ASTRAL A leading Southern African integrated poultry producer

Transcription

1 ASTRAL A leading Southern African integrated poultry producer

2 ASTRAL A leading Southern African integrated poultry producer Annual report 2010 Table of contents Salient features 2 Financial highlights 3 Group structure 4 Synopsis of businesses 5 Group activities 6 Directorate 8 Overview 12 Chairman s review 14 Chief Executive Offi cer s review 18 Corporate governance 22 Audit and Risk Management Committee report 27 Defi nitions 28 Ratios and statistics 29 Sustainability report 30 Annual fi nancial statements 40 Approval of the annual fi nancial statements 41 Certifi cate by company secretary 41 Statement of directors responsibility 42 Independent auditors report 43 Directors report 44 Directors remuneration report 48 Segment report Group 51 Accounting policies 52 Statement of fi nancial position 64 Statement of comprehensive income 65 Statement of changes in equity 66 Statement of cash fl ows 67 Notes to the statement of cash fl ows 68 Notes to the annual fi nancial statements 69 Analysis of ordinary shareholders 89 Notice of annual general meeting 90 Shareholders diary 94 Administration ibc Form of proxy attached

3 Astral Foods Limited is a leading South African integrated poultry producer Astral Annual Report

4 Salient features Profile Astral is a leading South African integrated poultry producer. Key activities consist of animal feed pre-mixes, manufacturing of animal feeds, broiler genetics, production and sale of day-old chicks and hatching eggs, integrated breeder and broiler production operations, abattoirs and sales and distribution of various key poultry brands. Strategic focus To be a focused integrated poultry operator; and To be a low cost producer of poultry meat. Financial features for 2010 Revenue down 5% Operating profit up 1% Headline earnings per share up 8% Total dividend for the year at 760 cents per share up 9% 2 Astral Annual Report 2010

5 Financial highlights Revenue (Rm) Operating profit (Rm) Headline earnings per share (cents) Dividends per share (cents) Cash generated from operating activities (Rm) Total assets (Rm) The year ended with a gratifying 8% increase in headline earnings, despite the extremely competitive pricing and depressed consumer spending Astral Annual Report

6 Group structure ASTRAL A leading Southern African integrated poultry producer 100% National Chicks Limited 100% Astral Operations Limited NuTec SA (Pty) Limited 50% 67% National Chicks Swaziland (Pty) Limited Earlybird Africa Feeds Limited (Zambia) 100% County Fair Progressive Poultry Limited (Zambia) 100% National Chicks Meaders Feeds Limited (Mauritius) 33% Elite Breeding Farms Meadow Feeds Central Analytical Laboratories Feeds Operations 100% Meadow Feeds (Eastern Cape) (Pty) Limited Poultry Operations Investment Holding Baking Operations Ross Poultry Breeders (Pty) Limited 90% Meadow Moçambique Limitada 80% East Balt SA Partnership 50% 4 Astral Annual Report 2010

7 Synopsis of businesses Earlybird Farm As a fully integrated broiler production, processing, distribution and sales and marketing operation, Earlybird Farms processes 2,6 million broilers per week. Earlybird brands include Festive, Goldi and Supa Star. County Fair County Fair s integrated operations comprise breeding farms, hatcheries, broiler grow-out farms, farms services, fresh processing and rendering facilities. County Fair processes 1,3 million broilers per week. National Chicks National Chicks conducts business as a international supplier of day-old chick and hatching eggs to the Astral Group and nonintegrated independent operations in South Africa, Swaziland, Botswana and Mozambique. At every step in the supply chain, whether from chicken to egg or from egg to chicken, National Chicks plays a key role. Ross Ross Poultry Breeders is the sole distributor and supplier of the Ross 308 parent stock to the South African broiler industry. In close association with Aviagen Limited, the global leader in poultry genetics based in Scotland, Ross Poultry Breeders continually develops and implements progressive bio-security and production processes to ensure the delivery of disease free generic material to the South African poultry industry. Meadow Meadow acknowledges and supports consumers increased awareness and demand for ethical practices leading to safer food and product quality guarantees. This is increasingly relevant to modern agriculture, with commercial and emerging farmers demanding the very best in animal feed. The application of world-class technology, the high-test standards in feed safety and production methods, ensures that Meadow delivers what farmers require most good value, safe feed and superior yields! NuTec NuTec s range of high quality standard vitamin/mineral pre-mixes, enables the agricultural industry to optimise livestock nutrition. Key to NuTec s operations is providing a comprehensive feed solution involving feed formulations and modern husbandry practices. Central Analytical Laboratories Central Analytical Laboratories offers a dedicated and diverse range of analyses to the Animal Feed industry. CAL s qualifi ed and experienced team of analysts employs the latest instruments and methods to provide the best possible service to our client base which is wider than just the Astral Group. Astral Annual Report

8 Group activities Poultry Integrated broiler operations We have three fully integrated broiler production, processing, distribution, sales and marketing operations. The combined production capacity of million processed broilers per week, made up as follows: Earlybird Standerton Earlybird Olifantsfontein County Fair million million million Both Earlybird Olifantsfontein and County Fair market and distribute a full range of fresh and frozen poultry products whereas Earlybird Standerton s primary products are in the form of individually quick frozen products. County Fair and Earlybird market and distribute a full range of value-added products comprising frozen reformed fi lled products, ready to eat chicken products and a dedicated range of emulsifi ed products. Day-old broiler and hatching egg supplier The National Chicks operation conducts business as a day-old chick and hatching egg supplier to our integrated broiler operations and the independent non-integrated broiler producers in South Africa, Swaziland, Botswana and Mozambique. National Chicks supplies small hatcheries in Africa with fertile eggs and has a technical team servicing its customer base. Broiler genetics Ross Poultry Breeders (Pty) Limited is the sole distributor and supplier of Ross 308 parent stock to the South African broiler industry. The company has a technology agreement with Aviagen Limited, a multi-national company that holds the world-wide proprietary rights to the Ross brand. The company has entered into an agreement with Aviagen Limited for the exclusive rights to the International Ross 308 broiler/breeder that is world-renowned for its superior broiler and breeder performance. The performance of the breed will be evident from 2010 onwards. Aviagen Limited has a 10% shareholding in the company. Elite Breeding Farms supply parent stock to National Chicks and County Fair. 6 Astral Annual Report 2010

9 Feed Feed Division Eleven strategically placed feed mills in Southern Africa are well-equipped to produce and distribute a wide range of specialised products for all commercially farmed animal species. The South African operations consist of mills located in Randfontein, Delmas, Welkom, Paarl, Port Elizabeth, Pietermaritzburg, Ladismith and a speciality mill which was relocated from Richmond to Pietermaritzburg during the year. The African operations consist of a feed mill in Lusaka (Zambia) and an 80% shareholding in a mill in Maputo (Mozambique). Our 33% shareholding in the feed mill in Port Louis (Mauritius) was disposed of subsequent to year-end. Services and Ventures Animal feed pre-mix NuTec Southern Africa (Pty) Limited, a 50% joint venture with Provimi Holding BV based in Holland, manufactures and markets vitamin and mineral pre-mixes for animal feed as well as a wide range of feed additives, commodity and speciality raw materials. Analytical Laboratories Central Analytical Laboratories analyses animal feed and water samples for the agricultural sector. Bakery East Balt South Africa, a 50% joint venture, bakes hamburger buns, English muffi ns, Kaiser rolls and other sandwich carriers, primarily for selling to fast food outlets in South Africa. A second state-ofthe-art bakery was commissioned in the Western Cape during the year. Astral Annual Report

10 Directorate Astral Annual Report 2010

11 Independent non-executive directors 1. Jurie Johannes Geldenhuys (67) 2. Thabang Charlotte Christine Mampane (52) 3. Malcolm Macdonald (68) 4. Nombasa Tsengwa (45) 5. Theunis Eloff (55) Executive directors 7. Christiaan Ernst Schutte (50) 8. Daniel Dirk Ferreira (54) 9. Theo Delport (50) 10. Obed Mooki Lukhele (35) 6. Izak Stephanus Fourie (63) Astral Annual Report

12 Directorate (continued) Independent non-executive directors 1. Jurie Johannes Geldenhuys (67) Independent non-executive director BSc (Eng Elec), BSc (Eng Mining), MBA Director of companies Appointed to the board on 24 May 2001 Chairman of the board, chairman of the Human Resources and Remuneration Committee, chairman of the Nominations Committee and member of the Audit and Risk Management Committee until 1 October Previously served on the boards of Anglovaal Limited, Avmin Limited and its various gold mines, and Iscor Limited (now ArcelorMittal South Africa). Served as the Chamber of Mines president ( ) and on its Executive Council, Gold Producers Committee and various chamber-related board committees. Previously served on the Council of the Atomic Energy Corporation and on the National Water Advisory Council. Retired as managing director of Avgold Limited during Currently a director of the listed Exxaro Resources Limited (chairman of the safety and sustainable development committee and member of the transformation, remuneration, human resources and nomination committee). 2. Thabang Charlotte Christine Mampane (52) Independent non-executive director BA (Hons) (Public Administration), Masters in Management Group Executive in the Group s CEO s office and Regions: South African Broadcasting Corporation Appointed to the board on 14 November 2003 Member of the Human Resources and Remuneration Committee and member of the Nominations Committee. Started career at the SABC in 1983 as a junior announcer on Radio Seswana and remained in this position until promoted into the role of senior announcer in Promoted to Manager: Drama, Culture and Language in Joined Telkom as Manager of the Audio Visual Section in 1995 but returned to the SABC in 1996 as General Manager of the portfolio of eight radio stations, thereafter appointed as Chief Executive, Radio division for three years. Head of Regions from 2002 to 2005 before being appointed to her current position as Group Executive in the Group s CEO s offi ce and Regions. Non-executive director of National Film and Video Foundation. 3. Malcolm Macdonald (68) Independent non-executive director BCom, CA(SA) Director of Companies Appointed to the board on 14 November 2003 Chairman of the Audit and Risk Management Committee Served as fi nancial director of Iscor Limited (now ArcelorMittal South Africa) and its international steel marketing company until retirement in Previously general manager of the Industrial Development Corporation and non-executive director of many of its associated companies in a variety of industries (engineering, agriculture, chemicals, shipping, fi nancial services, minerals extraction and processing). Currently serves on the boards and as chairman of the audit committees of the listed GijimaAST Group, ArcelorMittal South Africa and unlisted Coris Capital. 4. Nombasa Tsengwa (45) Independent non-executive director BSc, MSc, PhD (Biotechnology). Executive General Manager: Safety and Sustainable Development, Exxaro Resources Limited Appointed to the board on 8 May 2007 Member of the Nominations Committee and the Human Resources and Remuneration Committee. Started career as Research Assistant, University of Transkei. Previous positions include Lecturer: Department of Genetics, University of Pretoria and Senior Co-ordinator: Agriculture and Agro-processing Sector within the National Research and Technology Foresight Project. Appointed as Corporate Manager: Biotechnology and Innovation Futures at the Council of Scientifi c and Industrial Research in 1999 before being appointed as Deputy-Director General: Environmental Management at the National Department of Environmental Affairs and Tourism in Theunis Eloff (55) Independent non-executive director BJur (Econ), ThB, ThM, ThD. Vice-Chancellor of North-West University Appointed to the board on 8 May 2007 Member of the Audit and Risk Management Committee from 1 October 2010 Ordained as minister of religion of a congregation at the University of Pretoria. Completed Doctorate in Theology with a dissertation on Government, Justice and Race Classifi cation. Left the ministry in 1989 and joined the Consultative Business Movement and was appointed as Executive Director in In 1995 appointed as Chief Executive of the National Business Initiative. Served on the Economic Advisory Council of the Northwest Province, the Board of Business Against Crime and the Board of the Centre for Confl ict Resolution. In 2002 became Vice-Chancellor of the Potchefstroom University for Christian Higher Education. In 2004 became Vice-Chancellor of the newly merged North-West University. Past chairman of Higher Education South Africa (HESA) and since July 2009, chairman of the Association of Commonwealth Universities. Vice-President of the Afrikaanse Handelsinstituut. 10 Astral Annual Report 2010

13 6. Izak Stephanus Fourie (63) Independent non-executive director BCom, CA(SA) Director of Companies Appointed to the board on 1 July 2010 Member of the Audit and Risk Management Committee and Human Resources and Remuneration Committee from 1 October 2010 Retired as COO of PricewaterhouseCoopers in Served on the PricewaterhouseCoopers Global Board and before that on the Coopers & Lybrand International Board. Also served on the Coopers & Lybrand International Audit and Accounting Standards Committee. Previously served as the chairman of Business Skills for South Africa, a PricewaterhouseCoopers initiative with the National African Federated Chamber of Commerce and Industry to train emerging business people. Executive directors 7. Christiaan Ernst Schutte (50) Chief executive officer Management Business Administration and Finance Dip. Chief Executive Officer with effect from 1 May 2009 Appointed to the board on 18 August 2005 Joined Golden Lay Farms, a division of Tiger Brands, the leading egg producing organisation in Southern Africa, in October 1984 as assistant farm manager. Spent 18 years with the group in various positions including as sales director from 1996 to Joined Astral Foods in May 2002 as manager of retail sales for Meadow Feeds before being appointed as sales and marketing director in August Theo Delport (50) Dip. Sales Management Managing Director: Poultry Division Appointed to the board on 23 March 2009 Started his career in 1984 as sales representative with Todays Frozen Foods and joined Spekenham in 1988 as sales manager marketing. He joined County Fair in 1992 as national sales manager (retail) and was appointed managing director in He resigned from County Fair in 2007 to become a partner in a private business venture but returned to Astral Foods in May 2008 as sales and marketing executive of the Poultry Division. He was appointed as managing director of the Poultry Division in March Obed Mooki Lukhele (35) BVMCh, BSc (Hons) Entomology Group Veterinary Director Appointed to the board on 1 May 2009 Started career at Virbac Animal Health in 2000 as a Poultry Technical Manager until mid Thereafter he held an Export Managerial position at Pfi zer Animal Health for four years responsible for various sub-saharan African countries. Joined Astral Operations Limited in May 2007 as the group technical manager for veterinary services. He co-authored three scientifi c papers in the fi eld of entomology, veterinary anatomy and bovine infectious diseases. He was appointed as Group Veterinary Director on 1 May Appointed as managing director for the Animal Feeds Division in July 2004 responsible for Meadow Feeds Southern Africa, National Veterinary Services, Central Analytical Laboratories and East Balt. He was appointed as Chief Executive Offi cer on 1 May Daniel Dirk Ferreira (54) BCom, B Compt (Hons), CA(SA) Financial Director Appointed to the board on 1 May 2009 Employed by ICS Group Limited before the acquisition of ICS by Tiger Brands, where he held positions in operational fi nancial management, tax management, project management and as group fi nancial manager. He joined Genfood as group fi nancial manager for two years before joining Astral Foods in February 2001 as group fi nancial manager. He was appointed as Financial Director on 1 May Astral Annual Report

14 Overview Astral Foods is an integrated poultry operator and we focus to be a low cost producer of poultry meat 12 Astral Annual Report 2010

15 Corporate office services Gary Arnold Director Business Development Astral Operations Maryna Eloff Group Company Secretary Len Hansen Human Resources Director Astral Operations Evert Potgieter Audit and Risk Executive Anil Rambally Executive Manager: Sustainability and Preferential Purchasing Astral Operations Astral Annual Report

16 Chairman s review Sound management, particularly, skilful in-touch marketing, has played a decisive role in successfully weathering the unfavourable and uncertain economic conditions Jurie Geldenhuys Chairman 2010 retrospective In my review last year, following a satisfactory 6% increase on the 2008 headline earnings, I stressed the extreme uncertainty in the business environment in which we operated. All we could build our expectations on was our favourable position with respect to feed input costs and chicken as the preferred and affordable source of protein. The Chief Executive Offi cer, Chris Schutte, also derived considerable comfort from the quality of our senior management and the application of best management practices. We ended the 2010 year with a gratifying 8% increase in headline earnings. This was despite extremely competitive pricing and disappointing results from the Africa Operations in the feed division, and distinctly depressed consumer spending, higher levels once again of imports and the impact of the unfortunate political service-provision-related unrest and industrial action in the Standerton area, in the poultry division. I am convinced that good on-farm production performance, the exceptionally good health status of poultry in South Africa, sound management, and in particular skilful in-touch marketing under adverse conditions, played a decisive role in successfully weathering the unfavourable and uncertain economic conditions. Strategic review During March this year the board spent two days intensively grappling with Astral s medium- and longer-term future, to guide our thinking in an uncertain political and economic environment, in the best interests of the company and its shareholders. During this review invaluable inputs were given by seasoned experts, and meaningful board interaction took place on matters relating to, inter alia: international meat protein supply, demand and production patterns; world grain and protein production and outlook; the political and social landscape of South Africa; and the spending/buying power of our population seen within our demographic context. The outcome was a coherent focus on medium-term operational actions and longer-term strategic investment planning. These deliberations put non-executive and executive directors alike on the same wave-length and will greatly facilitate and expedite high level decision-making in the company. 14 Astral Annual Report 2010

17 Milestones An 8% profi tability improvement in the Feed division and completion of second phase capital project at Tiger Chicks in Zambia The new East Balt industrial bakery joint venture in the Western Cape commissioned Achievements Total dividend for the year up 9% On-farm effi ciencies give rise to an 11,5% sales volume increase Poultry health status improvement in broiler operations encouraged optimisation of genetic integrated production Focus Future uncertain economic environment requires continuing focus on our current effi ciencies drive Coherent focus on medium-term operational actions and longer-term strategic investment planning Sustainability Sustainability for Astral in its broadest sense, entails on the one hand, the management of all external inputs and infl uences, and on the other hand, the impact of the company on its various stakeholders. This entails, fi rstly, a wise balance by the board and the executive regarding risk aversion and risk appetite and the related rewards and/or punishment! Secondly, this requires sound management of all stakeholder-related processes and impacts. The latter relates, amongst others, in particular to the well-being of our employees and the communities and the physical environment in which we operate. Sustainability is an integral component of our management philosophy as detailed in this annual report. The report refl ects some of the outcomes of this approach. The most relevant outstanding, safety, health, environmental and other responsibility issues have been formally addressed in the past two years. We have recently engaged outside assistance to conduct a carbon footprint assessment of the business units and subsidiaries, to establish our carbon emissions baseline, to identify opportunities to reduce emissions and generally assist in formalising our emission management. Corporate governance We remain fully committed to the principles of transparency, integrity and accountability. The primary responsibility for good corporate governance rests with the full board and its chairman. It is gratifying to report that this approach pervades the board s deliberations and decision-making processes. Compliance with King III requirements places considerable demands on companies with small boards, especially in respect of independent non-executive responsibilities. During most of the fi nancial year for instance, because of the composition and skills mix of the board, I also served as a member of the Audit and Risk Management Committee. This matter was rectifi ed towards the end of the year when Mr Stefan Fourie, a Chartered Accountant, agreed to join our board and serve on the Audit and Risk Management Committee. Mr Fourie is a past COO of PWC Southern Africa and eminently satisfi ed the three main criteria set by the Nominations Committee, namely competence, personality and availability. I still attend Audit and Risk Management Committee meetings by invitation. In our opinion all critical King III requirements are met in the corporate governance framework of the company. Certain environmental issues are still being addressed. We continue to co-operate fully with the Competition Commission in its investigations and do not anticipate any unfavourable developments prospects Our South African economy cannot escape the global impact of the rather unhappy and uncertain economies of the USA and Europe. It is true that, as a substantial resource producer, our economic destiny is substantially and favourably infl uenced by the good fortunes of the Indian and Chinese economies. However, the latter countries GDP together, constitute about half of that of the USA, and are indeed interdependent on the USA and European economies. We would therefore have to live with at least another year of serious global uncertainty. In South Africa foreign and local fi xed direct investment will be negatively affected by sentiments relating to political uncertainty on unresolved issues such as nationalisation in the mining industry, media freedom, land redistribution and the mooted centralisation of power. This will ultimately impact on consumer confi dence and spending power. Continuing job losses ( during the most recent three quarters) with unemployment formally estimated in excess of 25% will take its toll again in the form of reduced consumer Astral Annual Report

18 Chairman s review (continued) confi dence and spending power. However, decreased interest rates, some generous wage increases during this year and lower infl ation may be offsetting factors. Regrettably the stronger Rand, and the related higher imports of poultry products is likely to further aggravate an already tough oversupply situation and thus keep margins under pressure. More specifi cally regarding market trends in the feeds industry, the graph below is a useful aid to understand the dynamics of one of the main drivers of food prices. The drought in Russia led to a ban on exports of wheat from the Black Sea region, which resulted in an 80% rise in international wheat prices between June and August of This was further exacerbated by a strong El Ni ~ no phenomenon which led to adverse conditions in Astral is in a position to face another tough and uncertain year with considerable confi dence inspired by its success during the past as a focused low cost broiler producer U.S. maize price and SA yellow maize price ($) U.S. maize price SA yellow maize price the USA and a sharp drop in the estimated yield of the current US maize crop. Consequently the international maize price also rose sharply by 80% from early July to October The result is that world food price infl ation is again lagging world commodity prices. The question is for how long commodity prices will outpace food infl ation and the answer lies in world economic growth prospects. World economic growth has recovered from the deep recession in the USA and Europe in Despite the risks posed by unemployment and high debt levels, the world economy should grow at around over 4% in 2011, driven mainly by China and India. In all likelihood food infl ation will catch up with commodity prices which should lead to higher food prices in the year ahead. Raw materials are Astral s major input cost and it should be remembered that yellow maize, soybeans and soybean meal are Dollar-based commodities. It is clear from the graph above that the local price of yellow maize has substantially lagged the international price of maize since October 2007 partially as a result of a strong Rand and also because of the bumper local maize crop last year which forced local prices down to export parity levels. It is however conceivable that this relative weakness in the local maize price is unsustainable. In short, this could be indicating the turning point in the very favourable feed input cost environment from which we have benefi ted during the last year. 16 Astral Annual Report 2010

19 Poultry imports volume (tons) Turning to the poultry side of our business, similar conditions to last year are likely to prevail. Local broiler production for 2010 grew by an estimated 4% compared to Total imports grew by an equivalent 13% over the same period. Despite strong market growth an increase in per capita consumption was driven largely by lower selling prices. A downturn in market conditions linked to higher industry stock levels for most of the year resulted in an extremely competitive sales environment. Gains achieved through production and cost effi ciencies were largely passed on to consumers who reacted positively to reduced selling prices compared to the previous year will in all likelihood see more of the same making it truly a year of survival of the fi ttest. Astral is however soundly placed regarding farm and abattoir effi ciencies, best management practices generally and a wellmotivated management team. Its route to the market is via a powerful base of independent and formal wholesale and retail consumers, who are serviced directly and via a longstanding distribution agent. In summary, Astral is in a position to face another tough and uncertain year with considerable confi dence inspired by its success during the past as a focused low cost broiler producer. Appreciation On behalf of the board I wish to convey a heartfelt vote of gratitude to Chris Schutte and his colleagues for a magnifi cent team effort in an extremely diffi cult year. We have every reason to believe in their competence in dealing with what is likely to be an equally challenging year ahead. I am greatly indebted to my board colleagues, executive and non-executive alike, for their dedicated enthusiastic and ever-professional contributions to the good governance of Astral. JURIE GELDENHUYS Chairman 11 November 2010 Premier Helen Zille offi ciated at the grand opening of the state-of-the-art East Balt Western Cape bakery Astral Annual Report

20 Chief Executive Officer s review Our strategy and focus remains to optimise our integrated production capabilities and reinforce a methodical approach to farming practices and production effi ciencies Chris Schutte Chief Executive Offi cer Introduction I present the year under review in this, Astral s tenth integrated annual report, which refl ects on the group s operational achievements in one of the worst economic trading periods in our existence as a fully integrated poultry producer. The global fi nancial crisis received a kickstart with the sub-prime phenomenon in the USA, then continued through 2010, a year earmarked by speculation on the various graphical shapes of a possible future recovery. In South Africa, the eternal optimists had high hopes that the 2010 FIFA World Cup TM event alone would save, protect and bolster our economy from the grim global outlook. It did not happen. From a poultry producing perspective, we realistically planned for a NON-event, which proved to be closer to reality. The key elements that contributed to the tough market conditions were spearheaded by unemployment and continued job shedding to the tune of a further 1,2 million reported retrenchments. The market contraction, together with increased levels of poultry imports and an over-supply of local poultry meat, brought about by earlier unrealistic growth expectations by players in the industry, exerted extreme pressure on pricing levels, which culminated in four-year low prices. Our strategy and focus, as stated in my previous review, to optimise our integrated production capabilities and reinforce a methodical approach to farming practices and production effi ciencies, has clearly differentiated us as a low cost producer. Our results for the period under review are evidence of excellent poultry production effi ciencies, cost control and working capital management. Strategic alliances are at the forefront of the success of our business and we value and enjoy exceptionally strong relationships with many international and local companies who collaborate, add value and contribute to all key aspects of our integrated operations and to the success of our group. The key international alliances that we actively reinforce and promote include the following: Aviagen Group, the global market leader in poultry genetics; Provimi, a world leader in animal nutrition with 87 factories in 30 countries; Nutron Foods, a subsidiary of the Dutch group Provimi, who have been recognized by Magazine Globo Rural for three consecutive years (2007, 2008 and 2009) as the best animal nutrition company in Brazil; Cargill, an international producer and marketer of food, agricultural, fi nancial and industrial products and services; and Seaboard Corporation, a unique company with its roots in grain and agriculturally derived products. 18 Astral Annual Report 2010

21 Milestones Group operating profi t increased to R585 million, an improvement to 7% in operating margin A signifi cant 32% improvement in cash generated from operating activities Achievements Application of best management practices, skilful in-touch marketing, excellent production effi ciencies and gains result in positive consumer reaction to reduced selling prices Focus Focus on sustainable wise risk aversion, risk appetite and working capital management and related rewards of our results Focus on on-farm production effi ciencies and best practices across all integrated operations We are in continuous contact with all these role players and obtain advice and guidance in a variety of areas which are benefi cial to our group, such as poultry genetics, animal nutrition as well as the production and marketing of feed. Local alliances include CJA Strategic Risk Brokers, who provide our group with modelling and scenario planning on the procurement of key raw materials for use in feed production. Financial results Results for the year showed an 8% improvement in headline earnings. After reporting satisfactory results for the fi rst half of the fi nancial period, the growth on the comparative prior period did not continue to the same extent, mainly as a result of continued depressed poultry selling prices and the reduced contribution from lower feed input costs, when compared to the fi rst half of the 2010 fi nancial year. Revenue for the group decreased by 5,3% to R8,4 billion (2009: R8,8 billion) on the back of lower poultry selling prices coupled with lower feed prices. However, operating profi t increased by 1,0% to R585 million (2009: R581 million) and the operating margin of 7,0% showed an improvement from the prior period (2009: 6,6%). Despite challenging trading conditions, tainted by an oversupply of chicken products and the lower selling prices necessary to maintain manageable stock levels, our focus on working capital management resulted in a marked improvement in both cash fl ow and net debt. Cash generated from operating activities could be regarded as a signifi cant achievement, with a 32% improvement to R769 million (2009: R584 million), with net borrowings reducing by R58 million to R129 million. The debt to equity ratio reduced to a more than satisfactory level of 9% (2009: 14%). The Poultry division s operating profi t was down 7% to R262 million (2009: R282 million) as the business was not able to fully capitalise on lower feed input costs, due to poultry realisations in the second half of the period reducing more than the benefi ts derived from the lower input cost. Production effi ciencies and improvements did however play a major role towards the satisfactory performance of the division as a whole. The Feed division improved its profi tability by 8% to R281 million (2009: R261 million) on the back of both volume and margin increases. The African feed operations were however negatively impacted by currency depreciations in both Zambia and Mozambique. The board has decided on an exit strategy from our minority (33%) investment in Meaders Feeds Limited, a feed producer in Mauritius. The assets and liabilities previously consolidated are now disclosed as held for sale. The value of these assets were impaired by R7,2 million in order to refl ect the market value of a non-controlling interest in the equity of the company. Expansion capital expenditure for the year totalled R149 million (2009: R77 million) with the major single expenditure items being: further expenditure on the greenfi eld poultry operation in Zambia R11 million; and completion of the East Balt bakery in Cape Town R92 million. Replacement capital expenditure of R77 million was in line with the previous year s level. Net asset turn of 4,3 times is lower than the prior year (2009: 4,8 times). The return on net assets of 30,1% remains at a similar level to the prior year. Return on equity of 25,8% was marginally down on the prior year (2009: 26,0%). Astral Annual Report

22 Chief Executive Officer s review (continued) Review of operations Our segmental reporting structure now comprises three distinct divisions, namely Poultry, Feed, and Services and Joint Ventures. Although it was a tough trading period, all divisions achieved satisfactory results. Important factors having an impact on the group s activities during the reporting period can be summarised as follows: the strong performance of the currency versus the US Dollar, supporting higher levels of poultry imports; an overall poultry health status improvement throughout South Africa; oversupply of chicken due to prior expansion activities and better production results; in order to balance stock levels, poultry price discounting in a depressed consumer market that was impacted by higher unemployment levels and continued job shedding; violent and extended industrial action that lasted six months at our largest processing operation in Standerton; and signifi cant increases in electricity charges. However, despite this tough trading environment, all divisions achieved satisfactory results. Poultry The Poultry division comprises separate activities and operations, namely: 1. Broiler operations. 2. Day-old chicks and hatching eggs. 3. Breeder and broiler genetics. Broiler Operations The integrated broiler operations are represented by three similarly sized production and processing facilities, with Earlybird located in Gauteng and Mpumalanga and County Fair in the Western Cape. The overall average health status of the poultry industry was encouraging and created a platform for the optimisation of the genetic potential of chicken production across all integrated activities. As a primary focus area, on-farm production effi ciencies and best practices were identifi ed by management for the period under review and signifi cant progress and improved results were achieved across all three operations with sales volumes up 11,5%, comprising 8,1% effi ciency improvement, 2,6% stock movement and 0,8% placements and yield. The incorporation of the new Ross 308 International genetic line was approximately 70% accomplished at close of the reporting period, with positive indicators regarding hatchability and feed conversion rates. The integration process will be fully implemented towards the end of April The additional weight gains through effi ciencies resulted in a major contribution towards countering lower market realisations. Focus and disciplines to further improve effi ciency optimisation and embed our low cost culture continues. On the negative side, we experienced a lengthy and violent illegal industrial strike action at the Earlybird Standerton operation, at a level never previously experienced in the poultry industry. It lasted The incorporation of the new Ross 308 International genetic line has been implemented with positive indicators regards hatchability and feed conversion rates six months with additional costs of R27 million being incurred in order to protect our people and assets and to maintain uninterrupted production with a temporary labour force. Management and non-striking staff went beyond the call of duty to maintain production and avoid a catastrophe and are complimented for their efforts. Day-old Chicks and Hatching Eggs National Chicks, the group s commercial hatching egg and day-old chick producer, focuses on external broiler production markets and supplies these products to a wide spectrum of poultry operations in Southern Africa. National Chicks also produces and supplies products to our own broiler operations in order to better utilise and enhance capacity utilisation across the group. National Chicks delivered satisfactory results, despite a decline in sales volumes to external markets on the back of depressed market conditions. The improvement in production effi ciencies within the group also resulted in lower intra-group demand for hatching eggs. Breeder and Broiler Genetics Our poultry genetic operation, Ross Poultry Breeders (Pty) Limited, operates in association with Aviagen Limited, a global leader in genetic development and improvement of key production characteristics of commercially farmed chickens. With the introduction of the new Ross 308 genetics that commenced in May 2008, Ross Poultry has relinquished its status as a great grandparent operator in South Africa, in line with Aviagen s global strategy to retain primary genetic lines in-house. It is estimated that the change-over and incorporation of the new genetics, together with the phasing out of great grandparent stock, will be completed by April Feed The division comprises seven local feed mills in South Africa and operations in Mozambique and Zambia. The greenfi eld broiler, breeder and hatchery operations in Zambia are also incorporated into this division. Meadow Feeds, the primary brand in the Feed division, produces and supplies approximately 50% of its total volumes to our downstream poultry operations. Volumes for the reporting period increased by 1% to approximately 1,3 million tons. External sales volumes to the dairy, swine and poultry industry were slightly down on the previous year, with internal volumes up by 3% on the back of higher placements due to improved production performance. 20 Astral Annual Report 2010

23 Despite diffi cult market conditions, the Feed division performed well, with operating profi t up by 8% to R281 million (2009: R260 million). The division increased its operating margin to 6,8% (2009: 5,8%) as a result of tight cost controls and slightly higher volumes. During the review period, a small speciality mill in Richmond KZN was decommissioned and incorporated into the mill in Pietermaritzburg. The two African mills in Mozambique and Zambia experienced tough trading conditions, with high raw material input costs adversely affected by the weakening of the respective local currencies. The Zambian operation did however show signs of the improved trading conditions towards the end of the review period. The second phase of the capital project at Tiger Chicks in Zambia was completed and the projected results of the Lohmann meat breed is satisfactory and currently, all day-old chicks produced are being sold into the Zambian market. Further expansion will be in line with market requirements and regional growth considerations. The South African feed market is regarded as a mature environment, with growth prospects limited to poultry expansion. The Feed division is well-positioned to take advantage of future poultry expansion in Southern Africa. Planning towards the commissioning of a state-of-the-art feed mill in the Standerton area will commence during 2011, as the contractual obligation to source feed from a competitor will terminate early in Production of consistently high quality feed, backed by substantive quality controls and monitoring systems, remains a core focus area of the division, reinforcing its strong market position. Meadow, regarded as the market leader in animal nutrition, is certifi ed with regard to ISO 22000/05, ISO 9001/08, Good Manufacturing Practice and Hazard Analysis and Critical Control Points at all of its major feed mills. This, together with the internationally accredited 20 Keys quality management discipline, provides us with a complete traceability process, in line with the European Union Feed Safety Standards. The division s relationship with Provimi Holding BV, a global player in animal nutrition, provides us with the ability to interact and benchmark against the world s largest poultry players. Services and Joint Ventures This division, the third in our reporting structure, was established to better report on operations that do not fi t with either the poultry or feed operations. The operating profi t for this division was R42 million, up 9% on 2009 mainly as a result of improved performance by East Balt SA. CAL, the group s in-house analytical laboratory, was repositioned to focus on feed and water analysis in order to ensure that all quality control and traceability measures are comparable to world-class standards. NuTec SA, a 50% joint venture with Provimi Holding BV, a global leader in explicit nutrition, specialises in the formulation of customised feed premixes. NuTec supplies products to our feed mills and to various external markets across all commercially produced specie groups. East Balt SA, a 50% joint venture with East Balt Inc, an international USA-based industrial bakery group focusing on products for Quick Service Restaurants, reported good results. A new state-of-the-art bakery was commissioned in the Western Cape to alleviate capacity constraints and caters for volume growth in this market segment. In respect of Meaders Feeds Limited, we are in the fi nal stage of concluding an exit strategy as a shareholder in this Mauritian feed operation. Conclusion Operational effi ciencies and meticulous focus on best practices across all integrated operations were key to our satisfactory results for the review period. The integration of new genetic material shows evidence that will lead to improved production results and support the strategic focus of being a low cost integrated poultry producer. The global outlook for the supply of key raw materials utilised in the production of animal feed for commercially farmed animals seems to be well-balanced but could however result in minor increases in input costs. The imbalance in supply and demand for poultry products had a signifi cant impact on pricing levels throughout the period under review. It is not envisaged that poultry production or markets will change dramatically in the near future. Astral and all of its integrated operations are currently wellpositioned to address and manage challenges that can severely infl uence the sustainability of our results and businesses. The staff turnover during this fi nancial year remained very stable, with no loss of senior executives. Appreciation In closing, I extend my gratitude to all our loyal customers for their continued support during the past year. We will continue to provide you with products of the highest quality. To our suppliers and service providers, a big thank you for your contribution to our continued success. Thank you to my colleagues in management and all the staff, for your loyalty and for working diligently in steering our group towards realising our goals. I also wish to express my appreciation to the members of the Astral Foods board for your unfailing commitment and support during the year. A special word of thanks to our chairman, Jurie Geldenhuys, whose experience and strategic direction once again proved invaluable to the success of our company in the past year. C E SCHUTTE Chief Executive Offi cer 11 November 2010 Astral Annual Report

24 Corporate governance Our approach to corporate governance is a keystone of our primary objective which is to create value for all our stakeholders. We also accept the rights of our shareholders as the true owners of the company and understand our own role as trustees on behalf of the shareholders. Corporate governance provides guidance and oversight as we seek to fi nd a balance between conformance with governance principles and superior levels of performance in terms of a sustainable return on shareholders investments. We are cognisant of the Public Investment Corporation s corporate governance and proxy voting policy and have implemented measures to comply with its requirements as far as possible. We believe that the group s governance practices are sound and that we conform to the principles embodied within the King III Report ( King III ) on Corporate Governance and the Listings Requirements of the JSE Limited ( JSE ). We remain committed to ensure that these principles continue to be an integral part of the way in which our business is conducted. The constitution and the operation of the board of directors The board The board operates in terms of a formally approved charter which sets out its role and responsibilities, the main elements of which are: the chairman of the board must be an independent, nonexecutive director; a formal orientation programme for new directors must be followed; specifi c policies, in line with King III, must exist with regard to confl icts of interest and the maintenance of a register of directors interests; the board must conduct an annual self-evaluation; directors must have access to staff, records and the advice and services of the company secretary; succession planning for executive management must be in place and must be updated regularly; strategic plans and an approvals framework must be in place and must be reviewed regularly; policies to ensure the integrity of internal controls and risk management must be in place; social transformation, ethics, safety, health, human capital, and environmental management policies and practices must be monitored and reported on regularly. We have a unitary board structure, presently comprising ten directors, including six independent non-executive directors. The roles of chairman and chief executive are separate and distinct. The composition of the board ensures a balance of power and authority, and negates individual dominance in decision-making processes. It also reduces the possibility of confl icts of interest and promotes objectivity. We believe that the non-executive directors are of suitable calibre and number for their views to carry signifi cant weight in the board s decisions. An independent non-executive chairman leads the board. A schedule of benefi cial interests of directors appears on pages 48 to 50 of this report. In August 2010, an evaluation of each of the non-executive director s independence was conducted. With the exception of the chairman who has served on the board for nine years and who has been adjudged by the board to still be independent, none of the present independent non-executive directors has served on the board for a period longer than nine years and neither are they disqualifi ed in terms of the criteria for independence as laid down by the JSE Listings Requirements or by King III. Recognising the need to expand the fi nancial expertise of the board, Mr Stefan Fourie was appointed to the board as well as to the Audit and Risk Management Committee on 1 July Mr Fourie was previously the chief operating offi cer of PricewaterhouseCoopers Southern Africa until his retirement in On 1 October 2010, Dr T Eloff replaced Mr J J Geldenhuys as a member of the Audit and Risk Management Committee. The chairman presides over meetings of the board, guiding the integrity and effectiveness of the board s governance process. This includes ensuring that no individual dominates the discussion, that relevant discussion takes place, that the opinions of all directors relevant to the subject under discussion are solicited and freely expressed, and that board discussions lead to appropriate decisions. On a quarterly basis, we actively solicit from directors details regarding their external shareholdings and directorships, which potentially could create confl icts of interest while they serve as directors on our board. The declarations received are closely scrutinised and are tabled at the beginning of each quarterly board meeting. When applicable, directors are requested to table their interests in material contracts and shareholdings in outside companies and if necessary are requested to recuse themselves from discussions in meetings when these confl icts may exist. Operational management is the responsibility of the Chief Executive Offi cer, Mr Chris Schutte. His responsibilities include, amongst others: developing and recommending to the board a long-term strategy and vision that will generate satisfactory stakeholder value, developing and recommending to the board annual business plans and budgets that support the long-term strategy, and managing the affairs of the group in accordance with its values and objectives, as well as the general policies and specifi c decisions of the board. The CEO is not a member of the Human Resources and Remuneration, Audit and Risk Management and Nominations Committees, but attends same by invitation. A complete list of board members appears on pages 8 to 11 of this report. In terms of our articles of association all new directors appointed during the year, as well as one-third of the existing directors, have to retire on a rotational basis each year, but they offer themselves for re-election. The board accepts responsibility for the induction of new or inexperienced directors. As part of the company s induction programme, a new director is briefed by the company secretary and provided with a comprehensive company information pack. Site visits are also arranged to enable new directors to familiarise themselves with all aspects of our business. The directors are experienced business people and are required to exercise leadership, enterprise, integrity and judgement based on the principles of good governance. The board is committed to guiding and monitoring these high standards. The board is aware that it is accountable for the actions of management and has retained full and effective control of the organisation over the past year. The board defi nes 22 Astral Annual Report 2010

25 levels of materiality, reserving specifi c powers to itself, and delegates other matters with the necessary written authority to management. These matters are monitored and evaluated on a regular basis. The board, in terms of its charter, is required to meet at least quarterly so as to monitor important issues and meet its objectives. Matters reviewed include: strategy, planning, operational performance, broad-based black economic empowerment compliance, acquisitions, disposals, shareholder communications and other material aspects pertaining to the achievement of the group s objectives. The board periodically reviews the mix of skills and experience available within the board. Procedures for appointment to the board are formal and transparent and are vested in the board. The board conducts assessments annually based on several factors including: expertise, objectivity, judgement, understanding the group s business, willingness to devote the time needed to prepare for and participate in committee deliberations and timely responses. All directors have access to the advice of the company secretary and are entitled and authorised to seek independent and professional advice about affairs of the company at the company s expense. Attendance at meetings A minimum of four board meetings and one strategic planning session are scheduled per fi nancial year. Additional board meetings may be convened when necessary. Four board meetings and one strategic planning session were held during the past year. The accompanying table details the attendance by each director at board meetings held during the year under review: Board: Director and 18.3# T Delport T Eloff D D Ferreira S Fourie * * * * J J Geldenhuys O Lukhele M Macdonald T C C Mampane A C E Schutte N Tsengwa A # Strategic planning session Present A Submitted apologies and was granted leave of absence * Appointed to the board on 1 July 2010 Board committees Audit and Risk Management Committee The committee met three times in Attendance at meetings was as follows: Director M Macdonald J Geldenhuys I S Fourie * * * Present * Appointed on 1 July 2010 Human Resources and Remuneration Committee The committee met three times in Attendance at meetings was as follows: Director J Geldenhuys T C C Mampane N Tsengwa A Present A Submitted apologies and was granted a leave of absence in terms of the company s articles of association Nominations Committee The committee met twice during Attendance at meetings was as follows: 2010 Director J J Geldenhuys T C C Mampane N Tsengwa A Present A Submitted apologies and granted leave of absence Non-executive directors received the following fees during 2010: Fixed fee per annum 2010 R 000 Chairman of the board 350 Member of the board 175 Chairman of the Audit and Risk Management Committee 133 Member of the Audit and Risk Management Committee 70 Chairman of the Human Resources and Remuneration Committee 133 Member of the Human Resources and Remuneration Committee 70 The remuneration is paid quarterly in arrears, except for Mr Geldenhuys, who receives his fees on a monthly basis. Board committees To enable the board to properly discharge its responsibilities and duties, certain responsibilities of the board have been delegated to board committees. The board is satisfi ed that all committees have met their respective responsibilities for the period under review. All board committees are chaired by an independent non-executive director. Particulars of the composition of the board of directors and committees appear on pages 8 to 11 of this report. Board committee charters are reviewed on an ongoing basis to ensure that the committees duties and responsibilities are aligned with the requirements of corporate governance and keep abreast of developments in this fi eld. In view of the fact that the Audit and Risk Management Committee will become a statutory committee once the new Companies Act becomes law, and in terms of the recommendations set out in King III, shareholders will now be required to elect the members of this committee at the company s next annual general meeting. The board committees are as follows: The Audit and Risk Management Committee The Audit and Risk Management Committee consists of three members, all of whom are independent non-executive directors, Astral Annual Report

26 Corporate governance (continued) and meets at least twice a year with management, internal and external auditors as well as the group s risk managers. Mr S Fourie was appointed as member of the committee on 1 July In line with the requirements of King III, Mr Geldenhuys resigned as a member of the committee on 1 October 2010 and Dr T Eloff was appointed in his stead. The opportunity is created at each meeting for discussion with the external and internal auditors without the presence of management. We believe that the members of the committee are knowledgeable about the affairs of the company and have extensive expertise in fi nance, accounting and risk management practices. The Audit and Risk Management Committee fulfi lls the responsibilities as set out in the Audit and Risk Management Committee Charter, which includes: overseeing the internal and external audit function; assisting the board in the discharge of its duties relating to the safeguarding of assets and operation of adequate systems and internal controls; the preparation of accurate fi nancial reporting and statements in compliance with all applicable legal requirements, corporate governance and accounting standards; providing support to the board on the risk profi le and risk management of the group; providing support to the board on information technology governance and risk. Both the group audit and risk executive and the external auditors have unfettered access to the chief executive offi cer, the chairman of the board and the Audit and Risk Management Committee. During the year the committee addressed the following additional responsibilities required by King III and the JSE Listings Requirements: evaluated and confi rmed the independence of the external audit function; and reviewed the expertise, resources and experience of the group fi nancial director. Re-appointment of the independent auditors At the committee meeting held on 12 May 2010, the committee considered the independence of the external auditors, PricewaterhouseCoopers Incorporated in accordance with section 270A of the Corporate Laws Amendment Act. In assessing the independence of the external auditor, the committee satisfi ed itself that PricewaterhouseCoopers Incorporated: does not hold a fi nancial interest (either directly or indirectly) in Astral; considers each area of non-audit work that they undertake, in relation to the potential threats to their audit independence and the safeguards, if any, that they have to put in place; considers all other factors, which could impact upon, or be considered to impact upon, their independence. Accordingly, the committee is satisfi ed that PricewaterhouseCoopers Incorporated is independent as contemplated by the South Africa Independence laws and the applicable rules of the International Federation of Accountants and nominated the re-appointment of PricewaterhouseCoopers Incorporated as registered auditor for the 2010/11 fi nancial year. On 13 May 2010, the board, subject to shareholder approval, re-appointed PricewaterhouseCoopers Incorporated and Mr I Buys, the audit partner, as the independent registered auditor of Astral. The committee also considered and satisfi ed itself that PricewaterhouseCoopers Incorporated, including their advisors, are accredited in terms of the JSE List of Accredited Auditors as contemplated in paragraph 3.86 of the JSE Listings Requirements. Risk Management We are committed to developing, implementing and maintaining the best possible strategies to minimise our risks and to ensure the growth of our company for the benefi t of our employees and shareholders. To achieve this we are committed to creating safe and healthy working conditions to minimise the risk of injury or disease to our employees, to prevent the loss of property and to conserve the environment. We are committed to the following action plan: identify the risks and exposures associated with each operation s unique situation; identify and implement the most suitable methods in line with our business strategy to eliminate or mitigate risk exposures as far as reasonably practical; develop the best strategies and policies to protect our employees and assets where the threats cannot be removed; implement a plan to ensure the continual existence and growth of our operations; use secure insurance markets to insure against catastrophic incidents and other losses beyond our self insurance capacity; and attempt to optimise, in the long term, the total cost of risk to the group. We apply an enterprise-wide risk management approach, involving all levels of management, with assistance of outside consultants for assessing insurable risks. Insurable risks are covered and uninsurable risks are mitigated as far as possible. We are committed to the development of the optimum risk fi nancing strategy for the group based on each division s particular risks and exposures. The group risk manager, in liaison with the divisional management and the risk fi nancing brokers, are responsible for the implementation of a comprehensive self-insurance funding and cost-effective insurance programme strategy. The senior management at each operation is responsible for the development and implementation of a sound risk control programme based on the group risk control standards. The integrity of the risk control programme is regularly independently monitored by appointed risk analysts using internationally recognised auditing standards. To mirror our commitment we expect each manager and each employee to participate in the risk management programme at their respective levels in the organisation. Members of the Audit and Risk Management Committee are: Member Independent non-executive Period M Macdonald (chairman) Yes May 2004 to date J J Geldenhuys Yes May 2008 to October 2010 I S Fourie Yes July 2010 to date T Eloff Yes October 2010 to date 24 Astral Annual Report 2010

27 To further enhance the effectiveness of the Audit and Risk Management Committee we also have semi-annual divisional audit committee meetings for each operation. As part of our enterprise-wide risk management programme, quarterly risk management meetings are held at operational and corporate level under the chairmanship of a risk control manager who reports to the group Audit and Risk Management Committee. Internal audit We have established an independent, objective and effective internal audit department governed by a charter approved by the board. The internal audit function reports to the chief executive offi cer and has unfettered access to the chairman of the board and the chairman of the Audit and Risk Management Committee. The role of internal audit is to review compliance with internal controls, systems and procedures. The board is satisfi ed that the internal controls are adequate in safeguarding the assets, preventing and detecting errors and fraud, ensuring the accuracy and completeness of accounting records and preparing reliable fi nancial statements. The independence of the internal audit function is reviewed by the Audit and Risk Management Committee and the committee is satisfi ed that the independence of the internal audit function has not been impaired in any way. The removal of the head of internal audit would be a matter for the Audit and Risk Management Committee in consultation with management. For more information regarding the activities of the Audit and Risk Management Committee, please refer to the Audit and Risk Management Committee report commencing on page 27. The internal audit department is staffed by qualifi ed and experienced internal auditors and operates within a charter approved by the board. The annual internal audit programme is approved by the committee and all signifi cant fi ndings, together with steps taken to rectify lapses in internal control are reported at every committee meeting. The internal audit function reports to the chief executive offi cer and has unfettered access to the chairman of the committee. Information Technology A policy governs the use and safeguarding of information systems and networks. The risks regarding the security, back-up, conversion and update of the information technology systems are continually assessed. Disaster recovery plans are regularly reviewed as disruptions to critical management information could have an impact on continuing operations. The Nominations Committee The Nominations Committee comprises three independent non-executive directors. The committee meets annually or more often at the committee s discretion. The committee s charter was formally adopted during the year under review. The primary purpose of the Nominations Committee is to ensure that the procedures for appointments to the board are formal and transparent, by making recommendations to the board on all new board appointments and reviewing succession planning for directors. The committee also has to evaluate all candidates for the position of director on the basis of skill and experience. Thorough background checks are conducted. Members of the Nominations Committee are: Member Independent non-executive Period J J Geldenhuys (chairman) Yes May 2008 to date T C C Mampane Yes May 2008 to date N Tsengwa Yes May 2008 to date The Human Resources and Remuneration Committee The Human Resources and Remuneration Committee comprised three independent non-executive directors until 30 September 2010 at which date an additional non-executive director was appointed to strengthen the diversity of the committee. The committee meets at least three times per year and operates according to a board-approved charter. Members of the Human Resources and Remuneration Committee are: Member Independent non-executive Period J J Geldenhuys (chairman) Yes May 2001 to date T C C Mampane Yes August 2005 to date N Tsengwa Yes May 2009 to date I S Fourie Yes October 2010 to date Consideration is given during meetings to succession planning, training and development, employment equity, broad-based black economic empowerment, human resources policies, provident funds, medical aid, wellness programmes and remuneration of management and executive and non-executive directors. The remuneration policy focuses on market-related payments to management and directors with the objective to retain the services of capable individuals, The outline of remuneration to management and directors is as follows: fi xed portion of remuneration is paid on a cost to company basis; all employees are provided with a wellness programme, retirement fund, death, disability and funeral benefi ts, voluntary medical aid and various categories of leave provision; service contracts are in place for all employees. Top management has a notice period of two months and the rest of the staff one month. Non-executive directors have no contracts with the company; and incentive/retention schemes for management are in place. Previously, management participated in share option and share appreciation rights schemes. These schemes have been phased out and were replaced by a long-term management retention plan of which the following can be highlighted: allocation according to seniority; an annual allocation to ensure retention of key staff; payments after three years over a three-year period; executives must meet performance conditions to earn 75% of the allocated amount; and the long-term management retention plan is only available to key employees. Management also participate in short-term management incentive schemes. Bonuses are paid if management meet certain fi nancial targets which relate to Economic Value Added (EVA) and Profi t Before Interest and Tax (PBIT). Astral Annual Report

28 Corporate governance (continued) Organisational integrity and ethics We maintain a Code of Ethics, which requires all employees, managers and directors to comply with the letter and spirit of the Code by observing the highest ethical standards and ensuring that all business practices are conducted in a manner which is beyond reproach. The policy provides a guideline as to what constitutes fraud, theft, corruption, or associated internal irregularities, outlines our response to these, and details the procedures to be followed in order to report such incidents that are suspected or discovered. We have a zero tolerance approach towards fraud and corruption and protect employees who raise concerns relating to fraud and corruption from victimisation. We utilise the services of Deloitte & Touche to provide an independent Tip- offs anonymous hotline. All incidents reported are investigated and appropriate action taken in terms of the relevant policies and disciplinary procedures. During the year under review, our ethics policy was revised and extended. Copies of the revised ethics policy are displayed on all notice boards, laminated abridged copies are handed to every employee and the chief operating offi cer of each business unit is tasked to act as champion for his business unit to ensure that the ethics policy is understood and adhered to by all his employees. The ethics policy forms a permanent part of every management agenda and external suppliers are required to adhere to the ethics policy. The Code of Ethics deals with: compliance with laws, regulations and codes; culture, ethics and values; client service; privacy and confi dentiality; respect and dignity; social responsibility; gifts, entertainment and bribery; integrity of fi nancial information; confi dential information protection and use of company property; confl ict of interest; and contravention of the Code. In terms of accountability, all employees are required to: commit to individual conduct in accordance with the Code of Ethics; observe both the spirit and the letter of the law in their dealings on the group s behalf; recognise the group s responsibility to its shareholders, customers, employees, suppliers and to society; conduct themselves as responsible members of society, giving due regard to health, safety and environmental concerns, and human rights, in the operation of the group s business; and report any suspected breach of the law or the Code of Ethics to the internal audit department or the board who will protect those who report violations in good faith. The board has no reason to believe that there has been any material non-adherence to the Code of Ethics during the year under review. Restrictions on share dealings Directors and employees are prohibited from dealing in Astral shares during price-sensitive periods. There is a formal clearance procedure in place with respect to directors dealing in Astral shares. Closed periods extend from 31 March and 30 September, being the commencement of the interim and year-end reporting dates, respectively, up to the date of announcement of interim and year-end results, and include any other period during which the company is trading under a cautionary announcement. All directors are required to obtain written permission from the chairman before dealing in any Astral shares in order to protect them against possible and unintentional contravention of the insider trading laws and stock exchange regulations. Participants in our share incentive schemes are subject to the rules of the schemes and the provisions of the JSE Listings Requirements. Management reporting We have comprehensive management reporting disciplines, which include the preparation of strategic plans and annual budgets by all operations. Group strategic plans and budgets are considered and approved by the board. Results and the fi nancial status of the operations are reported monthly and compared with approved budgets and results of the previous year. Working capital requirements and borrowing levels are monitored on an ongoing basis and corrective or remedial action taken as appropriate. Company secretary The company secretary is suitably qualifi ed and experienced and plays an important role in ensuring that the board procedures are followed correctly and reviewed regularly. The company secretary is responsible for the duties set out in section 268G of the Companies Act and is appropriately empowered by the board to fulfi ll these duties. The certifi cate required to be signed in terms of section 268G(d) of the Act appears on page 41. The group company secretary is not a director of any of the Astral group s operations and, accordingly, maintains an arm s length relationship with the board and its directors. Engagement with shareholders and investors In accordance with our commitment to ensure that the interests of our management are aligned with those of shareholders, we manage a dedicated programme to engage with analysts, investors and large individual shareholders. This includes, amongst others: timeous, relevant, honest and accessible announcements and circulars to shareholders in accordance with the JSE Listings Requirements. When we are not in a closed period, there is ongoing interaction between the executive management team and a wide range of institutional investors and analysts. These interactions take the form of one-on-one meetings held mostly on request by the institutional investors and analysts. Twice a year our results are presented to the investor community in Johannesburg and Cape Town. The results are published on our website shortly after release on SENS. 26 Astral Annual Report 2010

29 Audit and Risk Management Committee report Our Audit and Risk Management Committee is a formally constituted sub-committee of the board and in addition to having specifi c statutory responsibilities to the shareholders in terms of the Companies Act, 61 of 1973, as amended ( the Act ), it assists the board by advising and making submissions on fi nancial reporting, oversight of the risk management process and internal fi nancial controls, external and internal audit functions and statutory and regulatory compliance. Terms of reference The committee has adopted formal terms of reference that has been approved by the board and these terms of reference are regularly reviewed and updated where necessary. The committee has executed its duties during the past fi nancial year in accordance with terms of reference. Composition At 30 September 2010, the committee comprised three independent non-executive directors, one being the chairman of the board. On 1 October 2010, Mr J J Geldenhuys, chairman of the board, resigned as member of the committee and Dr T Eloff was appointed in his stead. Meetings The committee met three times during the year. Attendance of these meetings is shown in the table set out on page 23 of the annual report. Statutory duties In execution of its statutory duties, the committee: nominated the re-appointment of PricewaterhouseCoopers Inc. as external auditors and Mr I S Buys as the individual auditor, after satisfying ourselves through enquiry that PricewaterhouseCoopers Inc. are independent as defi ned in terms of the Act. This will be Mr Buys third year as designated auditor of the company; confi rmed that PricewaterhouseCoopers Inc. and the designated auditor, Mr I S Buys, are accredited by the JSE; at the end of each meeting during the year, met with the external auditors where management was not present. No matters of concern were raised; determined the fees to be paid to PricewaterhouseCoopers Inc. as disclosed in note 18 of the annual fi nancial statements on page 79 of the annual report and their terms of engagement; approved a non-audit services policy which determines the nature and extent of any non-audit services which PricewaterhouseCoopers Inc. may provide to the company; pre-approved any proposed contract with PricewaterhouseCoopers Inc. for the provision of non-audit services to the company; received no complaints relating to the accounting practices of the group, the content or auditing of its fi nancial statements, the internal fi nancial controls of the group, and other related matters; reviewed the draft audited fi nancial statements and annual report, the preliminary profi t announcement and interim statements; met with the external auditors to discuss the annual fi nancial statements prior to their approval by the board; reviewed the valuation of goodwill before recommending any impairment to the board for approval; made submissions to the board on matters concerning the group s accounting policies, fi nancial control, records and reporting; and concurred that the adoption of a going concern premise in the preparation of the annual fi nancial statements is appropriate. The objectives of the committee were met during the year under review. Where weaknesses in specifi c controls have been identifi ed, management undertook to implement appropriate corrective actions to mitigate the weakness so identifi ed. Oversight of risk management The committee has: received assurances that the process and procedures followed in terms of risk management are adequate to ensure that fi nancial risks are identifi ed and monitored; satisfi ed itself that the following areas have been appropriately addressed: fi nancial reporting risks; fi nancial control risks; fraud risks as they relate to fi nancial reporting; and information technology risks as they relate to fi nancial reporting; reviewed tax and technology risks, in particularly how they are managed. Internal financial controls The committee has: reviewed the effectiveness of the group s system of internal fi nancial controls including receiving assurance from management and external audit; reviewed signifi cant issues raised by the external auditors in their reports; reviewed policies and procedures for preventing and detecting fraud. Based on the processes and assurances obtained, we believe that the signifi cant internal fi nancial controls are effective. Regulatory compliance The committee has complied with all applicable legal and regulatory responsibilities. External audit Based on processes followed and assurances received, we have no concerns regarding the external auditor s independence. Description of fees R 000 Total Audit fees % Non-audit fees % Based on our satisfaction with the results of the activities outlined above, we have recommended the re-appointment of PricewaterhouseCoopers Inc. to the board and the shareholders. Internal audit The committee is responsible for overseeing internal audit, and in particular: determined the appropriateness of the internal auditor and adequate staffi ng issues; Astral Annual Report

30 Audit and Risk Management Committee report (continued) approved the internal audit plan, as well as the internal audit charter; ensured that the internal audit function is subject to an independent quality review, as and when the committee determines it appropriate; and reviewed the functioning of the internal audit programme and department, to ensure co-ordination between the internal and external auditors. Financial function and financial director review We have reviewed the expertise, resources and experience of the company s fi nance function and are satisfi ed that these requirements are adequate for the forthcoming year. The committee has also reviewed the performance, appropriateness and expertise of the fi nancial director, Mr D D Ferreira, and confi rms his suitability in terms of the JSE Listings Requirements. Annual report We have evaluated the annual fi nancial statements of Astral Foods Limited and the group for the year ended 30 September 2010 and based on the information provided to the committee, consider that the group complies in all material respects with the requirements of the Act and International Financial Reporting Standards and we recommend the annual report to the board for approval. On behalf of the Audit and Risk Management Committee Malcolm Macdonald Audit and Risk Management Committee Chairman 11 November 2010 Definitions Operating profit margin Operating profi t before interest and tax as a percentage of revenue. EBITDA Earnings before interest, tax, depreciation and amortisation. Net assets Total assets less total liabilities, excluding cash and cash equivalents, borrowings, normal and deferred tax, and shareholders for dividends. Return on total assets Operating profi t less fi nance costs as a percentage of average total assets. Return on equity Net profi t attributable to ordinary shareholders as a percentage of average ordinary shareholders interest. Return on net assets Operating profi t before interest and income tax as a percentage of average net assets. Net asset turn Revenue divided by average net assets. Basic earnings per share Net profi t for the year divided by the weighted average number of ordinary shares in issue during the year. Headline earnings per share Headline earnings divided by the weighted average number of ordinary shares in issue during the year. Headline earnings Net profi t for the year adjusted for profi t or loss on sale of property, plant and equipment, and investments. Dividend cover Headline earnings per share divided by dividend per share declared out of earnings for the year. Closing dividend yield Dividends per share as a percentage of market value per share at year-end. Closing earnings yield Headline earnings per share as a percentage of market value per share at year-end. Closing price : earnings ratio Market value per share divided by headline earnings per share at year-end. 28 Astral Annual Report 2010

31 Ratios and statistics Profit information Revenue R million EBITDA R million EBITDA margin % 8,3 7,8 7,8 14,5 16,5 13,9 11,4 Operating profi t R million Operating profi t margin % 7,0 6,6 6,7 12,8 14,8 12,3 9,6 Profi t for the year R million Headline earnings for the year R million Financial position information Total assets R million Total equity R million Total liabilities R million Net assets R million Profitability and asset management Return on total assets % 17,8 16,9 16,7 32,2 38,6 31,3 27,1 Return on equity % 25,8 26,0 25,3 45,0 49,3 46,4 38,6 Return on net assets % 30,3 31,3 31,3 54,8 64,7 51,3 48,3 Net asset turn times 4,3 4,8 4,7 4,3 4,4 4,2 4,7 Shareholders ratios Earnings per share cents Headline earnings per share cents Dividend per share cents Dividend cover times 1,3 1,3 1,2 2,0 2,2 2,5 2,7 Stock exchange statistics Market value per share At year-end cents Highest cents Lowest cents Closing dividend yield % 6,8 6,7 7,3 5,8 6,8 5,4 5,7 Closing earnings yield (*) % 8,6 8,6 8,7 11,4 11,9 13,5 15,5 Closing price : earnings ratio (*) times 11,6 11,7 11,5 8,8 6,7 7,4 6,5 Number of shares issued (#) Number of transactions Number of shares traded Number of shares traded as a percentage of issued shares % Value of shares traded R million Closing market capitalisation R million * Based on headline earnings per share # Refer to note 10 of the annual fi nancial statements for the number of shares effectively in issue, net of treasury shares Astral Annual Report

32 Sustainability report Astral Foods regards sustainable development as an integral and essential part of conducting business. We endeavour at all times to inform our stakeholders in terms of the three pillars of sustainability, namely Social, Environmental and Economic 30 Astral Annual Report 2010

33 2010 Milestones and Achievements Five of our operations have been awarded the International Excellent Award in terms of the 20 Keys Total Workplace Improvement Programme Three farming operations have reached the requirements for the excellence award 2011 Focus We are targeting a Level B-rating on our Black Economic Empowerment status by December 2010 We are conducting a carbon footprint assessment which will allow senior management to identify and implement energy effi cient processes to energy usage We are actively researching various waste-to-energy opportunities We are investigating opportunities to extract methane gas from poultry manure and turning it into electricity and heat Quick facts Astral was listed on the JSE Limited on 9 April 2001 We are a leading South African integrated poultry producer Rated in the Top 100 companies on the JSE Limited Our operations are primarily based in South Africa but we also have operations in Mauritius, Mozambique, Swaziland and Zambia Astral employs in excess of people We conduct business to make a profi t and return value to those who have invested in us. However, we do so with people staff, customers and communities without whom we would achieve very little. We do so using natural resources land, water, energy, etc. all of which are fi nite and so have to be managed with care Astral Annual Report

34 Sustainability report (continued) Responsibility for sustainable development The board accepts overall responsibility for the advancement of sustainable development with the assistance of the board subcommittees. Day-to-day responsibility is delegated to executive management. Approach to data collection and reporting As part of our commitment to improve non-fi nancial reporting, we are in the process of reviewing the aspects of the Global Reporting Initiative (GRI). A group safety, health and environment ( SHE ) report is compiled and is reviewed by the Audit and Risk Management Committee on an annual basis. Underpinning our Enterprise Wide Risk Management Programme, are the following meetings which incorporate aspects of SHE: monthly Health and Safety meetings; bi-monthly Corporate Risk Management meetings; quarterly Operational Risk Management meetings; semi-annual Audit Committee meetings; and an annual Risk Management meeting. Assurance We are committed to ensuring that the non-fi nancial information provided in this annual report is accurate. During the course of the year, systems and procedures were put in place to record the relevant data by way of a web-based data collection system for all divisions. Governance, ethics and values Governance, ethics and values are addressed in the Corporate governance section of this annual report on pages 22 to 26. Financial compliance is assured through internal structures and controls and independent fi nancial audit. We also have our own internal set of values and ethics which guide all our activities and relationships, both individual and corporate. Group risks Executive, senior and local management continually review, assess and address the risks and challenges facing the group. This process requires detailed review at all levels of the organisation including regular review and update at all management, executive and board meetings. The internal audit function is charged with reviewing the adopted processes to ensure this risk management methodology is in place. Contingency plans and procedures are prepared to deal with unscheduled occurrences and stakeholder concerns. All operations have detailed business continuity as well as disaster recovery plans in place. The management of operational risk is a line function, conducted in compliance with a comprehensive set of group policies and standards to cover all aspects of operational risk control. Performance is measured on a regular basis by means of both self-assessments and audits by independent consultants. In addition, the group promotes ongoing commitment to risk management and control by participating in externally organised risk management and safety systems. Insurance cover on assets is based on current replacement values. Consistent with the high standard of risk management, a substantial portion of risk is self-insured, at costs below market premiums. All risks are adequately covered, except where the premium cost is excessive in relation to the probability and the extent of the loss. Tersia King Learning Academy prize-giving 2010 Astral s Earlybird Farm Olifantsfontein has had a long-standing relationship with the Tersia King Learning Academy in Tembisa. The school is named after its founder and principal, Dr T J King, who is now 70 years old and still dedicated to the upliftment of the Tembisa community. Over the past 10 years, Earlybird Farm has donated fl oating trophies to 10 local high schools. On 12 November 2010, the Tersia King Learning Academy held their prize-giving ceremony and Ms Nozipho Khoza, Earlybird Farm s Human Resources Offi cer, presented four well-deserved prizes to learners from the Academy 32 Astral Annual Report 2010

35 Economic sustainability practices The distribution of economic value generated for stakeholders is refl ected in the group s value-added statement which is refl ected below: Value-added statement R 000 % R 000 % Value added Sales of goods and services Less: Cost of materials and services ( ) ( ) Value-added from trading operations , ,10 Income from investments , ,90 Total value added , ,00 Value distributed To labour , ,60 To Government , ,30 Income tax Skills development levies To providers of capital , ,30 Dividends to shareholders Interest on borrowings Total distributions , ,30 Income retained in the business , ,70 Depreciation/amortisation Retained profi t for the year Total value distributed and reinvested , , Providers of capital 20,7% Providers of capital 22,3% Labour 53,9% Reinvested 12,5% Government 13,0% Labour 52,6% Reinvested 12,7% Government 12,3% Astral Annual Report

36 Sustainability report (continued) Social aspects Broad-based black economic empowerment (BBBEE) We support and are committed to the concept of broadbased black economic empowerment and actively promote the empowerment of staff members and the communities in which we operate. Our Black Economic Empowerment status has been evaluated by EmpowerDEX, at a generic scorecard C-rating. We have a 100% score on enterprise development, mainly as a result of our strategy to endeavour to make use of contract growers with a Black ownership component. Our target for December 2010 is to achieve a Level B-rating. Equality We are committed to gender equality and the removal of any discrimination based on gender, race, religion or disability. Employees Our long-term success rest on our ability to attract, develop and retain globally competitive employees. We have strategies and initiatives in place, mainly through our 20 Keys Workplace Improvement Programme, to ensure value creation for employees and value creation by employees. This facilitates individual and collective wisdom within the operations, encourages employee participation and enables employees to share in the value created for stakeholders. African, Indian, Coloured ( AIC ) vs White employees in South Africa AIC White AIC White Board Executive Senior management Middle management Skilled upper/technical Semi-skilled/apprentice/ trainee Labourers/unskilled Note: Employee categories are defi ned using the Patterson grading methodology. Number of employees at end of September Group Feed Poultry Services and Ventures Total Permanent Contract Total Regional breakdown of number of employees 2010 Within South Africa Outside South Africa Value creation for employees Our leadership within the group is inspirational. High but achievable standards are set and employees are motivated by realistic objectives and they are allowed to participate in setting those objectives. We have a sound value system, based on integrity, openness honesty and accountability. Employees understand these values as management lead by example. The benefi ts of employees are market related and all employees can benefi t from incentive schemes by meeting set targets. All vacancies within the group are advertised internally, as we believe that employees should have the fi rst opportunity to be promoted before we advertise externally. Quite a number of Unions are recognised at our different business units. We conduct collective bargaining on an annual basis and in most instances the outcome is to the satisfaction of both parties. The normal media such as circulars and notice boards are used for basic communication with staff. Furthermore, road shows are held twice a year in the different regions to communicate the results of the company and two multi-level meetings per annum are held with staff to communicate important matters relevant to each business unit. Health and safety We comply with the Occupational Health and Safety Act or similar legislation in other countries. At factories, safety, health and environment committees are in place to assess and reduce the impact on the environment of manufacturing activities and to ensure the safety of employees. The disabling injury frequency rate is calculated by all business units. This provides for accurate benchmarking between business units and provides a measuring tool to compare current and past performances. Disabling injury frequency rate Farming operations Processing operations Milling operations Other Disabling Injury Frequency Rate is calculated by taking the number of disabling injuries times divided by the number of man hours worked by all employees. Employment equity All our operations comply with the Employment Equity Act, 55 of 1998, and annual reports are submitted to the Department of Labour. Employment equity committees have been established at every business unit to set and monitor progress. The different occupational levels below management level refl ect that between 36% and 99% of employees are from the designated groups. The fi gure on management level is 18%, refl ecting progress towards the target set by the Department of Trade and Industry of 25% to 30% within 10 years. We believe that no unfair discrimination exists in the workplace. HIV/AIDS We recognise the implications of the pandemic on the family structure, the community and long-term issues of sustainability. The reality is that the prevalence of HIV/AIDS among our workforce is currently estimated to be about 21%. This fi gure was determined through a voluntary counseling and testing update. The indications are that we are slightly above the industry norm. 34 Astral Annual Report 2010

37 We have implemented a policy on HIV/AIDS focusing on: educational programmes at all operations; voluntary testing; counseling of affected employees; training of peer educators. 72% of employees participated in the screening, 52% attended training and 61% participated in voluntary counseling and testing. We introduced a wellness programme during The wellness programme focuses on: height and weight (body mass index); blood pressure (hypertension); cholesterol; diabetes; and voluntary counseling and testing for HIV/AIDS. Training The training and development of employees in all key areas is an integral part of the internationally recognised 20 Keys Workplace Improvement Programme referred to below. Each employee attends a number of training sessions in this regard. A learnership programme in supervision has been introduced at several workplaces. Much emphasis is placed on the development of technical skills, including training under our technical agreements with Provimi Holding BV of Holland, a world leader in animal nutrition solutions. Other training and development interventions that we focus on are: information technology skills; supervisory skills; sales; quality systems; and production and processing skills. We are committed to the Skills Development Act. Our submission of skills development plans and our implementation against targets have ensured the maximum benefi t in this regard. We have appointed 30 apprentices (electricians, millwrights, fi tters and turners) with assistance from the Sectoral Training Authority for Agriculture. We have a study loan policy providing employees with fi nancial assistance to further their academic qualifi cations in line with current and future job requirements. Employee turnover We continuously evaluate our recruitment processes to ensure that high calibre talent is employed, taking cognisance of leadership capabilities, identifi ed competencies for positions and employment equity plans. Our approach is to attract the best people in the industry. In our employment process we also focus on the appointment of persons from the designated groups. Our staff turnover is below 4%, with the exception of County Fair in the Western Cape where the staff turnover is problematical due to societal circumstances. We have restructured one business unit in the past year, resulting in two retrenchments. Human rights Human rights are central to our legitimacy and are addressed in our Code of Ethics, including: obey the law; respect others; fairness; and honesty. Breaches can be addressed through the applicable legal system, internal procedures and through Tip-Offs Anonymous. In addition, employees may use established grievance procedures, which prohibit victimisation and they may also seek union or industry assistance in this regard. All incidents reported through Tip-Offs Anonymous are investigated by internal audit and appropriate action taken in terms of the relevant policies and disciplinary procedures. Tip-offs Anonymous data Number of calls received Number of reports generated Number of reports investigated Number of convictions 3 5 We apply a zero tolerance approach towards fraud and corruption and protect employees who raise concerns relating to fraud and corruption from victimisation. It is not our policy to support political parties. Workplace improvement programme Over the past year we have continued with our drive for excellence through the implementation of the 20 Keys Total Workplace Improvement Programme, which aims to energise the workforce to work faster, cheaper and better. All employees at the various workplaces participate as teams to improve productivity and effi ciencies. We can claim that we have made the best progress in South Africa with the implementation of these concepts. The International Excellence Award has been awarded to Meadow Feeds Paarl, Meadow Feeds Randfontein, Meadow Feeds Pietermaritzburg, Earlybird Standerton and NuTec Southern Africa, the only fi ve operations in South Africa to have achieved this. Three farming operations, namely Earlybird Farm s Kaalplaas, Ross Poultry Breeders Little Loch hatchery and Mount West hatchery, reached the requirements for the excellence award. Stakeholder engagement We believe that continuous, open and transparent communication with all stakeholders is essential to our legitimacy, core to our values and consistent with our sustainable value creation objective. Mutually benefi cial outcomes are sought at all times. Being a listed entity, we comply with legal communication requirements. Furthermore, we believe in regular dialogue with stakeholders and the investor community as a whole. Numerous interviews with fi nancial analysts are conducted and regular sessions undertaken with investors. Our website provides up-to-date information to stakeholders. Astral Annual Report

38 Sustainability report (continued) Key stakeholders Stakeholders and other providers of capital Business partners and customers Local communities Industry Staff and unions Suppliers Communication Website SENS announcements Trading updates Bi-annual results announcements Annual report Investor relations Face-to-face meetings Regular discussions Projects which form part of corporate social investment Southern African Poultry Association Consumer Goods Council of South Africa South African Agricultural Processors Association Animal Feed Manufacturers Association Confi dential hotline through Tip-Offs Anonymous Bi-annual road shows Intranet Management and union meetings Presentations to Procurement Committee Regular discussions Consumers Our branded chicken products reach consumers across the spectrum of society, offering affordable frozen secondary products as well as higher value fresh and prepared convenience products. The Goldi brand has maintained loyal support from the middle to lower income consumers, driven by consistent and trusted quality, availability and good value. County Fair and Festive brands on the other hand have developed strong equity in the middle to upper income consumer sectors where demand for prime products is stronger. Business partners Our key customers lie primarily in top end retail chains and wholesalers, mainly independently owned, and highly entrepreneurial by nature. Long-standing trading relationships are in place with the major retail groups, who have played a signifi cant role in building our brands over the years. Most of our independent wholesale customers have been partners for many years and have driven distribution of our chicken brands competently. We have a strong association with The Cold Chain who provide warehousing, distribution and merchandising to the retail and wholesale chains on our behalf. Raw materials Raw material availability is synonymous with two main risk areas, namely price and quality/supply. The agricultural commodity markets, as with other commodities, equities and currencies, have been extremely volatile over the past twelve months as a result of the fi nancial crisis, global recession, inclement weather, market sentiment and money fl ows. High volatility leads to increased price risk which is managed by having a conservative approach to market exposure, access to knowledgeable and respected advisors and suppliers. These risks are managed through an established process whereby the various conditions which infl uence commodity prices are monitored on a daily basis. Animal feed is an industry where raw material substitution is an essential skill to optimise feed quality and price. We are a major player in the South African arena but only use approximately 0,1% of the global maize and soya production. Our skill in raw material substitution and access to suppliers with an international footprint will ensure that we will remain a reliable supplier of quality feed. Preferential procurement The procurement activities of the group are focused on the suppliers of goods and services who have made progress on their BBBEE scorecard and we continue to identify further opportunities in this regard. Contract growers We make use of contract growers at our Earlybird Farm operations and are continuously seeking opportunities to expand the number of contract growers, especially those that have a BBBEE component involved. Contract growers Total number of contract growers Number of BEE contract growers 7 7 Product responsibility The need for manufacturers to market products that meet the required food safety standards has resulted in a number of initiatives. In recent years the Food Safety Initiative was launched by the Consumer Goods Council of South Africa to which we subscribe. Reviews of various statute requirements and industry legislation have been implemented to better control product quality and food safety. The promulgation of the Consumer Protection Act and Draft Labeling Regulations were foreseen by the company and a pro-active approach was taken to ensure all processing plants involved in the food chain are HACCP or ISO certifi ed in terms of Food Safety Management Systems. We follow the farm-tofork approach, from control of animal feed quality, health of grandparents, parents and broilers as well as hygiene at the abattoirs, processing plants, cold chain facilities and distribution points to end users. Preventative medicine to control foodborne diseases is strictly practiced in line with legislation. 36 Astral Annual Report 2010

39 Health link programme The Astral Foods Group is deeply committed to the well-being of its staff and, through the Astral Health Link programme, seeks to support employees to remain healthy, well and productive. The programme is managed by an outside consultancy, who operates the programme independently, with strong support from Astral. The prevalence of HIV/AIDS among Astral s workforce is currently 21%. Supporting those affected by this pandemic is important to Astral, given the implications of this disease on people, families and the communities in which Astral operates. An important achievement is the impact that regular screening and education have had on reducing the stigma around HIV/AIDS among Astral s workforce and recognition by employees of the importance of Voluntary Counselling and Testing. Since the launch of the Astral Health Link programme, over health screenings have taken place. The following statistics apply: HIV positive employees have been identifi ed through this testing process, of whom are being managed by a patient management service; employees with moderate to high risk readings for chronic conditions are being patient managed; of the HIV positive employees, 82% are well, healthy and participating actively in the workplace, illustrating that HIV can be successfully managed; key sites have been identifi ed and negotiations with the Department of Health have resulted in treatment for uninsured employees and medication for HIV/AIDS, TB and other chronic conditions being made available on-site at certain locations, saving man hours and improving effi cacy of treatment; employees have completed structured training on health topics such as HIV/AIDS and other chronic diseases; and 199 employees, a ratio of 1:50, have completed a three-day peer educator course. The Health Link s success can be attributed to strong buy-in from Astral management as well as solid support among employees across the group. At-risk employees with poor health risk readings receive ongoing advice and support to help them to maintain good health and to live fulfi lling and satisfying lives, despite any illness that may affect them. The Astral Health Link programme includes the following: on-site initiatives aimed at improving and maintaining health and wellness; education, training and communication interventions; peer education, embarked upon to provide sustainable capacity building and to build the programme into the fabric of the workplace; monitoring measures to assess illness, absenteeism, deaths, disabilities, etc; and Post-Exposure Prophylaxis treatment, used to prevent infection in the event of accidental exposure to HIV (rape, abuse, car accidents, needle pricks, etc). The results of the programme are irrefutable: absenteeism is down by over R1 million in days saved and productivity has improved; perhaps the most notable impact is evident on the company s provident fund for the employees who participate: death claims peaked in 2008 with a total of 103 death claims amounting to R9 million; a year later, claims had reduced to 72 at R6,6 million; for the fi rst six months of the current period, claims have reduced to 15 deaths and claims are down to R1,66 million; and this equates to an effective annual reduction of 71%, or a direct savings of R6,85 million. Investment in the Astral Health Link has provided solid returns but the most important element is the improvement in employees health and wellness. This bodes well for Astral, for its staff, their families and their communities. The programme is holistic in that it provides clinical testing and treatment alongside emotional and mental support through counselling and patient management services that take socioeconomic conditions of employees into account. Astral s Health Link programme was launched in 2009 and has been extremely successful in terms of screening, diagnosing and treating employees for a range of health matters, including HIV/AIDS, diabetes, hypertension, cholesterol, tuberculosis and obesity Astral Annual Report

40 Sustainability report (continued) Monitoring for biological and chemical residues is done by reputable independent laboratories. A veterinary partnership exists with a leading fi rm of consultants in South Africa. All our abattoirs are HACCP certifi ed and consistently perform above 80% in the Department of Agriculture s Hygiene Programme. We emphasise the importance of traceability of fi nal product and are in a position to trace any emergency through the system from fi nal product to chicken growing. We are actively involved in a number of forums such as the South African Poultry Association, Codex Committees and Statute Committees. Packaging and ingredient suppliers Packaging and ingredient suppliers have a major impact on the risk management of food quality and safety and are managed accordingly. We drive a policy to exclude dealings with suppliers that pose a threat to our product responsibility. Food Safety Certifi cation is a compulsory requirement for ingredient suppliers and continuous communication and controls have been established to prevent potential risks occurring such as the Melamine contamination in food in previous years. Membership of industry organisations Astral and its employees participate in the following organisations: Organisation Consumer Goods Council of South Africa Southern African Poultry Association South African Agricultural Processors Association Animal Feed Manufacturers Association South African Veterinary Council Health Professionals Council World Poultry Science Association South African Society for Animal Science Regulators and compliance As we are a participant in the food industry, we comply with the strictest standards and continuous monitoring by internal and external parties to verify adherence. ISO ISO Operations HACCP 9001: :2005 Earlybird Olifantsfontein Standerton County Fair Hocroft Epping # East Balt SA Meadow Randfontein Delmas # Welkom # Pietermaritzburg Paarl Port Elizabeth # HACCP Hazard Analysis and Critical Control Point Systems ISO 9001:2008 Quality Management Systems Certifi cation ISO 22000:2005 Food Safety Management Systems Certifi cation # Comply but not certifi ed Community We play an active role in the communities in which we operate through a social investment strategy which focuses on education, HIV/AIDS and upliftment. Corporate social investment The Wellness Programme is an initiative in Corporate Social Investment and benefi ts not only our employees but extends into the broader community. Environmental sustainability practices We strive to use the best environmental practices on all the land used for either farming, processing, milling or distribution operations Land utilisation Hectares Hectares Owned Leased Partners Dormant Environmental risks Our underlying environmental policy philosophy is the adoption of protective strategies to manage and control the impact of our agricultural and manufacturing operations upon the environment, at the same time as safeguarding our extensive assets and human resources. Environmental risk assessments are conducted and reported on an annual basis as a component of our risk control programme. Alexander Forbes Risk Services have been appointed to conduct environmental risk assessments at selected Astral Foods operations in order to assist in this regard. During the period under review, environmental risk assessments were conducted at the following operations: County Fair hatcheries 1, 2 and 3. County Fair Soetendal hatchery 4. Earlybird Farm Olifantsfontein. Earlybird Farm Standerton primary processing. County Fair Farming services. Hocroft processing. Epping processing and Newmarket distribution. National Chicks Umlaas Road hatchery. These environmental risk assessments focus on the following areas: Water quality. Waste management. Hazardous chemicals. Air quality. Site management. Land management. Legal requirements. 38 Astral Annual Report 2010

41 The following environmental risks have been identifi ed in our operations: Environmental risks Hazardous chemical, diesel and gas spillage Ground and surface water pollution Waste disposal Odours from processing plants Risks mitigated by Training programmes Health and safety procedures Bund walls Annual independent grading audits Hazardous chemical stores Environmental policy Annual Independent environmental audits Environmental management programme Regular monitoring Effl uent water treatment programme Registered waste companies for safe disposal of contaminated or hazardous waste Environmental policy Environmental management programme Weather and monitoring stations Energy usage Electricity In all our operations energy effi cient lighting, heating and power correction systems have been implemented to reduce energy usage. We recognise that in South Africa electricity is regarded as a scarce resource and we take all steps possible to ensure that our operations function as optimally as possible. Gas and Coal Consumption Gas ( 000 tons) Coal ( 000 tons) We use coal fi red water boilers in the milling operations and Liquid Petroleum Gas ( LPG ) and coal fi red water boilers in the poultry operations. The predominant source of heat in the poultry houses is LPG. The majority of the poultry houses are fan-ventilated to move air more effi ciently and to reduce energy consumption. Water usage Poor water quality and potential water shortages are signifi cant potential risks to the business and we are looking at ways of reducing the demand for water in all processes. Water effl uent is managed and every effort is made to recycle effl uent water. Consumption Water (megalitres) Waste and recycled products We analyse all types of waste material generated for possible re-use. Waste is disposed of in the most environmentally friendly way possible. Currently we use the following recycled products: wood shavings as bedding for the chicken houses; sunfl ower husks as bedding for the chicken houses; and high quality animal oil is produced by processing waste material through our rendering plants which is then utilised as an additive in the production of bio-diesel. Emissions to air We recognise our responsibilities in terms of the Air Quality Act, 39 of 2004, and as such ensure that the animal matter reduction plants and coal-fi red boilers and their boiler stacks are well maintained and routinely inspected. Environmental Impact Assessment (EIA) We conduct Environmental Impact Assessments as required by the Department of Agriculture and Environmental Affairs when considering investment in new or upgrading existing facilities. This process allows for comments and input from all stakeholders. An Environmental Management Plan (EMP) is established for the construction phase of these projects, to serve as a guide to assist in minimising the potential environmental impact of the project activities. Carbon footprint Both the Poultry and Feed divisions have appointed an independent company to assess their respective carbon footprints. High carbon intensity in most cases relates back directly to energy utilisation and associated operational costs. The carbon footprint assessment process will allow senior management to identify and implement energy effi cient processes related to energy usage. Waste-to-energy opportunities The Poultry division currently has three rendering facilities each of which convert lower value waste streams to higher value product. County Fair, in conjunction with an independent company, have been actively researching various waste-toenergy opportunities that were available to the group over the past three years. Poultry manure At County Fair alone, approximately 600 cubic metres of manure is generated daily and we are investigating opportunities to extract methane gas from it and turning it into electricity and heat. Theoretical calculations done by an independent company estimated that County Fair alone should be able to generate between 3,5 and 4,5 megawatt of electricity from the broiler poultry manure; virtually the same amount of electricity required to run the abattoir. Conclusion We believe that the sustainability of our business lies fi rmly in the hands of our employees, as they are the greatest source of our competitive advantage. We implement best practices in all areas of our operations in order to achieve meaningful improvement in the productivity of our people and in the quality of life for them and their communities. Astral Annual Report

42 Annual financial statements As a low cost producer of poultry meat we are acutely mindful of costs and equally prudent about expenditure 40 Astral Annual Report 2010