ASTRAL. Integrated Annual Report 2011 for the year ended 30 September. A leading Southern African integrated poultry producer

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1 Integrated Annual Report 2011 for the year ended 30 September ASTRAL A leading Southern African integrated poultry producer Astral Integrated Annual Report 2011 C

2 Table of contents Profi le 1 Strategic focus 1 Financial highlights 2 Astral as an investment 3 Astral Foods at a glance 4 Group activities 5 Group structure 6 Business overview 7 Chairman s review 8 Chief Executive Offi cer s report 12 Chief Financial Offi cer s review 18 Seven-year fi nancial ratios and statistics 21 Business process model 22 Operational footprint 24 Our operating environment 25 Our approach to sustainable value creation 26 Our strategic focus areas 26 Risks and mitigation 27 Directorate 28 Executive management 32 Corporate services 33 Corporate governance 35 Audit and Risk Management Committee report 42 Remuneration report 44 Sustainability development review 48 Annual fi nancial statements 64 Analysis of ordinary shareholders 116 Notice of annual general meeting 117 Shareholders diary 123 Form of proxy Attached Administration IBC

3 Profile Astral is a leading South African integrated poultry producer. Key activities Strategic focus comprise manufacturing of animal feeds, broiler genetics, production and sale of day-old chicks and hatching eggs, breeder and broiler production, abattoir operations and sales and distribution of various key poultry consumer brands. To be a focused integrated poultry operator; and To be a low-cost producer of poultry meat. This report Astral Foods integrated annual report covers our economic, environmental and social activities of the group and their consequences for stakeholders for the year ended 30 September It aims to provide a broad range of stakeholders with a transparent, balanced and holistic view of the group s performance. The report is evolving to present these aspects in an integrated manner confirming operational responsibility and accountability for business sustainability and covers the operations of the group and major subsidiaries for the period from 1 October 2010 to 30 September No limitations were placed on the company in preparing this report and no restatement of prior year information was necessary. We considered the following in compiling this report: The Companies Act The JSE Listing Requirements King III Report International Financial Reporting Standards (IFRS) relating to the financial statements Sustainability Reporting Guidelines as published by the Global Reporting Initiative (GRI) The front section summarises key aspects of our business and provides a strategic overview of our activities. Salient indicators, an overview of operations and a strategic framework are underpinned by a commitment to corporate governance and ethical behaviour. The chairman s review and chief executive s report give an overview of the business, addressing past performance, covering important aspects, indicating strategic direction and future opportunities. The chief executive s report also provides detail of the divisions and insight into performance. The chief financial officer s report highlights the financial performance of the group over the past financial period. The governance section covers legal and ethical corporate conduct. Sustainability issues are dealt with throughout the report. The section on sustainability provides an overall perspective on value creation activities to our stakeholders. Contact For questions regarding this report contact: Maryna Eloff Group company secretary maryna.eloff@astralfoods.com (012) Astral Integrated Annual Report

4 Financial highlights Revenue (R 000) EBITDA (R 000) Operating profi t (R 000) Operating profi t margin (%) 7,8 7,0 Cash generated for the year Net debt (R 000) Earnings per share (cents) Dividends per share (cents) Total assets (R 000) Net asset value per share (R) 41,36 37,43 Cash generated from operating activities Dividends per share Headline earnings per share Operating profit Astral Integrated Annual Report Revenue Total assets

5 Astral as an investment Largest integrated poultry producer in Southern Africa A leading low cost producer of feed pre-mixes, complete feed, hatching eggs, day-old chicks and broilers in Southern Africa with an expanding footprint in selected Southern African countries Leading brands Leading brands in poultry genetics (Ross 308), animal feed (Meadow), vitamin and mineral pre-mixes (Nutec), day-old chicks and hatching eggs (National Chicks), laboratory services (CAL), TigerChicks Zambia and strong poultry meat consumer brands (Goldi, County Fair, Festive, Mountain Valley and SupaStar) People skills Experienced long-serving employees with strong backup and industry-leading track record, succession, value systems, integrity and consideration for the environment National footprint Well-positioned in the major growth areas close to strategic and infrastructural transport hubs Generation of strong cash flows Proven record with the ability to meticulously manage working capital and to generate strong cash fl ows The result: Consistently sound return on capital and dividend payments; and Strong cash generator with low gearing. Astral Integrated Annual Report

6 Astral Foods at a glance Astral Foods was established and listed in April 2001 on the JSE Limited, after Tiger Brands unbundled its agricultural operations. Currently Astral Foods is ranked in the top 100 companies listed on the JSE Limited with some shareholders and in excess of full-time and contract employees. Our operations are strategically located within Southern Africa with poultry operations in South Africa, Swaziland and Zambia and feed mills in South Africa, Mozambique and Zambia. 4 Astral Integrated Annual Report 2011

7 Group activities POULTRY Contribution to group revenue: R5 599 million (2010: R5 351 million) Group activities Overview Business Integrated broiler operations We have four fully integrated broiler production, processing, distribution, sales and marketing operations. The combined production capacity of 4,215 million processed broilers per week is made up as follows: Earlybird Standerton Earlybird Olifantsfontein Earlybird Camperdown County Fair Foods 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 ( IQF ) products. Earlybird Camperdown, previously known as Mountain Valley, was acquired during this year and produces both fresh and frozen poultry 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 is the sole distributor and supplier of Ross 308 parent stock to the South African broiler industry. The company has a technical agreement with Aviagen Limited, a multinational 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. Ross Poultry Breeders is now 100% owned after the acquisition of Aviagen Limited s 10% noncontrolling interest. FEED Contribution to group revenue: R2 815 million (2010: R2 815 million) Feed The South African operations consist of mills located in Randfontein, Delmas, Welkom, Paarl, Port Elizabeth, Pietermaritzburg and Ladismith. These seven strategically placed feed mills are well-equipped to produce and distribute a wide range of specialised products for all commercially farmed animal species. The other African operations comprise a feed mill in Lusaka (Zambia) and an 80% shareholding in a mill in Maputo (Mozambique). SERVICES AND VENTURES Contribution to group revenue: R192 million (2010: R201 million) Animal feed pre-mix Analytical Laboratories Bakery NuTec, a 50% joint venture with Provimi Holdings based in Holland, manufactures and markets vitamin and mineral premixes for animal feed and distributes a wide range of feed additives, and commodity and speciality raw materials. Central Analytical Laboratories analyses animal feed and water samples for the agricultural sector. East Balt South Africa operates two bakeries, in Gauteng and the Western Cape, producing hamburger buns, English muffi ns, Kaiser rolls and other sandwich carriers, primarily sold to fast food outlets in South Africa. East Balt South Africa is a joint venture with the United States-based East Balt baking company. Astral Integrated Annual Report

8 Group structure 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 Meadow Feeds Central Analytical Laboratories Ross Poultry Breeders (Pty) Limited 100% Feeds Operations Poultry Operations Investment Holding Baking Operation 100% Meadow Feeds (Eastern Cape) (Pty) Limited 6 Astral Integrated Annual Report 2011 Meadow Moçambique Limitada East Balt SA Partnership 80% 50%

9 Business overview Business Activities Earlybird comprises three broiler processing facilities located in Olifantsfontein (Gauteng), Standerton (Mpumalanga) and Camperdown (KwaZulu-Natal). Earlybird, which includes its own breeding and hatchery operations, processes approximately 2,89 million broilers per week. Earlybird makes use of a large number of contract growers to rear birds for slaughter. Various wellknown consumer brands such as Festive, Goldi and Supa Star are marketed and distributed into the wholesale and retail sector. Earlybird supplies products to the quick-service restaurant industry most notably Spur and the Famous Brands group (Wimpy, Steers). The recent acquisition of an abattoir known as Mountain Valley provided Earlybird with a strategic processing presence in KwaZulu-Natal. Meadow Feeds situated in Randfontein, Delmas and Pietermaritzburg supplies poultry feed to the three integrated broiler operations. Located in the Western Cape, County Fair is a fully integrated broiler producer processing 1,33 million birds per week. The abattoir located in Agter-Paarl supplies birds to a fresh and frozen further processing facility in Epping Industria, Cape Town. County Fair markets products under the County Fair brand with a product range of approximately 137 products. The day-old chicks hatched and placed on County Fair s grow-out farms are supplied by their in-house breeding operations. Meadow Feeds situated in Paarl supplies all the poultry feed requirements. Conducts business as an international supplier of day-old chicks and hatching eggs to the Astral Group and non-integrated independent operations in South Africa, Swaziland, Botswana and Mozambique. Plays a key role at every step in the supply chain, whether from chicken to egg or from egg to chicken. 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. 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 ensure that Meadow delivers what farmers require most good value, safe feed and superior yields. 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. Offers a dedicated and diverse range of analyses to the Animal Feed industry. Employs the latest instruments and methods to provide the best possible service to its client base. The most recent and largest investment made by Astral. It is a breeder farm and hatchery producing day-old broiler chicks for the Zambian and future export market. TigerChicks has not only introduced a new broiler breed, namely the Lohmann Meat, into Zambia but also into Africa. This is the fi rst slow feathering broiler bird to be bred in Africa. Tiger Animal Feeds has been the leading feed supplier in Zambia for more than ten years. Its world-class range of feeds, strong distribution network and on-site nutritional service has greatly contributed to the growth and the profi tability of farmers and the establishment of new farmers through training and after-sales support programmes. All products conform to the quality assurance standards of the Zambian Bureau of Standards and are backed by an array of quality assurance systems. Astral Integrated Annual Report

10 Chairman s review Despite challenging market conditions, Astral has managed to strike a sound balance in the risk appetite versus risk aversion trade-off, both operationally and strategically. Jurie Geldenhuys Chairman 8 Astral Integrated Annual Report 2011 Retrospective As expected, 2011 was indeed a year of survival of the fi ttest in the poultry industry. Continuing global economic turmoil, overlaid on the inherent uncertainty in South Africa s social, economic and political environment, took its toll on a number of smaller producers which were consolidated into the majors, with a few more touted to be in fi nancial distress. During the 2011 fi nancial year, the Astral group s Poultry division remained under considerable pricing pressure with the six-month smoothed average realisation below 36-month averages. Feed input costs continued their upward trend and poultry imports were at record highs. Despite these challenging market conditions, Astral has managed to strike a sound balance in the risk appetite versus risk aversion trade-off, both operationally in the short term and strategically in the medium to longer term. The company has benefi ted from arguably the best farm effi ciencies in its history, impacted positively by the essentially complete integration of the International Ross 308 bird. Selling prices, though still well below 2008 to 2009 highs, have been edging up slowly. The same can be said for per capita consumption bolstered by the continued status of chicken as a preferred and relatively low-cost source of protein in South Africa. These factors, combined with astute marketing, resulted in a gratifying 20% increase in Astral s headline earnings per share for the 2011 fi nancial year. The objective of remaining a leading South African integrated poultry producer is thus being realised. A highlight of the year for Astral was its acquisition of the Mountain Valley operation in KwaZulu-Natal, which became the group s third Earlybird production centre, alongside Standerton and Olifantsfontein. This transaction fulfi lled a strategic need identifi ed during the 2010 strategic review, namely geographic diversifi cation into high-demand regions with accompanying synergies for the group. Corporate governance A recent self-audit of King III compliance guidelines has yielded satisfactory results for the business. Considerable progress has been made on Astral s pathway to sustainability, particularly in terms of environmental compliance. Areas earmarked for further improvement include the governing of stakeholder relationships and information technology, compliance monitoring and reporting and the establishment of the statutory Social and Ethics Committee. A highlight of the year has been the launch of the Chief Executive s management development programme in partnership with the North-West University. Some 30 candidates have been selected to participate in this skills development programme which is anticipated to notably augment the number of previously disadvantaged employees in the middle- to senior-management ranks of the company.

11 Highlights The acquisition of the Mountain Valley operation in KwaZulu-Natal fulfi lled a strategic need for geographic diversifi cation into high-demand regions; The company benefi ted from the best farm effi ciencies impacted positively by the complete integration of the International Ross 308 bird. Achievements Best farm effi ciencies in company s history; Complete integration of the International Ross 308 bird; Astute marketing. Focus Improving quality and price of feed; Cost containment; Health of bird fl ocks; Stakeholder relationships. The group s enduring endeavours to co-operate with the Competition Commission have yet to reach a stage of settlement and, notwithstanding assurances to stakeholders that no unfavourable developments were anticipated, further allegations of historic incidents between 2003 and 2007 have been brought forward by the Commission. I refer to the voluntary SENS release on 9 September in this regard. The company has since undertaken a comprehensive investigation into these allegations. Regrettably, Astral s investigation has found that some of the allegations have substance. We are currently engaging with the Commission in relation to the fi ndings of our internal investigation. An exercise conducted recently to re-evaluate board, directors and the chairman s performance, resulted in a satisfactory outcome. Identifi ed areas for improvement will be addressed appropriately in due course. During the year, the industry faced a number of challenges from the media regarding product specifi cation. These were addressed expeditiously and successfully in a transparent manner. Astral CEO, Chris Schutte, played an invaluable role in this regard. The year ahead The Finance Minister, in his medium-term budget policy statement, spoke of shock waves of fi nancial crises and winds of uncertainty in places that seem far away, which can rapidly affect us, for better or worse. In my view, the worse case scenario may regrettably be the more likely eventuality. International economic prospects for the USA and Eurozone remain poor with growth forecasts averaging 1% per annum. The outlook for the developed world remains uncertain and volatile as attempts are made to address severely confl icting socio-economic and political demands. Thus far, these actions have had a rather limited success. China s economy superseded Japan s during the year and, as the world s second-largest economy, the East Asian powerhouse is expected to grow at a marginally slower rate of 8,5%, as its monetary policy may have to be tightened to contain infl ation. Market volatility and a lack of global economic performance will continue to affect South Africa with its 2012 growth forecast revised down to below 3%. It remains to be seen to what extent this will be boosted by enhanced export earnings resulting from a weaker Rand. This growth outlook is far below the requirement to address South Africa s structural headaches of unemployment and poverty. Currently, the offi cial unemployment rate is above 25% and rising, with unoffi cial estimates considerably higher. Recruitment fi rm Adcorp suggests that almost jobs were lost in the country during August alone. This is against a stated national goal to create fi ve million jobs in the next nine years. If unemployment is not urgently addressed, further pressure will be put on social spending, which in turn will slow down South Africa s economic growth and long-term prosperity. Ironically, as in certain countries in the Eurozone, this will require extremely tough political decisions to be made around confl icting socio-economic and political demands. Astral Integrated Annual Report

12 Chairman s review (continued) Hopefully, though this is not a particularly desirable long-term remedy, a weaker Rand may ease pressures somewhat. International and, more so, South African grain and yellow maize price prospects are of fundamental importance to both Astral s Feed and Poultry divisions as maize constitutes approximately 50% of the group s poultry feed rations. In this regard, the fouryear graphs below provide an elucidating outlay of the underlying dynamics affecting the business costs and pricing. For various reasons, Brent crude and Chicago Board of Trade (CBOT) corn prices are highly correlated. The fact that approximately 50% of the USA s corn consumption is currently utilised for ethanol production partly explains this phenomenon. Brent crude has softened somewhat and so has the CBOT dollar corn price, which has been suppressed of late by negative sentiment in the US economy and by the unexpectedly large increases in estimated corn inventories reported by the United States Department of Agriculture on 30 September CBOT corn price and Brent oil price Corn Price (c/bu) Corn Brent Yellow maize ($) and CBOT corn price ($) Corn Price (c/bu) Corn Yellow maize ($) Yellow maize (R) and CBOT corn price ($) Brent oil ($/barrel) YM (R/ton) 10 Astral Integrated Annual Report 2011 South African yellow maize prices, expressed in dollar terms, also show a reasonable degree of correlation with CBOT dollar corn prices. The recent breakdown in this relationship is mainly due to a tightening of South Africa s maize balance sheet due to large exports resulting in substantial yellow maize price increases. Current ZAR maize prices are the highest in fi ve years on the back of export demand and low stock ratios. This is mainly attributable to good international prices and the recent weakening in the Rand. It thus appears, at the time of writing, that 2012 yellow maize prices will remain relatively high, averaging of the order of USD 6,25 to 7,25 per bushel (ZAR to ZAR per tonne). Likewise, soya bean prices are expected to be on the high side during 2012, averaging between USD 12,50 to 13,50 and USD per bushel. (ZAR to per tonne). Corn Price (c/bu) Corn Yellow maize ($) YM (R/ton)

13 Margins in the Animal Feed division are therefore likely to remain under the same pressure as in Feed costs to the Poultry division may ease off slightly but will nevertheless remain considerably higher than the fi ve-year average. To conclude, signifi cant increases in maize and soya prices, along with substantially higher electricity and fuel costs, are expected to result in higher chicken prices. Astral s focus will remain on cost containment and effi ciencies to stay competitive. The company s operations are currently running effi ciently, begging vigilance to guard against unexpected exogenous variables such as factors that could affect the health of bird fl ocks and the quality and price of feed. Appreciation The results of the company bear ample testimony to the commendable ability of Chris Schutte and his management team in what is generally acknowledged as extremely tough economic conditions. On behalf of the board, I salute the team and wish the business every success in the challenging year ahead. It is a privilege to be the chairman of the board of a company of Astral s calibre, and to each and every director, executive and non-executive alike; I thank you for your sincere interest, involvement and professional support. Anti-dumping initiatives by the South African Poultry Association are positive moves that we as a group welcome. In the medium to longer term, consumer demand for chicken is expected to increase further based on good value relative to other protein sources as indicated below. Jurie Geldenhuys Chairman 10 November 2011 Monthly Producer Prices (SA c/kg): March October Jun 08 Sep 08 Dec 08 Mar 09 Jun 09 Sep 09 Dec 09 Mar 10 Jun 10 Sep 10 Dec 10 Mar 11 Jun 11 Sep 11 Feed coversion ratio Per capita consumption Chicken: 1.7 Pork: 2.2 Beef: 5.5 Sheep: 5.0 Chicken: 33.0kg Pork: 4.6kg Beef: 17.7kg Sheep: 3.2kg Astral Integrated Annual Report

14 Chief Executive Officer s report Astral s results for the year under review bear testimony to the benefits of superior poultry production efficiencies, beneficial raw material procurement strategies, effective cost control and sound inventory management. Chris Schutte Chief Executive Offi cer Introduction In April 2011, Astral celebrated its 10th year as a JSElisted company formed out of the unbundled agribusiness division of Tiger Brands in Astral s 11th annual report provides an overview of the results for the year under review, to illustrate not only the group s financial and operational performance and achievements, but also to highlight how the business has performed within the macro environment in which it operates. The global economic turmoil experienced over the past three years has not shown any signs of abating during the period under review, and the downstream effects thereof on the South African economy tested Astral s profi ciency to excel amid prevailing market conditions. The tough trading conditions this past year were compounded by macro-economic factors including amongst others, the strong Rand which made conditions for opportunistic imports of poultry meat extremely favourable. The classic dumping of chickens primarily from Brazil, disturbed the balance in local supply and demand which negatively impacted the ability to move selling prices in line with infl ationary trends. The country s inability to create more jobs, linked to high unemployment, depressed discretionary household spend as a result of reduced per capita disposable income. This was exacerbated by rising global food prices and its negative impact on local food infl ation. These factors placed downward pressure on local poultry pricing levels, which did not track the general trend in consumer food price infl ation, as indicated alongside. Total Imports in tons per month Broiler selling price vs Food price inflation 12 Astral Integrated Annual Report Jan 06 Jun 07 Jan 08 Jun 09 Jan 10 Jun Oct 06 Apr 07 Oct 07 Apr 08 Oct 08 Brioler selling price Apr 09 Oct 09 Apr 10 Oct 10 SA food price index Apr 11 Jun 11 Sep

15 Highlights In April 2011 Astral celebrated its 10th year as a JSE-listed company; A 20% improvement in headline earnings was achieved for the year under review, driven by favourable feed costs and improved bird performances; The gearing reduced to 3% for the year (2010: 9%), whilst the dividend declared increased by 7%; Astral received a BB or level 6 BEE rating with the group achieving 45,6% towards the employment equity targets as stipulated in the Department of Trade and Industry s Code of Good Practice. Achievements The average broiler performance effi ciency factor (PEF) for the group for the past year reached a record high of 300 points; The market price for maize increased by an average of 30% year-on-year whilst the average poultry feed price for the group only increased by 2,3% over the same period and is testimony to effective procurement strategies over the past year; The CEO Pinnacle Programme was launched during the year, and will see elected individuals participating in an employee skills development initiative through the North West University. Focus To remain a low-cost producer of poultry meat; To maintain the excellent on-farm production results whilst extracting all possible cost effi ciencies; To focus on key projects in the coming year that will leverage expansion opportunities through organic growth and acquisitions in target markets. In 2011, South Africans experienced above-infl ationary increases in energy costs resulting from electricity, gas, coal and diesel price hikes, which in a depressed market could not be fully recovered in the selling price of chickens or animal feed. However, local grain prices, together with the group s forward procurement strategy of maize and soya as key cost drivers in poultry production, strengthened Astral s performance through the year. Astral s focus on working capital management also contributed notably to improvements in both cash fl ow and net debt. Cash generated from operations increased by 8.9% to R837 million (2010: R769 million), with net borrowings easing from R129 million to R39 million. This reduced Astral s gearing to 3% (2010: 9%). Against this backdrop, Astral s results for the year under review bear testimony to the benefi ts of superior poultry production effi ciencies, benefi cial raw material procurement strategies, effective cost control and sound inventory management. These effi ciencies underscore Astral s focus on remaining a lowcost producer. Financial overview of operations In 2011, Astral achieved a 20% improvement in earnings, on the back of excellent interim results posted in March However, growth in the second half of the year slowed down on a year-onyear basis, impacted by higher feed prices and depressed poultry selling prices. Revenue for the group increased by 2,8% to R8,6 billion (2010: R8,4 billion) on the back of a marginal increase of 0,9% in poultry volumes and 4,1% in poultry realisations. Operating profi t showed a healthy increase of 15,3% to R675 million (2010: R585 million) and the operating margin at 7,8% showed an improvement of 0,8%. Improvement in profi tability was driven by favourable feed costs, improved feed conversion effi ciencies, good bird liveability and a slight improvement in selling prices. Poultry division Revenue for the division was up by 4,6% to R5,6 billion (2010: R5,4 billion) on the back of marginally higher volumes (up 0,9%) and poultry selling prices improving by 4,1%. Profi tability increased signifi cantly by 35% to R353 million (2010: R262 million), resulting in a net margin for the division of 6,3% (2010: 4,9%). The increase in profi tability was derived mainly from the control of production costs, feeding cost benefi ts driven by excellent farming practices and effi ciency improvements across all key production indicators. Feed division Revenue for the division decreased marginally by 0,3% to R4,21 billion (2010: R4,22 billion) due to lower internal sales volumes (down 1,7%) as a direct result of the improvement in feed conversion with the new Ross 308 breed and reduced sales in the dairy sector. Profi tability increased by 0,4% to R282 million (2010: R281 million), supported by a signifi cant improvement in the turnaround performance of the division s Zambian and Mozambican operations. Astral Integrated Annual Report

16 Chief Executive Officer s report (continued) Services and Joint Ventures Revenue for the division increased by 2,3% to R276 million (2010: R270 million). Profi tability decreased by 6,1% to R39,4 million (2010: R42,0 million) impacted by the non-recovery of overheads due to low capacity utilisation in the new East Balt bakery in Cape Town. Excluded from the results for 2011 is the profi t contribution from the Mauritian operation, which was sold earlier in the fi nancial year. Operational Performance Poultry division Astral s poultry division comprises three separate activities: Broiler operations. Day-old chicks and hatching eggs. Broiler and breeder genetics. In addition to the above improvements and depicted in the graph above, it is evident that target bird weights are achieved at a lower age with an average slaughter age over the reporting period of 34,6 days, with an average live weight per bird of 1,8 kilograms. The processing yield has decreased by 2% as a direct result of a decision to discontinue the use of an ice-glazing process. The feed cost per kilogram of live weight reduced during the year, despite an increase in the average feed price, and can be attributed to the improved feed conversion rate achieved with the new genetic line. Poultry division combined broiler key indicators: September Astral Integrated Annual Report 2011 Broiler operations The four integrated broiler operations are strategically located in the major growth areas of Gauteng, Mpumalanga, the Western Cape and KwaZulu-Natal. The slaughter numbers for these operations total 4,2 million birds per week and are made up as follows: Earlybird Farm Olifantsfontein Earlybird Farm Standerton County Fair Agter-Paarl Earlybird Farm Camperdown birds per week Astral s introduction of the new Ross 308 genetic line was fully integrated into all operations as of March 2011 and the effi ciency improvements from this bird are in line with expectations. As depicted in the graph below, overall effi ciency improvements were achieved, with the main contributors being liveability and feed conversion. The performance effi ciency factor (PEF) for the group for the past year reached a record average level of 300 points versus the prior period s average of 287 points, following the introduction of the new bird. The improvement in the mortality rate can be attributed to the combination of a better health status in the industry, and the robustness of the new genetic line. Over the past three years, the overall health status of the poultry industry has been encouraging and has created a platform for the optimisation of the inherent genetic potential of the Ross 308, supported by sound on-farm poultry management practices. Poultry division combined broiler key indicators: September F07 F08 F09 F10 F11 Processing yield Live weight Slaughter age Key indicators baselined to 100% in F07 F08 F09 F10 F11 Efficiency factor Feed conversion (FCR) Mortality Key indicators baselined to 100% in 2007 Day-old chicks and hatching eggs National Chicks, the group s commercial hatching egg and day-old chick producer operating in South Africa and Swaziland, experienced lower egg sales to the Astral broiler operations. This was, however, offset by higher external day-old chick sales. National Chicks posted satisfactory results despite tough market conditions on the back of spare hatching capacity in the industry, with hen-house production increasing by 17%. Broiler and breeder genetics The group s genetic operation, Ross Poultry Breeders Pty Limited, operates in association with Aviagen Limited, a global leader in the development and genetic improvement of commercial chicken breeds. Following the introduction of the new Ross 308 bird, the performances achieved are regarded as highly successful and will continuously be exploited. Following the acquisition of Aviagen s 10% shareholding in Ross Poultry Breeders we will now be able to consolidate the Ross and Elite breeding operations. Feed division The division comprises seven feed mills in South Africa, together with two mills located in Zambia and Mozambique (reference page 24 map). Included in the division is the broiler breeder and hatchery operation in Zambia known as Tiger Chicks. In addition to Astral s poultry operations in Zambia and Swaziland, a smallscale broiler breeder and hatchery operation in Mozambique will be added in the next fi nancial period. Meadow Feeds produces and supplies approximately 50% of its total volumes to the group s downstream poultry operations. Total volumes (internal and external) decreased by 1,7% in 2011, driven largely by a decrease in feed supply to the poultry division

17 due to better feed conversion rates. Total plant capacity remained unchanged year-on-year, with total feed volumes produced decreasing one percentage point on the back of the lower sales, resulting in a plant utilisation of 78% for the period under review. Meadow sales F2011 continues to bring benefi ts. Provimi has recently been acquired by the Cargill group and it is envisaged that this will afford the group new opportunities. Services and Joint Ventures This division comprises two joint venture businesses, as well as the specialised feed and water analytical services. Dairy Other Poultry external Poultry integrated Maize, as a key driver of input costs into feed and the production cost of poultry meat, contributed positively to stabilise costs during the fi rst nine months of the period under review, with well-priced maize positions benefi ting the average poultry feed price, which only increased by 2,3% year-on-year. This compares with an average 30% increase in the maize price over the same period and is testimony to the effectiveness of our procurement strategies. As can be seen in the graph below, local maize prices soared during the last quarter to levels of R2 200 per ton, an increase of 60% on the same period in the prior year, on the back of an increasing CBOT corn price due to poor crop conditions in the USA, coupled with the effect of local maize export initiatives to international markets. Broiler price vs Maize price Oct 06 Apr 07 Oct 07 Apr 08 Broiler selling price Oct 08 Apr 09 Oct 09 Safex yellow maize price Planning for the construction of a new feed mill in Standerton is well underway with commissioning of the plant scheduled for late 2013, preceding expiry of the ten-year feed supply agreement with Afgri stemming from the sale of their 50% interest in Earlybird to Astral in Locating the new mill in close proximity to our Standerton poultry operations will result in considerable savings to the group Focus on the production of consistently high-quality feed remains a key focus area and Meadow continues to excel as the market leader in animal nutrition. A strong long-term alliance has been maintained with Provimi, a global leader in animal nutrition, and Astral s close relationship with their leading nutritionists and poultry specialists in Brazil Apr 10 Oct 10 Apr 11 Jun 11 Sep 11 Central Analytical Laboratories (CAL), the group s in-house laboratory service, performed well for the year under review after installing new equipment and bedding down additional testing procedures. NuTec Southern Africa, a 50% joint venture with Provimi, specialises in the production of vitamin and mineral animal feed premixes and the provision of feed formulation and technical expertise. NuTec performed well for the year under review and will expand its focus in the coming year on export opportunities offered by broadening African markets. East Balt SA, a 50% joint venture with East Balt Inc., an industrial bakery group based in the USA, reported satisfactory results but was impacted by the non-recovery of overhead costs due to low capacity utilisation in the start-up year of its new bakery in Cape Town. Key Investments Capital expenditure for the period under review at R151 million is down on the prior year s R228 million, which included R92 million in respect of the East Balt bakery in Cape Town. Investment in replacement capital expenditure comprised the bulk of the expenditure. F2011 R million Replacement Expansion Total Poultry 67,2 36,5 103,7 Feed 23,2 6,8 30,0 Services and ventures 4,6 12,4 17,0 Capital projects include the plant automation upgrade project in the Feed Division and the upgrade and expansion of the waste water and effl uent treatment systems at Standerton and County Fair. Key challenges going forward Operationally, a key challenge for Astral will be to maintain the good health status of the poultry fl ock, whilst continuing to exploit the inherent genetic potential of the new breed. In this regard, sound farming methods and meticulous bird management practices will remain a vital focus area. The rising cost of energy and specifi cally electricity and liquefi ed petroleum gas (LPG), has prompted the poultry division to explore alternative heating and energy sources during the past year. In the year ahead, we will focus on an important project for possible implementation at County Fair in the Western Cape, which will enable this operation to move away from costly LPG as a fuel used in heating the poultry houses. Astral Integrated Annual Report

18 Chief Executive Officer s report (continued) 16 Astral Integrated Annual Report 2011 Successful stock management together with pricing and promotional mechanisms during the period under review ensured that in-house processed chicken stocks were kept in balance throughout most of the year. Stock management will remain a key focus area into 2012, as the level of poultry imports continues to pressurise the industry. Current stock management practices will be supplemented by a project that will optimise the integrated planning between all our poultry operations, which will be commissioned during the course of next year in collaboration with a Brazilian-based service provider. Higher feeding costs as a result of increasing global raw material prices will be carefully measured against the group s forward procurement strategy in the coming year, and the key challenge will remain Astral s ability to recover increased costs in the chicken price against the backdrop of local food price infl ation. Progress in the South African Poultry Association s (SAPA) antidumping tariff application will be closely monitored, and any measure of success in this matter will be viewed as benefi cial to the entire local poultry industry. It is paramount to ensure the survival of industry bodies so as to support local industry in pursuing just action against classic dumping of poultry products in South African markets. Astral will pursue a larger share of the quick-service restaurant (QSR) market and recent product tests were successfully concluded with KFC. Organic growth in the group s existing markets remains key, and opportunities to expand both locally and regionally through acquisition or internal investment are being explored. In this regard, a number of key projects have been identifi ed and are in various phases of evaluation. Principal Risks During the course of this year, an exercise was undertaken to once again identify the key risks facing the group, and through an enterprise-wide risk assessment programme administered by Astral s external auditors, these key risks were prioritised and risk mitigation plans developed. Key risks identifi ed include the following: Non-conformance to feed premix and fi nal feed specifi cations; Prolonged imbalance in supply and demand of poultry; Avian diseases and lapses in biosecurity measures; Loss of the superior genetic performance of the Ross 308; and Availability and cost of energy. In the management and mitigation of these risks, Astral has set out particular action plans (see page 27), and management systems have been implemented to support the operations in managing critical risks that could impact on the sustainability of the group s results. Acquisitions/Disposals Acquisitions Mountain Valley During the period under review, Astral concluded the acquisition of a poultry processing abattoir in KwaZulu-Natal known as Mountain Valley for a purchase consideration of R84,8 million. The abattoir currently slaughters and processes up to chickens per week and is now known as Earlybird Farm Camperdown. This acquisition is in line with the group s strategy to expand its poultry processing operations into regions where it does not currently have a presence. To date, Astral has not participated in the fresh poultry market in KwaZulu-Natal. The abattoir is situated in the Camperdown district, between Durban and Pietermaritzburg, in close proximity to Astral s broiler chick operation at National Chicks and the animal feed operation, Meadow Feeds, in Pietermaritzburg, which will both benefi t from this acquisition. Ross Poultry Breeders (10%) A strategic decision has been taken to integrate the grandparent breeding operations of Elite Breeding Farms and Ross Poultry Breeders to exploit operational synergies. However, both entities had non-controlling interest holders i.e. Country Bird Holdings (18% in Elite) and Aviagen (10% in Ross). The noncontrolling interest in Elite was acquired in 2008 and following this, the 10% interest in Ross was acquired from Aviagen for R14,0 million in September This will enable the consolidation and integration of the two companies during the coming year. Disposals Meaders Feeds Limited (33%) Astral s shareholding of 33% in Meaders Feeds Limited in Mauritius was disposed of on the back of limited growth potential and the fact that Astral did not have management control of the business. The transaction was concluded during October 2010 for an amount of R14,0 million. New Developments In line with our strategic intent, Astral will focus on certain key projects in the coming year. New hatchery During the period under review, capital expenditure was approved for the purchase of a broiler breeder farm and construction of a hatchery in Mozambique. Transfer of the property has recently taken place, and the construction of the hatchery will now commence with commissioning during Recent abattoir acquisition After bedding down the Mountain Valley acquisition, the group is now focusing on other geographic growth areas within South Africa, especially with a view to broiler processing. Certain targets have been identifi ed and Astral will only invest in expanding capacity if key investment parameters are met. New feed mill The new Standerton feed mill project is underway, with the recent purchase of industrial land. Scoping of the project is nearing completion and the provision of basic services to the site will be completed early in Commissioning is scheduled for 2013.

19 County Fair processing expansion An upgrade to the Hocroft abattoir in the Western Cape to be commissioned during mid-2012, will enable County Fair to increase processing capacity by 10%, and will also provide the fl exibility required to adjust to seasonal product mix requirements. Integrated planning For the past year, a team has been working on a project to facilitate integrated planning between all of Astral s poultry operations. In addition, the system will allow business optimisation through the implementation of mathematical modelling processes. Poultry operators face growing pressure to provide the most streamlined supply chains. Their ability to connect supply with demand is essential in order to allow for maximum effi ciency and improved profi tability. The ultimate objective is to provide the company with an integrated tactical and operational decision model that will support the business activities in fi eld and production planning, as well as inventory management. Effectively, two systems supplied by a Brazilian service provider will be implemented, with one of these systems supporting production planning decisions in the abattoirs and processing plants, and the other supporting farming operation decisions. Implementation commenced during November Aviagen, a global leader in poultry genetics; Provimi, an international specialist in animal nutrition; Nutron, a Brazilian animal nutrition and poultry husbandry specialist; Cargill, the global leader in grain trading and shipping; Seaboard, a unique company with its roots in agriculturally derived products; and Atlas, with a focus on sourcing and supplying protein-based soft commodities. Local alliances include that with CJA Strategic Risk Brokers who provide the group with statistical models that support decisionmaking in the forward procurement of key raw materials for use in feed production. Outlook It is expected that the following factors will be relevant to the business in the short to medium term. On the negative side, we are anticipating signifi cant increases in the feeding cost of poultry on the back of record high raw material input costs, together with current levels of poultry meat imports. On the positive side, we note manageable local poultry stock levels, a possibility of the success of the application by the industry for anti-dumping tariffs against Brazil and upward potential from poultry price levels. Market developments In our quest to grow our share of the QSR market, we have expanded sales into Famous Brands and Spur, and are to complete a remaining fi ve star audit with KFC in anticipation of being appointed as an authorised supplier of various products to them. Skills development Astral recently embarked on an employee skills development programme with elected individuals participating in management development courses hosted by the North West University. Each employee embarking on this CEO Pinnacle Programme will study towards a specifi c diploma qualifi cation and will be assigned a mentor from within the company for the duration of their year-long studies. Transformation update Astral received an updated BEE score (BB or Level 6 rating) during the period under review with the group achieving 45,6% towards the employment equity targets as stipulated in the Department of Trade and Industry s Code of Good Practice. The group reports positive progress in this area and its focus will remain on improving the company in those areas identifi ed as lacking against targets set on the scorecard. Astral is an equal opportunity employer, committed to the principles and objectives of the Employment Equity Act. Alliances Key alliances continue to play an important role in positioning Astral as a leading integrated poultry producer, and our association with international leaders in their respective fi elds is fostered and actively reinforced within the group. We will continue to focus on extracting production and cost effi ciencies where possible, but macro-economic conditions will have to improve in order to unlock shareholder value. Appreciation In closing, I would like to extend my gratitude to all our loyal customers for their continued support this past year, and to all our suppliers and service providers; a big thank you for your contribution to our sustained success. Thank you to my colleagues in management and staff, for your loyalty and support during arguably the most challenging of times. What I am most appreciative of is that Astral staff and management at all levels in the organisation accept a culture of high ethical standards, and with good old-fashioned hard work contribute to our goal to be the leading poultry producer in Southern Africa. I also wish to express my sincere appreciation to all members of the Astral Foods board for their unfailing commitment and support during the year. A special word of thanks to our Chairman, Jurie Geldenhuys, for his unwavering support and strategic leadership which again proved invaluable to the success of the company in the past year. Chris Schutte Chief Executive Offi cer 10 December 2011 Astral Integrated Annual Report

20 Chief Financial Officer s review Astral s 15,4% increase in operating profit to R675 million is a direct result of improved poultry profits. Daan Ferreira Chief Financial Offi cer 18 Astral Integrated Annual Report 2011 Financial results % Rm Rm Change Revenue ,8 Operating profi t ,4 Operating profi t margin (%) 7,8 7,0 Net fi nance costs (28,0) Tax ,1 Profi t for the year ,7 Headline earnings ,6 Astral s 2,8% increase in revenue to R8 606 million is a direct result of increased poultry sales achieved by marginally higher sales volumes and a 4,1% average increase in selling prices over the previous year. The contribution to revenue from the Feed segment was, however, down on the previous year due to both lower volumes and lower selling prices. Lower raw material costs, except towards the end of the fi nancial year, forced feed prices down. The Poultry segment reported a good improvement of 34,7% in its R353 million contribution to the group s operating profit of R675 million. Benefi cial feed input costs, good poultry farming effi ciencies and a reprieve from the previous year s costs of labour action were the main driving forces. Although higher selling prices for poultry products were realised during the year, sales were still under pressure due to weak consumer demand. Our Feed segment contributed R282 million to the group s operating profi ts and was on a par with the previous year, following a strong recovery in profi ts from those businesses outside South Africa. Profi ts from local Feed operations were down due to lower volumes and competitive trading conditions. Services and Ventures profi t at R39 million was marginally lower than the previous year s R42 million due to the exclusion of Meader Feeds Limited from the 2011 results. A further loss of R1,8 million was realised on the disposal of the shares in Meaders Feeds Limited after the carrying value of the interest was impaired by R7,2 million during Astral s net finance cost expense of R15 million was R6 million down on the previous year following lower average levels of borrowings throughout the year. Tax was provided at 28% for our South African operations and at the offi cial tax rates of the respective countries in which the foreign operations conduct their business activities. The tax charge against profi ts consisted of a combination of normal and deferred tax as well as withholding tax on dividends and Secondary Tax on Companies (STC) in respect of dividends paid during the year. Both profit for the year and headline earnings were close to 20% up on the previous year.

21 Highlights Benefi cial feed input costs and good poultry farming effi ciencies supported the improved profi ts. Achievements Low gearing; Increased dividend as well as improved dividend cover; Return on equity increased to 28,6%. Focus Working capital management; Continuous review of internal control procedures. Statement of financial position Rm Rm the end of the year. Higher volume sales, together with higher realisations achieved in September 2011 year-on-year, resulted in higher trade receivables. Non-current assets Current assets (excluding cash) Assets held for sale (net) Equity Non-current liabilities (excluding borrowings) Current liabilities (excluding borrowings) Net borrowings The increase in non-current assets to R1 877 million is as a result of R56 million for expansion and R95 million for replacement capital expenditure during the year. The acquisition of the Mountain Valley poultry abattoir towards the end of 2011 added another R85 million of which R16 million was in respect of goodwill. Depreciation for the year was R118 million. Current assets (excluding cash) increased to R1 327 million, resulting from increases in inventories (R57 million), biological assets (R37 million) and trade and other receivables (R36 million). The increased values for inventory and biological assets were due to the higher cost of feed as well as higher stock holding towards The interest in Meaders Feeds, disclosed as assets held for sale at the end of 2010 with a net carrying value of R15 million, was sold during this year for R14 million. Non-current liabilities consist of deferred tax and a provision for post-retirement medical aid (PRMA) assistance. The utilisation of tax allowances on capital expenditure as well as on the increased value of biological assets resulted in an increase in the deferred tax provision. The increase in the PRMA provision is according to an actuarial valuation at September 2011 of the future obligations in this regard. It is no longer a condition of employment for employees and this provision is in respect of employees engaged prior to the unbundling of the Astral business from Tiger Brands in Current liabilities increased to R1 109 million due to the increased value of raw materials procured towards the end of the year as well as the top-up of various provisions for future obligations. Net borrowings reduced from R129 million to R39 million at 30 September 2011, which represent a 2,5% debt to equity ratio. Included in net borrowings is R29 million in respect of Astral s share in long-term loans incurred by the East Balt joint venture to fi nance plant as well as R45 million in respect of the Astral Integrated Annual Report

22 Chief Financial Officer s review (continued) property lease capitalised at the newly built bakery in the Western Cape. A further R28 million has been borrowed by the Zambian operation to fi nance the greenfi eld poultry breeding and hatchery operations which are now nearing completion and have started to report positive results. The balance in net borrowings comprises cash and cash equivalents and short-term borrowings (bank overdraft). The balance of borrowings comprises a surplus of R69 million (2010: R29 million overdraft). At year-end the group had access to R843 million of short term bank facilities. Cash flow Group cash fl ow has remained strong. Cash generated from operating activities at R622 million was up on the previous year s R588 million. All capital expenditure and acquisition costs together with dividends were covered by the cash generated during the year. Ratios The low net debt to equity ratio of 2,5% on 30 September 2011 refl ects a typical month-end ratio with middle-of-the-month debt levels averaging about 9% of equity. The return on net assets (RONA) improved to 34,1% (2010: 30,3%) following the improvement in the operating profi t margin from 7,0% to 7,8% whilst net asset turn remained static at 4,3 times. Conclusion Astral s fi nancial results continue to be exposed to market forces, specifi cally as far as raw material prices for feed and selling prices for poultry products are concerned. We have no infl uence over these market forces. Raw material and selling prices are managed to the best of our ability within these environments utilising resources, information and planning techniques to minimise the effect of adverse movements. The effect of possible interest rate changes on profi ts will not be material due to the low gearing ratio. Exposure to credit risk is also low due to strict credit control management which resulted in virtually no long-outstanding trade receivables. Together with a focus on low costs, good poultry farming effi ciencies from the new Ross 308 breed and a strong balance sheet, we are well-positioned to weather adverse market conditions and be able to consider suitable business opportunities in which to invest into for future profi t growth. Daan Ferreira Chief Financial Offi cer 10 November 2011 Return on equity (ROE) likewise improved from 25,8% to 28,6% for 2011 as a result of the improved profi ts assisted by a relatively high dividend payout ratio. Dividend cover remains relatively low post the 2008 economic crisis and is at 1,4 times for Dividends were increased over the last two years whilst gradually improving the dividend cover at the same time. Going forward, we will continue with our objective to protect the value of dividends as far as possible. 20 Astral Integrated Annual Report 2011

23 Seven-year financial ratios and statistics Profit information Revenue R million EBITDA R million EBITDA margin % 9,2 8,3 7,8 7,8 14,5 16,5 13,9 Operating profi t R million Operating profi t margin % 7,8 7,0 6,6 6,7 12,8 14,8 12,3 Profi t for year R million Headline earnings for 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 % 20,7 18,6 18,5 18,4 32,3 38,6 31,5 Return on equity % 28,6 25,8 26,0 25,3 45,0 49,3 46,4 Return on net assets % 34,1 30,3 31,3 31,3 54,8 64,7 51,3 Net asset turn times 4,3 4,3 4,8 4,7 4,3 4,4 4,2 Shareholders ratios Earnings per share cents Headline earnings per share cents Dividend per share cents Dividend cover times 1,4 1,3 1,3 1,2 2,0 2,2 2,5 Stock exchange statistics Market value per share At year-end cents Highest cents Lowest cents Closing dividend yield % 6,9 6,8 6,7 7,3 5,8 6,8 5,4 Closing earnings yield (*) % 9,8 8,6 8,6 8,7 11,4 11,9 13,5 Closing price/earnings ratio times 10,2 11,6 11,7 11,5 8,8 6,7 7,4 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 # Refer to note 10 of the fi nancial statements for the number of shares effectively in issue net of treasury shares. * Based on headline earnings per share. 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 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/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. Astral Integrated Annual Report

24 Business process model Grand Parent Operation 22 weeks Rearing 40 weeks Laying 3 weeks Hatching Grand Parent Farms Breeding and Broiler Operations 22 weeks Rearing 40 weeks Laying 3 weeks Hatching 35 days Growing Parent Farms Broiler Farms 22 Astral Integrated Annual Report 2011 Feed Supply

25 Rearing Laying Hatching Broilers 1,1 million pullets per breeding cycle 2,0 million breeders per breeding cycle 39,5 million eggs per broiler cycle 30,4 million broilers on farm 5 Processing 4,2 million slaughtered per week 6 Storage 7 Distribution 8 Customer 9 Consumer Processing 4 Processing Plants Standerton Olifantsfontein Camperdown Western Cape Consumer Brands Astral Integrated Annual Report

26 Operational footprint Zambia Lusaka Mozambique Swaziland Manzini Maputo Randfontein Roodepoort Boschkop Centurion Meyerton Olifantsfontein Delmas Standerton Welkom Mount West Pietermaritzburg Camperdown Paarl Agter-Paarl Cape Town Ladismith Port Elizabeth Country Business and shareholding Country Business and shareholding 24 Astral Integrated Annual Report 2011 South Africa Seven feed mills Three breeding operations Three hatching egg suppliers Four broiler processing operations One pre-mix plant One laboratory Two bakeries National Chicks (100%) Earlybird (100%) County Fair (100%) Elite Breeding Farms (100%) Meadow Feeds (100%) Central Analytical Laboratories (100%) Ross Poultry Breeders (100%) East Balt SA (50%) NuTec SA (50%) Swaziland One hatching egg supplier Zambia One feed mill One breeding and hatchery operation National Chicks Swaziland (67%) Africa Feeds (100%) Progressive Poultry (100%) Mozambique One feed mill Meadow Mozambique (80%)

27 Our operating environment The following economic issues are key focus areas for the group: Commodity Availability/Prices The following commodities have a signifi cant impact on our cost structure: Maize; Soya meal; Sunfl ower meal; Fish meal; and Vitamins and minerals. These commodities are the main components of our poultry feed requirements accounting for, on average, approximately 84% of the cost of poultry feed. These commodities are procured by our Feed division in line with our approved procurement strategy which is driven by supply and demand. We manage feed utilisation by closely monitoring all factors impacting thereon such as slaughter age and feed conversion effi ciency. Imbalance of poultry supply and demand Periods of over-supply of poultry products in the industry can have a serious negative impact on sales realisations and profi tability. We focus on producing poultry products at the lowest possible cost in order to protect margins in times of over-supply. Local poultry demand has been hampered through higher levels of unemployment as a result of lower per capita disposable income. Job creation and higher levels of discretionary disposable income remain key drivers for fi rmer poultry prices. Poultry prices Prices are primarily driven by supply and demand which, in turn, is infl uenced by many factors. We benchmark on-shelf pricing levels and the availability of product on a regular basis to ensure that our products are competitive. Stockholding levels are closely managed and pricing strategies adjusted accordingly. Product mix The product mix plays an integral part in optimising sales realisations. It is important to optimise bird supply into processing and then through to sales in order to benefi t from the prevailing market demand. Product contribution reports are regularly reviewed in order to drive sales decisions. Imports Poultry imports, particularly from Brazil, have had a signifi cant impact on the local poultry industry in recent times currently accounting for approximately 30% of total supply to the local market and depressing domestic prices. This is particularly evident when the Rand trades at fi rmer levels against the US Dollar. The impact on the local poultry industry has been exacerbated by clear evidence of dumping in our market over the past year. The South African Poultry Association has applied for the implementation of import duty tariffs on Brazilian chickens and the success of this application is expected to be known during the course of the next 12 months. Growth of the consumer market Growth in the consumer market is a determining factor in the demand for poultry and is driven largely by population growth. Supply Demand Imports of poultry meat Poultry industry stock levels Domestic production levels Foreign exchange rates Long poultry production cycles (refer pages 22 to 23) Classic dumping Population growth Per capita consumption Level of employment Changes in consumer preferences Price of competing products Disposable income Urbanisation Astral Integrated Annual Report

28 Our approach to sustainable value creation Economic Operational effi ciencies are benchmarked against world best practice Sound working capital management Maintaining a strong balance sheet Alliances with strategic partners Environment Compliance with environmental regulations Maximise recycling of water Maximise electricity savings Waste to energy solutions in the Poultry companies Social Human rights Code of Ethics prohibits the abuse of human rights within or by our group Employees Focus on safety, health and skills development for all employees Employee training programmes at all levels Management training programme offered to employees Mentorship programme Promotion from within Equality, empowerment and transformation BEE rating in top quartile of JSE-listed companies Level 6 BEE rating of 46% towards stipulated employment equity targets Product responsibility A farm-to-fork approach with the control of animal feed quality to the health of day-old chicks Application of exemplary standards in hygiene and quality at the abattoirs, processing plants and cold chain distribution Above-industry-average results in quality audits conducted by our customers Our strategic focus areas 26 Astral Integrated Annual Report 2011 Maintain and improve poultry production efficiencies which are supported by sound farming methods and meticulous bird management practices Retain skills through the provision of training and personal development programmes coupled to promotion from within and industry-competitive remuneration structures Improve the efficiency of use of scarce resources in water and energy and seek sustainable alternative sources to reduce electricity and liquid petroleum gas consumption Marketing and product branding to differentiate our superior quality products Explore opportunities for regional expansion into other African countries Expand poultry processing activities into regions within South Africa where the group is currently not represented Manage and actively reinforce key strategic alliances with local and international partners and suppliers

29 Risks and mitigation The following major business risks have been identifi ed that may impact on the group achieving its objectives: Business risk Micro ingredient deficiency and/or contamination with undesirable substance Vitamin, mineral and feed additive pre-mixes are included in animal feed. Should this pre-mix not conform to the required specifi cation with respect to micronutrient content, it could impact on the health and growth of livestock. Prolonged imbalance in supply and demand as a result of the following factors: Local expansion. High levels of imports. Classic dumping of poultry meat in South Africa. Disposable income and consumer spend. Breakdown in bio-security and threat of new diseases Diseases would not only impact the group through the possible depletion of fl ocks, but could infl uence growth, fertility and hatchability. Non-conformance to final feed specifications Should animal feed not conform to the required quality standards and nutritional levels, it could impact on the growth, performance and production effi ciency of livestock. Genetic performance Genetic improvement programmes to ensure that the performance of the Ross 308 is maintained at optimal levels. Availability and cost of energy Regional and seasonal shortages of specifi cally liquefi ed petroleum gas are experienced. Raw material price volatility Risk mitigation plans Pre-screening of suppliers. Country of origin quality control. Continue improvement in production technology. Participation in industry bodies presenting arguments for the protection of local industry against subsidised imports and dumping. Responsible expansion and production programmes. Monitoring of bird weight and production mix. Increased serological and virological surveillance. Increased level of bio-security, including suppliers. Monitoring of vaccine policies and availability. Culling and disposal protocols. Elimination of vectors, e.g. bird proofi ng. Cleaning and disinfection programmes. Diseases status on farms monitoring. Contingency plan formulated in case of outbreak. Pre-screening of raw materials. Country of origin quality control. Analytical laboratory competency. Stringent quality standards. Independent quality audits. Continue improvement of NIR technology. Inclusion of ingredient tracers. Benchmarking. Utilisation of technology. Standardisation of best practice. Alignment with best genetic provider. Alternative energy sources identifi ed and utilised. Centralised procurement. Planned production runs. Alignment with global traders. Key raw material procurement centrally co-ordinated. Feed procurement committee reviews procurement strategy and prices. This generator was installed at Meadow Feeds Paarl in It is capable of producing 2 500Kva which is suffi cient to maintain milling and mixing capacity in the Paarl operation in the event of an extended power failure, thereby securing feed supply to Astral s County Fair broiler operation Astral Integrated Annual Report

30 Directorate Independent Non-executive directors 28 Astral Integrated Annual Report 2011 Jurie Johannes Geldenhuys (68) (Independent non-executive director) BSc (Eng Elec), BSc (Eng Mining), MBA Director of companies Appointed to the board on 24 May Chairman of the board, chairman of the Human Resources, Remuneration and Nominations Committee. Previously served on the boards of Anglovaal Limited, Avmin Limited and its various gold mines, and Iscor Limited (now ArcelorMittal South Africa). Served as the Chamber of Mines president ( ) and on its executive council, Gold Producers Committee and various chamberrelated 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 Nominations Committee). Malcolm Macdonald (69) (Independent non-executive director) BCom, CA(SA) Director of companies Appointed to the board on 14 November 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 and ArcelorMittal South Africa. Thabang Charlotte Christine Mampane (53) (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 Member of the Human Resources, Remuneration and Nominations Committee. Started career at the SABC in 1983 as a junior announcer on Radio Setswana 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.

31 Independent Non-executive directors Theunis Eloff (56) (Independent non-executive director) BJur (Econ), ThB, ThM, ThD. Vice-Chancellor of North-West University Appointed to the board on 8 May Member of the Audit and Risk Management Committee. 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 North West 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 chairman of the Association of Commonwealth Universities (ACU). President of the Afrikaanse Handelsinstituut (AHI) since September Nombasa Tsengwa (46) (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 Member of the Human Resources, Remuneration and Nominations Committee. Started career as research assistant, University of Transkei. Previous positions include Lecturer: Department of Genetics, University of Pretoria and Senior Co-ordinator: Agriculture and Agro-processing Sector within the National Research and Technology Foresight Project. Appointed as corporate manager: bio-technology and innovation futures at the Council for 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 Joined Kumba Resources Limited (now Exxaro Resources Limited) as general manager: safety, health and environment in Izak Stephanus Fourie (64) (Independent non-executive director) BCom, CA(SA) Director of companies Appointed to the board on 1 July Member of the Audit and Risk Management Committee Member of the Human Resources, Remuneration and Nominations Committee. 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 (BSSA), a PricewaterhouseCoopers initiative with the National African Federated Chamber of Commerce and Industry (NAFCOC) to train emerging business people. Astral Integrated Annual Report

32 Directorate (continued) Executive directors Christiaan Ernst Schutte (51) Daniel Dirk Ferreira (55) Obed Mooki Lukhele (36) Theo Delport (51) 30 Astral Integrated Annual Report 2011 Management Business Administration and Finance Dip. Chief Executive Officer Appointed to the board on 18 August Joined Golden Lay Farms, a division of Tiger Brands, the leading eggproducing organisation in southern Africa, in October 1984 as assistant farm manager. Spent 18 years with the group in various positions including sales director from 1996 to Joined Astral Foods Limited in May 2002 as manager of retail sales for Meadow Feeds before being appointed as sales and marketing director in August 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. Appointed as Chief Executive Offi cer of Astral Foods Limited on 1 May BCom, B Compt (Hons), CA(SA) Financial Director Appointed to the board on 1 May 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 later as group fi nancial manager. He later joined Genfood as group fi nancial manager for two years before joining Astral with its unbundling in February 2001 as group fi nancial manager. Appointed as group fi nancial director on 1 May BVMCh, BSc (Hons) Entomology Group Veterinary Director Appointed to the board on 1 May 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 and was 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. Appointed as group veterinary director on 1 May Dip. Sales Management Managing Director: Poultry Division Appointed to the board on 23 March Started his career in 1984 as sales representative with Today 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 in May 2008 as sales and marketing executive of the Poultry division. Appointed as managing director of the Poultry division on 23 March 2009.

33 Astral Integrated Annual Report

34 Executive Management Astral Integrated Annual Report 2011 Chris Schutte (51) (CEO) Chief executive officer Appointed as director of Astral Operations Limited in November 2006 Started career as assistant farm manager 1984 at Golden Lay Farms, a division of Tiger Brands. After 18 years with this group, joined Astral Foods in 2002 as manager of retail sales for Meadow Feeds. Appointed as managing director for the Animal Feeds division in July 2004 before being appointed as chief executive offi cer of Astral Foods in Daan Ferreira (55) Financial Director Appointed as a director of Astral Operations Limited in May 2009 Held various positions in operational fi nancial management, tax management, project management and later as group fi nancial manager at the ICS group before joining Genfood as group fi nancial manager in Len Hansen (60) Human Resources Director Astral Operations Limited Appointed as director of Astral Operations Limited in April 2001 Started his career at Iscor. After 10 years, joined Vleissentraal as training manager. Then spent four years at Atlas Meats and Bull Brand as human resources manager. Joined Genfood in 1998 as human resources director. Appointed at Astral Foods on 1 April Has extensive experience in human resources and organisational development, i.e. merger between Genfood and Premier, 20-Keys and Wellness Programmes. Theo Delport (51) Managing Director Poultry division, Astral Operations Limited Appointed as director of Astral Operations Limited in March 2009 Spent the last 27 years in the fast-moving consumer goods industry of which four years was in the pork industry before entering the chicken industry in During this period he specialised in sales and marketing before being appointed managing director of County Fair Foods in He was appointed to the position of managing director of the Astral Poultry division in March Gary Arnold (39) Director: Business Development, Astral Operations Limited Appointed as director of Astral Operations Limited in November 2010 Holds a Master s degree in animal science from the University of Natal. He also holds a Master s degree in business administration from the University of the Witwatersrand completed in Gary is a registered professional animal scientist. He was appointed as the managing director of NuTec on 1 August 2004 and later appointed as chief operating offi cer for the Meadow Divisions Western Cape operations on 1 January On 1 November 2010 appointed as the business development director for Astral Foods. Appointed to the Astral operations board from 1 November Roedolf Steenkamp (45) Managing Director, Feed division, Astral Operations Limited Appointed as director of Astral Operations Limited in June 2009 Holds a BCom degree and has also completed a course in business development, both from the University of Pretoria. Joined Astral in 2002 as general manager of the feed milling operations in Zambia and Zimbabwe. During 2005, he was promoted to chief operating offi cer Africa and the mill in Mozambique were added to his responsibilities. Has 12 years experience in feed milling, having also spent four years in sales and marketing at South African Breweries before moving to Epic Foods as export manager. He serves on the board of the Animal Feed Manufacturers Association of South Africa (AFMA) and is an executive director on the board of Astral Operations Limited. 5 6

35 Corporate Services Maryna Eloff (58) Group Company Secretary Appointed: June 2005 Has extensive experience in administration and company secretarial practice in numerous companies in the stockbroking, banking, information technology and mining industries. Director of a number of gold mining companies from 1997 to Currently responsible for the company secretarial and legal function of the Astral group, management member of the group s provident funds and member of the Group Corporate Risk Management Committee. Willem Stander (54) Procurement Executive Appointed: February 2001 Obtained a BSc.Agric (Hons) from the University of Pretoria in Joined Meadow Feeds in the raw material department at the Tiger Brands head offi ce in Braamfontein in Moved to Meadow Paarl in 1984 as a nutritionist and promoted to marketing manager in 1989 and to raw material director in Appointed as procurement executive for the Feed division in Anil Rambally (39) Executive Manager: Sustainability and Preferential Purchasing Appointed: February 2001 Started career in 1992 as a despatch clerk at Alpha Stone and Readymix (now Afrisam). Joined Nutec Southern Africa in 1999, a subsidiary of Astral and progressed through the ranks. Appointed executive manager: preferential purchasing in February 2010 and executive manager: sustainability and preferential purchasing in December Evert Potgieter (41) Audit and Risk Executive Appointed: November 2006 After the completion of his B.Compt. degree and articles and a two-year period as an audit manager at an auditing fi rm, joined the Altron group in 1997 in the internal audit department. During his time at Altron, obtained his certifi ed internal auditor certifi cation and was promoted to deputy internal audit manager, a position he held for fi ve years before joining the Astral group in 2006 as internal audit manager. Current responsibilities include internal audit, risk, insurance and IT for the Astral group. Obed Lukhele (36) Group Veterinary Director Appointed: May 2007 Obtained a veterinary degree from Medical University of South Africa (Medunsa) and an honours degree in entomology from Pretoria University. Spent six years in the veterinary pharmaceutical industry as poultry technical and export manager from 2001 to During mid-2007 joined Astral as veterinary technical manager and two years later, was appointed as group veterinary director. Phil Tozer (53) Sales and Marketing Executive Astral Foods Poultry division Appointed: October 2008 A total of 31 years experience in the FMCG industry of which the last 20 have been in poultry. Selling career began at Unilever as a sales representative in 1980 followed by key account and national sales manager positions at ICS Foods and Sea Harvest Corporation. Spent 17 years with Rainbow Farms as national sales manager and a fi nal fi ve-year period as sales director for retail and wholesale. Joined Astral Foods in October 2008 as sales and marketing executive for Earlybird Farm and subsequently appointed sales and marketing executive for Astral Poultry division in August Astral Integrated Annual Report

36 34 Astral Integrated Annual Report 2011

37 Governance Good corporate governance provides the framework within which we strive to create superior levels of performance to the benefit of all our stakeholders. Astral Integrated Annual Report

38 Corporate governance 36 Astral Integrated Annual Report 2011 Good corporate governance provides the framework within which we strive to create superior levels of performance to the benefi t of all our stakeholders. We believe that our governance practices are sound and, in all material respects, conform to the principles embodied within the King III Report on Corporate Governance and the Listings Requirements of the JSE Limited. 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. While substantial application of the King III Report has been achieved in the review period, the following key principles have not been fully implemented and will be addressed next year, if applicable: An ethics risk profi le has not been compiled and the impact thereof on our corporate social investment programme has not been measured. The Social and Ethics Committee, which is in the process of being established, will address these aspects. Formal agreements with our non-executive directors detailing their terms of appointment are not in place. The Human Resources, Remuneration and Nominations Committee will address the formalisation of formal contracts. An external assurance provider to provide assurance over material elements of the sustainability section of the integrated annual report has not been appointed. The Audit and Risk Management Committee will evaluate the possibility. We do not have an independent compliance function and the responsibility for compliance rests with the group company secretary and the internal audit and risk executive who refer to our legal advisors where necessary. We do not intend establishing an independent compliance function. We have not adopted formal dispute resolution processes for internal and external disputes but a draft document has been prepared and will be implemented in the new fi nancial year. Whilst the remuneration of each individual director is disclosed, the board does not consider it appropriate to disclose the names of the three employees who are not directors and who received the highest salaries. They are referred to as Employee 1, 2 and 3 in the Remuneration Report. Remuneration to non-executive directors for the fi nancial year ended 30 September 2011 was paid on a retainer plus fee per meeting basis. The board has however decided to revert to a fi xed fee per annum basis for the 2012 fi nancial year mainly as a result of the fact that our directors not only attend board and committee meetings but actively participate in the affairs of the company at all times. 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 the King III Report, 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; and 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 10 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 page 74 of this report. An evaluation of each of the non-executive director s independence was conducted during the year. With the exception of the chairman who has served on the board for 10 years and who has been adjudged by the board to still be independent, none of the present independent non-executive directors have 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 the King III Report. Jurie Geldenhuys has been the chairman of the board since February 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. The roles and functions of the chairman have been formalised and there is a formally approved succession plan in place for the position of chairman of the board. On a quarterly basis, we actively solicit from our 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

39 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 (CEO). 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, Remuneration and Nominations and Audit and Risk Management committees, but attends same by invitation. A complete list of board members appears on pages 28 to 30 of this report. In terms of our memorandum of incorporation, 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 may offer themselves for re-election. Three of the directors due to retire are independent non-executive directors, being more than one-third of the non-executive directors on the board. Directors are required to undergo an induction training programme including site visits to familiarise themselves with all aspects of our business. Briefi ng sessions take place when required to bring directors up to date with changes in laws and regulations pertaining to the company. The King III Report provides that directors should have a working understanding of the effect of applicable laws, rules, codes and standards on the company and its business. The company does not interpret these provisions to mean the board should have legal expertise in all spheres in which the company operates or be familiar with all laws applicable to the company and its various businesses, nor is it practical to do so. However, the board does ensure that adequate structures and systems are in place and populated with people of suffi cient competence for group compliance with the relevant laws. The board 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 levels of materiality, reserving specifi c powers to itself and delegates other matters to management. The board meets at least quarterly to review 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. The performance evaluations were completed and reviewed by the chairman and it was found that the board has signifi cantly more areas that are satisfactory or good than concerns. Strategic planning meetings take place every second year and progress on strategic objectives are reviewed at every board meeting. Directors have access to the advice of the company secretary and may seek independent and professional advice about affairs of the company at the company s expense. Attendance at meetings Four board meetings were held during the past year. Additional board meetings may be convened when necessary. Attendance at meetings was as follows: Board Director T Delport T Eloff A DD Ferreira IS Fourie JJ Geldenhuys O Lukhele M Macdonald TCC Mampane CE Schutte N Tsengwa Present A Submitted apology and was granted leave of absence Audit and Risk Management Committee The committee met three times during the year. Attendance at meetings was as follows: Director M Macdonald T Eloff A A IS Fourie Present A Submitted apologies and was granted leave of absence Astral Integrated Annual Report

40 Corporate governance (continued) Human Resources, Remuneration and Nominations Committee The committee met three times during the year. Attendance at meetings was as follows: Director JJ Geldenhuys TCC Mampane N Tsengwa A IS Fourie Present A Submitted apology and was granted leave of absence Non-executive directors received the following fees during the year: Attendance fee per meeting Annual retainer R 000 R 000 Chairman of the board Member of the board Chairman of the Audit and Risk Management Committee Member of the Audit and Risk Management Committee 6 56 Chairman of the Human Resources Remuneration and Nominations Committee Member of the Human Resources, Remuneration and Nominations Committee 6 56 The board committees are as follows: The Audit and Risk Management Committee The Audit and Risk Management Committee comprises three members, all of whom are independent non-executive directors. It meets at least three times a year with management, internal and external auditors as well as the group s risk managers. Theuns Eloff was appointed as member of the committee on 1 October 2010 to replace Jurie Geldenhuys who resigned as a member of the committee. The opportunity is created at each meeting for discussion with the external and internal auditors without the presence of management. 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 ls the responsibilities as set out in the Audit and Risk Management Committee Charter which include: Overseeing the internal and external audit function; Assisting the board in the discharge of its duties relating to the safeguarding of assets and operation of adequate systems and internal controls; The preparation of accurate fi nancial reporting 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; and 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. 38 Astral Integrated Annual Report 2011 The remuneration is paid quarterly in arrears, except for Jurie Geldenhuys, who receives his fees on a monthly basis. Board committees To enable the board to properly discharge its responsibilities and duties, certain responsibilities have been delegated to board committees. 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 28 to 30 of this report. Board committee charters are reviewed on an annual 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. As the audit committee has become a statutory committee in terms of the new Companies Act and in terms of the recommendations set out in the King III Report, shareholders are required to elect the members of this committee at the company s next annual general meeting. During the year the committee reviewed and confi rmed the following additional responsibilities required by the King III Report and the JSE Listings Requirements: the independence of the external audit function; the competence of the fi nancial director and the fi nance function of the company; and the integrated annual report for the year ended 30 September Divisional audit committee meetings are scheduled twice a year at every business unit. These meetings are chaired by the fi nancial director, attended by the Chief Executive Offi cer, internal audit, external audit and the business unit chief operating offi cer and fi nance executive. Risk management We are committed to the following risk management action plan: Identifying the risks to which the company is exposed; Identifying the most effective ways of eliminating or mitigating risk exposures as far as reasonably practical;

41 Insuring against catastrophic incidents and other losses beyond our self-insurance capacity; and Optimising in the long term, the total cost of risk. We apply an enterprise-wide risk management approach, involving all levels of management, with assistance from outside consultants for assessing insurable risks. 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. Members of the Audit and Risk Management Committee are: Independent Member non-executive Period M Macdonald (chairman) Yes May 2004 to date IS Fourie Yes July 2010 to date T Eloff Yes October 2010 to date To further enhance the effectiveness of the committee we also have bi-annual divisional audit committee meetings for each operation. 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 the internal audit is to review compliance with internal controls, systems and procedures. The board is satisfi ed that the internal controls are adequate to safeguard the assets, prevent and detect 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 to satisfy itself that the independence of the internal audit function has not been impaired in any way. The appointment and removal of the head of internal audit is 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, refer to the Audit and Risk Management Report on pages 42 to 43. 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. 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. Integrated reporting The committee oversees integrated reporting and, in particular: Takes cognisance of all factors and risks that may impact on the integrity of the integrated annual report including matters that may pre-dispose management to present a misleading picture, signifi cant judgements and reporting decisions made, monitoring or enforcement actions by a regulatory body and any evidence that brings into question previously published information, forward-looking statements or information; Reviews the reliability and the disclosure of sustainability in the integrated annual report; Recommends to the board whether or not to engage an external assurance provider on material sustainability issues; Recommends the integrated annual report for approval by the board; and Considers whether the external auditor should perform assurance procedures on interim results or be engaged for any non-audit assignments. The committee recommended to the board not to publish a summarised integrated annual report or engage an external assurance provider to confi rm material elements of the sustainability part of the integrated annual report. This decision was based on the fact that sustainability reporting formed part of the budget process followed this year where each business unit prepared its own report which was approved by the executive directors. This approach will be reviewed every year. We have also appointed a full-time executive manager who is responsible for sustainability within the group. The Human Resources and Remuneration Committee On 1 October 2010, a decision was taken by the board to combine the Human Resources and Remuneration Committee with the Nominations Committee and form a committee known as the Human Resources, Remuneration and Nominations Committee. The primary duty of the committee in terms of the nomination process 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. Astral Integrated Annual Report

42 Corporate governance (continued) The committee is constituted as a board committee and assists the board in discharging its responsibilities for the development of the company s general policy on executive and senior management remuneration and to determine specifi c remuneration packages for executive directors of the company, including but not limited to basic salary, benefi ts in kind, any annual bonuses, performancebased incentives, share incentives, pensions and other benefi ts. The committee determines any criteria necessary to measure the performance of executive directors in discharging their functions and responsibilities and ensures that the procedures for appointments to the board are formal and transparent by making recommendations to the board on all new board appointments. For more information regarding the human resources and remuneration functions of the committee, refer to the remuneration report on pages 44 to 45. 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 employees. The ethics policy forms a permanent part of every management agenda and external suppliers are required to adhere to the ethics policy. Any non-adherence is reported to business unit management and, in turn, reported to the CEO and ultimately to the board. 40 Astral Integrated Annual Report 2011 Social and Ethics Committee The board is in the process of appointing a Social and Ethics Committee. The committee will consist of a minimum of three members. A formal mandate and terms of reference will be approved by the board. After the appointment of the committee, recommendations will be made to the board regarding the membership of the advisory panel to assist the committee. The main functions of the committee will be to: Monitor the company s activities having regard to any relevant legislation, other legal requirements and codes of best practice including but not limited to: Social and economic development; Good corporate citizenship; Environment, health and public safety; Consumer relationships; Labour and employment; Drawing matters within its mandate to the attention of the board; and Reporting annually to the shareholders at the company s annual general meeting on matters within its mandate. 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 ethically. The policy provides a guideline as to what constitutes fraud, theft, corruption or associated internal irregularities, to outline our response to these and to detail 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. The Code of Ethics deals with: Complying with all laws, regulations and codes; Culture, ethics and values; Dealing openly and honestly with customers, suppliers and other stakeholders; Respecting and protecting privacy and confi dentiality; Respecting human rights and dignity of employees; Social responsibility; Guidelines in respect of receiving and giving gifts and entertainment; Prohibiting the acceptance of bribes, directly or indirectly; Prohibiting the payment or offering of bribes; Integrity of fi nancial information; Protection of confi dential information Protection and use of company property; Confl ict of interest; and Action on 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 accepts overall responsibility for the adherence to the Code of Ethics and has no reason to believe that there has been any material non-adherence to the Code during the year under review. A copy of the abridged code is available on our website, (

43 Restrictions on share dealings Directors and employees are prohibited from dealing in Astral shares during price-sensitive periods. Closed periods extend from 31 March and 30 September, being the commencement of the interim and year-end reporting dates, up to the date of announcement of interim and year-end results, and include any other period during which the company is trading under a cautionary announcement. 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 88 of the Companies Act, No. 71 of 2008, and is appropriately empowered by the board to fulfi l these duties. 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 Listing Requirements. For further information on stakeholder communication, please refer to page 52 of the sustainable development review. Astral Integrated Annual Report

44 Audit and Risk Management Committee report 42 Astral Integrated Annual Report 2011 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 section 94 of the Companies 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 have been approved by the board which are regularly reviewed and updated, where necessary. The committee has executed its duties during the past fi nancial year in accordance with these terms of reference. Composition At 30 September 2011, the committee comprised three independent non-executive directors, namely Dr T Eloff, Mr IS Fourie and Mr M Macdonald. Meetings The committee met three times during the year. Attendance of these meetings is shown in the table set out on page 37 of this report. Duties In execution of its compliance duties, the committee: nominated the re-appointment of PricewaterhouseCoopers Inc as external auditors and Mr I Buys as the designated auditor, after satisfying itself through enquiry that PricewaterhouseCoopers Inc. are independent as defi ned in terms of the Companies Act. This will be Mr Buys fourth year as designated auditor of the company; confi rmed that PricewaterhouseCoopers Inc and the designated auditor, Mr I 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 below, and their terms of engagement; approved a non-audit services policy which determines the nature and extent of any non-audit services which the external auditors 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 or other related matters; reviewed the draft audited fi nancial statements and integrated 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; reviewed the reports of the internal audit and the providers of the Tip-Offs Anonymous hotline; made submissions to the board on matters concerning the group s accounting policies, fi nancial controls, records and reporting; concurred that the adoption of a going concern premise in the preparation of the annual fi nancial statements is appropriate; and recommended to the board the declaration of interim and fi nal dividends. The objectives of the committee were met during the year under review. 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: Financial reporting risks; Financial 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 particular how they are managed. reviewed all business risks and risk mitigation plans For further information regarding major business risks refer to page 27. 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; and 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. Where weaknesses in specifi c controls have been identifi ed, management undertook to implement appropriate corrective actions to mitigate the weakness so identifi ed. Legal and regulatory compliance The committee has complied with all applicable Companies Act and JSE Limited responsibilities.

45 External audit Based on processes followed and assurances received, we have no concerns regarding the external auditor s independence and approved the following fees for work done by them: Description of fees Audit fees R5,681 million (2010: R4,989 million) Non-audit fees R (2010: R ) 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, in particular: satisfying itself of the competence of the internal auditor and adequacy of internal audit staffi ng; approving the internal audit plan as well as the internal audit charter; ensuring that the internal audit function is subject to a periodic independent quality review; and reviewing the functioning of the internal audit programme and department to ensure co-ordination between the internal and external auditors. A combined assurance programme is in the process of being implemented to provide a co-ordinated approach to assurances received from the different assurance providers. Financial function and financial director review We have reviewed the expertise, resources and experience of the company s fi nancial function and are satisfi ed that these are adequate for the forthcoming year. The committee has also reviewed the performance, appropriateness and expertise of the fi nancial director, Mr DD Ferreira, and confi rms his suitability in terms of the JSE Listing Requirements. Integrated annual report We have evaluated the integrated annual report of Astral Foods Limited and the group for the year ended 30 September 2011 and based on the information provided to the committee, consider that the group complies in all material respects with the requirements of the Companies Act and International Financial Reporting Standards and we recommend the integrated annual report to the board for approval. Going concern We have reviewed a documented assessment, including key assumptions, prepared by management of the going concern status of the company and are comfortable in our recommendation to the board regarding the annual fi nancial statements as well as the combined assurances contained in the integrated annual report and that the company will be a going concern for the next fi nancial period at which time a similar assessment will be done. On behalf of the Audit and Risk Management Committee Malcolm Macdonald Audit and Risk Management Committee Chairman 10 November 2011 Astral Integrated Annual Report

46 Remuneration report 44 Astral Integrated Annual Report 2011 Human Resources, Remuneration and Nominations Committee composition and terms of engagement The committee operates under a mandate from the board and written terms of reference approved by the board. A list of members of the committee at 30 September 2011 is set out on page 38. The board annually assesses the composition of the committee to ensure that it continues to operate effectively. The committee strives to comply with all governance matters and the board considers its composition to be appropriate in terms of the necessary blend of knowledge, skills and experience of its members. The Astral group company secretary attends all meetings of the committee as secretary. The Chief Executive Offi cer and the human resources director of Astral Operations Limited attend all meetings by invitation. No attendee may participate in any discussion or decision regarding his or her own remuneration. Human Resources, Remuneration and Nominations Committee advisors The committee consults with external independent advisors from time to time on market information and remuneration trends. These include PE Corporate Services (Pty) Limited, 21st Century Pay Solutions Group and PricewaterhouseCoopers Inc. In addition, the committee frequently reviews remuneration and board best practice reports published by PricewaterhouseCoopers Inc. It also considers the views of the Chief Executive Offi cer on the remuneration and performance of his colleagues on the Astral Foods and Astral Operations boards of directors. Reward strategy, intent and principles Astral is committed to a reward philosophy that prevails throughout the group and one which focuses on rewarding consistent and sustainable individual and corporate performance. Astral s approach towards remuneration aims to ensure that an appropriate balance is achieved between the interests of shareholders, the operational and strategic requirements of the group and providing attractive and appropriate remuneration packages to executives. The remuneration practices of the group have been structured to be competitive in the industry in which we operate and to ensure that the group can attract, motivate, reward and retain high-calibre people, with above-average industry ability and leadership potential, needed to effectively run the group and its subsidiary companies. Astral has adopted an integrated approach to reward strategy, encompassing a balanced design in which all reward components are aligned to the strategic direction and business-specifi c value drivers of Astral. Executive remuneration policies Astral s executive remuneration policies are designed within the framework of the company s reward strategy to attract, motivate, reward and retain the calibre of executives needed to run the group and its subsidiaries successfully while aligning their interests with those of shareholders (over the short, medium and long-term) and the strategy of the company. The guiding strategy is to ensure that executives are fairly rewarded for their individual contribution to the group s operational and fi nancial performance in line with its corporate objectives and business strategy and that this reward is aligned with industry and market benchmarks. The policies conform to the best practice guidelines contained in the King III Report on Corporate Governance for South Africa. Policy on guaranteed pay The Astral group adopted a total cost of employment (TCOE) philosophy for all salaried employees (which incorporate base pay, car allowance, provident fund and medical aid). TCOE packages do not include annual cash incentives or long-term incentives. Guaranteed packages within the Astral group are structured to be in line with the median of the market but with the proviso that, for key talent, both professional and executive, a positioning closer to or at the 75th percentile level of peer companies is required. Policy on annual incentive bonuses There are various annual incentive schemes operating within Astral tailormade to specifi c levels within the organisation. They incentivise various categories of staff and are reviewed regularly to ensure they remain appropriate. Astral s Executive Committee members and senior management participate in an annual performance bonus plan that rewards the achievement of the group s fi nancial performance. The Human Resources, Remuneration and Nominations Committee satisfi es itself that the performance criteria utilised are relevant, stretching and designed to enhance shareholder value. PricewaterhouseCoopers calculates and signs off incentive bonus payments to the Executive Committee and senior management. Group and subsidiary fi nancial performance targets include: Improvement in Economic Value Added (EVA); and Improvement in Profi t Before Interest and Tax (PBIT). Policy on long-term share-based incentives Share option incentives Astral offers share-based incentives in terms of The Astral Foods Employee Share Trust (2001). Periodic awards are made to participants with vesting occurring in equal thirds on the third, fourth and fi fth anniversaries of the award. Participants can elect to delay exercise until the seventh anniversary of the share option. Long-term retention bonus scheme (2009) (LRP) The plan has two categories, namely: Category 1 Defi ned performance conditions. However, 25% of the allocated amount is guaranteed. Category 2 No performance conditions are set. Allocation The levels of allocation must be approved by the Human Resources, Remuneration and Nominations Committee and will be used as a guideline by the Chief Executive Offi cer for future allocations. Performance conditions The performance conditions are measured over three years and are based on an above-threshold increase in Earnings per Share (EPS) and achieving a targeted Performance Effi ciency Factor (PEF).

47 The Human Resources, Remuneration and Nominations Committee reserves the right to change the performance conditions for new LRP amounts awarded. Performance conditions and amounts allocated cannot be changed once the awards have been made. Payments in respect of both categories will be made in the following manner: 1 / 3 after 3 years; 1 / 3 after 4 years; and 1 / 3 after 5 years. Policy on service contracts and severance arrangements We have not entered into formal service contracts with our nonexecutive directors. However we are in the process of fi nalising contracts that will be signed shortly. Executive directors, Executive Committee members and senior management on Paterson Grades E and F are subject to Astral s standard terms and conditions of employment where notice periods are 60 days. In line with our group policy, no director is compensated for the loss of offi ce and none of the directors have special termination benefi ts or are entitled to balloon payments. Astral s policy when terminating the services of an individual for operational reasons is to pay a minimum of two weeks of the annual total cost of employment for each completed year of service. We aim to apply this policy to all employees, including Astral executive directors, but it is subject to negotiation in special circumstances. Provident fund During the year, the relevant group companies made contributions for executive directors to the Alexander Forbes Retirement Fund (AFRF) (Provident Section) Astral Operations Limited Management. The rate of contribution is 18% based on the pensionable salary of these individuals. The value of contributions for each executive director appears in the summary of directors emoluments on pages 73 to 74. The Human Resources, Remuneration and Nominations Committee takes cognisance of market norms and practices as well as the additional responsibilities placed on board members by new legislation and corporate governance principles. The fees for non-executive directors are recommended by the Human Resources, Remuneration and Nominations Committee and approved in advance by shareholders at the annual general meeting. Fees for the 2010/11 fi nancial year were reviewed by the Human Resources, Remuneration and Nominations Committee and board in August 2010 and approved by shareholders at the annual general meeting in February Astral s policy on remuneration for non-executive directors is that this should be: Fee-based; Market-related (having regard to the median fees paid and number of meetings attended by non-executive directors of companies of similar size and structure to Astral and operating in similar sectors); and Not linked to the share price or Astral s performance. The group pays for all travel and accommodation expenses incurred by directors to attend board and committee meetings as well as visits to company sites and businesses. Astral s non-executive directors do not receive bonuses or share options, recognising that this can create potential confl icts of interest which can impair the independence which non-executive directors are expected to bring to bear in decision-making by the board. As Astral s annual general meeting is to be held on 9 February 2012 shareholders will be required to approve the non-executive directors fees set out in the notice of annual general meeting on page 119 of this integrated annual report. Remuneration For information regarding fees for acting as non-executive director and member of the various board committees, refer to the Corporate governance report on page 38. At its meeting in March 2011, the Human Resources, Remuneration and Nominations Committee assessed the levels of funding and benefi ts of the AFRF Provident Funds and satisfi ed itself that the funds were solvent and did not pose a risk to any of the group s employees or retirees. Other benefits In addition to the benefi ts already described as part of their total cost of employment packages, executive directors, as well as senior management also receive a death-in-service benefi t. No ex gratia payments, deferred awards of any nature or restraint payments were made during the review period. Non-executive directors fees The board applies principles of good corporate governance relating to directors remuneration and also keeps abreast of changing trends. Governance of directors remuneration is undertaken by the Human Resources, Remuneration and Nominations Committee. The remuneration of non-executive directors is determined by the company s shareholders in general meeting, acting pursuant to a recommendation of the board acting, in turn, pursuant to a recommendation of the Human Resources, Remuneration and Nominations Committee. For information regarding executive directors and prescribed offi cers emoluments, other benefi ts and share incentive scheme interests, refer to the Directors and prescribed offi cers remuneration report on pages 73 to 74. The three highest-paid employees who are not directors and prescribed offi cers received the following total remuneration for the year: Employee 1 R Employee 2 R Employee 3 R The above amounts included salary, performance-related bonuses, retirement fund contributions and other benefi ts and allowances. Jurie Geldenhuys Chairman 10 November 2011 Astral Integrated Annual Report

48 46 Astral Integrated Annual Report 2011

49 Sustainability Sustainability development review 48 GRI Index 60 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 Mozambique, Swaziland and Zambia Astral employs in excess of people. Astral Integrated Annual Report

50 Sustainability development review (continued) Introduction We regard sustainable development as an integral and essential part of conducting business and we endeavour at all times to inform our stakeholders in terms of the three pillars of sustainability, namely economic, social and environmental. 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. Sustainability awareness and training workshops for all employees are held with the aim of achieving the following objectives: creating an awareness and explaining the importance of sustainability in the workplace; encouraging business units to work together towards establishing a sustainable business; making employees aware of the company s goals with regard to sustainability; providing training to employees to complete the monthly sustainability reports; and explaining the implementation and monitoring process of identifi ed sustainability projects. Approach to data collection and reporting As part of our commitment to improve non-fi nancial reporting, we have tasked all senior management at business unit level to report on aspects of integrated reporting on a monthly basis. The board has charged management with ensuring that adequate resources are applied and suffi cient attention is given to the implementation of sustainable development principles throughout the group. Function Chief operating offi cers and general managers Company Secretary Finance Human resources Responsibility Manage effi cient operations, environmental controls, corporate social investment projects, components of social and labour plans, community engagement at operational level (see pages 48 to 56) Corporate governance, including all aspects related to the King Code (see pages 36 to 41) Managing and providing advice on the company s fi nances, putting in place policies, procedures and systems to protect the company from fraud and corruption and ensuring economic sustainability (see pages 66 to 115) Skills development, recruitment, transformation and protecting employee human rights, implementing the company s HIV/AIDS strategy 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. Governance, ethics and values Governance, ethics and values are addressed in the corporate governance section of the report on pages 36 to 41. 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. A copy of our Abridged Ethics Policy is available on our website, ( 48 Astral Integrated Annual Report 2011 Assurance We are committed to ensuring that all information provided in this report is accurate. During the course of the year, systems and procedures were put in place to record the relevant data by way of an internet web-based data collection system for all divisions. As part of the annual budget process, business units are required to identify social, environmental and fi nancial issues that impact on their businesses. Key performance indicators ( KPIs ) are also identifi ed and reported on. Group risks and mitigation The major business risks that have been identifi ed and could have an impact on the group achieving its objectives are dealt with on page 27. 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:

51 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 , ,2 Income from investments , ,8 Total value added , ,0 Value distributed To labour , ,9 To Government , ,0 Income tax Skills development levies To providers of capital , ,6 Dividends to shareholders Interest on borrowings Total distributions , ,5 Income retained in the business , ,5 Depreciation/Amortisation Retained profi t for the year Total value distributed and reinvested , , Providers of capital Reinvested Government Labour 18,9 14,6 13,2 53,3 Providers of capital Reinvested Government Labour 20,6 12,5 13,0 53,9 Meerhof School Since 2005, Astral has committed itself to supporting the national Casual Day by making donations to Meerhof School, a school for physically disabled learners. In 2006, Astral took the challenge to not only support Casual Day, but to take it a step further by encouraging our suppliers, clients and Astral staff to make donations towards Meerhof School which serves as a social development initiative. In 2011, an amount of R62 709,60 was collected as donations and paid to Meerhof School. On 1 September 2011, a delegation from Astral visited the school and we were once again made aware of the huge need for fi nancial support. We are convinced that our support, together with the encouragement and enthusiasm from our suppliers and staff, is well recognised and acknowledged by Meerhof School. Astral Integrated Annual Report

52 Sustainability development review (continued) Social aspects Issues: Broad-based black economic empowerment (BBBEE) Equality Employees Value creation Health and safety Employment equity HIV/AIDS Training Employee turnover Human rights Workplace improvement programme 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 BB-rating. We have a 100% score on enterprise development, mainly as a result of our strategy to use contract growers with a Black ownership component. We also scored 100% in socioeconomic development as a result of our wellness programme. Our target to be awarded a level B-rating by December 2010 was achieved. 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 rests 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 by and for 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 ) versus White employees in our South African operations Number of employees at end of September Group Feed Poultry Services and Ventures Total Permanent Contract Regional breakdown of employees 2011 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 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 leads 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 recruit externally. Negotiations with the unions take place on an annual basis and 45% of employees are covered by collective bargaining agreements. No minimum notice periods regarding signifi cant operational changes are specifi ed in collective agreements. 12% of the total workforce is represented in formal joint management worker health and safety committees that assist to monitor and advise on occupational health and safety programmes. 50 Astral Integrated Annual Report AIC White AIC White Board Executive Senior management Middle management Skilled upper/technical Semi-skilled/apprentice/ trainee Labourers/unskilled Note 1: Employee categories are defi ned using the Patterson grading methodology. Note 2: Contractors not included in Employment Equity fi gures. Circulars and notice boards are used for basic communication with staff. 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 a measuring tool to compare current and past performances.

53 Disabling injury frequency rate Farming operations 1,59 1,27 Processing operations 2,18 2,21 Milling operations 1,90 1,51 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 and contractors. Employment equity All our operations comply with the Employment Equity Act 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 28% and 99% of employees are from the designated groups. 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 counselling and testing update. We have implemented a policy on HIV/AIDS focusing on: educational programmes at all operations; voluntary testing; counselling of affected employees; and training of peer educators. 72% of employees participated in the screening, 52% attended training and 61% participated in voluntary counselling 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 counselling and testing for HIV/AIDS. Training The CEO Pinnacle Programme which consists of management training and development interventions was introduced during September The different interventions focus on senior and middle management levels as well as supervisory 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 also 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 Sector Education 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 potential 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 with 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 (35%) is problematic due to societal circumstances. Human Rights Human rights are central to our legitimacy and are addressed in our Code of Ethics, including: obey the law; respect others; act fairly; and be honest. The management programmes are presented by the North-West University (Potchefstroom Business School). Prospective students received an orientation of the different programmes. Thereafter they applied to be enrolled for the programme. The applicants were then screened and the fi rst 18 students of which 50% were from the designated groups, started with the middle management programme during September We have also identifi ed a mentor for each student, who will support and encourage them to manage their own learning in order that they may maximise their potential, develop their skills, improve their performance and become the person they want to be. We are very excited about these training interventions as this is a fi rst for Astral and employees are very keen to be a part of it. 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 1 3 Astral Integrated Annual Report

54 Sustainability development review (continued) 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 and no funds were made available for this purpose during the year. Workplace improvement programme Over the past year we have continued 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. Stakeholders Issues: Stakeholder engagement Consumers Product responsibility Customers Suppliers Preferential procurement Contract growers Packaging and ingredient suppliers Membership of industry organisations Employees Regulators and compliance Community Corporate Social Investment 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 and media. Our website provides up-to-date information to stakeholders. 52 Astral Integrated Annual Report 2011 Key stakeholders Stakeholders and other providers of capital Customers Local communities Industry Staff and unions Suppliers Government Communication Website SENS releases Trading updates Bi-annual results announcements Integrated Annual report Investor relations Face-to-face meetings Face-to-face meetings Regular discussions Advertising through local newspapers 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 Internal newsletters Presentations to Procurement Committee Regular discussions Adhering to laws and regulations

55 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. With the acquisition of the operations producing Mountain Valley during 2011, we have added this well-known free-range brand to our range of products thereby affording consumers a wider selection of chicken products from which to choose. 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. We take a pro-active approach 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 (GPs), 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 food-borne diseases is strictly practised in line with legislation. Monitoring for biological and chemical residues is done by reputable independent laboratories. A team of in-house consulting veterinarians assists the group. All our abattoirs are HACCPcertifi 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 and feed supply. We are actively involved in a number of forums such as the South African Poultry Association, Codex Committees and Statute Committees. sentiment and money fl ows. High volatility leads to increased price risk which is managed by having a conservative approach to market exposure together with 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 operations and are continuously seeking opportunities to expand the number of contract growers, especially those who have a BBBEE component involved. Contract growers Total number of contract growers Number of BBBEE contract growers 10 7 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 notorious melamine food contamination scandal in previous years. Membership of industry organisations Astral and its employees are members and/or participate in the following organisations: Customers Our key customers lie primarily in top-end retail chains and wholesalers, mainly independently owned, and highly entrepreneurial by nature. Longstanding 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. Suppliers Raw material availability is synonymous with two main risk areas, namely price and quality/supply risk. The agricultural commodity markets, as with other commodities, equities and currencies, have been extremely volatile over the past 12 months as a result of the fi nancial crisis, global recession, inclement weather, market 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 South African Institute of Chartered Accountants Chartered Secretaries of South Africa Institute of Directors South African Board of Personnel Practitioners Health Professions Council of South Africa South African Institute of Professional Accountants Institute of Internal Auditors Astral Integrated Annual Report

56 Sustainability development review (continued) Employees To communicate our strategy, performance, developments and other information relevant to employees, we deploy a number of electronic communication channels, including a communiqué from the desk of the Chief Executive Offi cer. Presentations are made by the Chief Executive Offi cer to employees bi-annually on the group s fi nancial performance and future plans. Astral encourages business units to actively and regularly engage with employees. Regulators and compliance As we are a participant in the food industry, we comply with the strictest standards and are continuously monitored by internal and external parties to verify adherence. ISO ISO Operations HACCP 9001: :2005 Earlybird Olifantsfontein Earlybird Standerton County Fair Hocroft County Fair Epping # East Balt SA Meadow Randfontein Delmas # Welkom # Pietermaritzburg Paarl Port Elizabeth # Ladismith # # HACCP Hazard Analysis and Critical Control Point Systems ISO 9001:2008 Quality Management Systems Certifi cation ISO 2200:2005 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. 2. Donations by National Chicks to E-Simpiwe Baby House, old age homes, Toy Drive, White Cross Hope Centre, North Coast Upliftment Programme and to empower and encourage staff; 3. Donations in the form of chicken products and eggs by Earlybird Standerton to old age homes, federations, welfare organisations, schools and sponsoring a marathon, a cricket week and repairing and painting the Erdzak Farm School; 4. Donating chicken products, eggs, blankets and mattresses to the Tembisa Society for the Care and Welfare of the Aged, Thekanang Orphans Aftercare School, Tembisa Self-Help Association for the Disabled and the Ekurhuleni Community Development Directorate; and 5. Donating pig and poultry feed monthly to Bethany House (a safe haven for children). Bekker High School In 2008, a Bekker School Fund was set up by Meadow Feeds to ensure that the agricultural side of the school would continue as the Gauteng Department of Agriculture would no longer fund the farm. Bekker High School is the only agricultural learning institution in Gauteng and therefore the only school offering opportunities for youngsters to explore agricultural fi elds. Meadow Feeds agreed to manage the funds and invited various companies in the industry to become sponsors. During 2011, a consultant, Chris Cronje, was appointed by Meadow Feeds to oversee the sponsored projects and to assist them with day-to-day farm management. The following projects were approved for F2011: Upgrading the Opstal with the installation of blinds and the painting of the buildings. Purchase of a trailer for milk delivery and transporting animals. Upgrading the fencing and feeding troughs in the dairy section. Upgrading the broiler sheds to adhere to the quality standards required by Earlybird in order to become a contract grower. 54 Astral Integrated Annual Report 2011 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. A total of R6,0 (2010: R6,2) was spent on numerous corporate social investment projects throughout the group. Some of the CSI projects supported by the group during the year included: 1. Donating 895 dozen eggs by Ross Poultry Breeders to old age homes, children s homes, Meals on Wheels and We Care;

57 Environment Issues: Environmental risks Energy usage Electricity Gas and coal Water usage Waste and recycled products Emissions to air Environmental impact assessment (EIA) Carbon footprint Waste to energy opportunities We strive to use the best environmental practices on all the land used for farming, processing, milling and distribution operations. Environmental risks Odours from processing plants Risks mitigated by Environmental policy Environmental management programme Weather and monitoring stations All identifi ed environmental risks are under control and are being monitored continuously. Energy usage Electricity 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. Environmental risks Our underlying environmental policy is the adoption of protective strategies to manage and control the impact of our agricultural and manufacturing operations to the environment at the same time, 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. The environmental risk assessments focus on the following areas: Water quality; Waste management; Water management; Hazardous chemicals/fi re and explosions; Air quality; Site management; Land management; and Legal requirements. 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 Risks mitigated by Training programmes Health and safety procedures Bund walls Annual independent grading audits Hazardous chemical stores Environmental policy Annual independent environmental audits Emergency response plans Environmental management programme Regular monitoring Effl uent water treatment programme Registered waste companies for safe disposal of contaminated or hazardous waste In all our operations, energy-effi cient lighting, heating and power correction systems have been implemented to reduce energy usage. We are also engaged in trials that will use the latest technology available to reduce the energy consumed by lighting by a further 25%. The use of solar water heating has reduced the requirement of electrical water heating on certain sites for showering by 60%. Solar water heaters will be used to replace existing geysers as these systems fail and are replaced. Electricity at all Poultry division facilities within South Africa is derived from Eskom-generated electricity from the national grid which uses low-grade coal and therefore results in high emissions per kwh consumed. The total electricity emissions for the group were as follows: Division 000 kwh per annum Poultry Feed Services and Ventures Gas and Coal 2011 Gas ( 000 tons) 8 Coal ( 000 tons) 41 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 fanventilated to move air more energy effi ciently. 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. Every effort is made to recycle effl uent water. Astral Integrated Annual Report

58 Sustainability development review (continued) Recycled water, close to irrigation quality levels are produced at certain of our abattoirs and it is our goal to further improve the quality of this water so that it can be used in the abattoirs. The amount of water treated is measured daily at the effl uent plants and the quality of the water is tested by external laboratories on a continuous basis and reported on monthly. At other operations, treated water is pumped into dams and used for irrigation of pastures and evaporation. We have recently invested R22 million to upgrade the water treatment plant at the Earlybird Standerton abattoir to comply with the regulations of the National Water Act and to recycle 50% of the effl uent in the processing plant. further in the future adding value to the completion and accuracy of the inventory. Our detailed Carbon Footprint Assessment Report is available on our website: ( Total: ,36 Tonnes CO 2 e 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; 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. Mobile Fuels Stationery Fuels Waste Water Emissions from Poultry Manure (onsite) Electricity Outsourced Distribution Waste (offsite) Packaging Materials Water (Embedded CO2e) Other 4,3 21,7 0,8 0,9 46,7 16,9 4,3 1,9 0,8 1,7 Consultants have been appointed to investigate the feasibility of converting poultry litter into energy. Other 56 Astral Integrated Annual Report 2011 Emissions to air We recognise our responsibilities in terms of the Air Quality Act, and ensure that the animal matter reduction plants and coal-fi red boilers and their boiler stacks are well-maintained and routinely inspected. We also make use of ozone odour control systems in order to reduce and control emissions into the air. 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 upgraded 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 and 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 in order to: establish a reliable carbon emission baseline; assess the fi nancial benefi t from reduced operating costs through carbon emissions reduction; address our concerns regarding energy security; and fulfi l our sustainability reporting responsibilities. We have successfully assessed our Scope 1, Other Direct and Scope 2, Greenhouse Gas Emissions for the period October 2009 to September Most Scope 3 emissions have been measured and the scope of these emissions is likely to increase Fugitive Emissions (Kyoto gases) Solid Waste (onsite) Fugitive Emissions (non-kyoto gases) Methane Emissions from Poultry Manure (offsite) Contracted Employee Buses Manure Removal Business Travel Paper Use 4,5 2,5 20,1 31,7 27,8 5,1 5,8 2,5 Waste to energy opportunities The Poultry division is currently researching the possibility of converting waste into energy at our rendering facilities. The shortage of liquid petroleum gas (LPG) and a continuous price increase of LPG in South Africa have resulted in placing more focus on reducing dependence on LPG, especially at Country Fair in the Western Cape. We currently have two projects under investigation, namely: chicken wastes to energy (LPG) fuel switch project; and fl uidised bed combustion.

59 One of our major projects completed during the year is the wastewater treatment at County Fair Primary Processing Plant The County Fair primary processing plant is situated near Fisantekraal in the Western Cape. The plant slaughters approximately 1,3 million broilers a week. The facility has never been connected to any municipal effl uent treatment system; it is thus reliant on itself to treat incoming water as well as factory effl uent. Having to conform to the latest legislation from the Department of Water Affairs (DWAF), necessitated County Fair to embark on a water treatment project which would ultimately meet and exceed the legislative requirements set by the Department. Before construction began offi cial authorisation was received from the various Government authorities, i.e. Environmental Impact Assessment (EIA) approval as well as DWAF approval. Astral employees and cancer survivor bikers at Meadow Feeds Paarl. Astral sponsors Cancervive Astral recently donated R to become a gold sponsor of Cancervive, the educational and fund-raising arm of People Living With Cancer (PLWC), as it embraced the ethos of their wellness programme. Cancervive s aim is to raise funds for PLWC to create awareness of all types of cancer, but especially the shy cancers namely: breast, ovarian, prostate and testicular. Their belief is that with early detection and the correct treatment, most cancers can be beaten. On their motorbike trip from Johannesburg to Paarl, they visited schools, community centres in rural areas and companies to talk about cancer, share their stories and hand out information pamphlets. The cancer buddy system run by PLWC was highlighted and information was shared regarding the important role that these buddies play in the lives of those who are dealing with cancer. This volunteer group is made up of cancer survivors who are trained by PLWC to support new cancer patients and their families. PLWC s aim is to have cancer buddies in all communities throughout South Africa, but they need cancer survivors to volunteer for this role. The funds raised by Cancervive will assist in establishing more cancer buddy groups, their training and pay for the information pamphlets that are distributed to the communities they visit. Astral employees at Meadow Feeds Paarl and County Fair were visited by the 20 cancer survivor bikers and were entertained by award-winning artist Shimmy Isaacs in the Howzit my Bra show. Thereafter the group of survivors shared their personal stories with all. There was laughter and tears but all conveyed the same message to listen to and know your body and if any changes are detected, to visit a doctor without delay. After careful consideration, County Fair decided on a biological water treatment system which had the following advantages: The system could be implemented in phases; The maintenance of the system is extremely low; Very little management time is required in the day-to-day running of the system; and It is a green initiative. The designing of the system was conducted by a fi rm of consultants who also provided the professional guarantee towards the fi nal treated water quality that will be achieved by the system. Consulting engineers were appointed who provided a guarantee on the structural integrity of the treatment works. The biological water treatment system consists of a series of ponds which ends in a wetland fi ltering system i.e: A primary anaerobic pond this unit receives raw wastewater and through a passive anaerobic microbial process converts most solids into biogas; An oxidation pond In this pond the ammonia in the water is converted into nitrates; An anoxic pond in this pond the nitrates are turned into nitrogen gas which is released into the atmosphere; A settling pond in the settling pond water is clarifi ed of suspended solids before the water is released into the wetlands; A fermentation pond in the fermentation pond the solids or sludge is mineralised into methane and carbon dioxide and released into the atmosphere; and The wetland ponds these ponds act as a biological fi lter which assists in stripping the remaining nutrients from the wastewater. The vegetation in the wetland system basically act as passive bio-fi lters for polishing the water. The fi nal wetland outlet water, although compliant with the Department of Water Affairs guidelines, is not yet suitable for direct re-use at the abattoir facility. It will further be required to fi lter the water via sand fi ltration and thereafter disinfected in order to remove pathogens prior to re-use. This fi nal step will be embarked on during F2012 once the plant growth in the wetlands has been fully established. The objective is to re-use at least 40% of the recycled water in the abattoir process. The value of this project was approximately R17 million spent over the past three years. To date the project has been a major success and confi rms that the biological water treatment process was indeed the correct decision. Astral Integrated Annual Report

60 Sustainability development review (continued) Health Link Employee Wellness Programme Astral s Health Link programme is a close partnership between Astral management, company employees and Kaelo, a leading health and wellness company. The Health Link programme was fi rst launched in February 2009 and has helped save thousands of lives and millions of Rand within the Astral group. Since inception, health screenings have been conducted, assisting employees to understand their health status and getting employees diagnosed with chronic diseases, including HIV/AIDS, enrolled onto a Patient Management programme. Astral s Health Link continues to grow from strength to strength, achieving ongoing success on all fronts. Some important achievements over the past years are highlighted below: A total of health screenings took place; The majority of HIV-positive employees have been enrolled for Kaelo s Patient Management programme where they receive ongoing support, advice, education and encouragement to live healthy and productive lives; In addition, employees with moderate to high risk readings for chronic conditions, such as high blood pressure, cholesterol and obesity, are being patient-managed; Training programmes have enabled employees to learn more about health topics such as: TB, HIV/AIDS, postexposure prophylactic treatment and other chronic illnesses; Wellness ambassadors, formerly named peer educators, have received training and support to promote health and wellness and to help reduce the social stigma associated with HIV/AIDS; and Breakthrough partnerships with the Department of Health have enabled employees to gain easier access to treatment and quality care at both State clinics and on-site company clinics. These important achievements have led to noteworthy reductions in absenteeism, deaths and incapacity caused by illness and disease. This refl ects the benefi ts of pro-actively treating and managing HIV and other chronic diseases. What we have managed to achieve over the last two years in particular is nothing short of extraordinary. Through the introduction of the Patient Management programme we managed to reduce the average mortality rate of our employees by more than a third. This is an enormous saving of lives but also translates into a material improvement in the quality of life of our employees because every Rand saved by an individual on death benefi t insurance means one more Rand available for investment and retirement. Our insurers have always known the life/cost savings potential of an effective chronic and HIV management intervention programme what they would not have believed however was how much could be achieved in such a relatively short period of time. Whilst there is no doubt that the success of an initiative of this nature is dependent on the effective co-operation of all of the service providers in the service/benefi t chain towards a common purpose and objective, what is most crucial is that we as employers understand that it is not just about making funding available. The critical success factor in this situation and when you look at similar initiatives which have been introduced by other employer organisations is that Astral did not outsource the responsibility of the health and well-being of our employees we have remained passionately committed and involved to the programme from beginning to end. Delivering a return on investment The benefi ts of the Astral Health Link continue to exceed the programme s costs with a total return on investment estimated at around R2,50 for every Rand spent. Absenteeism continues to fall this can be attributed to pro-active disease management and efforts to provide convenient access to on-site treatment and support; A healthier workforce has supported productivity gains; Claims against the company s group life scheme for death and disability benefi ts continue to decline. Since 2008 claims have fallen signifi cantly and savings to the group are over R2,0 million; and Patient management interventions has seen a total return on investment of R5,5 million in the last 12 months. The return on investment is solid and impressive. Assisting HIV-positive employees is particularly important to Astral, given the prevalence of this pandemic and its impact on families and the communities in which Astral operates. With strong buy-in from all parties involved in the Astral Health Link programme, the workforce is being supported to become healthy and productive. 58 Astral Integrated Annual Report 2011 Opening of Wellness centre at Earlybird Olifantsfontein

61 Myths Do chickens grow so fast because they are injected with growth hormones? No, defi nitely not. No chickens produced by any of Astral s poultry operations are injected, fed or in any way whatsoever subjected to hormones. In order to obtain the desired growth and weight targets, a perfect combination of superior genetics, scientifi c nutrition and best farming practices are ethically applied. Be assured, eating our chicken products is perfectly safe for you. Are all chickens injected with water before being sold? No, not entirely true. Our fresh chicken, never frozen, is 100% natural. In fact, excess moisture is removed from fresh chicken through an air-chilling process before being packed. However, we do fl avour-enhance IQF frozen portions (Individually Quick Frozen) with a water-based brine to improve meat tenderness and succulence by means of a scientifi cally applied injection method. Are chickens restricted from movement by being kept in small wire cages? Not true at all. In Astral, our chickens are raised in large poultry sheds designed to keep them as comfortable as possible. The disinfected fl oors are bedded with wood shavings, sunfl ower husks or wheat straw which allow them to scratch and move around as they please. Our chickens also have unrestricted access to light, clean water and nutritious feed 24 hours a day. Are chickens reared on a diet of maize only? No, only approximately half of the ration is maize. Maize, the main energy source in a chicken s diet, comprises approximately 50% of the feed ration. In addition, specially formulated protein ingredients, together with key vitamins and minerals, are added to create the perfect balanced diet and is fed to our chickens in the form of easily digested crumbs or pellets. Do antibiotics administered to chickens remain in the meat and are they dangerous to our health? No, not entirely true. Antibiotics are administered to our chickens when necessary through feed intake and under the strict guidance of a registered veterinary practitioner. Any incidental antibiotic residues are well within the legislated maximum residual levels (MRL). Astral s standard practice is to withdraw antibiotics from feed according to the manufacturers guidelines, at least fi ve days prior to slaughter. Astral additionally tests the livers and muscles of slaughtered chickens through an independent laboratory for traces of antibiotic residues. Astral Integrated Annual Report

62 Sustainability development review (continued) 60 Astral Integrated Annual Report 2011 Profile disclosure Description Reference 1.1 Statement from the most senior decision-maker of the organisation Chairman s review Description of key impacts, risks and opportunities Risks and mitigation Name of the organisation Administration IBC 2.2 Primary brands, products and/or services Group structure Operational structure of the organisation including main divisions, operating companies, subsidiaries and joint ventures Administration; National and Regional footprint 2.4 Location of organisation s headquarters Administration IBC 2.5 Number of countries where the organisation operates and names of countries with either major operations or that are specifi cally relevant to the sustainability issues covered in the report Group structure Nature of ownership and legal form Administration; Group structure 2.7 Markets served (including geographic breakdown, sectors served and types of customers/benefi ciaries) Page reference IBC IBC 6 Operational footprint Scale of the reporting organisation Throughout report 2.9 Signifi cant changes during the reporting period regarding size, structure or Directors report 69 ownership 2.10 Awards achieved in the reporting period Not reported 3.1 Reporting period (e.g. fi scal/calendar year) for information provided Report profi le Date of most recent previous report Report profi le Reporting cycle (annual, bi-ennial, etc.) Report profi le Contact point for questions regarding the report or its contents Report profi le Process for defi ning report content Throughout report 3.6 Boundary of the report (e.g. countries, divisions, subsidiaries, leased facilities, joint ventures, suppliers) Not applicable 3.7 State any specifi c limitations on the scope or boundary of the report Not applicable 3.8 Basis for reporting on joint ventures, subsidiaries, leased facilities, outsourced operations and other entities that can signifi cantly affect comparability from period to period and/or between organisations 3.9 Data measurement techniques and the bases of calculations, including assumptions and techniques underlying estimations applied to the compilation of the indicators and other information in the report 3.10 Explanation of the effect of any restatements of information provided in earlier reports and the reasons for such restatement (e.g. mergers/acquisitions, change of base years/periods, nature of business, measurement methods) 3.11 Signifi cant changes from previous periods in the scope, boundary or measurement methods applied in the report Notes to the annual fi nancial statements Throughout report Not applicable Not applicable 3.12 Table identifying the location of the Standard Disclosures in the report Content Index Policy and current practice with regard to seeking external assurance for the report Corporate governance report 4.1 Governance structure of the organisation including committees under the highest governance body responsible for specifi c tasks such as setting strategy or organisational oversight 4.2 Indicate whether the Chairman of the highest governance body is also an executive director Corporate governance report Corporate governance report 112,

63 Profile disclosure Description Reference 4.3 For organisations that have a unitary board structure, state the number of members of the highest governance body that are independent and/or nonexecutive members 4.4 Mechanisms for shareholders and employees to provide recommendations or direction to the highest governance body 4.5 Linkage between compensation for members of the highest governance body, senior managers and executives (including departure arrangements), and the organisation s performance (including social and environmental performance) 4.6 Processes in place for the highest governance body to ensure confl icts of interest are avoided 4.7 Process for determining the qualifi cations and expertise of the members of the highest governance body for guiding the organisation s strategy on economic, environmental and social topics 4.8 Internally developed statements of mission or values, codes of conduct and principles relevant to economic, environmental and social performance and the status of their implementation 4.9 Procedures of the highest governance body for overseeing the organisation s identifi cation and management of economic, environmental and social performance including relevant risks and opportunities and adherence of compliance with internationally agreed standards, codes of conduct and principles 4.10 Processes for evaluating the highest governance body s own performance, particularly in respect of economic, environmental and social performance 4.11 Explanation of whether and how the precautionary approach or principle is addressed by the organisation 4.12 Externally developed economic, environmental and social charters, principles or other initiatives to which the organisation subscribes or endorses 4.13 Memberships in associations (such as industry associations) and/or national/ international advocacy organisations in which the organisation: a) has positions in governance bodies; b) participates in projects or committees; c) provides substantive funding beyond routine membership dues; or d) views membership as strategic Corporate governance report Page reference Sustainable development review Remuneration report Corporate governance report Corporate governance report Corporate governance report Corporate governance report Corporate governance report Sustainability development review Sustainability development review Sustainability development review 4.14 List stakeholder groups engaged by the organisation Analysis of ordinary shareholders 4.15 Basis for identifi cation and selection of stakeholders with whom to engage Sustainability development review 4.16 Approaches to stakeholder engagement including frequency of engagement by Sustainability type and by stakeholder group development review 4.17 Key topics and concerns that have been raised through stakeholder engagement Sustainability and how the organisation has responded to those key topics and concerns development review including through its reporting 5. Disclosure on management approach DMA EC Disclosure on Management Approach Economic Sustainability development review DMA EN Disclosure on Management Approach Environment Sustainability development review DMA LA Disclosure on Management Approach Labour Sustainability development review DMA HR Disclosure on Management Approach Human Resources Sustainability development review DMA SO Disclosure on Management Approach Society Sustainability development review DMA PR Disclosure on Management Approach Product Responsibility Sustainability development review Astral Integrated Annual Report

64 Sustainability development review (continued) 62 Astral Integrated Annual Report 2011 Profile disclosure Description Reference Economic EC1 EC 2 Direct economic value generated and distributed including revenues, operating costs, employee compensation, donations and other community investments, retained earnings and payments to capital providers and governments Financial implications and other risks and opportunities for the organisation s activities due to climate change Value-added statement Unquantifi ed risks and mitigation Page reference EC 3 Coverage of the organisation s defi ned benefi t plan obligations Remuneration report EC 6 Policy, practices and proportion of spending on locally based suppliers at Sustainability signifi cant locations of operation development review EN 3 Direct energy consumption by primary source Sustainability development review EN 4 Indirect energy consumption by primary source Sustainability development review EN 6 Initiatives to provide energy-effi cient or renewable energy-based products and services and reduction in energy requirements as a result of these initiatives Sustainability development review EN 7 Initiatives to reduce indirect energy consumption and reduction achieved Sustainability development review EN 8 Total water withdrawal by source Not quantifi ed EN 16 Total direct and indirect greenhouse gas emissions by weight Not quantifi ed EN 18 Initiatives to reduce greenhouse gas emissions and reductions achieved Sustainability development review EN 22 Total weight of waste by type and disposal method Not quantifi ed EN 25 Identity, size, protected status and biodiversity value of water bodies and related Sustainability habitats signifi cantly affected by the reporting organisation s discharges of water development review and runoff not quantifi ed EN 26 Social: Human Rights Initiatives to mitigate environmental impacts of products and services and extent of impact mitigation Sustainability development review LA 1 Total workforce by employment type, employment contract and region Sustainability development review LA 2 Total number and rate of employee turnover by age group, gender and region Sustainability development review LA 4 Percentage of employees covered by collective bargaining agreements Sustainability development review LA 5 LA 6 LA 7 LA 8 LA 13 Minimum notice period(s) regarding signifi cant operational changes including whether it is specifi ed in collective agreements Percentage of total workforce represented in formal joint management-worker health and safety committees that help monitor and advise on occupational health and safety programmes Rates of injury, occupational diseases, lost days and absenteeism and number of work-related fatalities by region Education, training, counselling, prevention and risk-control programmes in place to assist workforce members, their families or community members regarding serious diseases Composition of governance bodies and breakdown of employees per category according to gender, age group, minority group membership and other indicators of diversity Sustainability development review Sustainability development review Sustainability development review Sustainability development review Sustainability development review

65 Profile disclosure Description Reference Social: Human Rights (continued) HR 1 Percentage and total number of signifi cant investment agreements that include Not applicable human rights clauses or that have undergone human rights screening HR 2 HR 3 Percentage of signifi cant suppliers and contractors that have undergone screening on human rights and actions taken Total hours of employee training on policies and procedures, concerning aspects of human rights that are relevant to operations including percentage of employees trained Not applicable Not applicable HR 4 Total number of incidents of discrimination and actions taken Not applicable HR 5 Operations identifi ed in which the right to exercise freedom of association and collective bargaining may be at signifi cant risk and actions taken to support these rights Not applicable HR 6 HR 8 HR 9 HR 10 HR 11 Social: Society SO 1 SO 2 SO 3 Operations identifi ed as having signifi cant risk for incidents of child labour, measures taken to contribute to the elimination of child labour Percentage of security personnel trained in the organisation s policies or procedures concerning aspects of human rights that are relevant to operations Total number of incidents or violations involving rights of indigenous people and actions taken Percentage and total number of operations that have been subject to human rights reviews and/or impact assessments Number of grievances related to human rights fi led, addressed and resolved through formal grievance mechanisms Nature, scope and effectiveness of any programmes and practices that assess and manage the impacts of operations on communities including entering, operating and existing Operations with signifi cant potential or actual negative impacts on local communities Percentage of employees trained in organisation s anti-corruption policies and procedures None Not applicable None None None Sustainability development review None Not applicable SO 4 Actions taken in response to incidents of corruption Sustainability development review SO 7 Total number of legal actions for anti-competitive behaviour, anti-trust and monopoly practices and their outcomes Social: Product responsibility PR 2 PR 5 PR 6 PR 7 PR 8 PR 9 Total number of incidents of non-compliance with regulations and voluntary codes concerning health and safety impacts of products and services during their lifecycle, by type of outcomes Practices related to customer satisfaction including results of surveys measuring customer satisfaction Programmes for adherence to laws, standards and voluntary codes related to marketing communications including advertising, promotion and sponsorship Total number of incidents of non-compliance with regulations and voluntary codes concerning marketing communications including advertising, promotions and sponsorship by type of outcomes Total number of substantiated complaints regarding breaches of customer privacy and losses of customer data Monetary value of signifi cant fi nes for non-compliance with law and regulations concerning the provision and use of products and services Page reference Directors report None None None None None None Astral Integrated Annual Report

66 Annual financial statements Preparation and publication of the annual financial statements The fi nancial statements for the year ended 30 September 2011 were published on 15 December The annual fi nancial statements were prepared by the fi nancial director, DD Ferreira, CA(SA). Annual financial statements Preparation and publication of the annual fi nancial statements 64 Approval of the annual fi nancial statements 66 Certifi cate by company secretary 66 Statement of directors responsibility 67 Independent auditor s report 68 Directors report 69 Directors and prescribed offi cers remuneration 73 Segment report group 75 Accounting policies 76 Statement of fi nancial position 88 Statement of comprehensive income 89 Statement of changes in equity 90 Statement of cash fl ows 91 Notes to the statement of cash fl ows 92 Notes to the annual fi nancial statements Astral Integrated Annual Report 2011

67 Astral Integrated Annual Report

68 Approval of the annual financial statements The annual fi nancial statements and group annual fi nancial statements of Astral Foods Limited for the year ended 30 September 2011 set out on pages 67 to 116, were approved by the board of directors on 10 November 2011 and signed on its behalf by: JJ Geldenhuys Chairman CE Schutte Chief Executive Offi cer Pretoria 10 November 2011 Certificate by company secretary I confi rm that the company has lodged with the Companies and Intellectual Property Commission all such returns as are required by a Public Company in terms of section 33(1) of the Companies Act, 2008, and that such returns are true, correct and up to date. MA Eloff Group Company Secretary Pretoria 10 November Astral Integrated Annual Report 2011

69 Statement of directors responsibility The directors are responsible for the preparation, integrity and fair presentation of the fi nancial statements of Astral Foods Limited and its subsidiaries. The fi nancial statements presented on pages 67 to 116 have been prepared in accordance with International Financial Reporting Standards ( IFRS ), and in the manner required by the Companies Act of South Africa and include amounts based on judgements and estimates made by management. The preparation of fi nancial statements in conformity with IFRSs requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the fi nancial statements and the reported expenses during the reporting period. Actual results could differ from those estimates. The directors consider that, in preparing the fi nancial statements, they have used the most appropriate accounting policies, consistently applied and supported by reasonable and prudent judgements and estimates, and that all IFRS that they consider to be applicable have been followed. The directors are satisfi ed that the information contained in the fi nancial statements fairly presents the results of operations for the year and the fi nancial position of the company and the group at year-end. The directors have a responsibility for ensuring that accounting records are kept. The accounting records should disclose with reasonable accuracy the fi nancial position of the company and the group to enable the directors to ensure that the fi nancial statements comply with the relevant legislation. Astral Foods Limited and its subsidiaries operated in an established control environment, which is well-documented and regularly reviewed. This incorporates risk management and internal control procedures which are designed to provide reasonable, but not absolute, assurance that assets are safeguarded and that the risks facing the business are being controlled. The going concern basis has been adopted in preparing the fi nancial statements. The directors have no reason to believe that the company and the group will not be a going concern in the foreseeable future based on forecasts and available cash resources. These fi nancial statements support the viability of the company and the group. The fi nancial statements have been audited by the independent auditors, PricewaterhouseCoopers Incorporated, who were given unrestricted access to all fi nancial records and related data, including minutes of all meetings of shareholders, the board of directors and committees of the board. The directors believe that all representations made to the independent auditors during their audit are valid and appropriate. The audit report of PricewaterhouseCoopers Incorporated is presented on page 68. JJ Geldenhuys Chairman Pretoria 10 November 2011 Astral Integrated Annual Report

70 Independent auditors report To the members of Astral Foods Limited We have audited the group annual fi nancial statements and annual fi nancial statements of Astral Foods Limited which comprise the consolidated and separate statements of fi nancial position as at 30 September 2011 and the consolidated and separate statements of comprehensive income, changes in equity and cash fl ows for the year then ended, and a summary of signifi cant accounting policies and other explanatory notes, and the directors report, as set out on pages 67 to 116. Directors responsibility for the financial statements The company s directors are responsible for the preparation and fair presentation of these fi nancial statements in accordance with International Financial Reporting Standards and the requirements of the Companies Act of South Africa and for such internal control as the directors determine is necessary to enable the preparation of fi nancial statements that are free from material misstatements whether due to fraud or error. Auditors responsibility Our responsibility is to express an opinion on these fi nancial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the fi nancial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the fi nancial statements. The procedures selected depend on the auditor s judgement, including the assessment of the risks of material misstatement of the fi nancial statements whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity s preparation and fair presentation of the fi nancial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management as well as evaluating the overall presentation of the fi nancial statements. We believe that the audit evidence we have obtained is suffi cient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the fi nancial statements present fairly, in all material respects, the consolidated and separate fi nancial position of Astral Foods Limited as at 30 September 2011, and its consolidated and separate fi nancial performance and its consolidated and separate cash fl ows for the year then ended in accordance with International Financial Reporting Standards and the requirements of the Companies Act of South Africa. PricewaterhouseCoopers Inc Director: I Buys Registered Auditor Johannesburg 10 November Astral Integrated Annual Report 2011

71 Directors report The directors report forms part of the audited fi nancial statements of the company and the group for the year ended 30 September Nature of business The company holds investments in subsidiary and joint venture companies with their primary activities in animal feed pre-mixes, manufacturing of animal feeds, broiler genetics, the production and sale of day-old broiler chicks and hatching eggs, integrated breeder and broiler production operations, abattoirs and the sale and distribution of various key brands. 2. Listing information Astral Foods Limited is listed on the Main Board of the JSE Limited under the share code: ARL. The company s ISIN number is: ZAE Registered address The company s registered address is: 92 Koranna Avenue, Doringkloof, Centurion, Postnet Suite 278, Private Bag X1028, Doringkloof, Business review Financial overview Headline earnings for the year increased by 20% to R437 million from last year s R365 million, mainly as a result of improved profi tability from the poultry operations. Revenue increased by 3% to R8 606 million from higher sales by the poultry operations driven by increased volumes and increased realisations. Poultry s operating profi t was up 35% to R353 million (2010: R262 million), benefi ting from improved poultry production effi ciencies. The Feed division reported operating profi ts of R282 million (2010: R281 million) after experiencing a good recovery in its other African operations. The results for the South African operations were, however, down 8% to R258 million (2010: R281 million), as a result of lower volumes. The Services and Ventures segment s profi ts were down 6% to R39 million (2010: R42 million) after having sold the interest in Meaders Feeds Limited. The interest in Meaders Feeds Limited was sold for a consideration of R13,9 million which resulted in a loss on disposal of R1,8 million. The operating profi t margin for the group at 7,8% is an improvement on the previous year s 7,0%. Net interest paid for the year of R15 million is down on last year s R21 million as a result of lower average borrowings throughout the year. Cash generated from operating activities for the year of R622 million was an improvement of 6% on last year s R588 million. The net debt to equity ratio reduced further to 3% (2010: 9%). The board has declared an increased fi nal dividend of 505 cents resulting in a total dividend out of the profi t for the year of 810 cents (2010: 760 cents). The distribution will be supported by the strong balance sheet and underlying cash fl ow generation capabilities. Astral Integrated Annual Report

72 Directors report (continued) 4. Business review (continued) Financial overview (continued) R 000 R 000 Operating results Revenue Operating profi t Fair value adjustment of net investments in assets and liabilities held for sale (1 805) (7 233) Net fi nance costs (15 173) (21 062) Profi t before income tax Income tax expense ( ) ( ) Profit for the year Attributable to: Equity holders of the company Non-controlling interest Profit for the year Financial position Non-current assets Current assets Assets held for sale Total assets Total equity Non-current liabilities Current liabilities Liabilities held for sale Total equity and liabilities Segment analysis A segment analysis of the revenue, operating profi t and liabilities is set out on page 75 of the annual fi nancial statements. Acquisitions The assets and operating activities of Mountain Valley, an abattoir in KwaZulu-Natal, was acquired during the year for a consideration of R84,8 million. Aviagen Limited s non-controlling interest in Ross Poultry Breeders (Pty) Limited of 10% was acquired for R14,0 million on 27 September Assets sold Subsequent to a decision to divest from Meaders Feeds Limited (Mauritius), a 33% proportionally consolidated joint venture, the group s interest was sold for a consideration of R13,935 million resulting in a further impairment of R1,8 million (2010: R7,2 million). 70 Astral Integrated Annual Report Share capital Detail of share capital is refl ected under note 10 of the fi nancial statements. At the annual general meeting of shareholders held on 10 February 2011, shareholders passed a special resolution authorising the company, or a subsidiary, to acquire the company s own ordinary shares. No shares were acquired in terms of the share purchase programme (2010: nil). In terms of the group s share incentive scheme, (2010: nil) options were exercised. The company s issued share capital increased from to during the year.

73 7. Subsidiaries and joint ventures Details of the joint ventures and subsidiaries of Astral Foods Limited are set out in notes 30 and 31, respectively, of the annual fi nancial statements. The interest of the company in the profi ts and losses of its subsidiaries and joint ventures for the year ended 30 September 2011 is as follows: R 000 R 000 Subsidiaries Total profi ts before income tax Total profi ts after income tax Total losses before income tax Total losses after income tax Joint ventures Total profi ts before income tax Total profi ts after income tax Dividends The following ordinary dividends were declared: R 000 R 000 Interim dividend (No. 21) of 305 cents per share (2010: 290 cents per share) Less: Dividends received on treasury shares held by a subsidiary (12 470) (11 855) Final dividend (No. 22) of 505 cents per share (declared post year-end) (2010: 470 cents per share) Less: Dividends receivable on treasury shares held by a subsidiary (20 647) (19 216) Total dividend at 810 cents per share (2010: 760 cents per share) Property, vehicles, plant and equipment There has been no major change in the nature of and policy relating to property, vehicles, plant and equipment. Details of property, vehicles, plant and equipment are set out in note 1 of the annual fi nancial statements. Assets with a book value of R (2010: R ) are pledged as security for secured borrowings of R (2010: R ). Property with a value of R in respect of a property lease has been capitalised as a fi nance lease with a corresponding lease liability of R (2010: R ). 10. Directors The names of the directors who currently hold offi ce are set out on pages 28, 29 and 30 of this report. In terms of Article 14 of the company s memorandum of incorporation, Mr JJ Geldenhuys, Mr M Macdonald and Mr IS Fourie retire by rotation at the annual general meeting of shareholders and are eligible for re-election. No director holds more than 1% of the ordinary shares in the company. The directors benefi cially and non-benefi cially hold (2010: ) ordinary shares in the company see Directors remuneration report on pages 44 to 45 for details. No changes in the directors shareholding occurred between yearend and the date of this report. Following the formal performance evaluation of the above directors, the chairman confi rms that these individuals performance continues to be effective and shows commitment to the role. Particulars of the company secretary and her business and postal address appear on the inside back cover of this report. No material contracts involving directors interests were entered into during the year. A register of directorships and interests is disclosed and circulated at every board meeting. Astral Integrated Annual Report

74 Directors report (continued) 11. Resolutions No special resolutions, the nature of which might be signifi cant to members in their appreciation of the state of affairs of the group, were passed by any subsidiary companies during the period covered by this report. 12. Share incentive scheme The number of shares put under the control of the directors by shareholders for purposes of the company s employee share incentive scheme was limited to 10% of the issued share capital of Astral Foods Limited from time to time. The directors have decided to limit this to about 5% of the issued share capital. As at 30 September 2011, options in respect of shares remained outstanding being 2,0% of issued share capital. Details of the dates and prices at which the options were granted are given in note 11 to the fi nancial statements. 13. Shareholders Details of ordinary shareholders are set out on page 116 of the annual fi nancial statements. 14. Events subsequent to balance sheet date No events took place between year-end and the date of this report that would have a material effect on the fi nancial statements as disclosed. 15. Litigation A complaint was lodged against subsidiaries in the group at the Competition Commission regarding anti-competitive behaviour relating to an existing parent stock supply agreement. The Competition Commission referred the matter to the Competition Tribunal for determination. Astral lodged a dismissal application based on the late inclusion of Ross Poultry Breeders to the complaint and, on 20 October 2011, the Tribunal ruled in favour of Astral dismissing the joinder of Ross Poultry Breeders to the initial complaint. The Commission received an application for immunity in terms of its Corporate Leniency Policy in which an allegation was made regarding anti-competitive conduct in the market for fresh chicken products and further implicating one of our divisions. The company has since undertaken a comprehensive investigation into the allegations. Astral s investigation has found that this allegation is true of our Western Cape fresh poultry business during the period 2003 to Therefore Astral has responded to the Competition Commission in this vein. The Competition Commission issued a summons to Astral and two other feed companies regarding conduct in the dairy feed industry on 16 August 2011, requesting information relating to our involvement in the business of a dairy study group in the Western Cape. Our response and the required information were submitted on 16 September Astral offered all reasonable co-operation to the Competition Commission in regard to all investigations and summonses and remain committed not to entertain any anti-competitive conduct. 16. Date for authorisation for issue of annual financial statements The annual fi nancial statements have been authorised for issue by the board of directors on 10 November No authority was given to anyone to amend the fi nancial statements after the date of issue. 72 Astral Integrated Annual Report 2011

75 Directors and prescribed officers remuneration for the year ended 30 September 2011 Salary Retirement fund contributions Travelling allowance and other payments Performance related bonus Total 2011 Total 2010 R 000 R 000 R 000 R 000 R 000 R 000 Executive directors remuneration For managerial services: CE Schutte T Delport DD Ferreira OM Lukhele Non-executive directors fees For services as directors: JJ Geldenhuys T Eloff M Macdonald TCC Mampane N Tsengwa # IS Fourie* Total paid to directors by the company and its subsidiaries * Previous year s director s fee from date of appointment. # Director s fee paid to Exxaro Resources Limited. Prescribed officers remuneration For managerial services R Steenkamp GD Arnold * LW Hansen MA Eloff A prescribed offi cer of the group is defi ned as the company secretary and members of the board of the main operating company, Astral Operations Limited, who are not executive directors of Astral Foods Limited. * Not a prescribed offi cer during the previous year. Remuneration from date of appointment as prescribed offi cer. Summary of other benefits received R 000 R 000 Share appreciation rights exercised DD Ferreira 253 Astral Integrated Annual Report

76 Directors and prescribed officers remuneration (continued) for the year ended 30 September 2011 Long-term retention bonus scheme The executive directors and prescribed offi cers participate in a long-term retention bonus scheme for executives in the group. In terms of the scheme certain performance conditions must be met; however 25% of the allocated amount is guaranteed. The performance conditions are measured over a period of three years and are based on an above threshold increase in earnings per share and a performance effi ciency factor (PEF) achieved by the poultry operations after which the bonus amount vests. One-third of the vested amount will be paid after three, four and fi ve years from the date of allocation. Share incentive scheme interests Share option scheme Number of options Options outstanding Grant date Exercise price CE Schutte August 2007 R122, May 2009 R97, T Delport May 2008 R88, May 2009 R97, DD Ferreira August 2007 R122, May 2009 R97, OM Lukhele August 2007 R May 2009 R The scheme provides the right to purchase shares in the company at the exercise price One-third of the options are exercisable per year after each of the third, fourth and fi fth year from date of granting the option. Any balance not exercised after seven years from date of granting the option will lapse. None of the non-executive directors have share incentive scheme interests. No share options were exercised during the year (2010: nil). Share appreciation rights scheme Benefit received Average Share appreciation rights exercised Number price R 000 R 000 DD Ferreira R 112, Issued share capital interest Directly held Indirectly held Associates Number of Shares Number of Shares Number of Shares 74 Astral Integrated Annual Report 2011 Beneficial interests Non-executive director M Macdonald Executive directors CE Schutte DD Ferreira

77 Segment report group for the year ended 30 September 2011 Revenue Operating profit R 000 R 000 R 000 R 000 Poultry South Africa and Swaziland* Feed South Africa Other Africa Services and ventures Sales between segments ( ) ( ) Feed to Poultry ( ) ( ) Other (84 383) (68 257) Operating profi t Fair value adjustment of investment held for sale (1 805) (7 233) Finance income Finance expense (27 849) (33 263) Profit before income tax Income tax expense ( ) ( ) Profit for the year * Refer to note 17 of the fi nancial statements for the contributions from the top 5 customers. Assets Liabilities Poultry South Africa and Swaziland Feed South Africa Other Africa Services and ventures Assets/Liabilities held for sale Set-off of inter-group balances ( ) ( ) ( ) ( ) Depreciation, amortisation and Capital expenditure* impairment Poultry South Africa and Swaziland Feed South Africa Other Africa Services and ventures * Excludes business combinations. Revenue Poultry Feed Service and Ventures Operating profit Poultry Feed Service and Ventures Astral Integrated Annual Report

78 Accounting policies for the year ended 30 September 2011 The principal accounting policies applied in the preparation of these consolidated fi nancial statements are set out below: 1. Basis of preparation The consolidated fi nancial statements of Astral Foods Limited group have been prepared in accordance with International Financial Reporting Standards ( IFRS ) and the requirements of the South African Companies Act. The consolidated fi nancial statements have been prepared under the historical cost convention, except as disclosed in the accounting policies below. The basis of preparation is consistent with the prior year, unless otherwise stated. The preparation of fi nancial statements in conformity with IFRS requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the group s accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are signifi cant to the consolidated fi nancial statements are disclosed in paragraph 27 below. 2. New standards and interpretations Accounting policy developments Accounting policy developments include new standards issued, amendments to standards, and interpretations issued on current standards. These developments resulted in the fi rst-time adoption of new standards and revised and additional disclosures required. International Financial Reporting Standards and amendments effective for the first time for 30 September 2011 year-end Amendments to IFRS 1 First-Time Adoption : on Additional exemptions These amendments exempt entities using the full cost method from retrospective application of IFRSs for oil and gas assets. They also exempt entities with existing leasing contracts from reassessing the classifi cation of those contracts in accordance with IFRIC 4, Determining Whether an Arrangement Contains a Lease. This amendment had no effect on the fi nancial statements of the group or company. Amendments to IFRS 1 First-Time Adoption of IFRS : Limited exemption from comparative IFRS 7 disclosures for first-time adopter Existing IFRS preparers were granted relief from presenting comparative information for the new disclosures required by the March 2009 amendments to IFRS 7, Financial Instruments: Disclosures. The relief was provided because the amendments to IFRS 7 were issued after the comparative periods had ended and the use of hindsight would have been required. The board therefore permitted entities to exclude comparative disclosures in the fi rst year of application. This amendment had no effect on the fi nancial statements of the group or company. Amendments to IFRS 2: Group Cash-Settled Share-based Payment Transactions The amendment clarifi es the accounting for group cash-settled share-based payment transactions. The entity receiving the goods or services shall measure the share-based payment transaction as equity-settled only when the awards granted are its own equity instruments or the entity has no obligation to settle the share-based payment transaction. The entity settling a share-based payment transaction when another entity in the group receives the goods or services recognises the transaction as equity-settled only if it is settled in its own equity instruments. In all other cases, the transaction is accounted for as cash-settled. 76 Astral Integrated Annual Report 2011 This amendment had no effect on the fi nancial statements of the group or company. Improvements to IFRSs (Issued April 2009) This is a collection of amendments to IFRSs. These amendments are the result of conclusions the IASB reached on proposals made in its annual improvements project. Amendments IAS 32 Financial Instruments: Presentation on Classification of Rights Issues (effective 1 February 2010) The amendment that allows rights issues to be classifi ed as equity when the price is denominated in a currency other than the entity s functional currency. This amendment had no effect on the fi nancial statements of the group or company.

79 2. New standards and interpretations (continued) International Financial Reporting Standards and amendments effective for the first time for 30 September 2011 year-end (continued) IFRIC 19: Extinguishing Financial Liabilities with Equity Instruments This IFRIC clarifi es the accounting when an entity renegotiates the terms of its debt with the result that the liability is extinguished through the debtor issuing its own equity instruments to the creditor. A gain or loss is recognised in the profi t and loss account based on the fair value of the equity instruments compared to the carrying amount of the debt. This amendment had no effect on the fi nancial statements of the group or company. International Financial Reporting Standards and amendments issued but not effective for 30 September 2011 year-end Amendments to IFRS 1, First-time Adoption on hyperinflation and fixed dates The fi rst amendment replaces references to a fi xed date of 1 January 2004 with the date of transition to IFRSs, thus eliminating the need for companies adopting IFRSs for the fi rst time to restate derecognition transactions that occurred before the date of transition to IFRSs. The second amendment provides guidance on how an entity should resume presenting fi nancial statements in accordance with IFRSs after a period when the entity was unable to comply with IFRSs because its functional currency was subject to severe hyperinfl ation. Amendment to IFRS 7 Disclosures Transfer of Financial Assets The amendments are intended to address concerns raised during the fi nancial crisis by the G20, among others, that fi nancial statements did not allow users to understand the ongoing risks the entity faced due to derecognised receivables and other fi nancial assets. IFRS 9 Financial Instruments (2009) This IFRS is part of the IASB s project to replace IAS 39. IFRS 9 addresses classifi cation and measurement of fi nancial assets and replaces the multiple classifi cation and measurement models in IAS 39 with a single model that has only two classifi cation categories: amortised cost and fair value. IFRS 9 Financial Instruments (2010) The IASB has updated IFRS 9, Financial Instruments to include guidance on fi nancial liabilities and derecognition of fi nancial instruments. The accounting and presentation for fi nancial liabilities and for derecognising fi nancial instruments has been relocated from IAS 39, Financial Instruments: Recognition and Measurement, without change, except for fi nancial liabilities that are designated at fair value through profi t or loss. IFRS 10 Consolidated Financial Statements This standard builds on existing principles by identifying the concept of control as the determining factor in whether an entity should be included within the consolidated fi nancial statements. The standard provides additional guidance to assist in determining control where this is diffi cult to assess. This new standard might impact the entities that a group consolidates as its subsidiaries. IFRS 11 Joint Arrangements This standard provides for a more realistic refl ection of joint arrangements by focusing on the rights and obligations of the arrangement rather than its legal form. There are two types of joint arrangements: joint operations and joint ventures. Joint operations arise where a joint operator has rights to the assets and obligations relating to the arrangement and hence accounts for its interest in assets, liabilities, revenue and expenses. Joint ventures arise where the joint operator has rights to the net assets of the arrangement and hence equity accounts for its interest. Proportional consolidation of joint ventures is no longer allowed. IFRS 12 Disclosures of Interests in Other Entities This standard includes the disclosure requirements for all forms of interests in other entities, including joint arrangements, associates, special-purpose vehicles and other off-balance sheet vehicles. IFRS 13 Fair Value Measurement This standard aims to improve consistency and reduce complexity by providing a precise defi nition of fair value and a single source of fair value measurement and disclosure requirements for use across IFRSs. The requirements, which are largely aligned between IFRSs and US GAAP, do not extend the use of fair value accounting but provide guidance on how it should be applied where its use is already required or permitted by other standards within IFRSs or US GAAP. Astral Integrated Annual Report

80 Accounting policies (continued) for the year ended 30 September New standards and interpretations (continued) International Financial Reporting Standards and amendments issued but not effective for 30 September 2011 year-end (continued) Amendments to IAS 1, Presentation of Financial Statements, on presentation of items of OCI The IASB has issued an amendment to IAS 1, Presentation of Financial Statements. The amendment changes the disclosure of items presented in other comprehensive income (OCI) in the statement of comprehensive income. The IASB originally proposed that all entities should present profi t or loss and OCI together in a single statement of comprehensive income. The proposal has been withdrawn and IAS 1 will still permit profi t or loss and OCI to be presented in either a single statement or in two consecutive statements. The amendment does not address which items should be presented in OCI and the option to present items of OCI either before tax or net of tax has been retained. Amendment to IAS 12, Income Taxes on deferred tax Currently IAS 12, Income Taxes, requires an entity to measure the deferred tax relating to an asset depending on whether the entity expects to recover the carrying amount of the asset through use or sale. It can be diffi cult and subjective to assess whether recovery will be through use or through sale when the asset is measured using the fair value model in IAS 40, Investment Property. Hence this amendment introduces an exception to the existing principle for the measurement of deferred tax assets or liabilities arising on investment property measured at fair value. As a result of the amendments, SIC 21, Income taxes recovery of revalued non-depreciable assets, would no longer apply to investment properties carried at fair value. The amendments also incorporate into IAS 12 the remaining guidance previously contained in SIC 21, which is accordingly withdrawn. Amendments to IAS 19, Employee Benefits The IASB has issued an amendment to IAS 19, Employee Benefi ts which makes signifi cant changes to the recognition and measurement of defi ned benefi t pension expense and termination benefi ts and to the disclosures for all employee benefi ts. Removes the requirement for government-related entities to disclose detail of all transactions with the government and other government-related entities; and clarifi es and simplifi es the defi nition of a related party (some entities will be required to make additional disclosures). The entities that are most likely to be affected are those that are part of a group that includes both subsidiaries and associates and entities with shareholders that are involved with other entities. For example, a subsidiary is now required to disclose transactions with an associate of its parent. Similarly, disclosure is required of transactions between two entities where both entities are joint ventures (or one is an associate and the other is a joint venture) of a third entity. In addition, an entity that is controlled by an individual that is part of the key management personnel of another entity is now required to disclose transactions with that second entity. IAS 27 (revised 2011) Separate Financial Statements This standard includes the provisions on separate fi nancial statements that are left after the control provisions of IAS 27 have been included in the new IFRS 10. IAS 28 (revised 2011) Associates and Joint Ventures This standard includes the requirements for joint ventures, as well as associates, to be equity accounted following the issue of IFRS Astral Integrated Annual Report 2011 Revision to AC 504: IAS 19 (AC 116) The Limit on a Defined Benefit Asset, Minimum Funding Requirements and Their Interaction in the South African Pension Fund Environment Revised version of AC 504 The Limit on a Defi ned Benefi t Asset, Minimum Funding Requirements and Their Interaction in the South African Environment, has been issued to refl ect the editorial changes brought about by the amendments to IFRIC 14 (AD 447). IFRIC 20, Stripping costs IFRIC 20 Stripping costs in the production phase of a surface mine, sets out the accounting for overburden waste removal (stripping) costs in the production phase of a mine. The interpretation may require mining entities reporting under IFRS to write off existing stripping assets to opening retained earnings if the assets cannot be attributed to an identifi able component of an ore body. Amendments to IFRIC 14: Pre-payments of a Minimum Funding Requirement This amendment will have a limited impact as it applies only to companies that are required to make minimum funding contributions to a defi ned benefi t pension plan. It removes an unintended consequence of IFRIC 14 related to voluntary pension pre-payments when there is a minimum funding requirement.

81 3. Interest in group entities Subsidiaries Subsidiaries are all entities (including special-purpose entities) over which the group has the power to govern the fi nancial and operating policies generally accompanying a shareholding of more than one-half of the voting rights. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether the group controls another entity. Subsidiaries are fully consolidated from the date on which control is transferred to the group. They are deconsolidated from the date that control ceases. The group uses the acquisition method of accounting to account for business combinations. The consideration transferred for the acquisition of a subsidiary is the fair values of the assets transferred, the liabilities incurred and the equity interests issued by the group. The consideration transferred includes the fair value of any asset or liability resulting from a contingent consideration arrangement. Acquisition-related costs are expensed as incurred. Identifi able assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date. On an acquisitionby-acquisition basis, the group recognises any non-controlling interest in the acquiree, either at fair value or at the non-controlling interest s proportionate share of the acquiree s net assets. Investments in subsidiaries are accounted for at cost less impairment. Cost is adjusted to refl ect changes in consideration arising from contingent consideration amendments. Cost also includes direct attributable costs of investment. The excess of the consideration transferred, the amount of any non-controlling interest in the acquiree and the acquisition-date fair value of any previous equity interest in the acquiree over the fair value of the group s share of the identifi able net assets acquired is recorded as goodwill. If this is less than the fair value of the net assets of the subsidiary acquired in the case of a bargain purchase, the difference is recognised directly in the statement of comprehensive income. Inter-company transactions, balances and unrealised gains on transactions between group companies are eliminated. Unrealised losses are also eliminated. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the group. Joint ventures The group s interests in jointly controlled entities are accounted for by proportionate consolidation. The group combines its share of the jointly controlled entities individual income and expense, asset, liability and cash fl ow items on a line-by-line basis with similar items in the group s fi nancial statements. The group recognises the portion of gains or losses on the sale of assets by the group to the joint venture that is attributable to the other ventures. The group does not recognise its share of profi ts or losses from the joint venture that result from the group s purchase of assets from the joint venture until it resells the assets to an independent party. A loss on the transaction is recognised immediately if it provides evidence of a reduction in the net realisable value of current assets or an impairment loss. Jointly controlled entities accounting policies have been changed where necessary to ensure consistency with the policies adopted by the group. Transactions and non-controlling interests The group treats transactions with non-controlling interests as transactions with equity owners of the group. For purchases from non-controlling interests, the difference between any consideration paid and the relevant share acquired of the carrying value of net assets of the subsidiary is recorded in equity. Gains or losses on disposals to non-controlling interests are also recorded in equity. When the group ceases to have control or signifi cant infl uence any retained interest in the entity is remeasured to its fair value with the change in carrying amount recognised in profi t or loss. The fair value is the initial carrying amount for the purposes of subsequently accounting for the retained interest as an associate, joint venture or fi nancial asset. In addition, any amounts previously recognised in other comprehensive income in respect of that entity are accounted for as if the group had directly disposed of the related assets or liabilities. This may mean that amounts previously recognised in other comprehensive income are reclassifi ed to profi t or loss. If the ownership interest in an associate is reduced but signifi cant infl uence is retained, only a proportionate share of the amounts previously recognised in other comprehensive income are reclassifi ed to profi t or loss, where appropriate. 4. Segment reporting Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decisionmaker. The chief operating decision-maker, who is responsible for allocating resources and assessing performance of the operating segments, has been identifi ed as the steering committee that makes strategic decisions. The group has two major operating segments, Poultry and Feed, and business units are largely grouped in these two segments based on the nature of these businesses. A third smaller segment, Services and Ventures, are those business units that report directly to the Chief Executive Offi cer of the group. Astral Integrated Annual Report

82 Accounting policies (continued) for the year ended 30 September Foreign currencies Functional and presentation currency Items included in the fi nancial statements of each of the group s entities are measured using the currency of the primary economic environment in which the entity operates (the functional currency ). The consolidated fi nancial statements are presented in Rand, which is the company s functional and presentation currency. Transactions and balances of monetary items Transactions in a currency, other than the functional currency, are translated into the functional currency using the prevailing exchange rate at the date of the transaction. Monetary assets and liabilities denominated in a currency, other than the functional currency, are translated at the exchange rate ruling at the reporting date. Gains and losses resulting from the settlement of foreign currency transactions and from the translation at the year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the statement of comprehensive income, except when deferred in equity as a qualifying cash fl ow hedge. Changes in the fair value of monetary securities denominated in foreign currency classifi ed as available for sale are analysed between translation differences related to changes in the amortised cost resulting from changes in the amortised cost of the security, and other changes in the carrying amount of the security. Translation differences related to changes in the amortised cost are recognised in profi t or loss and other changes in carrying amount are recognised in equity. Translation differences on nonmonetary fi nancial assets and liabilities are reported as part of the fair value gain or loss. Translation differences on non-monetary fi nancial assets and liabilities such as equities held at fair value through profi t or loss are recognised in profi t or loss as part of the fair value gain or loss. Translation differences on non-monetary fi nancial assets such as equities classifi ed as available for sale are included in the fair value reserve in equity. Foreign operations The results and fi nancial position of all group entities (none of which has the currency of a hyperinfl ationary economy) that have a functional currency different to the company s presentation currency, are translated into the presentation currency, as follows: (i) Assets and liabilities at the closing exchange rate at the reporting date; (ii) Income and expense items are translated at the average exchange rates (unless this average is not a reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates in which case income and expenses are translated at the dates of the transactions); and (iii) Equity items are translated at the exchange rates ruling when they arose. All resulting exchange differences are classifi ed as a foreign currency translation reserve and recognised as a separate component of other comprehensive income. On consolidation, exchange differences arising from the translation of the net investment in foreign operations, and of borrowings and other currency instruments designated as hedges of such investments, are taken to shareholders equity. On disposal of a foreign operation, exchange differences are recognised in profi t or loss as part of the gain or loss on sale. Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of the foreign entity and translated at the closing rate. 80 Astral Integrated Annual Report Property, plant and equipment Land and buildings comprise mainly feed mills, poultry processing facilities, poultry farms and offi ces. Land is not depreciated and is stated at historical cost. All other property, plant and equipment ( PPE ) are stated at historical cost less accumulated depreciation and impairment losses. Cost includes expenditure that is directly attributable to the acquisition of the items and may also include transfers from equity of any gains and losses on qualifying cash fl ow hedges of foreign currency purchases of PPE. Subsequent costs are included in the asset s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefi ts associated with the item will fl ow to the group and the cost of the item can be measured reliably. All other repairs and maintenance costs are charged to profi t or loss during the fi nancial period in which they are incurred.

83 6. Property, plant and equipment (continued) Depreciation on assets is calculated using the straight-line method to allocate the cost of each asset to its residual value over its estimated useful life, as follows: Buildings 50 years Plant and machinery 8 25 years Equipment and motor vehicles 5 10 years Gains and losses on disposals are determined by comparing proceeds with the carrying amount. These are included in profi t or loss under other gains/losses. Borrowing costs incurred for the construction of any qualifying assets are capitalised during the period of time that is required to complete and prepare the assets for their intended use. The assets residual values and useful lives are reviewed annually and adjusted if appropriate, taking into account technology developments and maintenance programmes. Uniform depreciation and amortisation rates are established based on the straightline method which may not represent the actual usage of the assets. An asset s carrying amount is written down immediately to its recoverable amount if the asset s carrying amount is greater than its estimated recoverable amount. 7. Intangible assets Computer software Acquired computer software licences are capitalised on the basis of the costs incurred to acquire and bring to use the specifi c software. These costs are amortised over their estimated useful lives (3 5 years). Costs associated with developing or maintaining computer software programmes are recognised as an expense as incurred. Costs that are directly associated with the production of identifi able and unique software products controlled by the group, and that will probably generate economic benefi ts exceeding costs beyond one year, are recognised as intangible assets. Direct costs include the costs of software development employees and an appropriate portion of relevant overheads. Computer software development costs recognised as assets are amortised over their estimated useful lives (3 5 years). Research and Development Research expenditure is recognised as an expense as incurred. Costs incurred on development projects (relating to the design and testing of new or improved products) are recognised as intangible assets when it is probable that the project will be a success, considering its commercial and technological feasibility, and costs can be measured reliably. Other development expenditures are recognised as an expense as incurred. Development costs previously recognised as an expense are not recognised as an asset in a subsequent period. Development costs that have a fi nite useful life and that have been capitalised are amortised from the commencement of the commercial production of the product on a straight-line basis over the period of its expected benefi t, not exceeding fi ve years. 8. Goodwill Goodwill represents the excess of the cost of an acquisition over the fair value of the group s share of the net identifi able assets of the acquired subsidiary at the date of acquisition. Separately recognised goodwill is tested annually for impairment and carried at cost less accumulated impairment losses. Impairment losses on goodwill are not reversed. Goodwill is allocated to cash-generating units for the purpose of impairment testing. The allocation is made to those cash-generating units or groups of cash-generating units that are expected to benefi t from the business combination in which the goodwill arose. Gains and losses on the disposal of an entity include the carrying amount of goodwill relating to the entity sold. 9. Inventories Inventories are stated at the lower of cost- and net-realisable value. Cost is determined on the fi rst-in, fi rst-out (FIFO) method. The cost of fi nished goods and work in progress comprises all purchase costs of raw materials, direct labour, other direct costs and related production overheads (based on normal operating capacity) incurred in bringing the inventories to their present location and condition. Borrowing cost is excluded. Net realisable value is the estimated selling price in the ordinary course of business, less applicable variable selling expenses. Astral Integrated Annual Report

84 Accounting policies (continued) for the year ended 30 September Biological assets Live broiler chicks and hatching eggs are assessed based on fair values less estimated point-of-sale costs at appropriate reporting dates. Gains and losses arising from changes in the fair values are recorded in profi t or loss for the period in which they arise. The determination of fair value is based on active market values, where appropriate, or management s assessment of the fair value based on available data and benchmark statistics. Breeding stock includes grandparent breeding and parent-rearing and laying stock. Breeding stock is capitalised at cost at the beginning of its productive cycle and is amortised on a straight-line method over the anticipated productive cycle to its estimated net realisable value. All the expenses incurred in establishing and maintaining the assets is recognised in profi t or loss. All costs incurred in acquiring biological assets are capitalised. 11. Impairment of non-financial assets Assets that have an indefi nite useful life are not subject to amortisation and are tested annually for impairment and whenever events or changes in circumstance indicate that the carrying amount may not be recoverable. Assets that are subject to amortisation are tested for impairment whenever events or changes in circumstance indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset s fair value less costs to sell and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifi able cash fl ows (cashgenerating units). Non-fi nancial assets other than goodwill that suffered impairment are reviewed for possible reversal of the impairment at each reporting date. 12. Financial assets Financial assets are recognised when the company becomes a party to the contractual provisions of the instrument or secures other access to economic benefi ts. Such assets consist of cash, a contractual right to receive cash or another fi nancial asset. Financial assets carried at reporting date include cash and bank balances, investments, loans, derivatives and receivables. The group classifi es its fi nancial assets in the following categories: At fair value through profi t and loss; Loans and receivables; and Available-for-sale. The classifi cations depend on the purpose for which the fi nancial assets were acquired. Management determines the classifi cation of its fi nancial assets at initial recognition. At fair value through profit or loss Financial assets at fair value through profi t and loss are fi nancial assets so designated by management, or fi nancial assets held for trading. A fi nancial asset is classifi ed as held for trading if acquired principally for the purpose of selling in the short term. Derivatives are also classifi ed as held for trading unless they are designated as hedges. Assets in this category are classifi ed as current if they are either held for trading or are expected to be realised within 12 months of the reporting date. 82 Astral Integrated Annual Report 2011 Financial assets carried at fair value through profi t and loss are initially recognised at fair value and transaction costs are expensed in the statement of comprehensive income. Subsequent measurement is at fair value with gains and losses recognised in profi t or loss. Loans and receivables Loans and receivables are non-derivative fi nancial assets with fi xed or determinable payments that are not quoted in an active market and include short-term loans, trade and other receivables and cash and cash equivalents. They are included in current assets, except for maturities greater than 12 months after the statement of fi nancial position date, which are classifi ed as non-current assets. Loans and receivables are initially recognised at fair value plus transaction costs and subsequently measured at amortised cost less impairment losses which are recognised in profi t or loss.

85 12. Financial assets (continued) Available-for-sale financial assets Available-for-sale fi nancial assets are non-derivatives that are either designated in this category or not classifi ed in any of the other categories. They are included in non-current assets unless management intends to dispose of the investment within 12 months of the reporting date. Available-for-sale fi nancial assets are initially recognised at fair value and are subsequently also measured at fair value through profi t or loss. Regular purchases and sales of fi nancial assets are recognised on trade date the date on which the group commits to purchase or sell the asset. Financial assets are derecognised when the rights to receive cash fl ows from the investments have expired or have been transferred and the group has transferred substantially all risks and rewards of ownership. 13. Financial liabilities Financial liabilities are recognised when there is an obligation to transfer benefi ts and that obligation is a contractual liability to deliver cash or another fi nancial assets or to exchange fi nancial instruments with another on potentially unfavourable terms. The group classifi es its fi nancial liabilities in the following categories: At fair value through profi t and loss; and Other. At fair value through profit or loss Financial liabilities at fair value through profi t or loss are initially recognised at fair value with transaction costs being expensed. Subsequent measurement is at fair value with changes recognised in profi t or loss. Other Other fi nancial liabilities are recognised at fair value plus transaction costs. Subsequent measurement is at amortised cost with changes recognised in profi t or loss. 14. Trade receivables Trade receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method, less provision for impairment. No fair value adjustment is made for the effect of time value of money where trade receivables have a short-term profi le. A provision for impairment of trade receivables is established when there is objective evidence that the group will not be able to collect all amounts due according to the original terms of the receivables and thereby represent a risk of non-payment. Signifi cant fi nancial diffi culties of the debtor, probability that the debtor will enter bankruptcy or fi nancial re-organisation and default or late payments are considered indicators that the trade receivable is impaired. Adjustments in the provision for impairments are recognised in the statement of comprehensive income under administrative expenses. When a trade receivable is uncollectable, it is written off in the statement of comprehensive income or when previously written-off amounts are recovered, it is credited in the statement of comprehensive income both within other gains and losses. 15. Cash and cash equivalents Cash and cash equivalents include: cash in hand, deposits held at call with banks, other short-term highly liquid investments with original maturities of three months or less and bank overdrafts. Bank overdrafts are shown within borrowings in current liabilities on the statement of fi nancial position. 16. Trade payables Trade payables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method. 17. Borrowings Borrowings are recognised initially at fair value, net of transaction costs incurred. Borrowings are subsequently stated at amortised cost; any difference between the proceeds (net of transaction costs) and the redemption value is recognised in profi t or loss over the period of the borrowings using the effective interest method. Borrowings are classifi ed as current liabilities unless the group has an unconditional right to defer settlement of the liability for at least 12 months after the reporting date. Astral Integrated Annual Report

86 Accounting policies (continued) for the year ended 30 September Share capital Ordinary shares are classifi ed as equity. Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net of tax, from the proceeds. Where any group company purchases the company s equity share capital (treasury shares), the consideration paid, including any direct incremental costs, is deducted from equity attributable to the company s equity holders until the shares are re-issued or disposed of. Where such shares are subsequently sold or re-issued, any consideration received, net of any directly attributable incremental transaction costs and the related income tax effects, is included in equity attributable to the company s equity holders. 19. Provisions Provisions are recognised when the group has a present legal or constructive obligation as a result of past events, it is more likely than not that an outfl ow of resources will be required to settle the obligation and the amount has been reliably estimated. Restructuring provisions comprise lease termination penalties and employee termination payments. Provisions are not recognised for future operating losses. Where there are a number of similar obligations, the likelihood that an outfl ow will be required in settlement is determined by considering the class of obligations as a whole. A provision is recognised even if the likelihood of an outfl ow with respect to any one item included in the same class of obligations may be small. Provisions are measured at the present value of the expenditures expected to be required to settle the obligations using a pre-tax rate that refl ects current market assessments of the time value of money and the risks specifi c to the obligation. 20. Current and deferred tax The charge for current tax is based on results for the year as adjusted for income that is exempt and expenses that are not deductible using tax rates that are applicable to the taxable income. Deferred income tax is provided, using the liability method, on temporary differences arising between the tax base of assets and liabilities and their carrying amounts in the consolidated fi nancial statements. Deferred tax is not accounted for if it arises from initial recognition of an asset or liability in a transaction, other than a business combination, that at the time of the transaction affects neither accounting nor taxable profi t or loss. Deferred tax is determined using tax rates (and laws) that have been enacted or substantially enacted by the reporting date and are expected to apply when the related deferred tax asset is realised or the deferred tax liability is settled. Deferred tax assets are recognised to the extent that it is probable that future taxable profi t will be available against which the temporary differences can be utilised. Deferred tax is provided on temporary differences arising on investments in subsidiaries, joint ventures and associates, except where the timing of the reversal of the temporary difference will not reverse in the foreseeable future. 21. Derivative financial instruments The group uses derivative fi nancial instruments to manage its exposure to foreign exchange and commodity price risks arising from operational activities. Derivatives are initially recognised at fair value on the date a derivative contract is entered into and are subsequently remeasured at fair value. The method of recognising the resulting gain or loss depends on whether the derivative is designated as a hedging instrument, and if so, the nature of the item being hedged. 84 Astral Integrated Annual Report 2011 Derivatives that do not qualify for hedge accounting Certain derivative instruments do not qualify for hedge accounting. Such derivatives are classifi ed as fair value through profi t or loss, and changes in the fair value of any derivative instruments that do not qualify for hedge accounting are recognised immediately under other income or expenses in the statement of comprehensive income. Over-the-counter contracts The group enters into over-the-counter (OTC) forward purchases for the purchase of commodities for own use. These contracts are settled by taking physical delivery in the normal course of business and are therefore not regarded as fi nancial instruments. Fair value estimation The fair value of fi nancial instruments traded in active markets (such as publicly traded derivatives and trading and available-for sale securities) is based on quoted market prices at the reporting date. The quoted market price used for fi nancial assets held by the group is the current bid price; the appropriate quoted market price for fi nancial liabilities is the current ask price.

87 21. Derivative financial instruments (continued) The fair value of fi nancial instruments that are not traded in an active market (for example, over-the-counter derivatives) is determined by using valuation techniques. The group uses a variety of methods and makes assumptions that are based on market conditions existing at each reporting date. Quoted market prices or dealer quotes for similar instruments are used for long-term debt. Other techniques, such as estimated discounted cash fl ows, are used to determine fair value for the remaining fi nancial instruments. The fair value of interest rate swaps is calculated as the present value of the estimated future cash fl ows. The fair value of forward foreign exchange contracts is determined using forward exchange market rates at the reporting date. The nominal value less estimated credit adjustments of trade receivables is assumed to approximate their fair values. The fair value of fi nancial liabilities for disclosure purposes is estimated by discounting the future contractual cash fl ows at the current market interest rate that is available to the group for similar fi nancial instruments. 22. Employee benefits Pension obligations The group operates defi ned contribution retirement schemes. A defi ned contribution scheme is a pension plan under which the group pays fi xed contributions into a separate entity. The group has no legal or constructive obligations to pay further contributions if the fund does not hold suffi cient assets to pay all employees the benefi ts relating to employee service in the current and prior periods. Other post-employment benefit obligations The group provides post-retirement healthcare benefi ts to some of its retirees. The entitlement to these benefi ts is usually conditional on the employee remaining in service up to retirement age. The expected costs of these benefi ts are accrued over the period of employment using the same accounting methodology as used for defi ned benefi t pension plans. Actuarial gains and losses arising from experience adjustments, and changes in actuarial assumptions, are charged or credited to income as they arise. These obligations are valued every year and the assumptions are reviewed annually by independent qualifi ed actuaries. Termination benefits Termination benefi ts are payable when employment is terminated by the group before the normal retirement date or when an employee accepts voluntary redundancy in exchange for these benefi ts. The group recognises termination benefi ts when it is demonstrably committed to either: terminating the employment of current employees according to a detailed formal plan without possibility of withdrawal; or providing termination benefi ts as a result of an offer made to encourage voluntary redundancy. Benefi ts falling due more than 12 months after the reporting date are discounted to present value. Profit-sharing and bonus plans The group recognises a liability and an expense for bonuses and profi t-sharing based on a formula that takes into consideration the profi t attributable to the company s shareholders. These profi t-sharing and bonus plans are approved annually by the board. The group recognises a provision where contractually obliged or where there is a past practice that has created a constructive obligation. Long-term retention bonus scheme The group has a long-term retention bonus scheme for certain employees. In terms of the scheme, 25% of the allocated amount is guaranteed and 75% is subject to certain performance conditions measured over a three-year period being met. One-third of the amount vests and is paid after each of the third, fourth and fi fth year from date of allocation. The fair value of the employees service received in exchange for participation in the scheme is recognised as an expense over the vesting period. Share-based plans The group s management awards share options from time to time on a discretionary basis. The share option scheme which is equity-settled, provides the right to purchase shares in the company at the exercise price. The contractual life of options granted is between seven and 10 years. The options vest one-third after each of the third, fourth and fi fth year of date of granting the option. No compensation cost is recognised for the fair value of the options granted before the effective date of accounting for share-based payments in terms of IFRS 2. The proceeds received net of any directly attributable transaction costs are credited to share capital (nominal value) and share premium when the options are exercised. The fair value of the employee service received in exchange for the grant of the options is recognised as an expense with a corresponding increase in equity. The total amount to be expensed over the vesting period is determined by reference to the fair value of the options granted excluding the impact of any non-market conditions. Non-market conditions are included in assumptions about the number of options that are expected to vest. It recognises the impact of the revision to original estimates, if any, in the statement of comprehensive income with a corresponding adjustment to equity. Astral Integrated Annual Report

88 Accounting policies (continued) for the year ended 30 September Employee benefits (continued) The share appreciation option scheme which is cash-settled, is recognised as an expense in profi t or loss with a corresponding liability on the statement of fi nancial position. The fair value is measured at grant date and expensed over the period during which the employees become unconditionally entitled to the instruments, using generally accepted valuation techniques, taking into the account the terms and conditions upon which the instruments are granted, excluding the impact of non-marketing conditions. The fair value is revisited at reporting date and recognises the impact of revised estimates in the statement of comprehensive income with a corresponding adjustment to liabilities. 23. Non-current assets (or disposal groups) held for sale Non-current assets (or disposal groups) are classifi ed as assets held for sale when their carrying amount is to be recovered principally through a sale transaction and a sale is considered highly probable. They are stated at the lower of carrying amount and fair value less costs to sell if their carrying amount is to be recovered principally through a sale transaction rather than through continuing use and a sale is considered highly probable. 24. Revenue recognition Revenue comprises the fair value of the consideration received or receivable for the sale of goods and services in the ordinary course of the group s activities. Revenue is shown net of value-added tax, returns, rebates and discounts and after eliminating sales within the group. The group recognises revenue when the amount of revenue can be reliably measured, it is probable that future economic benefi ts will fl ow to the entity and specifi c criteria have been met for each of the group s activities as described below. The amount of revenue is not considered to be reliably measurable until all contingencies relating to the sale have been resolved. The group bases its estimates on historical results taking into consideration the type of customer, the type of transaction and the specifi cs of each arrangement. Revenue is recognised as follows: Sales of goods Sales of goods are recognised when a group entity has delivered products to the customer, the customer has accepted the products and collectability of the related receivables is reasonably assured. Goods delivered to contract growers whereby the risk for quality and quantity of the product is carried by the contract grower is recognised as revenue. Dividend income Dividend income is recognised when the right to receive payment is established. Interest income Interest income is recognised on a time: proportion basis using the effective interest method. When a receivable is impaired, the group reduces the carrying amount to its recoverable amount being the estimated future cash fl ow discounted at the original effective interest rate of the instrument and continues unwinding the discount as interest income. Interest income on impaired loans is recognised using the original effective interest rate. 25. Cost of sales When inventories are sold, the carrying amount of those inventories is recognised as an expense in the period in which the related revenue is recognised. The amount of any write-down of inventories to net realisable value and all losses of inventories are recognised as an expense in the period in which the write-down or loss occurs. 86 Astral Integrated Annual Report Leases Leases of property, plant and equipment, where the group (being the lessee) has substantially all the risks and rewards of ownership, are classifi ed as fi nance leases. Finance leases are capitalised at the lease s inception at the lower of fair value of the leased property and the present value of the minimum lease payments. Each lease payment is allocated between the liability and fi nance charges so as to achieve a constant rate on the fi nance balance outstanding. The corresponding rental obligations, net of fi nance charges, are included in other long-term payables. The interest element of the fi nance cost is charged to profi t or loss over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period. The property, plant and equipment acquired under fi nance leases are depreciated over the shorter of the asset s useful life and the lease term. Leases where the lessor retains substantially all the risks and rewards of ownership are classifi ed as operating leases. Payments made under operating leases are charged to profi t or loss on a straight-line basis over the period of the lease.

89 27. Dividend distribution Dividend distribution to the company s shareholders is recognised as a liability in the group s fi nancial statements in the period in which the shareholders are entitled to the dividend. 28. Critical accounting estimates and judgements The preparation of the fi nancial statements in accordance with IFRS requires the use of certain critical accounting estimates. It requires management to exercise judgement in the process of applying the group s accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are signifi cant to the fi nancial statements, are mainly the following: Impairment of trade receivables A provision for impairment is established when there is evidence of signifi cant fi nancial diffi culties of the debtor, probability that the debtor will enter bankruptcy or fi nancial reorganisation, and default or delinquency in payments. Impairment of goodwill Goodwill is assessed for impairment at each reporting date. The recoverable amount of the relevant cash-generating units is determined based on value-in-use calculations. These calculations use cash fl ow projections per budgets and strategic plan forecasts. These plans are revisited every year and growth rates are determined after considering market conditions and the strategic positioning of the business units within the markets in which they operate. Estimation of useful lives of property, plant and equipment and intangible assets The assets residual values and useful lives are reviewed annually and adjusted if appropriate, taking into account technology developments and maintenance programmes. Uniform depreciation and amortisation rates are established based on the straightline method which may not represent the actual usage of the assets. An asset s carrying amount is written down immediately to its recoverable amount if the asset s carrying amount is greater than its estimated recoverable amount. Fair value assessment of biological assets The determination of fair value is based on active market values, where appropriate, or management s assessment of the fair value based on available industry data and benchmark statistics. Fair value of retirement benefits The fair value calculation is based on the most recent relevant economic data available. The key estimates and assumptions relating to these areas are disclosed in note 14 to the fi nancial statements. Inventory net realisable value Inventory net realisable value is based on estimates of future market conditions and the ability to recover the cost of inventory. Deferred tax assets The recoverability of deferred tax assets is based on the future forecasted profi tability of the relevant entity and the ability to generate future taxable income. Fair value of long-term retention bonus scheme The determination of the fair value is based on the extent to which pre-set performance is met, discounted to present value. Share-based payments The fair value of share options granted are based on market conditions, discount rates, share price volatility and estimated future forfeitures. These values may change from time to time and the eventual outcome may differ from the valuations. Financial instruments Financial instruments are fair valued at statement of fi nancial position date. The value of fi nancial instruments are subject to material fl uctuations and disclosed amounts may differ from values ultimately realised. All estimates and underlying assumptions are based on historical experience and various other factors that management believes are reasonable under the circumstances. The results of these estimates form the basis of judgements about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates. The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised and any affected future periods. Astral Integrated Annual Report

90 Statement of financial position at 30 September 2011 Group Company Notes R 000 R 000 R 000 R 000 ASSETS Non-current assets Property, plant and equipment Intangible assets Goodwill Investments and loans Deferred tax asset Current assets Inventories Biological assets Trade and other receivables Current tax asset Derivative fi nancial instrument Cash and cash equivalents Assets held for sale Total assets EQUITY Capital and reserves attributable to equity holders of the company Ordinary shares Share premium Other reserves (5 281) Treasury shares ( ) ( ) Retained earnings Non-controlling interest in equity Total equity LIABILITIES Non-current liabilities Borrowings Deferred tax liabilities Retirement benefi t obligations Astral Integrated Annual Report 2011 Current liabilities Trade and other payables Loan from subsidiary Current tax liabilities Borrowings Shareholders for dividend Liabilities held for sale Total liabilities Total equity and liabilities

91 Statement of comprehensive income for the year ended 30 September 2011 Group Company Notes R 000 R 000 R 000 R 000 Revenue Cost of sales ( ) ( ) Gross profit Administrative expenses ( ) ( ) (1 816) (1 938) Distribution costs ( ) ( ) Marketing expenditure ( ) ( ) Other income Other (losses)/gains 22 (4 758) Operating profit Fair value adjustment of net investment in assets held for sale 33 (1 805) (7 233) Finance income Finance expense 23 (27 849) (33 263) (578) (2 555) Profit before income tax Tax expense 24 ( ) ( ) (26 029) (24 404) Profit for the year Other comprehensive income Foreign currency translation adjustments (6 401) Total comprehensive income for the year Profit for the year attributable to: Equity holders of the company Non-controlling interest Profit for the year Total comprehensive income attributable to: Equity holders of the company Non-controlling interest Total comprehensive income for the year Earnings per share attributable to the equity holders of the company during the year: cents cents basic diluted Astral Integrated Annual Report

92 Statement of changes in equity for the year ended 30 September 2011 Group 2010 Attributable to ordinary shareholders of Astral Foods Limited Share capital and Currency translation Equity compensation Treasury Nondistributable Retained Noncontrolling Total premium reserve reserve shares reserve earnings Total interests equity R 000 R 000 R 000 R 000 R 000 R 000 R 000 R 000 R 000 Balance at 1 October (12 984) ( ) Option value of share options granted Profi t for the year Dividends declared ( ) ( ) ( 3 630) ( ) Currency translation differences arising in year (6 401) ( 6 401) ( 6 401) Non-controlling interest in translation differences ( 832) Contribution from non-controlling interest holder Balance at 30 September (18 553) ( ) Balance at 1 October (18 553) ( ) Shares issued Option value of share options granted Profi t for the year Dividends declared ( ) ( ) ( 4 571) ( ) Currency translation differences arising in year Transfer to statutory reserve foreign subsidiary 678 ( 678) Non-controlling interest in translation differences (1 494) ( 1 494) Non-controlling interest in transfers ( 136) 136 Acquisition of non-controlling interest ( 344) ( 344) ( ) ( ) Balance at 30 September (6 492) ( ) Company 2010 Balance at 1 October Option value of share options granted Profi t for the year Dividends declared ( ) ( ) Balance at 30 September Balance at 1 October Option value of share options granted Profi t for the year Dividends declared ( ) ( ) Balance at 30 September Astral Integrated Annual Report 2011

93 Statement of cash flows for the year ended 30 September 2011 Group Company Notes R 000 R 000 R 000 R 000 Cash flows from operating activities Cash operating profit A Changes in working capital B ( 25) Cash generated from operations Income tax paid C ( ) ( ) (26 029) (24 404) Cash generated from operating activities Cash used in investing activities ( ) ( ) Purchase of property, plant and equipment to expand operations (55 735) ( ) Purchase of property, plant and equipment to maintain operations (86 123) (77 474) Total purchases ( ) ( ) Less: interest capitalised Net purchases of property, plant and equipment ( ) ( ) Costs incurred on intangibles (8 870) (1 281) Proceeds on disposal of property, plant and equipment Cost of acquisition of business unit E (82 261) (2 245) (Increase)/Decrease in loans and investments (4 190) Investment income Proceeds from disposal of investment held for sale Change in market value of derivative instruments 113 Cash generated for the year Cash flows to financing activities ( ) ( ) ( ) ( ) Contribution from non-controlling interest holders 103 Proceeds from shares issued Dividends paid to the company s shareholders D ( ) ( ) ( ) ( ) Payments to non-controlling interest holders (4 571) (3 630) Cost of non-controlling interest acquired F (14 000) Movement in loan from subsidiaries ( ) Interest paid (31 021) (38 758) ( 578) (2 555) Increase in borrowings Loans received Payment of long-term borrowings (12 087) (14 868) Net decrease in cash and cash equivalents (25 865) Effects of exchange rate changes (6 046) Reclassifi cation to assets held for sale 795 Cash and cash equivalents at beginning of year (28 994) ( ) (47 196) (21 331) Cash and cash equivalents at end of year (28 994) (47 196) Astral Integrated Annual Report

94 Notes to the statement of cash flows for the year ended 30 September 2011 Group Company R 000 R 000 R 000 R 000 A. Cash operating profit Operating profi t Adjustments for: Depreciation and amortisation Impairment of fi xed assets Loss on disposal of fi xed assets Increase in provision for retirement benefi t obligations Other non-cash fl ow items (5 606) Cash operating profi t B. Changes in working capital (Increase)/Decrease in inventories (57 076) (Increase)/Decrease in biological assets (36 804) (Increase)/Decrease in trade and other receivables (36 091) (Increase)/Decrease in trade and other payables (99 840) 63 ( 25) Total change in working capital ( 25) C. Income tax paid Balance at beginning of year (17 222) Normal income tax provision ( ) ( ) Secondary Tax on Companies provision (29 688) (27 997) (26 029) (24 404) Withholding tax ( 831) ( 454) Translation differences ( 17) 799 Reclassifi cation to assets held for sale 259 Net balance at end of year Total income tax paid ( ) ( ) (26 029) (24 404) D. Dividends paid Balance at beginning of year ( 973) (1 101) ( 973) (1 101) Per statement of changes in equity ( ) ( ) ( ) ( ) Balance at end of year Total dividends paid ( ) ( ) ( ) ( ) E. Acquisition of business unit Property, plant and equipment and intangibles (71 136) (18 921) Biological assets (3 964) Inventory (1 677) Trade and other receivables ( 47) Trade and other payables 702 Deferred tax liability Net assets acquired (69 162) (22 465) Goodwill (15 599) Astral Integrated Annual Report 2011 Total purchase consideration for interest in subsidiary (84 761) (22 266) Outstanding purchase consideration payable Cash fl ow on acquisition, net of overdraft and cash acquired (82 261) (2 245) F. Non-controlling interest acquired Non-controlling interest acquired (13 656) Excess paid over net value acquired ( 344) Cash fl ow on acquisition (14 000) -

95 Notes to the annual financial statements for the year ended 30 September 2011 Land and Plant, and buildings equipment Vehicles Total R 000 R 000 R 000 R Property, plant and equipment Group 2010 Net book amount at 1 October Changes for the year ended 30 September 2010: Exchange translation changes (2 323) (1 608) (356) (4 287) Additions Expansion Additions Replacement Acquisition/Disposal of business units Reclassifi cation to assets held for sale (14 491) (14 491) Disposals ( 428) (813) (1 241) Assets scrapped (81) ( 241) (322) Depreciation charge (17 241) (73 046) (13 744) ( ) Closing net book amount Balance at 30 September 2010: Cost Accumulated depreciation ( ) ( ) (98 383) ( ) Closing net book amount Net book amount at 1 October Changes for the year ended 30 September 2011: Exchange translation changes Additions Expansion Additions Replacement Acquisition of business units Disposals (42) (373) (19 874) (20 289) Assets scrapped (2) (181) (1) (184) Impairment (156) (1 039) (1 195) Depreciation charge (20 298) (80 614) (14 339) ( ) Closing net book amount Balance at 30 September 2011: Cost Accumulated depreciation ( ) ( ) (82 788) ( ) Closing net book amount Details of the individual properties are contained in a register, which is open for inspection by members or their nominees at the registered offi ce of the company. Assets with a book value of R (2010: R ) are pledged as security for secured loans of R (2010: R ) (refer note 12). Group Company R 000 R 000 R 000 R 000 Land and buildings subject to a property lease have been classifi ed as a fi nance lease due to the specialised nature of the building as well as the length of the lease term. Cost Accumulated depreciation (3 509) ( 438) Net book amount A corresponding liability with an outstanding value of R (2010: R ) is included under borrowings (note 12). Astral Integrated Annual Report

96 Notes to the annual financial statements (continued) for the year ended 30 September 2011 Group Company 94 Astral Integrated Annual Report Intangible assets software Opening net book amount Changes for the year: Exchange translation changes 16 (6) Capitalisation of costs incurred Reclassifi cation to assets held for sale (222) Amortisation included in administrative expenses (2 679) (4 536) Closing net book amount Cost Accumulated amortisation (25 026) (22 892) Closing net book amount Goodwill Cost at beginning of year Goodwill paid on acquisition of a business unit Cost at end of year Impairment test for goodwill Goodwill is allocated to the group s cash-generating units identifi ed according to business segment. A summary of goodwill per segment is as follows: Poultry Earlybird Olifantsfontein/Standerton National Chicks County Fair Earlybird Camperdown Feed Meadow South African operations Meadow Eastern Cape (Pty) Limited Africa Feeds Limited (Zambia) Ventures and Services Eastbalt SA partnership Impairment tests were based on the following assumptions: Average perpetuity growth rates 4% 4% Period (years) 4 4 Discount rates 12,5% 12,5% If the discount rate is increased by 1% there will be no impairment (2010: nil). The accounting estimates and judgements on which the impairment tests are based are set out in paragraph 28 of the accounting policies R 000 R 000 R 000 R Investments and loans Shares at cost: Subsidiaries Joint ventures Other unlisted: Group Risk Holdings Pty Limited a company holding investments in companies which operates in the fi eld of insurance, reinsurance and risk management Indebtedness: Subsidiaries Joint venture Other Total Details of joint ventures and subsidiaries are given in notes 30 and 31, respectively. The directors value of other unlisted investments equal its carrying value. The loan to a joint venture has no fi xed repayment date and carries interest linked to the daily bank rate which is 9% at 30 September Other loans have no fi xed repayment dates and are interest free.

97 Group Company 5. Inventories Raw materials Finished goods and merchandise Consumable stores R 000 R 000 R 000 R Egg Breeding Broiler stock stock stock Total R 000 R 000 R 000 R Biological assets Group 2010 Fair value at 1 October Increase due to established costs Decrease due to harvest/sales ( ) ( ) ( ) ( ) Fair value adjustment Fair value at 30 September Fair value at 1 October Increase due to established costs Decrease due to harvest/sales ( ) ( ) ( ) ( ) Fair value adjustment Fair value at 30 September Biological assets with a carrying value of R (2010: R ) at a Zambian subsidiary were ceded as security for loans. Group Company 7. Derivative financial instrument Currency option contracts These are contracts in underlying exchange rates R 000 R 000 R 000 R 000 Currency option contracts are mark-to-market on a daily basis and gains or losses are immediately settled in cash and recognised in the statement of comprehensive income under (losses)/gains (note 22). The fair value of these instruments is based on level 2 in the fair value measurement hierarchy i.e based on inputs other than quoted prices included in level 1 of the hierarchy that are either directly or indirectly observable for the asset. The current year s net gain was R (2010: R loss). These contracts are classifi ed as assets at fair value through profi t and loss. Astral Integrated Annual Report

98 Notes to the annual financial statements (continued) for the year ended 30 September 2011 Group Company 8. Trade and other receivables Financial instruments Trade receivables Provision for impairment (369) (1 294) Trade receivables net Other receivables Non-financial instruments Prepayments Other receivables Trade receivables with a book value of R (2010: R ) are ceded by a joint venture of the group as security for its available borrowing facilities (refer note 12). The fair values of trade and other receivables approximate their carrying value. The carrying amounts of the group s trade and other receivables are denominated in the following currencies: R 000 R 000 R 000 R SA Rand Zambia Kwacha Mozambique Meticais Trade receivables are categorised per the following industries: Farming Retail Wholesale Other Ageing profi le of trade receivables: up to 30 days to 60 days days and longer Provision for impairment: Balance at 1 October (1 294) (5 585) Decrease charged to profi t and loss Impairment provision utilised against trade receivables Disposal of joint venture Astral Integrated Annual Report 2011 Balance at 30 September (369) (1 294) Ageing profi le of provision for impairment: up to 30 days ( 7) 30 days and longer (369) (1 287) Collateral security held against trade receivables: Bank guarantees Covering bonds over property Credit Guarantee Insurance Cover

99 Group Company R 000 R 000 R 000 R Cash and cash equivalents Cash at bank and in hand Cash and cash equivalents include the following for purposes of the cash fl ow statement: Cash at bank and in hand Bank overdrafts (note 12) ( ) ( ) (47 196) Cash and cash equivalents per the statement of cash fl ow (28 994) (47 196) 10. Share capital Authorised share capital ordinary shares of 1 cent each (2010: ordinary shares of 1 cent each) Issued share capital ordinary shares of 1 cent each (2010: ordinary shares of 1 cent each) Share premium Total issued share capital and premium All issued shares are fully paid. Number Number Number Number Number of shares effectively in issue of shares of shares of shares of shares Issued shares Treasury shares held by subsidiary ( ) ( ) Shares at end of year Treasury shares Treasury shares are held by a wholly-owned subsidiary of the company. Unissued share capital The number of shares available to be utilised for purposes of the share option scheme: Number of share options available at beginning of year Number of share options allocated ( ) ( ) Number of share options exercised during year Number of share options forfeited Number of share options available at end of year The number of share options outstanding at end of year Number of shares under the control of directors for the purpose of the share option scheme at end of year Share options forfeited were in respect of employees who left the employment of the group. Astral Integrated Annual Report

100 Notes to the annual financial statements (continued) for the year ended 30 September Share-based payments The group had two share-based payment arrangements during the year: Share option scheme The scheme, an equity-settled incentive remuneration scheme, provides the right to purchase shares in the company at the exercise price. The contractual life of options granted prior to 28 August 2007 is 10 years. Options not taken up will lapse on the 10th anniversary of the option date. The contractual life of options granted on or after 28 August 2007 is seven years. Options not taken up will lapse on the 7th anniversary of the option date. The scheme allows one-third of the share options to be exercised per year after each of the third, fourth and fi fth year from date of granting the option. The exercise price of the granted options is equal to the market price of the shares on date of the grant. Movement during the year in the number of options is as follows: Date Exercise price Number of options outstanding at beginning of year Number of options exercised during the year Number of options forfeited during the year Number of options granted during the year Number of options outstanding at end of the year Number of options exercisable at end of year 17 April 2001 R7, (2 000) 28 August 2007 R122, (10 600) (26 400) May 2008 R88, October 2008 R90, February 2009 R86, May 2009 R97, June 2009 R97, July 2009 R96, September 2011 R118, (12 600) (26 400) Value of share options outstanding at the end of the year at the exercise price amounts to R (2010: R ) options were exercised during the year at a weighted average price of R125, options were granted during the year (2010: nil). The fair value of the options granted on 30 September 2011 were determined using the Black Scholes pricing model. The signifi cant inputs in the model were: Share price at grant date R117,00 Exercise price R118,00 Volatility 27,51% Dividend yield 6,9% Risk free interest rate 6,63% Contractual life from grant date 7 years Estimated average value per option R19,68 98 Astral Integrated Annual Report 2011 The total service costs of the options granted over its contractual life is R The service cost recognised in the current year in return for the cumulative share options granted to date to employees and directors amounts to R (2010: R ). Share appreciation rights scheme The scheme provides cash-settled incentive remuneration based on the increase in the value of shares of the company. The rights are subject to a three-year service vesting condition and their fair value is recognised as an expense in the statement of comprehensive income and a liability in the statement of fi nancial position. The right to receive payment based on the options granted lapses after fi ve years from the grant date.

101 11. Share-based payments (continued) Movement during the year in the number of options is as follows: Date Exercise price Number of rights outstanding at beginning of year Number of rights exercised during the year Number of rights exercisable at end of year 15 July 2006 R77, (62 600) Share appreciation rights were exercised during the year at a weighted average share price of R129,98 (2010: R108,05). Group R 000 R 000 Closing balance of liability for share appreciation rights (disclosed as part of Trade and other payables ) Fair value loss on cash-settled share-based payments to employees and directors recognised in the income statement Group Company 12. Borrowings Non-current Secured loans Unsecured loans Property lease capitalised as fi nance lease Less: Portion payable within one year included in current liabilities (9 442) (19 434) R 000 R 000 R 000 R Current Bank overdrafts Portion of non-current borrowings payable within one year Total borrowings The carrying amounts of the group s borrowings are denominated in the following currencies: SA Rand US Dollar Zambian Kwacha All borrowing rates are variable The SA Rand borrowings are linked to a market-related interest rate that is 9% at 30 September The US Dollar loan is linked to a market-related interest rate that is 4,7% at 30 September The Zambia Kwacha loan is linked to a market-related rate that is 10,4% at 30 September The carrying amounts of both the long-term and short-term borrowings approximate their fair value. Astral Integrated Annual Report

102 Notes to the annual financial statements (continued) for the year ended 30 September 2011 Group R 000 R Borrowings (continued) Assets with the following book values are pledged as security for secured loans: Property Capitalised property lease Plant and equipment Biological assets Trade receivables Contractual maturity of payments of non-current borrowings Not later than one year Between one and fi ve years Over fi ve years Less: Finance charges (58 555) (62 709) Repayment varies from monthly to quarterly payments. Maturity dates vary from September 2014 to August Borrowing facilities The group has the following general borrowing facilities at fl oating interest rates: The facilities are denominated in SA Rand. The borrowing facilities are reviewed on an annual basis. Borrowing powers No limit has been placed in the articles of association on the borrowing powers of the company. 13. Deferred tax Deferred tax is calculated on all temporary differences under the liability method using a principal tax rate of 28% (2010: 28%). Deferred tax assets and liabilities are offset when there is a legally enforceable right to set-off current tax assets against current tax liabilities and when deferred taxes relate to the same fi scal authority. Movement on the deferred tax asset account is as follows: At beginning of year Charge to profi t and loss 106 (2 570) Transfer to deferred tax liability At end of year Analysis of deferred tax assets: Accelerated tax depreciation (220) (276) Other temporary differences Astral Integrated Annual Report

103 Group R 000 R Deferred tax (continued) Movement on the deferred tax liability account is as follows: At beginning of year Acquisition of business unit Reclassifi cation to assets held for sale (786) Transfer from deferred tax asset Exchange translation changes 452 (16) Charge to/(release from) profi t and loss (10 570) At end of year Analysis of deferred tax liabilities: Accelerated tax depreciation Lower tax value for livestock and farming consumables Assessed losses utilised to reduce deferred tax (7 426) (8 161) Other temporary differences (62 027) (49 155) Retirement benefit obligations Post-employment medical benefits The group provides post-retirement healthcare benefi ts to some of its retirees. Benefi ts paid and the movement in the provision are charged against profi ts in the current period. Amounts recognised in the profi t and loss: Benefi ts paid Increase in the provision for the liability Provision for liability at reporting date Estimated employer benefi ts payable during next 12 months The liability recognised in the fi nancial statements was actuarially valued at 30 September 2011 (previous valuation date: 30 September 2010). The liability was valued using the projected unit credit method. Discount rate 8,3% 8,3% Healthcare infl ation rate 7,1% 7,1% Pre-retirement mortality rates as per SA85-90 ultimate table. Post-retirement mortality rates as per PA(90) ultimate table rated down 2 years plus an improvement of 0.75% from a base year of Present value of funded obligations per actuarial valuation at 30 September: Balance at beginning of year Current service cost Interest costs Actuarial loss Expected benefi ts payments (3 250) (3 180) Balance at end of year Sensitivity analysis Accrued liability Percentage change Discount rate increases by 1% p.a (13) Discount rate reduces by 1% p.a Subsidy infl ation increases by 1% p.a Subsidy infl ation reduces by 1% p.a (13) The present value of the defi ned benefi t obligation and the experience adjustment were as follows: R 000 Experience adjustment percentage 30 September (1,0) 30 September (2,9) 30 September (4,3) 30 September ,6 Astral Integrated Annual Report

104 Notes to the annual financial statements (continued) for the year ended 30 September 2011 Group Company R 000 R 000 R 000 R Trade and other payables Financial instruments Trade payables Accruals and other payables Non financial instruments Other payables Provision for share-based payments The carrying amounts of the group s trade and other payables are denominated in the following currencies: SA Rand Zambian Kwacha Mozambican Meticais Contingencies and commitments Capital commitments Capital expenditure approved not contracted Capital expenditure contracted but not recognised in the fi nancial statements The capital commitments will be fi nanced by operating cash fl ow and borrowings well within the accepted gearing profi le of the group Operating lease commitments The group leases various properties, plant and equipment and vehicles under non-cancellable operating leases. Future lease payments are as follows: Not later than 1 year Later than 1 year and not later than 5 years Later than 5 years Leases are contracted for periods ranging from 36 to 120 months with no renewal options. Rental escalations vary from nil to prime interest rate-linked escalations. The lease expenditure charged to the income statement is disclosed in note 18. Other commitments The group has contracted its raw material requirements from various suppliers in terms of future supply agreements Astral Integrated Annual Report 2011 Contracted amounts not recognised in the statement of fi nancial position are as follows The group entered into a feed supply agreement whereby an agreed quantity of raw materials are procured from a supplier at market-related prices. The remaining period of the agreement is three years. Contingent liabilities A referral was made to the Competition Tribunal regarding alleged anti-competitive conduct by subsidiaries in the group in Astral lodged a dismissal application based on the late inclusion of Ross Poultry Breeders (Pty) Limited to the complaint and on 20 October 2011 the Competition Tribunal ruled in favour of Astral, dismissing the joinder of Ross Poultry Breeders to the initial complaint. The group is still opposing the initial referral.

105 16. Contingencies and commitments (continued) Contingent liabilities (continued) During September 2009 the Competition Commission initiated complaints against all past and present members of the Animal Feeds Manufacturers Association and the South African Poultry Association as well as other players involved in the production of poultry feed, in breeding stock and broiler production, and in the poultry products industry. Astral is not aware of any transgressions of the Competition Act within the group. However, it offered all reasonable cooperation to the Commission in regard to its investigation into the industry. The Competition Commission received an application for immunity in which an allegation was made regarding anti-competitive conduct in the market for fresh chicken products during the periods 2003 to 2007 implicating one of Astral s business units. The company has since undertaken a comprehensive investigation into the allegations. Astral s investigation has found that this allegation is true of our Western Cape fresh poultry business during the period 2003 to Therefore Astral has responded to the Competition Commission in this vein. The Competition Commission issued a summons on 16 August 2011 to Astral and two other feed companies regarding conduct in the dairy feed industry requesting information relating to Astral s involvement in the business of a dairy study group in the Western Cape. Astral s response and the required information were submitted on 16 September Group R 000 R Revenue Revenue from the sale of goods: Revenue from South African operations Revenue denominated in foreign functional currencies External revenue comprises the net value of the sales of feed and poultry-related products from the following segments: Poultry Feed Services and other ventures The following intergroup revenue is excluded: Poultry Feed South Africa Feed Africa Services and Ventures Revenue is disclosed net of value-added tax, normal discounts, rebates and returns. Revenue from the top fi ve customers are all from the Poultry segment. Customer Customer Customer Customer Customer Astral Integrated Annual Report

106 Notes to the annual financial statements (continued) for the year ended 30 September 2011 Group Company R 000 R 000 R 000 R Expenses by nature The following expense items by nature have been included in arriving at operating profi t: Impairment of plant and equipment and intangibles Amortisation of intangible assets Depreciation on property, plant and equipment Buildings Plant and equipment Vehicles Operating lease payments Property Plant and machinery Vehicles Biological assets gain from movement in fair value adjustment Directors remuneration (note 19) Employee benefi t expense (note 20) Cost recognised for provision for long-term retention bonus to employees and directors Loss on fair value adjustment of cash-settled share-based payments to employees and directors Cost recognised for share options granted to employees and directors Directors remuneration Executive directors Salaries Performance-related bonuses Retirement fund contributions Travelling allowance and other payments Share appreciation rights/share options exercised Non-executive directors Fees Total directors remuneration Less: Share appreciation rights/share options exercised ( 253) Less: Paid by subsidiary (14 018) (10 959) Astral Integrated Annual Report 2011 No share options in terms of the share option scheme were granted to the executive directors of the company during the year (2010: nil). No options in terms of the share appreciation option scheme were granted to the executive directors of the company during the year (2010: nil). Refer note 11 for details of the share-based payment schemes.

107 Group Company 20. Employee benefit expense Wages and salaries of permanent employees Termination benefi ts Retirement fund contributions Post-retirement benefi ts Cost of contracted labour R 000 R 000 R 000 R Number of employees at 30 September: Permanent employees Contracted labour Other income Dividends received Scrap sold Storage fee income Insurance claims received Rental received Other (losses)/gains Foreign exchange forward contract losses realised (36) (288) Foreign exchange forward contract gains realised Foreign exchange gains/(losses) on fi nancial instruments realised (415) Loss on sale and scrapping of property, plant and equipment (6 338) (418) Fair value gains on fi nancial instruments and raw material contracts in respect of procurement not qualifying as effective hedges Net of other gains and losses 366 (322) (4 758) Finance expense and income Interest expense Bank borrowings Loans Other Less: Interest capitalised (3 172) (5 495) Interest income Bank surplus balances Other Net finance expense (15 173) (21 062) ( 578) (2 555) Interest was capitalised at an average rate of 9% in respect of expenditure on assets which took a substantial period of time to get ready for its intended use. Astral Integrated Annual Report

108 Notes to the annual financial statements (continued) for the year ended 30 September 2011 Group Company R 000 R 000 R 000 R Tax expense Current tax Deferred tax (7 504) Tax prior year Deferred tax prior year (496) Withholding tax Secondary Tax on Companies The tax on the group s profi t before tax differs from the theoretical amount that would arise using the basic tax rate of South Africa: Profi t before tax Tax calculated at a tax rate of 28% (2010: 28%) Effect of different tax rates in other countries Expenses not deductible for tax purposes Tax losses not utilised against normal and tax provision Adjustments to prior year s normal tax provision Adjustments to prior year s tax base of assets and provisions (496) Income not subject to tax ( ) (35 073) Withholding tax Secondary Tax on Companies Tax charge per income statement Further information about deferred tax is presented in note Earnings per share Profi t attributable to equity holders of the company used for calculating earnings per share and diluted earnings per share Basic earnings per ordinary share (cents) Diluted earnings per share (cents) Number of shares Number of shares Weighted average number of ordinary shares in issue during the year for calculating earnings per share Adjustments for share options Weighted average number of ordinary shares for calculating diluted earnings per share Astral Integrated Annual Report 2011 Basic earnings per share Basic earnings per share is calculated by dividing the profi t attributable to equity holders of the company by the weighted average number of ordinary shares during the year, reduced by ordinary shares purchased and held as treasury shares. Diluted earnings per share Diluted earnings per share is calculated by adjusting the weighted average number of ordinary shares outstanding to assume conversion of all dilutive potential ordinary shares from the exercise of share options. A calculation is done to determine the number of shares that could have been acquired at fair value (determined as the average annual market share price of the company s shares) based on the monetary value of the subscription rights attached to the outstanding share options. The number of shares calculated is compared with the number of shares that would have been issued assuming the exercise of the share options. No adjustment is made where the issue of share options have no dilutive effect on the number of shares in issue.

109 Group Company 26. Headline earnings Net profi t attributable to shareholders Adjusted for: Loss on sale of property, plant and equipment (net of tax) Loss on disposal of investment held for sale Negative goodwill (199) Loss on assets scrapped (net of tax) 132 Impairment of assets (net of tax) Headline earnings Headline earnings per share (cents) Diluted headline earnings per share (cents) Dividends The following dividends were declared in respect of the current year s profi ts: Interim dividend (Dividend No 21) declared on 11 May 2011 in respect of the year ended 30 September 2011 of 305 cents per share (2010: 290 cents per share) net of treasury shares Final dividend (Dividend No 22) declared on 10 November 2011 in respect of the year ended 30 September 2011 of 505 cents per share (2010: 470 cents per share) net of treasury shares The current fi nancial statements do not include the fi nal dividend declared in respect of the fi nancial year ended 30 September R 000 R 000 R 000 R The following secondary tax on companies (STC) in respect of dividend no 22 will be included in the 2012 tax charge Financial instruments 28.1 Financial instruments by category The fi nancial instruments are classifi ed as follows: Financial assets Assets at fair value through profit and loss Derivatives Loans and receivables Loans Trade and other receivables Cash and cash equivalents Available for sale Financial liabilities Other Accounts payable Loan from subsidiary Shareholders for dividend Bank overdrafts Borrowings All fi nancial instruments are initially recognised at fair value and subsequently measured as follows: Assets at fair value through profi t and loss at fair value. Loans and receivables at amortised costs. Other fi nancial liabilities at amortised costs. At 30 September 2011 the carrying amounts of loans and receivables and fi nancial liabilities approximated their fair values. Astral Integrated Annual Report

110 Notes to the annual financial statements (continued) for the year ended 30 September Financial instruments (continued) 28.2 Financial Risk Management The group is exposed to the following major fi nancial risks: (A) Market risk Market risk is the risk that changes in market prices such as interest rates and foreign exchange rates, will have on the value of fi nancial instruments at year-end and the resulting effect on the group s income. (i) Interest rate risk The group s risk is limited to surplus funds on cash deposits, loan liabilities and funds borrowed on bank overdrafts. Interest are at variable rates which are linked to the bank prime lending rate. The group s main income and operating cash fl ows are substantially independent of changes in the market interest rates. Based on the fi nancial instruments as at 30 September 2011, the after-tax effect of a 1% movement in the interest rates on the income statement will be R (2010: R ). (ii) Foreign currency risk From time to time the group enters into transactions in currencies which are different from the functional currencies in which it conducts its business activities and is, as a result, exposed to foreign exchange rate fl uctuations. Exposure to exchange rate fl uctuations is managed by utilising forward exchange contracts and currency option contracts when management regards it prudent. Forward exchange contracts entered into are related to specifi c balance sheet items. The following Rand value items reported in the fi nancial statements are exposed to foreign exchange rate fl uctuations at 30 September: British Pound Euro US Dollar Total R 000 R 000 R 000 R 000 Group 2011 Financial assets Financial liabilities (3 328) (11 996) (15 324) 1 (1 448) (8 735) (10 182) 2010 Financial assets Financial liabilities (1) (3 299) (10 002) (13 302) (3 282) (8 319) (11 601) A 10% movement in the ZAR against the relevant foreign currencies will result in a R after-tax effect in the profi ts of the group (2010: R ). A weakening of the ZAR will result in lower profi ts and a corresponding reduction in net asset value in the event of net foreign exposed liabilities. Foreign exchange contracts There were no open foreign exchange contracts at 30 September 2011 (2010: nil). 108 Astral Integrated Annual Report 2011 Currency option contracts at 30 September: Group Euro US Dollar Euro US Dollar Fair value R Foreign currency value A 10% movement in the yield against the foreign currency will result in an R8 000 (2010: R ) after-tax effect in the profi ts of the group. A weakening of the yield will result in increased profi ts and a corresponding increase in the net asset value. The company had no exposure to foreign currency risk for both the current and previous year.

111 28. Financial instruments (continued) 28.2 Financial Risk Management (continued) (A) Market risk (continued) (iii) Commodity price risk The prices of commodities used by the group can fl uctuate widely and in a competitive market it is not always possible to recover material commodity price increases from broiler customers. This can impact on the group s profi tability. The group may suffer fi nancial loss when a fl uctuating price contract obligation is entered into and the commodity prices increase or when a fi xed price agreement is entered into and commodity prices fall. Commodity price fl uctuations are normally caused by factors such as supply conditions, weather, exchange rate fl uctuations and other economic conditions. These risks are managed through an established process whereby the various conditions which infl uenced commodity prices are monitored on a daily basis. Decisions on the procurement of raw materials as well as the utilisation of derivative instruments to hedge against these risks are taken by executive management within board-approved mandates given. Detailed statements of raw material contracts and hedging positions are prepared and submitted on a monthly basis to the Chief Executive Offi cer. (B) Credit risk Credit risk is the risk of fi nancial loss to the group if a counterparty to a fi nancial instrument fails to meet its contractual obligations. Credit risk for the group arises on cash and cash equivalents, derivatives and trade receivables. Credit risk is managed on a group basis. Dealings with counterparties arising from money market and derivative instruments are limited to well-established fi nancial institutions of high credit standing. The group s main credit risk is concentrated in the aggregate balance of trade receivables on balance sheet date. Exposure to trade receivables comprise a large, widespread customer base. These risks are controlled by the application of a number of credit controlling procedures, e.g. application of credit limits and strict adherence to those limits, continuous assessment of the creditworthiness of customers, immediate follow-up on late payments, regular visits and communication with customers. These practices proved be successful which is evident from the ageing profi le of trade receivables as per note 8. The largest single credit risk amounts to R89 million. The group does not consider there to be any signifi cant concentration of credit risk that has not been adequately provided for at 30 September Collateral is held as security in respect of those trade receivables which are regarded by management as a high risk. Details of the carrying amounts of trade receivables, their classifi cations into different risk profi les, impairments recognised as well as collateral security held are contained in note 8. The group does not consider there to be any signifi cant risks regarding loans as it is with related parties. Cash at bank represent surplus funds on the current bank accounts. These funds are held by fi nancial institutions of high quality and standing. These fi nancial institutions Fitch credit rating ranges from F1 to F2. (C) Liquidity risks Liquidity risks is the risk that the group will not be able to meet its fi nancial obligations as they fall due. The group s liquidity risk consists mainly of the amounts borrowed on long term to fund specifi c capital expenditure items, trade payables and amounts borrowed on general bank facilities. The expected cash fl ows are well within the confi rmed facilities available to the group. The details of borrowings and undrawn facilities are disclosed in note 12. In terms of the articles of association, the group s borrowing powers are unlimited. The liquidity risk is managed through the management of working capital by monitoring the daily borrowing levels and by conducting cash fl ow forecasts at regular intervals in order to maintain suffi cient funds to fund the business activities from cash generated by operations and funds available from committed credit facilities. Astral Integrated Annual Report

112 Notes to the annual financial statements (continued) for the year ended 30 September Financial instruments (continued) 28.2 Financial Risk Management (continued) (C) Liquidity risks (continued) The maturity profi le of the fi nancial liabilities is analysed below: The amounts disclosed are undiscounted cash fl ows. Within Between More than 1 year 1 and 5 years 5 years Total R 000 R 000 R 000 R 000 Group 2011 Borrowings Trade and other payables Shareholders for dividend Bank* Borrowings Trade and other payables Shareholders for dividend Bank* Company 2011 Trade and other payables Shareholders for dividend Trade and other payables Loans from subsidiary Shareholders for dividend Bank* * Bank facilities are reviewed on an annual basis Capital risk management The group manages its capital to maintain a sound net debt position and to provide adequate return on capital employed. This is taken into account in deciding on the dividends to be paid to shareholders as well as to the extent capital is returned to shareholders by way of share repurchases. The group continuously monitors its net debt to equity ratio. Net debt is calculated as total debt less cash and cash equivalents. Equity comprises all components of equity as disclosed in the statement of fi nancial position. 110 Astral Integrated Annual Report 2011

113 28. Financial instruments (continued) 28.3 Capital risk management (continued) The net debt to equity ratio as at 30 September was as follows: Group R 000 R 000 Total debt Less: Cash and cash equivalents ( ) ( ) Net debt Total equity Net debt to equity ratio 2,5% 8,9% The company manages its capital structure with dividend income from subsidiaries. 29. Related party transactions The group entered into transactions and has balances with its two joint ventures. These transactions with related parties are effected at arm s length and consists of the payment of administration fees and the purchase of vitamin and mineral pre-mixes for inclusion in the animal feed production process. Sales of goods and services Sales to joint ventures Purchases from joint ventures Outstanding balances at year-end Receivables from joint ventures Trade payables to joint ventures Directors remuneration Details of directors remuneration is given on pages 73 to 74. Executive directors are eligible for an annual performance-related bonus payment linked to appropriate group targets. The structure and payments of bonuses is decided by the Human Resources and Remuneration Committee. Details of share options granted to directors are given in the directors and prescribed offi cers remuneration report on page 74. Key management Employees fulfi lling the role of key management are all appointed to the board of directors. Principal joint ventures and subsidiary undertakings Details of joint ventures and subsidiaries are set out in notes 30 and 31 respectively, to the fi nancial statements. Cross-guarantees Cross-deed of suretyship in respect of borrowings has been given by Astral Foods Limited, Astral Operations Limited, County Fair Foods (Pty) Limited, Ross Poultry Breeders (Pty) Limited, National Veterinary Supplies (Pty) Limited, Meadow Feeds (Eastern Cape) (Pty) Limited and Central Analytical Laboratories (Pty) Limited in respect of borrowings. Astral Integrated Annual Report

114 Notes to the annual financial statements (continued) for the year ended 30 September 2011 Group Notes % % 30. Interests in joint ventures The principal joint ventures of the group are: NuTec Southern Africa (Pty) Limited f East Balt South Africa partnership g The following amounts represent the group s share of assets and liabilities, revenue and expenses and cash fl ows of the joint ventures and are included in the consolidated fi nancial statements: R 000 R 000 Assets and liabilities Non-current assets Current assets Total assets Non-current liabilities Interest-bearing Current liabilities Interest-bearing Non-interest-bearing Deferred income tax liability Total liabilities Net assets Revenue and expenses Revenue Profi t before tax Income taxes (8 624) (11 779) Profit after tax Cash flows Cash fl ow from operating activities Investing cash fl ows (10 554) (97 662) Financing cash fl ows Profi t distribution/dividend paid (16 850) (13 800) Net cash flows (6 054) Capital commitments Capital expenditure approved/contracted but not recognised in the fi nancial statements Astral Integrated Annual Report 2011

115 31. Interest in subsidiary companies Details of the principal subsidiary companies of Astral Foods Limited are as follows: Issued ordinary capital Effective percentage holding Equity Company s interest Loans from Notes R 000 R 000 % % R 000 R 000 R 000 R 000 Unlisted investments Directly held: Astral Operations Limited a National Chicks Limited b Africa Feeds Limited (Zambia) ^ c Indirectly held: Meadow Eastern Cape (Pty) Limited c Meadow Moçambique LDA * c Ross Poultry Breeders (Pty) Limited d National Chicks Swaziland (Pty) Limited # e ^ Incorporated in Zambia. * Incorporated in Mozambique. # Incorporated in Swaziland The directors valuation of the investments in subsidiary companies is not less than their respective carrying values. Nature of business Notes: a Animal feed and pre-mix production, broiler operations, production and sale of day-old broilers and hatching eggs, retailer of animal health products and analytical services. b Investment holding. c Animal feed production. d Broiler genetics and broiler breeding production. e Production and sale of day-old broilers and hatching eggs. f Animal feed pre-mixes. g Manufacturer of baking products. Astral Integrated Annual Report

116 Notes to the annual financial statements (continued) for the year ended 30 September Business Combinations Earlybird Camperdown The group acquired the assets and operating activities of a broiler abattoir and processing plant in KwaZulu-Natal, generally known as Mountain Valley. The acquisition is in line with the group strategy of selective expansion and investments. It is also geographically situated in an area where the group did not have a previous presence in producing and processing poultry products. The impact on the group s results are minimal as the effective date of the acquisition was only 1 August 2011 and includes the following: Group R 000 R 000 Revenue Operating loss The impact on the group s results, had the acquisition occurred on 1 October 2010, is not presented as no meaningful results for the business can be calculated due to different input costs as prior to the acquisition. Details of net assets acquired and the cost of the investment are as follows: Property, plant and equipment and intangibles (71 136) (18 921) Biological assets (3 964) Inventory (1 677) Trade and other receivables ( 47) Trade and other payables 702 Deferred tax liability Net assets acquired (69 162) (22 465) Goodwill (15 599) 199 Total purchase consideration for interest in subsidiary (84 761) (22 266) Outstanding purchase consideration payable Cash fl ow on acquisition net of overdraft and cash acquired (82 261) (2 245) The carrying amounts of the assets and liabilities acquired were determined in accordance with IFRS and equals their fair value. Goodwill was paid due to the strategic geographical importance of the business to the group. The purchase allocation has been performed and is considered as fi nal. Vredebest Plase The comparatives relate to an agreement during the previous year to acquire assets and operating activities of Vredebest Plase, a poultry farming and hatching operation in the Western Cape. Vredebest s revenue was generated mainly from sales to the Astral group prior to the acquisition. The group assumed control of the activities at Vredebest on 29 September 2010 with no impact on the group s results except for the negative goodwill recognised in profi t. If the acquisition had occurred on 1 October 2009, there would have been no material impact on the group s results as all of Vredebest s production was sold into the group. 114 Astral Integrated Annual Report 2011 The carrying amounts of the assets and liabilities acquired were determined in accordance with IFRS and equals their fair value. 33. Assets held for sale A decision was taken during May 2010 to divest from Meaders Feeds Limited (Mauritius), a 33,3%-held joint venture. The assets and liabilities of Meaders Feeds Limited are excluded from the consolidated statement of fi nancial position at 30 September 2010 and is represented by the carrying amount disclosed under assets held for sale and liabilities held for sale. Impairment of the value of the shareholding in Meaders Feeds Limited due to the limited market for non-controlling interests in an unlisted company in Mauritius The shareholding in Meaders Feeds Limited was sold during the year for a consideration of R

117 Group 34. Transaction with non-controlling interest holder The group acquired the 10% non-controlling interest in Ross Poultry Breeders (Pty) Limited at the end of September 2011 for a purchase consideration of R14 million. The group now holds 100% of the interest in Ross Poultry Breeders (Pty) Limited. The group derecognised non-controlling interest of R and recorded a decrease in equity attributable to shareholders of the company of R The transaction is summarised as follows: R 000 R 000 Carrying amount of non-controlling interest acquired Excess of consideration paid recognised in parent s equity 344 Consideration paid The net effect on equity is a reduction of R14 million. Astral Integrated Annual Report

118 Analysis of ordinary shareholders at 30 September 2011 Number of Number of Shareholders % Shares % Shareholder spread shares , , shares , , shares 240 3, , shares 63 1, , shares and over 4 0, , , ,00 Distribution of shareholders Banks 67 1, ,25 Close Corporations 76 1, ,26 Endowment Funds 39 0, ,28 Individuals , ,97 Insurance Companies 55 0, ,06 Investment Companies 24 0, ,43 Medical Schemes 11 0, ,33 Mutual Funds 154 2, ,13 Nominees and Trusts , ,10 Own Holdings 1 0, ,70 Private Companies 158 2, ,73 Public Companies 5 0, ,02 Retirement Funds 162 2, ,69 Non-public/public shareholders Non-public shareholders 13 0, ,89 Directors and associates of the company 2 0, ,41 Own holdings 1 0, ,70 Strategic holdings 10 0, ,78 Public shareholders , , , ,00 Beneficial shareholders holding 1,5% or more Government Employees Pension Fund ,78 Old Mutual ,21 Astral Operations Limited ,70 Investment Solutions ,26 Nedbank Group ,68 Metal & Engineering Industries ,04 Prudential ,47 Liberty Group ,19 Investec ,15 Strategic Investment Service Management Company , Astral Integrated Annual Report ,95

119 Notice of annual general meeting Eleventh annual general meeting Notice is hereby given that the eleventh annual general meeting of members of Astral Foods Limited will be held in the Boardroom, 92 Koranna Avenue, Doringkloof, Centurion on Thursday, 9 February 2012 at 08:00 to transact the following business: Ordinary business Consideration of annual financial statements Ordinary resolution number 1 To receive and consider the annual fi nancial statements for the company and the group for the year ended 30 September 2011 together with the directors and auditor s reports. Re-election of directors Ordinary resolution number 2 To note that in terms of article 14 of the company s memorandum of incorporation, Mr JJ Geldenhuys, Mr M Macdonald and Mr IS Fourie retire by rotation at the annual general meeting but, being eligible, have offered themselves for re-election. It is proposed that any vacancies that occur as a result of the above directors not being available for re-election will not be fi lled at the annual general meeting and the normal nomination and selection processes as laid down by the company s Human Resources, Remuneration and Nominations Committee will be followed for the appointment of new directors. Brief particulars of the qualifi cations and experience of the above are available on pages 28 and 29 of this report. Re-appointment of members of the Audit and Risk Management Committee Ordinary resolution number 3 To appoint by way of individual separate resolution, the following independent non-executive directors as members of the Audit and Risk Management Committee: M Macdonald T Eloff IS Fourie Brief particulars of the qualifi cations and experience of the above are available on pages 28 and 29 of this report. Re-appointment of auditors Ordinary resolution number 4 To re-appoint PricewaterhouseCoopers Incorporated, on the recommendation of the current Audit and Risk Management Committee, as the independent registered auditor of the company (with I Buys as the individual designated auditor) for the 2012 fi nancial year. Authority for determination of auditors remuneration Ordinary resolution number 5 That the authority of the Audit and Risk Management Committee to determine the remuneration of the auditors be confi rmed. Vote on remuneration policy Ordinary resolution number 6 To endorse, through a non-binding advisory vote, the company s remuneration policy and its implementation. The company s Remuneration report is set out on pages 44 to 45 of this integrated annual report which contains a summary of the company s remuneration policy. Signature of documentation Ordinary resolution number 7 To authorise and empower any one director or the company secretary, to do all such things and sign all such documents and take all such actions as they consider necessary to implement the ordinary and special resolutions set out in the notice convening the eleventh annual general meeting of the company. Special business To consider and, if deemed fi t, to pass, with or without modifi cation, the following special resolutions in the manner required by the Companies Act, 71 of 2008 ( the Act ) and subject to the Listings Requirements of the JSE Limited ( JSE ): Astral Integrated Annual Report

120 Notice of annual general meeting (continued) General authority to repurchase shares Special resolution number 1 Resolved, that the company may, as a general approval in terms of the Act, acquire from time to time, such of its securities at such price or prices and on such other terms and conditions as the directors may from time to time determine, but subject to the following requirements from time to time of the JSE: The repurchase of securities shall be effected through the order book operated by the JSE trading system and done without any prior understanding or arrangement between the company and the counter-party; The repurchase of securities is authorised by the company s memorandum of incorporation; The authority shall be valid only until the next annual general meeting of the company or for 15 months from the date on which this special resolution is passed, whichever is the shorter; Repurchases may not be made at a price more than 10% above the weighted average of the market value for the securities for the fi ve business days immediately preceding the date on which the transaction is effected; At any one point in time, the company may only appoint one agent to effect any repurchase(s) on the company s behalf; The company may only undertake a repurchase of the securities if, after such repurchase, it still complies with the Listings Requirements of the JSE; and The company or its subsidiaries may not repurchase the company s shares during a prohibited period as defi ned in the Listings Requirements of the JSE. The reasons for and effect of Special resolution Number 1 The reasons and effect of special resolution Number 1 is to generally approve, in terms of the the Act, the acquisition by the company of securities issued by it, subject to the Listings Requirements of the JSE. The directors intend to utilise this authority at such time or times, in respect of such number of securities, at such price and on such terms as they may consider appropriate in the circumstances from time to time, provided that any repurchase of securities should not, in the aggregate, in this fi nancial year, exceed 10% of the company s issued securities of the class concerned. Accordingly the method by which the company intends to acquire its securities, the maximum number of securities which will be acquired and the price(s) and date(s) at which the acquisition(s) is/(are) to take place are not presently known. In considering whether or not to act in terms of this general authority, the directors will ensure, for a period of 12 months after the date of the notice of the general meeting, that: The company and its subsidiaries (the group) will be able, in the ordinary course of business, to pay its debts; The assets of the company and the group will be in excess of the liabilities of the company and the group. For this purpose, the assets and liabilities will be recognised and measured in accordance with the accounting policies used in the latest audited annual group fi nancial statements; The company and the group will have adequate capital and reserves; and The working capital of the company and the group will be adequate for ordinary business purposes. When the company has, cumulatively, repurchased 3% of the initial number of the relevant class of securities and for each 3% in aggregate of the initial number of that class acquired thereafter, the company will publish an announcement giving details thereof in accordance with Rule of the Listings Requirements of the JSE. The company undertakes that it will not enter the market to repurchase the company s securities in terms of this general authority until such time as the company s sponsor has provided written confi rmation to the JSE regarding the adequacy of the company s working capital in accordance with Schedule 25 of the Listings Requirements of the JSE. The directors have no specifi c intention at present for the company or its subsidiaries to repurchase any of the shares but consider that such a general authority should be put in place should an opportunity present itself to do so during the year, which is in the best interests of the company and its shareholders. Directors responsibility statement The directors, collectively and individually, accept full responsibility for the accuracy of the information given in the fi nancial statements and certify that, to the best of their knowledge and belief, there are no facts that have been omitted which would make the statement false or misleading. 118 Astral Integrated Annual Report 2011 Material change There has been no material change in the fi nancial or trading position of the company and its subsidiaries since the date of publication of the company s annual results on 14 November Litigation The company and its subsidiaries are not, and have not in the twelve months preceding the date of this notice of annual general meeting, been involved in any legal or arbitration proceedings which may have or have had a material effect on the fi nancial position of the company and its subsidiaries, nor is the company aware of any such proceedings that are pending or threatened. The general information regarding the company, referred to in paragraph 11.26(b) of the Listings Requirements of the JSE, is contained elsewhere in this annual report, as follows:

121 Directors of the company and of material subsidiaries on pages 28 to 30 and inside back cover. Major shareholders on page 116. Material changes since year end on page 72. Directors interests in the company s shares on page 74. Company s share capital, on page 97. Directors responsibility statement on page 67. Litigation on page 72. Proposed increase of remuneration payable to non-executive directors Special resolution number 2 Resolved to approve that in terms of article 13.5 of the company s memorandum of incorporation, with effect from 1 October 2011 and until the date of the next annual general meeting, the remuneration of the directors who hold offi ce from time to time (other than those in the employ of the company) be determined as follows: Proposed Attendance fixed fee Annual fee per per annum retainer meeting R 000 R 000 R 000 Chairman of the board Member of the board Chairman of the Audit and Risk Management Committee Member of the Audit and Risk Management Committee Chairman of the Human Resources, Remuneration and Nominations Committee Member of the Human Resources, Remuneration and Nominations Committee Chairman of the Social and Ethics Committee 151 Special resolution number 2 is proposed in order to comply with the requirements of the Act and the company s memorandum of incorporation. The above rates have been selected to ensure that the remuneration of non-executive directors remains competitive in order to enable the company to retain and attract persons of the calibre, appropriate capabilities, skills and experience required in order to make meaningful contributions to the company. In arriving at the proposal set out in special resolution number 2, a review of the remuneration paid to non-executive directors was conducted and the 6,5% wage increase offered to Astral employees in professional and managerial positions was taken into consideration. The revised remuneration proposal was recommended by the board of directors which also sanctioned the proposal for recommendation to shareholders. The proposed revised remuneration is considered to be fair and reasonable and in the best interests of the company. Reason for and effect of special resolution number 2 The reason and effect of special resolution Number 2 is to grant the company the authority to pay remuneration to its directors for their services as directors. Financial assistance to group inter-related companies Special resolution number 3 Resolved that authority be and is hereby granted, insofar as it may be necessary in terms of section 45 of the Act, for the directors of the company to approve any actions related to any transactions amounting to fi nancial assistance and which fall within the following categories of inter-related company transactions: Loans between the company and companies that are subsidiaries, joint ventures or associates of the company; and Cross-suretyships or guarantees or any other security provided between the company and companies that are subsidiaries, joint ventures of associates of the company. Reasons for and effect of special resolution number 3 The reason for special resolution Number 3 is to provide authority in terms of section 45 of the Act for the directors of the company to approve actions related to any transaction amounting to fi nancial assistance between inter-related companies, and the effect of the resolution will be that the shareholders will have provided authority (by way of a special resolution) in terms of section 45 of the Act. Astral Integrated Annual Report

122 Notice of annual general meeting (continued) Grant and issue of share options Special resolution number 4 Resolved that, subject to the Act and Schedule 14 of the Listings Requirements of the JSE, the board of directors of Astral shall be authorised for purposes of sections 41 and 42 of the Act: 4.1 to allot and issue, to grant and issue options for the allotment or subscription and to grant any other rights exercisable in respect of up to Astral ordinary shares (which comprise 5% issued ordinary share capital as at 30 September 2011) ( the shares ) to The Astral Foods (2001) Share Option Scheme ( the Scheme ) and participants thereunder (which may include directors, future directors, prescribed offi cers of the company or of a related or inter-related company) ( the participants ); and 4.2 to make application to the JSE for the listing of the shares pursuant to the administration of the Scheme and on the terms applicable to that Scheme. Reasons for and effect of special resolution number 4 The reason and effect of special resolution Number 4 is to grant the Astral board the necessary authority to allot and issue up to Astral ordinary shares and to grant options to the Scheme and participants thereunder, thereby allowing the proper administration and implementation of the Scheme. Voting and proxies On a show of hands a member of the company present in person or by proxy shall have only one vote irrespective of the number of shares he holds or represents provided that a proxy shall, irrespective of the number of members he represents, have only one vote. On a poll a member who is present in person or represented by proxy shall be entitled to that proportion of the total votes in the company which the aggregate amount of the nominal value of the shares held by him bears to the aggregate amount of the nominal value of all the shares issued by the company. A member entitled to attend, speak and vote at the annual general meeting is entitled to appoint a proxy or proxies to attend, speak and vote in place of that member. A proxy need not be a member of the company. Registered holders of certifi cated Astral shares and holders of dematerialised Astral shares in their own name and who are unable to attend the annual general meeting and who wish to be represented at such meeting, must complete and return the attached form of proxy in accordance with the instructions contained in the form of proxy, so as to be received by the share registrars, Computershare Investor Services (Pty) Limited, Ground Floor, 70 Marshall Street, Johannesburg, 2001 (PO Box 61051, Marshalltown, 2107) by no later than 08:00 on Wednesday, 8 February Holders of Astral shares (whether certifi cated or dematerialised) through a nominee should timeously make the necessary arrangements with that nominee or, if applicable, Central Securities Depository Participant (CSDP) or broker to enable them to attend and vote at the annual general meeting or to enable their votes in respect of their Astral shares to be cast at the annual general meeting by that nominee or a proxy or a representative. By order of the board 120 Astral Integrated Annual Report 2011 MA Eloff Company Secretary Pretoria 10 November 2011

123 Annual general meeting explanatory notes 1. Annual financial statements At the annual general meeting, the directors must present the annual fi nancial statements for the year ended 30 September 2011 to shareholders, together with the reports of the directors and the auditors. There are contained within the integrated annual report. 2. Re-election of directors In accordance with the company s memorandum of incorporation, one-third of the directors are required to retire at each annual general meeting and may offer themselves for re-election. Mr JJ Geldenhuys, Mr M Macdonald and Mr IS Fourie retire from the board in accordance with article 14 of the company s memorandum of incorporation. Brief particulars of the qualifi cations and experience of the above are available on pages 28 and 29 of this report. The board of directors of the company has reviewed the composition of the board against corporate governance and transformation requirements and has recommended the re-election of the directors listed above. It is the view of the board that the re-election of the candidates referred to above would enable the company to: Responsibly maintain a mixture of business skills and experience relevant to the company and balance the requirements of transformation, continuity and succession planning; Comply with corporate governance requirements in respect of matters such as the balance of executive, non-executive and independent non-executive directors on the board. Accordingly, the board recommends to shareholders the re-election of each of the retiring directors referred to in ordinary resolution Election of Audit and Risk Management Committee members Chapter 3 of the King Report on Governance in South Africa 2009 (King III Report) requires the shareholders of a public company to elect the members of an audit committee at each annual general meeting. In accordance therewith the Human Resources, Remuneration and Nominations Committee should present shareholders with suitable candidates for election as audit committee members. At a recent meeting of the Human Resources, Remuneration and Nominations Committee, the committee satisfi ed itself that, among others, the independent non-executive directors offering themselves for election as members of the Astral Audit and Risk Management Committee are independent non-executive directors as contemplated in King III and the JSE Listings Requirements, and: are suitably qualifi ed and experienced for audit committee membership; have an understanding of integrated annual reporting (including fi nancial reporting), internal fi nancial controls, external and internal audit processes, risk management, sustainability issues and the governance processes (including information technology governance) within the company; collectively, possess skills which are appropriate to the company s size and circumstances as well as its industry; have an understanding of International Financial Reporting Standards, South African Statements of Generally Accepted Accounting Practice and other fi nancial and sustainability reporting standards, regulations and guidelines applicable to the company; adequately keep up to date with key developments affecting their required skills set. For further details regarding the performance of the Audit and Risk Management Committee, please refer to the report of the Audit and Risk Management Committee which appears on pages 42 to Reappointment of independent auditor PricewaterhouseCoopers Incorporated has communicated its willingness to continue in offi ce and ordinary resolution number 4 proposes the reappointment of that fi rm as the company s external auditor until the next annual general meeting. The Audit and Risk Management Committee has satisfi ed itself that PricewaterhouseCoopers Incorporated is independent as contemplated by the South African Independence laws and the applicable rules of the International Federation of Accountants (IFAC) and has, in terms of the JSE Listings Requirements, considered and satisfi ed itself that PricewaterhouseCoopers Incorporated are accredited to appear on the JSE List of Accredited Auditors. Astral Integrated Annual Report

124 Notice of annual general meeting (continued) 5. Determination of auditors remuneration In terms of the Audit and Risk Management Committee s Charter the committee is responsible for the approval of the terms of engagement and remuneration for the external audit engagement. 6. Vote on remuneration policy Astral s Remuneration report is contained in pages 44 to 45 of this integrated annual report. Chapter 2 of King III Report dealing with board and directors requires companies annually to table their remuneration policy to shareholders for a non-binding advisory vote at the annual general meeting. This vote enables shareholders to express their views on the remuneration policies adopted and on their implementation. Ordinary resolution Number 6 is of an advisory nature only and failure to pass this resolution will therefore not have any legal consequences relating to existing arrangements. However the board will take the outcome of the vote into consideration when considering the company s remuneration policy. 7. Signature of documentation Authority for any one director or the company secretary to sign documentation to give effect to all ordinary and special resolutions passed at the annual general meeting. 8. General authority to repurchase shares The reasons and effect of special resolution Number 1 is to approve the acquisition by the company of securities issued by it subject to the JSE Listings Requirements. The directors intend to only utilise this authority as and when they may consider it appropriate to acquire such shares. The directors are of the opinion that it would be in the best interests of the company to extend such general authority and thereby allow the company or any of its subsidiaries to be in a position to repurchase the securities issued by the company through the order book of the JSE should the market conditions, tax dispensation and price justify such an action. 9. Proposed increase of remuneration payable to non-executive directors Special resolution Number 2 is required to obtain the approval of the company at the annual general meeting of the revised fees payable to the non-executive directors for the fi nancial year commencing on 1 October 2011 and until the next annual general meeting. Fee increases are only implemented after formal approval by shareholders. This Special resolution is recommended by the company s board of directors. Full particulars of all fees for the past year as well as the process followed by the Human Resources, Remuneration and Nominations Committee on recommending board fees are contained on page 38 of this integrated annual report. Astral s Human Resources, Remuneration and Nominations Committee is satisfi ed that, having investigated the payment of nonexecutive directors fees, these are relative to the median fees paid to non-executive directors of other similar-sized public-listed companies in South Africa. 10. Financial assistance to group inter-related companies Special resolution Number 3 is required to ensure compliance with Section 45 of the Act whereby shareholders authorise the directors to approve actions related to any transactions amounting to fi nancial assistance when granting loans between subsidiaries, joint ventures or associates as well as cross-suretyships or guarantees. 122 Astral Integrated Annual Report Grant and issue of share options In terms of The Astral Foods (2001) Share Option Scheme share options may be granted to employees as part of our long-term incentive programme.

125 Shareholders diary Annual general meeting Thursday, 9 February 2012 Reports and accounts Interim report for the six months ending 31 March 2012 May 2012 Announcement of annual results for the year ending 30 September 2012 November 2012 Annual report December 2012 Dividends Ordinary dividend No. 22 of 505 cents per ordinary share Last date to trade cum dividend Friday, 13 January 2012 Shares commence trading ex dividend Monday, 16 January 2012 Record date Friday, 20 January 2012 Payment of dividend Monday, 23 January 2012 Interim dividend March 2012 Declaration May 2012 Payment June 2012 Final dividend September 2012 Declaration November 2012 Payment January 2013 Important dates and times relating to the annual general meeting Record date for determining which shareholders are entitled to receive the annual general meeting notice Monday, 12 December 2011 Notice posted to shareholders on (note 3) Thursday, 15 December 2011 Record date for attending and voting at annual general meeting Friday, 3 February 2012 Last day for shareholders to lodge forms of proxy for the annual general meeting by 08:00 Wednesday, 8 February 2012 Annual general meeting to be held at 08:00 Thursday, 9 February 2012 Results of annual general meeting to be released on SENS Friday, 10 February 2012 Notes: 1. All times referred to in this notice are local times in South Africa. 2. Any material variation to the above dates and times will be released on SENS and published in the press. 3. The board of directors of Astral has determined that the record date for the purpose of determining which shareholders of the company are entitled to receive notice of the eleventh annual general meeting is Monday, 12 December 2011 and the record date for purposes of determining which shareholders of the company are entitled to participate in and vote at the annual general meeting is Friday, 3 February Accordingly, only shareholders who are recorded in the register maintained by the transfer secretaries of Astral on Friday, 3 February 2012 will be entitled to participate in and vote at the annual general meeting. Astral Integrated Annual Report

126 124 Astral Integrated Annual Report 2011 Notes

127 Form of proxy Astral Foods Limited (Incorporated in the Republic of South Africa) (Registration Number 1978/003194/06) (Share code: ARL) (ISIN ZAE ) Form of proxy for the use of shareholders, registered as such and who have not dematerialised their shares or hold own-name dematerialised shares, at the eleventh annual general meeting of the company to be held at 92 Koranna Avenue, Doringkloof, Centurion, on Thursday 9 February Shareholders who have dematerialised their shares must inform their CSDP or broker of their intention to attend the annual general meeting and request their CSDP or broker to issue them with the necessary authorisation to attend or provide their CSDP or broker with their voting instructions should they not wish to attend the annual general meeting in person. Such shareholders must not return this form of proxy to the transfer secretaries. I/We of (address) being the holder(s) of shares in the company, do hereby appoint (see note 1) 1. or failing him/her, 2. or failing him/her, 3. the chairman of the annual general meeting, as my/our proxy to vote for me/us on my/our behalf at the eleventh annual general meeting of the company to be held on Thursday, 9 February 2012 and at any adjournment thereof. Signed this day of 2012 Signature (*indicate instructions to proxy by way of a cross in the space provided below) Unless otherwise instructed, my/our proxy may vote as he thinks fi t or abstain from voting. Ordinary business 1. To adopt the annual fi nancial statements for the year ended 30 September To re-elect Mr JJ Geldenhuys as director 2.2 To re-elect Mr M Macdonald as director 2.3 To re-elect Mr IS Fourie as director 3.1 To re-appoint Mr M Macdonald as member of the Audit and Risk Management Committee 3.2 To re-appoint Dr T Eloff as member of the Audit and Risk Management Committee 3.3 To re-appoint Mr IS Fourie as member of the Audit and Risk Management Committee 4. To re-appoint PricewaterhouseCoopers Inc. as auditors for the 2012 fi nancial year 5. To confi rm the authority of the Astral Audit and Risk Management Committee to determine the remuneration of the auditors 6. To endorse the company s remuneration policy and its implementation 7. To authorise any director or the company secretary to sign documentation necessary to implement the ordinary and special resolutions passed at the annual general meeting Special business 8. Special resolution number 1 To approve the acquisition of shares issued by the company 9. Special resolution number 2 To approve the increase of remuneration payable to non-executive directors 10. Special resolution number 3 To authorise the directors to approve actions related to transactions amounting to fi nancial assistance 11. Special resolution number 4 To authorise the directors to allot and issue share options to participants under The Astral Foods (2001) Share Option Scheme *Indicate instructions to proxy by way of a cross in the space provided above. Unless otherwise instructed, my/our proxy may vote as he thinks fi t or abstain from voting. *In favour *Against *Abstain Astral Integrated Annual Report 2011 Please refer to the notes on the reverse side of this form of proxy.

128 Notes to form of proxy 1. A shareholder may insert the name or the names of two alternative proxies of his/her choice in the space provided, with or without deleting the chairman of the annual general meeting. The person whose name stands fi rst on this form of proxy and who is present at the annual general meeting will be entitled to act as proxy to the exclusion of those whose names follow. Any such proxy, who need not be a shareholder of the company, is entitled to attend, speak and vote on behalf of the shareholder. 2. A proxy is entitled to one vote on a show of hands and, on a poll, one vote for each share held. A shareholder s instructions to the proxy must be indicated in the appropriate space. 3. If a shareholder does not indicate on this instrument that the proxy is to vote in favour of or against any resolution or to abstain from voting or gives contradictory instructions or should any further resolution/s or any amendment/s which may be properly put before the annual general meeting be proposed, the proxy shall be entitled to vote as he thinks fi t. 4. This form of proxy must be received by the transfer secretaries, Computershare Investor Services (Pty) Limited, Ground Floor, 70 Marshall Street, Johannesburg, 2001 (PO Box 61051, Marshalltown, 2107) by no later than 08:00 on Wednesday, 8 February Documentary evidence establishing the authority of the person signing the proxy in a representative capacity must be attached hereto unless previously recorded by the company s transfer secretaries. 6. The completion and lodging of this form of proxy will not preclude a shareholder from attending the annual general meeting and speaking and voting in person thereat to the exclusion of any proxy appointed in terms of this form of proxy. 7. Any alteration or correction made to this form of proxy must be initialled by the signatory/ies. 8. The chairman of the annual general meeting may accept or reject any form of proxy which is completed and/or received, other than in accordance with these notes. 9. Shareholders who have dematerialised their shares must inform their CSDP or broker of their intention to attend the annual general meeting and request their CSDP or broker to issue them with the necessary authorisation to attend the annual general meeting or provide their CSDP or broker with their voting instructions should they not wish to attend the annual general meeting in person but wish to be represented thereat. This must be done by the cut-off time as requested by the CSDP or broker. Astral Integrated Annual Report 2011

129 Administration Astral Foods Limited (a limited liability company registered in the Republic of South Africa) Registration No 1978/003194/06 Share Code: ARL ISIN Number ZAE Registered office 92 Koranna Avenue Doringkloof Centurion 0157 Company secretary MA Eloff Postal address Postnet Suite 278 Private Bag X1028 Doringkloof, 0140 Telephone +27(012) Telefax +27(012) Website address Auditors PricewaterhouseCoopers Inc. Principal banker Nedcor Bank Limited Sponsor JPMorgan Equities Limited (Johannesburg Branch) 1 Fricker Road, Corner Hurlingham Road Illovo, Johannesburg, 2196 Private Bag X9936, Sandton, 2146 Telephone +27(011) Transfer secretaries Computershare Investor Services (Pty) Limited 70 Marshall Street Johannesburg, 2001 PO Box 61051, Marshalltown, 2107 Major subsidiaries and joint ventures Astral Operations Limited Registration Number 1947/027453/06 Directors: CE Schutte GD Arnold T Delport DD Ferreira LW Hansen RJ Steenkamp Africa Feeds Limited (Zambia) Registration Number Directors: GD Arnold TD Banda * NR Mwanyungwi * DAR Phiri * CL Sexton RJ Steenkamp * Zambian Meadow Feeds Eastern Cape (Pty) Limited Registration Number 2003/021458/07 Directors: CE Schutte GD Arnold DD Ferreira CL Sexton Ross Poultry Breeders (Pty) Limited Registration Number 1999/027125/07 Directors: CE Schutte T Delport NuTec Southern Africa (Pty) Limited Registration Number 1996/002008/07 Directors: CE Schutte GD Arnold DD Ferreira YM Knoop * GJ Scholman * * Dutch Meadow Moçambique Limitada Registration Number 5710/MP/G/2001 Directors: RJ Steenkamp GD Arnold H Buys JR Tinga* CA Sexton * Mozambican National Chicks Swaziland Registration Number 94/63894/07 Directors: RW Packard* GD Arnold D Stock * Swazi Astral Integrated Annual Report 2011

130

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