted (held for trading) 86 577 2 148 – – 88 725Trade and other receivables 47 252 104 135 188 549 21 671 361 607Trade receivables financed by banks 2 020 871 2 098 601 371 172 524 175 5 014 819Cash and cash equivalents 844 173 – – – 844 173

3 020 044 2 260 144 665 608 648 086 6 593 882

Financial liabilitiesBorrowings– Interest-bearing loans 240 720 101 872 23 845 126 677– Finance lease 1 771 6 641 19 549 860 28 821Derivative financial instruments – hedge accounted (designated as hedges) 8 422 4 023 – – 12 445Derivative financial instruments – not hedge accounted (held for trading) 92 288 (14 987) – – 77 301Trade and other payables 1 868 835 5 837 3 523 8 077 1 886 272Call loans and bank overdrafts 362 741 – – – 362 741Borrowings from banks to finance trade receivables 1 818 705 – 3 940 828 – 5 759 533

4 153 002 2 234 4 065 772 32 782 8 253 790

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37 SENSITIVITY ANALYSIS

The absence of proprietary commodity trading in the Group results in no exposure to commodity price risk.

The Group’s sensitivity to changes in foreign exchange rates is considered insignificant.

The Group is exposed to interest rate risk as it borrows funds at variable rates. The majority of this interest rate risk is hedged as the borrowings are related to variable rate advances. This provides a natural hedge and any residual risk relates to basis risk, as a portion of the borrowings is at JIBAR whilst the advances are at prime. The impact of this basis risk is reflected in the table below:

Impact of basis risk year-on-year analysis

Yearended

30 June2010

Decreasingrate cycle

Yearended

30 June 2009

Increasingrate cycle

Average facilities related to one month JIBAR (R’000) 521 197 778 336

Average one month JIBAR (%) 10,36 10,65

Average prime (%) 10,43 10,81

Benefit/(loss) due to basis risk (%) 0,07 0,16

Benefit/(loss) due to basis risk (R’000) 357 1 393

Interest rate risk also arises as the timing of the potential repricing of borrowings is mismatched with the repricing of advances. During the current financial year, given the market conditions, liquidity was at a premium and the Group’s borrowings were repriced. Due to the nature of the contractual terms with our clients, the repricing of advances could only be effected at the end of the season. The result of the mismatch in the timing of repricing was a reduction in profit of R5,3 million.

Further, an interest rate sensitivity was performed based on the average exposure to interest rates for the reporting period with the stipulated change in interest rates having taken place for the entire year. A 50 basis point change in interest rates would increase/decrease a net profit by R1 million (2009: decrease/increase by R1 million).

38 FAIR VALUE HIERARCHY DISCLOSURES38.1 Hierarchy of financial instruments carried at fair value

R’000 Level 1 Level 2 Level 3 Total

30 June 2010Financial assets as per balance sheetAvailable-for-sale financial assets – – 40 965 40 965Financial assets at fair value through profit and loss 11 013 – – 11 013Derivative financial instruments

– Forward purchase contracts – 31 316 – 31 316– Forward sale contracts – – – –– Options – – – –– Interest rate swaps – – – –– Foreign currency futures – 18 373 – 18 373

Total 11 013 49 689 40 965 101 667

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38 FAIR VALUE HIERARCHY DISCLOSURES (continued)

38.1 Hierarchy of financial instruments carried at fair value (continued)

Level 1 Level 2 Level 3 Total

Financial liabilities as per balance sheetDerivative financial instruments

– Forward purchase contracts – 34 516 – 34 516– Forward sale contracts – – – –– Options – – 7 000 7 000– Interest rate swaps – 4 181 – 4 181– Foreign currency futures – 26 332 – 26 332

Total – 65 029 7 000 72 029

38.2 Reconciliation of Level 3 financial assets carried at fair valueDerivative financial

instrumentsFinancial assets at fair value

through profit or lossAvailable-for-sale financial assets1

30 June2010

30 June2009

30 June2010

30 June2009

30 June2010

30 June2009

Fair value at the beginning of the year – – – – 40 973 36 498

Purchases – – – – – 4 475

Sales – – – – (8) –

Fair value at the end of the year – – – – 40 965 40 973

38.3 Reconciliation of Level 3 financial liabilities carried at fair value

Derivative financial instruments2

30 June2010

30 June2009

Fair value at the beginning of the year – –

Purchases 13 267 –

Total gain/(loss) recognised in the income statement (6 267) –

Fair value at the end of the year 7 000 –

1 Includes investments in non-public entities. The fair value is determined using appropriate valuation methodologies which, dependent on the nature of the investment, may include discounted cash flow analysis and enterprise value comparisons with similar companies. For each investment the relevant methodology is applied consistently over time.

2 Option contract relates to the transaction with Tsunami minorities during the year. Fair value determined using the present value of the amount necessary to settle the liability.

155


Yearended

30 June2010

R’000

Yearended

30 June2009

R’000

39 COMMITMENTS

39.1 Capital commitments

Contracted for additions to property, plant and equipment and intangibles 54 458 47 642

Authorised but not yet contracted for additions to property, plant and equipment 8 479 30 897

62 937 78 539

The abovementioned capital commitments will be financed by net cash flows from operations and the utilisation of cash and borrowings within the accepted gearing ratio of the Group.

The Group’s proportionate share of the capital expenditure commitments of joint ventures included in the above commitments is Rnil (2009: Rnil).

39.2 Operating lease commitments

39.2.1 The future minimum lease payments under non-cancellable operating vehicle, equipment and building leases are as follows:

Not later than one year 15 895 3 291

Later than one year and not later than five years 99 020 4 226

Later than five years 132 759 552

247 674 8 069

39.2.2 General terms of operating leases

Operating leases consist of leases for buildings, plant and machinery, motor vehicles and equipment. Most of the operating leases have the option to renew and extend the period of the lease.

For some of the plant and machinery and equipment leases, the leased asset can be purchased at a nominal amount at the end of the lease.

40 GROUP BORROWING FACILITIES

40.1 Borrowing facilities

General banking facilities 787 930 1 037 107

Guarantee facilities 19 539 31 030

Term facilities, including foreign facilities 1 078 307 447 063

1 885 776 1 515 200

In terms of the Company’s articles of association, the Group borrowings are unlimited, but certain limits on borrowing levels have been fixed by the Board of Directors.

40.2 Unutilised borrowing facilities

Total facilities 1 885 776 1 515 200

Utilisation – general banking (310 930) (220 792)

– short-term borrowings (46 679) (258 842)

– guarantees (19 539) (19 030)

1 508 628 1 016 536

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Year ended

30 June2010

R’000

Yearended

30 June2009

R’000

41 AGENCY AGREEMENTS

The following financial assets are administered on behalf of third parties

41.1 Debtors

The Group manages agri debtors on behalf of the following third parties:

Wesbank 1 181 422 1 235 245

1 181 422 1 235 245

Management fees are paid by third parties and the Group is liable for bad debts up to a maximum of between 10% and 15% of the value of debtors administered.

41.2 Commodities

The following value of commodities were handled, stored and managed on behalf of third parties:

Rand Merchant Bank 665 699 868 106

Other commodity users 669 632 1 544 112

Producers 1 592 031 1 053 369

2 927 362 3 465 587

AFGRI receives a fee for the handling, grading, storing and administration of these commodities. AFGRI has contractual right of first refusal to purchase R559 million (2009: R617 million) of the commodities at market value.

42 RETIREMENT BENEFITS

The Group provides access to defined contribution retirement funds as a benefit to all permanent employees principally through the AFGRI Staff Pension Fund, the AFGRI Retirement Fund and the AFGRI Provident Fund. These funds are governed by the Pension Funds Act of 1956.

The funds are administered by several service providers. The rules of the funds ensure that the assets of the funds always equal or exceed the liabilities and all death and disability benefits are fully reinsured.

In terms of legislation these funds are required to complete a surplus apportionment exercise. Both the AFGRI Staff Pension Fund and the AFGRI Retirement Fund received approval from the Financial Services Board for their Surplus Apportionment Schemes during the prior financial year. In terms of these schemes a proportion of the surplus in these funds was allocated to AFGRI. The total surplus so allocated amounted to R58,6 million at 30 June 2009.

The contributions to retirement funds in which AFGRI participates, are and will be charged against income as and when incurred.

157


Year ended

30 June2010

R’000

Yearended

30 June2009

R’000

43 GUARANTEES AND CONTINGENT LIABILITY

43.1 Guarantees 19 539 19 030

Performance guarantees given to banks and other third parties

43.2 Contingent liability 13 800 –

43.2.1 Competition Commission – –

In March 2009 the Competition Commission initiated an investigation into the common use of a grain storage tariff by grain storage companies, the "Safex" rate. AFGRI is cooperating fully with the Competition Commission in their ongoing investigation. Whilst AFGRI denies any intentional contravention of the Competition Act, there remains the possibility that the Competition Tribunal could impose a fine of not more than 10% of the affected business (Logistics division) turnover.

43.2.2 Subordinate loans 13 800 –

Included in trade receivables financed by banks is a loan to an associate Deposita Systems (Pty) Ltd of R47,5 million. This loan has been subordinated in favour of other creditors to the extent of R13,8 million. The loan bears interest at the prime lending rate and is repayable in monthly instalments, maturing in 2014. The loan has no collateral. The loan has not been impaired and its recoverability is considered certain based on the cash flow projections of Deposita Systems (Pty) Ltd.

44 RELATED-PARTY TRANSACTIONS

The salary costs of key personnel as identified by management are as follows:

– Cost to company 91 254 50 289

– Share-based payments 8 583 7 248

During the ordinary course of business the Company has advanced loans to directors and managers of the Group on an arm’s-length basis. At 30 June the amounts owing to AFGRI totalled R80,4 million.

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Appendix AInterest in unlisted subsidiaries

Issued capitalAmounts owed by/(to)

subsidiariesInterest

in subsidiaries

Nature of business

Country ofincorporation

2010R’000

2009R’000

2010R’000

2009R’000

2010%

2009%

Subsidiaries of AFGRI LimitedAFGRI Operations Ltd H South Africa 6 000 6 000 733 818 977 229 100 100OTK Investments House (Pty) Ltd W South Africa – – (15 216) (7 462) 100 100Subsidiaries of AFGRI Operations LtdACIB Administrators (Pty) Ltd A South Africa – – – – 76 76AFGRI Animal Feeds Eastern Cape (Pty) Ltd B South Africa – – 72 185 13 601 100 100AFGRI Animal Feeds Western Cape (Pty) Ltd B South Africa – – 43 748 42 807 100 100AFGRI Broking (Pty) Ltd J South Africa 1 1 (25 620) (10 625) 100 100AFGRI Corporation Ltd E Zambia 79# 79# 263 485 233 208 76 76AFGRI DHP Investment Holdings (Pty) Ltd L South Africa 1 1 12 700 12 700 76 76AFGRI Equipment (Pty) Ltd F South Africa – – 125 917 170 361 100 100AFGRI Insurance Brokers (Pty) Ltd C South Africa – – (12 365) 4 623 76 76AFGRI Lab (Pty) Ltd K South Africa – – – – 100 100AFGRI Limited Trust G South Africa – – 98 663 121 817 100 100AFGRI Tobacco (Pty) Ltd I South Africa – – 166 (53 115) 100 100AFGRI Trading (Pty) Ltd J South Africa 500 500 (5 029) (546 020) 100 100AFGRI Western Cape (Pty) Ltd AA South Africa – 1 – (26) 100 100Basfour 711 (Pty) Ltd R South Africa – – – – 100 100Clark Cotton Zambia Ltd J Zambia 2 000# 2 000# – – 100 100Cotton Seed Processors (Pty) Ltd N South Africa – 500 – – 100 100Daybreak Farms (Pty) Ltd O South Africa – – 224 886 249 413 100 100Daybreak Properties Springs (Pty) Ltd P South Africa – – – – 100 100Daybreak Superior Marketing (Pty) Ltd Q South Africa – – – – 100 100Deposita Rentals (Pty) Ltd D South Africa – – – 5 024 100 100Dormanko Dertig (Pty) Ltd R South Africa 1 – 797 1 344 100 100Farm City Holdings (Pty) Ltd P South Africa – – 50 1 043 100 100Golf Car World (Pty) Ltd S South Africa – – – – 100 100Gro Capital Financial Services (Pty) Ltd AA South Africa – – 665 776 1 463 422 100 100Labworld (Pty) Ltd T South Africa – 1 – (8 713) 100 100Laeveld Korporatiewe Beleggings Ltd E South Africa 14 757 14 757 (149 804) (149 884) 100 100Main Street 301 (Pty) Ltd U South Africa – – – (3 496) 100 100Midway Chix (Pty) Ltd V South Africa – – 5 821 – 100 65Mila Nutri (Pty) Ltd D South Africa 1 1 (1) (1) 100 100Natalse Landboukoöperasie E South Africa 20 20 (130 517) (137 257) 100 100Nedan (Pty) Ltd M South Africa 10 10 50 490 8 417 100 100Nedan Oil Mills (Pty) Ltd M South Africa – 40 – – 100 100Nolko (Pty) Ltd B South Africa – 38 – (29 389) 100 100Partmaster (Pty) Ltd R South Africa 14 735 14 735 21 383 47 295 100 100RNV Operational Risk Management (Pty) Ltd AB South Africa 1 – (5 583) (3 517) 100 100Superior Foods (Pty) Ltd Q South Africa – – – – 100 100T & H Walton Stores (Pty) Ltd X Australia 10 200* 10 200* 42 844 37 034 100 100Techniland (Pty) Ltd Y South Africa – – – – 100 100Telsek Investments 1001 (Pty) Ltd P South Africa – – – – 100 100Tsunami Crop Care (Pty) Ltd Z South Africa 1 1 25 941 108 485 82,5 82,5Tsunami Plant Protection (Pty) Ltd Z South Africa 1 1 – – 82,5 82,5Waltmerwe Park (Pty) Ltd P South Africa – – – – 100 65

The Group’s consolidated interest in the audited results of the subsidiaries is included in the Group’s results. The year-end of the companies is June.

# Zambian Kwacha* Australian Dollar

ABCDEFGH

IJKLM

– – – – – – – – – – – – –

Insurance broker administrationManufacturing of animal feedsInsurance brokerageRental of cash collection equipmentAgricultural services Retail sales and servicing of mechanised agricultural equipmentShare incentive trustAgricultural services and financial services, further processing of agricultural products, holding companyBuyer and primary processor of tobaccoCommodity procurement and marketingProcurement and distribution of veterinary productsInsurance investment holding companyProcessing and marketing of cotton, soya and sunflower products

NO P QRSTUVWXYZAAAB

– – – – – – – – – – – – – – –

Processing and marketing of cotton seed oil Broiler farm and abattoir Property holding company Broiler marketingProcurement and distribution of spare partsAssembly and distribution of golf carts and spare partsScientific services to farmersFinancial investment companyChicken hatcheryHolding vehicle of treasury sharesJohn Deere agency in AustraliaTechnical services via satellite photographyManufacture and marketing of agricultural chemical productsFinancial services providerCollateral management services

159


Appendix BInterest in unlisted joint ventures

Year-end

Year ended

30 June2010

%

Yearended

30 June2009

%

The joint ventures are:Afgritech Limited August 50 50

New Amalfi Silo’s (Pty) Ltd February 50 50

Profert Central (Pty) Ltd February 51 51

The Group’s proportionate interest in assets and liabilities of the above joint ventures, which is included in the figures in the consolidated financial statements, is as follows:

R’000 R’000

Balance sheet informationNon-current assets 3 078 4 099

Current assets 4 094 2 367

Total assets 7 172 6 466

Non-current interest-bearing liabilities (1 273) (1 299)

Non-current non-interest-bearing liabilities (5 002) (5 002)

Current non-interest-bearing liabilities (116) (294)

Capital and reserves 781 (129)

The Group’s proportionate interest in the revenue and expenses of the joint ventures is as follows:

Income statement informationRevenue 3 750 2 639

Profit/(loss) before income tax 1 512 (1)

Income tax expense 165 92

Profit for the period 1 677 91

The Group’s proportionate interest in the cash flows of the joint ventures is as follows:

Cash flow informationCash generated from operating activities 273 135

Cash generated from investing activities 1 021 –

Cash (utilised in)/generated from financing activities (26) 30

Increase in cash and cash equivalents 1 268 165

Movement in cash and cash equivalentsBeginning of the year 1 949 1 768

Increase 1 268 181

Balance end of year 3 217 1 949

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Appendix CInterest in unlisted associates

Appendix DAvailable-for-sale financial assets

Number of shares

Interest in associates Shares Loans

Natureof

business

2010 20092010

%2009

%2010

R’0002009

R’0002010

R’0002009

R’000

Deposita Systems (Pty) Ltd* 46 46 46,0 46,0 – – – – A

Electronic Silo Certificates (Pty) Ltd 425 000 425 000 42,5 42,5 – – 3 050 3 050 B

Ronin Grain Management (Pty) Ltd 10 000 10 000 49,0 49,0 4 162 3 804 808 1 078 C

Cropmasters (Zambia) Ltd 1 250 000 1 250 000 25,0 25,0 329 319 375 1 711 D

Limpopo Tobacco Processors Ltd 9 000 9 000 45,0 45,0 31 492 31 492 – – E

Book value 35 983 35 615 4 233 5 839

Fair value 35 983 35 615 4 233 5 839

*Included with non-current assets classified as held-for-sale.

Nature of businessA Cash managementB Administration of silo certificatesC Silo information managementD Contract land preparation and harvestingE Tobacco processing facilities

Financial year-end of associatesThe year-end of all associates is February, except Cropmasters (Zambia) Ltd which has a June year-end.

Country of incorporationAll associates are incorporated and operate in South Africa, except from Cropmasters which is incorporated in Zambia.

Number of shares

Interest in unlisted investments Shares Loans

2010 2009 2010%

2009%

2010R’000

2009R’000

2010R’000

2009R’000

Cape Fruit Processors (Pty) Ltd 12 270 12 270 12 12 41 079 41 079 – –

Other 667 675 4 168 9 059

Total book value 41 746 41 754 4 168 9 059

Impairment (781) (781) (2 893) (2 478)

Fair value 40 965 40 973 1 275 6 581

Separate Companyannual financial statements

162 Company balance sheet

163 Company statement of comprehensive income

164 Company statement of changes in equity

164 Company cash flow statement

165 Notes to the Company annual financial statements

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Company balance sheetat 30 June 2010

Note

30 June2010

R’000

30 June2009

R’000

ASSETS

Non-current assets 951 757 678 930

Financial receivables 2 362 047 100 000

Interest in subsidiary 3 578 925 578 925

Deferred income tax asset 10 785 5

Current assets 86 240 312 825

Trade and other receivables 22 752 260 812

Cash and cash equivalents 63 488 52 013

Total assets 1 037 997 991 755

EQUITY AND LIABILITIES

Capital and reserves attributable to the Company’s equityholders 19 131 14 654

Share capital 4 4 4

Retained earnings 19 127 14 650

Current liabilities 1 018 866 977 101

Trade and other payables 6 9 412 8 458

Loan from AFGRI Operations Ltd 5 1 008 020 968 196

Current income tax liabilities 1 434 447

Total equity and liabilities 1 037 997 991 755

163


Company statement of comprehensive incomefor the year ended 30 June 2010

Note

Yearended

30 June2010

R’000

Yearended

30 June2009

R’000

Dividend income 7 137 657 121 523

Management fees 3 402 2 602

Interest received – investments 24 855 11 763

Total income 165 914 135 888

Operating expenses (12 570) (2 618)

Finance costs – (2 024)


Income tax expense 3 828 (20 902)

Profit for the year/total comprehensive income for the year 157 172 110 344

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Company statement of changes in equityfor the year ended 30 June 2010

Company cash flow statementfor the year ended 30 June 2010

Note

Year ended

30 June2010

R’000

Yearended

30 June2009

R’000

Operating activities

Cash (utilised in)/generated from operations 10.1 269 670 (108 493)

Finance cost – (2 024)

Interest received 24 855 11 763

Income tax paid 10.2 (5 965) (22 873)

Net cash (utilised in)/generated from operating activities 288 560 (121 627)

Investing activities

Financial receivables repaid (262 047) 25 000

Dividends from investments 137 657 121 523

Net cash (utilised in)/generated from investing activities (124 390) 146 523

Financing activities

Dividends on shares (152 695) (103 541)

Net cash utilised in financing activities (152 695) (103 541)

Net (decrease)/increase in cash and cash equivalents 11 475 (78 645)

Cash and cash equivalents at beginning of year 52 013 130 658

Cash and cash equivalents at end of year 63 488 52 013

Share capitalR’000

Retainedearnings

R’000

TotalequityR’000

Balance 30 June 2008 4 7 847 7 851

Comprehensive income for the year – 110 344 110 344

Dividends paid – (103 541) (103 541)

Balance 30 June 2009 4 14 650 14 654

Comprehensive income for the year – 157 172 157 172

Dividends paid – (152 695) (152 695)

Balance 30 June 2010 4 19 127 19 131

165


Notes to the Company annual financial statementsfor the year ended 30 June 2010

Yearended

30 June2010

R’000

Yearended

30 June2009

R’000

1 ACCOUNTING POLICIES

Refer to pages 87 to 107 for the various accounting policies of the Group, which are also applicable to the Company. Specific accounting policies applicable to the Company is:

1.1 Investment in subsidiaries

Subsidiaries are entities controlled by the parent. Control is the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities.

The financial statements recognise the interests in subsidiaries at cost.

2 FINANCIAL RECEIVABLES

2.1 Held to maturityHY Investments 2B (Pty) Ltd – preference shares – 125 000

The preference shares earned preference dividends at a nominal annual rate of 14,5% compounded annually and were redeemed on 30 November 2009. The preference shares acted as security for a loan by a subsidiary.

Nedbank preference shares 101 564 101 877

The preference shares earn preference dividends of 62,75% of the prime rate payable on 31 March and 30 September every year. The final redemption date is 24 February 2024. These preference shares have been ceded to the Land and Agricultural Development Bank in terms of the Agri Sizwe transaction. The dividends received of R6,9 million (2009: R0,8 million) are in turn placed with the Land and Agricultural Development Bank as additional security.

2.2 Loans and receivablesLoans to AFGRI Operations Ltd 283 235 –

The AFGRI Operations loan is denominated in SA Rands and is not secured. Interest is charged at a fixed rate of 12,4% per annum and payable annually in arrears. Capital is repayable on 31 November 2014.

The fair value was calculated at R285,2 million, using a discount rate of 10% per annum.

2.3 The above financial receivables, as well as trade and other receivables, were performing at the respective balance sheet dates, with the overall credit risk associated with these financial assets considered to be low. The carrying amounts of the financial receivables approximate their fair value (unless where disclosed otherwise).

Total financial receivables 384 799 226 877

Short-term portion (22 752) (126 877)

362 047 100 000

3 INTEREST IN SUBSIDIARY

3.1 Shares at cost – AFGRI Operations Ltd 299 961 328 (2009: 299 961 328) ordinary par value shares of 2 cents each 578 925 578 925

3.2 Directors’ valuation at fair value 2 463 897 1 822 292

3.3 Attributable interest in the total amount of profits and losses of subsidiary after income tax expense.– Profits 266 278 131 106

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Notes to the Company annual financial statements continued


Yearended

30 June2010

R’000

Yearended

30 June2009

R’000

4 SHARE CAPITAL Number Number

2010 2009

4.1 Authorised

Ordinary shares of 0,001 cents each 515 000 000 515 000 000 6 6

4.2 Issued

Beginning of year 373 794 000 373 794 000 4 4

End of year 373 794 000 373 794 000 4 4

5 BORROWINGS FROM AFGRI OPERATIONS LTD

The loan is unsecured and interest-free with no specific terms of repayment. 1 008 020 968 196

6 TRADE AND OTHER PAYABLES

Trade accounts payable 476 364

Other payables and accruals 8 936 8 094

9 412 8 458

7 DIVIDEND INCOME

Dividend income comprises the value of cash dividends received 137 657 121 523

8 DIVIDEND AND DISTRIBUTIONS

Final of 16,7 cents for 2009 year 62 424 –

Special of 8,0 cents per share for 2008 period – 29 904

First interim of 24,15 cents per share for 2010 period (2009: 19,7 cents per share) 90 271 73 637

152 695 103 541

9 DIRECTORS’ EMOLUMENTS

Directors’ remuneration paid by Company and subsidiaries for:

Non-executive

Services as directors 3 402 2 602

Executive

Managerial services (includes salary, performance remuneration and other benefits) 17 474 6 408

167


Yearended

30 June2010

R’000

Yearended

30 June2009

R’000

10 NOTES TO THE CASH FLOW STATEMENT

10.1 Cash generated from operations


Adjusted for:

Dividends received from investments (137 657) (121 523)

Interest paid – 2 024

Interest received (24 855) (11 763)

Working capital changes

Trade and other receivables 238 060 (146 582)

Trade and other payables (including loan from AFGRI Operations Ltd) 40 778 38 105

Cash (utilised in)/generated from operations 269 670 (108 493)

10.2 Income tax paid

Tax liability beginning of the year (447) (2 418)

Normal income tax charged for the period in the income statement (6 952) (3 299)

STC charged for the year – (17 603)

Tax liability end of the year 1 434 447

Tax paid during the year (5 965) (22 873)

11 RELATED-PARTY TRANSACTIONS

During the year the Company in the ordinary course of business, entered into various transactions with related parties. These transactions occurred on an arm’s length and commercial basis.

Associates and joint venturesDetails of investments in joint ventures and associates are disclosed in Appendix B and C.

SubsidiariesInvestments in subsidiaries are disclosed in Appendix A and on page 158.

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Notice of annual general meeting

NOTICE is hereby given that the 15th annual general meeting of shareholders in AFGRI Limited (AFGRI or the Company) will be held at AFGRI Limited, First Floor, AFGRI Building, 267 West Avenue, Centurion on Friday, 15 October 2010 at 10:00 to consider and, if deemed fit, pass with or without modification, the following resolutions and to transact such other matters as may be transacted at an annual general meeting:

ORDINARY BUSINESSOrdinary resolution number 1To receive and consider the Group’s annual financial statements for the year ended 30 June 2010.

Ordinary resolution number 2To confirm the interim cash dividend of 24,15 cents paid on 24 May 2010.

Ordinary resolution number 3To confirm the final cash dividend of 17,15 cents to be paid on 22 November 2010.

Ordinary resolution number 4To appoint one (1) director to the position of the undermentioned director who retires in terms of the Company’s articles of association, and who, being eligible, offers himself for re-election:4.1 JPR Mbau

His biography can be found on page 13 of this report.

Ordinary resolution number 5To appoint three (3) directors to the positions of the undermentioned directors who have been appointed by the Board from the date of the last annual general meeting:5.1 DD Barber 5.2 L de Beer 5.3 LM Koyana

The Board recommends the re-election of these directors.Biographies of all these directors can be found on page 13 of this report

Ordinary resolution number 6Election of Audit Committee membersThat shareholders elect, by way of a separate vote, the following independent non-executive directors as members of the Group Audit and Risk Management Committee: 6.1 DD Barber 6.2 L de Beer 6.3 LM Koyana

Biographies of all these directors can be found on page 13 of this report.

Ordinary resolution number 7To approve the remuneration payable to non-executive

directors as outlined hereunder:

7.1 Normal Board fees

Member Chairman Board

member

Retainer Rand Rand

Fee deducted

for not attending a meeting

Rand

Board chairman (retainer only) N/A 460 000 20 000

Board member 155 000 N/A 20 000

Audit and Risk Management Committee 80 000 230 000 12 500

Remuneration Committee 62 500 90 000 10 000

Credit Committee 62 500 100 000 10 000

Nomination Committee 45 000 45 000 10 000

7.2 Recommended ad hoc attendance fees to be paid

in respect of special and unscheduled meetings

Ad hoc/unscheduled meeting fee

Rand

Board chairman 20 000

Board member 20 000

Audit and Risk Management Committee 12 500

Remuneration Committee 10 000

Credit Committee 10 000

Nomination Committee 10 000

Ad hoc committees established from time to time 10 000

7.3 Recommended payment to members of the BEE

sub-committee

Members of the BEE sub-committee tasked with the

implementation of the Agri Sizwe transaction did not

as yet receive any fees for services rendered. It is

recommended that the two members of the BEE

sub-committee be paid a fee of R30 000 each in

respect of work performed on the transaction.

Ordinary resolution number 8To authorise the directors to consider and approve the

appointment of PricewaterhouseCoopers Inc. as the

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terms of this general authority, the maximum premium at which such ordinary shares may be acquired will be 10% (ten percent) above the weighted average of the market price at which such ordinary shares are traded on the JSE, as determined over the 5 (five) trading days immediately preceding the date of the repurchase of such ordinary shares by the Company;

• the acquisitions of ordinary shares in the aggregate in any one financial year do not exceed 20% (twenty percent) of the Company’s issued ordinary share capital as at the beginning of the financial year;

• upon entering the market to proceed with the repurchase, the Company’s sponsor has confirmed the adequacy of the Company’s working capital in terms of section 2.12 of the JSE Listings Requirements for the purposes of undertaking a repurchase of shares in writing to the JSE;

• after such repurchase the Company will still comply with paragraphs 3.37 to 3.41 of the JSE Listings Requirements concerning shareholder spread requirements;

• the Company or its subsidiary is not repurchasing securities during a prohibited period as defined in the JSE Listings Requirements unless they have in place a repurchase programme where the dates and quantities of securities to be traded during the relevant period are fixed (not subject to any variation) and full details of the programme have been disclosed in an announcement over SENS prior to the commencement of the prohibited period;

• when the Company has cumulatively repurchased 3% of the initial number of the relevant class of securities, and for each 3% in aggregate of the initial number of that class acquired thereafter, an announcement will be made; and

• the Company only appoints one agent to effect any repurchase(s) on its behalf.”

The directors undertake that they will not effect a general repurchase of shares unless the following can be met:• the Company and the Group are in a position to repay

their debt in the ordinary course of business for the next 12 months after the date of the general repurchase;

• the assets of the Company and the Group, being fairly valued in accordance with the accounting policies used in the latest audited consolidated annual financial statements, are in excess of the liabilities of the Company and the Group for the next 12 months after the date of the general repurchase;

• the ordinary capital and reserves of the Company and the Group are adequate for ordinary business

auditors of the Company (with JL Roos being the individual designated auditor) for the 2011 financial year.

Ordinary resolution number 9Adoption of the AFGRI Executive Share Award Scheme“RESOLVED THAT the deed embodying the AFGRI Executive Share Award Scheme, a copy of which has been signed by the chairman for identification purposes and tabled at the general meeting convened to consider, inter alia this resolution, be and is hereby adopted”

Ordinary resolution number 10Placement of shares under control of directors“RESOLVED THAT so many of the total authorised but unissued share capital of the Company as, when issued, will not exceed 10% of the total issued ordinary shares in the capital of the Company be and are hereby placed under the control of the directors of the Company, who are hereby authorised, as a specific authority, to allot and issue such shares in accordance with the terms and conditions of the AFGRI Executive Share Award Scheme and the existing AFGRI Share Incentive Scheme, which was previously adopted by the shareholders of the Company.”

Explanatory note on ordinary resolutions numbered 9 and 10These ordinary resolutions relate to the AFGRI Executive Share Award Scheme. The salient features of such scheme are contained in annexure A to this notice.

GENERAL AUTHORITY TO REPURCHASE SHARES Special resolution number 1“RESOLVED THAT the Board of Directors of the Company be authorised by way of a renewable general authority contemplated in sections 85 to 89 of the Act to facilitate the acquisition by the Company or a subsidiary of the Company of the issued ordinary shares of the Company, upon such terms and conditions and in such amounts as the directors may from time to time determine (the repurchase), but subject to the articles of association of the Company, the provisions of the Act and the JSE Listings Requirements, when applicable, and provided that:• the repurchase of securities will be effected through

the order book operated by the JSE Limited (the JSE) trading system and done without any prior understanding or arrangement between the Company and the counterparty (reported trades are prohibited);

• this general authority shall only be valid until the Company’s next annual general meeting, provided that it shall not extend beyond 15 (fifteen) months from the date of passing of this special resolution;

• in determining the price at which the Company’s ordinary shares are acquired by the Company in

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contains all information required by law and the JSE Listings Requirements.

MATERIAL CHANGEOther than the facts and developments reported on in the annual report, there have been no material changes in the financial or trading position of the Company and its subsidiaries since the date of signature of the audit report and the date of this notice.

Shares held by the share trust or scheme will not have their votes taken account of for the above special resolution number 1.

VOTING AND PROXIES “Shareholders who have not dematerialised their shares or who have dematerialised their shares with ‘own name’ registration are entitled to attend and vote at the meeting and are entitled to appoint a proxy or proxies to attend, speak and vote in their stead. The person so appointed need not be a shareholder.

Proxy forms must be forwarded to reach the Company’s transfer secretaries, Computershare Investor Services (Pty) Limited, 70 Marshall Street, Johannesburg, 2001, PO Box 61051, Marshalltown, 2107, so as to reach them by no later than 10:00 on Wednesday, 13 October 2010. Proxy forms must only be completed by those shareholders who have not dematerialised their shares or who have dematerialised their shares with ‘own name’ registration.”

On a show of hands, every shareholder of the Company present in person or represented by proxy shall have one vote only. On a poll, every shareholder of the Company shall have one vote for every share held in the Company by such shareholder.

Shareholders who have dematerialised their shares, other than those shareholders who have dematerialised their shares with “own name” registration, should contact their CSDP or broker in the manner and time stipulated in their agreement:• to furnish them with their voting instructions, and• in the event that they wish to attend the meeting, to

obtain the necessary authority to do so.

By order of the Board of the Company

N van Wyk Group Company Secretary

Centurion31 August 2010

purposes for the next 12 months after the date of the general repurchase; and

• the available working capital of the Company and the Group is adequate for ordinary business purposes for the next 12 months after the date of the general repurchase.

REASON AND EFFECTThe reason and effect for this special resolution is to grant the Company and/or its subsidiary a general authority to acquire its own issued shares, which general authority shall be valid until the earlier of the next annual general meeting of the Company or its variation or revocation of such general authority by special resolution by any subsequent general meeting of the Company, provided that it does not extend beyond 15 (fifteen) months from the date of this annual general meeting.

STATEMENT OF THE BOARD’S INTENTION 11.26(c) The directors of the Company have no specific intention to effect the provisions of special resolution number 1 but will, however, continually review the Company’s position having regard to prevailing circumstances and market conditions in considering whether to effect the provisions of special resolution number 1.

The JSE Listings Requirements require the following disclosures, some of which are elsewhere in the annual report of which this notice forms part as set out below:Directors and management Pages 12 to 15Major shareholders of the Company Page 73Directors’ interests in securities Page 85 Share capital of the Company Pages 138 and 166

LITIGATION STATEMENTIn terms of section 11.26 of the Listings Requirements of the JSE, the directors, whose names are given on pages 12 to 15 of the annual report of which this notice forms part, are not aware of any legal or arbitration proceedings, including proceedings that are pending or threatened, that may have or have had in the recent past, being at least the previous 12 months, a material effect on the Group’s financial position.

DIRECTORS’ RESPONSIBILITY STATEMENTThe directors, whose names are given on pages 12 to 15 of the integrated annual report, collectively and individually accept full responsibility for the accuracy of the information pertaining to special resolution 1 and certify that to the best of their knowledge and belief there are no facts that have been omitted which would make any statement false or misleading, and that all reasonable enquiries to ascertain such facts have been made and that special resolution 1

Notice of annual general meeting continued

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Annexure ASalient information of the AFGRI Group Executive Share Award Scheme

budgeted incentive targets that are approved by the Board. A sliding scale of increasing bonuses (based on fixed maximum percentages of each participant's cost to company), if set percentages of incentive targets are achieved, has been developed;

2.2.2 the participant will receive a percentage of the amount of the notional pretax bonus, as determined by the Board, in cash, after deduction of any relevant tax;

2.2.3 the balance of the notional pretax bonus after deduction of the cash portion will be used to calculate the number of ordinary shares in the share capital of the Company (shares) subject to an individual award by dividing the balance of the notional pretax bonus of the participant by the 30-day volume weighted average price of a share on the JSE prior to the award date;

2.2.4 an award may be made subject to conditions, including performance conditions, as determined by the Board in its sole discretion; and

2.2.5 shares in respect of which an award is made are required to be released on the date specified in an award letter or on such other date as may be specified by the trustees (release date).

2.3 No consideration is payable for the grant of an award.

2.4 The trustees are entitled for purposes of the scheme to subscribe for or purchase through the market, such number of shares at such price as may be agreed from time to time by the trustees and the Board, to the extent required to satisfy the trust's obligations in terms of the scheme.

2.5 As security for each participant's obligation to the trust and/or the employer company, each participant is required to cede its right, title and interest in and to the shares to the trust and the employer company in securitatem debiti.

1 PURPOSE AND PARTICIPANTS 1.1 Having conducted a review of both the

short-term and long-term incentive plans for

senior employees and management, AFGRI

Limited (AFGRI or the Company) intends to

introduce a new cash and share award scheme

for its employees known as "the AFGRI Group

Executive Share Award Scheme” (the scheme).

1.2 The purpose of the scheme is to increase

employee and shareholder alignment through

employee share ownership, to retain key talent

and to incentivise participants to achieve

challenging performance targets.

1.3 Senior employees and management (including

executive directors) will be eligible to

participate in the scheme.

1.4 The scheme will replace the existing AFGRI

Incentive Scheme, a share option scheme,

which will be phased out according to its

terms.

2 GRANT OF AWARDS 2.1 In terms of the scheme, any member of the

AFGRI Group of companies that is the

employer of a particular participant (employer

company) may propose to the Board of AFGRI

(or the Remuneration Committee of the Board)

(Board), the names of eligible employees in the

AFGRI Group of companies (eligible employees)

that it believes should become participants in

the scheme and the extent to which they

should participate in the scheme. The trustees

for the time being (trustees) of the AFGRI Group

Executive Share Award Trust (trust), if so

directed by the Board (based on the proposals

of the employer company) are required to

grant awards in accordance with the rules of

the scheme to any eligible employee.

2.2 An award to an eligible employee (participant)

will be subject to the following terms and

conditions (award):

2.2.1 the participant will receive a notional

pretax bonus, calculated as a

percentage of such participant's total

cost to company. The bonus is limited

to such amount as may be determined

by the Board from time to time and

dependent on the achievement of

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Annexure A continued

Salient information of the AFGRI Group Executive Share Award Scheme (continued)

3 PERFORMANCE CONDITIONS

Performance conditions will apply to 50% of the

shares awarded to each participant. The Board will

ensure that the performance conditions are

sufficiently demanding. The performance conditions

will be based on the increase in earnings, growth or

share price of the Company. The performance

conditions will be set upfront when incentive targets

are set. The performance conditions will be tested

annually.

4 RELEASE OF SHARES

4.1 Shares subject to an award are released to

participants as follows:

4.1.1 50% of the shares subject to an award

are not subject to any performance

conditions (unrestricted shares) and

are released as follows:

4.1.1.1 25% on the first anniversary

of the award date;

4.1.1.2 a further 25% on the second

anniversary of the award

date;

4.1.1.3 a further 25% on the third

anniversary of the award

date; and

4.1.1.4 the remaining balance of

unrestricted shares on the

fourth anniversary of the

award date.

4.2 the remaining 50% of the shares subject to an

award are subject to performance conditions

determined by the Board on the award date

(restricted shares) and these are released

subject to the following:

4.2.1 a maximum of 25% of the restricted

shares on each anniversary of the

award date, provided the performance

conditions applying to such tranche of

restricted shares are met;

4.2.2 should the performance condition not

be met, such tranche of restricted

shares is not released but remains

restricted until the following

anniversary date (rolled over restricted

shares);

4.2.3 on the following anniversary date, the

performance conditions applying to

the rolled over restricted shares are

again measured. Should the

performance conditions be met, the

rolled over restricted shares are

released on such anniversary date; or

4.2.4 should the performance conditions not

be met, the rolled over restricted

shares shall irrevocably be forfeited.

5 TERMINATION OF EMPLOYMENT If a participant ceases to be employed by the AFGRI

Group of companies by reason of:

5.1 injury, disability, ill health, retirement on or after

normal retirement age or by reason of

dismissal for operational reasons or

retrenchment, the trustees shall release to the

participant all the unreleased shares;

5.2 his death, the trustees shall release to his

executor, all the unreleased shares; or

5.3 his resignation or dismissal, all the unreleased

shares on date of resignation or dismissal shall

be forfeited, unless the Board determines

otherwise.

6 TIMING OF AWARDS It is intended that awards will normally only be

granted once in each financial year of the Company,

at the time of the bonus awards, normally following

the announcement of the Company’s annual results.

7 SHAREHOLDERS’ RIGHTS Shares awarded to a participant are held in such

participant's name in a broker's account and enjoy

the same rights as other shares in issue, ranking pari

passu with such shares, including the right to all

dividends in respect of the shares. The voting rights in

respect of the shares will however remain vested

with the trustees until the shares are released. Shares

upon release to participants in terms of the scheme

will rank pari passu in all respects with other shares

of the same class then in issue.

8 BENEFITS NOT TRANSFERABLE Awards granted under the scheme are personal to

the participant and may not be transferred (except to

a family trust or on death), unless the Board

determines otherwise.

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11.1.3 the fixed maximum number of shares

which may be acquired by one

participant;

11.1.4 the allocation price for the purchase of

any shares by the trust and the basis

for determining that allocation price;

11.1.5 the voting, dividend, transfer and other

rights of participants in relation to

shares released to them;

11.1.6 the rights of participants who leave the

employment of the AFGRI Group of

companies;

11.1.7 the treatment of a participant as a

result of mergers, takeovers or other

relevant corporate actions; and

11.1.8 any amendment of the clause of the

trust deed imposing these restrictions.

11.2 In the event of any increase or variation of the

share capital of the Company as a result of any

conversion, redemption, consolidation,

subdivision and/or rights or capitalisation issue

of shares, such adjustments may be made to

the rights of participants as may be determined

by the auditors of the Company as to be fair

and reasonable (such determination to be

confirmed to the Board in writing); provided

that any adjustments should give a participant

the entitlement to the same proportion of the

equity capital as the proportion to which he/

she was previously entitled.

12 EXCHANGE CONTROL

Employees who are not residents of the Common

Monetary Area, or who are emigrants from the

Common Monetary Area, shall only be entitled to

participate in the scheme to the extent permitted by

all applicable exchange control regulations. Without

derogating from the aforegoing, employees who are

not residents of the Common Monetary Area, or who

are emigrants from the Common Monetary Area, shall

only be entitled to participate in the scheme if their

participation is approved by the Exchange Control

Department of the South African Reserve Bank.

9 NUMBER OF SHARES MADE AVAILABLE UNDER THE SCHEME

Unless the shareholders by ordinary resolution

(requiring a 75% majority of the votes cast in favour of

such resolution) agree otherwise:

9.1 The aggregate number of shares that may be

acquired by all participants under the scheme,

together with any shares which may be

acquired by such participants under any other

incentive schemes or plans operated by the

Company (other schemes), shall not exceed

37 379 400 shares;

9.2 The aggregate number of shares which may be

acquired by any one participant under the

scheme together with shares acquired by such

participant in terms of any other schemes or

plans operated by the Company, shall not

exceed 868 970 shares; and

9.3 The number of shares referred to in 9.1 and

9.2, may be increased or reduced in direct

proportion to any increase or reduction of the

shares in the Company's issued share capital

on any conversion, redemption, consolidation,

subdivision and/or rights or capitalisation issue

of shares.

10 SHARE TRUST A share trust will be established to administer the

scheme (the AFGRI Group Executive Share Award

Trust or the trust). Executive directors of the Company

may not be appointed as trustees. Trustees may not

be participants of the scheme. The Board shall be

entitled to appoint and remove the trustees. The first

trustees are Mr David Barber, Mr Lwazi Koyana and

Ms Linda de Beer (trustees).

11 GENERAL PROVISIONS RELATING TO THE SCHEME

11.1 The Board and the trustees may not amend

any of the following provisions of the scheme,

without the prior approval of the JSE, provided

that the amendment is also sanctioned by the

Company in general meeting by an ordinary

resolution (requiring a 75% majority of the

votes cast), namely:

11.1.1 the definition of “eligible employee”;

11.1.2 the total number of shares which may

be acquired by all participants for

purposes of the scheme;

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Annexure A continued

Salient information of the AFGRI Group Executive Share Award Scheme (continued)

14 OPINION AND RECOMMENDATION The Board has considered the scheme and believes

that it is in the best interests of the Company and its

shareholders. The Board accordingly recommends

that shareholders vote in favour of the proposed

ordinary resolutions necessary to adopt and

implement the scheme.

15 DOCUMENTS AVAILABLE FOR INSPECTION A copy of the deed constituting the AFGRI Group

Executive Share Award Trust will be available for

inspection during normal working hours at the

registered office of the Company from 23 September

2010 until the date of the annual general meeting

referred to in paragraph 16.

16 GENERAL MEETING The Board has convened the annual general meeting

of the Company to be held at AFGRI Limited, First

Floor, AFGRI Building, 267 West Avenue, Centurion on

Friday, 15 October 2010 at 10:00 to inter alia consider

and, if deemed fit, passing with or without

modification, the ordinary resolutions necessary to

adopt and implement the scheme. Shareholders are

referred to the notice of annual general meeting on

pages 168 to 170 of this report.

13 TAKEOVER, RECONSTRUCTION AND WINDING UP OF THE COMPANY

If:

13.1 the Company undergoes a change of control

as a result of any person making a general

offer to acquire shares or having obtained

control, makes such an offer; or

13.2 any person becomes bound or entitled to

acquire shares of minorities under section

440K of the Act, for so long as the Companies

Act, 1973 remains in force or under

section 124 of the Act, once the Companies

Act, 2008 comes into force; or

13.3 under section 311 of the Act, for so long as the

Companies Act, 1973 remains in force or under

section 114 of the Act, once the Companies

Act, 2008 comes into force, the court sanctions

a compromise or scheme of arrangement of

the Company; or

13.4 the Company passes a resolution for its

voluntary winding up; or

13.5 an order is made for compulsory winding up of

the Company, and the participant ceases to be

employed by the Company for any reasons

whatsoever, within a period of 12 months of

the date of such event, the Board shall release

all unreleased shares to the participant on the

date of such termination of employment. After

expiry of such 12 month period, any

unreleased shares available for release under

an award, shall be dealt with on the basis set

out in 5.

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Only for use by shareholders who have not dematerialised their shares or shareholders who have dematerialised their shares with “own name” registration. All other dematerialised shareholders must contact their CSDP or broker to make the relevant arrangements concerning voting and/or attendance at the meeting.

I/We (block letters)

(Name of shareholder)

of (address)

being a member/members of the Company, holding number of shares, do hereby appoint

(name of proxy)

of (address)

or failing him, the chairman of the meeting, as my/our proxy to represent me/us at the annual general meeting of the Company to be held on Friday, 15 October 2010 at AFGRI Limited, 267 West Avenue, Centurion, 0046, at 10:00, or at any adjournment thereof, to speak thereon and to vote as follows:

In favour of resolution

Against resolution

Abstain from voting

1. To receive and approve the annual financial statements for the year ended 30 June 2010

2. To confirm the interim cash dividend of 24,15 cents per share3. To confirm the final cash dividend of 17,15 cents per share4. To appoint one (1) director to the position of the undermentioned director who

retires in terms of the Company’s articles of association, and who, being eligible, offers himself for re-election:4.1 JPR Mbau

5. To appoint three (3) directors to the positions of the undermentioned directors who have been appointed by the Board from the date of the last annual general meeting:5.1 DD Barber5.2 L de Beer5.3 LM Koyana

6. To elect, by way of a separate vote, the following independent non-executive directors as members of the Group Audit and Risk Management Committee: 6.1 L de Beer6.2 DD Barber6.3 LM Koyana

7. To approve the remuneration payable to non-executive directors:7.1 To approve the normal Board fees for non-executive directors7.2 To approve fees in respect of ad hoc and unscheduled meetings7.3 To approve the suggested payment to members of the BEE sub-

committee8. To appoint PricewaterhouseCoopers Inc. as auditors for the 2010 financial year

with JL Roos being the individual designated auditor 9. To adopt the AFGRI Executive Share Award Scheme

10. To adopt and approve the ordinary resolution placing the unissued share capital under the authority of the directors for purposes of the share incentive scheme

11. To adopt and approve special resolution number 1 to repurchase shares by way of a general authority

Please indicate instruction to proxy by way of a cross in the space provided above.

Signed at on 2010

Signature

Form of proxy

AFGRI LimitedRegistration number 1995/004030/06ISIN code ZAE 000040549 Share code AFR (the Company)

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Notes to the form of proxy

3 A minor must be assisted by his/her parent or guardian unless the relevant documents establishing his/her legal capacity are produced or have been registered by the transfer secretaries.

4 To be valid the completed proxy forms must be lodged with the transfer secretaries of the Company at Computershare Investor Services (Pty) Limited, 70 Marshall Street, Johannesburg 2001, PO Box 61051, Marshalltown 2107, so as to reach them by no later than 10:00 on Wednesday,13 October 2010.

5 Documentary evidence establishing the authority of a person signing this proxy form in a representative capacity must be attached to this proxy form unless previously recorded by the transfer secretaries or waived by the chairman of the annual general meeting.

6 The completion and lodging of this proxy form shall not preclude the relevant shareholder from attending the annual general meeting and speaking and voting in person thereat to the exclusion of any proxy appointed in terms hereof, should such shareholder wish to do so.

7 The completion of any blank spaces need not be initialled. Any alterations or corrections to this proxy form must be initialled by the signatory/ies.

8 The chairman of the annual general meeting may reject or accept any proxy form which is completed other than in accordance with these instructions provided that he is satisfied as to the manner in which a shareholder wishes to vote.

1 A shareholder entitled to attend and vote at the annual general meeting is entitled to appoint one or more proxies to attend, speak and vote in his/her stead. A proxy need not be a shareholder of the Company.

2 Every shareholder present in person or by proxy and entitled to vote at the annual general meeting of the Company shall, on a show of hands, have one vote only, irrespective of the number of shares such shareholder holds, but in the event of a poll, every ordinary share in the Company shall have one vote.

3 Dematerialised shareholders registered in their own names are shareholders who appointed Computershare Custodial Services as their central securities depository participant (CSDP) with the express instruction that their uncertificated shares are to be registered in the electronic sub-register of shareholders in their own names.

INSTRUCTIONS ON SIGNING AND LODGING THE PROXY FORM1 A shareholder may insert the name of a proxy or the

names of two alternative proxies of the shareholder’s choice in the space/s provided, with or without deleting “the chairman of the annual general meeting”, but any such deletion must be initialled by the shareholder. Should this space be left blank, the chairman of the annual general meeting will exercise the proxy. The person whose name appears first on the proxy form and who is present at the annual general meeting will be entitled to act as proxy to the exclusion of those whose names follow.

2 A shareholder’s voting instructions to the proxy must be indicated by the insertion of the number of votes exercisable by that shareholder in the appropriate spaces provided. Failure to do so shall be deemed to authorise the proxy to vote or to abstain from voting at the annual general meeting, as he/she thinks fit in respect of all the shareholders’ exercisable votes. A shareholder or his/her proxy is not obliged to use all the votes exercisable by his/her proxy, but the total number of votes cast, or those in respect of which abstention is recorded, may not exceed the total number of votes exercisable by the shareholder or by his/her proxy.


AFGRI Limited

(Incorporated in the Republic of South Africa)

Registration number 1995/004030/06

ISIN code ZAE 000040549

Share code AFR

Business address and registered office

1st Floor, AFGRI Building

267 West Street

Centurion, 0157

Tel 012 643 8000

Fax 012 643 1768

Company Secretary

Ms N van Wyk

PO Box 11054

Centurion, 0046

Bankers

ABSA Bank Limited

Co-öperatieve Centrale Raiffeisen-Boerenleenbank B.A. trading as Rabo Bank

FirstRand Bank Limited

Hong Kong and Shanghai Banking Corporation

Investec Bank Limited

Land and Agricultural Development Bank of SA Limited

Nedcor Limited

Standard Bank of SA Limited

Standard Chartered Bank

Transfer secretaries

Computershare Investor Services (Proprietary) Limited

70 Marshall Street

Johannesburg, 2001

PO Box 61051

Marshalltown, 2107

Tel 011 370 5000

Auditors

PricewaterhouseCoopers Inc.

32 Ida Street, Menlo Park, 0102

Sponsor

Investec Bank Limited

100 Grayston Drive

Sandton, 2196

PO Box 785700

Sandton, 2146

Administration

Bastion Graphics

www.afgri.co.za

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