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					Growth the natural outcome
Integrated Annual Report 2010
Financial highlights




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




      16%
improvement in AFGRI
Foods’ results following
2009 expansion




     AFGRI Financial
Services returns to
profitability




      6%
increase in headline
earnings per share




      32%
improvement
in Group profit




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



      R690 million
Net cash at 30 June 2010
Contents



 Group overview

 IFC   2010 highlights
 IFC   AFGRI vision
 IFC   About AFGRI’s integrated annual report
   2   Group structure
   4   Contribution by segment
   5   Value added statement
   6   Five-year financial performance
   7   Key performance indicators
   8   Material issues summary
  12   Group directorate


 2010 overview

  16 Chairman’s report
  22 Chief executive officer’s report
  30 Review of operations
       30 AFGRI Financial Services
       34 AFGRI Agri-Services
       37 AFGRI Foods
       40 AFGRI Corporate and discontinued operations
  42 Chief financial officers report
  48 Corporate responsibility
  60 Awards in 2010


 Corporate governance

  62   Corporate governance
  70   Remuneration report
  73   Shareholder’s analysis
  74   GRI Index
  78   Audit and Risk Management Committee report


 Financial statements

  82 Directors’ responsibility for, and approval of, the annual
     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
 168 Notice of annual general meeting
 175 Form of proxy
 IBC Administration
   “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 –




   Our vision                                          About AFGRI’s integrated
     To be the leading food and agricultural company   annual report
                                                       The King Report on Governance for South Africa, 2009
     in Africa.
                                                       (King III), introduces the concept of integrated reporting
                                                       and disclosure demanded by the transparency and
   Our mission                                         accountability principles of corporate governance. The
                                                       principles supporting the ninth and final code of the King
     Focusing on creating ONE AFGRI that supports      Committee’s report relating to integrated reporting and
     the food and agricultural value chain in which    disclosure are:
                                                       • that the Board should ensure the integrity of the
     our customers operate.                                integrated report;
                                                       • that sustainability reporting and disclosure are
                                                           integrated with a company’s financial reporting; and
   Our strategy                                        • that sustainability reporting and disclosure should be
     Consolidate and grow our core competencies            independently assured.

     in the food and agricultural sector
                                                       In this, AFGRI’s first integrated report, the Board and
     Focus on the food and agricultural value chain    management have sought to follow the principles provided
                                                       for in King III wherever practical and feasible. Management
     Provide innovative products and services
                                                       have also adopted the Global Reporting Initiative (GRI)
     to customers in the food and agricultural         guidelines for the reporting of sustainability issues during
                                                       the preparation of the integrated report.
     value chain
     Expand interest in the foods sector               Notwithstanding the progress made in many areas relating
     Surpass shareholder expectations                  to the application of both King III and sustainability
                                                       reporting practices, management acknowledges that this
     Improve capital base through exiting under-       report and the supporting activities are the beginning of a
     performing businesses and the disposal of         continuous journey to ensure the sustainability of AFGRI
                                                       through balancing long-term social, environmental and
     non-core assets.                                  economic interests with the principle need to maximise
                                                       the profits of the company, and acting as a responsible
                                                       corporate citizen.




www.afgri.co.za
                                                                                                                                            1

About AFGRI’s integrated annual report                                         continued

                     Creating One AFGRI




                                                                        The report addresses the need to look
                                                                        beyond the interests of the Company
                                                                        and shareholders, taking into account
                         Our values                                     the concerns and issues of its wider
                            Passion
                           Teamwork                                     stakeholder environment.
                          Innovation
                            Respect
                         Accountability
                            Integrity
                       Service excellence




In particular we acknowledge that in terms of many                      The King III Report came into effect in March 2010 and companies
environmental performance indicators and certain social                 are required to comply by the end of the first financial year
performance indicators as identified by the GRI, AFGRI has              commencing thereafter. AFGRI has made considerable progress
historically ensured legal compliance rather than driving               with regard to corporate governance over several years but there
improvements in indicators or targeting ‘best practices’. During        remains more to do. As such, the Group has not complied with the
the coming year, the Group will identify appropriate performance        ‘apply or explain’ philosophy of King III in this report but will do so
indicators (applicable to either the Group or individual operations),   for the financial year ending 30 June 2011.
establish a baseline position for these indicators and set targets
for improvements on the baseline position. Therefore, as this           This report covers the South African operations of AFGRI Limited
report is not exhaustive with regard to sustainability issues or the    and its material subsidiaries, focusing on the business units that
appropriate performance indicators, we have chosen not to have          contribute most to the Group’s results and its investments in
its content independently assured. Reporting and management             assets. The financial results of the Australian and Zambian
systems will continue to be developed in order to improve the           subsidiaries are included in this report but comment on corporate
application of the GRI principles in future periods.                    responsibility matters is excluded as the impact that these
                                                                        subsidiaries’ have on social and environmental matters is
Despite these shortcomings, the report addresses the need to            considered immaterial. The governance and risk management
look beyond the interests of the company and shareholders,              practices discussed in this report are applied to foreign
taking into account the concerns and issues of its wider                subsidiaries. The report covers the period of the financial year
stakeholder environment, such as customers, suppliers,                  ended 30 June 2010. The activities of associate companies and
employees and broader society. Details of stakeholders, their           joint ventures are similarly not considered sufficient to warrant
identification and engagement can be found later in the report.         inclusion in this report.

Eight strategic themes for the Group were identified. These             This integrated annual report is also available on the AFGRI
strategic themes are ultimately governed by the Board although          website at www.afgri.co.za.
various subcommittees of the Board may be accountable for their         For questions regarding this report, contact:
management. Following the materiality principle of the GRI, these       Peter Harris – General Manager Finance
have been further subdivided into 30 issues that are deemed             peter.harris@afgri.co.za
material to the business and its stakeholders. Where possible, GRI      012 643 8284
indicators relevant to these issues have been applied to measure        Niki van Wyk – Company Secretary
the Group’s progress towards sustainability.                            niki.vanWyk@afgri.co.za
                                                                        012 643 8295




                                                                                                            AFGRI Limited Annual Report 2010
                     2
                                  Group structure




                                                AFGRI FINANCIAL SERVICES                                                           AFGRI AGRI SERVICES



                                                    AFGRI FINANCIAL SERVICES                                                             AFGRI AGRI-SERVICES

                                       AFGRI Capital                                                              AFGRI Agri-Services is the composite of two further, identifiable segments
                                       The largest business unit within AFGRI Capital is AFGRI Advances           focused on the primary agricultural sector:
                                       which provides both producer and specialised lending within the
                                                                                                                  AFGRI RETAIL AND EQUIPMENT (formerly Producer Services)
                                       agricultural sector. In addition, the Group’s insurance brokerage
                                                                                                                  AFGRI Retail
                                       business is reported under the AFGRI Capital division. The division is
                                                                                                                  AFGRI Retail operates 35 branches branded ‘Town and Country’ and four Farm
                                       also responsible for conducting the Group’s treasury activities.
                                                                                                                  City stores. Eleven dedicated John Deere workshop centres are strategically
                                                                                                                  distributed throughout AFGRI’s region. The entire retail network leverages off a
                                       The business focuses on servicing the farmer through its producer          cost-effective import, wholesale and distribution operation centrally located in
                                       lending product line and the corporate sector through its specialised      Bethlehem.
                                       lending business. Products are customised to agriculture in general
                                       and often to meet the requirements of individual clients.                  The business unit provides an extensive range of farming requisites and home
                                                                                                                  and garden, DIY and outdoor products, including selected building materials.

                                       The insurance brokerage provides a diverse range of insurance
                                                                                                                  The John Deere brand of agricultural mechanisation equipment and after sales
                                       products, from crop insurance to life assurance, from homeowners’
                                                                                                                  service is provided throughout the AFGRI region.
                                       to healthcare insurance products.

                                                                                                                  The Group’s Australian subsidiary, also a retailer of agricultural mechanisation
                                       The above businesses are focused within South Africa’s main, high          and vehicles, reports into this division.
                                       producing grain growing regions of the Mpumalanga, North West,
                                       Gauteng and Free State provinces.                                          Primary inputs
                                                                                                                  Primary inputs represents the direct delivery operation. Through a network of
                                       As the provision of credit represents the most significant aspect of the   agents and in conjunction with manufacturers and wholesalers of farming
                                                                                                                  requisites such as fertiliser, diesel, seed and chemicals direct on farm deliveries
                                       Group’s operations in Zambia, this subsidiary also reports into AFGRI
                                                                                                                  are made.
                                       Capital. The Zambian subsidiary also supplies John Deere equipment
                                       and services, handling and storage of grain and the procurement of
                                                                                                                  Sales in both the Retail and Primary inputs business units are supported
                                       maize and wheat under mandate.                                             through finance made available by AFGRI Advances.


                                                                                                                  AFGRI LOGISTICS
                                       AFGRI Broking                                                              Logistics
Growth the natural outcome




                                       AFGRI Broking provides a derivative broking service to clients based       The logistics division of AFGRI comprises two related business units: Handling
                                       on the mandated buying and selling of futures and options on the JSE       and Storage and Logistics.

                                       SAFEX exchange.
                                                                                                                  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 Trading
                                                                                                                  This 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 Limited Annual Report 2010
              Group overview                                                 2010 overview                     Corporate governance
                                                                                                                                                       3



                                                                                   AFGRI value chain




                                                                                             Plan
                                                                                             Before 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.

                 AFGRI FOODS

                                                                                             Plant
                                                                                             During the planting and growing seasons AFGRI’s
                         AFGRI FOODS
                                                                                             Retail and Equipment Services provides the farmer
                                                                                             with all the primary inputs necessary for a successful
Animal Feeds and Broilers
                                                                                             crop. From seed and fertilisers to tractors, planters
This division comprises both the Group’s animal feeds operation and
                                                                                             and combine harvesters. These key inputs can
AFGRI Poultry, the successor to Daybreak Farms.
                                                                                             be sourced through the Group’s retail branches
                                                                                             or delivered directly from the manufacturer or
The Animal Feeds business unit operates throughout South Africa,
                                                                                             distributor. Advisory services and mechanisation
having eight production sites and a variety of strategically placed
                                                                                             spares and servicing support the farmer throughout
distribution depots. Having a production capacity of over 1 million tons
                                                                                             the season.
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                         Harvest
producer of day-old chicks. AFGRI Poultry’s production operations are                        The storage facilities provided by AFGRI’s Handling
situated in Mpumalanga with Midway Chix’s breeder farms and                                  and Storage division allow both producers and
hatchery in the Limpopo province. The business unit delivers product                         consumers of grain to manage their pricing. Farmers
nationally.                                                                                  are able to settle their seasonal finance. AFGRI’s
                                                                                             advanced logistics management system allows it to
Labworld, also included in this division, is a supplier of a wide range of                   more accurately match production and consumption
laboratory equipment used in the agricultural, food and beverage,                            demands in specified locations whilst its Trading
mining and petrochemical industries as well as academic institutions.                        subsidiary undertakes physical trades and their
                                                                                             execution.
Oil and Protein
AFGRI’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
                                                                                             Trade
                                                                                             Throughout the year, AFGRI Broking, the single largest
processing and fast food industries. Nedan is the market leader in
                                                                                             trader of agricultural commodities on the JSE SAFEX
texturised soya protein for human consumption and oil cakes for the
                                                                                             exchange, buys and sells derivative commodity
animal feed industry. Nedan distributes to industrial food customers
                                                                                             instruments on behalf of producers and consumers
nationally.
                                                                                             of grain. AFGRI Capital looks for other opportunities
                                                                                             to provide finance into the food and agricultural value
                                                                                             chain.




                                                                                             Sell
                                                                                             AFGRI 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.




                                                                                                                   AFGRI Limited Annual Report 2010
                     4
                                  Contribution by business segment                                               (continuing operations only)




                                  %/R million/number


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




                                               2010                       2010                    2010                       2010                   2010




                                         9%            R712         31%          R332      5%             R24          49%          R4 019    6%            192

                                         49%          R3 643        37%          R396      52%           R237          31%          R2 553    56%          1 827

                                         42%          R3 171        32%          R344      43%           R197          20%          R1 673    36%          1 187

                                                                                                                                              2%             72




                                               2009                       2009                    2009                       2009                   2009




                                         10%           R848         39%          R463      (4%)          (R18)         53%          R5 335    6%            226

                                         52%          R4 229        35%          R422      65%           R280          30%          R2 997    64%          2 336

                                         38%          R3 083        26%          R308      39%           R169          17%          R1 683    28%          1 019

                                                                                                                                              2%             56
Growth the natural outcome




                                      AFGRI Financial Services
                                      AFGRI Agri-Services
                                      AFGRI Foods
                                      Corporate
                                  * Before corporate and Group eliminations
                                  ** South African operations only




                     AFGRI Limited Annual Report 2010
               Group overview                                      2010 overview                         Corporate governance
                                                                                                                                              5



Value added statement

                                                                                                     30 June             30 June
                                                                                                        2010                2009
                                                                                                       R’000               R’000

Revenue from continuing operations                                                               7 258 840              8 017 223
Paid to suppliers for material and services                                                     (5 330 066)            (6 111 403)
Value added                                                                                      1 928 774              1 905 820
Income from investments*                                                                            79 069                148 525
Total value created                                                                              2 007 843              2 054 345
Value distribution
Employees                                                                                            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              97 810
Company 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               2 382
Reinvested in Group to maintain and develop operations                                               401 659             302 729
Depreciation                                                                                         141 842             118 065
Retained 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 ratios
Number of employees***                                                                                 3 575               2 983
Revenue per employee (Rand)                                                                            2 030               2 688
Value created per employee (Rand)                                                                        562                 689
Corporate 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



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




                                 2010                                                 2009




           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




                                                                                                                AFGRI Limited Annual Report 2010
                     6
                                  Five-year financial performance




                                                                                            2010               2009              2008*      2007**     2006**
                                                                                           Actual             Actual            Actual     Actual     Actual
                                                                                              Rm                 Rm                Rm         Rm         Rm

                                  Cash flow information
                                  Net 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 to
                                  Equityholders 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
                                  Assets
                                  Non-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 liabilities
                                  Capital 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
Growth the natural outcome




                                  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




                     AFGRI Limited Annual Report 2010
               Group overview                                      2010 overview                             Corporate governance
                                                                                                                                              7



Key performance indicators

                                                          2010               2009              2008*       2007**          2006**
                                                         Actual             Actual            Actual      Actual       Restated

Financial ratios
Current ratio                                               1,1                1,0               1,1          1,1            1,1
Acid test ratio                                             0,9                0,9               0,9          0,9            0,9
Cash realisation rate                                       1,6                3,6               1,9          3,8            1,9
Total liabilities to shareholders' equity                   2,7                3,6               3,6          2,9            2,6
Return on shareholders' equity (%)                         19,7               16,3              16,9         15,8           11,6
Return on total assets (%)                                 10,2               12,5              11,9          9,9            7,4
Net asset value (cents per share)                         451,4              463,5             436,5        389,7          370,6
Effective tax rate (%)                                     19,6               29,9               4,1         26,5           10,1
Net asset revenue (times)                                   3,2                4,1               5,3          3,6            3,4
Net assets per employee (R’000)                           639,1              715,1             527,9        381,5          388,1
Revenue per employee (R’000)                            2 030,4            2 992,4           2 804,1        1 369        1 307,3
Value added (Rm)                                        1 954,7            2 040,8           1 939,2      1 370,3        1 089,0
Earnings per share (cents)                                 94,7               72,7              69,5         59,9           41,2
Headline earnings per share (cents)                        78,6               74,4              73,7         65,1           39,3
Cash flow per share (cents)                               290,2              467,1             130,8        282,9          111,0
Shareholders' return
Dividend 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                                            –                  –                 –           –           10,73
Dividend cover compared to applicable
year (times)                                                 2,3                2,0                 1,7     2,00             2,1
JSE Limited statistics
Volume of shares traded (m)                               113,3              113,6             206,4       138,8           103,5
Volume traded as % of number in issue                      30,3               30,4              60,5        40,7            30,3
Number of transactions                                   10 824              7 942           13 598        6 670           6 536
Value of shares traded (Rm)                               668,6              582,8           1 378,6       941,6           545,9
Traded 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 ratios
Earnings yield (%)                                          12,2              14,6                 11,3      9,2             6,4
Dividend 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




                                                                                                                AFGRI Limited Annual Report 2010
                     8
                                  Material issues summary




                                             Structuring for growth
                                       Material issue                Stakeholders   Status                                                 Reference
                                   1. New management structure       Investors      The Board of the Group’s operating company was         Pages 15, 23,
                                                                     Employees      restructured, removing a layer of line managers        65
                                                                     Customers      and introducing functional roles to the Board.
                                                                     Suppliers
                                                                     Lenders
                                   2. Implementation of strategy                    In 2009 the Group began to more closely align its      Pages 23, 24,
                                       – value chain alignment and                  operations with the grain value chain and stated       31, 34, 35, 37,
                                                                                    its desire to expand into the food sector. The         38, 40
                                       expansion into foods sector
                                                                                    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.
                                   3. One AFGRI philosophy                          The philosophy demands the integration of the          Pages 17, 21,
                                                                                    diverse business units and resources to optimise       22, 26, 27, 28,
                                                                                    the provision of seamless products and services        31, 32, 34, 42,
                                                                                    across the value chain and the furtherance of a        48, 49
                                                                                    united AFGRI.
                                   4. Change management                             The multitude of developments within the Group         Pages 24, 46,
                                                                                    demands appropriate change management.                 68
                                                                                    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.




                                             External factors
                                       Material issue                Stakeholders   Status                                                 Reference
                                   1. Economic conditions –                         Restrictions on credit have eased although the         Pages 17, 25,
                                       internationally and locally                  cost of funding remains high, challenging the          30, 34, 38
                                                                                    profitability of the Financial Services segment.
                                                                                    The introduction of Basel III will introduce
                                                                                    requirements for raising finance that may result
Growth the natural outcome




                                                                                    in a further increase in borrowing costs.
                                   2. Agricultural conditions and                   Another good year for primary agriculture resulted     Pages 17 – 20,
                                       prospects                                    in a near record crop and full silos. A small          23, 24, 45
                                                                                    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.
                                   3. Regulation                                    The Group conducts diverse operations in an            Pages 31, 36,
                                                                                    increasingly complex regulatory environment. This      53 – 57
                                                                                    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.




                     AFGRI Limited Annual Report 2010
             Group overview                        2010 overview                                  Corporate governance
                                                                                                                                    9




        Profitability and financial position
   Material issue              Stakeholders    Status                                                     Reference
1. Cost controls and cash      Investors       Regrettably retrenchments were necessary in                Pages 24, 31,
   management                  Employees       some of the services businesses where the credit           32, 35, 39, 43,
                               Customers       crunch and unchecked organic growth had                    44, 46
                               Suppliers       resulted in inefficient staffing levels. Staffing levels
                               Lenders         will continue to be reviewed to ensure that
                                               excellent customer service is achieved at the
                                               minimum cost.
2. Business processes review                   During the coming year, AFGRI will implement a             Pages 24, 46,
                                               single, Group-wide ERP system to improve IT                49, 52
                                               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.
3. Gearing and access to                       Efforts to improve the Group’s gearing continue,           Pages 26, 31,
   funding                                     with a reduction in the size of the debtors book           32, 44, 45
                                               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




        Human capital
   Material issue              Stakeholders    Status                                                     Reference
1. Skills development          Employees       As a precursor to employment equity, skills                Pages 26, 49,
                                               development will be a focus area in the coming             52
                                               year.
2. Remuneration and benefits                   A Group-wide grading and salary review was                 Pages 26, 49,
                                               performed during the year. An entry level medical          51
                                               aid scheme was introduced for all staff at
                                               Paterson scale grades A and B.
3. Health and safety                           The Group applies strict health and safety                 Pages 49 – 50,
                                               considerations in all of its operations.                   53 – 55




                                                                                                      AFGRI Limited Annual Report 2010
                     10
                                  Material issues summary                           continued




                                             Transformation
                                       Material issue               Stakeholders      Status                                               Reference
                                   1. Ownership                     Investors         The partnership agreement entered into with our      Pages 26, 51
                                                                    Employees         Agri Sizwe partners in 2004 results in AFGRI
                                                                    Suppliers         achieving a score of 16.25 for this element of the
                                                                    Lenders           BEE scorecard. (Points available: 20)
                                                                    Government
                                                                    Civil society
                                   2. Control                                         Using 2008 information the Group scored a            Page 51
                                                                                      disappointing 1.41 for the control element of the
                                                                                      scorecard. Improvements in this area have been
                                                                                      made subsequently. (Points available: 10)
                                   3. Employment equity                               In 2008, AFGRI failed to reach the 40% sub-          Pages 51 – 53
                                                                                      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)
                                   4. Skills development                              This is another area in which AFGRI has poorly       Pages 26, 49,
                                                                                      performed, achieving a 2008 score of 0.19.           52
                                                                                      Significant effort will be invested in skills
                                                                                      development in the coming year as a precursor to
                                                                                      employment equity. (Points available: 15)
                                   5. Preferential procurement                        AFGRI achieved a score of 9.70 for preferential      Page 52
                                                                                      procurement and will improve on this, in
                                                                                      conjunction with enterprise development in 2011.
                                                                                      (Points available: 20)
                                   6. Enterprise development                          Due to the significant investments made in the       Page 52
                                                                                      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)
                                   7. Socio-economic development                      For the socio-economic development element of        Page 52
                                                                                      the BEE scorecard, AFGRI recorded 2.16 points.
                                                                                      (Points available: 5)




                                             Products and services
                                       Material issue               Stakeholders      Status                                               Reference
Growth the natural outcome




                                   1. Integrated products across    Customers         The Group’s strategy demands that it provide         Pages 2 – 3,
                                       the value chain              Government        products and services across the agricultural        23, 27, 32,
                                                                    Civil society     value chain, from inputs to primary agriculture to   36, 39
                                                                                      grain security for millers and processed primary
                                                                                      agricultural products for inclusion in secondary
                                                                                      agriculture.
                                   2. Food safety and ethical                         The Group is involved with the production of         Pages 39,
                                       production                                     animal feed and animal protein for human             53 – 55
                                                                                      consumption. AFGRI strives to ensure the highest
                                                                                      quality inputs and products throughout the food
                                                                                      chain.
                                   3. Innovative and high calibre                     In order to entrench its leading position in         Pages 27, 32,
                                       products and services and                      the animal feed sector AFGRI partners with           36, 37
                                                                                      international leaders in feed technology. Other
                                       customer satisfaction
                                                                                      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.




                     AFGRI Limited Annual Report 2010
             Group overview                          2010 overview                               Corporate governance
                                                                                                                                    11




         The environment
   Material issue                Stakeholders    Status                                                    Reference
1. Management approach and       Government      AFGRI modified its environmental approach from            Pages 27, 55
   policy                        Communities     one of ‘complying’ to playing an active role in
                                 Civil society   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.
2. Identifying areas of impact                   In the coming year, baselines for various                 Pages 27, 56
   and determination of                          environmental indicators will be determined for
                                                 business units which have a material impact on
   baseline
                                                 the environment and targets for improvements
                                                 set. An indicative carbon footprint survey has
                                                 already been completed.
3. Climate change                                AFGRI does not contribute significantly to climate        Pages 19, 27,
                                                 change. However, the sector that it serves has a          56
                                                 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.




            Corporate governance
   Material issue                Stakeholders    Status                                                    Reference
1. Application of King III       Investors       Changes to the composition of the Board,                  Pages 19, 28,
   guidelines                    Government      together with the introduction of various                 57
                                                 governance structures and strategies have
                                                 already been implemented. Efforts to ensure
                                                 AFGRI is in compliance with King III will continue
                                                 2011.
2. Risk management                               Risk management remains a focus of the Group.             Pages 46,
                                                 The identification of risk at all levels and in all       62 – 68, 101
                                                 business units, together with the integration of the
                                                 sustainability issues, provide AFGRI with a solid
                                                 foundation for the conduct of its business.
3. Competition Commission                        The Competition Commission has initiated a                Pages 57, 157
                                                 variety of investigations into agricultural and food
                                                 sector industry bodies. AFGRI is cooperating fully
                                                 with the Commission.
4. Group ethics and business                     During the year, senior employees and                     Pages 28, 57,
   conduct                                       management committed to seven values, which               66
                                                 drive the conduct of AFGRI. An ethics review is
                                                 planned for the new year.




                                                                                                        AFGRI Limited Annual Report 2010
   12
                                                           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
                                      Growth the natural outcome




             3         4



             5         6



             7         8



             9         10




   AFGRI Limited Annual Report 2010
                 Group overview                                     2010 overview                                   Corporate governance
                                                                                                                                                          13



1. JPR Mbau (59)                                  articles. Spent several years with the Malbak         Corporate Finance and Advisory Services
Positions: Chairman – AFGRI Board                 Group in various capacities and thereafter            firm of which he is currently Chief Executive,
Chairman – Nomination Committee                   moved into merchant banking, primarily in             bringing the total financial services and
Independent director                              corporate finance, in the employ of Volkskas          investments experience to a total of 16 years.
                                                  Merchant Bank and Rand Merchant Bank.
Qualification: Banking Diploma                    Subsequently moved into the mining industry           First year on AFGRI Board
– Citi Corp College                               and eventually retired at the end of 2001 as
Business Management Diploma                       chief financial officer of Anglovaal Mining.          8. MM Moloele (54)
– Pretoria University                             Chairman of Kingfisher Insurance Company              Positions: Member – Nomination Committee
Executive Management Programme                    and former Chairman of Idion Technology.              Deputy Chairman – AFGRI
– Stellenbosch University                                                                               Operations Limited Board
                                                  Four years on AFGRI Board
Experience: 21 years (1974 to 1995) of                                                                  Qualification: Diploma in Business
banking experience as vice-president in the       5. L de Beer (41)                                     Management (USA & Damelin)
corporate banking and investment-banking          Positions: Independent director
arena with major financial institutions                                                                 Experience: As a director of companies, led
including Citibank (UK and USA), First National   Qualification: CA(SA), MCom (Tax)                     the development of the first BEE Charter
Bank, Nedbank and Investec. In the late 1990s                                                           in the Petroleum industry and co-founded
served as senior general manager at the           Experience: Independent financial reporting           the first black-owned petroleum company,
Southern African Enterprise Development           and corporate governance advisor and visiting         Exel. Involved with the establishment and
Fund, with direct responsibility for Zimbabwe,    professor in financial accounting at the University   coordination of a strong National Black Fuel
South Africa, Namibia, Lesotho and Swaziland,     of the Witwatersrand. Qualified as a chartered        Retailers Association. Former directorships
responsible for providing financial advice,       accountant in 1991 and audit and tax manager          include Dudula Shipping, Dudula Freight Bulk,
deal negotiating and financial structuring.       at KPMG, joined the School of Accountancy at          Exel Petroleum and Naledi Oil Holdings.
A co-founder of a black consortium which          the University of Pretoria and then the South
established Real Africa Investments, and          African Institute of Chartered Accountants            Six years on AFGRI Board
serves on the Boards of Dominican Convent         (SAICA) – Senior Executive: Standards at SAICA
School, RSA Market Agents, Regent Insurance       until 2007. Subsequently held a position for          9. KL Thoka (47)
and Babcock Engineering. Chairman of              18 months as financial director at BEE private        Positions: Non-independent director
the Land Bank from 2002 to 2005.                  investment holding company. Currently a
                                                  member (chairman elect) of the Consultative           Qualification: B & Admin –
Four years on AFGRI Board                         Advisory Group of the International Auditing          University of the North
                                                  and Assurance Standards Board; the King               Hons (B&A) – University of
2. DD Barber (58)                                 Committee on Corporate Governance in South            Stellenbosch Business School
Positions: Chairman –                             Africa; the Issuer Services Advisory Committee        MBA – University of Hull
Remuneration Committee                            of the JSE and the Committee for Auditing             SEP – Harvard Business School
Member – Audit and Risk                           Standards of the Independent Regulatory Board
Management Committee                              for Auditors in South Africa. Also involved in        Experience: Businesswoman, entrepreneur,
Independent director                              directorship development and training.                director of companies and a councillor of
                                                                                                        the University of Johannesburg. Previous
Qualification: FCA (England and                   First year on AFGRI Board                             positions include: managing director of the
Wales) AMP (Harvard)                                                                                    Courier Freight Group, group executive (HR)
                                                                                                        at the SA Post Office, general manager for
Experience: Former global chief financial         6. JJ Ferreira (57)                                   Transformation at the Post Office, senior HR
officer of Anglo Coal, a division of the Anglo    Positions: Non-independent director                   manager for Metrorail and marketing and
American plc Group and chief financial                                                                  communications manager for Metrorail.
officer of Anglo American Corporation             Qualification: BSc (Hons) Civ Eng
of South Africa. Prior to the unbundling                                                                Six years on AFGRI Board
of Anglovaal Group, held the position of          Experience: Began farming full-time in
group chief financial officer. Chairs the         1984 after working as a civil engineer                10. FJ van der Merwe (53)
audit committee of Murray & Roberts.              for six years in Pretoria, settling on the            Positions: Non-independent director
                                                  farm Grootdraai in Harrismith. An active
First year on AFGRI Board                         member of the farming community in the                Qualification: BA, LLB –
                                                  Eastern Free State over the years, holding            University of Stellenbosch
3. JJ Claassen (60)                               positions in Vrystaat Landbou, Agri-SA and            MA (Jurisprudence) – University of Oxford
Positions: Member – Credit Committee              the Free State Premier’s Economic Advisory
                                                  Board until 2005. Joined the AFGRI Board              Experience: Following a period as a practising
Experience: A long-standing member of the         following AFGRI’s acquisition of the Sentraal         attorney specialising in commercial law,
AFGRI Limited Board and is currently the          Oos Kooperasie Limited in Bethlehem.                  joined Allan Gray Investment Counsel (now
vice-chairman of the Management Committee         Former Vice-chairman of SOK Limited.                  Allan Gray Limited), first as legal adviser and
of the Maize Board. A successful farmer in                                                              later served as managing director. Continues
the Delmas region since 1969 and plays an         12 years on AFGRI Board                               as a non-executive director of Allan Gray.
active role in various industry committees                                                              Over the years has served on a number of
and forums. In 1997 was named Farmer of the       7. LM Koyana (42)                                     listed company boards including Real Africa
Year in the Northern Region, Potato Farmer of     Positions: Member – Audit and                         Holdings Limited (as chairman), Business
the Year in 1999 and has been recognised four     Risk Management Committee                             Connexion Group Limited and Johnnic
times as the I&J Potato Producer of the Year.     Member – Remuneration Committee                       Communications Limited (now ElementOne
Former director of ABSA Bank, Mpumalanga.         Member – Credit Committee                             Limited as chairman). Other current Board
                                                  Independent director                                  appointments, apart from ElementOne and
22 years on AFGRI Board                                                                                 AFGRI, include Allan Gray Group Limited, Allan
                                                  Qualification: BCom, BCompt (Hons) CTA                Gray Life Limited, Historical Homes of South
4. DD de Beer (70)                                                                                      Africa Limited and KLK Landbou Beperk.
Positions: Chairman – Audit and                   Finished articles of clerkship with Coopers
Risk Management Committee                         and Lybrand in 1992 and joined the University         10 years on AFGRI Board
Chairman – Credit Committee                       of Transkei as Chief Internal Auditor whilst
Member – Remuneration Committee                   acting as part time lecturer in Taxation and
Member – Nomination Committee                     Auditing at the same institution. Left in 1994
Independent director                              to pursue a career in investments with Syfrets
                                                  Managed Assets in Cape Town as Investment
Qualification: CA(SA)                             Analyst where he spent three years. Left
                                                  Syfrets Managed Assets in 1998 to start
Experience: Qualified as a Chartered              Infinity Asset Management where he acted
Accountant (SA) after studying at the             as Managing Director and Investment Analyst
University of the Witwatersrand and joined        looking after the Retail, Food and Beverage
the Industrial Development Corporation as an      Sectors. When Infinity was sold in 2001, he
investigating accountant after completing his     founded Nations Capital Advisors, a boutique




                                                                                                                         AFGRI Limited Annual Report 2010
   14
                                                           Group directorate




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




                       1                                            Management
                                      Growth the natural outcome




             2         3




                       4



             5         6




   AFGRI Limited Annual Report 2010
                Group overview                                    2010 overview                                 Corporate governance
                                                                                                                                                       15



1. CP Venter (42)                                 the AFGRI Operations Limited Board. On           5. GJ Geel (43)
Positions: Group Chief Executive Officer          15 September 2008 appointed to the AFGRI         Group Chief Operating Officer
Member – Credit Committee                         Limited Board as Group Financial Director.       Member – AFGRI Operations Limited Board
Chairman – AFGRI Operations Limited Board
                                                  3 years with the Group and                       Qualification: BCom (Hons) (Acc) CA(SA)
Qualification: BA, MBA                            second year on the Board
                                                                                                   Experience: Appointed as audit manager
Experience: Joined Standard Bank in               3. MI Mogari (Dr) (43)                           at PricewaterhouseMeyernel (now PwC)
1992. Obtained valuable merchant banking          Positions: Deputy managing                       after completing articles. Joined OTK (now
experience during seven years with Standard       director – AFGRI Animal Feeds                    AFGRI Operations Limited) in November
Merchant Bank (now Standard Corporate             Non-independent director                         1995, fulfilling various senior positions.
and Investment Bank), involved primarily                                                           Joined the Industrial Equipment division of
with the trade and project finance divisions      Qualification: MBChB, BSc (Med)                  Eqstra Holdings in April 2008 as financial
and was appointed as Head of the Export           (Hons) CPFA EDP MBA                              director only to return to AFGRI five months
Credit Finance Department during the last                                                          later when appointed as COO of Gro Capital
two years of his employment with SCIB.            Experience: Began career more than               a division of AFGRI in October 2008 and
                                                  15 years ago as an entrepreneurial               managing director of Deposita, an associate
Joined ABSA Corporate and Merchant Bank           medical practitioner in group practice.          of AFGRI, in February 2009. Appointed to the
in 1999 as team leader of the Structured          On the conversion of the medical group           position of Group Chief Operating Officer in
Trade and Commodity Finance team. In 2002         to a healthcare business was appointed           November 2009 and as executive director of
promoted to the position of general manager       as its managing director. After exiting the      AFGRI Operations Limited in October 2009.
at ABSA Corporate and Merchant Bank and           healthcare company was appointed as chief
soon thereafter appointed as head of a newly      executive of the SA Medical Association.         14 years with the Group
established Structured Trade and Commodity
Finance team based in New York. During three      Co-founded Agri Sizwe with three partners        6. MM Manyama (53)
years in New York, focused on expanding           and played a key role in the AFGRI Agri Sizwe    Positions: Group Human Resources Executive
the Structured Trade and Commodity                partnership finalisation and joined AFGRI        Member – AFGRI Operations Limited Board
Finance business to Latin America.                in 2004, fulfilling several roles, including
                                                  managing director of AFGRI Africa. In February   Qualification: Diploma in Co-operative
On returning to South Africa in                   2008 was appointed as executive director         Management and Administration
December 2004 was appointed as                    of AFGRI Limited responsible for Corporate       – University of Zululand
head of the Global Structured Trade               Affairs, New Business and Strategic Projects.    Postgraduate Diploma in Co-operative
and Commodity Finance Team.                                                                        Studies (Finance and Management)
                                                  In June 2008 elected as deputy                   – Loughborough University
Joined AFGRI in June 2006 as managing             chairman of the SA Agricultural Business         Bachelor of Business Administration
director of AFGRI Financial Services and          Chamber. Member of the Executive of              – Preston University
Insurance and assumed responsibility for the      the Agricultural Business Chamber and            MBA – De Montfort University
Group’s Treasury division. Appointed to various   participates in a number of Agri Business        Member of the South African Board of
director positions, including chairman of         working committees, including the Chief          Personnel Practice (SABPP) and registered as
Agricola and AFGRI Western Cape. Appointed        Executives Forums, the State Presidential        a Chartered Human Resource Practitioner
to the Board of AFGRI Operations in July 2007     Working Group, the Land Reform and
and appointed as Group Chief Executive            Post Settlement Support Task team.               Experience: During the period 1993 – 2000,
Officer with effect from 1 October 2008.                                                           fulfilled the positions of chief training officer
                                                  Five years with the Group and                    and manager: Training, Communication and
Five years with the Group and                     second year on the Board                         Community Development for the Agricultural
second year on the Board                                                                           and Rural Development Corporation (formerly
                                                  AFGRI Operations Limited                         the Lebowa Development Corporation).
2. JA van der Schyff (47)                         Operating Committee                              In 2000, moved to MEEC (formerly the
Positions: Group Financial Director                                                                Mpumalanga Development Corporation)
Member – Credit Committee                         4. PJP Badenhorst (40)                           as human resources manager and later as
Member – AFGRI Operations Limited Board           Positions: Group Legal Counsel                   human resource executive. Joined AFGRI
                                                  Member – AFGRI Operations Limited Board          in 2005 as Human Resources Manager
Qualification: BCom (Hons), CA(SA)                                                                 for the Producer Services division and
                                                  Qualification: BCom (Law) (Cum laude)            later appointed to the position of Human
Experience: After completing articles             BCom (Hons) LLB (Cum laude)                      Resources Director for the Group’s Financial
with Arthur Andersen spent five                   LLM (Banking and Stock Exchange Law)             Services division. Appointed as Group
years with the Central Energy Fund                                                                 executive: Human Resources in 2008
managing the Money Market Investment              Experience: Commenced candidate attorney         and as an executive director of AFGRI
and Foreign Finance division.                     training with Couzyn Hertzog & Horak Inc. in     Operations Limited in October 2009.
                                                  January 1995. Joined ABSA Bank Limited in
Spent 12 years in the Mondi group, a              January 1998 fulfilling various roles during     Five years with the Group
wholly owned subsidiary of Anglo American         the next ten years, including: legal adviser:
PLC, holding various senior positions,            Absa Corporate and Merchant Bank (1998 –
initially as group treasurer and later as         2000); senior legal adviser: ABSA Corporate
group financial manager. Promoted to              and Merchant Bank (2000 – 2002); group
the position of commercial manager for            legal counsel (S level) Absa Corporate and
Mondi’s flagship, the Mondi Kraft division        Merchant Bank (2002 – 2004); legal adviser:
where responsibilities included Finance,          Specialised Finance Legal (2004 – 2005);
Procurement, Customer Service and                 programme manager: Legal Workstream:
Logistics. During the restructuring of Mondi      Barclays/Absa Integration Programme (June
was responsible for centralising business         2005 – January 2006); Head: Office of the
units into a Shared Service Centre and was        General Counsel (January 2006 – October
promoted to the position of Competency            2008); Head: Specialised Finance Legal
Centre Head: Finance & Procurement for            (December 2006 – November 2008).
Mondi Business Papers South Africa.
                                                  In December 2008, joined AFGRI as Group
Joined AFGRI in March 2007 as Group               legal counsel and acted as company secretary
finance manager and promoted to Group             during the period December 2008 – March
Chief Financial Officer and appointed to          2009. Appointed as an executive director of
                                                  AFGRI Operations Limited in October 2009.




                                                                                                                     AFGRI Limited Annual Report 2010
16
                                                                                              Chairman’s report


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


                                                                                                                                 TO
                                                                                                                              PIC E
                                                                                                                               COM




Jethro Mbau, Chairman




                                                                                                      Introduction
                                                                                                      In 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
                                                                         Growth the natural outcome




                                                                                                      common goal has been proven beyond doubt. The expectations of
                                                                                                      the world have been exceeded.

     Maize: Production (Tons millions)                                                                The success of the Soccer World Cup, being the third most attended
                                                                                                      tournament ever, is even more incredible with it coming less than
15                                                                                                    18 months after the most serious economic downturn in decades.
                                                            13.3
                                  12.7




                                                                                                      The resilience of soccer fans mirrors the resilience of international
                                               11.6




12                                                                                                    markets and humankind in general. Although surrounded by prophets
                                                                                                      of doom, the world economy has continued to function and despite
 9                                                                                                    early concerns of a ‘double-dip’ recession it now appears that the
                      7.1




                                                                                                      recovery, although delayed, will take hold.
          6.6




 6

                                                                                                      South African macro-economic policies, both leading up to the
                                         3.3



                                                      3.3



                                                                   3.3




 3                                                                                                    economic crisis and during it, have been both measured and
                            1.8
                1.7




                                                                                                      conservative, allowing the country to avoid the very worst of the
 0                                                                                                    recession’s symptoms. The country has lost a significant number of
           06          07           08           09          10
           South Africa
                                                                                                      jobs, witnessed a decline in markets and experienced a tightening of
           AFGRI regions                                                                              credit, but is a long way from the drastic cuts in public spending being



AFGRI Limited Annual Report 2010
                       Group overview                                                           2010 overview                                             Corporate governance
                                                                                                                                                                                           17




experienced in many European countries, prompted by the                                                in stark contrast to the potential damage being done to
threat of sovereign debt defaults.                                                                     our environment by the immense coal mining activities
                                                                                                       necessary to generate the electricity required for economic
The agricultural year                                                                                  growth. The loss of topsoil, water and dust pollution, and
Once again South Africa has experienced a generally                                                    damage to infrastructure currently necessary to fuel
favourable agricultural year, recording the second largest                                             economic growth must be balanced with the future
maize crop in history at 13.3 million tons. Late rains delayed                                         sustainability of the farming industry, the jobs it creates
the harvest of the summer crop and impacted upon the                                                   and the food security it provides.
yields and quality of soya, but the overall crop production
has been well above average. Although weather conditions                                               One AFGRI
play an important role in farming, it is often easy to                                                 During the past two years, the recently appointed executive
overlook the competency and hard work of the country’s                                                 management team at AFGRI have driven the ‘One AFGRI’
farmers, whether they practise commercial or subsistence                                               vision. This vision aspires to a single, united AFGRI in all
farming. This group of committed people play a                                                         aspects of its existence:
fundamental role in both the country’s food security                                                      A single, united company providing many diverse
and economy.                                                                                              products to a wide range of customers within the
                                                                                                          agricultural and food sectors.
Good climatic conditions have not necessarily been                                                        The seamless integration of various business units,
mirrored by economic conditions. The worldwide recession                                                  sharing experience, customers and knowledge, resulting
together with generally good harvests internationally has                                                 in the maximum level of service to customers whilst
resulted in lower grain prices. Although the strong Rand has                                              minimising costs.
led to a lowering in many input prices, the current                                                       A single, united workforce that has as its goal the
economic scenario of low input and low crop prices is a                                                   success of AFGRI rather than individual business units.
challenge that the South African farmer may need to face
for some time. The country’s limited logistics infrastructure,                                         I wholly support the One AFGRI vision.
increasing grain production in the rest of Africa and the
recently introduced administrative procedures for the                                                  This vision has given rise to a multitude of initiatives,
export of GMO products will further test the ability of                                                making the 2010 year a very busy one, for both the Board
farmers to turn a profit as prices remain depressed.                                                   and employees. Activities designed to promote the
Many farmers believe that the immediate solution to                                                    achievement of the vision include: approving a new
this challenge is to plant less. However, the long-term                                                strategy to grow in the food sector; evaluating and
sustainable solution to these challenges is economic                                                   approving a single Group-wide ERP system; confirming
growth. Positive growth and job creation will increase local                                           management’s proposed corporate actions; restructuring
consumption of primary and secondary agricultural                                                      the balance sheet to prepare for growth, welcoming new
products.                                                                                              directors onto the AFGRI Limited Board as a response to
                                                                                                       the King III recommendations relating to director rotation
As sustainability becomes more and more pervasive in our                                               and a balanced Board composition with sufficient
society farmers face further challenges from consumers                                                 independent directors; approving the restructure of the
who demand farming operations that are environmentally                                                 AFGRI Operations Board and the elimination of a
friendly and production procedures that follow good                                                    superfluous reporting level; restructuring certain business
farming practice. In the AFGRI area of operation, this is                                              units; revisiting the Group’s empowerment credentials;




      Total JSE commodity contracts traded




            -08     b-0
                        8
                              r-0
                                 8
                                       r-0
                                          8        8    8     8    8    8    8    8    8    9    9    9    9    9    9     9    9    9    9    9    9    0    0    0    0    0
                                                y-0 un-0 Jul-0 ug-0 pt-0 ct-0 ov-0 ec-0 an-0 eb-0 ar-0 pr-0 ay-0 un-0 Jul-0 ug-0 pt-0 ct-0 ov-0 ec-0 an-1 eb-1 ar-1 pr-1 ay-1 un-1
                                                                                                                                                                                   0
         Jan      Fe        Ma       Ap       Ma     J          A    Se   O    N    D    J    F    M    A    M    J          A    Se   O    N    D    J    F    M    A    M    J




                                                                                                                                                               AFGRI Limited Annual Report 2010
                     18
                                  Chairman’s report                                 continued




                                  commencing our sustainability journey; planning the                                  transformation, together with all other sectors of the South
                                  consolidation of offices; and ensuring preparedness for                              African economy. Such transformation should include the
                                  changes brought about by a variety of new legislation and                            redistribution of land to the previously disadvantaged, but
                                  corporate governance guidelines.                                                     must be supported through engagement with all
                                                                                                                       stakeholders and address dignified working conditions,
                                  These activities, positive in themselves, have also resulted                         appropriate employment conditions and remuneration,
                                  in the Board having a much closer working relationship                               skills transfer and development, appropriate compensation
                                  with management, a relationship that is both respectful                              for land and access to resources.
                                  and transparent, and one that builds confidence in AFGRI’s
                                  future.                                                                              The haphazard approach to land reform, the lack of
                                                                                                                       adequate training and funding for post-settlement
                                  All of these activities, and more, are discussed in greater                          communities, the in-fighting amongst beneficiaries and the
                                  detail throughout this integrated report, which in itself is a                       manipulation of the ‘willing buyer, willing seller’ concept to
                                  first for AFGRI and again a response to King III. Whilst we                          inflate land prices must all be addressed if reforms in the
                                  embrace these requirements, adoption of all of them will                             sector are to be successful.
                                  take time. This report will provide the Group with a
                                  ‘snapshot’ of its current position in regard to corporate                            The South African farming community supports food
                                  governance and sustainability and provide a roadmap for                              security, jobs, families and communities in areas away from
                                  its future. Although many of the Global Reporting Initiative                         the urban sprawl. These communities must continue to
                                  principles have been followed in this first integrated report,                       thrive in order to support the greater economic good. The
                                  we acknowledge that their application has not been                                   destruction of farms and infrastructure will lead to the
                                  exhaustive or complete. The achievement of this will be                              destruction of communities and drive an ever-increasing
                                  one of the challenges for 2011.                                                      number of jobseekers to the cities whilst undermining the
                                                                                                                       South African economy.
                                  Given the busy year, I must mention the high regard the
                                  Board has for all of the employees: a diverse group of                               All members of South Africa’s farming community must be
                                  people who through their positive work ethic contribute                              committed to the transformation of the agricultural sector
                                  greatly to the Group on a daily basis. Their performance and                         in South Africa. Only through a committed partnership
                                  morale make AFGRI a successful company. They remain our                              between landowners and employers, communities and
                                  single biggest asset and over the course of the year a                               employees, can such transformation be successful.
                                  variety of initiatives have been adopted to further fulfil the                       Transformation cannot be forced, nor should it be resisted.
                                  aspirations of our workforce.                                                        The equitable access to resources is fundamental to the
                                                                                                                       concept of the long-term sustainability of any economy,
                                  Transformation in South African agriculture                                          community or country.
                                  The farming sector and communities face many and varied
                                  challenges, including: climate change; climatic uncertainty;                         AFGRI itself is committed to its own transformation journey
                                  environmental management; globalisation of markets;                                  and in 2009 established an AFGRI Operations Sustainability
                                  competition for arable land; local economics; and crime.                             Committee. The committee reports to the Management’s
                                  Added to these challenges is the national imperative of                              Risk and Assurance Committee, which in turn reports to the
Growth the natural outcome




                                        Total maize area planted and production




                                               /81 1/8
                                                       2
                                                             /83  /84  /86  /87  /88  /89  /91  /92  /93  /94  /95  /96  /97  /98  /99  /00  /01  /02  /03  /04  /05  /06  /07  /08  /09  /10
                                            80       8     82 983 985 986 987 988 990 991 992 993 994 995 996 997 998 999 000 001 002 003 004 005 006 007 008 009
                                          19      19    19      1    1    1    1    1    1    1    1    1    1    1    1    1    1    1    2    2    2    2    2    2    2    2    2    2

                                                                                                 ‘000 tons        ‘000 Ha




                     AFGRI Limited Annual Report 2010
               Group overview                                    2010 overview                              Corporate governance
                                                                                                                                             19




Group’s Audit and Risk Management Committee. One                    Corporate governance
responsibility of this committee is improving the Group’s           AFGRI is fully committed to the principles of transparency,
empowerment credentials. Besides striving towards a                 integrity and accountability and the Board recognises that it
‘transformed AFGRI’, we welcome the opportunity to apply            is primarily responsible for corporate governance. In this
our skills, knowledge and infrastructure to contributing to         respect the Board has begun preparing an action plan to
the transformation of the industry and agricultural                 ensure compliance with all of the King III requirements by
communities it strives to serve.                                    30 June 2011. Progress towards achieving this goal is noted
                                                                    throughout this report.
Sustainability
Sustainability and transformation has taken route in AFGRI          Already the Board constantly compares its activities with
over the past year. The establishment of the AFGRI                  the principles included in King III. I’d like to especially thank
Operations Sustainability Committee will formalise                  the Board and Company Secretary for their dedication to
the approach the Group adopts towards its investments in            good corporate governance at AFGRI.
socio-economic development and enterprise development.
This committee, in conjunction with the Board will also             Prospects
manage the Group’s BEE scorecard performance, an area               The past agricultural year provides AFGRI with a solid
in which the Group has performed poorly in the past.                foundation for 2011. The large maize crop has resulted in
                                                                    there being nearly two million tons stored in AFGRI’s silos
Sustainability and transformation is not restricted to              at 30 June 2010. However, the large maize crop and the
managing elements of the BEE Scorecard. The introduction            lower crop prices pose a threat to the Group’s retail and
of a clear strategy for the Group, to increase the proportion       mechanisation operations in 2011 should individual farmers
of earnings from the food sector to 60% is just one of a            decide to reduce their plantings. A 5% – 10% reduction in
variety of initiatives to ensure the Group, having established      maize plantings is anticipated in the AFGRI area, although
a solid foundation, now goes from strength to strength.             plantings of wheat and soya will most likely increase.

Other traditional aspects of sustainability such as the             The recently adopted strategy for AFGRI is to grow the
environmental impact and environmental management will              business into the foods sector, so diluting the impact that
also be addressed by the committee. It has already begun            the cyclical nature of the Group’s traditional agriculturally
the process of establishing a baseline to measure future            focused operations has on its overall results. The recent
improvements and it is hoped that by 2011 we will have              disposal of the Lowveld and Natal regional retail stores and
introduced targets to many of the Group’s more ‘industrial’         the Tsunami chemical business also focuses the Group’s
business units. However, efforts to reduce emissions and            remaining agricultural activities towards the grain value
energy usage have already begun.                                    chain in a clearly demarcated region.


Overall we anticipate that our environmental impact will be         Changes were needed in the management and staffing
significantly lower than many observers would anticipate of         levels in certain business units during the year, regrettably
                                                                    resulting in retrenchments. The changes were necessary to
a company involved in agriculture. It is for this reason that
                                                                    align the businesses more closely with the strategy and to
we must constantly reinforce the nature of AFGRI as a
                                                                    ensure that costs are proportional to the business unit’s
services and products provider to the agricultural sector
                                                                    future activities. Further restructuring and alignment is
and a food company rather than a farming operation.
                                                                    anticipated during the current year and whilst job losses
                                                                    are always regrettable, the changes will not detract from
The traditional ‘Sustainability’ report is missing from this
                                                                    the services and products offered by AFGRI nor undermine
year’s integrated annual report as management take the
                                                                    its investment proposition.
bold initiative of integrating ‘Material issues’ throughout,
demonstrating the permanence and presence of
sustainability in all that we do.




                                                                                                                 AFGRI Limited Annual Report 2010
                     20
                                  Chairman’s report                       continued




                                  Appreciation                                                 at the Company’s annual general meeting in October.
                                  Mr Dave de Beer stood down as Chairman of the Board          Between them, these individuals have served AFGRI for
                                  with effect from 1 January 2010. Mr De Beer retained his     more than 40 years and we would like to truly thank them
                                  role as Chairman of the Audit and Risk Committee. On         for their considerable contributions during their long and
                                  behalf of all at AFGRI, I would like to thank Dave for the   loyal service.
                                  contribution made during his four years on the Board.
                                  Mr De Beer will retire at the annual general meeting and     I would like to extend my appreciation to the Group’s
                                  I wish him a long and fulfilled retirement.                  executive management, especially Messrs Chris Venter and
                                                                                               Jan van der Schyff; my fellow non-executive directors; the
                                  I would also like to welcome Messrs Dave Barber and          executive directors of AFGRI Operations Limited; all of the
                                  Lwazi Koyana who were appointed as independent               Group’s employees; and its customers and suppliers; for
                                  non-executive directors with effect from 10 January 2010.    making my first six months as Chairman both enjoyable
                                  Both have already made considerable contributions to the     and rewarding.
                                  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.
                                                                                               Jethro Mbau
                                  Mr Clive Apsey resigned as a director with effect from       Chairman
                                  1 January 2010 due to ill health. Messrs Koot Claassen,
                                  Kiewiet Ferreira and Francois van der Merwe will retire      31 August 2010
Growth the natural outcome




                     AFGRI Limited Annual Report 2010
         Group overview            2010 overview               Corporate governance
                                                                                              21




     O
   YT
COP ME
  CO




  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


                                                                  AFGRI Limited Annual Report 2010
22
                                                                           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.




Chris Venter, Chief Executive Officer




                                                                                   Introduction
                                                                                   For 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
                                                      Growth the natural outcome




                                                                                   debtors’ book) represents real progress towards aligning the Group
                                                                                   with the stated aim to operate throughout the grain value chain in
AFGRI silo capacity (Thousand tons)                                                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
                                        276   276
                                                                                   Poultry. This division was added to in 2010 with the buy-out of the
                            223
                                                                                   remaining minorities in Midway Chix and the acquisition of Rossgro,
                   179
          179                                 297
                                                                                   subsequent to year-end.
                                    222
                           112
                   58
           24                                                                      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
         3 938    3 938    3 938    3 938     3 937
                                                                                   rationalisation of six corporate and divisional offices into a single site
          06       07       08          09    10
                                                                                   in Centurion in October will contribute to the building of the One
      AFGRI managed facilities
      AFGRI bunker facilities                                                      AFGRI culture and allow for the smooth transition to a ‘shared
      AFGRI silo facilities                                                        services’ centric organisation.



AFGRI Limited Annual Report 2010
              Group overview                                   2010 overview                         Corporate governance
                                                                                                                                                           23




     Structuring for growth
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          AFGRI market share:
disposal of the Seed and Tsunami business units. The lead time and investment          Tractors and combine harvesters (%)
required to produce varieties of seeds is beyond the scope of what AFGRI wishes
                                                                                                                                                   47
                                                                                                                                              44




to achieve. The pre-season investment and the associated risks of the agricultural
chemical sector is an area that AFGRI believes is too volatile.
                                                                                                                                       38
                                                                                                                                       38
                                                                                                               35




                                                                                                                                  34
                                                                                                     32



                                                                                                                    31
                                                                                                          29




History has shown that crop production in South Africa is subject to significant
                                                                                                28




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                     Tractors                   Combine harvesters

its proportion of profits before tax from this sector to 60%.                            2006         2007               2008          2009         2010




                                                                                                           AFGRI Limited Annual Report 2010
                     24
                                  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
Growth the natural outcome




                                                                                     adopted an approved change control methodology so that the impact that this
                                 Average yields per ton: RSA vs AFGRI                initiative will have on all affected stakeholders is properly advised and managed.
                                                                                     Appropriate steps are planned to address customer, supplier and employee
                                                                      4.97
                                                             4.91




                                                                              4.86
                                                                    4.78




                                                                             4.76




                                                                                     issues. In particular, the creation of a Shared Service Centre within the new
                                                      4.54




                             5
                                                                                     Centurion building may result in a limited number of administrative job
                                      4.14
                                    3.98




                             4                                                       redundancies. Staff attrition is anticipated prior to the relocation of certain
                                                                                     administrative functions to Centurion and alternate positions will be sort for
                                               2.79
                                              2.71




                             3                                                       the remainder of the affected posts. The resulting redundancies will hopefully
                                                                                     be the last for some time.
                             2
                                                                                     World food production and security may be a reason to expand into Africa but
                             1                                                       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
                             0                                                       for AFGRI to expand its operations through its skills base. The Group is committed
                                     06        07       08           09      10
                                   RSA
                                   AFGRI regions




                     AFGRI Limited Annual Report 2010
               Group overview                                     2010 overview                              Corporate governance
                                                                                                                                             25




to its existing Zambian operation and the search for                 must contribute fairly to the infrastructure they share in
opportunities throughout the rest of Africa. Over the past           proportion to the damage that they do.
two years much effort has been invested into the search
for these opportunities by the individual business units. The        The impact of higher electricity charges has already been
current non-executive chairman of the Zambian board has              felt by AFGRI’s more industrial business units – silos, animal
now been tasked with the responsibility for coordinating             feed factories, oil crushing plants and the abattoir. These
these efforts and of driving an AFGRI strategy for the rest          increases in administered prices (both past and planned)
of Africa.                                                           will also impact on the farming community. The recently
                                                                     negotiated above inflation state sector wage increases will
     External factors                                                also impact the Group and the agricultural sector
                                                                     negatively, driving wage demands and higher inflation.
Climatic conditions for agriculture in South Africa have
generally been good for the past three years. However, in
                                                                          Profitability and financial position
an ever-changing globalised world, local climatic conditions
are not enough to guarantee prosperity for South Africa’s            Extensive comment is made throughout this report
farmers. Crop production elsewhere in the world, exchange            regarding the Group’s and the individual business units’
rates and economic conditions all impact on the                      results. The results of the individual businesses are very
profitability of the country’s farmers. The response to the          satisfying with the exception of the grain trading subsidiary.
third consecutive year of a good maize crop and the                  This operation continues to produce very volatile results
resultant decline in prices is to plant less, to reduce the          as it is impacted upon by agricultural conditions,
carry over stock in 2011 and encourage a price recovery.             infrastructure challenges, execution cost increases and
This is a short-term view. For as long as South African              the valuation of significant quantities of grain. A complete
farmers can produce grain they should produce as much                review of the products and services of this subsidiary,
as possible. It is for the government and other sectors of           together with its processes and personnel has already
the economy to generate new markets and higher                       commenced.
consumption through improved export infrastructure and
economic growth, while efforts are made to eliminate                 The more traditional, agriculturally focused businesses of
world crop surpluses arising from subsidised production.             grain handling and storage and the retail and equipment
                                                                     divisions once again made a significant contribution to the
The recently introduced controls on the export of GMO                results. The results of the Logistics division, including the
products placed a further restriction on South Africa’s              grain handling and storage business unit, are underpinned
ability to access new markets. These short notice                    by successive high maize crops in the AFGRI area, and even
restrictions and their very small analytical tolerances,             improved upon by the lower local consumption and
together with the unpreparedness of counterparties in                exports, resulting in higher stock levels, stored for longer
foreign countries halted the export of grain crops from              periods. The Retail and Equipment business unit, despite
South Africa for a period of nearly three months.                    seeing a drop in tractor sales met the recession and the
                                                                     declining agricultural sales cycle head-on, improving
AFGRI remains aware of the challenges faced by South                 margins and cutting costs to ensure that it equalled its
African farmers and the agricultural sector as a whole and           2009 performance. Sales of non-productive property
manages the risk through ongoing interaction with                    assets in this division, and the disposal of 23 stores in the
customers and sector bodies.                                         Lowveld and Natal regions also contributed positively to
                                                                     the Group’s cash flow.
On a smaller scale the coal mining activities in the
Mpumalanga province are beginning to have an impact on               The Foods sector of the business made an increased
the agricultural sector and the farming community’s way of           contribution to the Group’s results through improved profits
life. Arable land, once mined can never be reclaimed, it is          at AFGRI Poultry and a repeat of the 2009 profits of the
lost forever. The quantum of the lost arable land at present         Animal Feeds business unit. Both of these business units
is relatively small; it is the peripheral impacts that threaten      have embarked on a growth strategy for 2011 with the
agriculture, such as water and air pollution, increased wage         commissioning of a feed mill in Pietermaritzburg and the
demands and the deterioration of arterial roads, vital for           acquisition of Rossgro chickens. The Oil and Protein
the transport of agricultural products. A balance must be            division, which trades as Nedan, produced considerably
found between the destruction of arable land and farming’s           improved results during 2010 and also has plans to expand
goal of maximising nature’s gifts. The respective parties            its product offering in the new year.




                                                                                                                 AFGRI Limited Annual Report 2010
                     26
                                  Chief executive officer’s report                                 continued




                                  The pleasing results for 2010 have been complemented by          To address the need to improve skills development the
                                  the improved financial position of the Group. The greater        Human Resources department has created a dedicated
                                  alignment of financing facilities with the assets funded and     training and development position. This position is expected
                                  the Group’s operational requirements, together with the          to be filled before the end of September.
                                  disposal of non-core business units and non-productive
                                  property assets have contributed to a stronger balance                Transformation
                                  sheet – one which can support AFGRI’s growth into the
                                                                                                   I was shocked and disappointed when, in September 2009,
                                  future.
                                                                                                   EmpowerDEX issued the Group’s BEE rating for 2008. AFGRI
                                                                                                   had slipped from a level 6 to a level 7 contributor, missing
                                  With a proven track record, including five consecutive years
                                                                                                   the level 6 required score by 0,29 points. Anticipating little
                                  of profit growth (in both pre- and post-tax profits), the
                                                                                                   improvement during the 2009 year, the verification for this
                                  improved balance sheet and a clear vision of the future
                                                                                                   period was scrapped and a thorough analysis of the 2008
                                  which includes the grain value chain, expansion into the
                                  Foods sector and Africa, AFGRI has met the challenges of         scorecard undertaken.

                                  poor agricultural years, management changes and the
                                  global recession to emerge a stronger and more aligned           AFGRI entered into a black empowerment structure with
                                  business dedicated to benefitting all stakeholders.              our partners Agri Sizwe in 2004 and has been proud to
                                                                                                   think of itself as one of the most empowered companies
                                       Human capital                                               in agriculture. The Group has even received awards in
                                                                                                   this regard.
                                  AFGRI recognises the importance of its human capital and
                                  adopts human resources management practices which are
                                                                                                   Despite being empowered AFGRI has struggled to
                                  geared towards building a community of inspirational
                                                                                                   transform, especially in areas of employment equity and
                                  people, having a common purpose. The One AFGRI principle
                                                                                                   skills development. But the BEE score becomes irrelevant
                                  is a cornerstone towards the building of that community.
                                                                                                   when one considers the disservice we are doing to
                                  Management acknowledge that, unlike business projects,
                                                                                                   ourselves and our employees. In a rapidly transforming
                                  the management of human capital requires a constant
                                                                                                   society we cannot afford to be without an appropriately
                                  ongoing focus to ensure that appropriately skilled
                                                                                                   skilled and diverse workforce.
                                  employees consider AFGRI as their second home where
                                  they are rewarded for applying those skills in a safe and
                                                                                                   I have little doubt that the Group will return to contributor
                                  pleasant environment.
                                                                                                   level 6 when the 2010 verification is performed. I also
                                                                                                   appreciate the challenge of improving to a level 5. That’s
                                  After the regretful retrenchment of a small proportion of
                                                                                                   why AFGRI has prioritised skills development for 2011 as
                                  AFGRI’s employees during the year, it continues to employ
                                                                                                   a precursor to achieving significant employment equity
                                  over 4 000 (full and part time) employees in South Africa
                                                                                                   in later years.
                                  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.                            The Agri Sizwe partners and structure have served the
                                                                                                   Group well for nearly six years. The Company recently
Growth the natural outcome




                                  Various initiatives were embarked upon during the past           approached shareholders to approve a restructuring of the
                                  year, some were completed and others will be a focus of          original transaction, providing for the exit of the original
                                  2011. A Group-wide review of job descriptions and grading        founding members of Agri Sizwe, allowing them to exit with
                                  completed just before the year-end has allowed us to             the increase in value created during their involvement
                                  clearly understand the composition of the workforce across       through selling their future entitlements to Izitsalo (Pty)
                                  all of the individual business units. This will be a key input   Limited, the Company representing the interests of the
                                  into future recruitment and hiring policies.                     employee and employee charitable trusts. This transaction
                                                                                                   was approved by shareholders on 27 August 2010 and has
                                  An initiative that I am particularly proud of is the extension   an effective date of 31 May 2010. Although the Group’s
                                  of medical aid cover to all of AFGRI’s employees. Through        empowerment credentials do not change, a large number
                                  the medical aid division of AFGRI Insurance brokers, the         of beneficiaries will benefit more from AFGRI’s future
                                  Group has provided all A and B Paterson scale grade              growth.
                                  employees with medical aid membership benefits. Although
                                  these benefits come at a cost to the Group, I believe the        As with our goal of seamless service to customers across
                                  goodwill generated and the improved health of the                the value chain, the One AFGRI philosophy is the foundation
                                  workforce will pay handsome dividends in the future.             for a single, but culturally diverse AFGRI.



                     AFGRI Limited Annual Report 2010
               Group overview                                    2010 overview                             Corporate governance
                                                                                                                                            27




     Products and services                                          specifications can be made through a variety of techniques,
                                                                    including improving digestibility and absorption of nutrients
AFGRI is committed to serving all participants in the value
                                                                    through improved formulations and manufacturing
chain which underlies its strategy. Its Financial Services and
                                                                    processes.
Agri-Services segments develop products for producers
and consumers of the primary agricultural products grown
                                                                         The environment
in its areas of operations. It provides finance, inputs,
insurance, mechanisation equipment, secure storage and              As a company with its roots in agriculture, we have an
broking products to farmers and finance, insurance, secure          enormous respect for the environment and the gift that is
storage and broking services to consumers such as millers.          nature. The Group has always recognised its environmental
The Group’s retail stores service customers beyond the              responsibilities under the law and more recently has begun
primary producer, reaching members of the rural and                 to identify opportunities whereby it can lessen its impact
peri-urban communities.                                             on the environment, often saving costs or becoming more
                                                                    efficient in the process.
AFGRI constantly reviews its product offerings, from its
retail store shelves to its insurance and broking services in       The phenomenon of climate change has driven
order to address the variety of customer needs. In many             environmental awareness and reporting requirements to
instances, products are developed to accommodate                    new heights. AFGRI is committed to improving the overall
individual customer needs.                                          quality and extent of its reporting, including environmental
                                                                    and climate change matters. In compiling this integrated
The One AFGRI philosophy, together with strategically               annual report it has followed the Global Reporting Initiative
aligned performance management programmes,                          process, and has taken the first steps to enable it to
encourages all employees to maximise the service levels             monitor its impact on the environment, and the setting
and available product offerings to customers, even though           of targeted improvements. Few baselines had been
these may be offered by a different business unit. Thus,            established at year-end but this will be a priority for 2011.
storage customers will be supported with finance,
insurance and broking solutions.                                    The Group has adopted an Environmental Policy and is
                                                                    currently developing an Environmental Management
Where possible, the services offered by the Financial               System for use throughout its operations. The Group’s
Services and Agri-Services segments of AFGRI are extended           environmental shortcomings have been identified through
to AFGRI Foods and the customers in the Foods sector.               the conduct of a gap analysis and remedial action will be
                                                                    prioritised in the new year.
In order to ensure customer satisfaction, AFGRI
concentrates on its core competencies, adopts world-class           Climate change has the potential to damage the productive
practices driving continuous improvement and reviews its            qualities of the regions in which AFGRI operates. As such,
product range regularly. A key aspect of the product range          although the Group believes it does not significantly
review is having a comprehensive knowledge of our                   contribute to climate change itself, it will extend efforts to
customers’ needs and rating their satisfaction.                     reduce its emissions of greenhouse gases and also
                                                                    promote awareness of climate change issues.
Each business unit is responsible for its product range,
customer engagement and satisfaction ratings. However,
                                                                         Corporate governance
the commonality of customers across the many business
units allows the Group to be alerted at an early stage to a         AFGRI is committed to the highest levels of corporate
poorly performing product or business unit. In addition,            governance. The concepts of transparency, respect, ethics
many customers interact with the Group’s Financial                  and integrity set the barriers for all aspects of management,
Services division during the process of credit granting and         whether it is reporting to investors, engaging in corporate
credit reviews. This allows for regular contact with                actions, employee relationships or interaction with
customers and an opportunity to gain valuable feedback.             colleagues. The release of King III and its requirements is
                                                                    viewed by management as an opportunity to further define
At AFGRI Foods, product innovation is driven through                and formalise the Group’s corporate governance structures.
relationships with international leaders in technology and
processing and academic institutions. In particular, at             We believe that compliance with the requirements of
Animal Feeds, product development focuses on improving              King III by 30 June 2011 will provide AFGRI with considerable
the conversion of animal feed, mainly composed of                   benefits, not least of which will be a Board consisting of a
vegetable-based raw materials, to animal protein – eggs,            greater number of independent non-executive directors
poultry meat, milk, etc. Improvements in product                    and the skills these persons will introduce to the Group.



                                                                                                                AFGRI Limited Annual Report 2010
                     28
                                  Chief executive officer’s report                                 continued




                                  The Group already substantially complies with the                To the many directors who are retiring at the annual
                                  requirements of King II and both the Board and                   general meeting, thank you for staying the course with
                                  management constantly refer to King III regarding their          AFGRI. To the new members of the Board: “welcome”,
                                  conduct. However, we are well aware of the history of weak       I look forward to a productive relationship with you all.
                                  reporting when dealing with stakeholders, especially the
                                  investment community. Efforts to address this began in           My fellow directors on the AFGRI Operations Board have
                                  2009 with the early adoption of selected IFRS standards          been an invaluable source of guidance and debate for
                                  and the introduction of a more ‘user friendly’ segment           which I am truly thankful.
                                  statement. In 2010 training in the Global Reporting Initiative
                                  was provided to staff members.                                   Finally, to the more than 4 000 employees that are One
                                                                                                   AFGRI – thank you for all your hard work and dedication.
                                  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
                                                                                                   Chris Venter
                                  dedication. Many of the Board members have been called
                                                                                                   Chief executive officer
                                  upon to participate beyond the expected Board and
                                  committee meetings, which in themselves have been more
                                                                                                   31 August 2010
                                  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.
Growth the natural outcome




                     AFGRI Limited Annual Report 2010
   Group overview                2010 overview            Corporate governance
                                                                                         29




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




                                                             AFGRI Limited Annual Report 2010
30
                                                        Review of operations


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

                                                                AFGRI FINANCIAL SERVICES


                                                                AFGRI Financial Services
                                                                AFGRI 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
                                   Growth the natural outcome




                                                                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.



AFGRI Limited Annual Report 2010
               Group overview                                    2010 overview                              Corporate governance
                                                                                                                                            31




Depressed agricultural commodity prices (maize, wheat and           The specialised lending book was reduced through the
soya) arising from good worldwide harvests and lower                withdrawal from certain product lines, notably its debtors
demand due to the recession resulted in a decline in                discounting book, and through the strong performance of
commodity trading activities on both the supply and                 the underlying debtors which led to the settlement of
demand side. In South Africa, farmers financed silo                 facilities and the concomitant reduction in the book’s
certificates in the hope that prices would improve while            concentration risk.

millers waited for a further lowering of prices.
                                                                    In total, the debtors book reduced year-on-year by more
                                                                    than R1 billion.
AFGRI Capital is perhaps the most regulated business unit
within the Group, and certainly has the greatest need for
                                                                         Profitability and financial position
compliance. The domestic regulators to which this
operation is responsible include the National Credit                With the reduction in the debtors book and the drive to
Regulator, the Financial Services Board and the Reserve             improve AFGRI Capital’s cost to income ratio, 19 employees
                                                                    were retrenched towards the end of 2009 at a cost of
Bank. Although Gro Capital is not an accountable
                                                                    R1,2 million but resulting in annual savings of over
institution, the introduction of Basel III may lead to further
                                                                    R5 million. It is always regrettable when loyal staff members
increases in borrowing costs.
                                                                    are asked to leave a company and AFGRI considered this
                                                                    decision carefully. AFGRI Capital secured alternate positions
Regulators dictate the majority of the business unit’s
                                                                    for a further three employees.
compliance activities once a product and a customer have
been matched. The National Credit Regulator dictates the            AFGRI Capital also houses the Group’s treasury activities
approach to credit granting, marketer conduct, reporting            where day-to-day cash management is undertaken. These
and customer communication practices, including the                 activities not only include the distribution of daily cash
ability to communicate in four official languages. To address       positions to senior management but also ensure the most
these compliance challenges AFGRI Capital employs                   efficient utilisation of facilities. Throughout the Group a
11 dedicated compliance officers.                                   variety of funding requirements are met by AFGRI Capital,
                                                                    securing debtors’ funding (which is both ringfenced and
Despite the number of regulators and the extent of the              focused), general banking facilities and specialist lending
compliance team, AFGRI Capital benefits greatly from these          products for commodities.
regulations, not only by satisfying many of the Group’s risk
                                                                    In line with an earlier adopted strategy to grow the debtors
management requirements but often also satisfying
                                                                    book and in response to the 2008 credit crunch, the Group
lenders’ concerns.
                                                                    finalised certain long-term funding arrangements to ensure
                                                                    liquidity. By June 2009, AFGRI Capital had secured
     Structuring for growth
                                                                    R5,4 billion of long tenure debtors’ facilities necessary to
With the introduction in 2009 of the One AFGRI philosophy           meet its obligations to customers. These facilities were
and the alignment of the AFGRI Group to the maize value             arranged with several lenders, thus managing its liquidity
chain various initiatives were adopted to reduce the                and pricing risk.
Group’s credit exposure to regions and commodities
                                                                    Now, with the reduction in the debtors book and an easing
outside of this value chain.
                                                                    of credit, the Group finds itself with surplus capacity. Facility
                                                                    utilisation averaged 63% for the year. Whilst liquidity was
This resulted in the producer lending business divesting
                                                                    secured, the excess capacity came at a cost of R6,9 million
in AFGRI Western Cape, reducing the debtors book by
                                                                    to the business. Efforts are already under way to
R230 million and a concomitant year-on-year reduction
                                                                    restructure the various facilities to bring them in line with
in profit of R4,3 million. The producer lending business            the Group’s requirements.
otherwise maintained its client base and managed to
increase margins through the repricing of its products in           Interest income declined by 34% in line with the reduced
line with the increase in funding costs. Going forward the          debtors book and lower interest rates whilst finance costs
Group’s exit from the Lowveld and Natal regions may result          declined by 39%, resulting in a much improved margin for
in a further reduction of the debtors book.                         AFGRI Advances and a return to profitability.




                                                                                                                AFGRI Limited Annual Report 2010
                     32
                                  Review of operations                             continued




                                  Sales of goods and services for this segment include                  Products and services
                                  insurance and commodity broking commission income,
                                                                                                   The One AFGRI philosophy encourages business units
                                  fee income for AFGRI Advances, and sales of goods and
                                                                                                   across the value chain to cooperate in an effort to provide
                                  services in Zambia. The increase of 23% is the result of a
                                  33% increase in fee income earned by AFGRI Advances,             a complete service to common customers. In this regard
                                  a doubling of commodity broking commissions and a                AFGRI Capital provides various financial services to
                                  17% increase in the Zambian subsidiary’s turnover.               customers of many of the other business units, including
                                                                                                   AFGRI Retail and Mechanisation, AFGRI Trading, AFGRI
                                  The reduction in other operating income is the result of the     Animal Feeds (for capital funding), AFGRI Handling and
                                  unwinding of a preference share investment structure             Storage and AFGRI Broking.
                                  with a client. This is also reflected in the approximate
                                  R100 million reduction in non-current assets and liabilities     The business continued to focus on servicing the farmer
                                  in the segment’s balance sheet. Refer to note 8 of the           through its producer lending product line and the corporate
                                  annual financial statements.                                     sector through its specialised lending business. Products
                                                                                                   are customised to agriculture in general and often to meet
                                  Increased depreciation and amortisation is the result of
                                                                                                   the requirements of individual clients.
                                  amortisation on the Treasury administrative software
                                  implemented in 2009 and the intellectual property right,
                                                                                                   During the year, AFGRI Capital’s treasury arm secured the
                                  trademark and patent on automated banking machines
                                                                                                   right to act as agents for customers wishing to transact in
                                  acquired in 2009. Refer to note 4 of the annual financial
                                                                                                   foreign exchange, allowing it to enter into this profitable
                                  statements.
                                                                                                   market and provide additional services and products to its

                                  Careful margin management, improved non-interest                 existing clients and target new customers.
                                  income and cost-cutting measures resulted in the AFGRI
                                  Advances division returning to profitability in 2010. A          Similarly, AFGRI Zambia secured a non-deposit taking
                                  considerable improvement from the Broking division and           banking licence from the Zambian Central Bank. This
                                  an increase in profitability of the Treasury division resulted   licence will be housed in a wholly owned subsidiary of the
                                  in the segment reporting a profit before tax of R23,9 million,   Zambian company and will allow the operation to expand
                                  an increase of R41,8 million.                                    its current finance product offerings.

                                  Despite an increase in cash collateral percentages               AFGRI’s Financial Services division fosters long-term quality
                                  demanded from financiers, the overall reduction in the           relationships with its clients through a branch network
                                  utilisation of facilities resulted in a reduction in cash and    embedded in rural areas, supporting customer visits by
                                  cash equivalents and cash collateral deposits of over            marketers. Marketers also attend regularly scheduled
                                  R140 million.
                                                                                                   farmer forums organised by the other business units,
                                                                                                   notably the Retail and Equipment division. The knowledge
                                  The large maize crop and the resulting decline in prices,
                                                                                                   gained at such forums is invaluable in identifying customer
                                  and therefore insured values, resulted in a reduction in
                                                                                                   needs and product opportunities.
                                  crop insurance commissions. Also, the challenging
Growth the natural outcome




                                  economic climate resulted in a reduction in the sales of life
                                                                                                   All customers of the Financial Services division complete a
                                  assurance products. Notwithstanding these factors, AFGRI
                                  Insurance maintained its earnings level through improved         financial needs analysis, further targeting the specific needs
                                  sales of employee benefits and general insurance products.       of a customer. These analyses are conducted well ahead of
                                                                                                   the planting season, making available ‘preapproved’ credit,
                                  The Zambian operation experienced lower international            allowing the client to concentrate on his core business.
                                  grain trading volumes, resulting in a 54% reduction in profit    Staff training is given to ensure regulatory compliance and
                                  before tax.                                                      to ensure high levels of customer service.




                     AFGRI Limited Annual Report 2010
   Group overview                 2010 overview             Corporate governance
                                                                                            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




                                                                AFGRI Limited Annual Report 2010
                     34
                                  Review of operations                            continued




                                                                                                 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
                                  AFGRI AGRI SERVICES                                            have been produced on 2,7 million hectares at an average
                                                                                                 yield of nearly 5 tons/ha. This increase in yield has been
                                  AFGRI Agri-Services                                            driven by a variety of factors, including cultivars (including
                                  The Agri-Services business of the AFGRI Group comprises        GMO), reduced plantings on marginal lands, and much
                                  the Retail and Equipment (formally Producer Services) and      improved farming practices.
                                  the Logistics Services divisions. Both divisions focus on
                                  serving the primary agricultural production sector within      South Africa has now experienced three very good crop
                                  AFGRI’s geographical area. This area, including the            growing years and a considerable surplus of maize is
                                  Mpumalanga, Gauteng, North West and Free State                 available in the market (the carry-over stock is estimated at

                                  provinces are South Africa’s key grain growing areas,          between 3 and 3,5 million tons). This has depressed prices
                                                                                                 to approximate export parity and may lead to a reduction in
                                  especially for maize and wheat but also include
                                                                                                 the area to be planted for the 2011 crop. In addition, there
                                  soya and sunflower.
                                                                                                 is every indication of relatively good grain crops in
                                                                                                 neighbouring countries, reducing the demand for regional
                                  Retail and Equipment, consisting of the Retail (including
                                                                                                 exports. Early indications are that maize plantings in the
                                  equipment) and Primary Inputs business units provide
                                                                                                 AFGRI area may be reduced by between 5% and 10%,
                                  farming inputs, requisites and John Deere equipment to
                                                                                                 although soya may be planted in its place.
                                  farmers, and through its expanding Farm City network, the
                                  general public. The division operates 35 branches branded
                                                                                                 Deep sea exports of grain were restricted by legislation,
                                  ‘Town and Country’ and four Farm City stores. Eleven           national infrastructure limitations and the sharp fall in
                                  dedicated John Deere workshop centres are strategically        international freight costs. The recently introduced
                                  distributed throughout AFGRI’s region. The entire retail       Genetically Modified Organisms Amendment Act, No 23 of
                                  network leverages off a cost-effective import, wholesale       2006 has resulted in a reduction in the number of countries
                                  and distribution operation centrally located in Bethlehem.     to which South Africa can export grain. Inefficiencies within
                                  Retail sales are further supported by the availability of      Transnet and the resultant poor rail delivery service and
                                  credit from AFGRI Financial Services in the stores. Over       reduced rail capacity for grains has resulted in the industry
                                  70% of Town and Country store sales are on credit.             increasing deliveries by road, resulting in higher execution
                                                                                                 costs.
                                  The Logistics Services division is composed of the Group’s
                                  grain Handling and Storage business unit, the associated       Reduced exports and the larger crop had a positive impact
                                  Logistics business, and AFGRI’s grain trading arm. The         on the Handling and Storage business.
                                  Handling and Storage business consists of 64 grain storage
                                  silo installations, nine vertical bunker storage sites and     After the exceptional price increases in agricultural inputs
Growth the natural outcome




                                                                                                 during 2008 and 2009, the agricultural economy now finds
                                  13 sites under collateral management. In total, the division
                                                                                                 itself in a period of deflation. Farmers respond quickly to
                                  has some 4,3 million tons of storage capacity. The Logistics
                                                                                                 international prices and exchange rates and anticipate
                                  business is composed of a relatively small fleet of vehicles
                                                                                                 price increases. Farmers also defer purchases during a
                                  but through a close relationship with the Handling and
                                                                                                 period of declining prices. As such, the Retail and
                                  Storage and Trading operations is able to expedite efficient
                                                                                                 Equipment division finds itself exposed to even greater
                                  logistics services to consumers of grain.
                                                                                                 volatility in sales, with key selling periods becoming ever
                                                                                                 shorter during the planting and growing seasons.
                                       External factors

                                  The operations and results of both divisions’ of AFGRI              Structuring for growth
                                  Agri-Services are driven by agricultural conditions within     The Retail and Equipment business unit disposed of 23 of
                                  AFGRI’s region, often in a counter-cyclical manner. A large    its retail operations during the year. This disposal of stores
                                  maize crop in one year may lead to fuller silos and longer     in the Lowveld and Natal regions further aligned the
                                  storage periods in the next. However, a large crop is often    business unit with the One AFGRI philosophy, more closely
                                  followed by lower grain prices and reduced plantings. This     focusing efforts on South Africa’s key grain growing areas.
                                  counter-cyclicality is never exact as farmers rotate crops     The disposal of these stores reduced the business unit’s
                                  and more recently trade ‘paper’.                               headcount by more than 30% whilst reducing its retail area



                     AFGRI Limited Annual Report 2010
               Group overview                                      2010 overview                            Corporate governance
                                                                                                                                             35




by some 33%. The disposal of these branches led to the                margins were improved despite declining prices.
overall trade density per square metre in the retail stores           Productivity in workshops was increased from 80% to 85%
increasing by 4,8% and in the spares areas by 14,4%.                  and this in turn led to an improvement in the Customer
                                                                      Satisfaction Index (CSI) from 86% to 88%, well above the
The Handling and Storage division increased its available             national average.
capacity by 104 000 tons during the year, or 2%. This growth
was achieved through the construction of three new                    The Equipment division sold 418 tractors (2009: 641) at
permanent bunker facilities in the traditional grain storage          a regional market share of 31% (2009: 35%) and 40 combine
area. A total of 2 000 tons of storage capacity was lost              harvesters (2009: 48) at a regional market share of
when a silo was broken down following the sale of the land            47% (2009: 44%). The decline in new equipment sales had
under a land claims settlement.                                       a marked impact on the division’s results that was partly
                                                                      offset by higher spares sales which reflected a year-on-year
AFGRI also manages a further 276 000 tons of storage on               increase of 7%.
behalf of clients. The target for the 2011 financial year is to
increase the Group’s storage capacity by an additional                Only the more urban located Farm Cities disappointed as
100 000 tons through the construction of three more                   consumer spending was restricted by economic conditions.
permanent bunker installations. In addition, the silo facilities      Failure to grow market share in these stores however did
at the recently acquired Pietermaritzburg animal feed                 not mean a deterioration in results, as cost-cutting
factory provide access to a further 18 000 tons of storage            measures and improved margins saw a reduction in the
capacity in this area.                                                loss made by these businesses to R4,2 million
                                                                      (2009: R11,8 million).
AFGRI’s reputation for quantity and quality control ensures
that it is strategically positioned to act as collateral manager      The import, wholesale and distribution operation in
of Food Security actions in conjunction with banks,                   Bethlehem reported pleasing results as it grew market
investors, non-governmental organisations and government.             share and margins. The operation services other
                                                                      cooperatives throughout the country and has recently
AFGRI Trading introduced a new administrative and                     secured the distribution rights for John Deere clothing and
accounting system during the year. This in turn resulted              novelties.

in greater automation of processes, leading to the
redundancy of 16 positions and a saving of approximately              Despite the decline in commodity prices and the resulting

R2 million per annum in personnel costs. In light of the              reduction in turnover, the Retail and Equipment division

challenges faced by the trading operation it has committed            improved its operating margin during the year through
                                                                      proactive cost management. In terms of International
to a review of its trading model. Competition remains fierce
                                                                      Financial Reporting Standards, once assets are classified as
and a change to the current logistical environment does
                                                                      held-for-sale, no further depreciation should be provided on
not seem likely. The business must adopt a more
                                                                      them. This resulted in a reduction in the division’s
streamlined approach, reducing the costs and stock levels
                                                                      depreciation charge for the year.
to mitigate market influences. The division will adopt an
ALCO (assets and liabilities committee) model in the
                                                                      The Australia subsidiary, whose results are included with
coming months.
                                                                      those of the Retail business unit, reported a 13% reduction
                                                                      in profit before tax due to lower margins in a very
     Profitability and financial position
                                                                      competitive sales environment following the introduction of
Retail and Equipment recorded a 16% decline in turnover               state subsidies for the purchase of new equipment.
(after adjusting for the disposal of the Lowveld and Natal
retail stores). A significant portion of this decline can be          When considering the overall profitability of the Retail and
attributed to the 25% to 40% reductions in fertiliser and             Equipment division, it is important to consider the
animal feed retail prices. Sales volumes for the division’s           significant once-off items included in both the 2009 and
retail lines remained in line with the prior year but bulk            2010 results. In 2009 the Group reported a R29,6 million
store sales (fertilisers etc) and direct sales reported               pre-tax gain due to negative goodwill arising on the
volumes lower than 2009.                                              acquisition of the share in a tobacco associate. During 2010
                                                                      the division sold non-productive properties, realising capital
In anticipation of a slower sales cycle an increased focus            profits of approximately R12,6 million. The comparative
was placed on stock management, reducing large orders of              capital profits figure for 2009 was R29,1 million. These
high value items, and cost control. Operating expenses for            capital and once-off items must be eliminated from both
the division were reduced by 4% during the year whilst                the current and prior years’ results for the purposes of



                                                                                                                 AFGRI Limited Annual Report 2010
                     36
                                  Review of operations                             continued




                                  drawing comparisons. Other capital profits were realised by        Higher net assets throughout the year and the daily
                                  the division through the sale of business units and                calculation of balances by the newly introduced treasury
                                  subsidiaries but these are reported under the results of           software resulted in a substantial increase in the business
                                  discontinuing operations.                                          unit’s internal interest charge.


                                  The Retail and Equipment division reported a profit before         Overall the Group’s trading subsidiary reported a loss
                                  tax of R86,3 million including capital profits. After adjusting    before tax of R33,9 million (2009: profit before tax
                                  both the current and prior year for capital profits and            R12,5 million).
                                  once-off items, the division achieved a 5,4% increase in
                                  profit before tax (after a reduced allocation of corporate              Products and services
                                  costs), a satisfactory result given the market conditions.
                                                                                                     For the Retail and Equipment division, customer service
                                                                                                     begins with knowing all of the customers in the stores
                                  AFGRI’s Handling and Storage business unit once again
                                                                                                     ‘catchment’ area and regular farm visits and attendance at
                                  produced an excellent year. High opening stock levels and
                                                                                                     farmer forums. Floor staff in the stores is trained in
                                  increased storage periods of up to 15% supported a fine
                                                                                                     customer service and product awareness. Similarly, point of
                                  performance where efficiency improvements and cost
                                                                                                     sale staff is trained to offer friendly and efficient service.
                                  containment also make valuable contributions. However,
                                  longer storage periods also mean fewer dispatches and a
                                                                                                     On the equipment side, prospective John Deere technicians
                                  reduction in handling revenue. The net effect of the higher
                                                                                                     attend a training academy whilst receiving practical training
                                  stock levels and lower dispatches approximates
                                                                                                     in the division’s workshops. The division participates in the
                                  R20 million.
                                                                                                     John Deere international Customer Satisfaction Index and
                                                                                                     constantly strives to improve its score.
                                  Despite only a 9% increase in revenue, the combined
                                  Handling and Storage and Logistics business units reported
                                                                                                     As farms become bigger and more independent of
                                  a profit before tax of R184,3 million, an increase of 33% on
                                                                                                     agri-businesses it is vital to engage with customers at a
                                  2009.
                                                                                                     senior level to ensure that AFGRI adds value to these large
                                                                                                     operations. Top clients of AFGRI are visited on a regular
                                  The grain trading division sold some 2,8 million tons of
                                                                                                     basis by senior executives of the Group to obtain feedback
                                  grain, of which 65% was sold on a delivered basis. Poor rail
                                                                                                     on customer service and satisfaction, ensure the products
                                  delivery service resulted in only 10% of these commitments
                                                                                                     and services meet the customers’ needs, identify product
                                  being executed by rail, with the remaining balance
                                                                                                     enhancement possibilities and note any product, service or
                                  delivered by road. The impact of this is severe, with an
                                                                                                     personnel complaints.
                                  increase in delivery costs and time delays experienced
                                  across the supply chain. Stock holding costs increased as
                                                                                                     The primary responsibility of Handling and Storage is to
                                  stock, acquired for export, was held for longer periods until
                                                                                                     guarantee the quality and quantity of grain under its
                                  it could be utilised locally. A shortage of stock in certain key
                                                                                                     management. The provision of excellent service is vital to
                                  locations resulted in higher procurement premiums being
                                                                                                     the division’s future. Service excellence is achieved through
Growth the natural outcome




                                  incurred in order to meet obligations.
                                                                                                     proper customer engagement and staff training. Contact
                                                                                                     with customers is achieved through formal meetings such
                                  Turnover declined by 35% compared to 2009, which
                                                                                                     as farmer union meetings and forum meetings as well as
                                  included substantial maize exports to east Africa. Sales
                                                                                                     personal visits by senior silo personnel. All staff members
                                  commission percentages also decreased in 2010. More
                                                                                                     at Handling and Storage are formally qualified through
                                  importantly, execution costs (transport and carry or holding
                                                                                                     attendance at relevant industry courses.
                                  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.



                     AFGRI Limited Annual Report 2010
                Group overview                                  2010 overview                            Corporate governance
                                                                                                                                         37




                                                                   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.
AFGRI FOODS

AFGRI Foods                                                        The division has also enhanced its distribution channels
                                                                   through the opening of new depots in Bloemfontein,
The AFGRI Foods segment consists of the Animal Protein
                                                                   George and Swellendam, providing the business access
and the Oil and Protein divisions. The Animal Protein
                                                                   to additional sales volumes of 60 000 tons per annum.
division is represented by AFGRI Animal Feeds, AFGRI
Poultry (formally Daybreak) and Labworld.
                                                                   The division continues with its international expansion drive
                                                                   through the Watertown, New York (USA) joint venture. The
AFGRI Animal Feeds boasts an annual manufacturing
                                                                   resulting plant affords AFGRI access to the United States
capacity of over one million tons, ranging from poultry
                                                                   dairy market, estimated at over nine million cows. The
to dairy to dogfood to fish and prawn feed. With
                                                                   plant, for which environmental clearance has been
manufacturing operations in six provinces and several
                                                                   obtained, will produce Aminomax and have a capacity of
strategically located depots, high quality livestock feed is
                                                                   48 000 tons per annum.
available throughout South Africa.

                                                                   The division also has a small presence in the United
AFGRI Poultry, a vertically integrated broiler production and
                                                                   Kingdom through a joint venture.
processing business, having a capacity of over 675 000
birds per week produces individually quick frozen (IQF)            During 2010 the AFGRI Poultry operation bedded down
products for both wholesale and retail customers.                  the 2009 expansion to the Daybreak abattoir and began
                                                                   further expansion. Efficiencies in the factory increased
Labworld is a supplier of a wide range of laboratory               throughput to 675 000 birds per week and plans currently
equipment used in the agricultural, food and beverage,             exist to increase this to 770 000 birds by the addition of a
mining and petrochemical industries as well as academic            weekend shift. Also during the year, the business acquired
institutions.                                                      the rights to the Hubbard breed, a bird bred specifically for
                                                                   South African conditions and which will be introduced
AFGRI’s Oil and Protein division trades under the name             throughout the AFGRI Poultry operation over the next
Nedan and comprises soya and cotton oil extraction plants          18 months.
in Mokopane. Nedan processes the oil and other raw
materials into edible oils, fats and high-protein textured         AFGRI Poultry’s day-old chicks are produced by Midway
vegetable products for the food processing and fast food           Chix which, with egg production from two farms allows the
industries. Nedan is the market leader in texturised soya          hatchery to produce 875 000 chicks per week. During the
protein for human consumption and oil cakes for the                year AFGRI Poultry acquired the remaining interest in
animal feed industry.                                              Midway Chix. Surplus chicks are sold to third parties.


     Structuring for growth                                        Eclipsing all of these expansion activities was the
                                                                   acquisition by AFGRI Poultry after year-end of Rossgro, a
The sustainability and growth of AFGRI Animal Feeds is
                                                                   poultry abattoir located near to the original Daybreak
underpinned by its mission to be a world-class supplier
                                                                   operation and having a capacity of 350 000 birds per week
of technologically advanced products and value-added
                                                                   and the secured supply of birds from contract growers. This
services. As such, there is a drive to constantly improve          acquisition elevates AFGRI Poultry to a capacity in excess
efficiencies and expand production capacity. This division         of 1 million birds per week, a milestone for marketing and
began the financial year operating six traditional animal          distribution in this competitive industry.
feed mills in Mpumalanga, Gauteng, Free State, Eastern
and Western Cape.                                                  During 2010, AFGRI Poultry increased its feed volumes
                                                                   taken from Animal Feeds by 26,7% and is likely to repeat
During 2010 the division has invested R56 million on               this in 2011.
expanding production capacity. The most significant
investment was the acquisition of an additional feed mill in       The completion of the abattoir expansion in 2009 allowed
Pietermaritzburg. In the Western Cape, a roughage plant            the Group access to the retail market. Sales commenced to
was commissioned and the capacity of the rendering plant           three of South Africa’s large retail chains after passing
in Mpumalanga was increased.                                       quality and food safety audits.



                                                                                                             AFGRI Limited Annual Report 2010
                     38
                                  Review of operations                            continued




                                  At the two Nedan plants the focus has been the restoration       Although the foods sector is not subject to the same
                                  of the plants to their original design capacities and process    volatility as the agricultural sector these operations
                                  improvements. During the year, between 40 and                    represent a significant investment in assets (59% of the
                                  50 improvement initiatives have been implemented at              Group’s fixed assets) and a commitment to maintenance
                                  the plants, ranging from refurbishment of the extraction         and fixed costs. Growth in this sector will be dictated by
                                  plants to improving the oil packing line process flow.                                              .
                                                                                                   improvements in per capita GDP As disposable incomes
                                                                                                   increase in line with an overall improvement in living
                                  Plans for the 2011 financial year include the introduction of    conditions, consumption moves away from vegetable
                                  a continuous bleaching process within the soya refinery          products to animal protein.
                                  and the crushing of sunflower seed at the existing cotton
                                  plant.                                                           AFGRI Foods, together with the Group’s Handling and
                                                                                                   Storage operations, consume significant quantities of
                                  The possibility of erecting a bunker storage facility on the     electricity, the availability and price of which impacts
                                  neighbouring site was investigated in conjunction with           directly on the results of these operations.
                                  Handling and Storage. The project was approved and the
                                  site acquired.                                                   Municipal and provincial infrastructure poses a challenge
                                                                                                   to the ability of these business units to operate and impacts
                                  These initiatives will enable Nedan to process a significant     on the costs of doing business. In Mpumalanga and the
                                  portion of the local soya bean and sunflower seed crops.         Free State, the conditions of roads have already led to an
                                  Nedan is the only entity in the country that can process         increase in fleet maintenance costs. Availability of water
                                  cotton seed. The initiatives will also contribute to yield and   and the functioning of sewage systems have impacted
                                  efficiency improvements and a reduction in consumables           operations in both the Limpopo and Eastern Cape
                                  usage.                                                           provinces.


                                  Many of the current and future initiatives also address               Profitability and financial position
                                  operational risk and environmental issues which are
                                                                                                   Animal Feeds’ volumes increased by 3,6% during the year
                                  discussed elsewhere in this report.
                                                                                                   driven in the main by the expansion at AFGRI Poultry in
                                                                                                   2009. Despite declining prices, margins were maintained
                                       External factors
                                                                                                   through improved manufacturing techniques and managed
                                  The key external drivers impacting on AFGRI Foods is GDP         procurement. Noteworthy is the additional R7,9 million
                                  growth and consumer spending. Both of these factors have         electricity cost, a factor of tariff increases, and representing
                                  negatively impacted upon the foods sector in the current         nearly 70% of the current year’s increase in costs.
                                  year although AFGRI Foods has reported improved results
                                  overall.                                                         Broiler feed prices declined by 7,1% during the year but
                                                                                                   failed to offset the 9,7% decline in poultry selling prices.
                                  A notable symptom of the poor economic conditions was            Based on volumes, a R0,50 improvement in the net sales
                                  the price of poultry products which declined by an average       value at AFGRI Poultry would have contributed an
                                  of 9,7% year-on-year. This was, in part, offset by lower raw     additional R42 million to the Group’s operating profit.
                                  material ingredient prices. Selling prices were also driven
Growth the natural outcome




                                  down by capacity expansion within the local industry.            On farm performance and abattoir efficiencies resulted in
                                  Imported poultry products had less of an impact on prices        AFGRI Poultry producing an improved result, contrary to
                                  than in previous years.                                          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.




                     AFGRI Limited Annual Report 2010
               Group overview                                      2010 overview                            Corporate governance
                                                                                                                                            39




AFGRI Poultry also experienced the impact of significant              In the dairy sector, AFGRI Animal Feeds has become a
electricity tariff hikes, with this line item exceeding the           leading brand. The introduction of a revolutionary feeding
budgeted cost by 36%.                                                 system, known as Kempen, has further entrenched the
                                                                      business as an industry leader.
Higher volumes counteracted lower feed and chicken
selling prices, leading to a 2% increase in turnover for the          Considerable effort is also invested in the optimisation and
combined Animal Feeds and Broiler division. The division              improvement of feed production processes in
improved its operating margin from 10,8% to 11,5% through             manufacturing facilities to improve feed quality, animal
greater manufacturing efficiencies, feed formulation and              performance, and to supply ‘Safe Feed for Safe Food’. New
cost control. Higher depreciation and internal interest               formulation strategies through highly skilled people are
charges are the result of investments made in the prior and           employed to improve food performance and profitability.
current years.
                                                                      AFGRI Poultry produces individually quick frozen (IQF)
In total, the division reported a profit before tax of                chicken portions for a range of customers, ranging from
R171,2 million, an increase of 11% on 2009’s R153,7 million.          small independent wholesalers to the country’s large
                                                                      retailers. After food safety and product quality, customer
Nedan’s results were driven by a 28% increase in sales                service hinges on providing the optimal product mix
volumes and a 33% improvement in its gross margin                     through efficient distribution channels.
percentage, achieved through product mix variations –
a factor of unusual market conditions. In total, the Oil and          At Nedan, customer service is focused around service
Protein division reported a 69% increase in profit before             delivery out of model stocks and in line with product
tax, achieving R25,3 million (2009: R15,0 million).                   specifications. Regular customer visits are undertaken to
                                                                      ensure the divisions product range meets customer
     Products and services                                            expectations. Key initiatives are also undertaken to develop
                                                                      specific products that meet customers’ functional
For the foods sector businesses, customer satisfaction is
                                                                      requirements.
determined by product quality.

                                                                      All of the foods business units have product complaint
AFGRI Animal Feeds’ mission is to supply technologically
                                                                      monitoring systems that ensure that all product complaints
driven feeds and value-added services to clients to improve
                                                                      are logged and followed up. Remedial action is taken where
the efficiencies and performances at farm level. This is
                                                                      necessary.
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.




                                                                                                                AFGRI Limited Annual Report 2010
                     40
                                  Review of operations                          continued




                                  AFGRI Corporate                                                 Discontinued operations
                                  The AFGRI Corporate office performs a variety of tasks for
                                                                                                      Structuring for growth
                                  the individual business units, as well as housing the Group’s
                                  executive office. Besides the traditional accounting and        During the year the Group disposed of the following
                                  secretarial services provided to Group divisions and            operating units as going concerns:
                                  subsidiaries, the Corporate office also provides legal            AFGRI Seed to Klein Karoo Seed Marketing (Pty) Limited
                                  counsel and corporate finance services, performs the              Retail branches in the Lowveld region to MGK Operating
                                  central HR and payroll functions. The strategic elements of       Company (Pty) Limited
                                  Information Technology, in terms of both services and             Retail branches in the Natal region to TWK Industries
                                  infrastructure, are also centralised in the Corporate office.     (Pty) Limited
                                                                                                    The assets and business of Tsunami Crop Care (Pty)
                                       Profitability and financial position                         Limited and Tsunami Plant Protection (Pty) Limited to
                                                                                                    Arysta Life Science South Africa
                                  The Corporate office also collects a significant number of
                                                                                                    The debtors book and business of Capital Harvest (Pty)
                                  business unit costs. Where these costs can be directly
                                                                                                    Limited, the Western Cape operation of AFGRI Advances,
                                  attributed to individual businesses, they are recharged.
                                                                                                    to management.
                                  During 2010 a new model for the recovery of IT
                                  infrastructure related costs was introduced, resulting in
                                                                                                      Profitability and financial position
                                  an increase in the charges to the business units and a
                                  reduction of unallocated costs attributed to the Corporate      A summary of the results of the individual business units
                                  office. In the Group’s segment report, these unallocated        disposed of during the year appears in note 29 of the
                                  costs are apportioned to the business units on a basis          annual financial statements. Included in the results are
                                  consistent with prior years.                                    pre-tax capital profits realised on the disposal of these
                                                                                                  businesses and their associated assets of R37 million.
                                  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.
Growth the natural outcome




                     AFGRI Limited Annual Report 2010
   Group overview                 2010 overview               Corporate governance
                                                                                             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



                                                                 AFGRI Limited Annual Report 2010
42
                                                                                                                             Chief financial officer’s report


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 Schyff, Chief Financial Officer




          Total revenue (R million)                                                                                                  Introduction
                                                                                                                                     The Group’s 32% increase in after tax profit follows on from the
                                                         10 690,5




12 000                                                                                                                               19% improvement reported in 2009 and represents the fifth
                                                                            9 264,1




                                                                                                                                     consecutive year in which AFGRI has reported a growth in profits.
                                                                                              8 325,7




10 000
                                                                                                                                     Underlying this performance are the individual results on the business
                                                                                                                                     units, detailed in the “Review of operations” appearing on pages 30
                                       6 530,1




 8 000
                     5 739,0




                                                                                                                                     to 40 of this report.
 6 000
                                                                                                                                     Many years of restructuring have preceded this year’s results. AFGRI
 4 000
                                                                                                                                     has historically been beset with poorly performing business units,
                                                                                                                                     some inherited as the result of debt default by the previous owners
 2 000
                                                                                                                                     and others through an exposure to the cyclical nature of the
      0                                                                                                                              agricultural sector in which AFGRI predominantly operates.
                                                                                                        Growth the natural outcome




                     06                07                08*                09             10
          *16 month period
                                                                                                                                     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
      Pre-tax profit (R million)
                                                                                                                                     since 2005 the discontinued line reflects an after tax profit as opposed
                                                                                                                                     to the losses made in previous years. This indicates that the disposal
                                                                                      541,2




600
                                                                                                                                     of underperforming businesses has reached, or nearly reached, its
                                                                    453,3




500
                                                                                                                                     conclusion. With one or two minor exceptions, future corporate
                                                                                                                                     activity at AFGRI will be more positively focused on growing the
                               344,1




400                                                                                                                                  business.
                                                 308,0




300
                                                                                                                                     In the current year’s results, it is only the grain trading business that
             186,3




                                                                                                                                     disappointed. In a difficult year for AFGRI Trading in which execution
200
                                                                                                                                     costs increased and export volumes declined steps have already been
100                                                                                                                                  taken to rationalise the operations of this business unit. Despite its
                                                                                                                                     name, AFGRI Trading does not actively assume open positions and
  0                                                                                                                                  merely manages the procurement and delivery against predefined
             06                07                08*                09                10
          *16 month period                                                                                                           contract terms. This operation’s losses are the result of increased



AFGRI Limited Annual Report 2010
               Group overview                                   2010 overview                                       Corporate governance
                                                                                                                                                                            43




costs; changes in the valuation model applied to stock and certain once-off items,             Profit for the year (R million)
and not from trading losses.




                                                                                                                                                              467,1
                                                                                         500

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




                                                                                                                                                 354,0
this year’s result. After the credit crunch and the liquidity constraints which          400




                                                                                                                                   298,5
                                                                                                                    275,7,1
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          300

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




                                                                                                       171,9
smaller debtors book allows a greater focus on cost control and service levels.          200

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               100

improve this situation.
                                                                                           0
                                                                                                       06           07             08*           09           10
The grain handling and storage division often does not receive the credit it                   *16 month period

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.

                                                                                               Net asset value (cents per share)
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
                                                                                         500




                                                                                                                                                              451
division but the significant improvement in results from the Oil and Protein




                                                                                                                                                 430
                                                                                                                                   404
division. The Oil and Protein results were, in part, due to an unusual year of oil and
                                                                                         400                        361
                                                                                                       355


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
                                                                                         300
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.
                                                                                         200

Group performance
                                                                                         100
During 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
                                                                                           0
commodity prices (fertiliser and animal feeds) at the retail and primary inputs                       06            07            08             09           10
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
                                                                                         Return on shareholders equity (%)
the 2009 result after the restatement of discontinuing operations. This is not due
                                                                                                                                                                    19,70




to a deteriorating gross profit but rather is the result of the Group’s practice of
                                                                                           20
disclosing interest income for the AFGRI Capital business unit as turnover whilst
                                                                                                                                         16,90

                                                                                                                                                      16,30
                                                                                                                          15,80




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        15
                                                                                                            11,70




declined by R196 million.

                                                                                           10
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              5
in preference dividends earned, but also a reduction in finance costs.

                                                                                               0
Selling and administration costs, which include other operating costs, for the                            06            07            08*           09           10
Group’s continuing operations of R1,37 billion (2009: R1,25 billion) reflect a                     *16 month period




                                                                                                                                  AFGRI Limited Annual Report 2010
                     44
                                  Chief financial officer’s report                                  continued




                                  10% increase. Key elements driving this increase include:          Overall, AFGRI recorded a profit for the period from
                                  increased volumes and headcount at AFGRI Poultry arising           continuing operations of R392,5 million, a decrease of 2,7%.
                                  from the 2009 expansion; higher distribution costs arising         Once again, adjusting for the once-off items in 2009, a more
                                  from increased AFGRI Poultry volumes and also increased            correct indicator of the Group’s performance suggests a
                                  fleet maintenance due to the poor conditions of certain            growth of 24,5% in continuing operations’ profits.
                                  roads; redundancy costs of approximately R15 million; the
                                  amortisation of the intellectual property intangible asset         The contribution to the Group’s profit before tax from
                                  acquired in 2009; the depreciation of various capital items        continuing operations from the foods segment of
                                  commissioned in 2009 (especially at AFGRI Poultry and              R196,5 million represents 43% (2009: 34%) of the total
                                  Animal Feeds); increases in administered prices (notably           pre-tax profit from continuing operations. It is the stated
                                  electricity) and a swing of approximately R29 million of           intention to expand into the foods sector with the goal of
                                  foreign exchange differences across the Group.                     increasing its contribution to 60%.


                                  The decline in finance costs from R666 million to                  Details of the results from AFGRI’s discontinuing operations
                                  R456 million is the result of lower interest rates, a reduction    can be found in note 29 of the annual financial statements.
                                  in the Group’s average debtors book and a greater                  In summary the Group disposed of mainly profitable
                                  alignment between facilities and the Group’s funding               operations, at a profit, but which did not meet with the
                                  needs, reducing the overall cost of debt.                          Group’s strategy.


                                  The profit before tax from continuing operations of                Profit for the period from all operations of R467,1 million
                                  R453,7 million reflects a decrease of 8,5% on the 2009             represents an increase of 32%. This amounts to earnings
                                  result. However, the 2009 result includes the once-off             per share of 94,7 cents per share (2009: 72,70 cents per
                                  results arising from the apportionment of the Group’s              share). After considering the reinvestment of cash realised
                                  Pension Fund surplus of R58,6 million and the negative             from the disposal of non-core businesses, and the Group’s
                                  goodwill arising from the acquisition of a share in the            policy of declaring a dividend that would be covered
                                  Group’s tobacco associate of R29,6 million. Adjusting for          between two and three times by earnings, the Board of
                                  these two factors, the current year’s result represents an         Directors have declared a final dividend of 17,15 cents
                                  11% increase in pre-tax profit from continuing operations.         per share (2009: 16,70 cents per share), bringing the
                                                                                                     total dividend for the year to 41,3 cents per share
                                  In terms of the partnership agreement between AFGRI                (2009: 36,40 cents per share), a 13% increase.
                                  Operations Limited and Agri Sizwe, the Group’s BEE partner,
                                  the allocation of profits between the partners takes place at      Group position and cash flows
                                  the income before tax level of AFGRI Operations Limited.           One of the material issues running through this year’s
                                  Any profit or loss in AFGRI Limited is excluded from the           integrated annual report is ‘Structuring for Growth’. A great
                                  profit apportionment calculation. The unwinding of the             deal of this restructuring has focused on value chain and
                                  preference share investment by AFGRI Limited during the            regional alignment, non-productive assets and achieving
                                  year resulted in a once-off R9 million loss in AFGRI Limited,      balanced staffing levels. All of these aspects contribute to a
                                  resulting in the proportion of the Group’s pre-tax profit          stronger balance sheet – one in which the Group has
Growth the natural outcome




                                  (from both continuing and discontinuing operations) being          increased interest cover through the greater alignment of
                                  apportioned to Agri Sizwe, decreasing from 24,1% in 2009           the funding needs of the different elements of the diverse
                                  to 23,9% during the current year.                                  AFGRI group.


                                  After subtracting the Agri Sizwe profit share and the other        During 2009 the Group entered into agreements with
                                  minorities, the effective tax rate for the AFGRI group of          financiers specifically to secure funding for the debtors
                                  companies during 2010 amounted to 19,6%. The reduction             book which had a long tenure. Once the future of the
                                  in the Group’s average tax rate compared to the legislated         lending activities of the Group had been secured, greater
                                  rate of 28% is the result of various factors, including a once-    attention was paid to funding the balance of the Group’s
                                  off STC credit of approximately R26 million arising from the       activities, ensuring as little cross-funding as possible. At
                                  unwinding of the preference share investment in AFGRI              AFGRI we clearly differentiate between the funding
                                  Limited, capital profits on the disposal of assets, the            requirements of AFGRI Capital and the remainder of the
                                  remaining tax benefits of the preference share investment          business.
                                  held in Gro Capital, and the derecognition of deferred tax
                                  asset in a foreign subsidiary. The Group does not expect           AFGRI Capital fundamentally uses 100% debt, less the
                                  to be able to maintain such a low tax rate and future tax          equity advanced to financiers as cash collateral deposits, to
                                  charges should approximate the legislated rate.                    fund its lending activities. This equity contribution, funded



                     AFGRI Limited Annual Report 2010
               Group overview                                    2010 overview                            Corporate governance
                                                                                                                                          45




by the Group, is charged to the division on the same basis          expanding the AFGRI Poultry abattoir capacity, acquiring the
as equity applied in the Group’s other business activities,         remaining minority interests in the Midway Chix business
on the basis of a 30% interest-free loan and a 70%                  and, subsequent to year-end, acquiring the processing and
interest-bearing loan. The alignment of the debtors book            marketing elements of Rossgro, a poultry operation situated
with the Group’s targeted value chain saw significant               close to the existing operations in Sundra, Mpumalanga.
reductions in the Group’s debtors book over the past                Besides an insignificant amount of long-term debt raised
18 months, from R4,9 billion at 31 December 2008 and                to finance the expansion at AFGRI Poultry’s abattoir, the
R5,0 billion at 30 June 2009 to the current level of                balance of this expansion has been paid for with cash.
R3,9 billion. Despite cash collateral requirements being            Improved cash management, the disposal of non-core
increased by the funders of AFGRI Capital during this               business units (Tsunami and retail branches in the Lowveld
period, the cash collateral deposits, or equity invested            and Natal regions) and the sale of non-productive property
in AFGRI Capital has reduced from R702 million at                   assets all contributed to the Group’s improved cash position.
31 December 2008 to R422 million at 30 June 2010 as
a consequence of the reduced debtors book.                          The current year’s acquisitions will have a positive effect on
                                                                    the Group’s earnings through the introduction of synergies
The improved understanding AFGRI Capital has with                   and will more importantly, increase the proportion of
its lenders, the longer tenure of the debt and the                  earnings from the foods sector, considered less cyclical
restructuring of the business in general has allowed the            than the primary agriculture sector. However, they
division to return to profitability during the current year.        represent a small beginning when considering the Group’s
                                                                    greater aim – to increase the proportion of earnings from
Negotiations are ongoing to further match the division’s
                                                                    the foods sector to 60%. All things being equal, this would
funding requirements with the facilities arranged, ensuring
                                                                    require a R185 million increase in the food segment’s
a higher facility utilisation rate and the reduction in
                                                                    profits in the current year. Acquiring new business that will
undrawn facility fees.
                                                                    provide the potential to achieve the Group’s goals will
                                                                    require the introduction of additional funding to AFGRI
The improved financial position of AFGRI Capital has also
                                                                    – funding that, contrary to the AFGRI’s record of not making
resulted in other benefits, including a reduction in the cost
                                                                    use of long-term debt, may well be founded on the Group’s
of general banking facilities. Some of these facilities are
                                                                    quality fixed assets.
now cheaper than the debtors specific funding. As such,
the Group has employed more general banking facilities to
                                                                    As already alluded to, the Group’s cash position improved
finance trade debtors, resulting in an increase in “trade and
                                                                    through a combination of improved funding terms,
other receivables” not financed by banks and a further
                                                                    increased profitability and a greater alignment to the
reduction in cash collateral deposits.
                                                                    targeted value chain. Another critical element of AFGRI’s
                                                                    cash management during the year includes the realisation
Overall the Group’s gearing has improved from 78% to 73%
                                                                    of R140 million of cash from the sale of surplus, non-
and its interest cover from 1,7 times to 2,0 times.
                                                                    productive assets. Combined with the R104 million realised
                                                                    in 2009, the Group is now only R6 million from its target of
By excluding the debtors’ lending activities of AFGRI Capital
                                                                    R250 million. The sale of Tsunami and the retail branches
from the Group’s financial statements it is possible to             resulted in a further R270 million of cash funds.
determine the gearing and debt position of the remainder
of the business. Although there are a few minor exceptions          A significant proportion of the cash generated by, and
to the rule, traditionally the Group has not used long-term         utilised in working capital is represented by the changes to
funding to finance any assets. The balance of AFGRI’s               the financed debtors and the bank funding arranged for this
operations are funded by short-term overdrafts and loans,           purpose. The movement in the unfunded debtors’ balance
matching the short-term nature of the Group’s assets if one         from R483 million to R545 million arises because of an
assumes that the Group’s equity finances the property,              improvement in the cost of general banking facilities as
plant and equipment. The Group’s calculated “natural                opposed to specific borrowings against debtors.
gearing”, after excluding the balance sheet of the debtors
lending business unit, has improved from 70% to 67%                 The Group invested some R356 million in fixed and
during the year. However, the interest cover for the                intangible assets during the year. Major items included in
continuing operations of the Group excluding the financed           this spend are the feed mill in Pietermaritzburg, an
debtors book has deteriorated slightly from 5,25 times to           optimiser at the Isando feed factory, a roughage plant in the
4,80 times. In part this is a function of the reclassification      Klipheuwel feed factory and a fat coater at the Bethlehem
of Tsunami to discontinuing operations.                             feed factory, various items of equipment at AFGRI Poultry’s
                                                                    abattoir, five additional grain storage bunkers throughout
Growth into the foods sector was achieved during 2009               the country and the capitalisation of costs associated with
and 2010 by adding to existing operations, in the form of           the planned SAP implementation.



                                                                                                              AFGRI Limited Annual Report 2010
                     46
                                  Chief financial officer’s report                                 continued




                                  Financial risks and AFGRI’s response                              The efficacy of these procedures and controls is reflected
                                  AFGRI has always implemented strong risk management,              in AFGRI’s enviable bad debt history. During 2010 AFGRI
                                  internal controls and internal audit processes to minimise        Financial Services wrote off only 0,5% of the average
                                  the risk of loss through a structured approach driven by a        debtors book value. The division’s impairment allowance
                                  bi-directional (top-down and bottom-up) approach to risk          was increased by R4,3 million to R128,5 million (2009:
                                  identification. The Group has substantially complied with         R124,2 million).
                                  all of the requirements of the King II Report on Corporate
                                  Governance. AFGRI is committed to further strengthening           The global credit crunch towards the end of 2008
                                  the Group’s management of risk through compliance with            highlighted AFGRI’s exposure to the credit markets, in
                                  King III, thereby extending the Group’s risk management           particular liquidity and interest rate risks. Early in 2009
                                  framework. More details regarding AFGRI’s risk                    management began a process to reduce this exposure and
                                  management is provided in the Corporate Governance                employed a variety of tactics to achieve this. Firstly, existing
                                  report beginning on page 62. Details of the Group’s               credit customers were repriced as soon as agreements
                                  management of financial risks are provided in the Financial       allowed. New credit applications were priced according to
                                  Risk Management Accounting Policy on page 101.                    the Group’s cost of funding. Reducing the size of the
                                                                                                    debtors book became an imperative for AFGRI and this was
                                  Several initiatives were undertaken during the year to            achieved through the alignment of the book with the value
                                  reduce underlying cost structures and to increase                 chains and regions in which AFGRI wishes to conduct
                                  efficiencies throughout the business. The most regrettable        business. Finally, existing and new financiers were
                                  of these was the retrenchment of employees in several of          approached to provide funding that had a longer tenure
                                  AFGRI’s business units. The disposal of the Lowveld and           and improved terms. The diversification of lenders and the
                                  Natal regions retail stores and non-productive properties         careful matching of the funded assets with the funding has
                                  also resulted in a permanent reduction in overhead costs.         mitigated AFGRI’s exposure to the credit markets and
                                  Regular prizes are awarded for implemented cost-saving            reduced the overall cost of funding for the Group. At
                                  suggestions and the annual Chairman’s award for                   present, surplus funding capacity exists, resulting in
                                  exceptional contributions to the Group also encourages            undrawn facility fees. This is currently being addressed
                                  efficiency drives throughout AFGRI.                               with the Group’s lenders.

                                  Perhaps the initiative that will have the most significant and    Conclusion
                                  lasting impact on the Group’s cost structure, which began         As the Group nears the completion of its restructuring
                                  in 2010, is the planned implementation of SAP across a            programme, the remaining core operations provide it with a
                                  significant portion of AFGRI’s operating units and the            diversity of products and services and a broad and loyal
                                  establishment of a centralised Shared Services Centre for         customer base. AFGRI will remain committed to South
                                  the processing of repetitive transactions, such as debtor         African agriculture whilst its growth into Africa and the
                                  receipts processing, creditor invoice capturing and               foods sector will benefit all of its stakeholders, from
                                  payments, fixed asset and cash book management. The               investors, to customers, to employees.
                                  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.
Growth the natural outcome




                                                                                                    Jan van der Schyff
                                  In addition to the Shared Services Centre, definitive Centres     Chief financial officer
                                  of Excellence, some of which already exist, will be
                                  established for Human Resources and Payroll, Taxation,            31 August 2010
                                  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.




                     AFGRI Limited Annual Report 2010
    Group overview                  2010 overview           Corporate governance
                                                                                           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



                                                               AFGRI Limited Annual Report 2010
48
                                                        Corporate responsibility


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




                                                                Introduction
                                                                The 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
                                   Growth the natural outcome




                                                                driven by AFGRI’s Operating Committee, a subcommittee of the AFGRI
                                                                Operations Limited Board.


                                                                Stakeholders
                                                                Specific 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.



AFGRI Limited Annual Report 2010
                 Group overview                                2010 overview                           Corporate governance
                                                                                                                                        49




Again, using the various principles of the GRI, including         ensure fairness when dealing with grievances and
materiality, inclusiveness and sustainability context the         disciplinary matters. During 2010, 276 disciplinary actions
material issues as tabled on pages 8 to 11 were selected          were taken. Of these actions 140 resulted in the employee’s
for inclusion in this integrated report.                          dismissal. Only one grievance against the Company was
                                                                  lodged during the period. Two employees were dismissed
Engagement with stakeholders takes a variety of forms, a          for racism.
summary of which appears below:
                                                                  Collective bargaining agreements exist with FAWU and
 Stakeholder
 grouping            Forms of engagement                          SATAWU and apply to less than 10% of the Group’s
                                                                  workforce. The Group complies with the Labour Relations
 Investor            Bi-annual results presentations,
                                                                  Act and its requirements for operational changes.
 community           roadshows, annual report, bi-annual
                     investor surveys, one-on-one
                     meetings, annual open days, ad hoc           During the financial year 2 126 or 50% of AFGRI employees
                     JSE SENS.                                    received some form of training or skills development.
 Employees           Divisional meetings, monthly                 White employees, who comprise 34% of the workforce,
                     newsletter and quarterly CEO letter,         represented a disproportionate 922 or 43% of the
                     union and workplace representatives,         employees trained. Whilst AFGRI recognises the importance
                     collective bargaining council
                                                                  of ensuring all employees are adequately trained, future
                     negotiations, functional committees.
                                                                  training and development focus will be predisposed to
 Customers           One-on-one business dealings,
                                                                  black employees, in order to meet the Group’s obligations
                     forums, physical and electronic
                     correspondence, annual credit                for skills development and, in time, employment equity.
                     reviews, customer surveys, farmers’          To this end, all training and development endeavours have
                     days and other events.                       been centralised as part of driving the One AFGRI principle,
 Lenders             Various reports as dictated by facility      and enabling the monitoring and recording of all training.
                     letters, one-on-one business dealings,
                     written correspondence.                      Succession plans for each business unit’s key positions are
 Suppliers           Supplier appraisals, one-on-one              reviewed on an annual basis to ensure that the Group has
                     business dealings, correspondence.           an adequate depth of experience and skills. Employment
 Regulators          Formal and informal meetings,                equity is also considered during divisional and Group
                     reporting, correspondence.                   succession planning. During the year 40 employees
 Civil society       Consultations with communities,              participated in in-house Management Development
                     workshops, conferences and CSI               Programmes.
                     activities.

                                                                  AFGRI’s philosophy is to remunerate its employees
    Human capital                                                 equitably and to reward based on individual performance.
AFGRI employs over 4 000 full time and temporary                  During the year a Group-wide review of job descriptions
employees, with the vast majority in South Africa, and is         and job grades was completed. In November 2009 all A and
committed to fair employment practices. The relationship          B graded staff were awarded an above inflation increase in
between employer and employee is governed by a recently           order to address discrepancies that had developed over
revised set of human resources policies and procedures.           time. With the completion of the grading exercise review,
The current year’s review of these policies and procedures        a full review of compensation and benefits for each grade
was undertaken to ensure compliance with South African            and position will be undertaken in the new year.
legislation on labour practices and involved extensive
consultation with employees across the Group.                     Performance management systems exist throughout the
                                                                  Group and are used to determine annual increases and,
AFGRI’s labour turnover for 2010 is calculated at 8,4%.           where applicable bonuses, for individual employees.
During the current year the Group reported an overall             The centralisation of the presently decentralised human
decline in headcount of 426 employees. This decline was           resources administrators, planned for October 2010, will
driven in the main by the disposal of non-core businesses         allow for greater consistency between these systems and
and the non-renewal of contracts for part-time (seasonal          move the Group closer to its One AFGRI goal.
and casual) employees. Altogether 276 employees resigned
during the year and a further 68 retired or passed away.          AFGRI Capital engaged in a restructuring exercise in
A total of 57 employees were retrenched.                          October 2009. The Trading and Logistics restructuring
                                                                  was completed before 30 June 2010. The restructuring
Included with the human resources policies and                    exercise will continue with Financial Services and
procedures are grievance and disciplinary policies and            throughout the administrative functions of the Group
procedures. These policies and procedures exist purely to         with the establishment of a Shared Services Centre. It is



                                                                                                            AFGRI Limited Annual Report 2010
                     50
                                  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.)
Growth the natural outcome




                     AFGRI Limited Annual Report 2010
              Group overview                                     2010 overview                           Corporate governance
                                                                                                                                         51




envisaged that this process will be complete by the end             AFGRI issued a SENS announcement on 13 May 2010,
of September 2010.                                                  which was renewed on 25 June 2010, advising shareholders
                                                                    that it was in discussions regarding the potential
The Group is committed to the provision of a safe and               restructuring of this empowerment shareholding. More
healthy working environment for its employees. All                  recently the Group distributed a circular to shareholders
workplaces comply with the requirements of the                      describing a planned restructure of this empowerment
Occupational Health and Safety Act. AFGRI utilises the              shareholding. This restructuring was approved by
services of an external service provider to conduct                 shareholders at a special general meeting held on
operational risk audits. During the year 76 incidents               27 August 2010. This restructuring will not reduce AFGRI’s
(2009: 48) were reported resulting in time lost due to              empowerment credentials in terms of the scorecard.
injuries. No incidents of permanent disability were
reported (2009: 1).                                                 Control
                                                                    At the end of June 2008 the AFGRI Limited Board of ten
Management acknowledges that more can be done to                    members included three black males and one black female.
minimise injuries at the workplace. One of the initiatives for      The Board of AFGRI Operations Limited reflected only a
2011 will be to retrain Safety and Health representatives,          single black male in its composition of eight members.
including supervisors.                                              These Board compositions resulted in AFGRI Operations
                                                                    Limited only achieving a score of 1,41 points in the control
     Transformation                                                 element of the scorecard.

AFGRI employs the services of EmpowerDEX Economic                   During the current financial year key changes have been
Empowerment Rating Agency to verify its B-BBEE generic              made, especially to the AFGRI Operations Limited Board,
scorecard (the scorecard) rating. The latest verification           which now includes three black males out of a total
report was issued on 18 September 2009 but is based on              membership of seven, a 43% representation. As such,
information for the 2008 financial year. Because of the             management believe that the points achieved for the
delay in issuing this report, management have decided not           management element of the scorecard will improve for 2010.
to prepare a scorecard based on the 2009 financial year
and to delay the verification of the 2010 scorecard until the       The restructuring of the empowerment shareholding
finalisation of the 2010 integrated annual report.                  discussed above, together with the retirement of several
                                                                    members of the AFGRI Limited Board at the forthcoming
As such, many of the scores discussed below are outdated            annual general meeting will result in changes to both the
and will be revised before the end of October 2010 (the             AFGRI Limited and AFGRI Operations Limited boards.
target date to complete the next verification exercise).            Preference will be given to the appointment of independent
Where management believe there has been a material                  black directors to both boards in order to at least maintain
change to the scorecard based on recently introduced                the improved score for this element.
internal ‘shadow’ rating reports, this is noted.
                                                                    Employment equity
Ownership                                                           Management and the Board acknowledge that the Group
AFGRI’s transformation journey began in 2004 when it                has failed to transform its workforce to even a minimum
concluded the disposal of a 26,77% undivided interest in            level. At 30 June 2008 AFGRI did not reach any of the
the business of AFGRI Operations Limited to the Agri Sizwe          sub-minimum targets for employment equity dictated by
Empowerment Trust. AFGRI Operations Limited and the                 the B-BBEE Codes of Good Practice. As such it failed to
trust are co-owners of the entire business undertaking              score any points for this element of the scorecard.
conducted as a going concern by AFGRI Operations Limited
and AFGRI Operations Limited continues to manage the                Although some progress has been made, it is expected that
entire business undertaking in a partnership.                       this situation will recur for the year ended 30 June 2010.

Included as beneficiaries of the Agri Sizwe Empowerment             The Group’s Human Resources department has invested
Trust are trusts formed for the benefit of historically             considerable effort during the year in finalising job
disadvantaged employees of the AFGRI Group and a trust              descriptions, completing a full re-grading exercise and
to establish a fund for charitable and educational purposes         reviewing levels of pay for the lowest paid members of
for the benefit of historically disadvantaged employees             staff. The re-grading exercise, together with knowledge
earning below an annually predetermined wage, retired               about staff turnover will form the basis of the Group’s
employees and the immediate dependants of employees.                employment equity plan for the next five years. In order
                                                                    to achieve the sub-minimum targets at all three levels
This ownership structure results in AFGRI Operations                of management by June 2011 this plan will need to be
Limited recording 16,25 points in the ownership element of          uncompromising and will be supported by an extensive
the scorecard.                                                      skills development plan.



                                                                                                             AFGRI Limited Annual Report 2010
                     52
                                  Corporate responsibility                              continued




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

                                                                                                                            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




                                  Skills development                                                 farming of dry lands, and unchecked expansion to
                                  AFGRI’s poor performance in employment equity is                   thousands of hectares, the various partnership projects
                                  mirrored by, and partly the result of, its poor performance in     failed and the entire programme was closed towards the
                                  the area of skills development. Achieving a score of only          end of 2008.
                                  0,19 for this element of the scorecard, skills development,
                                  together with employment equity, have been elevated to             These efforts and the funds invested directly into these
                                  the top of the Group’s priorities for 2011 and 2012. Senior        communities allowed AFGRI to achieve full points for the
                                  management’s key performance areas have been                       enterprise development element of the scorecard. As
                                  expanded to include skills and employment transformation           enterprise development spend is measured cumulatively,
                                  within individual business units.                                  it is estimated that the Group does not need to invest any
                                                                                                     more funds during the coming year in order to repeat this
                                  A Group Training Manager will be appointed to drive the            achievement.
                                  workplace skills plan and manage the appropriation of a
                                  significant budget in the coming years.                            In the current year, AFGRI’s enterprise development efforts
                                                                                                     were restricted to proving a model for irrigated, two crop
                                  Preferential procurement                                           farming on small parcels of land. This was done in
                                  The Group had more success in targeting its procurement            conjunction with a black farmer in the Brits area and
                                  towards empowered entities. In 2008 AFGRI recorded                 several farming input companies who provided technical
                                  9,70 points in this element of the scorecard.                      advice on irrigation, land preparation, planting, fertilisation
                                                                                                     and pest control. Two junior farm technicians are also
                                  2010 saw the introduction of a Procurement Council to the          employed to obtain the necessary experience to act as
Growth the natural outcome




                                  Group. Besides the introduction of commodity buying                extension or training officers should the project prove to be
                                  teams, centralising procurement of consumables and                 successful and rolled out to other areas.
                                  services and the assessment of suppliers, this council will
                                  manage the Group’s procurement practices, including the            During the 2011 financial year, AFGRI will revisit its
                                  introduction of a Procurement Policy which dictates that           objectives regarding enterprise development. A proposal
                                  preference will be given to level 4 and higher contributors.       has been submitted to the Board recommending that future
                                                                                                     projects be focused on the Group’s core expertise and not
                                  Enterprise development                                             restricted to primary agricultural production, that projects
                                  The Group invested considerable sums in an enterprise              be undertaken in conjunction with individual business units
                                  development strategy known as AFGRI Farming in the                 ensuring the creation of a market (either demand or
                                  2007/2008/2009 financial years. The programme called for           supply), that projects are supported by a budget and
                                  the utilisation of AFGRI’s farming inputs (seed and fertiliser     measureable outcomes, appropriately scaled and managed.
                                  etc) to commercially farm in partnership with communities
                                  in rural areas having access to either communal agricultural       Socio-economic development
                                  land or land obtained through the government’s land                AFGRI’s CSI (Corporate Social Investment) Manager is
                                  reform programmes. For various reasons, not least of which         responsible for the success of the Group’s socio-economic
                                  being a lack of appropriate skills and management, the             development activities. With spend focused on a restricted



                     AFGRI Limited Annual Report 2010
                Group overview                                        2010 overview                             Corporate governance
                                                                                                                                                 53




                                    Female                                                 Total                                   %
                                                                                             SA                 %              black
                                                                                          work-             black            female
          African           Coloured               Indian               White             force    representation     representation
                 –                   –                   –                  –                 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                 As AFGRI targets expansion into the food sector, its record
security; education; the environment; and poverty                        of food safety and ethical production within its existing
alleviation and welfare, AFGRI strives to have a meaningful              operations provides investors, customers and society in
impact on communities closely associated with its                        large with a degree of comfort, as it demonstrates
activities.                                                              commitment to these critical aspects of food production.

At June 2008 AFGRI recorded a score of 2,16 points for the               Employees at the eight AFGRI Animal Feeds installations
SED element of the scorecard. In 2010 the Group spent                    live by the motto ‘Safe Feed for Safe Food’. Various quality
some R3,1 million on socio-economic development                          control and feed safety systems have been introduced,
projects (approximately 0,7% of its profit after tax) and                ranging from compliance with the guidelines included in
therefore expects its points for this element to increase                Act 36 of 1947 (Fertilisers, Farm Feeds, Agricultural
when the 2010 verification exercise is complete.                         Remedies and Stock Remedies Act) to ISO 9000 certification
                                                                         and HACCP (Hazard Analysis and Critical Control Points)
Contributor status                                                       principles. AFGRI was the first company in South Africa to
In total, AFGRI recorded a score of 44,71 points at 30 June              be awarded Platinum status by the industry body AFMA
2008 resulting in its classification as a level seven                    (Animal Feeds Manufacturers Association) for its ‘Safe Feed
contributor. It is disappointing that the Group missed the               for Safe Food’ production standards.
classification as a level six contributor by 0,29 points.
Management are confident that the 2010 rating verification               The division also applies good manufacturing practices
will confirm AFGRI’s status as a level six contributor and are           (GMP) including a supplier approval process based on
developing plans for employment equity; skills                           selective audits, selected suppliers’ production plant
development; and preferential procurement which should                   certifications (ISO, HACCP or GMP), legal requirements and
see AFGRI achieve classification as a level five contributor             AFGRI specific demands. This ensures that the raw
by June 2012.                                                            materials used are of the highest standard. Feed inputs are
                                                                         then managed using a centrally controlled set of quality
     Products and services                                               parameters that meet the need for customer preferences
Food safety and ethical production                                       and ideal animal performance. Quality control parameters
Within AFGRI’s grain Handling and Storage division a focus               include testing for physical, chemical and microbiological
on guaranteeing quantity and quality has always                          contamination.
underpinned the service of secure storage to clients. All but
two of the Group’s 67 silo installations have been certified             AFGRI Animal Feeds ISO 9000 certification is provided by an
as complying with the Agricultural Product Standards Act.                EU accredited company. ISO 9000 is a management system
The two outstanding silos are scheduled for audits by the                based on the quality of the manufactured product and
PPECB (Perishable Products Export Control Board) in                      introduces a culture of continuous improvement of quality
November 2010, following which they will be certified as                 and business processes.
export facilities. All of the division’s bunker facilities are also
HACCP certified except for the three that were completed                 By the third quarter of 2011 AFGRI Animal Feeds hopes to
in the second quarter of 2010.                                           be ISO 22000 certified. ISO 22000 is an accepted food safety



                                                                                                                     AFGRI Limited Annual Report 2010
                     54
                                  Corporate responsibility                             continued




                                                                            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.
Growth the natural outcome




                                  standard but is also applicable to the animal feeds industry       identifies all potential biological, physical and chemical
                                  in many instances. One of the focuses of obtaining the             hazards throughout the abattoir.
                                  ISO 22000 certification will be the improvement of
                                  traceability and recall practices and minimising the risk of       Hygiene Management Programmes (HMP) monitor
                                  medication residues in feed entering the food chain.               production for hazards and deviations and demand
                                                                                                     immediate corrective action and ensure compliance with
                                  AFGRI prides itself on producing animal feeds that                 the Meat Safety Act, the Health Act and the Foodstuffs,
                                  contribute to the well being of livestock by reducing the          Cosmetics and Disinfectant Act. Programmes are
                                  incidence of disease and increasing the longevity for              implemented at many points throughout the production
                                  certain animals through improving their productive ability.        process, including ante mortem and meat inspections.
                                                                                                     Programmes also exist for the personal hygiene and the
                                  The Daybreak operation of AFGRI Poultry employs a                  medical fitness of employees, continuous cleaning, water
                                  Hygiene Management System (certified by the Provincial             quality, vermin control, waste disposal, maintenance and
                                  Executive Officer of the Department of Agriculture) which          thermo-control.



                     AFGRI Limited Annual Report 2010
               Group overview                                      2010 overview                             Corporate governance
                                                                                                                                             55




A detailed sampling programme exists for constant                     audit systems food safety initiatives are easily
verification of in-process and final product microbiology.            accommodated, being incorporated into a dynamic food
Product quality is assured through inspections against                safety and quality assurance system.
documented specifications. Special attention is given to
barcode quality and label information quality to assist with          Nedan has its own supplier management programme
traceability. Traceability of product back to the farm of origin      which sets specific measurable requirements for
is achieved through load certificates. Forward traceability is        prospective suppliers of raw materials, ingredients, packing
to be improved with the anticipated introduction of a new             material or processing chemicals. Supplier performance
production recording system.                                          against these requirements is constantly monitored.

The HMP establish a sound platform for the prerequisite               Standard operating procedures (SOPs) are documented
programmes required for the implementation of HACCP,                  and designed to ensure compliance with the demanding
AFGRI Poultry’s next phase of its ‘Safe Food’ focus.                  standards of human food production and address all
                                                                      aspects of production.
The development of a master training programme for
processing employees through all aspects of production,                    The environment
from hygiene to product quality, has been developed and
                                                                      The Group’s approach to the environment is currently
will be introduced throughout the abattoir in the new year.
                                                                      governed by the combined Risk Management Philosophy
                                                                      and Environmental Policy adopted in 2008. This states that
During the year, AFGRI Poultry’s processes and procedures
                                                                      AFGRI is strongly committed to a Risk Management
were successfully audited by a large retail group, increasing
                                                                      Programme that maintains the highest health and safety,
its opportunities to improve its market penetration.
                                                                      environmental and other risk control standards.

Good farming practices are applied at all of the division’s
29 broiler production units with the clear objective of               The Group has begun the process of separating its
supplying the healthiest product to the abattoir through a            management of operational risk and environmental
focus on disease management and bio-security. In order to             responsibilities by developing a standalone Environmental
obtain an SADC export licence each production unit was                Policy to be finalised in the coming year. The adoption of
visited by the Mpumalanga state veterinarian. Disease                 the Group Environmental Policy will be closely followed and
control is achieved through the vaccination of breeders and           supported by the approval of an Environmental
day-old chicks at Midway Chix and broilers at Daybreak.               Management System, including Best Practices Guidelines.


Bio-security has been strengthened during the year by the             Under the existing Risk Management philosophy Alexander
erection of ablution facilities and improved physical                 Forbes conducts operational risk audits at all of AFGRI’s
security at all farms.                                                installations on a predetermined cycle. Individual audit
                                                                      templates exist for factories, silos, stores and abattoirs.
Overcrowding and poor handling during harvests contribute             Each template addresses six disciplines of risk control:
to poor quality product delivered to the abattoir. Both                  Risk control organisation
practices are avoided and growing conditions in the                      Fire defence
houses, such as ventilation and water, are constantly                    Site security
monitored and managed in order to achieve the highest                    Emergency planning
quality of broilers.                                                     Occupational health and safety
                                                                         Motor vehicle risk control.
Nedan, the Group’s oil and protein operation, supplies oil
to a large fast food franchise which applies strict quality           For all six disciplines the templates consider legal
control to all of its suppliers. Nedan is committed to                compliance and Group best practices, being accepted risk
exceeding the requirement of this Supplier Tracking                   control standards.
Assessment and Recognition (STAR) programme, a rating
system that enjoys international recognition and which                The environmental issues addressed by the risk audits
exceeds ISO 9000 and HACCP standards.                                 (eg major hazardous installations, the handling and storage
                                                                      of hazardous waste), together with insurance underwriter
Nedan is often awarded ‘preferred’ and ‘approved’ supplier            inspections, is the extent of AFGRI’s active environmental
status following other large multinational FMCG customer              management. During 2011, environment specific templates
audits.                                                               will be developed for the conduct of environmental audits.


An integrated approach to safety and quality has been                 During 2009 the Group completed an environmental gap
adopted but the singular requirements of independent                  analysis in order to identify shortcomings and risks



                                                                                                                 AFGRI Limited Annual Report 2010
                     56
                                  Corporate responsibility                             continued




                                                                                                   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
                                     Fundisisa Combined School                                     above areas in 2011 in order to determining the extent of
                                                                                                   the impact on the environment, the financial risk to AFGRI
                                     Fundisisa Combined School is situated in the Dryden           and the cost to resolve the matter. The issues will then be
                                     area and was established by a local farmer 17 years           prioritised and a plan of action presented in next year’s
                                     ago for farmworkers’ children. The school has a               integrated annual report.
                                     current enrolment of approximately 200 learners,
                                     ranging from 5 to 17 years old. AFGRI has sponsored           AFGRI business units, especially those in the foods sector,
                                     an infrastructural upliftment initiative, providing the       have already commenced various initiatives in order to
                                     school with a new entrance gate, renovation of nine           minimise the impact they have on the environment. These
                                     classrooms ablution blocks, library, a netball court,         initiatives include:
                                     new desks and chairs, computer and a security                     The introduction of variable start motors and
                                     perimeter wall. In addition, a vegetable garden has               modifications to the pellet presses to reduce peak
                                     been established to supplement the school’s                       electricity consumption at Animal Feeds
                                     nutritional programme.                                            The automation of boilers at the Isando and Kinross feed
                                                                                                       factories to optimise coal and electricity consumption
                                     As a result of AFGRI’s assistance, the school’s                   The use of boiler steam to heat water for the factories
                                     headmaster won the first prize of the Regional                    ablution blocks
                                     Teacher Award in the Primary School Leadership                    The introduction of CO2 scrubbers on all Animal Feed
                                     category at a function held during August 2009.                   boilers
                                     He acknowledged that this achievement was as                      Reducing the water consumed per bird at AFGRI Poultry
                                     a result of AFGRI improving the school’s working                  to 11 litres, a reduction of 27% on the industry average
                                     and learning environment. Not only has AFGRI’s                    A reduction in the amount of solid and blood waste in
                                     intervention provided pleasant premises and                       the effluent water at AFGRI Poultry dispatched to the
                                     improved the teaching and learning environment;                   settling dams
                                     learners are respected as human beings and their                  R0,6 million invested in an investigation to introduce
                                     right to learn is acknowledged and recognised.                    water treatment to the extent that water effluent can be
                                                                                                       used for irrigation purposes
                                                                                                       The approval of capital expenditure to install a cyclonic
Growth the natural outcome




                                     In addition to the infrastructural improvements made
                                     to the school, AFGRI continues to provide                         burner and back-up boiler at Nedan which will utilise
                                     management support through mentoring and site                     sunflower hulls as fuel, reducing coal usage and
                                     visits. AFGRI celebrated 2009 World Aids Day at the               emissions.
                                     school in order to sensitise the learners on the need
                                     to battle the stigma, fear and shame regarding the            The Group is aware of the potential impact climate change
                                     pandemic and to continually empower themselves                could have on the agricultural sector underlying a
                                     with information.                                             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,



                     AFGRI Limited Annual Report 2010
               Group overview                                    2010 overview                             Corporate governance
                                                                                                                                           57




retail stores). The results of this survey are expected to be       An independent and confidential ‘tip-offs anonymous”
presented at the end of August 2010.                                hotline facility is available to all employees for the purposes
                                                                    of reporting suspected breaches in the Group’s codes of
     Corporate governance                                           behaviour.

Management acknowledges their position as interim
                                                                    The Board of Directors requested that a review and survey
trustees of the assets and resources of the Company and
                                                                    of the Group’s ethics be conducted. This review is being
recognise the shareholders as the owners of the Company.
                                                                    managed by an independent contractor and is based on
Management embraces good corporate governance as it
                                                                    employee questionnaires distributed throughout AFGRI.
provides guidance and oversight of the activities of the
                                                                    The results will be presented at the next meeting of the
Company, its directors, managers and employees. It
                                                                    Audit and Risk Management Committee.
provides a sound foundation, supporting the establishment
of One AFGRI. Directors and managers are guided by the
                                                                    During a facilitated management workshop earlier in the
King Report series, including both King II and now King III.
                                                                    year, senior managers of AFGRI identified seven values,
A programme to ensure that the Group is fully compliant
                                                                    defining what it meant to work for AFGRI. Each of these
with the requirements of King III by June 2011 is currently
                                                                    seven values has been expanded upon throughout this
being prepared by the Board. Full disclosure of AFGRI’s
                                                                    report. The managers attending the workshop committed
compliance with the King III requirements, or reasons for
                                                                    to these values and the communication of them to all levels
its deviating from them, will be provided in the 2011
                                                                    of the business. More and more, these values are referred
integrated annual report.
                                                                    to during day-to-day activities and are becoming central
                                                                    to everything we do. They are: Integrity; Passion,
The Board has satisfied itself that AFGRI has complied
                                                                    Accountability; Respect; Teamwork; Innovation; Service
throughout the period in all material aspects with King II as
                                                                    Excellence.
well as the Listings Requirements of the JSE. The corporate
governance report is set out on pages 62 to 68 of this
                                                                    The Competition Commission, as part of its larger focus on
integrated annual report.
                                                                    the food and agricultural industries has investigated or is
                                                                    investigating various industry bodies in these industries.
The Board of Directors is accountable for risk management.
                                                                    AFGRI, as a member of the Grain Storage Industry (GSI);
The AFGRI Limited Board Charter outlines the directors’
                                                                    Animal Feeds Manufacturers Association (AFMA); the South
responsibilities for the management of risk within the
                                                                    African Poultry Association (SAPA); and the South African
Group. These responsibilities can be summarised as:
                                                                    Oil and Protein Association (SAOPA), has cooperated freely
   the total process of risk management, as well as for
                                                                    and fully with the Commission in such investigations.
   forming its own opinion on the effectiveness of the
   process (management is accountable to the Board for
                                                                    AFGRI is committed to complying with the provisions of
   designing, implementing and monitoring the process of
                                                                    the Competition Act No 89 of 1998 in respect of all its
   risk management)
                                                                    business activities. To this end, the Group has introduced
   the disclosure of how it satisfied itself that risk
                                                                    a Competition Law Compliance Programme, in terms of
   assessments, responses and interventions are effective;
                                                                    which each division must continuously receive training on
   identify and fully appreciate the business risk issues and
                                                                    the relevant provisions of the act.
   key performance indicators affecting the ability of the
   Group to achieve its strategic purpose and objectives
                                                                    In addition, a Competition Law Compliance Manual has
   ensure that management establish appropriate systems
                                                                    been developed and distributed throughout the Group.
   to manage the identified risks, measure the impact and
                                                                    All relevant employees are required to attest that they are
   to proactively manage it, so that the Group’s assets and
                                                                    familiar with the provisions of the Compliance Manual and
   reputation are suitably protected.
                                                                    annually attest that they have complied with all applicable
                                                                    provisions of the Competition Act.
The Board can delegate some of these responsibilities to
the Audit and Risk Management Committee, but retains
                                                                    AFGRI is committed to cooperating with the Competition
overall accountability. For more information on corporate
                                                                    Commission regarding any possible contravention of the
governance and risk management refer to the corporate
                                                                    Competition Act.
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.



                                                                                                               AFGRI Limited Annual Report 2010
                     58
                                  Corporate responsibility                             continued




                                     AFGRI Cup 2010                                                        AFGRI Animal Feeds Driver of
                                                                                                           the Year Competition
                                     In celebration of the 2010 FIFA World Cup™ in South
                                     Africa, AFGRI held its own soccer tournament during                   Since 2008, AFGRI Animal Feeds, in association with
                                     May 2010. This was the first Group-wide social                        Driving Sense, has run a ‘Driver of the Year’
                                     interaction in AFGRI’s history and the winners were                   competition to recognise their drivers. Driving Sense
                                     allowed to apply R80 000 of the Group’s CSI budget                    is a company with more than 15 years’ experience
                                     to a deserving cause of their choice. Various soccer                  in skills development with transport related
                                     activities were held as a build-up to the tournament.                 industries.
                                     A total of 16 teams from the various business units
                                     participated in the male tournament, while six                        The division always views their drivers as key to
                                     groups took part in women exhibition matches. The                     its success. Each one of them is in fact a key
                                     AFGRI management team also played the “beautiful                      accounts manager with a company car worth
                                     game” at kick-off. After the quarter and semi-finals                  more than R1 million. Contestants are selected
                                     were played, the final was contested by the Superior                  from six factories: Eloff, Klipheuwel, Paterson,
                                     Boys (AFGRI Poultry) and Bethlehem Warriors                           Isando, Kinross and Bethlehem. These contestants
                                     (Animal Feeds). The winners of the tournament,                        are individually judged on different practical driving
                                     Superior Boys, selected Siyonqoba Care Centre for                     skills. Michael Ralinala (Isando factory) won the 2010
                                     the Disabled as their charity of choice. Sheri                        driver of the year award, followed by James Mavuso
                                     ‘Shadow’ Ndaule was chosen ‘Man of the                                (Eloff factory) and third place went to Jannie
                                     Tournament’ and walked away with an Ivolve                            Pretorius (Paterson factory).
                                     (AFGRI’s personal computer supplier) sponsored
                                     computer.




                                                                            Project Bright Spark
Growth the natural outcome




                                                                            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.




                     AFGRI Limited Annual Report 2010
    Group overview                   2010 overview   Corporate governance
                                                                                    59




                                  TO
                               PIC E
                                COM




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



                                                        AFGRI Limited Annual Report 2010
60
             Awards in 2010



   AFGRI Poultry                                                   Animal Feeds

      July 2009: Passed the SAFSIS audit in order                   The division received the AFRI
      to be listed as a Pick n Pay supplier and                     Compliance Platinum certification and
      subsequently listed as a SPAR supplier.                       Animal Feed Manufacturers Association
                                                                    (AFMA) Code of Conduct Award for
      October 2009: Obtained Export Certification.
                                                                    all of its commissioned factories.
      October 2009: Documented Hygiene Management System
      certified by Provincial Executive Officer of Mpumalanga.      AFRI Compliance has developed a unique
                                                                    protocol for animal feed plants in Southern
      March 2010 and June 2010: Passed the National                 African Development Community (SADC)
      Abattoir Rating Scheme (NARS) audit with 83% and 89%          countries, which ensures compliance with
      respectively, aiming to be the provincial winner for 2010.    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
   Insurance
                                                                    Compliance certification programme.
                                                                    AFRI Compliance Platinum certification
   The division was awarded the Top Agri Insurance                  was awarded after an extensive audit
   Broker nationally, with Bethal and Standerton branches           was conducted at all AFGRI Animal Feeds
   obtaining second and third positions respectively.               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.
   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.




AFGRI Limited Annual Report 2010
   Group overview               2010 overview           Corporate governance
                                                                                       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




                                                           AFGRI Limited Annual Report 2010
                     62
                                  Corporate governance



                                  Management acknowledges the rights of AFGRI’s                    sustainability has been guided by the King Report series,
                                  shareholders as the real owners of the Company and               including both King II, which created an open environment
                                  understands its own role as trustees on behalf of the            for institutional activism in 2002, and now King III, requiring
                                  shareholders. Corporate governance provides guidance             the application of an inclusive range of governance
                                  and oversight as the Company seeks to find balance               principles, or reasons for deviating from these principles.
                                  between conformance with governance principles and               What follows is a brief overview of the roles and
                                  superior performance in terms of a sustainable return on         responsibilities of the AFGRI Board and its committees,
                                  shareholders’ investments. AFGRI’s journey towards               including important developments for the year under review.



                                  The AFGRI governance structure can be illustrated as follows:


                                                                                    AFGRI Limited Board




                                         Audit and Risk
                                                                  Credit           Remuneration     Nomination
                                         Management                                                                                                    CEO
                                                                Committee           Committee       Committee
                                          Committee



                                                                                                                                 AFGRI
                                                                                                                               Operations
                                                                                                                             Limited Board




                                                                                                                                 OPCO


                                         External audit




                                                                                     Group Risk
                                                                                                      Country Risk           Sustainability
                                         Internal audit                            and Assurance
                                                                                                       Committee              Committee
                                                                                    Committee




                                  The AFGRI Limited Board                                          On 10 January 2010, Messrs Dave Barber and Lwazi Koyana
                                  The AFGRI Limited Board has a unitary board structure that       were appointed to the AFGRI Board; further strengthening
                                  is in control of the affairs of the Company. The Board           the skills base of the Board. Both these directors are
                                  consists of 13 members. Of these, five directors are             independent non-executive directors.
Growth the natural outcome




                                  classified as independent non-executive directors. Three
                                  are executive directors and another three directors              On 20 May 2010 Linda de Beer was appointed to the AFGRI
                                  represent the interest of AFGRI’s BEE partners, Agri Sizwe.      Board. Linda is also an independent non-executive director.


                                  Of the independent non-executive directors, two are black        The Board at its meeting on 31 August 2010 adopted a
                                  and one is female.                                               Board Charter setting out its roles and responsibilities.


                                  The Board is chaired by Jethro Mbau, an independent              In terms of this charter, an evaluation of the Board, its
                                  director. A register of directors’ interests is maintained and   committees and individual directors, including the
                                  updated at Board meetings.                                       chairman, must be performed annually.


                                  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.




                     AFGRI Limited Annual Report 2010
               Group overview                                     2010 overview                                Corporate governance
                                                                                                                                               63




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:
                                         1 Sept         23 Nov        24 Nov         22 Feb       23 Feb        7 May         18 May
 Board member                             2009            2009*         2009           2010*        2010         2010**         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



Board committees                                                       The internal and external auditors have direct access to the
The Board established various committees on which                      Audit and Risk Management Committee and are invited to
non-executive directors play important roles. Terms of                 all meetings of the committee.
reference have been drafted for all these committees. All
terms of reference are in the process of being reviewed to             The committee meets four times per annum. Members of
ensure that they meet the requirements contained in                    the Operating Committee who are ultimately responsible
King III. All committees are chaired by independent                    for risk management attend these meetings as attendees
non-executive directors.                                               but are not allowed to vote.


The terms of reference of the committees are available                 The committee is chaired by an independent non-executive
from the AFGRI Group Company Secretary on request.                     director. The committee consists of two additional
                                                                       members and both of these are independent non-executive
Members of the various Board committees are re-elected                 directors as required by the new Companies Act. The
at the first meeting after the annual general meeting,                 composition of the committee was changed during the
generally in November of every year.                                   year under review to ensure that the committee consists of
                                                                       only independent non-executive directors. Members of the
In view of the fact that the Audit Committee will become               committee are Dave de Beer (Chairman), Dave Barber and
a statutory committee once the new Companies Act                       Lwazi Koyana.
becomes law and in terms of the recommendations set out
in King III, shareholders will now be required to elect the            The functions of the committee include:
members of the AFGRI Audit and Risk Management                            Overseeing integrated reporting
Committee at the Company’s 2010 annual general meeting.                   Managing risk
                                                                          Reviewing the annual financial statements
Audit and Risk Management Committee                                       Considering the sustainability of the Group
The Audit and Risk Management Committee of the Board                      Appointing external auditors
has a dual role and fulfils the duties of an Audit Committee              Overseeing the internal audit function
as well as a Risk Management Committee.                                   Ensuring the application of the combined assurance
                                                                          model
The Audit and Risk Management Committee reviews the                       Implementing a whistle-blowing mechanism
effectiveness of the risk management process and internal                 Monitoring Group ethics
control in the Group with reference to the findings of both               Monitoring the relationship with the Group’s external
the internal and external auditors. Other areas covered                   auditor
include the review of important accounting issues,                        Approving the internal audit plan
including specific disclosures in the financial statements, a             Approving and monitoring a policy for non-audit services
review of the major audit recommendations and all matters                 Considering environmental and social issues
required in terms of legislation.                                         Monitoring country risk



                                                                                                                   AFGRI Limited Annual Report 2010
                     64
                                  Corporate governance                                  continued




                                  Attendance at meetings:
                                                                                                                       27 Aug          18 Nov       17 Feb     12 May
                                   Name of member                                                                        2010            2009         2010       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


                                  Remuneration Committee                                                  remuneration philosophy and policies, see the
                                  The Remuneration Committee of AFGRI is concerned with                   Remuneration Report on pages 70 to 72 of this integrated
                                  executive remuneration. The members of the committee                    annual report.
                                  are Dave Barber (Chairman), Dave de Beer and Lwazi
                                  Koyana.
                                                                                                          Nomination Committee
                                                                                                          The appointment of directors is a transparent and formal
                                  The Remuneration Committee met three times during the
                                                                                                          procedure governed by the Nomination Committee’s
                                  year under review, and the main task of the committee in
                                  2009/2010 was to recommend a new executive reward                       mandate and terms of reference as well as by the Board
                                  scheme as the previous EVA scheme was terminated                        Charter. This mandate and terms of reference were
                                  in 2009.                                                                updated earlier this year to align them with the
                                                                                                          requirements of King III. Factors influencing the selection
                                  The committee was assisted by independent advisors.                     process include skills, knowledge and qualifications, and
                                                                                                          are examined against the backdrop of specific areas of
                                  Attendance at meetings:                                                 responsibility including:
                                                                    7 Dec     22 Feb        2 Jun            Ensuring the Board has the appropriate composition
                                   Name of member                    2009       2010        2010             for it to execute its duties effectively
                                   DD Barber*                                                    √           Ensuring directors are appointed through a formal
                                   DD De Beer                          √            √            √           process
                                   LM Koyana*                                                    √           Ensuring the induction and ongoing training and

                                   C Apsey**                           √                                     development of directors
                                                                                                             Ensuring that formal succession plans for the Board,
                                   JPR Mbau***                         √            √
                                                                                                             Chief Executive Officer and senior management
                                    * Appointed as committee member with effect from 22 February             appointments are in place
                                     2010
                                                                                                             Considering availability, the number of external Board
                                   ** Retired 1 January 2010
                                                                                                             appointments, diversity, demographics and experience
                                  *** Stepped down as member of Remuneration Committee with
Growth the natural outcome




                                                                                                             in relevant sectors
                                     effect from 22 February 2010


                                  The functions of this committee include:                                The Chairman of the Nomination Committee is also the
                                    Ensuring that the Company remunerates fairly and                      Chairman of the Board as required in terms of the JSE
                                    responsibly                                                           Listings Requirements. The other members of the
                                    Ensuring that remuneration is disclosed in accordance                 committee are Dave de Beer and Moses Moloele.
                                    with legislation
                                    Overseeing the establishment and implementation of                    The Credit Committee
                                    remuneration policies in relation to non-executive                    The committee consists of three non-executive directors
                                    directors, executive directors and other executives’                  (two being independent) and two executive directors. The
                                    remuneration
                                                                                                          Credit Committee is responsible for the development and
                                    Reviewing the outcomes of the implementation of these
                                                                                                          implementation of credit policy and procedures throughout
                                    policies as to whether they promote the achievement
                                                                                                          the Group.
                                    of strategic objectives and encourage individual
                                    performance
                                                                                                          The members of the Credit Committee are Dave de Beer
                                  For further details on the remuneration of AFGRI’s                      (Chairman), Koot Claassen, Lwazi Koyana, Jan van der
                                  executive and non-executive directors, as well as AFGRI’s               Schyff and Chris Venter.



                     AFGRI Limited Annual Report 2010
               Group overview                                        2010 overview                             Corporate governance
                                                                                                                                               65




The committee meets at least quarterly to review the Group’s               Review and monitor large exposures (the Chairman of
credit exposure and to ensure that the necessary procedures                the committee, Group Chief Executive Officer and Group
are in place to limit credit risk to both existing and prospective         Financial Director may approve exposures greater than
customers. More detail regarding the management of credit                  R50 million)
risk is provided in the accounting policies under “Financial risk          Monitor management actions and decisions, ensure
management”. Refer to page 101.                                            compliance to facilities and guidelines
                                                                           Evaluate the overall quality of the debtors book and
The main functions of the Credit Committee are:                            lending activities and to take corrective action where
  Credit applications in excess of R100 million must be                    necessary
  referred to the AFGRI Limited Board for noting. All                      To conduct meetings as a governance tool
  facilities in excess of R500 million must be referred to                 Monitor problematic accounts with exposures above
  the AFGRI Limited Board for approval                                     R50 million or other amount as decided on from time to
  Review and approve all operational credit policies                       time



AFGRI Operations Limited Board
The 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



The AFGRI Operations Limited Board has a number of                      The committee meets weekly. The purpose of OPCO is
subcommittees namely the Operating Committee, the                       to assist the Chief Executive Officer in the fulfilment of
Sustainability Committee, the Country Risk Committee and                his duties that include:
the Risk and Assurance Committee.                                          Meeting the Company’s financial and operating goals
                                                                           and objectives
Operating Committee (OPCO)                                                 Ensuring day-to-day business affairs are properly
This committee is responsible for the operating activities of              managed
the Group, developing strategy and policy proposals for                    Developing long-term strategy and creating added value
consideration by the Board and implementing the Board’s                    for and positive relations with stakeholders
directives.                                                                Maintaining positive and constructive work climate to
                                                                           attract, retain and motivate employees at all levels
The committee is chaired by the Chief Executive Officer                    Ensuring a corporate culture that promotes sustainable
and consists of the following members:                                     ethical practices, encourages individual integrity and
Chris Venter (CEO), Pieter Badenhorst (Group Legal                         fulfils social responsibility objectives and imperatives
Director), Johan Geel (COO), Mulco Manyama (Group HR                       Developing strategy
Director) and Jan van der Schyff (FD).                                     Preparing the budget



                                                                                                                   AFGRI Limited Annual Report 2010
                     66
                                  Corporate governance                               continued




                                     Ensuring compliance                                           In addition to reporting to the Chief Executive Officer and
                                     Setting the ethical leadership tone                           having a direct channel of communication to the Chairman,
                                                                                                   the Group Company Secretary interacts with the Chairman
                                  Group Risk and Assurance Committee                               before Board and general meetings to prepare for and
                                  The Group Risk and Assurance Committee is a                      discuss important issues and agree on the agenda.
                                  management committee formed for the purpose of                   Furthermore, the Group Company Secretary assists the
                                  implementing the combined assurance model. More detail           Chairman of the Board and committee chairmen in the
                                  on the management of risk is provided below.                     drafting of work plans.


                                  Sustainability Committee                                         The Group Company Secretary is responsible for the
                                  The Sustainability Committee of AFGRI is a management            functions specified in section 268(G) of the Companies
                                  committee. The committee reports to the Chief Executive          Act of 1973 (as amended) (the Act). All meetings of
                                  Officer and drives the AFGRI sustainability strategy across      shareholders, directors and Board subcommittees are
                                  the Group. The committee’s current focus is on the               properly recorded as per the requirements of section 242
                                  Broad-Based Black Economic Empowerment Act Codes                 of the Act. The removal of the Group Company Secretary
                                  of Good Practice in order to improve the Group’s                 would be a matter for the Board as a whole.
                                  transformation, the verification of the Group’s BEE
                                  credentials, the Group’s impact on the environment and           Risk management
                                  determining an indicative carbon footprint.                      Risk management policy and framework
                                                                                                   In terms of the risk management philosophy statement
                                  Country Risk Committee                                           issued by the Chief Executive Officer and Financial Director
                                  Investments (including credit facilities) in countries outside   and endorsed by the Board of Directors, the Group is
                                  South Africa have to be authorised by the Country Risk           committed to developing and maintaining an integrated risk
                                  Committee. The Country Risk Committee is a management            management programme to manage operational, insurable
                                  committee that reports to the Audit and Risk Management          and business risks and opportunities in the interest of all
                                  Committee. Investments should comply with the limits set         stakeholders.
                                  for the Group as a whole and should take into account the
                                  country risk profile.                                            The Group has established a culture of managing risk. A
                                                                                                   significant number of embedded processes, resources and
                                  Company Secretary                                                structures are in place to address risk management needs.
                                  To enable the Board to function effectively, all directors       These range from internal audit systems, insurance and risk
                                  have full and timely access to all information that may be       finance, IT security, compliance processes, quality
                                  relevant to the proper discharge of their duties and             management and a range of other line management
                                  obligations. This includes information such as agenda items      interventions.
                                  for Board meetings, corporate announcements, investor
                                  communications and any other developments, which may             The risk management framework adopted by the Group
                                  affect AFGRI or its operations.                                  sets out a structured and consistent approach for
                                                                                                   implementing a systematic process to manage risk across
                                  The office of the Group Company Secretary is responsible         the Group.
Growth the natural outcome




                                  for facilitating this access. Counsel and guidance is
                                  provided to the Board on their powers and duties,                Risk governance structure
                                  individually and collectively, by the Group Company              A number of committees and forums identify and manage
                                  Secretary who is also responsible for the development of         risk at both a business unit level and at a group level. These
                                  director training. All new directors are appropriately           committees and forums operate together with Group Risk
                                  inducted to AFGRI by the Group Company Secretary as well         Management and are mandated by the Board. A diagram of
                                  as induction visits to Group operations around South Africa.     the governance structure is provided on the next page.
                                  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.




                     AFGRI Limited Annual Report 2010
              Group overview                                    2010 overview                                  Corporate governance
                                                                                                                                                  67




                                             Risk governance structure


                                                        Integrated
                                                          report




                                                        Board of          • AFGRI Group risks
                                                        Directors         • Risk policy, framework and plan
                                                     (AFGRI Limited)      • Appetite and tolerance level


                Other management
                                                                          • AFGRI Group risks
                committees                            Audit and Risk
                                                                          • Material risks per business unit
                                                      Management          • Risk plan, policy, framework, appetite
                • Country Risk
                • Credit Risk                          Committee            and tolerance level
                • Sustainability Risk                (AFGRI Limited)
                                                                             Top-down risk identification for
                                                                             the Group
             • AFGRI Group risks
             • Risk dashboards and top five              Risk and            • Performed on an annual basis
             • Summary of management options            Assurance
                                                        Committee         • Operational risk review reports
                Role players                                              • Risk plan, policy, framework, appetite and
                                                                            tolerance level
                • Risk management
                • Internal audit                                             Bottom-up risk review per business
                • Management                         Business units/         unit/subsidiary
                • External audit                      subsidiaries
                • Insurance brokers                                          • At least once per annum (internally)
                • Other third parties                                        • Externally every second year




                      Business risks                                               Insurable risks

               • Strategic and operational                                  • Insurers
                 risks per business unit                                    • Risk control organisation
                                                                            • Fire and defence
                                                                            • Security
                                                                            • Emergency planning
                                                                            • Health and safety
                                                                            • Motor fleet
                                                                            • Environmental




Risk management process                                              safety, risk control organisation, emergency planning,
The risk management process requires management to                   vehicle fleet, fire defence. Comprehensive programmes
identify, analyse and evaluate the risks associated with             are in place to identify and evaluate operational risks,
activities under their control, mitigate and control these           implement process improvements and monitor the status
risks, take corrective actions, accept and monitor the risks.        of key risks. The Board of Directors has appointed external
This acts to stimulate and reinforce accountability. The             consultants to audit these programmes. The audits are
context of all the risk management activities is always the
                                                                     completed on a predetermined basis as set out in the
achievement of the business plan and strategic objectives.
                                                                     formal Group policy relating to operational risks. Certain
                                                                     business units are audited annually while others are on a
The Group (top-down) and each business unit and
                                                                     rotation basis which can either be every second/third/fifth
subsidiary (bottom-up) have undergone an objective
                                                                     year. Standards are based on applicable legal requirements
process of business risk assessment during the period
                                                                     and best practice principles for each risk and form the
under review, facilitated by Group Risk Management and
external consultants. These risk assessments highlighted             basis for external and internal audits. Detailed audit reports

areas where further control action was required and which            are made available to each site. Summarised reports of the
is now being undertaken.                                             material findings including comments on controls and
                                                                     systems are made to the Risk and Assurance Committee,
The management of operational and insurable risks covers             while an executive summary is presented to the Audit
many diverse dimensions such as security, health and                 and Risk Management Committee.



                                                                                                                      AFGRI Limited Annual Report 2010
                     68
                                  Corporate governance                                                                continued




                                  The Group has comprehensive risk and loss control                                                                                                           also impair business operations. The business, financial
                                  procedures in place, which form an integral part of a                                                                                                       condition or results of operations could be adversely
                                  sophisticated self-insurance programme. The layered                                                                                                         affected by any of these risk factors.
                                  structure of the programme allows the Group to cost-
                                  effectively protect itself from major losses through                                                                                                        Combined assurance
                                  local insurance.                                                                                                                                            AFGRI’s combined assurance plan provides a framework for
                                                                                                                                                                                              the various sources of assurance (assurance providers) to
                                  An overview of key risks                                                                                                                                    work together to provide assurance to the Board, via the
                                  In its ordinary course of business the Group faces a                                                                                                        Audit and Risk Management Committee, that key risks are
                                                                                                                                                                                              managed and that assurance activities are coordinated in
                                  number of risks that could affect business operations.
                                                                                                                                                                                              the most efficient and effective manner.
                                  The top ten risks, as identified during May 2010 are:
                                    Information technology
                                                                                                                                                                                              The combined assurance plan consists of three ‘levels of
                                    Regulatory and legal non-compliance
                                                                                                                                                                                              defence’ wherein the assurance on the risk management
                                    Global and local economic environment
                                                                                                                                                                                              and related controls in the Group is reported. The three
                                    Changing socio-political environment
                                                                                                                                                                                              layers of defence are management, corporate functions
                                    Increased market volatility
                                                                                                                                                                                              and independent assurance providers. The level of
                                    Change management                                                                                                                                         assurance required by the Board, and who should provide
                                    Access to affordable funding without excessive                                                                                                            that assurance, varies depending on the risk.
                                    concentration
                                    Credit risk                                                                                                                                               A graphical representation of the assurance process and
                                    Inability to attract and retain staff in key positions                                                                                                    the assurance providers appears below.
                                    Competitive environment
                                                                                                                                                                                              Donations to political parties
                                  Additional risks and uncertainties not presently known to                                                                                                   During the year under review, AFGRI did not make any
                                  the Group or that the Group deem immaterial may in future                                                                                                   donations to political parties.




                                                                                                                       Assurance process



                                                                                                                                            Assurance providers

                                                                                                                                                               Management
                                                                                                                                                                                                                                                     Sign-offs
                                                                                                                                    Reviews



                                                                                                                                                                KPIs



                                                                                                                                                                                                                     CSA
Growth the natural outcome




                                                     Organisational structure




                                                                                                                                                  Central functions
                                                                                                                                                                                                                                                                                                     Corrective actions
                                                                                Risk assessments




                                                                                                                                                                                                                                                                                                                          Business plans
                                                                                                                                                                                                                Risk management




                                                                                                                                                                                                                                                                                         Reporting
                                                                                                           Controls




                                                                                                                                                                                 HR and payroll
                                                                                                   Risks




                                                                                                                                                                                                                                      Finance
                                                                                                                                                      Legal
                                                                                                                            Tax




                                                                                                                                                                                                                                                              IT




                                                                                                                                            Independent assurance
                                                                                                                                                                                                                                                           Other third-party assurance
                                                                                                                          Assurance plans




                                                                                                                                                                External audit
                                                                                                                                              Internal audit




                                                                                                                                                                                                                                        Compliance
                                                                                                                                                                                                  Specialists

                                                                                                                                                                                                                          Insurance




                                                                                                                                              Combined assurance

                                                                                                                                                         Communication




                     AFGRI Limited Annual Report 2010
            Group overview                    2010 overview         Corporate governance
                                                                                                    69


Integrity
Passion




                                                              Respect
                             Accountability




                                                                s
                                                              excellence
                             Innovation
Teamwork




                                                              Service




                             Our Values
                                                                        AFGRI Limited Annual Report 2010
                     70
                                  Remuneration report



                                  The Remuneration Committee                                      Annual bonus
                                  This committee operates under the delegated authority of        The EVA bonus which had been in place since 2004 was
                                  the AFGRI Limited Board. The function of the committee is       terminated during 2009. During the course of the year, the
                                  to approve a broad remuneration strategy for the Group          Remuneration Committee has discussed various options
                                  and to ensure that directors and senior executives are          and requirements for a replacement scheme in conjunction
                                  adequately remunerated for their contribution to AFGRI’s        with executive management and external consultants. The
                                  operating and financial performance.                            result of these discussions is the proposal for a new,
                                                                                                  combined bonus and share incentive scheme. The salient
                                  The Remuneration Committee is responsible for                   points of this proposed scheme appear in the notice of
                                  considering and making recommendations to the Board on:         annual general meeting on pages 168 to 174, and at which
                                    significant changes in personnel policy                       shareholder approval for the scheme will be sought.
                                    approval of remuneration and benefits of executive
                                    directors                                                     Share incentive scheme
                                    remuneration and incentives of directors and other            Until 2009, executive directors and members of Group
                                    employees of subsidiaries                                     management participate in the AFGRI Limited Share
                                    significant changes to the Group pension and provident        Incentive Scheme. The options, which were allocated at the
                                    funds and medical aid schemes                                 average market price for the 90 days prior to the date of
                                    share incentive schemes and recommending significant          allocation, are exercised immediately and vest after
                                    changes                                                       stipulated periods. The number of share options granted
                                    executive succession and                                      was based on a multiple of total cost to company divided
                                    increases in non-executive directors’ fees                    by the ruling share price, prior to the grant. With the
                                                                                                  proposed, combined bonus and share incentive scheme,
                                  At 30 June 2010, the membership of this committee was:          the existing deferred share incentive scheme will be
                                     DD Barber – Independent director (Chairman)                  allowed to run out over the next four years and no more
                                     DD de Beer – Independent director                            share options will be awarded.
                                     LM Koyana – Independent director
                                                                                                  Other benefits
                                  The committee met three times during the period of this         Executives are remunerated on a cost-to-company basis
                                  report.                                                         and as part of their package are entitled to a car allowance,
                                                                                                  medical insurance, death and disability insurance and
                                  Principles of directors’ fees and remuneration                  reimbursement of reasonable business expenses.
                                  AFGRI’s remuneration policy is formulated to attract and
                                  retain high-calibre executives and motivate them to             Non-executive directors
                                  develop and implement the Company’s business strategy           The Remuneration Committee recommends fees payable
                                  in order to optimise long-term shareholder value creation.      to the non-executive chairman and directors for approval
                                  The purpose of remuneration is to ensure that executive         by the shareholders. Fees are approved for an annual
                                  directors and senior managers receive remuneration that is      period commencing on 1 November each year. The revised
                                  appropriate to their scope of responsibility and contribution   fees of the non-executive directors will be submitted to the
                                  to the Group’s operating and financial performance, taking      shareholders for approval at the next annual general
Growth the natural outcome




                                  into account industry norms and external market                 meeting on 15 October 2010.
                                  benchmarks.
                                                                                                  The proposed fees for non-executive directors for the
                                  Elements of executive remuneration                              period 1 November 2010 to 31 October 2011 are based on
                                  Executive director and management remuneration                  best practice and market information and comprise a
                                  comprises the following four principal elements:                combination of a retainer as well as a deduction for
                                  • Basic salary                                                  non-attendance of meetings.
                                  • Annual financial performance
                                                                                                  A non-executive is required to retire at the end of the year
                                  • Share incentive scheme, and
                                                                                                  in which the director turns 70.
                                  • Other benefits.
                                                                                                  Details of the proposed fees are set out in the notice of
                                  Basic salary                                                    the annual general meeting appearing on pages 168 to 170
                                                                                                  of this report.
                                  The 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.




                     AFGRI Limited Annual Report 2010
               Group overview                                      2010 overview                                 Corporate governance
                                                                                                                                                 71




Directors’ emoluments
The 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 2010
Non-executive directors
                                                   Audit and
                                      Board             Risk Remuneration                 Credit
                                    member        Committee   Committee               Committee                 Other*            Total
                                     (Rands)         (Rands)     (Rands)                 (Rands)              (Rands)           (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 directors
                                       Basic
                                 salary and                        Share-based           Expense    Company
                                allowances            Bonuses*       payments         allowances contributions                    Total
                                     (Rands)           (Rands)          (Rands)           (Rands)      (Rands)                  (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 2009
Non-executive directors

                                                   Audit and
                                      Board             Risk Remuneration             Acquisition           Credit
                                    member        Committee   Committee               Committee*        Committee                 Total
                                     (Rands)         (Rands)     (Rands)                 (Rands)           (Rands)              (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.




                                                                                                                     AFGRI Limited Annual Report 2010
                     72
                                  Remuneration report                           continued




                                  Executive directors
                                                                       Basic
                                                                 salary and                     Share-based          Expense    Company
                                                                allowances          Bonuses       payments        allowances contributions                Total
                                                                     (Rands)         (Rands)         (Rands)          (Rands)      (Rands)              (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 trade
                                  CP 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 options
                                  Details 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 2009
                                                                                                     CP 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 year
                                  No share options were granted and exercised during the year under review.

                                  Implemented during the year
                                  No share options were implemented during the year under review.

                                  Share options forfeited during the year
                                  None of the current executive directors forfeited any of their share options during the year.

                                  Under contract at 30 June 2010
                                                                                                     CP 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
Growth the natural outcome




                                  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




                     AFGRI Limited Annual Report 2010
              Group overview                                   2010 overview                      Corporate governance
                                                                                                                                    73




Shareholder analysis
                                                                  No of                        No of
                                                          shareholdings             %         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




                                                                                                        AFGRI Limited Annual Report 2010
                     74
                                  GRI index




                                   Section              G3          Description                                                              Reference
                                                        indicator
                                   Strategy             1.1         Statement from senior decision-maker about the relevance and             Pages 19, 22 – 28
                                                                    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
                                                        1.2         Description of key impact, risk and opportunities                        IFC, 1, 8 – 11,
                                                                                                                                             48 – 58
                                   Organisational       2.1         Name of the organisation                                                 Front cover
                                   profile
                                                        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                   2–3
                                                                    countries with major operations relevant to the sustainability
                                                                    issues covered in this report
                                                        2.6         Nature of ownership                                                      51, 73, 158 – 160
                                                        2.7         Market served                                                            2 – 3, 22 – 28
                                                        2.8         Scale of reporting organisation including:                               4 – 7, 30 – 40,
                                                                      number of employees                                                    42 – 46, 52 - 53
                                                                      net sales
                                                                      total capitalisation broken down in terms of debt and equity
                                                                      quantity of products or services provided
                                                        2.9         Significant changes in the reporting organisation during period          22 – 28, 40, 42 – 45
                                                                    under review
                                                        2.10        Awards received during the reporting period                              60
                                   Report scope         3.1         Reporting period                                                         IFC, 1
                                   and boundary
                                                        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                                                              48 – 49
                                                                       determining materiality
                                                                       process for prioritising topics in the report
                                                                       identifying stakeholders expected to use this report
                                                        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   IFC, 1
                                                                    and outsourced operations
Growth the natural outcome




                                                        3.9         Data measurement techniques and the bases of calculations,               IFC, 1
                                                                    including assumptions and techniques underlying estimations
                                                                    applied to the compilation of the indicators and other information
                                                                    in the report
                                                        3.10        Explanation of the effect of any restatements of information             Not applicable
                                                                    provided in earlier reports, and the reasons for such restatement
                                                        3.11        Significant changes from previous reporting periods in the scope,        IFC, 1
                                                                    boundary, or measurement methods applied in the report
                                                        3.12        GRI table                                                                73 – 75
                                                        3.13        Policy and current practice with regard to seeking external              IFC, 1, 28
                                                                    assurance for the report




                     AFGRI Limited Annual Report 2010
          Group overview                             2010 overview                                  Corporate governance
                                                                                                                                   75




Section         G3          Description                                                               Reference
                indicator
Governance      4.1         Governance structure of the organisation                                  62 – 68
                4.2         Indicate whether the chairman is also an executive officer and,           12 – 13, 62
                            reasons for this arrangement
                4.3         Number of independent and/or non-executive members                        12 – 13, 62 – 68
                4.4         Mechanisms for shareholders and employees to provide                      49
                            recommendations or directions to the Board
                4.5         Linkage between compensation for members of the highest                   64, 69 – 71
                            governance body, senior managers and executives
Governance      4.6         Processes in place for the highest governance body to ensure              62
(continued)                 conflicts of interest are avoided
                4.7         Process for determining the qualifications and expertise of the           64
                            members of the highest governance body for guiding the
                            organisation’s strategy on economic, environmental, and social
                            topics
                4.8         Internally developed statements of missions or values, codes of           IFC, 1, 27, 51, 53,
                            conduct, and principles relevant to economic, environmental, and          55, 57
                            social performance, and the status of their implementation
                4.9         Procedures of the highest governance body of overseeing the               63, 66 – 68
                            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
                4.10        Processes for evaluating the highest governance body’s own                62
                            performance, particularly with respect to economic, environmental
                            and social performance
                4.11        Explanation of whether and how the precautionary approach or              Not addressed
                            principles are addressed by the organisation
                4.12        Externally developed economic, environmental and social charters,         None
                            principles, or other initiatives to which the organisation subscribes
                            or endorses
                4.13        Memberships in associations (such as industry associations) and/          57
                            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.
                4.14        List of stakeholder groups engaged by the organisation                    49
                4.15        Basis for identification and selection of stakeholders with whom to       49
                            engage
                4.16        Approaches to stakeholder engagement, including frequency of              49
                            engagement by type and by stakeholder group
                4.17        Key topics and concerns that have been raised through                     8 – 11
                            stakeholder engagement, and how the organisation has responded
                            to those key topics and concerns, including through its reporting




                                                                                                       AFGRI Limited Annual Report 2010
                     76
                                  GRI index             continued




                                   Section               G3          Description                                                            Reference
                                                         indicator
                                   Disclosures on        DMA EC      The disclosures on management approach relate to the individual
                                   management                        aspects reported on, including:
                                   approach                          EC1 – Direct economic value generated and distributed                  5
                                                                     EC2 – Impacts of climate change                                        27 – 28, 56
                                                                     EC6 – Spending on locally based suppliers                              52
                                                                     EC7 – Local hiring, including at senior management level               Not addressed
                                                                     EC8, EC9 – Economic impacts                                            48 – 58
                                                         DMA EN      The disclosures on management approach for all environmental           IFC, 1, 55
                                                                     aspects reported on
                                                         DMA LA      The disclosures on management approach relating to labour              49
                                                                     practices and decent work reported on
                                                         DMA HR      The disclosures on management approach relating to human rights        Not addressed
                                                                     reported on
                                                         DMA SO      The disclosures on management approach relating to society             48, 52
                                                                     reported on
                                                         DMA PR      The disclosures on management approach relating to individual          53 – 55
                                                                     aspects reported on:
                                                                     PR1, PR2 – Product health and safety impacts
                                                                     PR4, PR5, PR8 – Customer satisfaction and privacy of data and
                                                                     non-compliance with regulations
                                   Performance           EC1         Direct economic value generated and distribution, including            5
                                   indicators                        revenue, operating cost, employment compensation, donation and
                                                                     other community investments, retained earnings and payments to
                                                                     capital providers and governments
                                                         EC6         Policy, practices and proportion of spending on locally based          52
                                                                     suppliers at significant locations of operations
                                                         EC8         Development and impact of infrastructure investments and               48 – 58
                                                                     services provided primarily for public benefit through commercial,
                                                                     in kind, or pro bono engagement
                                                         EC9         Understanding and describing significant indirect economic             Not addressed
                                                                     impacts, including the extent of impacts
                                                         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      Not addressed
                                                                     biodiversity in protected areas and areas of high biodiversity value
                                                                     outside protected areas
                                                         EN16        Total direct and indirect greenhouse gas emissions by weight           Not addressed
Growth the natural outcome




                                                         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          56
                                                                     services and extent of impact mitigation
                                                         EN27        Percentage of products sold and their packaging materials that are     Not addressed
                                                                     reclaimed by category
                                                         EN28        Monetary value of significant fines and total number of non-           None
                                                                     monetary sanctions for non-compliance with environmental laws
                                                                     and regulations
                                                         LA1         Total workforce by employment type, employment contract and            52 – 53
                                                                     region
                                                         LA4         Percentage of employees covered by collective bargaining               49
                                                                     agreements
                                                         LA5         Minimum notice period(s) regarding operational changes, including      49
                                                                     whether it is specified in collective agreements
                                                         LA7         Rates of injury, occupational diseases, last days and absenteeism,     49
                                                                     and total number of work-related fatalities by region




                     AFGRI Limited Annual Report 2010
          Group overview                              2010 overview                             Corporate governance
                                                                                                                               77




Section         G3          Description                                                           Reference
                indicator
                LA8         Education, training, counselling, prevention and risk control         49
                            programmes in place to assist workforce members, their families
                            or community members, regarding serious diseases
                LA11        Programmes for skills management and lifelong learning that           49, 52
                            support the continued employability of employees and assist them
                            in management career endings
                LA13        Composition of governance bodies in terms of diversity and            12 – 15
                            breakdown of employees per category according to gender and
                            other relevant indicators of diversity
                SO3         Percentage of employees trained in organisation’s anti-corruption     Not addressed
                            policies and procedures
                SO7         Total number of legal actions for anti-competitive behaviour,         57
                            anti-trust, and monopoly practices and their outcomes
                PR4         Total number of incidents of non-compliance with regulations and      Not addressed
                            voluntary codes concerning product and service information and
                            labelling, by type of outcomes
                PR5         Practices related to customer satisfaction, including results of      32, 35, 39, 53 – 55
                            surveys measuring customer satisfaction
                HR4         Total number of incidents of discriminations and actions taken        49




                                                                                                   AFGRI Limited Annual Report 2010
                     78
                                  Audit and risk management committee report



                                  We are pleased to present our report for the financial year                 ROLE AND RESPONSIBILITIES
                                  ended 30 June 2010.                                                         The Committee’s role and responsibilities include its
                                                                                                              statutory duties as per the Corporate Laws Amendment Act,
                                  AUDIT AND RISK MANAGEMENT COMMITTEE                                         2006, and the responsibilities assigned to it by the Board.
                                  TERMS OF REFERENCE
                                  The AFGRI Limited Audit and Risk Management Committee                       Statutory duties
                                  (the Committee) has adopted a formal Terms of Reference                     In the conduct of its duties, the Committee has performed
                                  that has been approved by the Board of Directors. The                       the following statutory duties:
                                  Committee has conducted its affairs in compliance with                      •   Nominated for appointment as external auditor of the
                                  these Terms of Reference and has discharged its                                 Company, PricewaterhouseCoopers Inc a registered
                                  responsibilities contained therein. The Terms of Reference                      auditor who, in the opinion of the Committee, is
                                  are available from the Group Company Secretary on request.                      independent of the Company;
                                                                                                              •   Determined the fees to be paid to the external auditor
                                  AUDIT AND RISK MANAGEMENT COMMITTEE                                             and his terms of engagement;
                                  MEMBERS AND ATTENDANCE AT MEETINGS                                          •   Ensured that the appointment of the external auditor
                                  The composition of the Committee was changed during the                         complies with the Corporate Laws Amendment Act, 2006
                                  year under review to ensure compliance with the                                 and any other legislation relating to the appointment of
                                  requirements of the new Companies Act. The Committee                            auditors;
                                  consists of three independent, non-executive directors and                  •   Determined the nature and extent of any non-audit
                                  meets at least four times per annum as per the Committee                        services that the external auditor may provide to the
                                  Terms of Reference. The Group chief executive, Group                            Company (and the AFGRI Limited Group); and
                                  financial director, AFGRI Operations‘ COO, AFGRI Operations’                •   Pre-approved any proposed agreement with the external
                                  legal director and AFGRI Operations‘ HR director, Internal                      auditor for the provision of non-audit services to the
                                  Audit, external auditor and other assurance providers of                        company (and the AFGRI Limited Group).
                                  AFGRI attend all meetings by invitation.


                                  During the year under review four meetings were held.


                                  Name of member                                            27 August             18 November            17 February                  12 May
                                                                                                 2009                    2009                  2010                     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*                                                            √                      √                    √
Growth the natural outcome




                                  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




                     AFGRI Limited Annual Report 2010
               Group overview                                       2010 overview                                Corporate governance
                                                                                                                                                79




External auditor                                                       Financial statements (including accounting practices)
The Committee has satisfied itself that the external auditor,          The Committee has reviewed the financial statements of the
PricewaterhouseCoopers Inc. was independent of the                     Company and the AFGRI Limited Group and is satisfied that
Company, as set out in section 270A (5) of the Corporate               they comply with International Financial Reporting Standards.
Laws Amendment Act, 2006, which includes consideration
of compliance with criteria relating to independence or                Going concern
conflicts of interest as prescribed by the Independent                 The Committee reviewed a documented assessment by
Regulatory Board for Auditors. Requisite assurance was                 management of the going-concern premise of the Company
sought and provided by the external auditor that internal              and the AFGRI Limited Group before concluding to the Board
governance processes within PricewaterhouseCoopers Inc.                that the Company, as well as the AFGRI Limited Group will be
support and demonstrate their claim to independence.                   a going concern in the foreseeable future.


The Committee, in consultation with executive management,              Expertise and experience of financial director and finance
agreed to the engagement letter, terms, audit plan and                 function
budgeted audit fees for the 2009/2010 financial year. All              The Committee has satisfied itself that the financial director
non-audit services provided by the external auditor must be            of AFGRI Limited has appropriate expertise and experience.
approved by the Chairman of the Committee. The Committee               The Committee has considered, and has satisfied itself of the
ratified the nature and extent of non-audit services that the          appropriateness of the expertise and adequacy of resources
external auditor provided.                                             of the AFGRI Limited Group’s finance function and
                                                                       experience of the senior members of management
The Committee has nominated, for approval at the annual                responsible for the financial function.
general meeting, PricewaterhouseCoopers Inc. as the
external auditor and Mr JL Roos as the designated auditor,             Duties assigned by the Board
for the 2010/2011 financial year. It has further satisfied itself      The Committee fulfils an oversight role regarding the
that the audit firm and designated auditor are accredited to           Company’s integrated annual report and the reporting
appear on the JSE List of Accredited Auditors.                         process, including the system of internal financial control. It
                                                                       is responsible for ensuring that the Company and the AFGRI
Internal financial controls                                            Limited Group’s internal audit function is independent and
Based on the reports provided to the Committee by internal             has the necessary resources, standing and authority within
audit of the reviews conducted by them during the year and,            the organisation to enable it to effectively discharge its
in addition, considering information and explanations                  duties. Furthermore, the Committee oversees co-operation
provided by management plus discussions held with the                  between the internal and external auditors, and serves as a
external auditor on the results of their audit, the Committee          link between the Board of Directors and these functions.
is of the opinion that the AFGRI Limited Group’s system of
internal financial controls is effective and forms a basis for         During the year under review, the Committee met with the
the preparation of reliable financial statements.                      external auditor and with the head of internal audit without
                                                                       management being present. The Committee is satisfied that
A formal documented review of the design, implementation               it has complied with its legal, regulatory and other
and effectiveness of the AFGRI Limited Group’s system of               responsibilities.
internal financial controls will be conducted by internal audit
during the 2010/2011 financial year.




                                                                                                                    AFGRI Limited Annual Report 2010
                     80
                                  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
Growth the natural outcome




                                  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




                     AFGRI Limited Annual Report 2010
Financial statements

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




                                  Directors’ responsibility for, and approval of, the annual
                                  financial statements

                                  The directors are responsible for the preparation, integrity    The financial statements were approved by the Board
                                  and fair presentation of the financial statements of AFGRI      of Directors on 31 August 2010 and are signed on its
                                  Limited and its subsidiaries. The financial statements          behalf by:
                                  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     JPR Mbau
                                  and its consistency with the financial statements.              Chairman


                                  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.                                                          CP Venter
                                                                                                  Chief Executive Officer
                                  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.          JA van der Schyff
                                  PricewaterhouseCoopers Incorporated audit report is             Group Financial Director
                                  presented on page 83.
                                                                                                  Centurion
                                                                                                  31 August 2010
Growth the natural outcome




                                  Certificate by Company Secretary
                                  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



                     AFGRI Limited Annual Report 2010
                                                                                                                                        83




Independent auditors’ report
TO THE MEMBERS OF AFGRI LIMITED



We have audited the Group annual financial statements            the auditor’s judgement, including the assessment of the
and annual financial statements of AFGRI Limited, which          risks of material misstatement of the financial statements,
comprise the consolidated and separate balance sheets as         whether due to fraud or error. In making those risk
at 30 June 2010, and the consolidated income statement,          assessments, the auditor considers internal control
the consolidated and separate statements of                      relevant to the entity’s preparation and fair presentation of
comprehensive income, the consolidated and separate              the financial statements in order to design audit procedures
statements of changes in equity and consolidated and             that are appropriate in the circumstances, but not for the
separate cash flow statements for the year then ended,           purpose of expressing an opinion on the effectiveness of
and a summary of significant accounting policies and other       the entity’s internal control. An audit also includes
explanatory notes, and the directors’ report, as set out on      evaluating the appropriateness of accounting policies used
pages 84 to 167.                                                 and the reasonableness of accounting estimates made by
                                                                 management, as well as evaluating the overall presentation
Directors’ responsibility for the financial                      of the financial statements.
statements
The Company’s directors are responsible for the                  We believe that the audit evidence we have obtained is
preparation and fair presentation of these financial             sufficient and appropriate to provide a basis for our audit
statements in accordance with International Financial            opinion.
Reporting Standards and in the manner required by the
Companies Act of South Africa. This responsibility includes:     Opinion
designing, implementing and maintaining internal control         In our opinion, the financial statements present fairly, in all
relevant to the preparation and fair presentation of financial   material respects, the consolidated and separate financial
statements that are free from material misstatement,             position of AFGRI Limited as at 30 June 2010, and its
whether due to fraud or error; selecting and applying            consolidated and separate financial performance and its
appropriate accounting policies; and making accounting           consolidated and separate cash flows for the year then
estimates that are reasonable in the circumstances.              ended in accordance with International Financial Reporting
                                                                 Standards and in the manner required by the Companies
Auditors’ responsibility                                         Act of South Africa.
Our responsibility is to express an opinion on these
financial statements based on our audit. We conducted our
audit in accordance with International Standards on
Auditing. Those standards require that we comply with
ethical requirements and plan and perform the audit to
obtain reasonable assurance whether the financial                PricewaterhouseCoopers Inc
statements are free from material misstatement.                  Director: JL Roos
                                                                 Registered Auditor
An audit involves performing procedures to obtain audit
evidence about the amounts and disclosures in the                Pretoria
financial statements. The procedures selected depend on          31 August 2010




                                                                                                            AFGRI Limited Annual Report 2010
                     84




                                  Directors’ report


                                  To the members of AFGRI Limited (“AFGRI” or                     CORPORATE ACTIVITY DURING THE YEAR
                                  “the Company”)                                                  On 26 January 2010 the Group concluded the sale
                                  The directors have pleasure in submitting the annual            agreement of the Tsunami business unit with Oninamix
                                  financial statements of AFGRI Group for the year ended          (Pty) Limited trading as Arysta Life Science South Africa.
                                  30 June 2010.                                                   Certain of the business unit’s assets will only be transferred
                                                                                                  over the next 12 months and are therefore disclosed under
                                  NATURE OF BUSINESS                                              assets of disposal groups classified as held-for-sale.
                                  AFGRI offers a wide range of world-class products and           The trading results are included with the results from
                                  services to South African agriculture, focused on the grain     discontinued operations. These assets contributed
                                  value chain in high production areas and has extensive          R645 million (2009: R438 million) to the Group’s revenue
                                  investments in secondary agriculture, including animal          and R70 million (2009: R31 million) to the Group’s profit
                                  feeds, oil pressing and poultry production.
                                                                                                  before tax. More details regarding this transaction were
                                                                                                  published on SENS on 1 February 2010.
                                  FINANCIAL RESULTS
                                  AFGRI reported revenue from continuing operations
                                                                                                  On 4 February 2010, the Group entered into a sale
                                  for the year ended 30 June 2010 of R7,258 billion
                                                                                                  agreement with Capital Harvest to sell the Western Cape
                                  (2009: R8,017 billion). Profit before tax from continuing
                                                                                                  debtors book owned by Gro Capital and the assets and
                                  operations amounted to R453,7 million (2009: R495,6 million).
                                                                                                  liabilities of the AFGRI Western Cape business unit. These
                                  The income tax expense relating to continuing operations
                                                                                                  assets contributed R29 million (2009: R39 million) to the
                                  amounted to R61,2 million (2009: R91,9 million), resulting
                                                                                                  Group’s revenue and R4 million (2009: R10 million) to the
                                  in a profit for the period from continuing operations of
                                  R392,5 million (2009: R403,6 million).                          Group’s profit before tax. More details regarding this
                                                                                                  transaction were published on SENS on 5 February 2010.
                                  For the year, AFGRI realised an after tax profit from
                                  discontinued operations of R74,6 million (2009: after tax       During the year the Group concluded a sale agreement
                                  loss of R49,7 million).                                         with MGK Operating Company (Pty) Limited regarding the
                                                                                                  sale of 10 of its retail stores in the Lowveld region. The
                                  The Group’s profit from all operations for the year             Group further concluded a sale agreement to dispose of
                                  amounted to R467,1 million (2009: R353,9 million).              13 of its retail branches in the Natal region to TWK Landbou
                                                                                                  Limited. These combined assets contributed R393 million
                                  DIVIDENDS                                                       (2009: R694 million) to the Group’s revenue and R13 million
                                  The following dividends were declared in respect of the         (2009: R20 million) to the Group’s profit before tax.
                                  year ended 30 June 2010:
                                  • Interim dividend No 20 of 24,15 cents per share paid          The trading results of the Tsunami business unit, the
                                    on 14 May 2010                                                Lowveld and Natal retail stores and Capital Harvest are
Growth the natural outcome




                                  • Final dividend No 21 of 17,15 cents per share payable         disclosed as discontinuing operations. The comparative
                                    on 22 November 2010                                           reclassification between continuing and discontinuing
                                                                                                  operations in the income statement and business segment
                                  SUBSIDIARIES, ASSOCIATE COMPANIES AND OTHER
                                                                                                  results has been made.
                                  INVESTMENTS
                                  Particulars of the principal subsidiaries of the AFGRI Group
                                                                                                  On 1 June 2010 the Group acquired the remaining minority
                                  are given on page 158, whilst particulars of the associate
                                                                                                  interest in Midway Chix (Pty) Limited as part of its
                                  companies, joint ventures and other investments are
                                                                                                  expansion into the foods sector.
                                  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.




                     AFGRI Limited Annual Report 2010
                                                                                                                                             85




CORPORATE ACTIVITY AFTER THE BALANCE                                  section 221 of the Companies Act, 1973, as amended, and
SHEET DATE                                                            which authority remains valid only until the next annual
Subsequent to 30 June 2010 the Group concluded                        general meeting which will be held on Friday 15 October
discussions regarding the restructuring of its black                  2010. At that meeting, shareholders will be asked to place the
economic empowerment interest. Izitsalo Employee                      unissued ordinary share capital under the control of the
Investments (Pty) Limited, one of the current beneficiaries           directors. Shareholders will be asked to place the unissued
of the Agri Sizwe Empowerment Trust with an undivided                 share capital under the control of the directors to enable
interest of 19,9% in relation to distributions of capital and         them to allot and issue ordinary shares which may be
interest by the Agri Sizwe Trust will, by agreement, acquire          allocated during the year to certain employees and directors
the 80,1% Agri Sizwe Trust beneficiary interests of all of            in terms of employee share schemes to a maximum of 10%
the remaining beneficiaries of the Agri Sizwe Trust.                  of issued share capital.


As part of its growth strategy the Group entered into a               DIRECTORATE
purchase agreement on 6 August 2010 to obtain the                     Mr DD de Beer stood down as Chairman of the Board
business of Rossgro Chickens (Pty) Limited as a going                 with effect from 1 January 2010 and was replaced by
concern. The transaction is pending approval by the                   Mr JPR Mbau.
South African competition authorities.
                                                                      Mr CA Apsey resigned as a director with effect from
SHARE CAPITAL                                                         1 January 2010 due to ill health and Messrs DD Barber and
Full details of the authorised, issued and unissued share             LM Koyana were appointed as independent non-executive
capital of the Company at 30 June 2010 are contained in               directors with effect from 10 January 2010.
note 15 to the financial statements.
                                                                      Ms L de Beer was appointed as an independent non-
Particulars relating to AFGRI’s share incentive schemes are           executive director with effect from 19 May 2010.
set out in notes 17 and 18 to the financial statements.
                                                                      SECRETARY
At the date of this report, a total of 7 547 444 ordinary             Ms N van Wyk acts as Secretary to the Company. The
shares remain reserved for the purposes of the Company’s              secretary’s business and postal addresses appear on the
various employee share incentive schemes.                             inside back cover of this integrated annual report.


The remaining unissued ordinary shares are the subject                SEGMENTAL REPORTING
of a general authority granted to the directors in terms of           Refer to the financial statements on pages 113 to 116.


DIRECTORS’ INTERESTS
Details 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.




                                                                                                                 AFGRI Limited Annual Report 2010
                     86




                                  Directors’ report                    continued




                                  SPECIAL RESOLUTIONS
                                  The 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 GOVERNANCE
                                  The 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.


                                  AUDITORS
                                  PricewaterhouseCoopers Inc has expressed their
                                  willingness to continue in office and resolutions proposing
                                  their reappointment will be submitted at the forthcoming
                                  annual general meeting.
Growth the natural outcome




                     AFGRI Limited Annual Report 2010
                                                                                                                                 87




Accounting policies


The principal accounting policies adopted in the                  including time value in the one-sided hedged
preparation of these consolidated annual financial                risk when designating options as hedges.
statements are set out below and are consistent with those      • IFRS 3 (Revised) Business Combinations: The
of the previous year, except where indicated otherwise.           revision continues to apply the acquisition method
                                                                  to business combinations, with some significant
1    BASIS OF PREPARATION                                         changes. For example, all payments to purchase
     These consolidated financial statements of AFGRI             a business are to be recorded at fair value at the
     Limited have been prepared in accordance with                acquisition date, with some contingent payments
     International Financial Reporting Standards (IFRS).          subsequently remeasured at fair value through
                                                                  profit or loss. Goodwill may be calculated based
     These consolidated financial statements have been            on the parent’s share of net assets or it may
     prepared under the historical cost convention, as            include goodwill related to the minority interest.
     modified by the revaluation of available-for-sale            All transaction costs will be expensed.
     financial assets, financial assets and financial           • IAS 27 (Revised) Consolidated and Separate
     liabilities (including derivative instruments) and           Financial Statements: The revision requires the
     biological assets at fair value through profit or loss.      effects of all transactions with non-controlling
                                                                  interests to be recorded in equity if there is no
     The preparation of financial statements in conformity        change in control. These transactions will no longer
     with IFRS requires the use of certain critical               result in goodwill or gains and losses. The standard
     accounting estimates. It also requires management to         also specifies the accounting treatment when
     exercise its judgement in the process of applying the        control is lost. Any remaining interest in the entity
     Company’s and Group’s accounting policies. The               is remeasured to fair value and a gain or loss is
     areas involving a higher degree of judgement or              recognised in profit or loss.
     complexity, or areas where assumptions and                 • IFRIC 16 Hedges of a Net Investment in a Foreign
     estimates are significant to the consolidated financial      Operation: The interpretation provides guidance on
     statements are disclosed in note 1 (Critical                 identifying the foreign currency risks that qualify as
     accounting estimates and judgements).                        a hedged risk (in the hedge of a net investment in a
                                                                  foreign operation). Secondly, it provides guidance
     New standards, interpretations and                           on where, within a group, hedging instruments that
     amendments to published standards effective                  are hedges of a net investment in a foreign
     in 2010 and adopted by the Group                             operation can be held to qualify for hedge
     • IFRS 7 (Amendment) Financial Instruments:                  accounting. Thirdly, it provides guidance on how an
        Disclosures. The amendment requires enhanced              entity should determine the amounts to be
        disclosures about fair value measurement and              reclassified from equity to profit or loss for both the
        liquidity risk. In particular, the amendment requires     hedging instruments and the hedged item.
        the disclosure of fair value measurements by level      • IFRIC 17 Distributions of Non-cash Assets to
        of a fair value hierarchy.                                Owners: The interpretation applies to the
     • IFRS 2 (Amendment) Share-based Payment: The                distributions of non-cash assets (commonly
        amendment deals with two matters. It clarifies that       referred to as dividends in specie) to the owners of
        vesting conditions are service conditions and             an entity. The interpretation clarifies that: a dividend
        performance conditions only. Other features of a          payable should be recognised when the dividend is
        share-based payment are not vesting conditions. It        appropriately authorised and is no longer at the
        also specifies that all cancellations, whether by the     discretion of the entity; an entity should measure
        entity or by other parties, should receive the same       the dividend payable at the fair value of the net
        accounting treatment.                                     assets to be distributed; and an entity should
     • IAS 39 (Amendment) Financial Instruments:                  recognise the difference between the dividend paid
        Recognition and Measurement: The amendment                and the carrying amount of the net assets
        prohibits both designating inflation as a hedgeable       distributed in profit or loss.
        component of a fixed rate debt instrument and




                                                                                                     AFGRI Limited Annual Report 2010
                     88




                                  Accounting policies                          continued




                                  1    BASIS OF PREPARATION (continued)                            • AC 504 – IAS 19 The Limit on a Defined Benefit
                                       New standards, interpretations and                            Asset, Minimum Funding Requirements and their
                                       amendments to published standards, effective                  Interaction in the South African Pension Fund
                                       in 2010 but not relevant to the Group’s                       Environment: The interpretation provides guidance
                                       operations                                                    on the application of IFRIC 14 in South Africa in
                                       • IAS 32 (Amendment) Financial Instruments:                   relation to defined benefit pension obligations
                                          Presentation and IAS 1 Presentation of Financial           (governed by the Pension Funds Act, 1956) within
                                          Statements – Puttable Financial Instruments and            the scope of IAS 19.
                                          Obligations Arising on Liquidation: The
                                          amendments require entities to classify the              New standards, interpretations and
                                          following types of financial instruments as equity,      amendments to published standards effective
                                          provided they have particular features and meet          in 2011 and relevant to the Group
                                          specific conditions: (a) puttable financial              • IFRS 2 (Amendment) Group Cash-Settled Share-
                                          instruments (for example, some shares issued by            Based Payment Transactions (effective from
                                          cooperative entities); (b) instruments, or                 1 January 2010): The amendment clarifies the
                                          components of instruments, that impose on the              accounting for Group cash-settled share-based
                                          entity an obligation to deliver to another party a pro     payment transactions. The entity receiving the
                                          rata share of the net assets of the entity only on         goods or services shall measure the share-based
                                          liquidation (for example, some partnership interests       payment transaction as equity-settled only when
                                          and some shares issued by limited life entities).          the awards granted are its own equity instruments,
                                          Additional disclosure is required about the                or the entity has no obligation to settle the
                                          instruments affected by the amendments.                    share-based payment transaction. The entity
                                       • AC 503 (Revised) Accounting for Black Economic              settling a share-based payment transaction when
                                          Empowerment Transactions: The Accounting                   another entity in the Group receives the goods or
                                          Practices Committee has revisited AC 503 in light of       services recognises the transaction as equity-
                                          the amendments to IFRS 2. As a result of these             settled only if it is settled in its own equity
                                          amendments, paragraphs 18 to 25 and the related            instruments. In all other cases, the transaction is
                                          Illustrative Examples and Basis for Conclusions of         accounted for as cash-settled.
                                          AC 503 have been revised to take into account the        • IFRIC 19 Extinguishing Financial Liabilities with
                                          amended definition of vesting conditions and the           Equity Instruments (effective from 1 July 2010): The
                                          accounting treatment of non-vesting conditions.            interpretation clarifies the accounting when an
                                       • IFRIC 18 Transfers of Assets from Customers: The            entity renegotiates the terms of its debt with the
                                          interpretation clarifies the accounting treatment for      result that the liability is extinguished through the
                                          the transfers of property, plant and equipment             debtor issuing its own equity instruments to the
Growth the natural outcome




                                          received from customers. This interpretation               creditor. A gain or loss is recognised in the profit
                                          applies to agreements with customers in which the          and loss account based on the fair value of the
                                          entity receives cash from a customer when that             equity instruments compared to the carrying
                                          amount of cash must be used only to construct or           amount of the debt.
                                          acquire an item of property, plant or equipment and
                                          the entity must then use the item of property, plant     New standards, interpretations and
                                          or equipment either to connect the customer with         amendments to published standards effective
                                          ongoing access to a supply of goods and services         2011 but not relevant for the Group’s
                                          or do both.                                              operations
                                       • IFRIC 15 Agreement for the Construction of Real           • IAS 32 (Amendment) Classification of Rights Issues
                                          Estate: The interpretation addresses diversity in          (effective from 1 February 2010): The amendment
                                          accounting for real estate sales. It clarifies how to      clarifies the accounting treatment when rights
                                          determine whether an agreement is within the               issues are denominated in a currency other than
                                          scope of IAS 11 Construction Contracts or IAS 18           the functional currency of the issuer. The
                                          Revenue and when revenue from construction                 amendment states that if such rights are issued pro
                                          should be recognised. The guidance replaces                rata to an entity’s existing shareholders for a fixed
                                          example 9 in the appendix to IAS 18.                       amount of currency, they should be classified as



                     AFGRI Limited Annual Report 2010
                                                                                                                           89




  equity regardless of the currency in which the          • IAS 23 Borrowing Costs: The definition of borrowing
  exercise price is denominated.                            costs is revised to align with IAS 39 by referring to
• IFRIC 14 (Amendment) Prepayments of a Minimum             the use of an effective interest rate, as described
  Funding Requirement (effective from 1 January             by IAS 39, as a component of borrowing costs.
  2011): This amendment will have a limited impact        • IAS 41 Agriculture: The amendment replaces the
  as it applies only to companies that are required to      term “pre-tax” discount rate with “market-
  make minimum funding contributions to a defined           determined” discount rate, clarifying that a fair
  benefit pension plan. It removes an unintended            value measurement should take into account all
  consequence of IFRIC 14 (AC 447) related to               attributes, including tax attributes, that a market
  voluntary pension prepayments when there is a             participant would consider when pricing an asset
  minimum funding requirement.                              or liability. The standard also allows the
                                                            consideration of additional biological
New standards, interpretations and                          transformation when determining the fair value.
amendments to published standards not yet                 • IAS 18 Revenue: New guidance accompanies the
effective                                                   standard to determine whether an entity is acting
• IAS 24 (Amendment) Related Party Disclosures              as a principal or as an agent. The features to
  (effective from 1 January 2011): This amendment           consider are whether the entity:
  provides partial relief from the requirement for          – Has primary responsibility for providing the
  government-related entities to disclose details of          goods or service
  all transactions with the government and other            – Has inventory risk
  government-related entities. It also clarifies and        – Has discretion in establishing prices
  simplifies the definition of a related party.             – Bears the credit risk.
• IFRS 9 Financial Instruments (effective 1 January
  2013): This IFRS is part of the IASB’s project to       Other amendments resulting from the improvements
  replace IAS 39. IFRS 9 addresses classification and     to IFRS project to the following standards did not have
  measurement of financial assets and replaces the        any impact on the accounting policies, financial
  multiple classification and measurement models          position or performance of the Group:
  in IAS 39 with a single model that has only             • IFRS 2 Share-based Payment
  two classification categories: amortised cost           • IFRS 5 Non-current Assets Held-for-Sale and
  and fair value.                                           Discontinued Operations (issued May 2008)
                                                          • IFRS 7 Financial Instruments: Disclosures
Improvements to IFRS                                      • IAS 8 Accounting Policies, Change in Accounting
In May 2008 and April 2009 the International                Estimates and Errors
Accounting Standards Board issued an omnibus of           • IAS 10 Events after the Reporting Period
amendments to its standards, primarily with a view to     • IAS 18 Revenue (issued May 2008)
removing inconsistencies and clarify wording. There       • IAS 19 Employee Benefits
are separate transitional provisions for each standard.   • IAS 20 Accounting for Government Grants and
                                                            Disclosures of Government Assistance
The adoption of the following amendments resulted         • IAS 29 Financial Reporting in Hyperinflationary
in changes to accounting policies but did not have          Economies
any impact on the financial position or performance       • IAS 34 Interim Financial Reporting
of the Group:                                             • IAS 38 Intangible Assets
• IAS 1 Presentation of Financial Statements: Assets      • IAS 39 Financial Instruments: Recognition and
  and liabilities classified as held-for-trading in         Measurement
  accordance with IAS 39 Financial Instruments:           • IAS 40 Investment Property
  Recognition and Measurement are not                     • IFRIC 9 Reassessment of Embedded Derivatives
  automatically classified as current in the statement    • IFRIC 16 Hedges of a Net Investment in a Foreign
  of financial position.                                    Operation.
• IAS 16 Property, Plant and Equipment: The
  amendment replaces the term “net selling price”
  with “fair value less costs to sell”.



                                                                                               AFGRI Limited Annual Report 2010
                     90




                                  Accounting policies                          continued




                                  1     BASIS OF PREPARATION (continued)                                   interest in the acquiree is remeasured to fair value as
                                        Improvements to IFRS (continued)                                   at the acquisition date directly through profit or loss.
                                        The amendments to the following standards are not
                                        yet effective and management is assessing the                      The Group applies a policy of treating transactions
                                        impact on the accounting policies of the Group:                    with minority interests as transactions with equity
                                        • IFRS 5 Non-current Assets Held-for-Sale and                      owners of the Group. For purchases of additional
                                          Discontinued Operations (issued April 2009)                      interests in subsidiaries from minorities, the
                                        • IFRS 8 Operating Segments                                        difference between any consideration paid and the
                                        • IAS 1 Presentation of Financial Statements                       relevant share acquired of the carrying value of net
                                        • IAS 7 Statement of Cash Flows                                    assets of the subsidiary is added to, or deducted
                                        • IAS 17 Leases                                                    from, equity. For disposals of minority interests,
                                        • IAS 36 Impairment of Assets                                      differences between any proceeds received and the
                                        • IAS 39 Financial Instruments: Recognition and                    relevant share of minority interests are also recorded
                                          Measurement.                                                     in equity.


                                  2     INTERESTS IN GROUP ENTITIES                                        Intercompany transactions, balances and unrealised
                                  2.1   Subsidiaries                                                       gains on transactions between Group companies are
                                        Subsidiaries are entities (including special purpose               eliminated. Unrealised losses are also eliminated
                                        entities) over which the Group has the power to                    unless the transaction provides evidence of an
                                        govern the financial and operating policies. The                   impairment of the asset transferred.
                                        existence and effect of potential voting rights that are
                                        currently exercisable or convertible are considered                Accounting policies of subsidiaries have been
                                        when assessing whether the Group controls another                  changed where necessary to ensure consistency with
                                        entity.                                                            the policies adopted by the Group.


                                        Subsidiaries are fully consolidated from the date on         2.2   Associates
                                        which control is transferred to the Group. They are                Associates are all entities over which the Group has
                                        deconsolidated from the date that control ceases.                  significant influence but not control, generally
                                                                                                           accompanying a shareholding of between 20% and
                                        The cost of an acquisition is measured as the                      50% of the voting rights. Investments in associates
                                        aggregate of the consideration transferred, measured               are accounted for under the equity method of
                                        at acquisition date fair value and the amount of any               accounting and are initially recognised at cost.
                                        minority interest in the acquiree. For each acquisition,
Growth the natural outcome




                                        the acquirer measures the minority interest in the                 The Group’s investment in associates includes
                                        acquiree either at fair value or at the proportionate              goodwill identified on acquisition.
                                        share of the acquiree’s identifiable net assets.
                                        Acquisition costs incurred are recognised directly in              The Group’s share of its associates’ post-acquisition
                                        profit or loss. Any contingent consideration to be                 profits or losses is recognised in profit or loss, and its
                                        transferred by the acquirer will be recognised at fair             share of post-acquisition movements in reserves is
                                        value at the acquisition date. Subsequent changes to               recognised in other comprehensive income. The
                                        the fair value of the contingent consideration which is            cumulative post-acquisition movements are adjusted
                                        deemed to be an asset or liability, will be recognised             against the carrying amount of the investment.
                                        in accordance with IAS 39 either directly in profit or
                                        loss or in other comprehensive income. If the                      When the Group’s share of losses in an associate
                                        contingent consideration is classified as equity, it shall         equals or exceeds its interest in the associate,
                                        not be remeasured until it is finally settled within               including any other unsecured receivables, the Group
                                        equity.                                                            does not recognise further losses, unless it has
                                                                                                           incurred obligations or made payments on behalf of
                                        If the acquisition is achieved in stages, the acquisition          the associate.
                                        date fair value of the acquirer’s previously held equity




                     AFGRI Limited Annual Report 2010
                                                                                                                                      91




      Unrealised gains on transactions between the Group             appropriate, only when it is probable that future
      and its associates are eliminated to the extent of the         economic benefits associated with the item will flow
      Group’s interest in the associates. Unrealised losses          to the Group and the cost of the item can be
      are also eliminated unless the transaction provides            measured reliably. All other repairs and maintenance
      evidence of an impairment of the asset transferred.            expenditures are charged to profit or loss during the
                                                                     financial period in which they are incurred.
      Accounting policies of associates have been changed
      where necessary to ensure consistency with the                 Depreciation is calculated using the straight-line
      policies adopted by the Group.                                 method to allocate the cost of each asset to its
                                                                     residual value over its estimated useful life as follows:
2.3   Joint ventures                                                 • Buildings                               25 – 100 years
      The Group’s interests in jointly controlled entities are       • Plant and machinery                      5 – 100 years
      accounted for by proportionate consolidation.                  • Equipment and motor vehicles               5 – 50 years
                                                                     • Land is not depreciated
      The Group combines its proportionate share of each
      of the assets, liabilities, income and expenses of the         Major renovations are depreciated over the remaining
      joint venture with similar items, line by line, in the         useful life of the related asset or to the date of the
      Group’s financial statements.                                  next major renovation, whichever is the earlier. Grain
                                                                     silos are maintained annually to a fixed programme.
      The Group recognises the portion of gains or losses
      on the sale of assets by the Group to the joint venture        The assets’ residual values and useful lives are
      that is attributable to the other ventures. The Group          reviewed annually and adjusted if appropriate. An
      does not recognise its share of profits or losses from         asset’s carrying amount is written down immediately
      the joint venture that result from the Group’s                 to its recoverable amount if the asset’s carrying
      purchase of assets from the joint venture until it             amount is greater than its estimated recoverable
      resells the assets to an independent party. However, a         amount.
      loss on the transaction is recognised immediately if
      the loss provides evidence of a reduction in the net           Borrowing costs incurred for the construction of any
      realisable value of current assets, or an impairment           qualifying asset are capitalised during the period of
      loss.                                                          time that is required to complete and prepare the
                                                                     asset for its intended use. Other borrowing costs are
      Accounting policies of joint ventures have been                expensed.
      changed where necessary to ensure consistency with
      the policies adopted by the Group.                             Gains and losses on disposals are determined by
                                                                     comparing proceeds with the carrying amount. These
3     PROPERTY, PLANT AND EQUIPMENT                                  are included in profit or loss. When revalued assets
      Land and buildings comprise mainly factories, retail           are sold, the amounts included in other reserves are
      outlets and offices. All property, plant and equipment         transferred to retained earnings.
      are shown at cost, less subsequent depreciation and
      impairment, except for land, which is shown at cost        4   GOODWILL
      less impairment.                                               Goodwill represents the excess of the cost of an
                                                                     acquisition over the fair value of the Group’s share of
      Cost includes expenditure that is directly attributable        the net identifiable assets, of the acquired business/
      to the acquisition of the items. Cost may also include         subsidiary/associate or joint venture at the date of
      transfers from equity of any gains/losses on qualifying        acquisition, and liabilities assumed. Goodwill on
      cash flow hedges of foreign currency purchases of              acquisitions of associates is included in investments
      property, plant and equipment.                                 in associates. Goodwill is tested annually for
                                                                     impairment and carried at cost less accumulated
      Subsequent costs are included in the asset’s carrying          impairment losses and is not amortised.
      amount or recognised as a separate asset, as




                                                                                                          AFGRI Limited Annual Report 2010
                     92




                                  Accounting policies                            continued




                                  4     GOODWILL (continued)                                             and that will probably generate economic benefits
                                        Gains and losses on the disposal of an entity, other             exceeding costs beyond one year, are recognised as
                                        than goodwill in associates, include the carrying                intangible assets. Direct costs include the software
                                        amount of goodwill relating to the entity sold. If, on a         development employee costs and an appropriate
                                        business combination, the fair value of the Group’s              portion of relevant overheads.
                                        interest in the identifiable assets, liabilities and
                                        contingent liabilities exceeds the cost of the                   Computer software development costs recognised as
                                        acquisition, the excess is recognised in profit or loss          assets are amortised using the straight-line method
                                        immediately.                                                     over their estimated useful lives (not exceeding
                                                                                                         five years).
                                        Goodwill is allocated to cash-generating units for the
                                        purpose of impairment assessment. The allocation is        5.3   Trademarks, licences and other intellectual
                                        made to those cash-generating units or groups of                 property
                                        cash-generating units that are expected to benefit               Trademarks and licences are recognised at historical
                                        from the business combination in which goodwill                  cost less accumulated amortisation and impairment.
                                        arose. AFGRI allocates goodwill to each operating                Trademarks and licences with finite useful lives are
                                        segment in each country in which it operates.                    amortised on a straight-line basis over the estimated
                                                                                                         useful lives. Other intellectual property acquired as
                                  5     OTHER INTANGIBLE ASSETS                                          part of a business combination such as know-how or
                                  5.1   Research and development                                         customer lists is recognised at fair value. These
                                        Research expenditure is recognised in profit or loss             intangible assets have a finite useful life and are
                                        as incurred. Costs incurred on development projects              carried at cost less accumulated amortisation.
                                        are recognised as intangible assets when it is                   Amortisation is calculated using the straight-line
                                        probable that the project will be a success,                     method over the estimated useful life of the assets.
                                        considering its commercial and technological                     The amortisation method and estimated remaining
                                        feasibility, and costs can be measured reliably. Other           useful lives are reviewed at least annually.
                                        development expenditures are recognised in profit or             Amortisation rates applied are provided on pages 123
                                        loss as incurred. Development costs previously                   to 125.
                                        recognised as an expense are not recognised as an
                                        asset in a subsequent period. Development costs that       6     IMPAIRMENTS OF NON-FINANCIAL ASSETS
                                        have a definite useful life and have been capitalised            Goodwill and intangible assets that have an indefinite
                                        are amortised from the commencement of                           useful life are not subject to amortisation and are
                                        commercial production of the product on a straight-              tested annually for impairment. Assets that are
Growth the natural outcome




                                        line basis over the period of its expected benefit (not          subject to amortisation or depreciation are reviewed
                                        exceeding 10 years).                                             for impairment whenever events or changes in
                                                                                                         circumstances indicate that the carrying amount may
                                  5.2   Computer software                                                not be recoverable. An impairment loss is recognised
                                        Acquired computer software licences are capitalised              for the amount by which the asset’s carrying amount
                                        on the basis of the costs incurred to acquire and                exceeds its recoverable amount. The recoverable
                                        bring to use the specific software. These costs are              amount is the higher of an asset’s fair value less costs
                                        amortised using the straight-line method over their              to sell and value in use.
                                        estimated useful lives. Amortisation rates applied are
                                        provided on pages 123 and 125.                                   For the purposes of assessing impairment, assets are
                                                                                                         grouped at the lowest levels for which there are
                                        Costs associated with developing or maintaining                  separately identifiable cash flows (cash-generating
                                        computer software programmes are recognised in                   units). Non-financial assets other than goodwill that
                                        profit or loss as incurred. Costs that are directly              were previously impaired are reviewed for possible
                                        associated with the production of identifiable and               reversal of the impairment at each reporting date.
                                        unique software products controlled by the Group,




                     AFGRI Limited Annual Report 2010
                                                                                                                                           93




7     FINANCIAL ASSETS                                                   include financial receivables (excluding held-to-
      A financial asset is any asset that is cash, an equity             maturity investments), trade and other receivables
      instrument of another entity, a contractual right to               (excluding prepayments), trade receivables financed
      receive cash or another financial asset from another               by banks, cash collateral deposits and cash and cash
      entity or to exchange financial assets or financial                equivalents.
      liabilities with another entity under conditions that are
      potentially favourable.                                            Cash and cash equivalents comprise cash on hand,
                                                                         deposits held at call with banks and other short-term,
7.1   Classification                                                     highly liquid investments with original maturities of
      The classification depends on the purpose for which                three months or less. Bank overdrafts are shown with
      the financial assets were acquired. Management                     borrowings. Loans and receivables are included in
      determines the classification of its financial assets at           current assets, except for financial receivables having
      initial recognition. The Group classifies its financial            maturities greater than 12 months after the balance
      assets in the following categories:                                sheet date. These are classified as non-current assets.


      Financial assets at fair value through profit or loss              Available-for-sale financial assets
      Financial assets at fair value through profit or loss are          Available-for-sale financial assets are non-derivatives
      financial assets held-for-trading and financial assets             that are not classified in any of the other categories.
      designated upon initial recognition at fair value                  They are included in non-current assets unless
      through profit or loss. A financial asset is classified as         management intends to dispose of the investment
      held-for-trading if acquired principally for the purpose           within 12 months of the balance sheet date.
      of selling in the short term. This category includes
      derivatives (refer to note 13) unless they are               7.2   Measurement
      designated as hedges. Assets in this category are                  Regular purchases and sales of financial assets are
      classified as current if they are expected to be                   recognised on trade date – the date on which the
      realised within 12 months of the balance sheet date.               Group commits to purchase or sell the asset.


      The Group enters into various OTC (over-the-counter)               Financial assets are initially measured at fair value
      forward purchases and sales contracts for the                      plus transaction costs. However, transaction costs in
      purchase and sale of commodities. Although certain                 respect of financial assets classified as at fair value
      of these contracts are settled by taking or making                 through profit or loss are expensed to profit or loss
      physical delivery in the normal course of business,                immediately. Transaction costs are incremental costs
      the OTC contracts are regarded as financial                        that are directly attributable to the acquisition of a
      instruments and are accounted for at fair value under              financial asset i.e. those costs that would not have
      IAS 39, where the Group has a substantive past                     been incurred had the asset not been acquired.
      practice of net settlement (either with the
      counterparty or by entering into offsetting contracts).            The fair values of quoted investments are based on
                                                                         current bid prices. If the market for a financial asset
      Held-to-maturity investments                                       is not active (and for unlisted securities), the Group
      Held-to-maturity investments are non-derivative                    establishes fair value by using valuation techniques.
      financial assets with fixed or determinable payments               These include the use of recent arm’s-length
      and fixed maturities where there is a positive                     transactions, reference to other instruments that are
      intention and ability to hold them to maturity.                    substantially the same, discounted cash flow analysis,
      Held-to-maturity investments are included with                     and option pricing models refined to reflect the
      financial receivables on the face of the balance sheet.            issuer’s specific circumstances.


      Loans and receivables                                              Financial assets and liabilities are offset where the
      Loans and receivables are non-derivative financial                 Group currently has a legally enforceable right to
      assets with fixed or determinable payments that are                offset the recognised amounts and intends to settle
      not quoted in an active market. Loans and receivables              on a net basis.




                                                                                                               AFGRI Limited Annual Report 2010
                     94




                                  Accounting policies                           continued




                                  7     FINANCIAL ASSETS (continued)                                       Available-for-sale financial assets
                                  7.2   Measurement (continued)                                            Available-for-sale financial assets are measured at fair
                                        Financial assets are derecognised when the rights to               value with unrealised gains or losses being recognised
                                        receive cash flows from the investments have expired               in other comprehensive income. Fair value, for this
                                        or have been transferred and the Group has                         purpose, is the quoted price if listed or a value arrived
                                        transferred substantially all risks and rewards of                 at by using appropriate valuation models if unlisted.
                                        ownership.
                                                                                                     7.3   Impairment
                                        Financial assets at fair value through profit or loss              The Group assesses at each balance sheet date
                                        Financial assets at fair value through profit or loss are          whether there is objective evidence that a financial
                                        measured at fair value with gains or losses being                  asset or a group of financial assets is impaired.
                                        recognised in profit or loss. Fair value, for this                 Objective evidence would include, but not be limited
                                        purpose, is the quoted price if listed or a value arrived          to: a decline in the financial asset’s ability to generate
                                        at by using the discounted cash flow valuation model               future cash flows, deterioration in the counterparty’s
                                        if unlisted.                                                       credit profile, the ability to collect all amounts due
                                                                                                           according to the original terms, or the anticipated
                                        Over-the-counter contracts are initially recognised in             non-performance on a contract.
                                        the balance sheet at fair value and are subsequently
                                        remeasured to their fair value. These derivative                   If any such evidence exists for available-for-sale
                                        transactions, while providing effective economic                   financial assets, the cumulative loss – measured as
                                        hedges under the Group’s risk management policies,                 the difference between the acquisition cost and the
                                        do not qualify for hedge accounting under the                      current fair value, less any impairment loss on that
                                        specific rules in IAS 39. Changes in the fair value of             financial asset previously recognised in profit or loss
                                        any derivative instruments that do not qualify for                 – is removed from other comprehensive income
                                        hedge accounting under IAS 39 are recognised                       and recognised in profit or loss. Impairment losses
                                        immediately in profit or loss.                                     recognised in profit or loss on equity instruments are
                                                                                                           not reversed through profit or loss, increases in their
                                        Held-to-maturity investments                                       fair value after impairment are recognised directly in
                                        Financial assets classified as held-to-maturity                    other comprehensive income.
                                        financial assets are measured at amortised cost less
                                        any impairment losses recognised in profit or loss to              In the case of equity investments classified as
                                        reflect irrecoverable amounts.                                     available-for-sale, a significant or prolonged decline in
                                                                                                           the fair value of the security below its cost is also
Growth the natural outcome




                                        Loans and receivables                                              evidence that the assets are impaired.
                                        Loans and receivables (including those financed by
                                        the Land Bank) are recognised initially at fair value        8     FINANCIAL LIABILITIES
                                        and subsequently measured at amortised cost using                  A financial liability is a contractual obligation to
                                        the effective interest method, less provision for                  deliver cash or another financial asset to another
                                        impairment. The amount of the provision is the                     entity or to exchange financial assets or financial
                                        difference between the asset’s carrying amount and                 liabilities with another entity under conditions that are
                                        the present value of estimated future cash flows,                  potentially unfavourable; or a contract that may be
                                        discounted at the original effective interest rate. The            settled in the entity’s own equity instruments and is
                                        carrying amount of the asset is reduced through the                a non-derivative for which the entity is or may be
                                        use of an allowance account, and the amount of the                 obliged to deliver a variable number of the entity’s
                                        loss is recognised in profit or loss. When a loan or               own equity instruments or a derivative (refer to
                                        receivable is uncollectible, it is written off against the         note 13) that will or may be settled other than by the
                                        allowance account. Subsequent recoveries of                        exchange of a fixed amount of cash or another
                                        amounts previously written off are credited to profit              financial asset for a fixed number of the entity’s own
                                        or loss.                                                           equity instruments.




                     AFGRI Limited Annual Report 2010
                                                                                                                                        95




A financial liability at fair value through profit or loss is         settlement of the liability for at least 12 months after
a financial liability that is classified as held-for-trading          the balance sheet date.
or is designated as such on initial recognition. A
financial liability held-for-trading is one that is incurred          Trade payables are recognised initially at fair value
as part of a portfolio of identified financial instruments            and subsequently measured at amortised cost using
that are managed together and for which there is                      the effective interest rate method.
evidence of a recent actual pattern of short-term
profit-taking or a derivative (except for a derivative          9     DERIVATIVE FINANCIAL INSTRUMENTS AND
                                                                      HEDGING ACTIVITIES
that is a designated and effective hedging
                                                                      Derivatives are initially recognised at fair value on the
instrument).
                                                                      date on which a derivative contract is entered into
                                                                      and are subsequently remeasured at their fair value.
Financial liabilities are initially measured at fair value
                                                                      The method of recognising the resulting gain or loss
plus transaction costs. However, transaction costs in
                                                                      depends on whether the derivative is designated as
respect of financial liabilities classified as at fair value
                                                                      a hedging instrument, and if so, the nature of the item
through profit or loss are expensed immediately.
                                                                      being hedged. The Group designates certain
Transaction costs are those costs that are directly
                                                                      derivatives as either: (1) hedges of the fair value of
attributable to the issue of a financial liability, i.e.              recognised assets or liabilities or a firm commitment
those that would not have been incurred if the liability              (fair value hedge); (2) hedges of highly probable
had not been issued.                                                  forecast transactions (cash flow hedges); or
                                                                      (3) hedges of net investments in foreign operations.
Financial liabilities that are not classified or
designated on initial recognition as financial liabilities            The Group documents at the inception of the
at fair value through profit or loss are measured at                  transaction the relationship between hedging
amortised cost.                                                       instruments and hedged items, as well as its risk
                                                                      management objective and strategy for undertaking
Financial liabilities that are classified or designated on            various hedge transactions. The Group also documents
initial recognition as financial liabilities at fair value            its assessment, both at hedge inception and on an
through profit or loss are measured at fair value, with               ongoing basis, of whether the derivatives that are used
changes in fair value being recognised in profit or loss.             in hedging transactions are highly effective in offsetting
                                                                      changes in fair values or cash flows of hedged items.

Preference shares, which are mandatorily
                                                                      The fair values of various derivative instruments are
redeemable on a specific date, are classified as
                                                                      disclosed in note 13 (Derivative financial instruments).
liabilities. The dividends on these preference shares
                                                                      Movements on the hedging reserve in shareholders’
are recognised in the income statement as interest
                                                                      equity are shown in note 18 (Fair value and other
expense.
                                                                      reserves). The full fair value of a hedging derivative is
                                                                      classified as a non-current asset or liability when the
Derivative liabilities are measured at fair value, with
                                                                      remaining hedged item is more than 12 months; it is
changes in fair value being recognised in profit or loss
                                                                      classified as a current asset or liability when the
other than those designated as cash flow hedges.                      remaining maturity of the hedged item is less than
                                                                      12 months. Trading derivatives are classified as a
Borrowings (including call loans and bank overdrafts)                 current asset or liability if they are expected to be
are recognised initially at fair value, net of transaction            realised within 12 months of the balance sheet date.
costs incurred. Borrowings are subsequently stated at
amortised cost; any difference between proceeds                 (a)   Fair value hedge
(net of transaction costs) and the redemption value                   Changes in the fair value of derivatives that are
is recognised in profit or loss over the period of the                designated and qualify as fair value hedges are
borrowings using the effective interest rate method.                  recorded in the income statement, together with any
Borrowings are classified as current liabilities unless               changes in the fair value of the hedged asset or
the Group has an unconditional right to defer                         liability that are attributable to the hedged risk.




                                                                                                            AFGRI Limited Annual Report 2010
                     96




                                  Accounting policies                         continued




                                  9     DERIVATIVE FINANCIAL INSTRUMENTS AND                       10   INVENTORIES
                                        HEDGING ACTIVITIES (continued)                                  Inventories are stated at the lower of cost and net
                                  (b)   Cash flow hedge                                                 realisable value. Cost is determined using the first-in
                                        The effective portion of changes in the fair value of           first-out (FIFO) method. The cost of finished goods
                                        derivatives that are designated and qualify as cash             and work in progress comprises design costs, raw
                                        flow hedges are recognised in other comprehensive               materials, direct labour, other direct costs and related
                                        income. The gain or loss relating to the ineffective            production overheads (based on normal operating
                                        portion is recognised immediately in profit or loss.            capacity). It excludes borrowing costs.


                                        Amounts accumulated in equity are recycled in the               Net realisable value is the estimated selling price
                                        income statement in the periods when the hedged                 in the ordinary course of business, less applicable
                                        item will affect profit or loss (for instance when the          variable selling expenses.
                                        forecast sale that is hedged takes place). However,
                                        when the forecast transaction that is hedged results       11   BIOLOGICAL ASSETS
                                        in the recognition of a non-financial asset (for                A biological asset is a living animal or plant and an
                                        example, inventory) or a liability, the gains and losses        agricultural activity is the biological transformation of
                                        previously deferred in equity are transferred from              biological assets for sale, into agricultural produce or
                                        equity and included in the initial measurement of the           into additional biological assets.
                                        cost of the asset or liability.
                                                                                                        Biological assets are recognised at fair value less
                                        When a hedging instrument expires or is sold, or                estimated costs to sell. Fair value is measured with
                                        when a hedge no longer meets the criteria for hedge             reference to an active market adjusted for its present
                                        accounting, any cumulative gain or loss existing in             location and condition. Fair value changes are
                                        equity at that time remains in equity and is                    recognised in profit or loss. All the expenses incurred
                                        recognised when the forecast transaction is                     in establishing and maintaining the assets is
                                        ultimately recognised in profit or loss. When a                 recognised in profit or loss. Finance charges are not
                                        forecast transaction is no longer expected to occur,            capitalised.
                                        the cumulative gain or loss that was reported in
                                        equity is immediately transferred to profit or loss.       12   SHARE CAPITAL
                                                                                                        Ordinary shares are classified as equity.
                                  (c)   Net investment hedge
                                        Hedges of net investments in foreign operations are             Incremental costs directly attributable to the issue
                                        accounted for similarly to cash flow hedges. Any gain           of new shares or options are shown in equity as a
Growth the natural outcome




                                        or loss on the hedging instrument relating to the               deduction, net of tax, from the proceeds.
                                        effective portion of the hedge is recognised as other
                                        comprehensive income in equity; the gain or loss                Where any Group company purchases the Company’s
                                        relating to the ineffective portion is recognised               equity share capital (treasury shares), the
                                        immediately in profit or loss.                                  consideration paid, including any directly attributable
                                                                                                        incremental costs (net of income taxes), is deducted
                                        Gains and losses accumulated in equity are included             from equity attributable to the Company’s
                                        in profit or loss when the foreign operation is                 equityholders until the shares are cancelled, reissued
                                        disposed of.                                                    or disposed of. Where such shares are subsequently
                                                                                                        sold or reissued, any consideration received, net of
                                  (d)   Derivatives that do not qualify for hedge                       any directly attributable incremental transaction costs
                                        accounting                                                      and the related income tax effects, and are included in
                                        Certain derivative instruments do not qualify for               equity attributable to the Company’s equityholders.
                                        hedge accounting. Changes in the fair value of any
                                        derivative instruments that do not qualify for hedge            Shares in the Company are held by the AFGRI Limited
                                        accounting are recognised immediately in profit                 Trust. The cost price of these shares is deducted from
                                        or loss.                                                        equity attributable to the Company’s equityholders




                     AFGRI Limited Annual Report 2010
                                                                                                                                        97




     (incentive trust shares). The AFGRI Limited Trust is             Deferred income tax assets are only recognised to
     consolidated as if it were a wholly owned subsidiary.            the extent that it is probable that taxable profits will
                                                                      be available against which temporary differences can
13   BLACK ECONOMIC EMPOWERMENT                                       be utilised, unless specifically exempted.
     TRANSACTION
     AFGRI’s black economic empowerment transaction                   Deferred income tax is recognised on temporary
     includes the following:                                          differences arising on investments in subsidiaries and
     • Initial disposal of a 26,77% undivided interest in the         associates, except where the timing of the reversal of
       business of AFGRI Operations Limited to the Agri               the temporary difference is controlled by the Group
       Sizwe Empowerment Trust.                                       and it is probable that the temporary difference will
     • AFGRI Operations Limited and the Trust are                     not reverse in the foreseeable future.
       co-owners of the entire business undertaking
       conducted as a going concern by AFGRI Operations          15   FOREIGN CURRENCY TRANSLATION
       Limited.                                                  15.1 Functional and presentation currency
     • AFGRI Operations Limited continues to manage the               Items included in the financial statements of each of
       entire business undertaking in a partnership.                  the Group’s entities are measured using the currency
                                                                      in which the business operates (the functional
     The transaction is not treated as a disposal of assets.          currency). The consolidated financial statements are
     The partnership is consolidated as a whole and the               presented in Rand, which is the Company’s and
     BEE share is disclosed as a minority interest on the             Group’s functional and presentation currency.
     balance sheet. The portion of the income before tax
     is disclosed as minority interest in the income             15.2 Transactions and balances
     statement and credited to minority interest on the               Foreign currency transactions are translated into
     balance sheet.                                                   the functional currency using the exchange rates
                                                                      prevailing at the dates of the transactions. Foreign
     AFGRI Operations Limited has the right to call on the            exchange gains and losses resulting from the
     Trust to sell to AFGRI Operations Limited its undivided          settlement of such transactions and from the
     interest in the entire business of AFGRI Operations              translation at year-end exchange rates of monetary
     Limited. The call option price will be settled in cash or        assets and liabilities denominated in foreign
     by allotting and issuing of new AFGRI Operations                 currencies are recognised in profit or loss, except
     Limited shares or new AFGRI shares.                              when deferred in equity as qualifying cash flow
                                                                      hedges and qualifying net investment hedges.
14   DEFERRED INCOME TAX
     Deferred income tax is provided using the liability              Translation differences on financial assets held at fair
     method on all temporary differences at the reporting             value through profit or loss are reported as part of the
     date arising between the tax bases of assets and                 fair value gain or loss. Translation differences on
     liabilities and their carrying amounts in the                    financial assets classified as available-for-sale
     consolidated financial statements. However, if the               financial assets are included in the fair value reserve
     deferred income tax arises from initial recognition              in equity.
     of an asset or liability in a transaction other than a
     business combination that at the time of the                15.3 Group companies
     transaction affects neither accounting nor taxable               The results and financial position of all the Group
     profit nor loss, it is not accounted for.                        entities (none of which has the currency of a
                                                                      hyperinflationary economy) that have a functional
     Deferred income tax is determined using tax rates                currency different from the presentation currency are
     (and laws) that have been enacted or substantially               translated into the presentation currency as follows:
     enacted by the balance sheet date and are expected               • assets and liabilities are translated at the closing
     to apply when the related deferred income tax asset                rate at the date of the balance sheet;
     is realised or the deferred income tax liability is              • the opening equity is translated at the historical
     settled.                                                           rate;




                                                                                                            AFGRI Limited Annual Report 2010
                     98




                                  Accounting policies                          continued




                                  15   FOREIGN CURRENCY TRANSLATION (continued)                         representative of the time pattern of the user’s
                                  15.3 Group companies (continued)                                      benefit.
                                       • income and expenses for each profit or loss are
                                          translated at average exchange rates (unless this             Contingent rentals are recognised in profit or loss as
                                          average is not a reasonable approximation of the              they accrue.
                                          cumulative effect of the rates prevailing on the
                                          transaction dates, in which case income and              16.3 In the capacity of a lessee
                                          expenses are translated at the dates of the                   Finance leases are recognised as assets and liabilities
                                          transactions); and                                            at the lower of the fair value of the asset and the
                                       • all resulting exchange differences are recognised              present value of the minimum lease payments at the
                                          as a separate component of equity.                            date of acquisition, being payments over the lease
                                                                                                        term, excluding contingent rent, costs for services
                                       On consolidation, exchange differences arising from              and taxes to be paid by and reimbursed to the lessor
                                       the translation of the net investment in foreign                 including any amounts guaranteed by the Company
                                       entities, and of borrowings and other currency                   or by a party related to the Company.
                                       instruments designated as hedges of such
                                       investments, are taken to shareholders’ equity. When             Finance costs represent the difference between the

                                       a foreign operation is sold, such exchange differences           total leasing commitments and the fair value of the
                                                                                                        assets acquired.
                                       are recognised in profit or loss as part of the gain or
                                       loss on sale.
                                                                                                        Finance costs are charged to profit or loss over the
                                                                                                        term of the lease at interest rates applicable to the
                                  16   LEASES
                                                                                                        lease on the remaining balance of the obligations.
                                  16.1 Classification
                                       A finance lease is a lease that transfers substantially
                                                                                                        Rentals payable under operating leases are
                                       all the risks and rewards incidental to ownership of an
                                                                                                        recognised in profit or loss on a straight-line basis
                                       asset. Title may or may not eventually be transferred.
                                                                                                        over the term of the relevant lease or another basis
                                       An operating lease is a lease other than a finance
                                                                                                        if more representative of the time pattern of the
                                       lease.
                                                                                                        user’s benefit.

                                       Leases are classified as finance leases or operating
                                                                                                        Contingent rentals are recognised in profit or loss as
                                       leases at the inception of the lease.
                                                                                                        they accrue.

                                  16.2 In the capacity of a lessor
                                                                                                   17   EMPLOYEE BENEFITS
Growth the natural outcome




                                       Amounts due from a lessee under a finance lease are
                                                                                                   17.1 Pension obligations
                                       recognised as receivables at the amount of the net
                                                                                                        Group companies operate various defined
                                       investment in the lease, being the gross investment in
                                                                                                        contribution pension schemes. A defined contribution
                                       the lease discounted at the interest rate implicit in the        plan is a pension plan under which the Group pays
                                       lease, which includes initial direct costs. The gross            fixed contributions into a separate entity. The Group
                                       investment in a lease is the aggregate of the                    has no legal or constructive obligations to pay further
                                       minimum lease payments receivable and any                        contributions if the fund does not hold sufficient
                                       unguaranteed residual value. The minimum lease                   assets to pay all employees the benefits relating to
                                       payments exclude contingent rent and costs for                   employee service in the current and prior periods.
                                       services and includes any residual value guarantees
                                       by the lessee, a party related to the lessee or a third          The Group pays contributions to publicly or privately
                                       party unrelated to the lessor.                                   administered pension insurance plans on a
                                                                                                        mandatory and contractual basis. The Group has no
                                       Rental income from operating leases is recognised in             further payment obligations once the contributions
                                       profit or loss on a straight-line basis over the term of         have been paid. The contributions are recognised as
                                       the relevant lease or another basis if more                      employee benefit expense when they are due.




                     AFGRI Limited Annual Report 2010
                                                                                                                                     99




    Prepaid contributions are recognised as an asset to             whenever an employee accepts voluntary
    the extent that a cash refund or a reduction in the             redundancy in exchange for these benefits.
    future payments is available.
                                                                    The Group recognises termination benefits when it
17.2 Share-based payment                                            is demonstrably committed to either: terminating the
    The Group operates two equity-settled share-based               employment of current employees according to a
    compensation plans. The AFGRI Share Incentive                   detailed formal plan without possibility of withdrawal;
    Scheme allows senior employees the option to                    or providing termination benefits as a result of an
    acquire shares in AFGRI Limited over a prescribed               offer made to encourage voluntary redundancy.
    period at a specific strike price. The AFGRI Restricted
    Share Incentive Scheme remunerates senior                       Benefits falling due more than 12 months after
    employees with AFGRI Limited shares partially for               balance sheet date are discounted to present value.
    services rendered, and partially for future services
    and performance conditions.                                17.4 Short-term benefits
                                                                    The cost of short-term employee benefits, such as
    AFGRI Share Incentive Scheme                                    salaries, leave pay, bonuses, medical aid and other
    These options are settled by means of the issue of              contributions, is recognised during the period in
    shares by AFGRI Limited or through the acquisition of           which the employee renders the service.
    shares in the open market by the AFGRI Limited Trust.
    The fair value of the employee services received in        18   PROVISIONS
    exchange for the grant of the options is recognised as          Provisions are recognised when:
    an expense. The total amount to be expensed over                • the Group has a present legal or constructive
    the vesting period is determined by reference to the              obligation as a result of past events;
    fair value of the options granted, excluding the impact         • it is more likely than not that an outflow of
    of any non-market vesting conditions. Non-market                  resources will be required to settle the obligation;
    vesting conditions are included in assumptions about              and
    the number of options that are expected to vest. It             • the amount has been reliably estimated.
    recognises the impact of the revision, if any, in profit
    or loss, with a corresponding adjustment to equity.             Restructuring provisions comprise lease termination
    Fair value is measured using the Black-Scholes pricing          penalties and employee termination payments.
    model.                                                          Provisions are not recognised for future operating
                                                                    losses.
    AFGRI Restricted share incentive scheme
    The fair value of the employee services received in             Where there are a number of similar obligations –
    exchange for the issue of the shares is recognised as           for example, in the case of product warranties – the
    an expense. The total amount to be expensed over                likelihood that an outflow will be required in
    the vesting period is determined by reference to the            settlement is determined by considering the class
    fair value of the shares issued, excluding the impact           of obligations as a whole. A provision is recognised
    of any non-market vesting conditions. Non-market                even if the likelihood of an outflow with respect to
    vesting conditions are included in assumptions about            any one item included in the same class of
    the number of restricted shares that are expected to            obligations may be small.
    vest as unrestricted shares. It recognises the impact
    of the revision, if any, in profit or loss, with a              Provisions are measured at the present value of the
    corresponding adjustment to equity. Fair value is the           expenditures expected to be required to settle the
    quoted price of the shares on grant date.                       obligation using a pre-tax rate that reflects current
                                                                    market assessments of the time value of money and
17.3 Termination benefits                                           the risks specific to the obligation. The increase in the
    Termination benefits are payable when employment                provision due to passage of time is recognised as
    is terminated before the normal retirement date, or             interest expense.




                                                                                                         AFGRI Limited Annual Report 2010
                     100




                                  Accounting policies                          continued




                                  19   NON-CURRENT ASSETS OR DISPOSAL GROUPS                       21   REVENUE RECOGNITION
                                       HELD-FOR-SALE AND DISCONTINUED                                   Revenue comprises the fair value for the sale of
                                       OPERATIONS                                                       goods and services, net of value added tax, rebates
                                       Non-current assets or disposal groups are classified             and cash and settlement discounts and after
                                       as held-for-sale if their carrying amount will be                eliminated sales within the Group. The Group
                                       recoverable principally through a sale transaction, not          assesses its revenue arrangements in order to
                                       through continuing use. The condition is regarded as             determine if it is acting as principal or agent.
                                       met only when the sale is highly probable and the
                                       asset is available for immediate sale in its present             The Group recognises revenue when the amount of
                                                                                                        revenue can be reliably measured, it is probable that
                                       condition.
                                                                                                        future economic benefits will flow to the entity and
                                                                                                        specific criteria have been met for each of the
                                       These assets may be a component of an entity, a
                                                                                                        Group’s activities as described below.
                                       disposal group or an individual non-current asset.
                                       Upon initial classification as held-for-sale, non-current
                                                                                                        The amount of revenue is not considered to be
                                       assets and disposal groups are recognised at the
                                                                                                        reliably measurable until all contingencies relating to
                                       lower of carrying amount and fair values less cost
                                                                                                        the sale have been resolved. The Group bases its
                                       to sell.
                                                                                                        estimates on historical results, taking into
                                                                                                        consideration the type of customer, the type of
                                       A discontinued operation is a significant                        transaction and the specifics of each arrangement.
                                       distinguishable component of the Group’s business
                                       that is abandoned or terminated pursuant to a single        21.1 Sales of goods
                                       formal plan, and which represents a separate major               Sales of goods are recognised when a Group entity
                                       line of business or geographical area of operation.              has delivered products to the customer, the customer
                                       Classification as a discontinued operation occurs                has accepted the products and collectibility of the
                                       upon disposal or when the operation meets the                    related receivables is reasonably assured.
                                       criteria to be classified as held-for sale. A disposal
                                       group that is to be abandoned may also qualify              21.2 Rendering of services
                                       as a discontinued operation, but not as assets                   Rendering of services is recognised in the accounting
                                       held-for-sale.                                                   period in which the services are rendered, by
                                                                                                        reference to completion of the specific transaction
                                       The profit or loss on sale or abandonment of a                   assessed on the basis of the actual service provided
                                       discontinued operation is determined from the                    as a proportion of the total services to be provided.
Growth the natural outcome




                                       formalised discontinuance date. Discontinued
                                       operations are separately recognised in the financial       21.3 Interest income
                                                                                                        Interest income is recognised on a time-proportion
                                       statements once management has made a
                                                                                                        basis using the effective interest rate method. When
                                       commitment to discontinue the operation without a
                                                                                                        a receivable is impaired, the Group reduces the
                                       realistic possibility of withdrawal which should be
                                                                                                        carrying amount to its recoverable amount – being
                                       expected to qualify for recognition as a completed
                                                                                                        the estimated future cash flow discounted at original
                                       sale within one year of classification.
                                                                                                        effective interest rate of the instrument – and
                                                                                                        continues unwinding the discount as interest income.
                                  20   CONTINGENCIES AND COMMITMENTS
                                                                                                        Interest income on impaired loans is recognised
                                       Transactions are classified as contingencies where
                                                                                                        either as cash is collected or on a cost-recovery basis
                                       the Group’s obligation depends on uncertain future
                                                                                                        as conditions warrant.
                                       events.

                                                                                                   21.4 Royalty income
                                       Items are classified as commitments where the Group              Royalty income is recognised on an accruals basis in
                                       commits itself to future transactions or if the items            accordance with the substance of the relevant
                                       will result in the acquisition of assets.                        agreements.




                     AFGRI Limited Annual Report 2010
                                                                                                                                     101




21.5 Dividend income                                            25    FINANCIAL RISK MANAGEMENT
     Dividend income is recognised when the right to            25.1 Financial risk factors
     receive payment is established.                                  The Group’s activities expose it to a variety of
                                                                      financial risks:
22   DIVIDENDS PAYABLE                                                (a) Market risk (including foreign exchange risk, cash
     Dividends payable and the related tax thereon to the                 flow and fair value interest rate risk, equity and
     Company’s shareholders are recognised as a liability                 commodity price risks);
     in the Group’s financial statements in the period in             (b) Credit risk;
     which the dividends are declared by the Company’s                (c) Liquidity risk; and
     shareholders.                                                    (d) Capital risk.


23   INCOME TAX                                                       The Board provides written principles for overall risk
     The income tax charge for current tax is on net                  management, as well as written policies covering
     income before tax for the year as adjusted for income            specific areas, such as foreign exchange risk, credit
     that is exempt and expenses that are not deductible              risk, use of derivative financial instruments and
     using enacted tax rates.                                         non-derivative financial instruments, and investing
                                                                      excess liquidity.
     Deferred tax is recognised for all temporary
     differences, unless specifically exempt, at the tax              The Group’s overall financial risk management
     rates that have been enacted or substantially enacted            programme focuses on the unpredictability of
     at the balance sheet date.                                       financial markets and seeks to minimise potential
                                                                      adverse effects on the Group’s financial performance.
24   SEGMENTAL ANALYSIS                                               The Group uses derivative financial instruments to
     Reportable segments are operating segments or                    hedge certain risk exposures. These derivative
     aggregations of operating segments that represent at             financial instruments are used exclusively as hedging
     least 10% of Group revenues, profit before tax or                instruments and not for trading or other speculative
     gross assets or, at the discretion of management,                purposes.
     represent a separately identifiable line of business.
     Operating segments are the components of the               (a)   Market risk
     Group about which separate financial information is              The management of those market risks not related to
     available and that is evaluated regularly by the                 commodity prices is performed by a central treasury
     Group’s executive management in deciding how to                  department (Group treasury) under policies approved
     allocate resources and in assessing performance.                 by the Board of Directors. Group treasury identifies,
                                                                      evaluates and hedges financial risks in close
     The Group identifies its operating segments on the               cooperation with the Group’s operating units.
     basis of products and services offered, the dominant
     customer basis and the economic sector in which they       (i)   Foreign exchange risk
     operate. Geographical areas in which the operating               The Group operates internationally and is exposed to
     segments operate are of secondary concern.                       foreign exchange risk arising from various currency
                                                                      exposures, primarily with respect to the US Dollar,
     Head office expenses are allocated to the operating              Euro, Sterling and Japanese Yen.
     segments based on a combination of sales, operating
     profit and time spent by executive management,                   Foreign exchange risk arises from future commercial
     except where information technology costs can be                 transactions, recognised assets and liabilities and net
     directly allocated. Internal treasury interest is levied         investments in foreign operations which are
     on approximately two-thirds of the operating                     denominated in a currency that is not the entity’s
     segment’s internal debt and is disclosed within                  functional currency.
     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.




                                                                                                           AFGRI Limited Annual Report 2010
                     102




                                  Accounting policies                            continued




                                  25     FINANCIAL RISK MANAGEMENT (continued)                             Although variable, the basis on which interest is
                                  25.1 Financial risk factors (continued)                                  earned or incurred may differ between advances and
                                  (a)    Market risk (continued)                                           borrowings (e.g. JIBAR versus prime). As such the
                                  (i)    Foreign exchange risk (continued)                                 Group is exposed to interest rate basis risk. The
                                         To manage its foreign exchange risk arising from                  Group’s cash flow and interest rate risk is managed
                                         future commercial transactions, recognised assets                 using an ALCO model under the supervision of an
                                         and liabilities, entities in the Group use forward                ALCO Committee.
                                         contracts, transacted with Group treasury. Group
                                         treasury is responsible for managing the net position             A principal function of the ALCO Committee’s
                                         in each foreign currency by using external forward                management of interest rate risk is to monitor the
                                         foreign exchange contracts. These external forward                sensitivity of projected net interest income under
                                         foreign exchange contracts are designated at Group                varying interest rate scenarios. The Group aims to
                                         level as hedges of foreign exchange risk on specific              mitigate the impact of prospective interest rate
                                         assets, liabilities or future transactions on a Group             movements which could reduce future net interest
                                         basis. The Group’s risk management policy is to                   income, whilst balancing the cost of such hedging
                                         hedge 100% of all committed transactions in each                  activities on the current net revenue stream.

                                         major currency.
                                                                                                   (iii)   Equity price risk
                                                                                                           The Group is not exposed to material equity securities
                                         The Group has certain investments in foreign
                                                                                                           price risk.
                                         operations whose net assets are exposed to foreign
                                         currency translation risk. The currency risk resulting
                                                                                                   (iv)    Commodity price risk
                                         from the translation of foreign operations into the
                                                                                                           Commodity price risk arises from the Group’s
                                         Group’s reporting currency is not hedged. A monetary
                                                                                                           significant consumption of agricultural commodities,
                                         item that is receivable from or payable to a foreign
                                                                                                           its trading in physical agricultural commodities and its
                                         operation and for which settlement is neither planned
                                                                                                           use of derivative financial instruments linked to
                                         nor likely in the foreseeable future is considered as
                                                                                                           underlying agricultural commodity prices. The Group
                                         part of the Group’s net investment in that foreign
                                                                                                           may suffer financial loss when a fluctuating price
                                         operation. These monetary items are not hedged.
                                                                                                           contract obligation is entered into and the commodity
                                         Monetary items receivable from or payable to a
                                                                                                           price increases or when a fixed price agreement is
                                         foreign operation, made on commercial terms, are
                                                                                                           entered into and the commodity price falls.
                                         subject to the same hedging policy as other
                                         commercial transactions and are hedged using
                                                                                                           Commodity price risk arises from fluctuating supply
                                         forward foreign exchange contracts.
                                                                                                           conditions, weather, economic conditions and other
Growth the natural outcome




                                                                                                           factors. The management of the Group’s market risk
                                         The Audit and Risk Committee has issued investment                related to commodity prices is undertaken by AFGRI
                                         guidelines for any additional investments in foreign              Trading (Pty) Limited, a wholly owned subsidiary of
                                         countries. Country risk is monitored on a monthly                 AFGRI Operations Limited, through the application
                                         basis by the Asset and Liability Committee (ALCO                  of policies and guidelines approved by the Board
                                         Committee).                                                       of Directors.

                                  (ii)   Cash flow and fair value interest rate risk                       The strategic raw materials acquired by the Group for
                                         The Group’s income and operating cash flows are                   its operations include maize, wheat, cotton seed,
                                         substantially independent of changes in market                    soya-oil cake and fishmeal. The procurement of
                                         interest rates. Financial assets and liabilities at               strategic commodities for utilisation by the Group’s
                                         variable rates expose the Group to cash flow interest             subsidiaries and divisions is subject to a 100%
                                         rate risk. The Group raises only short-term debt at               hedging policy and uses financial instruments such as
                                         variable rates to match the interest and capital                  commodity futures, option contracts, and other
                                         repayment by clients. The Group is not exposed to fair            derivative instruments to reduce the volatility of input
                                         value interest rate risk as all material borrowings are           prices of these raw materials and therefore mitigate
                                         at variable rates.                                                against market risk.



                     AFGRI Limited Annual Report 2010
                                                                                                                                 103




      The Group’s agricultural commodity trading activities      The AFGRI Financial Services division, where the bulk
      include the procurement of product from producers          of credit exposure arises, supported by the credit and
      and the marketing of this product to consumers of          compliance department, manages Group credit
      agricultural commodities. A timing difference arises       exposures and in conjunction with the Credit
      between the procurement and the supply of the              Committee oversees the development and
      product. During this period both the procurement and       application of credit risk mitigating practices
      supply positions are fully hedged.                         throughout the Group. Similarly, the validity and
                                                                 financial stability of counterparties must be
      The monitoring and management of the positions and         determined by AFGRI Financial Services before
      corresponding hedges is performed on a daily basis         forward purchase contracts are entered into.
      by the AFGRI Trading management team. It is the
      responsibility of the MD: AFGRI Trading to ensure that     Key elements of the control environment established
      all trades are within the approved exposure limits and     to manage credit risk include:
      also conform to the agreed strategies on a daily basis.    • the establishment of mandates for the Credit
                                                                   Committee and senior line managers within AFGRI
      The Group offers brokerage services to producers             Financial Services
      and consumers of agricultural commodities such as          • divisional and subsidiary credit policies
      wheat, sunflower, maize and soya. This offering            • evaluation and scoring models, allowing for the
      generates no exposure to market risk due to the              categorisation of credit applications into pre-
      back-to-back nature of the transactions.                     defined risk categories
                                                                 • predefined security requirements and Group
(b)   Credit risk                                                  guidelines for the valuation of collateral
      The Group is exposed to the agricultural and food          • compliance with both the NCA and FICA
      industries and has concentrations of credit risk in this   • where applicable, farmer debtors are covered by
      regard. Credit risk is the risk of financial loss if a       credit life insurance
      customer or counterparty fails to meet an obligation       • the individual credit management of both
      under a contract and arises principally from trade           individually large and corporate customers
      (current), seasonal, capital goods financing, and          • documented procedures to elevate “out of
      forward purchase contracts for agricultural                  mandate” decisions
      commodities.                                               • controlling cross-border exposures
                                                                 • regular reviews of performance and effectiveness
      The Group’s maximum exposure to credit risk can be           of divisions’ and subsidiaries’ credit approval
      considered to be the sum of the following financial          processes
      assets:                                                    • a workout and recovery unit to avoid default
      • Financial receivables                                      wherever possible.
      • Trade and other receivables including those
        financed by banks, (excluding prepayments)               The Credit Committee meets quarterly and is
      • Cash and cash equivalents and cash collateral            provided with the following reports to enable it to
        deposits                                                 assess the Group’s exposure to credit risk and the
      • Derivative financial instruments.                        effectiveness of the control environment:
                                                                 • overview of risk concentrations
      The Group has policies and procedures in place to          • customer portfolio exposure
      ensure that sales of products are made to customers        • large-customer-group exposures
      after an appropriate credit assessment. The Board          • impairment allowance balances
      delegates the responsibility for the management of         • impairment charges to the income statement
      credit risk to the Credit Committee. Line managers         • new credit facilities approved
      within the Group are awarded mandates in terms of          • individual reports on significant facilities
      divisional credit policies in order to manage the          • recommended changes to credit policies
      day-to-day credit decisions necessary to conduct           • divisional and subsidiary credit balances and age
      business.                                                    analysis




                                                                                                       AFGRI Limited Annual Report 2010
                     104




                                  Accounting policies                           continued




                                  25    FINANCIAL RISK MANAGEMENT (continued)                       Counterparty performance is also encouraged
                                  25.1 Financial risk factors (continued)                           through the deployment of compliance teams during
                                  (b)   Credit risk (continued)                                     harvesting periods.
                                        • the number and value of debtors refinanced
                                          through external financiers.                              Broking clients are required to make upfront cash
                                                                                                    deposits within the predetermined minimum levels
                                        The Group categorises its trade receivables into three      prescribed by SAFEX, for initial margin plus two day’s
                                        classes, namely current, seasonal and capital goods.        market movement. The client is also required to make
                                        Current represents those trade receivables which are        cash deposits for the minimum variation margin
                                        offered on normal trading terms such as 30, 60 and          requirement and/or the amount exceeding the
                                        90 days. Seasonal includes trade receivables which          trading limit by midday of the following business day.
                                        have been provided to finance primary producers’            Failure to meet these requirements results in the
                                        crops during a given season. Capital goods represent        client’s position being closed immediately.
                                        credit offered to purchase capital agricultural goods
                                        such as tractors.                                           The Group also has guidelines that limit the amount
                                                                                                    of credit exposure to any financial institution.
                                        All three classes of credit are available to both
                                        primary producers and corporate customers, bearing          Divisions and subsidiaries are required to implement
                                        in mind that many primary production activities are         guidelines on the acceptability of specific classes of
                                        conducted by incorporated entities.                         collateral for credit risk mitigation, and determine
                                                                                                    suitable valuation parameters. Such parameters are
                                        It is the Group’s policy to ensure that loans and           expected to be conservative, reviewed regularly and
                                        receivables are within the customer’s capacity to           supported by empirical evidence such as the
                                        repay. Loans are only granted if they can be secured.       realisable value in case of default. Security structures
                                        Depending on the customer’s standing and the type           and legal covenants are required to be subject to
                                        of product, receivable facilities may be unsecured.         regular review to ensure that they continue to fulfil
                                        This will typically relate to clients with high net worth   their intended purpose and remain in line with local
                                        and proven repayment ability. Nevertheless, collateral      market practice. The principal types of collateral are
                                        is an important mitigant of credit risk.                    as follows:
                                                                                                    • mortgages over agricultural and residential
                                        To mitigate against credit risk in the commodity trading      properties, and charges over movable assets and
                                        environment, the validity and financial stability of all      debtors in the personal sector; and
Growth the natural outcome




                                        counterparties is determined by AFGRI Financial             • charges over business assets such as premises,
                                        Services in terms of the Group’s credit policy. In            inventory (including agricultural produce) and
                                        addition, a regular comparison is performed between           debtors in the corporate sector.
                                        AFGRI Trading (Pty) Limited’s forward contract book
                                        and the handed-over-for-legal-collection list maintained    The Group’s credit grading systems are designed
                                        by the workout and recoveries department.                   to highlight exposures which require closer
                                                                                                    management attention because of their greater
                                        Counterparty performance is monitored throughout            probability of default and potential loss. Risk ratings
                                        the crop season in order to identify at an early stage      are reviewed regularly and amendments, where
                                        potential default. In addition, management reviews          necessary, are implemented promptly.
                                        the Group’s concentration of risk in terms of market
                                        sector, geographic region and agricultural commodity,       The credit quality of unimpaired loans and receivables
                                        especially maize. The Group’s policy requires that          is assessed by reference to the grading system. Loans
                                        plant, emergence and crop estimate reports are              and receivables are treated as impaired as soon as
                                        obtained at regular intervals and default risk be           there is objective evidence that an impairment loss
                                        communicated to management at an early stage.               has been incurred. The criteria used by the Group to




                     AFGRI Limited Annual Report 2010
                                                                                                                                   105




      determine that there is such objective evidence              when they fall due or that such resources will only
      include, inter alia:                                         be available at excessive costs. This risk arises from
      • known cash flow difficulties experienced by the            mismatches in the timing of cash flows. Funding risk
        borrower                                                   (a particular form of liquidity risk) arises when the
      • overdue contractual payments of either principal           necessary liquidity to fund illiquid asset positions
        or interest                                                cannot be obtained at the expected terms when
      • breach of loan covenants or conditions                     required.
      • the probability that the borrower will enter
        bankruptcy or other financial realisation                  Prudent liquidity risk management implies
      • a downgrading in credit rating by an external credit       maintaining sufficient cash and marketable securities,
        rating agency.                                             the availability of funding through an adequate
                                                                   amount of committed credit facilities and the ability
      The Group’s policy is that each division and subsidiary      to close out market positions. Due to the dynamic
      makes allowances for impaired loans and receivables          nature of the underlying businesses, Group treasury
      promptly and on a consistent basis.                          aims to maintain flexibility in funding by keeping
                                                                   committed credit lines available.
      Loans and receivables are assessed for impairment
      on an individual basis. In determining allowances on
                                                                   The objective of the Group’s liquidity and funding
      individually assessed accounts, the outstanding credit
                                                                   management is to ensure that all foreseeable funding
      amounts are compared with the recoverable
                                                                   commitments can be met when due, and that funding
      securities. Security values are adjusted for the time
                                                                   market access is coordinated and cost effective. It is
      value of money excluding all securities realised within
                                                                   the Group’s objective to maintain a diversified and
      12 months and bonds.
                                                                   stable funding base comprised of retail and
                                                                   institutional funding facilities with the objective of
      Group policy requires the level of impairment
                                                                   enabling the Group to respond quickly and smoothly
      allowances on individual facilities that are above a
                                                                   to any unforeseen liquidity requirements.
      materiality threshold be reviewed at least semi-
      annually, and more regularly when individual
                                                                   The Group strives to maintain a strong liquidity
      circumstances require.
                                                                   position and to manage the liquidity profile of its
                                                                   assets, liabilities and commitments with the objective
      When impairment losses occur, the Group reduces
                                                                   of ensuring that cash flows are appropriately
      the carrying amount of loans and receivables and
                                                                   balanced and all obligations are met when due.
      held-to-maturity financial investments through the
      use of an allowance account. When impairment of
                                                                   The management of liquidity and funding is
      available-for-sale financial assets occurs, the carrying
                                                                   performed centrally by Group Treasury in accordance
      amount of the asset is reduced directly.
                                                                   with practices and limits set by the Board and the

      Management regularly evaluates the adequacy of               process includes:

      the established allowances for impaired loans and            • projecting cash flows and establishing the level of
      receivables by conducting a detailed review of the             liquidity facilities necessary
      portfolio, comparing performance and delinquency             • monitoring balance sheet liquidity ratios against
      statistics with historical trends and assessing the            internal requirements
      impact of current economic conditions. Any                   • maintaining a diverse range of funding sources
      calculated shortfall between the total individual            • managing the concentration and profile of debt
      impairment allowance account and the estimated                 maturities
      portfolio impairment is adjusted for.                        • maintaining debt financing plans
                                                                   • monitoring lender concentrations in order to avoid
(c)   Liquidity risk                                                 undue reliance on individual lenders and ensuring a
      Liquidity risk is the risk that the Group has insufficient     satisfactory overall funding mix
      financial resources to meet its obligations as and           • maintaining liquidity and funding contingency plans.




                                                                                                         AFGRI Limited Annual Report 2010
                     106




                                  Accounting policies                         continued




                                  25    FINANCIAL RISK MANAGEMENT (continued)                           During the year the Group was in compliance with all
                                  25.1 Financial risk factors (continued)                               the financial covenants relating to its material
                                  (d)   Capital risk                                                    borrowings.
                                        The Group manages its capital (being the capital
                                        and reserves attributable to the Company’s                 25.2 Fair value estimation
                                        equityholders) centrally in terms of rates of returns           The fair value of financial instruments traded in active
                                        (either ROCE or RONA) established for each of the               markets (such as publicly traded derivatives, and
                                        Group’s various operating segments. Operating                   trading and available-for-sale securities) is based on
                                        segments are re-geared annually, allocating Group               quoted market prices at the balance sheet date.
                                        equity equitably.
                                                                                                        The fair value of financial instruments that are not
                                        The Group monitors its level of borrowings and                  traded in an active market (for example, over-the-
                                        anticipates future requirements through the                     counter derivatives) is determined by using
                                        application of an ALCO model. The ALCO Committee                appropriate valuation techniques. Such valuation
                                        meets regularly and advises management and the                  techniques include the discounted cash flow method
                                        Board. The committee also confirms the Group’s                  with assumptions that are based on market
                                        weighted average cost of capital, a key consideration           conditions existing at each balance sheet date.
                                        when setting return targets for operating segments.
                                                                                                        The fair value of forward foreign exchange contracts
                                        In the main, the Group funds its operations through a           is determined using quoted forward exchange market
                                        combination of equity and short-term debt. The                  rates at the balance sheet date.
                                        utilisation of long-term debt is minimised, and is
                                        usually only raised against individual capital projects.        The carrying amount (net of impairment where
                                        Short-term borrowings, including trade payables, are            relevant) of trade receivables and payables is
                                        matched with the current assets of the Group, being             assumed to approximate their fair values. The fair
                                        in the main, trade receivables and stock balances.              value of financial liabilities for disclosure purposes is
                                        Historically, the Group has not raised debt against its         estimated by discounting the future contractual cash
                                        non-current core assets. Trade receivables resulting            flows at the current market interest rate that is
                                        from the Group’s lending activities are financed with           available to the Group for similar financial
                                        specific facilities which have been negotiated for fixed        instruments.
                                        or extended periods of time.
                                                                                                        Fair value estimations are classified into the following
                                        In terms of certain funding agreements, the Group is            hierarchies, based on the method use to determine
Growth the natural outcome




                                        obliged to meet various capital ratios and levels of            fair value:
                                        unencumbered assets. Compliance with these                      • Level 1 – unadjusted quoted prices in active
                                        covenants is checked on a regular basis. A registered             markets.
                                        member on SAFEX must have, at all times, own funds              • Level 2 – valuation techniques using market
                                        equal to the greater of either R400 000 or 13 weeks of            observable inputs.
                                        operating costs plus position, settlement, large                • Level 3 – valuation techniques for which not all
                                        exposure and foreign exchange risk requirements.                  inputs are market observable prices or rates.
                                        AFGRI Broking (Pty) Limited submits monthly capital
                                        returns demonstrating compliance with this
                                        requirement.




                     AFGRI Limited Annual Report 2010
                                                                                          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.




                                                                AFGRI Limited Annual Report 2010
                     108




                                  Group balance sheet
                                  at 30 June 2010



                                                                                                                30 June      30 June
                                                                                                                   2010         2009
                                                                                                       Note       R’000        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
Growth the natural outcome




                                  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




                     AFGRI Limited Annual Report 2010
                                                                                                                           109




Group income statement
for the year ended 30 June 2010



                                                                                        Year                 Year
                                                                                      ended                ended
                                                                                     30 June              30 June
                                                                                        2010                 2009
                                                                            Note       R’000                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

Profit for the year                                                                  467 116              353 929
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




                                                                                                 AFGRI Limited Annual Report 2010
                     110




                                  Group statement of comprehensive income
                                  for the year ended 30 June 2010



                                                                                                                                                Year                     Year
                                                                                                                                              ended                    ended
                                                                                                                                             30 June                  30 June
                                                                                                                                                2010                     2009
                                                                                                                                               R’000                    R’000

                                  Profit for the year                                                                                        467 116                  353 929
                                  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


                                  Group statement of changes in equity
                                  for the year ended 30 June 2010
                                                                                    Fair                                                                  Other
                                                                                  value                                In-       Total                  outside
                                                                                    and                           centive       share-         Agri      share-
                                                                      Share       other Retained       Treasury      trust     holders       Sizwe     holders’         Total
                                  R’000                              capital   reserves earnings         shares    shares       equity     partners    interest        equity

                                  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)
Growth the natural outcome




                                  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




                     AFGRI Limited Annual Report 2010
                                                                                                         111




Group cash flow statement
for the year ended 30 June 2010



                                                                       Year                Year
                                                                     ended               ended
                                                                    30 June             30 June
                                                                       2010                2009
                                                             Note     R’000               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




                                                                               AFGRI Limited Annual Report 2010
AFGRI Limited Annual Report 2010
                     113




                                  Business segment results
                                  for the year ended 30 June


                                                                                                                           AFGRI FINANCIAL SERVICES

                                                                                                                 Capital                                                    Broking
                                                                                                      2010                              2009                            2010                          2009
                                                                                                     R’000                             R’000                           R’000                         R’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
Growth the natural outcome




                                  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            AFGRI Broking represents the Group’s derivative broking
                                                                                      Broking, Treasury and Africa businesses. The Africa division    operation.
                                                                                      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.

                                  Products and services provided                      The division provides tailor made financial solutions and       Mandated buying and selling of futures and options of JSE
                                                                                      insurance products, including structured, corporate and         SAFEX exchange.
                                                                                      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.

                                  Customers                                           Farmers, processors and consumers of agricultural               Farmers, agricultural commodity processors and in-house
                                                                                      commodities as well as members of the public.                   AFGRI Trading and AFGRI Foods.

                                  Geographical area                                   South Africa and Zambia.                                        South Africa.




                     AFGRI Limited Annual Report 2010
                                                                                                                                                                                                                                     114




                                                                                                          AFGRI AGRI SERVICES
                                Retail and Equipment                                                                                                                          Logistic Services
                    Primary Inputs                                                       Retail                                                        Logistics                                                      Trading
                 2010                               2009                        2010                              2009                         2010                             2009                           2010                             2009
                R’000                              R’000                       R’000                             R’000                        R’000                            R’000                          R’000                            R’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     AFGRI Retail encompasses the Group’s 35 retail stores,         AFGRI Logistics houses the Group’s Handling and Storage         AFGRI Trading represents the Group’s physical agricultural
of AFGRI Retail and Equipment.                                  including the four new concept Farm City stores. The           and Logistics division. Having 64 silo complexes and            commodity trading house.
                                                                Group’s John Deere agency, operating through 11 centres        nine strategically placed bunker facilities, the Handling
                                                                of excellence is also included here. The Group’s Australia     and Storage division has in excess of four million tons
                                                                subsidiary is also reported here.                              of storage capacity. The Logistics division represents the
                                                                                                                               Group’s third and fourth party logistics operations.

Through a network of agents and in conjunction with             Fundamentally a provider of farming requisites, the AFGRI      Secure grain handling and storage                               A comprehensive grain supply chain management
primary producers, AFGRI Primary Inputs sources and             Retail stores offer an extensive range of agricultural, home   Logistics. Collateral management.                               service backed by tailor-made supply and procurement
supplies diesel, fertiliser, seed and agricultural chemicals.   and garden, outdoor and DIY products, including selected                                                                       contracts for the short and long term, making use of
                                                                building materials. John Deere mechanisation equipment                                                                         innovative price, hedging and finance solutions. This
                                                                sales and services are offered through regional structures.                                                                    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              Mpumalanga, Gauteng, KwaZulu-Natal and Free State              Mpumalanga, North West, Gauteng, KwaZulu-Natal, Free            Operations extend throughout Africa with origination from
North West Provinces.                                           provinces and Australia.                                       State, Western Cape and Eastern Cape provinces and              Africa and other international markets.
                                                                                                                               Zambia.




                                                                                                                                                                                            AFGRI Limited Annual Report 2010
                                                                                                                                                                                                                              115




                                                  AFGRI FOODS                                                                                                                        OTHER

       Animal Feeds and Broilers                                              Oil and Protein                                                      Corporate                                      Inter-group eliminations
                2010                             2009                          2010                             2009                        2010                             2009                          2010                             2009
               R’000                            R’000                         R’000                            R’000                       R’000                            R’000                         R’000                            R’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                                                  Oil and Protein                                     Corporate                                                      Inter–group eliminations
                 and Broilers
       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         The Oil and Protein segment includes the Nedan division.     The Corporate office houses certain of the Group’s             Intergroup eliminations comprise the elimination of inter
and AFGRI Poultry operations. The Animal Feeds division                                                                     financing structures, CSI, secretarial, compliance and         segment revenues as well as inter segment accounts
has a production capacity of approximately 1,2 million tons                                                                 internal audit functions, treasury and incentive shares, and   receivables and accounts payables.
at eight installations. The Integrated AFGRI Poultry has a                                                                  incubates new projects. Corporate costs are allocated to
capacity of approximately 675 000 birds per week.                                                                           the divisions where appropriate.


Animal feed technology, formulation and production for         Nedan is a bulk supplier of edible oils and fats, soya and
most species, including poultry, dairy cows, beef cattle,      cotton protein for animal feed, high protein defatted soya
pigs, dogs, ostriches, horses, game and aquatic animals.       flour and texturised soya protein for human consumption.
Day old chicks, frozen whole birds and IQF portions.




Livestock farmers, dairy producers, feedlots. fish and prawn   Industrial food manufacturers.
farms, wholesalers and retailers.                              Laboratories in many varied industries.

AFGRI Animal Feeds has production facilities in the            Nedan’s production facilities are situated in the Limpopo
Mpumalanga, Gauteng, KwaZulu-Natal, Free State,                province from where it distributes nationally.
Eastern Cape and Western Cape provinces from where it
distributes throughout South Africa.
AFGRI Poultry is situated in Sundra near the Gauteng
market.




                                                                                                                                                                                      AFGRI Limited Annual Report 2010
                                                                                                                                             116




                         TOTAL                                                                    TOTAL

 Continuing Operations            Discontinued Operations                                     All Operations
    2010            2009                    2010                             2009             2010                2009
   R’000           R’000                   R’000                            R’000            R’000               R’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.




                                                                                                                   AFGRI Limited Annual Report 2010
AFGRI Limited Annual Report 2010
                     118




                                  Notes to the Group annual financial statements
                                  for the year ended 30 June 2010


                                  1    CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS
                                       Estimates and judgements are continually evaluated and are based on historical experience and other factors, including
                                       expectations of future events that are believed to be reasonable under the circumstances.
                                       The Group makes estimates and assumptions concerning the future. The resulting accounting estimates will, by
                                       definition, 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 debtors
                                             A provision for impairment of trade receivables is established when there is objective evidence that the Group will
                                             not be able to collect all amounts due according to the original terms of the receivables. The amount of the
                                             provision is the difference between the asset’s carrying amount and the present value of estimated future cash
                                             flows, discounted at the 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 methods
                                             Property, 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 intangibles
                                             Impairment 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 assets
Growth the natural outcome




                                             The 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 assessments
                                             Inventory 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 instruments
                                             Financial 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 payments
                                             The 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.




                     AFGRI Limited Annual Report 2010
                                                                                                                       119




                                                                                    Year                 Year
                                                                                  ended                ended
                                                                                 30 June              30 June
                                                                                    2010                 2009
                                                                                   R’000                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
          Buildings and improvements                                             609 535              566 789
          Machinery and equipment                                                597 560              602 184
          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 year
          Opening carrying value                                                1 346 428           1 175 375
            Land                                                                  63 262               71 393
            Buildings and improvements                                           566 789              578 787
            Machinery and equipment                                              602 184              423 363
            Vehicles                                                             114 193              101 832
          Additions at cost                                                      282 195              384 447
            Land                                                                  10 746                     –
            Buildings and improvements                                            89 173               50 449
            Machinery and equipment                                              144 411              293 854
            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)



                                                                                             AFGRI Limited Annual Report 2010
                     120




                                  Notes to the Group annual financial statements          continued
                                  for the year ended 30 June 2010



                                                                                       Year               Year
                                                                                     ended              ended
                                                                                    30 June            30 June
                                                                                       2010               2009
                                                                                      R’000              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)
                                               Buildings and improvements            (50 232)           (10 804)
                                               Machinery and equipment               (27 110)           (55 431)
                                               Vehicles                               (2 037)            (3 567)
                                             Depreciation charge                     (98 550)           (86 500)
                                               Buildings and improvements            (23 665)           (19 005)
                                               Machinery and equipment               (57 615)           (52 129)
                                               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)
                                               Buildings and improvements             (4 678)           (23 897)
                                               Machinery and equipment               (10 198)            (9 880)
                                               Vehicles                                    –             (2 028)
                                             Impairment charge                        (2 647)            (6 550)
Growth the natural outcome




                                               Land                                        –                (84)
                                               Buildings and improvements             (2 647)            (2 829)
                                               Machinery and equipment                     –               877
                                               Vehicles                                    –             (4 514)
                                             Closing carrying value                1 394 815          1 346 428
                                               Land                                  55 118             63 262
                                               Buildings and improvements           609 535            566 789
                                               Machinery and equipment              597 560            602 184
                                               Vehicles                             132 602            114 193




                     AFGRI Limited Annual Report 2010
                                                                                                                                             121




                                                                                                         Year                  Year
                                                                                                       ended                 ended
                                                                                                      30 June               30 June
                                                                                                         2010                  2009
                                                                                                        R’000                 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.




                                                                                                                   AFGRI Limited Annual Report 2010
                     122




                                  Notes to the Group annual financial statements            continued
                                  for the year ended 30 June 2010



                                                                                         Year               Year
                                                                                       ended              ended
                                                                                      30 June            30 June
                                                                                         2010               2009
                                                                                        R’000              R’000

                                  4    OTHER INTANGIBLE ASSETS
                                       4.1 Cost                                        355 456           349 944
                                           Trademarks and patents                      163 026           194 690
                                           Computer software                           119 044           146 447
                                           Other                                         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           163 370
                                           Computer software                             52 958            74 177
                                           Other                                         65 940                  –
                                       4.4 Movement for the year
                                           Opening 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)                  –
Growth the natural outcome




                                           Exchange differences                               9                 33
                                              Trademarks and patents                         (7)               (36)
                                              Computer software                              16                 69
                                           Impairment 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                   –




                     AFGRI Limited Annual Report 2010
                                                                                                                  123




                                                                                 Year               Year
                                                                               ended              ended
                                                                              30 June            30 June
                                                                                 2010               2009
                                                                                R’000              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




                                                                                        AFGRI Limited Annual Report 2010
                     124




                                  Notes to the Group annual financial statements                                           continued
                                  for the year ended 30 June 2010



                                                                                                                          Year            Year
                                                                                                                        ended           ended
                                                                                                                       30 June         30 June
                                                                                                                          2010            2009
                                                                                                                         R’000           R’000

                                  4    OTHER INTANGIBLE ASSETS (continued)
                                       4.5     Included under trademarks and patents are the following
                                               (continued):
                                               Foods
                                               Animal protein                                                           60 864          68 443
                                                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
Growth the natural outcome




                                                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




                     AFGRI Limited Annual Report 2010
                                                                                                                     125




                                                                                    Year               Year
                                                                                  ended              ended
                                                                                 30 June            30 June
                                                                                    2010               2009
                                                                                   R’000              R’000

4   OTHER INTANGIBLE ASSETS (continued)
    4.6   Included under computer software are the following (continued):
          Foods
          Animal protein                                                           1 964              4 322
           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
          Oil and protein                                                              –                   –
                                                                                   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                    –
          Oil and protein                                                              –                   –
                                                                                    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




                                                                                           AFGRI Limited Annual Report 2010
                     126




                                  Notes to the Group annual financial statements                                                      continued
                                  for the year ended 30 June 2010



                                                                                                                                   Year              Year
                                                                                                                                 ended             ended
                                                                                                                                30 June           30 June
                                                                                                                                   2010              2009
                                                                                                                                  R’000             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.                                                   –                 –
Growth the natural outcome




                     AFGRI Limited Annual Report 2010
                                                                                                                           127




6   FINANCIAL INSTRUMENTS BY CATEGORY
                                                   Assets at
                                                   fair value
                                                    through Derivatives
    30 June 2010                      Loans and         profit designated   Available-    Held-to-
    R’000                            receivables      or loss as hedges       for-sale    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

                                                               Liabilities
                                                                   at fair
                                                                    value
                                                                 through Derivatives         Other
                                                                   profit designated      financial
    R’000                                                         or loss as hedges      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




                                                                                                 AFGRI Limited Annual Report 2010
                     128




                                  Notes to the Group annual financial statements                                                       continued
                                  for the year ended 30 June 2010


                                  6    FINANCIAL INSTRUMENTS BY CATEGORY (continued)
                                                                                        Assets at
                                                                                        fair value
                                                                                         through       Derivatives
                                       30 June 2009                        Loans and         profit    designated        Available-    Held-to-
                                       R’000                              receivables      or loss      as hedges          for-sale    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

                                                                                                          Liabilities
                                                                                                       at fair value    Derivatives       Other
                                                                                                           through      designated    financial
                                       R’000                                                          profit or loss     as hedges    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
Growth the natural outcome




                     AFGRI Limited Annual Report 2010
                                                                                                                          129




                                                                                         Year               Year
                                                                                       ended              ended
                                                                                      30 June            30 June
                                                                                         2010               2009
                                                                                        R’000              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




                                                                                                AFGRI Limited Annual Report 2010
                     130




                                  Notes to the Group annual financial statements                                                        continued
                                  for the year ended 30 June 2010



                                                                                                                                     Year                  Year
                                                                                                                                   ended                 ended
                                                                                                                                  30 June               30 June
                                                                                                                                     2010                  2009
                                                                                                                                    R’000                 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
Growth the natural outcome




                                                        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.




                     AFGRI Limited Annual Report 2010
                                                                                                                    131




                                                                                      Year            Year
                                                                                    ended           ended
                                                                                   30 June         30 June
                                                                                      2010            2009
                                                                                     R’000           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.




                                                                                          AFGRI Limited Annual Report 2010
                     132




                                  Notes to the Group annual financial statements                                       continued
                                  for the year ended 30 June 2010



                                                                                                                    Year               Year
                                                                                                                  ended              ended
                                                                                                                 30 June            30 June
                                                                                                                    2010               2009
                                                                                                                   R’000              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
Growth the natural outcome




                                                        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.




                     AFGRI Limited Annual Report 2010
                                                                                                                           133




                                                                                         Year               Year
                                                                                       ended              ended
                                                                                      30 June            30 June
                                                                                         2010               2009
                                                                                        R’000              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




                                                                                                 AFGRI Limited Annual Report 2010
                     134




                                  Notes to the Group annual financial statements                                  continued
                                  for the year ended 30 June 2010



                                                                                                           Year                  Year
                                                                                                         ended                 ended
                                                                                                        30 June               30 June
                                                                                                           2010                  2009
                                                                                                          R’000                 R’000

                                  11   TRADE AND OTHER RECEIVABLES (continued)
                                       11.1    Trade receivables (financed and not financed by banks)
                                               (continued)

                                               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
                                                        – Seasonal                                       15 998                     –
                                                        – 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
                                                        – Seasonal                                      195 434                     –
                                                        – Capital                                         8 470                     –


                                                                                                        376 562               412 059
Growth the natural outcome




                     AFGRI Limited Annual Report 2010
                                                                                                                                    135




11   TRADE AND OTHER RECEIVABLES (continued)
     11.1   Trade receivables (financed and not financed by banks) (continued)
            11.1.7   Allowance for impairment of trade
                     receivables
                                                                          Total       Current       Seasonal        Capital
                                                                         R’000         R’000           R’000         R’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%).




                                                                                                          AFGRI Limited Annual Report 2010
                     136




                                  Notes to the Group annual financial statements                                             continued
                                  for the year ended 30 June 2010



                                                                                                                              Year           Year
                                                                                                                            ended          ended
                                                                                                                           30 June        30 June
                                                                                                                              2010           2009
                                                                                                                             R’000          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
Growth the natural outcome




                                               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




                     AFGRI Limited Annual Report 2010
                                                                                                                                            137




13   DERIVATIVE FINANCIAL INSTRUMENTS (continued)
     13.2   Forward purchase and sale contracts
            The 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   Options
            Options 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 futures
            The 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
                                          Contract          Market             Fair         Contract          Market            Fair
            R’000                            value           value            value           value            value           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)




                                                                                                                  AFGRI Limited Annual Report 2010
                     138




                                  Notes to the Group annual financial statements                                                        continued
                                  for the year ended 30 June 2010



                                                                                                                                     Year                  Year
                                                                                                                                   ended                 ended
                                                                                                                                  30 June               30 June
                                                                                                                                     2010                  2009
                                                                                                                                    R’000                 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 of          Ordinary
                                                                                                                  shares           shares                 Total
                                       Balance at 30 June 2008                                                373 794 000                4
                                                                                                                                                                 4
Growth the natural outcome




                                       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.




                     AFGRI Limited Annual Report 2010
                                                                                                                                 139




                                                                                              Year                 Year
                                                                                            ended                ended
                                                                                           30 June              30 June
                                                                                              2010                 2009

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.




                                                                                                       AFGRI Limited Annual Report 2010
                     140




                                  Notes to the Group annual financial statements                                              continued
                                  for the year ended 30 June 2010



                                                                                                                             Year            Year
                                                                                                                           ended           ended
                                                                                                                          30 June         30 June
                                                                                                                             2010            2009
                                                                                                                            R’000           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.
Growth the natural outcome




                                       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




                     AFGRI Limited Annual Report 2010
                                                                                                                                          141




                                                                                                 Year                      Year
                                                                                               ended                     ended
                                                                                              30 June                   30 June
                                                                                                 2010                      2009
                                                                                                R’000                     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.




                                                                                                                AFGRI Limited Annual Report 2010
                     142




                                  Notes to the Group annual financial statements                                                continued
                                  for the year ended 30 June 2010



                                                                                                                        Year                   Year
                                                                                                                      ended                  ended
                                                                                                                     30 June                30 June
                                                                                                                        2010                   2009
                                                                                                                       R’000                  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
Growth the natural outcome




                                               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




                     AFGRI Limited Annual Report 2010
                                                                                                                      143




                                                                                   Year                Year
                                                                                 ended               ended
                                                                                30 June             30 June
                                                                                   2010                2009
                                                                                  R’000               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




                                                                                            AFGRI Limited Annual Report 2010
                     144




                                  Notes to the Group annual financial statements                                     continued
                                  for the year ended 30 June 2010



                                                                                                                    Year            Year
                                                                                                                  ended           ended
                                                                                                                 30 June         30 June
                                                                                                                    2010            2009
                                                                                                                   R’000           R’000

                                  25   OPERATING PROFIT
                                       The 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-employees
                                               Managerial, 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    Depreciation
                                               Buildings and improvements                                        (23 665)        (19 005)
                                               Machinery and equipment                                           (57 615)        (52 129)
                                               Vehicles                                                          (17 270)        (15 366)
                                                                                                                 (98 550)        (86 500)
                                       25.6    Impairments of property, plant and equipment and intangible
                                               assets
                                               Land                                                                    –              (84)
                                               Buildings and improvements                                         (2 647)         (2 829)
                                               Machinery and equipment                                                 –             877
                                               Vehicles                                                                –          (4 514)
                                               Trademarks and patents                                                  –          (8 166)
                                               Computer software                                                     (32)         (6 228)
                                               Other intangibles                                                       –          (8 207)
                                                                                                                  (2 679)        (29 151)
Growth the natural outcome




                                       25.7    Amortisation of intangible assets
                                               Trademarks 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




                     AFGRI Limited Annual Report 2010
                                                                                                                        145




                                                                                     Year                 Year
                                                                                   ended                ended
                                                                                  30 June              30 June
                                                                                     2010                 2009
                                                                                    R’000                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




                                                                                              AFGRI Limited Annual Report 2010
                     146




                                  Notes to the Group annual financial statements                                                continued
                                  for the year ended 30 June 2010



                                                                                                                             Year              Year
                                                                                                                           ended             ended
                                                                                                                          30 June           30 June
                                                                                                                             2010              2009
                                                                                                                            R’000             R’000

                                  28   INCOME TAX EXPENSE
                                       28.1 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           442 228
                                               Agri Sizwe partners share                                                  (129 204)         (109 833)
                                               Profit before income tax, all operations, before other minorities           378 782           332 395
                                               Income tax for the year as a percentage of income before income tax              20                30
                                               Income tax effect of:
                                               Non-deductible expenditure                                                      (3)               (17)
                                               Dividends received                                                               3                  6
                                               Prior year overprovision                                                         6                  7
                                               Difference in tax rates                                                          –                  1
                                               Income tax losses (reversed)/raised                                              2                  1
                                               Standard 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 OPERATIONS
Growth the natural outcome




                                       29.1 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-sale
                                             Property, plant and equipment                                                 17 198            38 847
                                             Intangible assets                                                                  –            23 338
                                             Inventory                                                                          –            92 376
                                             Other current assets                                                           5 436             2 796

                                               Total assets                                                                22 634           157 357
                                               Liabilities of disposal groups classified as held-for-sale
                                               Trade and other payables                                                          –           44 735
                                               Other current liabilities                                                         –                –
                                               Provisions                                                                        –                –

                                               Total liabilities                                                                 –           44 735




                     AFGRI Limited Annual Report 2010
                                                                                                                               147




                                                                                            Year                 Year
                                                                                          ended                ended
                                                                                         30 June              30 June
                                                                                            2010                 2009
                                                                                           R’000                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                  –              (46 213)
            groups
            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)




                                                                                                     AFGRI Limited Annual Report 2010
                     148




                                  Notes to the Group annual financial statements                                           continued
                                  for the year ended 30 June 2010



                                                                                                                          Year            Year
                                                                                                                        ended           ended
                                                                                                                       30 June         30 June
                                                                                                                          2010            2009
                                                                                                                         R’000           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
Growth the natural outcome




                     AFGRI Limited Annual Report 2010
                                                                                                                                     149




32   HEADLINE EARNINGS PER SHARE
     The 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 before   Minority       Income
                                                    income tax     interest           tax           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 Services
     Logistic services                                     (631)       169             46          (416)             26 528
       Net profit on disposal of business and
       assets                                              (631)       169             46          (416)                   –
       Loss on discontinued operations                        –          –              –             –               24 366
       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)
       Loss on discontinued operations                       –           –             –              –               28 906
       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




                                                                                                           AFGRI Limited Annual Report 2010
                     150




                                  Notes to the Group annual financial statements                                                                continued
                                  for the year ended 30 June 2010



                                                                                                    Year ended 30 June 2010            Year ended 30 June 2009

                                                                                                  Before      Tax          Net of     Before          Tax      Net of
                                                                                                     tax (expense)           tax         tax     (expense)       tax
                                                                                                 amount    benefit        amount     amount        benefit    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)

                                                                                                                                           Year                  Year
                                                                                                                                         ended                 ended
                                                                                                                                        30 June               30 June
                                                                                                                                           2010                  2009
                                                                                                                                          R’000                 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
                                               Profit before income tax                                                                541 243                442 228
                                               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)
Growth the natural outcome




                                               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               1 497 983
                                               1
                                                   The comparative has been reclassified from investing activities.




                     AFGRI Limited Annual Report 2010
                                                                                                            151




                                                                         Year                 Year
                                                                       ended                ended
                                                                      30 June              30 June
                                                                         2010                 2009
                                                                        R’000                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 paid
            Unpaid amounts beginning of year                            14 810               55 287
            Normal 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 equipment
            Book value                                                101 788               72 101
            Profit on disposal                                         38 675               32 263
                                                                      140 463              104 364
     35.6   Disposal of business – net of cash disposed
            Property, 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                     –




                                                                                  AFGRI Limited Annual Report 2010
                     152




                                  Notes to the Group annual financial statements                                                             continued
                                  for the year ended 30 June 2010


                                  36   MATURITY PROFILE OF FINANCIAL INSTRUMENTS
                                       The 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 2010
                                       Financial assets
                                       Financial 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 liabilities
                                       Borrowings
                                       – 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                 –           –           –       21 544
                                       Derivative financial instruments
                                       – not hedge accounted (held for trading)                     43 671            6 814         –               –       50 485
                                       Trade 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 2009
                                       Financial assets
                                       Financial receivables                                            2 548          55 182     105 887      102 240      265 857
                                       Derivative financial instruments
                                       – hedge accounted (designated as hedges)                       18 623              78            –           –       18 701
                                       Derivative financial instruments
                                       – not hedge accounted (held for trading)                        86 577           2 148           –            –       88 725
Growth the natural outcome




                                       Trade and other receivables                                     47 252         104 135     188 549       21 671      361 607
                                       Trade receivables financed by banks                          2 020 871       2 098 601     371 172      524 175    5 014 819
                                       Cash and cash equivalents                                      844 173               –           –            –      844 173
                                                                                                    3 020 044       2 260 144     665 608      648 086    6 593 882
                                       Financial liabilities
                                       Borrowings
                                       – Interest-bearing loans                                          240              720     101 872       23 845      126 677
                                       – Finance lease                                                 1 771            6 641      19 549          860       28 821
                                       Derivative financial instruments
                                       – hedge accounted (designated as hedges)                        8 422            4 023           –           –        12 445
                                       Derivative financial instruments
                                       – not hedge accounted (held for trading)                       92 288          (14 987)           –           –       77 301
                                       Trade and other payables                                    1 868 835            5 837        3 523       8 077    1 886 272
                                       Call loans and bank overdrafts                                362 741                –            –           –      362 741
                                       Borrowings 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




                     AFGRI Limited Annual Report 2010
                                                                                                                                        153




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:

                                                                                                    Year                     Year
                                                                                                  ended                   ended
                                                                                                 30 June                 30 June
                                                                                                    2010                    2009
                                                                                              Decreasing              Increasing
     Impact of basis risk year-on-year analysis                                                rate cycle              rate 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 DISCLOSURES
     38.1 Hierarchy of financial instruments carried at fair value

            R’000                                                         Level 1        Level 2         Level 3          Total

            30 June 2010
            Financial assets as per balance sheet
            Available-for-sale financial assets                                –                 –       40 965         40 965
            Financial assets at fair value through profit and loss        11 013                 –            –         11 013
            Derivative 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




                                                                                                              AFGRI Limited Annual Report 2010
                     154




                                  Notes to the Group annual financial statements                                                                 continued
                                  for the year ended 30 June 2010


                                  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 sheet
                                               Derivative 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 value
                                                                           Derivative financial   Financial assets at fair value                   Available-for-sale
                                                                              instruments            through profit or loss                        financial assets1

                                                                               30 June           30 June        30 June           30 June        30 June          30 June
                                                                                  2010              2009           2010              2009           2010             2009

                                               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 June          30 June
                                                                                                                                                    2010             2009

                                               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                 –
Growth the natural outcome




                                               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.




                     AFGRI Limited Annual Report 2010
                                                                                                                                  155




                                                                                               Year                 Year
                                                                                             ended                ended
                                                                                            30 June              30 June
                                                                                               2010                 2009
                                                                                              R’000                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




                                                                                                        AFGRI Limited Annual Report 2010
                     156




                                  Notes to the Group annual financial statements                                                          continued
                                  for the year ended 30 June 2010



                                                                                                                                       Year                    Year
                                                                                                                                     ended                   ended
                                                                                                                                    30 June                 30 June
                                                                                                                                       2010                    2009
                                                                                                                                      R’000                   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
Growth the natural outcome




                                       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.




                     AFGRI Limited Annual Report 2010
                                                                                                                         157




                                                                                        Year               Year
                                                                                      ended              ended
                                                                                     30 June            30 June
                                                                                        2010               2009
                                                                                       R’000              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.




                                                                                               AFGRI Limited Annual Report 2010
                     158




                                  Appendix A
                                  Interest in unlisted subsidiaries


                                                                                                                                                 Amounts owed by/(to)            Interest
                                                                                                                           Issued capital           subsidiaries             in subsidiaries
                                                                                         Nature of   Country of        2010             2009          2010          2009      2010     2009
                                                                                         business incorporation       R’000            R’000         R’000         R’000         %        %

                                  Subsidiaries of AFGRI Limited
                                  AFGRI Operations Ltd                                       H         South Africa    6 000            6 000     733 818        977 229       100       100
                                  OTK Investments House (Pty) Ltd                            W         South Africa        –                –     (15 216)        (7 462)      100       100
                                  Subsidiaries of AFGRI Operations Ltd
                                  ACIB Administrators (Pty) Ltd                               A       South Africa         –               –            –            –          76        76
                                  AFGRI Animal Feeds Eastern Cape (Pty) Ltd                   B       South Africa         –               –       72 185     13 601          100       100
                                  AFGRI Animal Feeds Western Cape (Pty) Ltd                   B       South Africa         –               –       43 748     42 807          100       100
                                  AFGRI Broking (Pty) Ltd                                     J       South Africa         1               1      (25 620)   (10 625)         100       100
                                  AFGRI Corporation Ltd                                       E           Zambia          79#             79#     263 485   233 208             76        76
                                  AFGRI DHP Investment Holdings (Pty) Ltd                     L       South Africa         1               1       12 700     12 700            76        76
                                  AFGRI Equipment (Pty) Ltd                                   F       South Africa         –               –      125 917   170 361           100       100
                                  AFGRI Insurance Brokers (Pty) Ltd                           C       South Africa         –               –      (12 365)      4 623           76        76
                                  AFGRI Lab (Pty) Ltd                                         K       South Africa         –               –            –            –        100       100
                                  AFGRI Limited Trust                                         G       South Africa         –               –       98 663   121 817           100       100
                                  AFGRI Tobacco (Pty) Ltd                                     I       South Africa         –               –          166    (53 115)         100       100
                                  AFGRI Trading (Pty) Ltd                                     J       South Africa       500             500       (5 029) (546 020)          100       100
                                  AFGRI Western Cape (Pty) Ltd                               AA       South Africa         –               1            –          (26)       100       100
                                  Basfour 711 (Pty) Ltd                                       R       South Africa         –               –            –            –        100       100
                                  Clark Cotton Zambia Ltd                                     J           Zambia       2 000#          2 000#           –            –         100       100
                                  Cotton Seed Processors (Pty) Ltd                           N        South Africa         –             500            –            –        100       100
                                  Daybreak Farms (Pty) Ltd                                   O        South Africa         –               –      224 886   249 413           100       100
                                  Daybreak Properties Springs (Pty) Ltd                       P       South Africa         –               –            –            –        100       100
                                  Daybreak Superior Marketing (Pty) Ltd                      Q        South Africa         –               –            –            –        100       100
                                  Deposita Rentals (Pty) Ltd                                  D       South Africa         –               –            –       5 024         100       100
                                  Dormanko Dertig (Pty) Ltd                                   R       South Africa         1               –          797       1 344         100       100
                                  Farm City Holdings (Pty) Ltd                                P       South Africa         –               –           50       1 043         100       100
                                  Golf Car World (Pty) Ltd                                    S       South Africa         –               –            –            –        100       100
                                  Gro Capital Financial Services (Pty) Ltd                   AA       South Africa         –               –      665 776 1 463 422           100       100
                                  Labworld (Pty) Ltd                                          T       South Africa         –               1            –      (8 713)        100       100
                                  Laeveld Korporatiewe Beleggings Ltd                         E       South Africa    14 757          14 757     (149 804) (149 884)          100       100
                                  Main Street 301 (Pty) Ltd                                  U        South Africa         –               –            –      (3 496)        100       100
                                  Midway Chix (Pty) Ltd                                       V       South Africa         –               –        5 821            –        100         65
                                  Mila Nutri (Pty) Ltd                                       D        South Africa         1               1           (1)          (1)       100       100
                                  Natalse Landboukoöperasie                                   E       South Africa        20              20     (130 517) (137 257)          100       100
                                  Nedan (Pty) Ltd                                            M        South Africa        10              10       50 490       8 417         100       100
                                  Nedan Oil Mills (Pty) Ltd                                  M        South Africa         –              40            –            –        100       100
                                  Nolko (Pty) Ltd                                             B       South Africa         –              38            –   (29 389)          100       100
                                  Partmaster (Pty) Ltd                                        R       South Africa    14 735          14 735       21 383     47 295          100       100
                                  RNV Operational Risk Management (Pty) Ltd                  AB       South Africa         1               –       (5 583)    (3 517)         100       100
                                  Superior Foods (Pty) Ltd                                   Q        South Africa         –               –            –            –        100       100
                                  T & H Walton Stores (Pty) Ltd                               X          Australia    10 200*         10 200*      42 844     37 034           100       100
                                  Techniland (Pty) Ltd                                        Y       South Africa         –               –            –            –        100       100
Growth the natural outcome




                                  Telsek Investments 1001 (Pty) Ltd                           P       South Africa         –               –            –            –        100       100
                                  Tsunami Crop Care (Pty) Ltd                                 Z       South Africa         1               1       25 941   108 485           82,5      82,5
                                  Tsunami Plant Protection (Pty) Ltd                          Z       South Africa         1               1            –            –        82,5      82,5
                                  Waltmerwe 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

                                  A   –   Insurance broker administration                                             N     –   Processing and marketing of cotton seed oil
                                  B   –   Manufacturing of animal feeds                                               O     –   Broiler farm and abattoir
                                  C   –   Insurance brokerage                                                         P     –   Property holding company
                                  D   –   Rental of cash collection equipment                                         Q     –   Broiler marketing
                                  E   –   Agricultural services                                                       R     –   Procurement and distribution of spare parts
                                  F   –   Retail sales and servicing of mechanised agricultural equipment             S     –   Assembly and distribution of golf carts and spare parts
                                  G   –   Share incentive trust                                                       T     –   Scientific services to farmers
                                  H   –   Agricultural services and financial services, further processing of         U     –   Financial investment company
                                          agricultural products, holding company                                      V     –   Chicken hatchery
                                  I   –   Buyer and primary processor of tobacco                                      W     –   Holding vehicle of treasury shares
                                  J   –   Commodity procurement and marketing                                         X     –   John Deere agency in Australia
                                  K   –   Procurement and distribution of veterinary products                         Y     –   Technical services via satellite photography
                                  L   –   Insurance investment holding company                                        Z     –   Manufacture and marketing of agricultural chemical products
                                  M   –   Processing and marketing of cotton, soya and sunflower products             AA    –   Financial services provider
                                                                                                                      AB    –   Collateral management services




                     AFGRI Limited Annual Report 2010
                                                                                                                            159




Appendix B
Interest in unlisted joint ventures



                                                                                               Year           Year
                                                                                             ended          ended
                                                                                            30 June        30 June
                                                                                               2010           2009
                                                                                 Year-end         %              %

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 information
Non-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 information
Revenue                                                                                      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 information
Cash 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 equivalents
Beginning of the year                                                                        1 949           1 768
Increase                                                                                     1 268             181
Balance end of year                                                                          3 217           1 949




                                                                                                  AFGRI Limited Annual Report 2010
                     160




                                  Appendix C
                                  Interest in unlisted associates


                                                                                                                                                                                 Nature
                                                                                   Number                  Interest in                                                             of
                                                                                   of shares               associates               Shares                      Loans           business
                                                                                                      2010         2009          2010            2009       2010         2009
                                                                                 2010          2009      %            %         R’000           R’000      R’000        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 business
                                  A Cash management
                                  B Administration of silo certificates
                                  C Silo information management
                                  D Contract land preparation and harvesting
                                  E Tobacco processing facilities
                                  Financial year-end of associates
                                  The year-end of all associates is February, except Cropmasters (Zambia) Ltd which has a June year-end.
                                  Country of incorporation
                                  All associates are incorporated and operate in South Africa, except from Cropmasters which is incorporated in Zambia.




                                  Appendix D
Growth the natural outcome




                                  Available-for-sale financial assets




                                                                                    Number                Interest in unlisted
                                                                                    of shares                investments                   Shares                       Loans
                                                                                  2010             2009      2010            2009        2010            2009       2010         2009
                                                                                                                %               %       R’000           R’000      R’000        R’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




                     AFGRI Limited Annual Report 2010
Separate Company
annual 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
                     162




                                  Company balance sheet
                                  at 30 June 2010



                                                                                                             30 June    30 June
                                                                                                                2010       2009
                                                                                                     Note      R’000      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
Growth the natural outcome




                     AFGRI Limited Annual Report 2010
                                                                                                         163




Company statement of comprehensive income
for the year ended 30 June 2010



                                                                        Year               Year
                                                                      ended              ended
                                                                     30 June            30 June
                                                                        2010               2009
                                                              Note     R’000              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)
Profit before income tax                                             153 344            131 246
Income tax expense                                                     3 828             (20 902)
Profit for the year/total comprehensive income for the year          157 172            110 344




                                                                               AFGRI Limited Annual Report 2010
                     164




                                  Company statement of changes in equity
                                  for the year ended 30 June 2010


                                                                                                Share    Retained        Total
                                                                                               capital   earnings      equity
                                                                                                R’000       R’000       R’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




                                  Company cash flow statement
                                  for the year ended 30 June 2010




                                                                                                            Year        Year
                                                                                                          ended       ended
                                                                                                         30 June     30 June
                                                                                                            2010        2009
                                                                                                Note       R’000       R’000

                                  Operating activities
                                  Cash (utilised in)/generated from operations                   10.1    269 670     (108 493)
Growth the natural outcome




                                  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




                     AFGRI Limited Annual Report 2010
                                                                                                                                  165




Notes to the Company annual financial statements
for the year ended 30 June 2010



                                                                                                Year                Year
                                                                                              ended               ended
                                                                                             30 June             30 June
                                                                                                2010                2009
                                                                                               R’000               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 maturity
           HY 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 receivables
           Loans 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




                                                                                                        AFGRI Limited Annual Report 2010
                     166




                                  Notes to the Company annual financial statements                                                        continued
                                  for the year ended 30 June 2010



                                                                                                                                  Year             Year
                                                                                                                                ended            ended
                                                                                                                               30 June          30 June
                                                                                                                                  2010             2009
                                                                                                                                 R’000            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
Growth the natural outcome




                                              Services as directors                                                              3 402           2 602
                                           Executive
                                              Managerial services (includes salary,
                                              performance remuneration and other benefits)                                      17 474           6 408




                     AFGRI Limited Annual Report 2010
                                                                                                                                167




                                                                                             Year                 Year
                                                                                           ended                ended
                                                                                          30 June              30 June
                                                                                             2010                 2009
                                                                                            R’000                R’000

10   NOTES TO THE CASH FLOW STATEMENT
     10.1 Cash generated from operations
          Profit before income tax                                                        153 344              131 246
          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 ventures
     Details of investments in joint ventures and associates are disclosed in Appendix
     B and C.
     Subsidiaries
     Investments in subsidiaries are disclosed in Appendix A and on page 158.




                                                                                                      AFGRI Limited Annual Report 2010
                     168




                                  Notice of annual general meeting


                                  NOTICE is hereby given that the 15th annual general            Ordinary resolution number 7
                                  meeting of shareholders in AFGRI Limited (AFGRI or the         To approve the remuneration payable to non-executive
                                  Company) will be held at AFGRI Limited, First Floor, AFGRI     directors as outlined hereunder:
                                  Building, 267 West Avenue, Centurion on Friday, 15 October     7.1   Normal Board fees
                                  2010 at 10:00 to consider and, if deemed fit, pass with or                                                           Board
                                  without modification, the following resolutions and to                                    Member Chairman          member
                                  transact such other matters as may be transacted at an                                                               Fee
                                  annual general meeting:                                                                                        deducted
                                                                                                                                                    for not
                                  ORDINARY BUSINESS                                                                                              attending
                                  Ordinary resolution number 1                                                              Retainer             a meeting
                                                                                                                               Rand         Rand      Rand
                                  To receive and consider the Group’s annual financial
                                  statements for the year ended 30 June 2010.                          Board chairman
                                                                                                       (retainer only)           N/A     460 000       20 000
                                  Ordinary resolution number 2                                         Board member          155 000          N/A      20 000
                                  To confirm the interim cash dividend of 24,15 cents paid on          Audit and Risk
                                  24 May 2010.                                                         Management
                                                                                                       Committee              80 000     230 000       12 500
                                  Ordinary resolution number 3                                         Remuneration
                                  To confirm the final cash dividend of 17,15 cents to be paid         Committee              62 500       90 000      10 000
                                  on 22 November 2010.                                                 Credit
                                                                                                       Committee              62 500     100 000       10 000
                                  Ordinary resolution number 4                                         Nomination
                                  To appoint one (1) director to the position of the                   Committee              45 000       45 000      10 000
                                  undermentioned director who retires in terms of the
                                  Company’s articles of association, and who, being eligible,    7.2   Recommended ad hoc attendance fees to be paid
                                  offers himself for re-election:                                      in respect of special and unscheduled meetings
                                  4.1 JPR Mbau                                                                                                       Ad hoc/
                                                                                                                                                 unscheduled
                                  His biography can be found on page 13 of this report.                                                           meeting fee
                                                                                                                                                        Rand
                                  Ordinary resolution number 5                                         Board chairman                                   20 000
                                  To appoint three (3) directors to the positions of the               Board member                                     20 000
                                  undermentioned directors who have been appointed by the              Audit and Risk Management
                                  Board from the date of the last annual general meeting:              Committee                                        12 500
                                  5.1 DD Barber                                                        Remuneration Committee                           10 000
Growth the natural outcome




                                  5.2 L de Beer                                                        Credit Committee                                 10 000
                                  5.3 LM Koyana
                                                                                                       Nomination Committee                             10 000
                                                                                                       Ad hoc committees established
                                  The Board recommends the re-election of these directors.
                                                                                                       from time to time                                10 000
                                  Biographies of all these directors can be found on page 13
                                  of this report
                                                                                                 7.3   Recommended payment to members of the BEE

                                  Ordinary resolution number 6                                         sub-committee
                                  Election of Audit Committee members                                  Members of the BEE sub-committee tasked with the
                                  That shareholders elect, by way of a separate vote, the              implementation of the Agri Sizwe transaction did not
                                  following independent non-executive directors as members             as yet receive any fees for services rendered. It is
                                  of the Group Audit and Risk Management Committee:                    recommended that the two members of the BEE
                                  6.1 DD Barber                                                        sub-committee be paid a fee of R30 000 each in
                                  6.2 L de Beer                                                        respect of work performed on the transaction.
                                  6.3 LM Koyana
                                                                                                 Ordinary resolution number 8
                                  Biographies of all these directors can be found on page 13     To authorise the directors to consider and approve the
                                  of this report.                                                appointment of PricewaterhouseCoopers Inc. as the



                     AFGRI Limited Annual Report 2010
                                                                                                                                     169




auditors of the Company (with JL Roos being the individual            terms of this general authority, the maximum
designated auditor) for the 2011 financial year.                      premium at which such ordinary shares may be
                                                                      acquired will be 10% (ten percent) above the
Ordinary resolution number 9                                          weighted average of the market price at which such
Adoption of the AFGRI Executive Share Award Scheme                    ordinary shares are traded on the JSE, as determined
“RESOLVED THAT the deed embodying the AFGRI Executive                 over the 5 (five) trading days immediately preceding
Share Award Scheme, a copy of which has been signed by                the date of the repurchase of such ordinary shares by
the chairman for identification purposes and tabled at the            the Company;
general meeting convened to consider, inter alia this            •    the acquisitions of ordinary shares in the aggregate in
resolution, be and is hereby adopted”                                 any one financial year do not exceed 20% (twenty
                                                                      percent) of the Company’s issued ordinary share
Ordinary resolution number 10                                         capital as at the beginning of the financial year;
Placement of shares under control of directors                   •    upon entering the market to proceed with the
“RESOLVED THAT so many of the total authorised but                    repurchase, the Company’s sponsor has confirmed
unissued share capital of the Company as, when issued,                the adequacy of the Company’s working capital in
will not exceed 10% of the total issued ordinary shares in            terms of section 2.12 of the JSE Listings Requirements
the capital of the Company be and are hereby placed under             for the purposes of undertaking a repurchase of
the control of the directors of the Company, who are                  shares in writing to the JSE;
hereby authorised, as a specific authority, to allot and issue   •    after such repurchase the Company will still comply
such shares in accordance with the terms and conditions               with paragraphs 3.37 to 3.41 of the JSE Listings
of the AFGRI Executive Share Award Scheme and the                     Requirements concerning shareholder spread
existing AFGRI Share Incentive Scheme, which was                      requirements;
previously adopted by the shareholders of the Company.”          •    the Company or its subsidiary is not repurchasing
                                                                      securities during a prohibited period as defined in the
Explanatory note on ordinary resolutions numbered                     JSE Listings Requirements unless they have in place a
9 and 10                                                              repurchase programme where the dates and
These ordinary resolutions relate to the AFGRI Executive              quantities of securities to be traded during the
Share Award Scheme. The salient features of such scheme               relevant period are fixed (not subject to any variation)
are contained in annexure A to this notice.                           and full details of the programme have been
                                                                      disclosed in an announcement over SENS prior to the
GENERAL AUTHORITY TO REPURCHASE SHARES                                commencement of the prohibited period;
Special resolution number 1                                      •    when the Company has cumulatively repurchased 3%
“RESOLVED THAT the Board of Directors of the Company be               of the initial number of the relevant class of
authorised by way of a renewable general authority                    securities, and for each 3% in aggregate of the initial
contemplated in sections 85 to 89 of the Act to facilitate the        number of that class acquired thereafter, an
acquisition by the Company or a subsidiary of the Company             announcement will be made; and
of the issued ordinary shares of the Company, upon such          •    the Company only appoints one agent to effect any
terms and conditions and in such amounts as the directors             repurchase(s) on its behalf.”
may from time to time determine (the repurchase), but
subject to the articles of association of the Company, the       The directors undertake that they will not effect a general
provisions of the Act and the JSE Listings Requirements,         repurchase of shares unless the following can be met:
when applicable, and provided that:                              •    the Company and the Group are in a position to repay
•     the repurchase of securities will be effected through           their debt in the ordinary course of business for the
      the order book operated by the JSE Limited (the JSE)            next 12 months after the date of the general
      trading system and done without any prior                       repurchase;
      understanding or arrangement between the Company           •    the assets of the Company and the Group, being fairly
      and the counterparty (reported trades are prohibited);          valued in accordance with the accounting policies
•     this general authority shall only be valid until the            used in the latest audited consolidated annual
      Company’s next annual general meeting, provided                 financial statements, are in excess of the liabilities of
      that it shall not extend beyond 15 (fifteen) months             the Company and the Group for the next 12 months
      from the date of passing of this special resolution;            after the date of the general repurchase;
•     in determining the price at which the Company’s            •    the ordinary capital and reserves of the Company and
      ordinary shares are acquired by the Company in                  the Group are adequate for ordinary business



                                                                                                           AFGRI Limited Annual Report 2010
                     170




                                  Notice of annual general meeting                                       continued




                                        purposes for the next 12 months after the date of the       contains all information required by law and the JSE Listings
                                        general repurchase; and                                     Requirements.
                                  •     the available working capital of the Company and the
                                        Group is adequate for ordinary business purposes for        MATERIAL CHANGE
                                        the next 12 months after the date of the general            Other than the facts and developments reported on in the
                                        repurchase.                                                 annual report, there have been no material changes in the
                                                                                                    financial or trading position of the Company and its
                                  REASON AND EFFECT                                                 subsidiaries since the date of signature of the audit report
                                  The reason and effect for this special resolution is to grant     and the date of this notice.
                                  the Company and/or its subsidiary a general authority to
                                  acquire its own issued shares, which general authority shall      Shares held by the share trust or scheme will not have their
                                  be valid until the earlier of the next annual general meeting     votes taken account of for the above special resolution
                                  of the Company or its variation or revocation of such             number 1.
                                  general authority by special resolution by any subsequent
                                  general meeting of the Company, provided that it does not         VOTING AND PROXIES
                                  extend beyond 15 (fifteen) months from the date of this           “Shareholders who have not dematerialised their shares or
                                  annual general meeting.                                           who have dematerialised their shares with ‘own name’
                                                                                                    registration are entitled to attend and vote at the meeting
                                  STATEMENT OF THE BOARD’S INTENTION 11.26(c)                       and are entitled to appoint a proxy or proxies to attend,
                                  The directors of the Company have no specific intention to        speak and vote in their stead. The person so appointed
                                  effect the provisions of special resolution number 1 but will,    need not be a shareholder.
                                  however, continually review the Company’s position having
                                  regard to prevailing circumstances and market conditions          Proxy forms must be forwarded to reach the Company’s
                                  in considering whether to effect the provisions of special        transfer secretaries, Computershare Investor Services (Pty)
                                  resolution number 1.                                              Limited, 70 Marshall Street, Johannesburg, 2001, PO Box
                                                                                                    61051, Marshalltown, 2107, so as to reach them by no later
                                  The JSE Listings Requirements require the following               than 10:00 on Wednesday, 13 October 2010. Proxy forms
                                  disclosures, some of which are elsewhere in the annual            must only be completed by those shareholders who have
                                  report of which this notice forms part as set out below:          not dematerialised their shares or who have dematerialised
                                  Directors and management                       Pages 12 to 15     their shares with ‘own name’ registration.”
                                  Major shareholders of the Company                    Page 73
                                  Directors’ interests in securities                   Page 85      On a show of hands, every shareholder of the Company
                                  Share capital of the Company              Pages 138 and 166       present in person or represented by proxy shall have one
                                                                                                    vote only. On a poll, every shareholder of the Company
                                  LITIGATION STATEMENT                                              shall have one vote for every share held in the Company by
                                  In terms of section 11.26 of the Listings Requirements of         such shareholder.
Growth the natural outcome




                                  the JSE, the directors, whose names are given on pages 12
                                  to 15 of the annual report of which this notice forms part,       Shareholders who have dematerialised their shares, other
                                  are not aware of any legal or arbitration proceedings,            than those shareholders who have dematerialised their
                                  including proceedings that are pending or threatened, that        shares with “own name” registration, should contact their
                                  may have or have had in the recent past, being at least the       CSDP or broker in the manner and time stipulated in their
                                  previous 12 months, a material effect on the Group’s              agreement:
                                  financial position.                                               •     to furnish them with their voting instructions, and
                                                                                                    •     in the event that they wish to attend the meeting, to
                                  DIRECTORS’ RESPONSIBILITY STATEMENT                                     obtain the necessary authority to do so.
                                  The directors, whose names are given on pages 12 to 15 of
                                  the integrated annual report, collectively and individually       By order of the Board of the Company
                                  accept full responsibility for the accuracy of the information
                                  pertaining to special resolution 1 and certify that to the best   N van Wyk
                                  of their knowledge and belief there are no facts that have        Group Company Secretary
                                  been omitted which would make any statement false or
                                  misleading, and that all reasonable enquiries to ascertain        Centurion
                                  such facts have been made and that special resolution 1           31 August 2010




                     AFGRI Limited Annual Report 2010
                                                                                                                            171




Annexure A
Salient information of the AFGRI Group Executive Share Award Scheme


1   PURPOSE AND PARTICIPANTS                                                budgeted incentive targets that are
    1.1   Having conducted a review of both the                             approved by the Board. A sliding scale
          short-term and long-term incentive plans for                      of increasing bonuses (based on fixed
          senior employees and management, AFGRI                            maximum percentages of each
          Limited (AFGRI or the Company) intends to                         participant's cost to company), if set
          introduce a new cash and share award scheme                       percentages of incentive targets are
          for its employees known as "the AFGRI Group                       achieved, has been developed;
          Executive Share Award Scheme” (the scheme).
                                                                   2.2.2    the participant will receive a
    1.2   The purpose of the scheme is to increase                          percentage of the amount of the
          employee and shareholder alignment through                        notional pretax bonus, as determined
          employee share ownership, to retain key talent                    by the Board, in cash, after deduction
          and to incentivise participants to achieve                        of any relevant tax;
          challenging performance targets.
                                                                   2.2.3    the balance of the notional pretax
    1.3   Senior employees and management (including                        bonus after deduction of the cash
          executive directors) will be eligible to                          portion will be used to calculate the
                                                                            number of ordinary shares in the share
          participate in the scheme.
                                                                            capital of the Company (shares)
                                                                            subject to an individual award by
    1.4   The scheme will replace the existing AFGRI
                                                                            dividing the balance of the notional
          Incentive Scheme, a share option scheme,
                                                                            pretax bonus of the participant by the
          which will be phased out according to its
                                                                            30-day volume weighted average price
          terms.
                                                                            of a share on the JSE prior to the award
                                                                            date;
2   GRANT OF AWARDS
    2.1   In terms of the scheme, any member of the
                                                                   2.2.4    an award may be made subject to
          AFGRI Group of companies that is the
                                                                            conditions, including performance
          employer of a particular participant (employer
                                                                            conditions, as determined by the Board
          company) may propose to the Board of AFGRI
                                                                            in its sole discretion; and
          (or the Remuneration Committee of the Board)
          (Board), the names of eligible employees in the
                                                                   2.2.5    shares in respect of which an award is
          AFGRI Group of companies (eligible employees)
                                                                            made are required to be released on
          that it believes should become participants in
                                                                            the date specified in an award letter or
          the scheme and the extent to which they                           on such other date as may be specified
          should participate in the scheme. The trustees                    by the trustees (release date).
          for the time being (trustees) of the AFGRI Group
          Executive Share Award Trust (trust), if so         2.3   No consideration is payable for the grant of
          directed by the Board (based on the proposals            an award.
          of the employer company) are required to
          grant awards in accordance with the rules of       2.4   The trustees are entitled for purposes of the
          the scheme to any eligible employee.                     scheme to subscribe for or purchase through
                                                                   the market, such number of shares at such
    2.2   An award to an eligible employee (participant)           price as may be agreed from time to time by
          will be subject to the following terms and               the trustees and the Board, to the extent
          conditions (award):                                      required to satisfy the trust's obligations in
          2.2.1    the participant will receive a notional         terms of the scheme.
                   pretax bonus, calculated as a
                   percentage of such participant's total    2.5   As security for each participant's obligation to
                   cost to company. The bonus is limited           the trust and/or the employer company, each
                   to such amount as may be determined             participant is required to cede its right, title and
                   by the Board from time to time and              interest in and to the shares to the trust and
                   dependent on the achievement of                 the employer company in securitatem debiti.



                                                                                                  AFGRI Limited Annual Report 2010
                     172




                                  Annexure A                 continued
                                  Salient information of the AFGRI Group Executive Share Award Scheme (continued)


                                  3    PERFORMANCE CONDITIONS                                                4.2.3    on the following anniversary date, the
                                       Performance conditions will apply to 50% of the                                performance conditions applying to
                                       shares awarded to each participant. The Board will                             the rolled over restricted shares are
                                       ensure that the performance conditions are                                     again measured. Should the
                                       sufficiently demanding. The performance conditions                             performance conditions be met, the
                                       will be based on the increase in earnings, growth or                           rolled over restricted shares are
                                       share price of the Company. The performance                                    released on such anniversary date; or
                                       conditions will be set upfront when incentive targets
                                       are set. The performance conditions will be tested                    4.2.4    should the performance conditions not
                                       annually.                                                                      be met, the rolled over restricted
                                                                                                                      shares shall irrevocably be forfeited.
                                  4    RELEASE OF SHARES
                                       4.1    Shares subject to an award are released to           5   TERMINATION OF EMPLOYMENT
                                              participants as follows:                                 If a participant ceases to be employed by the AFGRI
                                              4.1.1     50% of the shares subject to an award          Group of companies by reason of:
                                                        are not subject to any performance             5.1   injury, disability, ill health, retirement on or after
                                                        conditions (unrestricted shares) and                 normal retirement age or by reason of
                                                        are released as follows:                             dismissal for operational reasons or
                                                                                                             retrenchment, the trustees shall release to the
                                                        4.1.1.1    25% on the first anniversary
                                                                                                             participant all the unreleased shares;
                                                                   of the award date;

                                                                                                       5.2   his death, the trustees shall release to his
                                                        4.1.1.2    a further 25% on the second
                                                                                                             executor, all the unreleased shares; or
                                                                   anniversary of the award
                                                                   date;
                                                                                                       5.3   his resignation or dismissal, all the unreleased
                                                                                                             shares on date of resignation or dismissal shall
                                                        4.1.1.3    a further 25% on the third
                                                                                                             be forfeited, unless the Board determines
                                                                   anniversary of the award
                                                                                                             otherwise.
                                                                   date; and

                                                                                                   6   TIMING OF AWARDS
                                                        4.1.1.4    the remaining balance of
                                                                                                       It is intended that awards will normally only be
                                                                   unrestricted shares on the
                                                                                                       granted once in each financial year of the Company,
                                                                   fourth anniversary of the
                                                                                                       at the time of the bonus awards, normally following
                                                                   award date.
                                                                                                       the announcement of the Company’s annual results.
Growth the natural outcome




                                       4.2    the remaining 50% of the shares subject to an
                                                                                                   7   SHAREHOLDERS’ RIGHTS
                                              award are subject to performance conditions              Shares awarded to a participant are held in such
                                              determined by the Board on the award date                participant's name in a broker's account and enjoy
                                              (restricted shares) and these are released               the same rights as other shares in issue, ranking pari
                                              subject to the following:                                passu with such shares, including the right to all
                                              4.2.1     a maximum of 25% of the restricted             dividends in respect of the shares. The voting rights in
                                                        shares on each anniversary of the              respect of the shares will however remain vested
                                                        award date, provided the performance           with the trustees until the shares are released. Shares
                                                        conditions applying to such tranche of         upon release to participants in terms of the scheme
                                                        restricted shares are met;                     will rank pari passu in all respects with other shares
                                                                                                       of the same class then in issue.
                                              4.2.2     should the performance condition not
                                                        be met, such tranche of restricted         8   BENEFITS NOT TRANSFERABLE
                                                        shares is not released but remains             Awards granted under the scheme are personal to
                                                        restricted until the following                 the participant and may not be transferred (except to
                                                        anniversary date (rolled over restricted       a family trust or on death), unless the Board
                                                        shares);                                       determines otherwise.



                     AFGRI Limited Annual Report 2010
                                                                                                                                     173




9    NUMBER OF SHARES MADE AVAILABLE UNDER                                  11.1.3 the fixed maximum number of shares
     THE SCHEME                                                                     which may be acquired by one
     Unless the shareholders by ordinary resolution                                 participant;
     (requiring a 75% majority of the votes cast in favour of
     such resolution) agree otherwise:                                      11.1.4 the allocation price for the purchase of
     9.1    The aggregate number of shares that may be                              any shares by the trust and the basis
            acquired by all participants under the scheme,
                                                                                    for determining that allocation price;
            together with any shares which may be
            acquired by such participants under any other
                                                                            11.1.5 the voting, dividend, transfer and other
            incentive schemes or plans operated by the
                                                                                    rights of participants in relation to
            Company (other schemes), shall not exceed
                                                                                    shares released to them;
            37 379 400 shares;


     9.2    The aggregate number of shares which may be                     11.1.6 the rights of participants who leave the
            acquired by any one participant under the                               employment of the AFGRI Group of
            scheme together with shares acquired by such                            companies;
            participant in terms of any other schemes or
            plans operated by the Company, shall not                        11.1.7 the treatment of a participant as a
            exceed 868 970 shares; and                                              result of mergers, takeovers or other
                                                                                    relevant corporate actions; and
     9.3    The number of shares referred to in 9.1 and
            9.2, may be increased or reduced in direct                      11.1.8 any amendment of the clause of the
            proportion to any increase or reduction of the                          trust deed imposing these restrictions.
            shares in the Company's issued share capital
            on any conversion, redemption, consolidation,
                                                                     11.2   In the event of any increase or variation of the
            subdivision and/or rights or capitalisation issue
                                                                            share capital of the Company as a result of any
            of shares.
                                                                            conversion, redemption, consolidation,
                                                                            subdivision and/or rights or capitalisation issue
10   SHARE TRUST
     A share trust will be established to administer the                    of shares, such adjustments may be made to
     scheme (the AFGRI Group Executive Share Award                          the rights of participants as may be determined
     Trust or the trust). Executive directors of the Company                by the auditors of the Company as to be fair
     may not be appointed as trustees. Trustees may not                     and reasonable (such determination to be
     be participants of the scheme. The Board shall be                      confirmed to the Board in writing); provided
     entitled to appoint and remove the trustees. The first                 that any adjustments should give a participant
     trustees are Mr David Barber, Mr Lwazi Koyana and                      the entitlement to the same proportion of the
     Ms Linda de Beer (trustees).                                           equity capital as the proportion to which he/
                                                                            she was previously entitled.
11   GENERAL PROVISIONS RELATING TO THE
     SCHEME                                                     12   EXCHANGE CONTROL
     11.1   The Board and the trustees may not amend
                                                                     Employees who are not residents of the Common
            any of the following provisions of the scheme,
                                                                     Monetary Area, or who are emigrants from the
            without the prior approval of the JSE, provided
                                                                     Common Monetary Area, shall only be entitled to
            that the amendment is also sanctioned by the
                                                                     participate in the scheme to the extent permitted by
            Company in general meeting by an ordinary
                                                                     all applicable exchange control regulations. Without
            resolution (requiring a 75% majority of the
            votes cast), namely:                                     derogating from the aforegoing, employees who are
            11.1.1 the definition of “eligible employee”;            not residents of the Common Monetary Area, or who
                                                                     are emigrants from the Common Monetary Area, shall
            11.1.2 the total number of shares which may              only be entitled to participate in the scheme if their
                    be acquired by all participants for              participation is approved by the Exchange Control
                    purposes of the scheme;                          Department of the South African Reserve Bank.



                                                                                                           AFGRI Limited Annual Report 2010
                     174




                                  Annexure A                continued
                                  Salient information of the AFGRI Group Executive Share Award Scheme (continued)


                                  13   TAKEOVER, RECONSTRUCTION AND WINDING                      14   OPINION AND RECOMMENDATION
                                       UP OF THE COMPANY                                              The Board has considered the scheme and believes
                                       If:                                                            that it is in the best interests of the Company and its
                                       13.1 the Company undergoes a change of control                 shareholders. The Board accordingly recommends
                                            as a result of any person making a general                that shareholders vote in favour of the proposed
                                            offer to acquire shares or having obtained                ordinary resolutions necessary to adopt and
                                            control, makes such an offer; or                          implement the scheme.


                                       13.2   any person becomes bound or entitled to            15   DOCUMENTS AVAILABLE FOR INSPECTION
                                              acquire shares of minorities under section              A copy of the deed constituting the AFGRI Group
                                              440K of the Act, for so long as the Companies           Executive Share Award Trust will be available for
                                              Act, 1973 remains in force or under                     inspection during normal working hours at the
                                              section 124 of the Act, once the Companies              registered office of the Company from 23 September
                                              Act, 2008 comes into force; or                          2010 until the date of the annual general meeting
                                                                                                      referred to in paragraph 16.
                                       13.3   under section 311 of the Act, for so long as the
                                              Companies Act, 1973 remains in force or under      16   GENERAL MEETING
                                              section 114 of the Act, once the Companies              The Board has convened the annual general meeting
                                              Act, 2008 comes into force, the court sanctions         of the Company to be held at AFGRI Limited, First
                                              a compromise or scheme of arrangement of                Floor, AFGRI Building, 267 West Avenue, Centurion on
                                              the Company; or                                         Friday, 15 October 2010 at 10:00 to inter alia consider
                                                                                                      and, if deemed fit, passing with or without
                                       13.4   the Company passes a resolution for its                 modification, the ordinary resolutions necessary to
                                              voluntary winding up; or                                adopt and implement the scheme. Shareholders are
                                                                                                      referred to the notice of annual general meeting on
                                       13.5   an order is made for compulsory winding up of           pages 168 to 170 of this report.
                                              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
Growth the natural outcome




                                              out in 5.




                     AFGRI Limited Annual Report 2010
                                                                                                                                       175




Form of proxy                                                                                    AFGRI Limited
                                                                                                 Registration number 1995/004030/06
                                                                                                 ISIN code ZAE 000040549
                                                                                                 Share code AFR (the Company)




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    Against       Abstain
                                                                                          resolution    resolution   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 share
   3. To confirm the final cash dividend of 17,15 cents per share
   4. 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 Barber
      5.2 L de Beer
      5.3 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 Beer
      6.2 DD Barber
      6.3 LM Koyana
   7. To approve the remuneration payable to non-executive directors:
      7.1 To approve the normal Board fees for non-executive directors
      7.2 To approve fees in respect of ad hoc and unscheduled meetings
      7.3 To approve the suggested payment to members of the BEE sub-
            committee
   8. 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




                                                                                                             AFGRI Limited Annual Report 2010
                     176




                                  Notes to the form of proxy


                                  1    A shareholder entitled to attend and vote at the            3   A minor must be assisted by his/her parent or
                                       annual general meeting is entitled to appoint one or            guardian unless the relevant documents establishing
                                       more proxies to attend, speak and vote in his/her               his/her legal capacity are produced or have been
                                       stead. A proxy need not be a shareholder of the                 registered by the transfer secretaries.
                                       Company.
                                                                                                   4   To be valid the completed proxy forms must be
                                  2    Every shareholder present in person or by proxy and             lodged with the transfer secretaries of the Company
                                       entitled to vote at the annual general meeting of the           at Computershare Investor Services (Pty) Limited,
                                       Company shall, on a show of hands, have one vote                70 Marshall Street, Johannesburg 2001, PO Box 61051,
                                       only, irrespective of the number of shares such                 Marshalltown 2107, so as to reach them by no later
                                       shareholder holds, but in the event of a poll, every            than 10:00 on Wednesday,13 October 2010.
                                       ordinary share in the Company shall have one vote.
                                                                                                   5   Documentary evidence establishing the authority of a
                                  3    Dematerialised shareholders registered in their                 person signing this proxy form in a representative
                                       own names are shareholders who appointed                        capacity must be attached to this proxy form unless
                                       Computershare Custodial Services as their central               previously recorded by the transfer secretaries or
                                       securities depository participant (CSDP) with the               waived by the chairman of the annual general
                                       express instruction that their uncertificated shares            meeting.
                                       are to be registered in the electronic sub-register of
                                       shareholders in their own names.                            6   The completion and lodging of this proxy form shall
                                                                                                       not preclude the relevant shareholder from attending
                                  INSTRUCTIONS ON SIGNING AND LODGING THE                              the annual general meeting and speaking and voting
                                  PROXY FORM                                                           in person thereat to the exclusion of any proxy
                                  1   A shareholder may insert the name of a proxy or the              appointed in terms hereof, should such shareholder
                                      names of two alternative proxies of the shareholder’s            wish to do so.
                                      choice in the space/s provided, with or without
                                      deleting “the chairman of the annual general                 7   The completion of any blank spaces need not be
                                      meeting”, but any such deletion must be initialled by            initialled. Any alterations or corrections to this proxy
                                      the shareholder. Should this space be left blank, the            form must be initialled by the signatory/ies.
                                      chairman of the annual general meeting will exercise
                                      the proxy. The person whose name appears first on            8   The chairman of the annual general meeting may
                                      the proxy form and who is present at the annual                  reject or accept any proxy form which is completed
                                      general meeting will be entitled to act as proxy to the          other than in accordance with these instructions
                                      exclusion of those whose names follow.                           provided that he is satisfied as to the manner in
                                                                                                       which a shareholder wishes to vote.
                                  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
Growth the natural outcome




                                       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 Annual Report 2010
                                                          Administration




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



                                                            Bastion Graphics



                                                                               AFGRI Limited Annual Report 2010
www.afgri.co.za

				
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