Turnall Holdings Limited 2013 annual report

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Turnall Holdings Limited 2013 annual report

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Turnall Holdings Limited 2013 annual report

  1. 1. 2013 INTEGRATED ANNUAL REPORT
  2. 2. We are pleased to present the annual report for Turnall Holdings Limited, a company listed on Zimbabwe Stock Exchange (ZSE) which includes Turnall Fibre Cement, a Building and Piping Products Company for the year ended 31 December 2013. We published our previous annual report for reporting period ending 31 December 2012. This report is targeted at a broad range of our stakeholders with the aim of presenting a balanced review of material issues from our operations. The report includes our Harare and Bulawayo Factory operations. During the year, there were minor changes in the company which have no major impact from our previous reporting. This is our second report prepared in accordance with Global Reporting Initiatives (GRI) Sustainability Reporting Framework in measuring our progress towards sustainability reporting and it meets the GRI- G3.1 Application Level-C reporting requirements. An application level check was carried out by Institute for Sustainability Africa (Inśaf). Our sustainability reporting is integrated with our financial reports. Our financial statements are audited by KPMG Chartered Accountants (Zimbabwe) in accordance with International Standards of Auditing (ISA). The independent auditors’ report on the financial statements appears on page 38. Forward looking Statements Certain statements in this report constitute ‘forward looking statements’. Such statements involves known and unknown risks, uncertainties and other factors that may cause the actual results, performances, objectives or achievements of Turnall Holdings Limited to be materially different from future results, performance, objectives or achievements expressed or implied in forward looking statements. The performance of Turnall Holdings Limited is subject to effects of changes in the operating environment and other factors. Turnall Holdings Limited undertake no obligation to update publicly or to release any revision of these forward looking statements to reflect the events or circumstances after the date of publication of these pages or to reflect the occurrence of unanticipated events. We would welcome your feedback on our reporting and any suggestions you have in terms of what you would have liked to see incorporated in our report for 2014. To do so, please contact: gwangwadzan@turnall.co.zw. Herbert Nkala John Jere Chairman Managing Director SCOPE OF THIS REPORTCONTENTS Overview Corporate History 1 Our Mission and Values 2 Group Profile 3 Our Business Portfolio, Products and Markets 4 Highlights of our Performance 5 Governance, Ethics & Engagements Chairman’s Statement 7 Management’s Review of Operations 11 Our Governance and Ethics Approach 14 Our Sustainability Approach 22 Principal Risks and Opportunities 23 Stakeholder Engagement 25 Performance Our Sustainabilty Performance 27 Directors’Responsibility and Approval of Financial Statements 33 Company Secretary’s Certification 35 Director’s Report 36 Independent Auditor’s Report 38 Annual Financial Statements 39 Shareholders’Information 70 Notice to Shareholders’ 71 Shareholders’Diary 72 Annexus Glossary of Terms 73 GRI Index 74 Corporate Information
  3. 3. Turnall Hold ings Limited | AN N UAL R EPORT 20131 1949: Bulawayo produces its first asbestos cement sheets. 1953: Turnall Newall bought Alfred Porter out, and over the next few years introduced modern techniques and expertise and built new offices and laboratories. 1962: Bulk cement silos that were once at Arriba installed at both the Harare and Bulawayo plants. 1974: Bulawayo sheeting plant re-commissioned. 1977: A second sheeting machine built and installed in Harare. 1992: Brand new sheeting line purchased from Lamort, France, installed at Harare factory as the third sheeting line. 1996: Environment-friendly fibre treatment facilities installed at both Harare and Bulawayo factories. 2002: Completed three tier change rooms in compliance with ILO 162 Convention. 2002: Certified to an integrated Quality and Environmental Management System (ISO 9001: 2000 and ISO 14001:1996). 2003: Certified to OHSAS 18001:1999 Occupational Health and Safety Management System. 2004: A computerised Enterprise Resource Planning system was introduced. Integration of the three certified systems incorporating the aids management system and the Social Accountability Standard among others resumed. 2006: Awarded, in recognition of Business Excellence, the Confederation of Zimbabwe Industries (CZI), Industrialist of the Year Award-Second Runner Up. 2008: Started manufacture of asbestos free products destined for the export market. 2010: Won awards for the Best Manufacturing Company and Overall Best Quoted Company on the Zimbabwe Stock Exchange, sponsored by Zimbabwe Independent and African Banking Corporation of Zimbabwe Limited. 2011: Awarded the 2011 Superbrand in the construction sector category. 2013: Overall Winner of the Inaugural Corporate Governance Awards 2013 - Institute of Chartered Secretaries and Administrators of Zimbabwe (ICSAZ). Overall Winner in Sustainability Reporting Category 2013 - Institute of Chartered Secretaries and Administrators of Zimbabwe (ICSAZ). Awarded Life Time Investor, Construction 2013 - Zimbabwe Investment Authority (ZIA). Key Features of Our Corporate Journey For more than 50 years, Turnall Holdings Limited has been a regional market leader in the manufacture and supply of fibre cement products made from select quality Chrysotile Asbestos Fibres. Alfred Porter, a dynamic Australian, who was both an engineer and entrepreneur and a specialist in the field of Asbestos Cement, saw the great potential of starting the industry in the country. Porter Cement Industries was under way and the Harare Works produced its first Asbestos Cement sheets, which were used to provide cover for the machine that made them. Highlights of some important dates in the growth and development of our company and the establishment of the Asbestos Cement industry in Zimbabwe are listed below: Corporate History 1
  4. 4. Turnall Hold in gs L im ite d | A NNUA L RE P ORT 2013 2 Values We’ll find time to genuinely care, opening our doors to support, encourage and develop our people. Our priority is to focus on our customers - we will be guided by their needs. We are honest in ALL our business dealings and we will honour our commitments. Mission We are passionate about the quality of life of our customers; we provide high quality affordable construction materials to help them achieve their dreams. Our Mission and values We communicate in an Open, Frank and Direct way, face to face, regularly challenging our thinking to ensure we are creative in our business approach. A sense of humour is important to us: we don’t take ourselves too seriously. However we take our work and our customers very seriously. We will manage and make decisions with facts. 2
  5. 5. Turnall Hold ings Limited | AN N UAL R EPORT 20133 Group Profile Operating Subsidiary Turnall Fibre Cement Dormant Subsidiaries 100% 100% 100%100%100% Acacia Holdings Limited Hastt Corporation Limited Hastt Discs (Private) Limited Tractor and Equipment (Private) Limited Turnall Holdings Limited was established in 1943 and is listed on the Zimbabwe Stock Exchange (ZSE). Its main business is manufacturing of roofing and piping materials for local and regional markets. 3
  6. 6. Turnall Hold in gs L im ite d | A NNUA L RE P ORT 2013 4 Business Associations Turnall Holdings Limited is a member of the following bodies: • Confederation of Zimbabwe Industries (CZI); and • Business Council on Sustainable Development in Zimbabwe (BCSDZ). Our Market Presence Apart from our local market, Turnall Holdings Limited supports the following regional markets with high quality and affordable construction material: • South Africa; • Mozambique; and • Zambia. our BUSINESS PORTFOLIO and products Turnall Fibre Cement The operating subsidiary comprises two main sub-divisions namely: • Turnall Building Products; and • Turnall Piping Products. Key markets include the low to high income housing sectors for building products and local authorities and municipalities for piping products. Main raw materials are chrysotile fibre, sand and cement. Manufacturing takes place in Harare and Bulawayo. Mozambique Zambia Turnall Hold in gs L im ite d | A NNUA L RE P OR T 2013 4 South Africa
  7. 7. Turnall Hold ings Limited | AN N UAL R EPORT 20135 Group Summary Revenue 42 878 242 42 508 441 (Loss)/profit after taxation (2 562 580 ) 1 059 915 Total assets 68 982 625 67 980 841 Total liabilities 42 009 805 38 445 441 Profitability After tax return on assets (%) (3.71 ) 1.56 Gross profit margin (%) 24.48 29.11 Operating profit margin (%) 0.00 10.17 Return on shareholders equity (%) (0.10 ) 3.59 Effective rate of tax (%) 16.77 (12.39 ) Nominal rate of tax (%) 25.75 25.75 Share Performance Closing market capitalisation (000) 24 562 25 683 Basic earnings per share (cents) (0.50 ) 0.21 Diluted earnings per share (cents) (0.50 ) 0.21 Net asset value per share (cents) 5.47 5.99 Closing share price (cents) 5.00 5.00 Highest share price (cents) 6.00 12.00 Liquidity and Leverage Interest cover (times) 0.04 1.39 Current ratio 0.96:1 1.13:1 20122013 US$ US$ Share Price VS Industrial Index Highlights of Our Performance Contribution to Revenue 0.00   5,000,000.00   10,000,000.00   15,000,000.00   20,000,000.00   25,000,000.00   30,000,000.00   35,000,000.00   40,000,000.00   45,000,000.00   Building  Products   Pipes   Concrete  Tiles   Revenue  US$   Segment   Series1   (UScents) 5
  8. 8. Turnall Hold in gs L im ite d | A NNUA L RE P ORT 2013 6 It is the Group’s belief that long-term competitiveness will be a direct result of advancement in technology. With the state-of- the-art concrete tile plant fully operational, the Group continues to assess its processes for areas of technological advancement. Leadership through technology 6
  9. 9. Turnall Hold ings Limited | AN N UAL R EPORT 20137 I am pleased to present Turnall Holdings Limited’s financial results for the year ended 31 December 2013. Operating environment The results were achieved in an operating environment characterised by uncertainty and subdued economic growth. The manufacturing sector was adversely affected by working capital constraints which had a negative impact on capacity utilisation. Businesses continued to face high interest rates, acute liquidity challenges, power outages, lack of medium to long term funding, as well as deflation. The absence of significantforeigndirectinvestmentintheeconomyimpacted negatively on companies. For Turnall Holdings Limited, demand for building products remained lower than expected due to low disposable incomes in target market segments, as unemployment levels continued to increase. This was worsened by a drought season which saw consumers shifting their priorities from construction. As has been the case over the past few years, projects lined up for both sewer and water reticulation did not materialise as a result of funding limitations, despite the Group having received inquiries and orders. Exports into South Africa were affected by price volatility due to the free fall of the rand, thus limiting export volumes during the year. The Group continued to import chrysotile Chairman`s Statement “...Exports, which grew from US$1 million to US$1.7 million, continue to offer the greatest opportunity for growth despite the weakening of the South African Rand. The Group has a firm order book as well as inquiries from the export market...” Chairman Herbert Nkala 7
  10. 10. Turnall Hold in gs L im ite d | A NNUA L RE P ORT 2013 8 fibre from Brazil and Russia in the year under review. The continued importation of key raw materials put pressure on both production costs and operating cash flows, resulting in margin decline. The Group is following, with keen interest, developments around efforts by Government to resuscitate AA Mines. Financial performance Owing to a number of domestic and external factors, 2013 was a very challenging year for operators in the manufacturing industry. The Group’s results were therefore significantly below par. Revenue of US$42.9 million was 1% above the previous year’s level for the same period at US$42.5 million. The Group is of the view that the adverse liquidity situation in the economy will persist in the short to medium term, thereby posing challenges in the collection of trade receivables. As a result, the Group has found it prudent to significantly increase the allowance for credit losses. To that end, an impairment provision of US$3.3 million (2012:US$0.78 million) has been recognised in the financial statements. Gross profit margin was 24% compared with 29% in 2012, with an operating profit margin of 0.29% compared to 10% for the same period last year. A negative net profit margin of 7% was attained against a positive 2.85% for the previous year. Operating profit was US$0.124 million compared to US$4.32 million for the same period in 2012. Net finance charges were US$3.2 million compared to US$3.1 million for the previous year. Sustainability reporting Turnall is implementing an integrated approach in managing sustainability impacts and opportunities based on the Global Reporting Initiatives (GRI)’s Sustainability Reporting Framework that the Group adopted in 2011 as best practice. This model, which we will report on and publish annually, aims to engage with our key stakeholders and other standard setters. It progressively improves the quality of non-financial reporting while reflecting Turnall’s true performance and sustainability impacts. Aspects of our operations such as effective asset utilisation, air quality improvement, waste reduction, employee wellness, gender balance and board responsibility, as well as impacts and opportunities of these attributes and their disclosure for accountability to the public and our stakeholders are available for interested parties to understand. We will be publishing our second sustainability report using and meeting the requirements of the Global Reporting Initiative (GRI) Sustainability Reporting Framework (G3.1: Level C) as an integrated report with our annual financial performance report for 2013. Outlook Liquidity constraints are expected to persist in the medium to long term. We believe that our future depends on our ability to harness all our skills, capabilities and experience in order to successfully navigate the current harsh economic climate. In the outlook, working capital and cash flow management will play a key role in improving the Group’s operations. The additional line that was added to the business at the end of 2013, concrete tiles, has helped improve cash receipts as this is premised on a cash trading model. The fibre cement business which has traditionally traded on credit terms has also, since the beginning of the year 2014, been modelled around a similar cash trading model. The Group remains solid and is well positioned to take advantage of opportunities in the medium to long term. Despite the prevailing conditions in the economy, the Group sees opportunities in the infrastructure upgrade in water and sanitation together with housing construction. Chairman`s Statement (continued) 8
  11. 11. Turnall Hold ings Limited | AN N UAL R EPORT 20139 Exports, which grew from US$1 million to US$1.7 million, continue to offer the greatest opportunity for growth despite the weakening of the South African Rand. The Group has a firm order book as well as inquiries from the export market. Appreciation I would like to express my appreciation to all our customers, suppliers and stakeholders for the support and cooperation rendered. I would also like to record my appreciation to management and all staff at Turnall, for their diligence and contributions. I also want to take this opportunity to express my gratitude and appreciation to my colleagues on the Board, for the support and cooperation during the period under review. We have indeed carried on as a team. Finally, the Group and I would like to express its gratitude to the late Robert Dube who passed on in January 2014.We will certainly miss his invaluable contribution to the business. Herbert Nkala Chairman 20 March 2014 Chairman`s Statement (continued) The concrete tile machine now fully operational at the Harare factory. 9
  12. 12. Turnall Hold in gs L im ite d | A NNUA L RE P ORT 2013 10 It is our belief that the future of Turnall lies in the value crafted by its people and the Group will continue to place considerable time and money on human capital development and retention. Our skills development AND retention strategy
  13. 13. Turnall Hold ings Limited | AN N UAL R EPORT 201311 “The decision to enter the medium to high cost housing market with our new Ravenna concrete tile proved to be a timely strategic move in that it enabled the company to fully participate in that market segment and therefore increase its presence within the construction sector in general...” Overview Turnall Holdings Limited’s results for the year ended 31 December2013wereachievedinachallengingmacro-economic environmentcharacterisedbyhighlevelsofuncertainty,liquidity constraints and subdued demand across all sectors. Borrowing costs remained high while the economy experienced deflation in the second half of the year. Construction and infrastructure development slowed down as consumer spending patterns were skewed towards basic necessities instead of home construction. Capacity utilisation, at 55%, remained relatively low when compared to that for 2012, at 60%. Management`s Review of Operations The subdued demand negatively impacted sales volumes and margin performance. Against a background of low capacity utilisation, overhead and labour cost recovery efforts became a priority concern for the business given the adverse impact that these costs were exerting on overall company profitability. Exports into South Africa were subdued despite a strong order book and demand. Export price competitiveness was affected by the continued free fall of the Rand thus limiting export volumes during the year under review. Managing Director John Jere
  14. 14. Turnall Hold in gs L im ite d | A NNUA L RE P ORT 2013 12 Financial Performance Revenue of US$42.88 million was 1% above the previous year’s level for the same period at US$42.51 million. Operating profit was US$0.12 million compared to US$4.32 million for the same period in 2012. This was mostly driven by impairment on the trade and other receivables of US$3.33 million (2012: US$0.78 million). Gross profit margin was 24% compared with 29% in 2012, with an operating profit margin of 0.05% compared to 10% for the same period last year. A negative net profit margin of 6% was attained against a positive 2.49% for the previous year. Turnall incurred a net loss of US$2.56 million representing a negative net profit margin of 6%, compared with a net profit of US$1.06 million for the previous year representing a net profit margin of 2.49%. Net finance charges were US$3.20 million compared to US$3.11 million for the previous year. Divisional Performance Building Products Sales volumes, at 67 248 tonnes were 2.82% lower than the 69 202 tonnes achieved in 2012 largely owing to reduced disposable incomes as well as reduced government expenditure. The decision to enter the medium to high cost housing market with our new Ravenna concrete tile proved to be a timely strategic move in that it enabled the company to fully participate in that market segment and therefore increase its presence within the construction sector in general. Sales of the tiles, which started in September 2013, grew 30% month on month for the period up to December 2013 and, as at close of the year, sales contribution averaged US$0,36 million per month. Piping Products Pipe volumes increased by 72% to 2 773 tonnes (2012 - 1 609 tonnes). This performance was, however, significantly below expectation largely because of funding constraints experienced on all major projects and municipality sewer and water reticulation programmes. Raw materials The importation of chrysotile fibre continued in the year under review. The capital injection into African Associated Mines (Private) Limited, the local supplier of asbestos fibre, has not progressed as anticipated and output levels from dump mining efforts have remained generally low. The company will continue to monitor the mines’ re-capitalisation program with keen interest given the raw material cost advantages that locally produced fibre will have on the company’s performance. Stakeholder Engagement The company continues to build and maintain strong relationships with key stakeholders. The company has developed a comprehensive stakeholder engagement strategy to manage stakeholder issues while building long term stakeholder capital. Sustainability Performance We continue to apply an integrated approach in managing our sustainability impacts and opportunities. The company adopted the Global Reporting Initiatives (GRI) Sustainability Reporting Framework as a business model in addressing and managing economic, environmental, and social and governance aspects of our operations. Our sustainability team played a critical role in the year under review in identifying and advising management of economic, environmental, and social impacts and opportunities, and their disclosure for accountability to the public and our stakeholders. The team provided critical insights on sustainability impacts and opportunities which guided management in taking appropriate decision and action. Our sustainability performance for the year is presented in our second sustainability report prepared in accordance with requirements of the Global Reporting Initiative (GRI) Sustainability Reporting Framework (G3.1)-Application Level C. The report is presented in an integrated format together with our financial performance in our annual report for 2013. Management`s Review of Operations (continued)
  15. 15. Turnall Hold ings Limited | AN N UAL R EPORT 201313 The report reflects our sustainability performance on material issues relating to the business and our stakeholders on economic, environmental and social matters as well as our governance and ethics approach during the year under review. Legislative Environment Turnall Holdings Limited has continued to uphold its ISO14001, ISO9001 and OHSAS 18001 certification. We continue to comply with relevant legislative requirements of the Environmental Management Act, Labour Act, Companies Act and other related legislations. Future prospects The country’s housing backlog which stands in excess of 1.2 million houses, coupled with current challenges around sewer and safe drinking water provision, will continue to form the basis of management’s plans into the future. It is management’s view that Turnall Holdings Limited is well positioned, not only in Zimbabwe, but also in the region, to play a major role in the supply of both pipes and other construction materials to the various projects that are currently under consideration at both the design and implementation stages. In view of the current liquidity pressures in the economy and the resultant cash flow challenges being experienced by companies in general, the company has adopted a cash model and thus moved away from credit sales. The move will assist in resolving working capital constraints through improved cash collections from both new customers who will be buying for cash and also existing customers who, inthenewmodelarenowrequiredtopayasignificantamount towards their old debt for future deliveries to be approved. The export markets continue to show opportunities for increased volumes and will be a primary focus area for the year ahead. Appreciation I would like to take this opportunity to thank all the stakeholders, namely, shareholders, the Board, customers, suppliers, employees and other business partners for their continued support. The Turnall Holdings Limited family was greatly saddened by the untimely death of Mr. Robert Dube at the beginning of 2014. Robert contributed significantly to the development and performance of the company over the past 15 years. His contributions will be greatly missed. J. A. Jere Managing Director 20 March 2014 Management`s Review of Operations (continued) Concrete tile quality control process and stock pile
  16. 16. Turnall Hold in gs L im ite d | A NNUA L RE P ORT 2013 14 Our Governance and Ethics Approach Directorate Herbert Nkala Non-Executive: Chairman BSc Hon (Wales), MBA (UZ) He was appointed Non-Executive Chairman of Turnall in 2005 and is a non-executive director of several listed and non-listed companies. Robert Dube Executive: Finance Director CA (Z) A seasoned Chartered Accountant , Robert joined Turnall in 2002. Sadly, he passed away on 29 January 2014. John Mushayavanhu Non-Executive Director: Dip Mgt, MBA (UK) He was appointed Non-Executive Director in 2005. He heads one of the top banking groups in the country and is also a non-executive director of several companies. John A. Jere Executive: Managing Director Dip Eng (France) MBA (UK) He joined Turnall in 2001 as Group Technical Director and was then promoted through various positions to Managing Director. Kiritkumar Naik Non-Executive Director: Dip Mech Eng (UK) He was appointed to the Turnall board in 2010. He holds directorships in other companies. 1 2 3 4 5 6 James Mutizwa Non-Executive: Deputy Chairman BL Hon, LLB (UZ) He was appointed Non-Executive Director in 2005. He is a Legal Practioner based in Harare and also a non-executive director of several companies.
  17. 17. Turnall Hold ings Limited | AN N UAL R EPORT 201315 Directorate (continued) Celestine Gadzikwa Non-Executive Director: Independent FCIS He is a qualified Chartered Secretary and was appointed Non-Executive Director in 2009. He is also a non-executive Director of several other companies Rita Likukuma Non-ExecutiveDirector: Independent BSc Econ (UZ), MBA (UK) She was appointed Non-Executive Director of Turnall in 2009. She is also a non-executive director of several companies. Peter Moyo Non-ExecutiveDirector: Independent LLB Hon (Zambia), FZIM He was appointed Non-Executive director in 2005 and is a corporate lawyer. He holds directorships in other companies. Chirandu Dhlembeu Non-ExecutiveDirector: Independent Msc Dev Econ, MBL (UNISA) He was appointed Non-Executive Director of Turnall in 2005. He holds directorships in other companies. Rodgers Dhliwayo Non-ExecutiveDirector: Independent MSc Env Health (Scotland) He was appointed Non-Executive Diretor of Turnall in 2011. He is Director of Occupational Safety and Health for the National Social Security Authority (NSSA). Our Governance and Ethics Approach (CONTinued) 7 8 9 10 11 12 Linda Manyenga Non-ExecutiveDirector: Independent She was appointed Non-Executive Director in 2002. She is a Trade Unionist and is a past board member of the National Social Security Authority (NSSA).
  18. 18. Turnall Hold in gs L im ite d | A NNUA L RE P ORT 2013 16 Management Finance Director Robert Dube CA (Z) *see Board of Directors. Marketing Director Caleb Musodza BSc Hon (UZ) MBA (UZ) He joined Turnall in April 2013. Prior to joining Turnall, he was General Manager: Sales and Marketing for Schweppes Zimbabwe Limited. Technical Director Francis Chigwedere BSc Eng (ZAMBIA) MBA (UZ) He joined Turnall Fibre Cement in 2002 as an Engineering Manager and rose through the ranks to become Technical Director in 2006. Managing Director John A. Jere Dip Eng (France) MBA (UK) *see Board of Directors. HumanResourcesDirector Dr Elizabeth Mamukwa BA (UNISA), MBA (UK), PhD She joined Turnall in 2004 from SMM Holdings, where she was the Group Human Resources Executive. 1 2 3 4 5 Our Governance and Ethics Approach (CONTinued)
  19. 19. Turnall Hold ings Limited | AN N UAL R EPORT 201317 Governance and Management Approach We recognise that good corporate governance is vital to long term success and integrity of our Group. As such, we are committed to highest standards of ethical and sustainable business practices to enable management of risks and opportunities arising from our operations. To reflect our commitment to good corporate governance and sustainable business practice, we have included in the report our second sustainability report using the Global Reporting Initiatives (GRI’s) Sustainability Reporting Guidelines. As custodians of good governance and strategy direction, we strive to ensure that there is clear allocation of responsibilities to demonstrate balance of power and authority. The Group endeavors to improve its corporate governance systems toward alignment with the National Code on Corporate Governance in Zimbabwe and other voluntary codes such as King III Code of Corporate Governance in South Africa. Business Ethics Turnall Holdings Limited is a member of the Tip-offs Anonymous service provided by Deloitte and Touche. More than 80% of our staff has been trained on how to use this service in case they detect or are aware of any corrupt acts impacting on the Group’s profitability. Where incidents of corruption are identified, we carry out investigations through our risk department. Depending on the nature of the case, we may also involve the Zimbabwe Republic Police. Mechanisms for Communication with Shareholders Turnall Holdings Limited has a formal platform for engaging and communicating with shareholders. The systems include formal meetings, the Annual General Meeting, press announcements on interim and year-end results, presentations, the Group website, annual reporting to shareholders and exercising of shareholders voting rights through the proxy forms. Board and Management Ethics Turnall Holdings Limited believe that it is the responsibility of the Board and Management to lead by example in observing personal ethical practices. As such, all Directors are required to declare their interests which might be deemed in conflict with their appointment or contract with the Group. Board Structure The structure of our Board is such that 83% is non-executive (10) and 17% is executive (2). Of the 10 non-executive directors, 6 are independent. Board Expertise Board members possess skills that include finance, legal, labour, engineering, health and economics. The main responsibility of our Board is to support good corporate governance, strategy formulation and guide policy implementation. Some members are further allocated responsibilities within sub-committees in areas of strategic strength and expertise. During the year, no major changes in the Board structure took place which could be deemed significant to the Group’s operations and strategies. Our Governance and Ethics Approach (CONTinued)
  20. 20. Turnall Hold in gs L im ite d | A NNUA L RE P ORT 2013 18 Sub-committees Membership and Roles Strategic to the implementation of key policies, decisions and guidance are our committees that work closely with management. The committees are Executive, Audit and Finance, New Business Development, Marketing Chrysotile and Human Resources. It is the Group’s ambition that the composition and mandates of the committees are aligned to the national code of corporate governance in Zimbabwe and others like King III. Committee Executive Audit and Finance New Business Development Composition Mr. H Nkala - Chairperson Mr J. Mushayavanhu Mrs R. Likukuma Mr J. P. Mutizwa Mr P. C. C. Moyo Mr C. E. Dhlembeu Mr K. Naik Mr R. Dhliwayo Ms L. Manyenga Mr. C. M. Gadzikwa Mr J. Jere Mr J. P. Mutizwa - Chairperson Mr J. Mushayavanhu Mr. C. M. Gadzikwa Mr J. Jere Mr J. Mushayavanhu - Chairperson Mr K. Naik Mr R. Dhliwayo Mr J. Jere Roles and Responsibilities Formulating, directing and implementing strategic decisions. The Executive meets at least quarterly. • Reviewing reports from the Executive Committee, internal auditors and the Group’s external auditors in relation to interim and annual financial statements, as well as accounting and internal controls systems. • Recommending the appointment of external auditors and their remuneration to the main Board. The committee meets at least quarterly. • Identifying new business portfolios. • Conducting and appraising new projects identified to fit with the business’s overall vision and mission. The committee meets at least three times a year. Our Governance and Ethics Approach (CONTinued)
  21. 21. Turnall Hold ings Limited | AN N UAL R EPORT 201319 Committee Marketing Chrysotile Human Resources Composition Mrs R. Likukuma-Chairperson Mr J. P. Mutizwa Mr P. C. C. Moyo Mr C. E. Dhlembeu Mr. J. Mushayavanhu Mr J. Jere Mr. H Nkala - Chairperson Mr J. Mushayavanhu Ms. L. Manyenga Mr P. C. C. Moyo Mr J. Jere Dr E. Mamukwa Roles and Responsibilities Understanding developments surrounding asbestos lobbying and its impact on the business so as to adequatelyupdateandadvisetheBoard. The committee meets at least three times a year. Discussing and advising on matters pertaining to human resources policies, staffretentionandremunerationofnon- executive, executive directors and staff. The committee meets at least three times a year. Our Governance and Ethics Approach (CONTinued)
  22. 22. Turnall Hold in gs L im ite d | A NNUA L RE P ORT 2013 20 Declaration of Directors’Interests During the year under review, no directors had any material interests which could cause significant conflict of interest with the Group’s objectives. The beneficial interests of the Directors and their families in the shares of the Group are given in the financial statements section. Meeting Attendance during 2013 As part of our performance and commitment, Board members are expected to attend all board meetings. These meetings shape the strategic direction and value creation by the Group and its units. Attendance and information of members is outlined below. 01/09/2005 09/10/2002 01/09/2005 09/10/2002 18/09/2009 18/09/2009 27/03/2005 01/09/2005 23/09/2010 09/12/2011 20/11/2003 01/09/2005 Date of First Appointment 4/4 4/4 4/4 4/4 4/4 4/4 4/4 4/ 4 4/4 4/ 4 4/4 3/4 Attendance at Board Meetings 4/4 6/8 6/8 4/4 4/4 3/4 8/8 4/4 3/4 4/4 8/8 5/8 Attendance at Committee Meetings Chairman Non-Executive Deputy Chairman Non-Executive Non-Executive Independent Non-Executive Independent Non-Executive Independent Non-Executive Independent Non-Executive Independent Non-Executive Non-Executive Independent Non-Executive Managing Director Executive Finance Director Position Herbert Nkala James Mutizwa John Mushayavanhu Linda Manyenga Celestine Gadzikwa Rita Likukuma Peter Moyo Chirandu Dhlembeu Kiritkhuma Naik Rodgers Dhliwayo John Jere Robert Dube Director Our Governance and Ethics Approach (CONTinued)
  23. 23. Turnall Hold ings Limited | AN N UAL R EPORT 201321 The Group’s sustainability strategy project was embarked on four years ago and is continuing to build on the groundwork undertaken then. Facilitated by external consultants, the strategy presents high level focus areas, specific objectives and key performance indicators for each functional area in the Group. Sustainability
  24. 24. Turnall Hold in gs L im ite d | A NNUA L RE P ORT 2013 22 We strive to operate our business in a socially and environmentally responsible manner. The Group continues to strengthen its systems to address both environmental and social aspects associated with its operations. The Group adopted implementation of the Global Reporting Initiatives (GRI)’s Sustainability Reporting Framework through a sustainability team responsible for assisting in identifying and managing material issues, risks and opportunities associated with the Group’s operations. The sustainability teams in our Harare and Bulawayo factories were led by Mr. Robert Dube (Finance Director, now late) and Mr. Francis Chigwedere (Technical Director), respectively. In the period under review, our sustainability teams in Harare and Bulawayo monitored and provided performance data on our sustainability key performance indicators. The teams comprise representatives from the Finance and Administration, Human Resources, Sales and Marketing, Engineering, Production and World Class Practices (Quality, Environment and Health and Safety) departments. In keeping with reasonable expectations and interest of a wide range of our stakeholders who include customers, suppliers, regulators, employees, shareholders, investors, government, communities and others, Turnall Holdings Limited adopted an inclusive strategy which requires continuous engagement with stakeholders. Our stakeholder engagement process helps us capture material issues from our stakeholders that help us balance the long term social, environmental and economic interests with the principle of maximising the Group’s earnings and business value while responding to concerns of our stakeholders. The process of identifying indicators reported in this report involved an assessment of the overall business and key issues of concern from our stakeholders. In the process of identifying material issues and choice of indicators, the sustainability team was guided by GRI-Sustainability Reporting Framework guidelines. This report covers the Group’s operating subsidiary, Turnall Fibre Cement. Data measurement Data measurement in this report is according to specific indicators selected, particurarly where graphs and tables are presented. In most indicators, quantitative data is provided. Where the latter is not provided, qualitative data is provided to relevant indicators. Data measurement is according to systems and policies of Turnall Holdings Limited. Limitations For the specific indicators reported, no major limitations were encountered in providing required data. Our sustainability approach
  25. 25. Turnall Hold ings Limited | AN N UAL R EPORT 201323 Our Approach We believe that our operations are subject to risk and opportunities material to the business and implementation of our strategies. Therefore, we apply a Risk Management (RM) framework which is a process applied strategy set across the Group. The framework is designed to identify potential risks and manage those risks within our Group’s risk appetite in order to enhance the outcome of our corporate objectives. Our risk framework considers challenges, opportunities and uncertainties that may impact our strategic and financial objectives. Risk and Opportunity Slowdown in construction industry Economic and political developments after the national election in Zimbabwe show possibilities of economic slowdown and continued liquidity challenges that could slow individual housing and infrastructural development projects requiring piping materials. Access to financial capital As the demand for our products is increasing in foreign markets, the Group is encountering challenges in accessing affordable finances for working capital requirements. Threats of products’ban in foreign markets The anti-asbestos campaign may lead to the banning of asbestos products in some of our foreign markets.The non- asbestos plant we have installed is not able to produce quantities that will meet demand for all our markets. Mitigation Measure and Action The Group has commenced with plans to resuscitate the pipe manufacturing plant while making efforts to secure the necessary finance to capitalise the Group for future production demand and changing product requirements. Increased attention is being placed on foreign markets’demand for the Group’s products. We are continuously engaging financial institutions to ensure that there are interim financial arrangements for urgent needs when required. Weareupgradingthecapacityofournon-asbestosplant so that it produces to meet demand. The installation of the concrete tile machine that produces concrete based roofing materials was completed in 2013 and sales started in September of the same year. As Turnall, we ensure and monitor the production and safe use of asbestos-containing materials in Zimbabwe under the guidance of National Chrysotile Task Force (NCTF). Principal Risks and Opportunities
  26. 26. Turnall Hold in gs L im ite d | A NNUA L RE P ORT 2013 24 Principal Risks and Opportunities (continued) Risk and Opportunity Loss of consumer confidence The confidence of consumers on our products depends on maintaining high quality. Therefore, failing to provide appropriate quality could lead to loss of confidence. Increased competition We face intensifying competition from small local producers and imports supplying at a low cost to our markets. The opening up of global markets and the introduction of the multi-currency system in our local economy has attracted intensifying competition from foreign competitors. Competition could lead to a reduction in the rate at which we attract new customers especially in the export markets. Water supply challenge Our manufacturing processes depend on reliable water supply by local authorities. The depletion of ground water sources in cities in the which we operate may cause challenges for future production. Mitigation Measure and Action We depend on continuous monitoring of our production processes, a strict maintenance schedule and upgrading where necessary. Product performance on our markets is also continuously monitored. We have established good relationships and processes with key suppliers to ensure provision of high quality raw materials. We are also periodically monitoring the state of our equipment. We continue focusing on high quality customer service and the value of our products. We are enhancing distribution channels to get closer to customers and using targeted promotions, where appropriate, to attract and retain specific customers by offering competitive prices. We closely monitor and model competitor behavior, customer partnerships and products by understanding future intentions so as to be more proactive. We continue to build strong customer relations by offering free technical support. The Group is closely monitoring the investment being directed towards the water situation in the cities and is optimistic that this will improve the reliability of water supply. The Group is, however, looking into various options to better manage water usage.
  27. 27. Turnall Hold ings Limited | AN N UAL R EPORT 201325 Critical to our strategy is building and maintaining strong relationships with key stakeholders. Our stakeholders include customers, suppliers, financial institutions, government, regulators, shareholders, investors, employees, local authorities, civil society, communities, economic sector representative bodies and others. These stakeholders are identified following due process based on how the Group impacts on them and how they can impact the Group both directly and indirectly. The prioritisation of these stakeholders is conducted following internal due process supported with guidance provided in the Global Reporting Initiatives (GRI’s)-Sustainability reporting framework. The Group developed a system of engaging key internal and external stakeholders so as to capture material issues that the Group can improve on. In so doing, the Group used a broad range of strategies that included one on one formal and informal meetings, presentations, media, workshops, circulars, conferences and consultations to name a few. Outcomes of these key engagements are reviewed to provide appropriate responses and actions as reflected below. Stakeholder Engagement Employees Shareholders Suppliers Customers • Works council meetings • NEC meetings • SHEQ meetings • Management meetings • Board meetings • Analyst briefing • Annual general meeting • Meetings • Written correspondences • Supplier evaluations • Meetings • Correspondence through email • Customer evaluations Monthly and as agreed by both parties Quarterly and annually Bi-annually and as appropriate Continuously Business performance, conditions of service and continued employment Business performance Quality of service/ product and payment models Customer service, promotions, transportation issues, pricing and product performance Improvement of identified performance gaps and continuous updates to employee on Group performance Improvement of identified performance gaps Conforming to the agreed issues Improvement on identified gaps Stakeholder Method of Frequency Material issues Action taken engagement raised /planned
  28. 28. Turnall Hold in gs L im ite d | A NNUA L RE P ORT 2013 26 Government Regulators Local Authority Civil Society (NGOs, Trade Unions, N.E.C) • Meetings • Written communication • Seminars and meetings Three times per year and for all developments that merit a meeting At least quarterly At least twice a year At least twice a year Business performance and environmental, safety and Health impact of policy issues Employee wellness and welfare, environment, process, product and service quality Waste and water management Safe use of asbestos, environmental stewardship and conditions of employment Improvement of identified performance gaps and adoption of new policies, standards and/or legislation as appropriate Regular performance monitoring through active engagement to enhance improvements Improved relations and waste and water management practices Improved relations • Written correspondences • Meetings and workshops/ conferences Stakeholder Engagement (continued) Stakeholder Method of Frequency Material issues Action taken engagement raised /planned • Environmental Cluster meetings
  29. 29. Turnall Hold ings Limited | AN N UAL R EPORT 201327 our sustainability performance Our Environment Performance Challenges • Resources management: Water and energy use. • Greenhouse gas emissions. • Waste management and emissions. Policy and Management Approach Turnall Holdings Limited operates within regulations and best practices on environmental management. The Group has an environmental policy which guides management in articulating and managing waste and discharge from operations. Our environmental management systems (EMS) are fully aligned with ISO 14001: Environmental Management Systems and the Environmental Management Act (EMA) Zimbabwe.This allows various audits to be carried out during operations for measuring performance and continuous improvement in managing our environmental and climate impacts. Performance Material Use Materials 2013 2012 2011 (Tonnes) (Tonnes) (Tonnes) Cement 47 043 53 640 60 712 Fibre 7 024 7 866 9 056 Ground Hard Waste (GHW) 2 394 2 756 2 577 Total material use 56 461 64 262 72 345 The above reflects a decrease in material use to support production to meet our expected market demand. Total material use decreased by 15% from 2012. Water Usage Source 2013 2012 2011 m3 m3 m3 Municipal 14 478 32 003 24 272 Underground Borehole 113 567 113 275 120 818 Total water usage 128 045 145 278 145 090 Water usage in 2013 was lower compared to 2012 due to improved resource water management and proactive maintenance on water generation and handling utilities. Municipal water usage decreased by 55% while underground borehole water usage increased by 0.003%. Overall water usage decreased by 12% from 2012.
  30. 30. Turnall Hold in gs L im ite d | A NNUA L RE P ORT 2013 28 Greenhouse Gas Emissions - C02e 8 799 2013 7 566 2012 8 793 2011 Energy Use (by Primary Source) Energy Type 2013 2012 2011 Coal (Tonnes) 1 415 1 111 1521 Petrol (Litres) 110 848 138 588 130 721 Diesel (Litres) 429 277 378 783 317 220 Energy efficiency remains a priority ofTurnall Holdings Limited. Increased energy use in the period is compounded by national challenges in electricity supply and rail transportation systems. As such, the company relied on use of alternative energy generation (electricity) during national load shedding. Coal usage increased by 21%, petrol usage decreased by 20% and diesel usage increased by 13%. Energy Use (by Secondary Source) Electricity (MW) 2013 2012 2011 Harare 2 694 3 087 3 690 Bulawayo 3 991 3 241 2 115 Total Usage (MW) 6 685 6 328 5 805 Electricity usage in 2013 was higher than 2012 due to increased disruption of supply from the Zimbabwe Electricity Supply Authority which caused nuisance start-stop surges. There was also increased capacity utilisation of the Nu-Tech (February, April, May, June, September, October) and Pipe plants (March, April and August), unlike in 2012 when there was less activity. Emissions and Waste our sustainability performance (continued) Increased electricity usage in 2013 contributed towards an increase of 16% carbon emissions compared to 2012.
  31. 31. Turnall Hold ings Limited | AN N UAL R EPORT 201329 Waste Disposal Waste Disposal 2013 2012 2011 Method Sludge (Tonnes) Landfill 7 800 4 365 7 005 There was an increase of 79% in sludge disposal in 2013 compared to 2012 as a result of trying to use only locally sourced raw materials, However, there were process challenges that resulted in more sludge being generated and having to be disposed of. Certification The Group upheld its ISO 14001: Environmental Management Systems certification for the period under review, similar to 2012. Our Social Performace Human capital maintenance Challenges • Building a stable workforce; • Matching operations with workforce; • Providing equal opportunities; • Providing a safe working environment with minimum incidences; and • Maintaining a healthy workforce; Policy and Management Approach AtTurnallHoldingsLimited,werecognisethevalueofthedevelopmentofouremployeesintheGroup’slongtermprosperityand sustainability. We therefore embrace the duty to treat them in a respectable, fair, human way and provide equal opportunities to all. We follow the principle of engaging our employees through collective bargaining and regular constructive meetings. We continue to observe provision of conditions of service stipulated in the laws of the Republic of Zimbabwe through the Labour Act (Zimbabwe) and other international provisions through the International Labour Organisation’s Declaration on Fundamental Principles and Rights at Work. The Group employs policies appropriate to the business and markets meant to attract, retain and motivate the quality of staff through training, development, information sharing and progressive cooperation. The Group provides equal opportunities, without discriminating against gender, race, physical ability or HIV/AIDS status. The Group continues to enhance and apply its HIV/AIDS policy adopted in 2010. Our HIV/AIDS policy commits the Group to maintain confidentiality over status, provide education and awareness, provide counselling, prevent spreading and promote safe sex. our sustainability performance (continued)
  32. 32. Turnall Hold in gs L im ite d | A NNUA L RE P ORT 2013 30 Workforce Distribution by Region Employment Type 2013 2012 2011 Harare Bulawayo Harare Bulawayo Harare Bulawayo Permanent 235 170 248 179 257 188 Contract 147 95 128 165 137 140 Graduate Trainees 7 3 2 - 5 2 Apprentice 4 4 4 4 11 7 Attachment Students 6 3 5 1 2 1 Total 399 275 387 349 412 338 Total Workforce Distribution by Gender Employment Type 2013 2012 2011 Male 635 698 715 Female 39 38 35 Total Workforce 674 736 750 Performance Total Workforce Analysis Employment Type 2013 2012 2011 Permanent 405 427 445 Contract 242 293 277 Graduate Trainees 10 2 7 Apprentice 8 8 18 Attachment Students 9 6 3 Total 674 736 750 2013 635 39 38 35 698 715 2012 2011 Male Female our sustainability performance (continued)
  33. 33. Turnall Hold ings Limited | AN N UAL R EPORT 201331 Health and Safety Issues 2013 Total 2012 Total 2011 Total HRE BYO HRE BYO HRE BYO Rate of Injuries 6 3 9 3 3 6 7 9 16 Lost days 108 201 309 41 116 157 156 158 314 Work related fatalities - - - - - - - - Turnall Holdings Limited credits the continued efforts to maintain high standards to our workforce.The rate of our injuries went down by 62.5% from 2011 to 2012. From 2012 to 2013, however, there was a 50% increase. The Group did not experience any work related fatalities for the past 3 years and this is credited to our workforce observing high standards of safety procedures during operations. All injuries and lost days were from males. No injuries or lost days were recorded from the female workforce. Certification During the year under review, the Group upheld its OHSAS 18001: Occupational Health and Safety Standards certification, similar to prior years. Products responsibility Challenges • Safety of products to customers; • Product quality; and • Adequate product information. Policy and Management Approach Turnall Holdings Limited recognises the importance of supplying customers and markets with high quality and safe products. This recognition requires appropriate systems to be in place to manage product safety, quality and labeling information. As such, Turnall Holdings Limited has quality management systems administered through the departments of Production and World Class Practices (Quality, Environment and Health Safety). This department is responsible for implementation and management of quality control and safety procedures during production. Our procedures are aligned to ISO 9001 standards of Quality Management Systems and these require audits to be carried out during production to ensure product quality control measures and production processes adhere to set procedures. Performance During the year under review, Turnall Holdings Limited upheld its ISO 9001: Quality Management Systems certification, similar to prior years. our sustainability performance (continued)
  34. 34. Turnall Hold in gs L im ite d | A NNUA L RE P ORT 2013 32 Our Economic Performance Challenges • Negative global financial uncertainty; • Rising cost of production; • High cost of access to finance; • Depressed local construction industry market; and • Exchange rate variation in foreign markets This section provides a brief summary of selected economic performance indicators for of the Group for 2013. Complete economic performance is provided in the financial statements section of this report. Key Economic Value Generated Direct Economic Value 2013 2012 2011 Turnover 42 878 242 42 508 441 51 865 260 Net profit before tax (3 078 753 ) 1 209 889 5 122 279 Net cash flows from operating activities 4 306 543 5 385 485 (3 178 822 ) Financial Support from Government The Group acknowledges that, in some instances, the government may assist companies in distressed positions due to economic factors beyond their control. Through coordination of the Ministries of Finance and Economic Development, Industry and Commerce as well as the Reserve Bank of Zimbabwe, a fund had been set to support distressed and struggling industries and companies. However, Turnall Holdings Limited did not receive any such financial assistance from government during the year under review and prior. Defined Contribution Pension Plan The Group makes contributions to the SMM Holdings Pension Fund which is a Defined Contribution pension scheme for employees. The Group contributed US$979 380 in 2013 compared to US$633 481 in 2012. This contribution is made only for those qualifying to join the pension scheme depending on their status of employment. Distribution of pension membership is reflected below. 2013 2012 2011 Number of pensioners 423 433 463 National Pension Scheme All employees are required under the National Social Security Act (Chapter 17:04) to contribute to a national defined contribution scheme. Contributions are made by both employer and employees according to specific legislation. The Group contributed US$209 619 in 2013 and, US$175 023 in 2012. our sustainability performance (continued)
  35. 35. Turnall Hold ings Limited | AN N UAL R EPORT 201333 Directors’ Responsibility and Approval of Financial Statements For the year ended 31 December 2013 The Directors are responsible for preparing the Annual Report and the Group’s financial statements in accordance with applicable laws and regulations. The Companies Act (Chapter 24:03) requires the directors topreparetheGroup’s financialstatements for each financial year. The Group’s financial statements are required to present fairly, in all material respects, the financial position of the Groupand its financial performance and cash flows for that period in accordance with International Financial Reporting Standards (IFRS’s) and in the manner required by the Companies Act (Chapter 24.03) of Zimbabwe. In preparing of the Group’s financial statements, the directors are required to: select suitable accounting policies and then apply them consistently; make judgments and estimates that are reasonable and prudent; state whether the financial statements have been prepared in accordance with IFRS’s; and preparethefinancialstatements on the going concern basis unless it is inappropriate to presume that the Group will continue in business in the foreseable future. The directors are responsible for keeping proper accounting records which disclose with reasonable accuracy at any time, the financial position of the Group and enable them to ensure that its financial statements comply with the Companies Act (Chapter 24:03). They have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the Group and to prevent and detect fraud and other irregularities. TheauditorsareresponsibleforreportingonwhethertheGroup’sannualfinancialstatementsarefairlypresentedinaccordance with the applicable International Financial Reporting Framework, and in the manner required by the Company’s Act (Chapter 24:03) of Zimbabwe. Statement of compliance The financial statements of the Group have been prepared in conformity with International Financial Reporting Standards (IFRS’s), promulgated by the International Accounting Standards Board (IASB), which includes standards and interpretations approved by the IASB as well as International Accounting Standards (IAS’s) and Standing Interpretations Committee (SIC) interpretations issued under previous constitutions. Sustainabilty reporting The Group has set its goal and commitment to providing access to relevant, high quality information on economic, environmental and social aspects related to its activities, which allow assessment of the Group’s sustainability and governance through sustainability reporting. The Group is striving to align its practices with global best practices reflected in voluntary frameworks such as the Global Reporting Initiative (GRI) Sustainability Reporting Framework and the King III Code on corporate governance in South Africa.
  36. 36. Turnall Hold in gs L im ite d | A NNUA L RE P ORT 2013 34 Directors’ Responsibility and Approval of Financial Statements (continued) For the year ended 31 December 2013 The sustainability Reporting Advisors are responsible for providing technical guidance and performing compliance checks on selected sustainability performance indicators and reporting processes in accordance with the Global Reporting Initiatives (GRI)-Sustainability Reporting Framework G3.1. Approval of Group financial statements The Group’s annual financial statements were approved by the board of directors on 20 March 2014. H. Nkala J. Jere Chairman Managing Director 20 March 2014 20 March 2014
  37. 37. Turnall Hold ings Limited | AN N UAL R EPORT 201335 I certify that, to the best of my knowledge and belief, the Grouphas lodged with the Registrar of Companies all such returns as are required to be lodged by a public entity in terms of the Companies Act (Chapter 24:03)of the Republic of Zimbabwe, and that all such returns are true, correct and up to date. Dr Elizabeth Mamukwa Company Secretary Harare 20 March 2014 Company Secretary’ s Certification For the year ended 31 December 2013
  38. 38. Turnall Hold in gs L im ite d | A NNUA L RE P ORT 2013 36 The Directors have pleasure in presenting their report, together with the audited financial statements of the Group for the year ended 31 December 2013. Annual results Loss attributable to shareholders was US$2 562 580 for the period ended 31 December 2013 (2012: US$1 059 915 profit). Going concern The Group incurred a net loss for the year ended 31 December 2013 of US$2 562 580 (2012: profit of US$1 059 915).  At 31 December 2013, current liabilities exceeded current assets by US$1 301 621. The following are strategies the Group has adopted to ensure business continuity: • All customers, including those whose amounts outstanding have been impaired to the value of US$3 329 918, are being actively engaged to ensure that the amounts owed are recovered. • A cash model has been adopted to ensure that enough cash resources are harnessed for operations. • There is a cost cutting programme to align expenses with current operations. • Management has actively engaged providers of goods and services for set-off arrangements. The holding company, FBC Holdings Limited, has undertaken to provide the Group with financial support to enable it to realise its assets and settle its liabilities in the ordinary course of business. Accordingly, the financial statements are prepared on the basis of accounting policies applicable to a going concern. Dividend At a meeting held on 14 March 2014, the Board of Directors resolved not to declare a final dividend for the year to 31 December 2013 in view of the Group’s lower than expected performance. Investment in property, plant and equipment Capital expenditure for the year totaled US$3.8 million. US$3.7 million was spent on plant and machinery and US$0.1 million was spent on motor vehicles and office equipment. Share capital At 31 December 2013, the authorised share capital comprised 690 000 000 ordinary shares. Issued share capital comprised 493 040 308 ordinary shares. The details of the authorised and issued share capital are set out in note 10 of the financial statements. Directors and their interests Names of the Directors are set on pages 14 and 15. Messrs C. M. Gadzikwa, K. Naik as well as Mrs. R. Likukuma retire from the Board in terms of Article 95 of the Group’s Articles of Association. All of them, being eligible, offer themselves for re-election. No director had, during or at the end of the year, any material interests in any contract with the Group which could be considered to be significant in relation to Group’s business. Related party transactions are disclosed on page 58, while the beneficial interests of the Directors and their families in the shares of the Group are disclosed on page 70. Directors’ Report For the year ended 31 December 2013
  39. 39. Turnall Hold ings Limited | AN N UAL R EPORT 201337 Overall Winner of the Inaugural Corporate Governance Awards 2013 - Institute of Chartered Secretaries and Administrators of Zimbabwe (ICSAZ) Overall Winner in Sustainability Reporting Category 2013 - Institute of Chartered Secretaries and Administrators of Zimbabwe (ICSAZ) Awarded Life Time Investor, Construction 2013 - Zimbabwe Investment Authority (ZIA) In recognition of our efforts, systems and commitments to sustainable business practices, the following awards were received during the year: Awards
  40. 40. Turnall Hold in gs L im ite d | A NNUA L RE P ORT 2013 38 Independent Auditor’s Report To The Members of Turnall Holdings Limited We have audited the consolidated financial statements of Turnall Holdings Limited, which comprise the consolidated statement of financial position as at 31 December 2013, and the consolidated statements of comprehensive income, changes in equity and cash flows for the year then ended, as well as the notes to the financial statements which include a summary of significant accounting policies and other explanatory notes, as set out on pages 39 to 69. Directors’responsibility for the consolidated financial statements Turnall Holdings Limited’s directors are responsible for the preparation and fair presentation of these financial statements in accordance with International Financial Reporting Standards and in the manner required by the provisions of the Zimbabwe Companies Act (Chapter 24:03), and for such internal control as the directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor’s responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing.Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgement, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, these consolidated financial statements present fairly, in all material respects, the consolidated financial position of Turnall Holdings Limited as at 31 December 2013, and its consolidated financial performance and cash flows for the year then ended in accordance with International Financial Reporting Standards and in the manner required by the Zimbabwe Companies Act (Chapter 24:03). KPMG Chartered Accountants (Zimbabwe) Harare 20 March 2014 KPMG Mutual Gardens 100 The Chase (West) Emerald Hill P O Box 6 Harare Zimbabwe Tel +263 (4) 303700 +263 (4) 302600 Fax +263 (4) 303699 KPMG, a Zimbabwean partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity.
  41. 41. Turnall Hold ings Limited | AN N UAL R EPORT 201339 Consolidated statement of comprehensive income For the year ended 31 December 2013 Revenue 2 42 878 242 42 508 441 Cost of sales 3 (32 382 546 ) (30 133 932 ) Gross profit 10 495 696 12 374 509 Other operating income 4 383 133 253 761 Selling and distribution expenses 5 (2 061 492 ) (1 711 288 ) Administrative expenses 5 (8 692 950 ) (6 592 576 ) Profit from operating activities 124 387 4 324 406 Finance income 6 19 619 3 285 Finance costs 6 (3 222 759 ) (3 117 802 ) Net finance costs (3 203 140 ) (3 114 517 ) (Loss)/profit from operations before income tax expense (3 078 753 ) 1 209 889 Income tax credit/(expense) 7 516 173 (149 974 ) (Loss)/profit for the year (2 562 580 ) 1 059 915 Other comprehensive income, net of income tax - - Total comprehensive (loss)/income for the period (2 562 580 ) 1 059 915 Number of shares in issue (000s) 8 493 040 493 040 Basic and diluted earnings per share (cents) 8 (0.50 ) 0.21 20122013 US$Note US$
  42. 42. Turnall Hold in gs L im ite d | A NNUA L RE P ORT 2013 40 2013 US$Note ASSETs Non-current assets Property, plant and equipment 13 32 884 465 31 685 103 Investment property 14 301 621 291 325 Trade and other receivables 12 1 175 191 - Total non-current assets 34 361 277 31 976 428 Current assets Inventories 11 18 005 899 18 757 112 Short term investments 21.4.3 24 027 19 958 Trade and other receivables 12 16 349 038 16 233 953 Cash and cash equivalents 15 242 384 993 390 Total current assets 34 621 348 36 004 413 Total assets 68 982 625 67 980 841 EQUITY AND LIABILITIES Capital and reserves Share capital 10.2 4 930 403 4 930 403 Share premium 181 908 181 908 Non-distributable reserve 10.3 7 655 239 7 655 239 Revaluation reserve 10.4 7 639 504 7 639 504 Retained earnings 6 565 766 9 128 346 Total equity 26 972 820 29 535 400 Non-current liabilities Deferred taxation 7.4 6 086 836 6 604 514 Current liabilities Loans and borrowings 9 9 542 352 10 779 318 Trade and other payables 16 24 433 711 19 078 437 Taxation 1 488 266 1 488 266 Bank overdraft 15 458 640 494 906 Total current liabilities 35 922 969 31 840 927 Total liabilities 42 009 805 38 445 441 Total equity and liabilities 68 982 625 67 980 841 Consolidated statement of Financial position as at 31 December 2013 Chairman Director 20 March 2014 20 March 2014 2012 US$
  43. 43. Turnall Hold ings Limited | AN N UAL R EPORT 201341 Non- Share Share Revaluation distributable Retained capital premium reserve reserve earnings Total US$ US$ US$ US$ US$ US$ Balance at 1 January 2012 4 930 403 181 908 7 639 504 7 655 239 8 068 431 28 475 485 Total comprehensive income for the year - - - - 1 059 915 1 059 915 Balance at 31 December 2012 4 930 403 181 908 7 639 504 7 655 239 9 128 346 29 535 400 Total comprehensive loss for the year - - - - (2 562 580 ) (2 562 580 ) Balance at 31 December 2013 4 930 403 181 908 7 639 504 7 655 239 6 565 766 26 972 820 Consolidated statement of CHANGES IN EQUITY year ended 31 December 2013
  44. 44. Turnall Hold in gs L im ite d | A NNUA L RE P ORT 2013 42 2013 US$Note 2012 US$ Cash flows from operating activities (Loss)/profit for the year (2 562 580 ) 1 059 915 Adjustments for: Depreciation of property, plant and equipment 13.2 2 591 151 2 422 240 Depreciation of investment property 14 6 413 6 225 Net finance costs 6 3 203 140 3 114 517 Unrealised exchange losses (141 976 ) (126 110 ) (Profit)/loss on disposal of property, plant and equipment (3 283 ) 6 438 Net change in other investments 21.4.3 (4 069 ) (373 ) Interest payable (617 264 ) (288 822 ) Income tax (credit)/expense 7 (516 173 ) 149 974 Operating cash flows before reinvestment in working capital 1 955 359 6 344 004 Decrease/(increase) in inventories 751 213 (3 944 751 ) Increase in trade and other receivables (1 290 276 ) (16 530 ) Increase in provisions, trade and other payables 5 355 274 6 344 320 Net cash flows from operations 6 771 570 8 727 043 Withholding tax paid (1 505 ) (137 ) Income tax paid - (638 551 ) Realised exchange losses (148 995 ) (2 956 ) Interest paid (2 314 527 ) (2 699 914 ) (2 465 027 ) (3 341 558 ) Net cash flows from operating activities 4 306 543 5 385 485 CASH FLOWS FROM INVESTING ACTIVITIES Acquisition of property, plant and equipment: - to increase operating capacity (3 086 541 ) (1 542 721 ) - to maintain current capacity (730 373 ) (1 061 439 ) 13.1 (3 816 914 ) (2 604 160) Additions to investment property (16 708 ) - Proceeds from the sale of property, plant and equipment 29 685 - Interest received 19 619 3 285 Net cash flows from investing activities (3 784 318 ) (2 600 875 ) CASH FLOWS FROM FINANCING ACTIVITIES Decrease in loans and borrowings (1 236 965 ) (2 814 522 ) DECREASE IN CASH AND CASH EQUIVALENTS 15 (714 740 ) (29 912 ) Consolidated statement of CASH FLOWS YEAR ENDED 31 December 2013
  45. 45. Turnall Hold ings Limited | AN N UAL R EPORT 201343 The principal accounting policies of the Group, which are set out below, have been consistently followed in all material respects. These financial statements were approved for issue by the Board of Directors on 20 March 2014. BASIS OF PREPARATION Statement of compliance The consolidated financial statements of the Group have been prepared in accordance with International Financial Reporting Standards (IFRS) and in the manner required by the Zimbabwe Companies Act (Chapter 24:03). The consolidated financial statements are based on statutory records and have been prepared on the historical cost basis except for property, plant and equipment that is carried at revalued amounts.These consolidated financial statements are presented in United States dollars, which is the Group’s functional and presentation currency. SIGNIFICANT ACCOUNTING POLICIES Adoption of new and revised financial reporting standards The following revised standards issued by the International Accounting Standards Board (IASB) are effective for the current year. These are: IAS 1 amendment Presentation of Financial Statements: Presentation of Items of Other Comprehensive Income - Annual periods beginning on or after 1 July 2013. On or after 1 January 2013. IAS 27 Separate Financial Statements (2013) - Annual periods beginning on or after 1 January 2013. IFRS 10 Consolidated Financial Statements - Annual periods beginning on or after 1 January 2013. IFRS 13 Fair Value Measurement - Annual periods beginning on or after 1 January 2013. IFRS 12 Disclosure of Interests in Other Entities - Annual periods beginning on or after 1 January 2013. The adoption of these revised standards in the current year has not led to any changes in the Group’s accounting policies. Other than IFRS 13, these standards do not have any financial effect on the recognition or measurement of transactions and events, nor the financial position or performance of the Group. Their effects are limited to the nature and extent of disclosure to be made by the Group. A number of new standards, amendments to standards and interpretations are effective for annual periods beginning on or after 1 January 2014, and have not been applied in preparing these financial statements. Those which may be relevant to the Group are set out below. The Group does not plan to adopt these standards early. These will be adopted in the period that they become mandatory unless otherwise indicated. These are: IAS 32 amendment Financial Instruments: Presentation: Offsetting Financial Assets and Financial Liabilities. IAS 36 amendment Recoverable Amount Disclosures for Non-Financial Assets. IFRS 9 Financial Instruments. IAS 32 amendment - Financial Instruments: Presentation: Offsetting Financial Assets and Financial Liabilities The amendments clarify when an entity can offset financial assets and financial liabilities and is effective for annual periods beginning on or after 1 January 2014 with early adoption permitted. The Group will adopt the amendments for the year ending 31 December 2014. IAS 36 amendment - Recoverable Amount Disclosures for Non-Financial Assets The amendments reverse the unintended requirement in IFRS 13 Fair Value Measurement to disclose the recoverable amount of every cash- generating unit to which significant goodwill or indefinite-lived intangible assets have been allocated. Under the amendments, the recoverable amount is required to be disclosed only when an impairment loss has been recognised or reversed. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 31 December 2013
  46. 46. Turnall Hold in gs L im ite d | A NNUA L RE P ORT 2013 44 SIGNIFICANT ACCOUNTING POLICIES (continued) IAS 36 amendment - Recoverable Amount Disclosures for Non-Financial Assets (continued) The amendments apply retrospectively for annual periods beginning on or after 1 January 2014 with early adoption permitted. The Group will adopt the amendments for the year ending 31 December 2014. IFRS 9 - Financial Instruments IFRS 9 (2009) introduces new requirements for the classification and measurement of financial assets. Under IFRS 9 (2009), financial assets are classified and measured based on the business model in which they are held and the characteristics of their contractual cash flows. IFRS 9 (2010) introduces additions relating to financial liabilities. The IASB currently has an active project to make limited amendments to the classification and measurement requirements of IFRS 9 and add new requirements to address the impairment of financial assets and hedge accounting. The effective date of IFRS 9 was 1 January 2015. The effective date has been postponed and a new date is yet to be specified. The Group will adopt the standard in the first annual period beginning on or after the mandatory effective date (once specified). The impact of the adoption of IFRS 9 has not yet been estimated as the standard is still being revised. The Group will assess the impact once the standard has been finalised and the effective date is known. Use of accounting judgements, estimates and assumptions The preparation of consolidated financial statements requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimates are revised and in any future periods affected. Information about significant areas of estimation uncertainty and critical judgement in applying accounting policies that have the most significant effect on the amounts recognised in the consolidated financial statements is included in the following: Valuation of property, plant and equipment The Group reviews its estimates for residual values, useful lives and methods of depreciation of all plant and equipment annually. Residual values of each asset have been assessed by reviewing the fair value of the assets after taking into account age, usage and obsolescence. In determining recoverable amount of the assets, expected cash flows are discounted to their present values. In determining useful lives, management considers technology changes, local operating environment and the use of each asset. Management also applies significant judgements, estimates and assumptions on carrying out the revaluation of property, plant and equipment in line with the policy on revaluation. Revenue Revenue represents amounts invoiced to customers for goods supplied and services rendered, net of value added tax and allowances for defective goods. Revenue from the sale of goods in the course of ordinary activities is measured at the fair value of the consideration received or receivable, net of returns, trade discounts and volume rebates. Revenue is recognised when significant risks and rewards of ownership have been transferred to the customer, recovery of the consideration is probable, the associated costs and possible return of goods can be estimated reliably, there is no continuing management involvement with the goods, and the amount of revenue can be measured reliably. If it is probable that discounts will be granted and the amount can be measured reliably, then the discount is recognised as a reduction of revenue as the sales are recognised. The timing of the transfer of risks and rewards varies depending on the individual terms of the sales agreement. For domestic sales, transfer of risks and rewards usually occurs when the product is delivered to the customer’s designated place of business; however, for international sales transfer, occurs on loading the goods onto the relevant carrier at the Turnall Holdings Limited’s premises. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) 31 December 2013
  47. 47. Turnall Hold ings Limited | AN N UAL R EPORT 201345 SIGNIFICANT ACCOUNTING POLICIES (continued) Basis of consolidation Subsidiaries Subsidiaries are those enterprises controlled by the Group. An investor controls an investee when the investor is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affects those returns through its power over the investee. The financial statements of subsidiaries are included in the consolidated financial statements from the date that control commences until the date that control ceases. Transactions eliminated on consolidation Intra-group balances and transactions, and any unrealised gains from intra-group transactions, are eliminated in preparing the consolidated financial statements. Unrealised losses are eliminated in the same way as unrealised gains, but only to the extent that there is no evidence of impairment. Property, plant and equipment Items of property, plant and equipment are initially measured at cost less accumulated depreciation and impairment losses, then subsequently using the revaluation method less accumulated depreciation and impairment losses. Cost includes expenditures that are directly attributable to the acquisition of the asset. The cost of self-constructed assets includes the cost of materials and direct labour, any other costs directly attributable to bringing the asset to a working condition for its intended use, and the costs of dismantling and removing the items and restoring the site on which they are located. Purchased software that is integral to the functionality of the related equipment is capitalised as part of that equipment. When parts of an item of property, plant and equipment have different useful lives, they are accounted for as separate items (major components) of property, plant and equipment. Gains and losses on disposal of an item of property, plant and equipment are determined by comparing the proceeds from disposal with the carrying amount of property, plant and equipment, and are recognised net within other income in profit or loss. The cost of replacing a part of an item of property, plant and equipment is recognised in the carrying amount of the item if it is probable that the future economic benefits embodied within the part will flow to the Group, and its cost can be measured reliably. The carrying amount of the replaced part is derecognised. The costs of the day-to-day servicing of property, plant and equipment are recognised in profit or loss as incurred. Items of property, plant and equipment are revalued at least once every three years or earlier if it becomes apparent that their carrying amount has declined below their recoverable amount to a material extent. Gross carrying amounts of property, plant and equipment are determined by revaluation on a net replacement basis. Revaluation surpluses are realised on disposal of the assets. Subsequent costs The cost of replacing part of an item of property, plant and equipment is recognised in the carrying amount of the item if it is probable that the future economic benefits embodied within the part will flow to the Group and its cost can be measured reliably. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) 31 December 2013
  48. 48. Turnall Hold in gs L im ite d | A NNUA L RE P ORT 2013 46 SIGNIFICANT ACCOUNTING POLICIES (continued) Property, plant and equipment (continued) Depreciation Depreciation is recognised in profit or loss on a straight-line basis over the estimated useful lives of each part of an item of property, plant and equipment, since this most closely reflects the expected pattern of consumption of the future economic benefits embodied in the asset. The depreciation rates are shown below: Industrial buildings 2.5% per annum Plant and machinery 7.5 - 20% per annum Furniture, fittings and office equipment 10 - 20% per annum Motor vehicles 20 - 25% per annum The residual values, depreciation method and useful lives are reassessed annually. Expenditure on additions and improvements to property, plant and equipment is capitalised for major projects on the basis of measured work completed and qualifying for recognition. Impairment of assets Financial assets A financial asset is considered to be impaired if objective evidence indicates that one or more events have had a negative effect on the estimated future cash flows of that asset. Objective evidence that a financial asset is impaired includes observable data that comes to the holder of the asset about the following loss events: • significant financial difficult of the issuer or obligor; • a breach of contract, such as a default or delinquency in interest or principal payments; • the lender, for economic or legal reasons relating to the borrower’s financial difficulty, • granting to the borrower a concession that the lender would not otherwise consider; • it becoming probable that the borrower will enter bankruptcy or other financial difficulty; and • the disappearance of an active market for a financial asset because of financial difficulties. An impairment loss in respect of a financial asset measured at amortised cost is calculated as the difference between its carrying amount and the present value of the estimated future cash flows discounted at the original effective interest rate. Significant financial assets are tested for impairment on an individual basis. The remaining financial assets are assessed collectively in groups that share similar credit risk characteristics. Also those assets that were assessed individually not to be impaired, will also be assessed collectively for impairment. All impairment losses are recognised in profit or loss. An impairment loss is reversed if the reversal can be related objectively to an event occurring after the impairment loss was recognised. Non-financial assets The carrying amounts of the Group’s non-financial assets, other than inventories and deferred tax assets, are reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication exists then the asset’s recoverable amount is estimated. An impairment loss is recognised if the carrying amount of an asset or its cash-generating unit exceeds its recoverable amount. A cash- generating unit is the smallest identifiable asset group that generates cash flows that largely are independent from other assets and groups. Impairment losses are recognised in profit or loss. Impairment losses recognised in respect of cash-generating units are allocated first to reduce the carrying amount of any goodwill allocated to the units and then to reduce the carrying amount of the other assets in the unit (group of units) on a pro rata basis. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) 31 December 2013
  49. 49. Turnall Hold ings Limited | AN N UAL R EPORT 201347 SIGNIFICANT ACCOUNTING POLICIES (continued) Impairment of assets (continued) Non-financial assets (continued) The recoverable amount of an asset or cash-generating unit is the greater of its value in use and its fair value less costs to sell. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. Taxation Income tax Income tax for the year comprises current and deferred tax. Income tax is recognised in profit or loss unless it relates to an item recognised directly in other comprehensive income or in equity, in which case it is recognised in other comprehensive income or equity respectively. Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantially enacted at the balance sheet date, and any adjustment to tax payable in respect of previous years. Deferred tax Deferred tax liabilities are recognised for all taxable temporary differences, unless the temporary difference arises from: Goodwill The initial recognition of an asset or liability in a transaction which: - is not a business combination, and - at the time of the transaction, affects neither accounting profit nor taxable profit. Deferred tax assets are recognised for all deductible temporary differences to the extent that it is probable that taxable profit will be available against which the deductible temporary differences can be utilised, unless the deferred tax asset arises from the initial recognition of an asset or liability in a transaction which is not a business combination and, at the time of the transaction, affects neither accounting profit nor taxable profit. Deferred tax is calculated based on the tax rates that are expected to apply to the period when the asset or liability is settled based on the rates that are enacted or substantively enacted. The effect on deferred tax of any changes in tax rates is charged to profit or loss, except to the extent that it relates to items charged or credited directly in other comprehensive income or in equity. Withholding tax Withholding tax is a tax on interest earned by the business at the bank. This tax is withheld on behalf of the revenue authorities at source. Amounts withheld are recognised as part of the Group’s tax charge recognised directly in profit or loss. Where withholding tax is withheld on interest received, the interest is recognised at the gross amount with the related withholding tax recognised as part of the income tax expense unless it is otherwise reimbursable, in which case it is recognised as an asset. Inventories Inventories are stated at the lower of cost and net realisable value. Net realisable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and selling expenses. The cost of inventories is based on the weighted average basis and includes expenditure incurred in acquiring the inventories and bringing them to their existing location and condition. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) 31 December 2013
  50. 50. Turnall Hold in gs L im ite d | A NNUA L RE P ORT 2013 48 SIGNIFICANT ACCOUNTING POLICIES (continued) Provisions A provision is recognised in the statement of financial position when the Group has a legal or constructive obligation as a result of a past event, and it is probable that an outflow of economic benefits will be required to settle the obligation. If the effect is material, provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and, where appropriate, the risks specific to the liability. The unwinding of the discount is recognised as finance costs. Foreign currencies Foreign currency transactions (which are in currencies other than the functional currency), on initial recognition, are translated at the exchange rates ruling on the date of the transaction. Subsequent to that, all foreign currency denominated financial assets and liabilities are translated at each reporting date, using the exchange rates ruling at that date. Accordingly, foreign currency denominated income and expenses are recorded at exchange rates ruling on the date of the transaction. Exchange differences are recognised in profit or loss in the period in which they arise. Investment property Investment property is property held either to earn rental income or for capital appreciation or for both, but not for sale in the ordinary course of business, use in the production or supply of goods or services or for administrative purposes. Investment property is initially measured at cost and subsequently using the cost model with any depreciation and impairment charges therein recognised in profit or loss. Cost includes expenditure that is directly attributable to the acquisition of the investment property.The cost of self-constructed investment property includes the cost of materials and direct labour, any other costs directly attributable to bringing the investment property to a working condition for their intended use and capitalised borrowing costs. Any gain or loss on disposal of an investment property (calculated as the difference between the net proceeds from disposal and the carrying amount of the item) is recognised in profit or loss. Financial instruments Non-derivative financial instruments carried in the statement of financial position comprise: cash and cash equivalents, trade and other receivables, trade and other payables, short-term investments, loans and borrowings, bank overdraft and amounts owing to and from related parties. Recognition and de-recognition The Group initially recognises loans and receivables on the date that they are originated. All other financial assets (including assets designated as at fair value through profit or loss) and financial liabilities are recognised initially on the trade date, which is the date that the Group becomes a party to the contractual provisions of the instrument. The Group de-recognises a financial asset when the contractual rights to the cash flows from the asset expire, or it transfers the rights to receive the contractual cash flows in a transaction in which substantially all the risks and rewards of ownership of the financial asset are transferred. Any interest in such transferred financial assets that is created or retained by the Group is recognised as a separate asset or liability. The Group derecognises a financial liability when its contractual obligations are discharged or cancelled or expire. Measurement Subsequent to initial recognition non-derivative financial instruments are measured as described below: Trade and other receivables Trade and other receivables are measured at amortised cost using the effective interest rate method. 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 receivables. Significant financial difficulties of the debtor, probability that the debtor will enter bankruptcy or financial reorganisation and default or delinquency in payments are considered indicators that the trade receivables are impaired. When a trade receivable is uncollectible, it is written off against the allowance for trade receivables. Subsequent recoveries of amounts previously written off are credited against the trade receivables impairment provision in profit or loss. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) 31 December 2013
  51. 51. Turnall Hold ings Limited | AN N UAL R EPORT 201349 SIGNIFICANT ACCOUNTING POLICIES (continued) Financial instruments (continued) Cash and cash equivalents Cash and cash equivalents comprise cash on hand, deposits held on call with banks, and investments in money market instruments. Cash and cash equivalents are measured at amortised cost, with any impairment or appreciation in value of foreign currency denominated balances arising from changes in exchange rates, being written off or credited against the exchange gains and losses account in profit or loss. Bank overdraft Bank overdrafts are measured at amortised cost using the effective interest rate method. Trade payables, other payables and amounts owing to and from related parties These financial liabilities are measured at amortised cost using the effective interest rate method. Loans and borrowings Loans and borrowings are measured at amortised cost using the effective interest rate method. Short term investments Short term investments are equity securities that are designated at fair value through profit or loss with gains and losses recognised in profit or loss. Offset Financial assets and liabilities are offset if there is a legally enforceable rights and the Group either intends to settle on a net basis or to realise the asset and settle the liability simultaneously. Pension costs The Group contributes to a defined contribution plan. A defined contribution plan is a post-employment benefit plan under which an entity pays fixed contributions into a separate entity and will have no legal or constructive obligation to pay further amounts. Obligations for contributions to defined contribution pension plans are recognised as an employee benefit expense in profit or loss in the periods during which services are rendered by employees. Borrowing costs Borrowing costs that are directly attributable to the acquisition, construction or production of a qualifying asset are capitalised and included in the cost of that qualifying assets. These comprise borrowing costs that would have been avoided if the expenditure on the qualifying asset had not been made. All other borrowing costs are recognised in profit or loss in the period in which they are incurred. Finance income and finance costs Finance income comprises interest income on funds invested, fair value gains on financial assets at fair value through profit or loss. Interest income is recognised as it accrues in profit or loss, using the effective interest rate method. The effective interest rate is the rate that exactly discounts estimated future cash payments or receipts through the expected life of the financial instrument or, when appropriate, a shorter period to the net carrying amount of the financial asset or financial liability. When calculating the effective interest rate, the Group estimates cash flows considering all contractual terms of the financial instrument. Finance costs comprise interest expense on borrowings, unwinding of the discount on provisions and deferred consideration, fair value losses on financial assets at fair value through profit or loss and contingent consideration, impairment losses recognised on financial assets (other than trade receivables). SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) 31 December 2013
  52. 52. Turnall Hold in gs L im ite d | A NNUA L RE P ORT 2013 50 SIGNIFICANT ACCOUNTING POLICIES (continued) Finance income and finance costs (continued) Foreign currency gains and losses on financial assets and financial liabilities are reported on a net basis as either finance income or finance cost depending on whether foreign currency movements are in a net gain or net loss position. Segment reporting The Group has three reportable segments, as described below. The segments offer different products but are however managed by the one central team as they require similar technology, processes and marketing strategies. For each of the segments, the Group’s Managing Director (the chief operating decision maker) reviews internal management reports at least monthly. The following summary describes the operations in each of the Group’s reportable segments: Building products - production of roofing sheets Piping products - production of water and sewer reticulation pipes Concrete tile - production of piping products There is a minimal level of integration between the between the reportable segments that includes transfers of raw materials and shared distribution services, respectively. Performance is measured based on segment gross profit before tax, as included in the internal management reports that are reviewed by the Group’s managing director. Segment gross profit is used to measure performance as management believes that such information is the most relevant in evaluating the results of certain segments relative to other entities that operate within these industries. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) 31 December 2013

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