Zimplow 2010 annual report


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Zimplow Limited 2010 annual financial report

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Zimplow 2010 annual report

  1. 1. Mission, Vision and Core ValuesMISSIONTo avail quality, affordable and reliable steel products on time everytime to the mining, farming,construction and manufacturing sectors.VISIONTo be a market leader in the design, sourcing and distribution of at least one of our products in eightcountries south of the Sahara for all our products by 2020.CORE VALUESIntegrityBeing absolutely truthful and accepting responsibility for our actions.QualityBeing professional and quality oriented in everything we do.TeamworkWorking together to achieve a common goal.DependabilityOur customers, employees and suppliers must be able to count on us.FunEmbracing a positive attitude and spontaineity. Zimplow Limited « ii » 2010 Annual Report
  2. 2. Contents 2 Directorship and Administration 3 Notice to Shareholders 4 Chairman’s Review 5 Report of The Directors 6 Corporate Governance 7 Financial Highlights 8 Independent Auditor’s Report 10 Statement of Comprehensive Income 11 Statement of Financial Position 12 Statement of Changes In Equity 13 Statement of Cash Flows 14 Notes to the Financial Statements 47 Statement of Value Added 48 Shareholders’ Analysis 49 Financial Review 2010 50 Financial Calendar Zimplow Limited «1» 2010 Annual Report
  3. 3. Directorship and Administration Z L Rusike (Chairman) OM Chidawu - (Resigned on 21 April 2010) P Devenish N Kudenga - (Resigned on 31 March 2010) Z Kumwenda* A Kurauone B Mitchell* D Mkonto* E Mlambo T Moyo P Whata - (Resigned on 21 April 2010) N Nhira * Executive COMPANY SECRETARY: D Mkonto TRANSFER SECRETARIES: Corpserve (Private) Limited Cnr 1st Street / Union Avenue, Harare AUDIT COMMITTEE: A Kurauone (Chairman) T Moyo N Nhira REMUNERATION COMMITTEE: Z L Rusike (Chairman) P Devenish E Mlambo EXECUTIVE COMMITTEE: Z Kumwenda B Mitchell D Mkonto F Rwakonda REGISTERED OFFICE: 39 Steelworks Road, Heavy Industrial Sites, PO Box 1059, Bulawayo AUDITORS: Ernst & Young Derry House, 6th Avenue / Fife Street, Bulawayo BANKERS: African Banking Corporation Limited Barclays Bank of Zimbabwe Limited Kingdom Bank Limited Merchant Bank of Central Africa Limited National Merchant Bank Limited CURRENCY OF FINANCIAL STATEMENTS: United States Dollars PERIOD OF FINANCIAL STATEMENTS: Year ended 31 December 2010 Zimplow Limited «2» 2010 Annual Report
  4. 4. Notice to ShareholdersSIXTIETH ANNUAL GENERAL MEETINGNotice is hereby given that the Sixtieth Annual General Meeting of shareholders will be held at the CT Bolts DivisionOffice, Falcon Street and Wanderer Road, Bulawayo on 30 March 2011 at 10:00 hours to transact the following business:AGENDAOrdinary Business 1. To approve the minutes of the Annual General Meeting held on 21 April 2010. 2. To receive and adopt the directors’ report and audited financial statements for the year ended 31 December 2010. 3. To elect directors Messrs A. Kurauone, Z. Rusike, E Mlambo, and T Moyo retire from office in accordance with the company’s Articles of Association , and Mr P. Devinish who retire from office by rotation. All being available, they offer themselves for re-election. 4. To approve the payment of final dividend number 67 of US$0.0021 per share proposed on 23 February 2011. 5. To approve the remuneration of directors for the year ended 31 December 2010. 6. To fix the auditors’ remuneration for the year ended 31 December 2010. 7. To appoint auditors for the financial year ending 31 December 2011.By order of the BoardD Mkonto (Mrs)Company Secretary39 Steelworks RoadP.O. Box 1059BULAWAYO23 February 2011A member entitled to attend and vote is entitled to appoint one or more proxies to act in the alternative and to attend andvote and speak in his stead. Such proxy need not be a member of the company. Proxy forms must be lodged at the registeredoffice of the company not less than forty-eight hours before the time of the meeting. Zimplow Limited «3» 2010 Annual Report
  5. 5. Chairman’s ReviewIntroduction ProspectsIt is with both satisfaction and relief that I am able to While the 2010 results reflected cost and marginsreview the company’s performance for the year just ended. realignment, there remains room to improve profitabilitySatisfaction that the after-tax profit is not that far removed within the Company. We expect growth in revenue in 2011from last year’s exceptional performance and relief that at the back of improved market share for both the fastenerthe business managed to overcome the much anticipated and agricultural divisions. It would appear that the regiondownturn expected in 2010. will experience normal to above normal rainfall and thisAdmittedly, substantial price increases in steel and coal should provide the company with good export volumes.coupled with the depreciation of the United States Dollar The Company’s financial position is supportive of strategicand increase in labour costs have mitigated against the acquisitions and these will be pursued by the board in 2011.ability of the company to maintain the margins achieved Acknowledgmentsin 2009. As reported in our interim results, margins arealigning themselves to international levels. The company I would like to thank my co-directors who have continuedmanaged to compensate decreasing margins with stronger to offer sound advice and direction to the company’svolumes. affairs, their contribution is much appreciated. Credit is also extended to all levels of management and employeesOperations for their united role in achieving these results.Mealie Brand implement volumes were up 16% over lastyear an achievement that is commendable considering thatit is starting from a higher base achieved in 2009.Local volumes were up 14% and exports increased by 18%.The proportion of implements exported was 50.3%.Volume throughput increased by 16% to 3 263 tonnes this Z L Rusikeyear. ChairmanCT Bolts key volumes increased by 108% from prior year. 23 February 2011Tassburg volumes were 128% higher than last year.Financial ReviewCompany revenue of USD12.3 million is 36% ahead of lastyear. Domestic revenue increased by 53% while exportsincreased by 6,8% from prior year figures. All divisionsrecorded increases in revenue. C.T. Bolts and Mealie Brandrecorded improved profitability while Tassburg recorded aloss mainly attributable to stock write downs of US$91 489.It is pleasing to note that all operating divisions generatedpositive cash from operations. Total net cash increase forthe year was US$1.9 million. Zimplow Limited «4» 2010 Annual Report
  6. 6. Report of the DirectorsYour directors’ report on the operations of Zimplow Limited for the year ended 31 December 2010 is as follows:PROFIT AND APPROPRIATIONThe profit and relative appropriations are as follows: 31 December 2010 31 December 2009 US$ US$Profit after taxation 2 342 001 2 221 953Equity dividend proposed/paid (700 000) (392 486)Retained earnings brought forward 1 829 467 -Retained earnings carried forward 4 171 468 1 829 467DIVIDENDA final dividend number 67 of US$0.0021 per share was proposed on 23 February 2011.SHARE CAPITALThe unissued ordinary shares of 172 928 076 have been placed under the control of the directors, in terms ofExtraordinary General Meetings of Members held on 30 August 1989, 10 November 2004, 16 November 2005 and14 November 2007.RE-DENOMINATION OF SHARE CAPITALAt an extra ordinary general meeting held on 21 April 2010 shareholders by special resolutionapproved the re-denomination of share capital from 500 000 000 ordinary shares of Z$0.00005nominal value each to 500 000 000 ordinary shares of US$0.0001 each. US$32 707 wastransfered from capital reserves of the company to the issued share capital to fund the re-denominationFIXED ASSETSCapital expenditure for the year ended 31 December 2010 totalled US$ 282 984.Capital commitments for the year to 31 December 2011 amount to US$ 860 699.DIRECTORATEThe names of the directors and secretary are those in office at the time of the printing of this Notice(23 February 2011).AUDITORSMessrs Ernst & Young remain in office until the conclusion of the Annual General Meeting on 30 March 2011, at whichmembers will be asked to fix their remuneration for the year under review and to appoint the auditors for the ensuing year.Messrs Ernst & Young have indicated their willingness to continue in office.For and on behalf of the BoardChairman Chief Executive OfficerZ. Rusike Z. Kumwenda Zimplow Limited «5» 2010 Annual Report
  7. 7. Corporate GovernanceBOARD OF DIRECTORSThe board of directors consists of a non-executive chairman, three executive directors and six non-executive directors. Thechairman of the various committees are all non-executive directors. The board meets regularly to review results, dictatepolicy, formulate overall strategy and approve the budgets. They have introduced structures of corporate governance,certain functions and responsibilities have been delegated to the following committees. Their terms of reference andcomposition are regularly reviewed.AUDIT COMMITTEEThe audit committee liaises with the company’s external auditors. The external auditors have unrestricted access to theaudit committee. The annual, half yearly statements and financial reporting matters are reviewed by the committee atappropriate intervals.REMUNERATION COMMITTEEThis committee sets the remuneration of the executive directors and approves guidelines for the company’s pay reviews.EXECUTIVE COMMITTEEThe executive committee sits between board meetings to deliberate and consider detailed operational issues of thecompany which includes strategy implementation.DIRECTORS’ RESPONSIBILITY STATEMENTThe directors are responsible for: 1. Selecting appropriate accounting policies and applying them consistently. 2. Making judgements and estimates that are both reasonable and prudent. 3. Stating whether applicable accounting standards have been followed subject to any material departures disclosed and explained in the financial statements. 4. Preparing the financial statements on a “going concern” basis unless it is inappropriate to presume that the company will continue in business. 5. Safeguarding the assets of the company and taking reasonable steps for the prevention and detection of fraud and other irregularities. 6. Keeping proper accounting records. Zimplow Limited «6» 2010 Annual Report
  8. 8. Financial Highlights Year Ended Year Ended 31 December 2010 31 December 2009 US$ US$Turnover 12 298 300 9 061 718Profit before taxation 2 922 253 2 819 253Profit after taxation 2 342 001 2 221 953Total assets 13 493 652 10 970 752Market capitalisation 21 913 886 8 176 823Ordinary Share Performance (US$ per share) (US$ per share)Basic earnings 0.01 0.01Operating cash flow 0.01 0.01Weighted average number of shares 327 071 924 327 071 924 Zimplow Limited «7» 2010 Annual Report
  9. 9. Independent Auditor’s Report Chartered Accountants (Zimbabwe) Derry House Cnr Fife Street/6th Avenue P.O. Box 437, Bulawayo Tel: +263 9 76111 Fax: +263 9 72359REPORT OF THE INDEPENDENT AUDITORSTo the members ofZIMPLOW LIMITEDWe have audited the accompanying financial statements of Zimplow Limited as set out on pages 10 to 46, which comprisethe statement of financial position as at 31 December 2010, and the statement of comprehensive income, the statement ofchanges in equity and statement of cash flows for the year ended, and the notes to the financial statements, which includea summary of significant accounting policies and other explanatory notes.Directors’ responsibility for the financial statementsThe company’s directors are responsible for the preparation and fair presentation of these financial statements inaccordance with International Financial Reporting Standards (IFRS) and in the manner required by the Companies Act(Chapter 24:03) and the relevant Statutory Instruments (SI 33/99 and SI 62/96). This responsibility also includes: designing,implementing and maintaining internal control relevant to the preparation and fair presentation of financial statementsthat are free from material misstatement, whether due to fraud or error; selecting and applying appropriate accountingpolicies; and making accounting estimates that are reasonable in the circumstances.Auditor’s responsibilityOur responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit inaccordance with International Standards on Auditing. Those standards require that we comply with ethical requirementsand plan and perform the audit to obtain reasonable assurance whether the financial statements are free from materialmisstatement.An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financialstatements. The procedures selected depend on the auditor’s judgement, including the assessment of the risks of materialmisstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditorconsiders internal controls relevant to the entity’s preparation and fair presentation of the financial statements in order todesign audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on theeffectiveness of the entity’s internal controls. An audit also includes evaluating the appropriateness of accounting policiesused and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentationof the financial statements.We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Zimplow Limited «8» 2010 Annual Report
  10. 10. Independent Auditor’s Report continuedBasis for qualified opinionAn adverse audit opinion was issued on the statement of comprehensive income and cash flows relating to the prioryear due to non-compliance with International Accounting Standard (‘IAS”) 29 ( Financial Reporting in HyperinflationaryEconomies) and International Accounting Standard (‘IAS’ 21 (The Effects of Changes in Foreign Exchange Rates) for thereasons stated in note 2.Qualified opinionIn our opinion, except for the effects of the matters described in the Basis for Qualified Opinion paragraph above, thefinancial statements presents fairly, in all material respects, the financial position of Zimplow Limited as at 31 December2010, its financial performance and its cash flows for the year ended in accordance with International Financial ReportingStandards.Report on other legal and regulatory requirementsIn our opinion the financial statements have, in all material aspects, been properly prepared in compliance with thedisclosure requirements of the Companies Act (Chapter 24:03) and the relevant Statutory Instruments (SI 33/99 and SI62/96).Chartered Accountants (Zimbabwe)Bulawayo28 February 2011 Zimplow Limited «9» 2010 Annual Report
  11. 11. Statement of Comprehensive Incomefor the year ended 31 December 2010 Notes Year Ended Year Ended 31 Dec 2010 31 Dec 2009 US$ US$TURNOVER 12 298 300 9 061 718Domestic 8 635 365 5 631 169Export 3 662 935 3 430 549Cost of sales (6 801 772) (4 676 701)Gross profit 5 496 528 4 385 017Net operating expenses (2 720 466) (1 593 951)Operating profit 3 2 776 062 2 791 066Finance revenue 161 049 57 362Finance costs (14 858) (29 175)Profit before taxation 2 922 253 2 819 253Income Tax Expense 6.1 (580 252) (597 300)Profit for the year 2 342 001 2 221 953Other Comprehensive income :Fair Value Gain on Availablefor Sale Financial Assets 124 119 526Income Tax Relating to components of othercomprehensive income. 6.1 (19) (17 929)Other comprehensive income for the year, net of tax 105 101 597Total comprehensive income for the year 2 342 106 2 323 550Basic and Diluted Earnings Per share ($) 17 0.01 0.01 Zimplow Limited « 10 » 2010 Annual Report
  12. 12. Statement of Financial Positionas at 31 December 2010 Notes 31 Dec 2010 31 Dec 2009 US$ US$EQUITY AND LIABILITIESIssued Capital and Reserves 5.1 7 068 881 7 066 581Available for Sale Reserve 101 702 101 597Retained Earnings 4 171 468 1 829 467 11 342 051 8 997 645Non Current LiabilitiesDeferred Tax Liability 6.3 599 833 618 860Current LiabilitiesTrade and Other Payables 11.1 804 488 980 708Provisions 11.2 378 421 140 627Current Tax Liabilities 368 859 232 912 1 551 768 1 354 247TOTAL EQUITY AND LIABILITIES 13 493 652 10 970 752ASSETSNon Current AssetsProperty, Plant and Equipment 7 2 667 362 2 668 756Available for Sale Financial Assets 8 177 728 177 604 2 845 090 2 846 360Current AssetsInventories 9 5 372 463 5 829 151Trade and Other Receivables 10 2 242 511 1 163 878Other Current Assets - 91 412Cash and Bank Balances 12 3 033 588 1 039 951 10 648 562 8 124 392TOTAL ASSETS 13 493 652 10 970 752Chairman Chief Executive OfficerZ L Rusike Z. Kumwenda23 February 2011 Zimplow Limited « 11 » 2010 Annual Report
  13. 13. Statement of Changes in Equityfor the year ended 31 December 2010 Share Capital Available for Retained Total Capital Reserve sale reserve earnings US$ US$ US$ US$ US$Balance at 1 January 2009 - 7 066 581 – – 7 066 581Payment of dividend – – – (392 486) (392 486)Profit for the year – – – 2 221 953 2 221 953Other comprehensive income for the year – – 101 597 - 101 597Balance at 31 December 2009 7 066 581 101 597 1 829 467 8 997 645Re-denomination of share capital 32 707 (32 707) - - -Adjustment* – 2 300 – - 2 300Payment of dividend – – – - -Profit for the year – – – 2 342 001 2 342 001Other comprehensive income for the year – – 105 - 105Balance at 31 December 2010 32 707 7 036 174 101 702 4 171 468 11 342 051*Being deemed cost adjustment to Tassburg’s assets that were identified on the consolidation of the fixed assets register Zimplow Limited « 12 » 2010 Annual Report
  14. 14. Statement of Cashflowsfor the year ended 31 December 2010 Notes Year Ended Year Ended 31 Dec 2010 31 Dec 2009 US$ US$CASH FLOWS FROM OPERATING ACTIVITIESNet operating income before dividends, interest,taxation and exchange gains/losses 2 776 062 2 791 066Adjustment for non cash items:Depreciation of property, plant and equipment 271 230 224 352(Profit)/Loss on disposal of property, plant and equipment (40 594) 2 173Loss on disposal of shares - 167Impairment loss - 4 435Operating income before working capital changes 3 006 698 3 022 193Decrease/(Increase) in inventories 456 689 (2 322 490)(Increase)/Decrease in trade and other receivables (1 094 022) 199 491Increase in trade and other payables 168 372 1 004 452Cash generated by operating activities 2 537 737 1 903 646Finance revenue 161 049 57 362Finance cost (14 858) (29 175)Taxation paid (463 349) (342 455)Net cash flows from operating activities 2 220 579 1 589 378CASH FLOWS FROM INVESTING ACTIVITIESPurchase of property, plant and equipment (282 984) (343 072)Proceeds on disposal of property,plant and equipment 56 042 23 538Proceeds on disposal of shares - 974Net cash invested (226 942) (318 560)CASH FLOWS FROM FINANCING ACTIVITIESDividend paid to equity shareholders - (392 486)Increase in cash and cash equivalents 1 993 637 878 332Cash and cash equivalents at 1 January 2010 1 039 951 161 619Cash and cash equivalents at 31 December 2010 3 033 588 1 039 951Operating cashflow per share (US$) 0.01 0.01 Zimplow Limited « 13 » 2010 Annual Report
  15. 15. Notes to the Financial Statementsfor the year ended 31 December 20101. Corporate informationThe financial statements for the reporting period ended 31 December 2010 were authorised for issue in accordancewith a resolution of the Company’s Directors on 23 February 2011.Zimplow Limited, the Company’s parent entity, is a Zimbabwe based concern. The Company operates three divisions asfollows: • Mealie Brand: engaged in the manufacture and distribution of animal – drawn agricultural implements, hoes and metal fasteners. Products include ploughs, cultivators, harrows, ridgers, ground nut shellers and planters. The Mealie Brand factory is situated in Bulawayo; • CT Bolts: engaged in the manufacture and distribution of metal fasteners for the mining, construction and agricultural industries. Products include industrial screws, mild steel bolts, sockets and anchoring products, nails, nuts, washers, lags, chrome bolt covers and fittings. The CT Bolts factory is situated in Bulawayo with an operating branch located in Harare; • Tassburg: engaged in the manufacture and distribution of wood screws, veranda bolts and high tensile bolts for the household furniture, construction and mining industries. The Tassburg factory is situated in Harare.2. Basis of preparationThe financial statements have been prepared on the historical cost basis except for property, plant, equipment andfinancial instruments that are measured at revalued amounts or fair values, as explained in the accounting policies below.Historical cost is generally based on the fair value of the consideration given in exchange for assets.The principal accounting policies are set below:2.1 Adoption of standards and interpretationsNew and revised IFRSs applied with no material effect on the financial statementsThe following new and revised IFRSs have also been adopted in these financial statements.The application of these newand revised IFRSs has not had any material impact on the amounts reported for the current and prior years but may affectthe accounting for future transactions or arrangements.Amendments to IFRS 2 Share-based Payment – Company Cash-settled Share-based Payment TransactionsThe amendments clarify the scope of IFRS 2, as well as the accounting for Company cash-settled share-based paymenttransactions in the separate (or individual) financial statements of an entity receiving the goods or services when anotherCompany entity or shareholder has the obligation to settle the award.IFRS 3 (revised in 2008) Business CombinationsIFRS 3(2008) has been adopted in the current year prospectively to business combinationsfor which the acquisition date ison or after 1 January 2010 in accordance with the relevant transitional provisions.The impact of the application of IFRS 3(2008) is as follows. • IFRS 3(2008) allows a choice on a transaction-by-transaction basis for the measurement of non-controlling interests at the date of acquisition (previously referred to as ‘minority’ interests) either at fair value or at the non-controlling interests’ share of recognised identifiable net assets of the acquiree. Zimplow Limited « 14 » 2010 Annual Report
  16. 16. Notes to the Financial Statementsfor the year ended 31 December 2010 (continued) • IFRS 3(2008) changes the recognition and subsequent accounting requirements for contingent consideration. Previously, contingent consideration was recognised at the acquisition date only if payment of the contingent consideration was probable and it could be measured reliably; any subsequent adjustments to the contingent consideration were always made against the cost of the acquisition. Under the revised Standard, contingent consideration is measured at fair value at the acquisition date; subsequent adjustments to the consideration are recognised against the cost of the acquisition only to the extent that they arise from new information obtained within the measurement period (a maximum of 12 months from the acquisition date) about the fair value at the date of acquisition. All other subsequent adjustments to contingent consideration classified as an asset or a liability are recognised in profit or loss. • IFRS 3(2008) requires the recognition of a settlement gain or loss when the business combination in effect settles a pre-existing relationship between the Company and the acquiree. • IFRS 3(2008) requires acquisition-related costs to be accounted for separately from the business combination, generally leading to those costs being recognised as an expense in profit or loss as incurred, whereas previously they were accounted for as part of the cost of the acquisition.As part of Improvements to IFRSs issued in 2010, IFRS 3(2008) was amended to clarify that the measurementchoice regarding non-controlling interests at the date of acquisition (see above) is only available in respect ofnon-controlling interests that are present ownership interests and that entitle their holders to a proportionateshare of the entity’s net assets in the event of liquidation. All other types of non-controlling interests aremeasured at their acquisition-date fair value, unless another measurement basis is required by other Standards.In addition, as part of Improvements to IFRSs issued in 2010, IFRS 3(2008) was amended to give more guidanceregarding the accounting for share-based payment awards held by the acquiree’s employees. Specifically, theamendments specify that share-based payment transactions of the acquiree that are not replaced should bemeasured in accordance with IFRS 2 Share-based Payment at the acquisition date (‘market-based measure’).Amendments to IFRS 5 Non-current Assets Held for Sale and Discontinued Operations (as part of Improvements to IFRSsissued in 2009)• The amendments clarify that all the assets and liabilities of a subsidiary should be classified as held for sale when the Company is committed to a sale plan involving loss of control of that subsidiary, regardless of whether the Company will retain a non-controlling interest in the subsidiary after the sale.• The amendments to IFRS 5 clarify that the disclosure requirements in IFRSs other than IFRS 5 do not apply to non- current assets (or disposal Company s) classified as held for sale or discontinued operations unless those IFRSs require (i) specific disclosures in respect of non-current assets (or disposal Company s) classified as held for sale or discontinued operations, or (ii) disclosures about measurement of assets and liabilities within a disposal Company that are not within the scope of the measurement requirement of IFRS 5 and the disclosures are not already provided in the consolidated financial statements.Amendments to IAS 1 Presentation of Financial Statements (as part of Improvements to IFRSs issued in 2009) • The amendments to IAS 1 clarify that the potential settlement of a liability by the issue of equity is not relevant to its classification as current or noncurrent. Zimplow Limited « 15 » 2010 Annual Report
  17. 17. Notes to the Financial Statementsfor the year ended 31 December 2010 (continued)Amendments to IAS 7 Statement of Cash Flows (as part of Improvements to IFRSs issued in 2009) • The amendments to IAS 7 specify that only expenditures that result in a recognised asset in the statement of financial position can be classified as investing activities in the statement of cash flows.Amendments to IFRS 7 Financial Instruments: Disclosures (as part of Improvements to IFRSs issued in 2010) • The amendments to IFRS 7 clarify the required level of disclosures about credit risk and collateral held and provide relief from disclosures previously required regarding renegotiated loans. The Company has applied the amendments in advance of their effective date (annual periods beginning on or after 1 January 2011). The amendments have been applied retrospectively.Amendments to IAS 1 Presentation of Financial Statements (as part of Improvements to IFRSs issued in 2010) • The amendments to IAS 1 clarify that an entity may choose to present the required analysis of items of other comprehensive income either in the statement of changes in equity or in the notes to the financial statements. The Company has applied the amendments in advance of their effective date (annual periods beginning on or after 1 January 2011). The amendments have been applied retrospectively.Amendments to IAS 39 Financial Instruments: Recognition and Measurement – Eligible Hedged Items• The amendments provide clarification on two aspects of hedge accounting: identifying inflation as a hedged risk or portion, and hedging with options.IAS 27 (revised in 2008) Consolidated and Separate Financial Statements• In prior years, in the absence of specific requirements in IFRSs, increases in interests in existing subsidiaries were treated in the same manner as the acquisition of subsidiaries, with goodwill or a bargain purchase gain being recognised, when appropriate; for decreases in interests in existing subsidiaries that did not involve a loss of control, the difference between the consideration received and the adjustment to the non-controlling interests was recognised in profit or loss. Under IAS 27(2008), all such increases or decreases are dealt with in equity, with no impact on goodwill or profit or loss.• When control of a subsidiary is lost as a result of a transaction, event or other circumstance, the revised Standard requires the Company to derecognise all assets, liabilities and non-controlling interests at their carrying amount and to recognise the fair value of the consideration received. Any retained interest in the former subsidiary is recognised at its fair value at the date control is lost. The resulting difference is recognised as a gain or loss in profit or loss.IAS 28 (revised in 2008) Investments in Associates• The principle adopted under IAS 27(2008) (see above) that a loss of control is recognised as a disposal and re- acquisition of any retained interest at fair value is extended by consequential amendments to IAS 28. Therefore, when significant influence over an associate is lost, the investor measures any investment retained in the former associate at fair value, with any consequential gain or loss recognised in profit or loss.• As part of Improvements to IFRSs issued in 2010, IAS 28(2008) has been amended to clarify that the amendments to IAS 28 regarding transactions where the investor loses significant influence over an associate should be applied prospectively. Zimplow Limited « 16 » 2010 Annual Report
  18. 18. Notes to the Financial Statementsfor the year ended 31 December 2010 (continued)IFRIC 17 Distributions of Non-cash Assets to Owners• The Interpretation provides guidance on the appropriate accounting treatment when an entity distributes assets other than cash as dividends to its shareholders.IFRIC 18 Transfers of Assets from Customers• The Interpretation addresses the accounting by recipients for transfers of property, plant and equipment from ‘customers’ and concludes that when the item of property, plant and equipment transferred meets the definition of an asset from the perspective of the recipient, the recipient should recognise the asset at its fair value on the date of the transfer, with the credit being recognised as revenue in accordance with IAS 18 Revenue.Improvements to IFRSs issued in 2009• Except for the amendments to IFRS 5, IAS 1 and IAS 7 described earlier in section 2.1, the application of Improvements to IFRSs issued in 2009 has not had any material effect on amounts reported in the financial statements.New and revised IFRSs in issue but not yet effectiveThe Company has not applied the following new and revised IFRSs that have been issued but are not yet effective:Amendments to IFRS 1 Limited Exemption from Comparative IFRS 7 Disclosures for First-time AdoptersAmendments to IFRS 7 Disclosures – Transfers of Financial AssetsIFRS 9 (as amended in 2010) Financial InstrumentsIAS 24 (revised in 2009) Related Party DisclosuresAmendments to IAS 32 Classification of Rights IssuesAmendments to IFRIC 14 Prepayments of a Minimum Funding RequirementIFRIC 19 Extinguishing Financial Liabilities with Equity InstrumentsImprovements to IFRSs issued in 2010 (except for the amendments to IFRS 3(2008), IFRS 7, IAS 1 and IAS 28 describedearlier in section 2.1)1 Effective for annual periods beginning on or after 1 July 2010.2 Effective for annual periods beginning on or after 1 July 2011.3 Effective for annual periods beginning on or after 1 January 2013.4 Effective for annual periods beginning on or after 1 January 2011.5 Effective for annual periods beginning on or after 1 February 2010.6 Effective for annual periods beginning on or after 1 July 2010 and 1 January 2011, as appropriate.IFRS 9 Financial Instruments issued in November 2009 and amended in October 2010 introduces new requirements for theclassification and measurement of financial assets and financial liabilities and for derecognition. • IFRS 9 requires all recognised financial assets that are within the scope of IAS 39 Financial Instruments: Recognition and Measurement to be subsequently measured at amortised cost or fair value. Specifically, debt investments that are held within a business model whose objective is to collect the contractual cash flows, and that have contractual cash flows that are solely payments of principal and interest on the principal outstanding are generally measured at amortised cost at the end of subsequent accounting periods. All other debt investments and equity investments are measured at their fair values at the end of subsequent accounting periods. Zimplow Limited « 17 » 2010 Annual Report
  19. 19. Notes to the Financial Statementsfor the year ended 31 December 2010 (continued) • The most significant effect of IFRS 9 regarding the classification and measurement of financial liabilities relates to the accounting for changes in fair value of a financial liability (designated as at fair value through profit or loss) attributable to changes in the credit risk of that liability. Specifically, under IFRS 9, for financial liabilities that are designated as at fair value through profit or loss, the amount of change in the fair value of the financial liability that is attributable to changes in the credit risk of that liability is recognised in other comprehensive income, unless the recognition of the effects of changes in the liability’s credit risk in other comprehensive income would create or enlarge an accounting mismatch in profit or loss. Changes in fair value attributable to a financial liability’s credit risk are not subsequently reclassified to profit or loss. Previously, under IAS 39, the entire amount of the change in the fair value of the financial liability designated as at fair value through profit or loss was recognised in profit or loss.IFRS 9 is effective for annual periods beginning on or after 1 January 2013, with earlier application permitted.• The directors anticipate that IFRS 9 that will be adopted in the Company ‘s financial statements for the annual period beginning 1 January 2013 and that the application of the new Standard will have a signficant impact on amounts reported in respect of the Company s’ financial assets and financial liabilities. However, it is not practicable to provide a reasonable estimate of that effect until a detailed review has been completed.The amendments to IFRS 7 titled Disclosures – Transfers of Financial Assets increase the disclosure requirements fortransactions involving transfers of financial assets. These amendments are intended to provide greater transparencyaround risk exposures when a financial asset is transferred but the transferor retains some level of continuing exposurein the asset. The amendments also require disclosures where transfers of financial assets are not evenly distributedthroughout the period.The directors do not anticipate that these amendments to IFRS 7 will have a significant effect on the Company ’sdisclosures regarding transfers of trade receivables previously effected (see note 25.2). However, if the Company entersinto other types of transfers of financial assets in the future, disclosures regarding those transfers may be affected.IAS 24 Related Party Disclosures (as revised in 2009) modifies the definition of a related party and simplifies disclosures forgovernment-related entities.The disclosure exemptions introduced in IAS 24 (as revised in 2009) do not affect the Company because the Company isnot a government-related entity. However, disclosures regarding related party transactions and balances in these financialstatements may be affectedwhen the revised version of the Standard is applied in future accounting periods because somecounterparties that did not previously meet the defintion of a related party may come within the scope of the Standard.The amendments to IAS 32 titled Classification of Rights Issues address the classification of certain rights issuesdenominated in a foreign currency as either an equity instrument or as a financial liability. To date, the Company has notentered into any arrangements that would fall within the scope of the amendments. However, if the Company does enterinto any rights issues within the scope of the amendments in future accounting periods, the amendments to IAS 32 willhave an impact on the classification of those rights issues.IFRIC 19 provides guidance regarding the accounting for the extinguishment of a financial liability by the issue of equityinstruments. To date, theCompany has not entered into transactions of this nature. However, if the Company doesenterinto any such transactions in the future, IFRIC 19 will affect the required accounting. In particular, under IFRIC 19, equityinstruments issued under such arrangements will be measured at their fair value, and any difference between the carryingamount of the financial liability extinguished and the fair value of equity instruments issued will be recognised in profit orloss. Zimplow Limited « 18 » 2010 Annual Report
  20. 20. Notes to the Financial Statementsfor the year ended 31 December 2010 (continued)2.2 Statement of compliance1 January 2009 - December 2009In line with the liberalisation of the national economy, the company set itself for a core trade transition and as from 01January 2009 adopted the US$ as its functional currency, as determined and in line with guidance offered by the Instituteof Chartered Accountants of Zimbabwe.The Company operated under a hyper-inflationary economy during 2008, before it changed its fuctional currency to UnitedStates Dollars. The comparative information has not been prepared in accordance with IFRS in that IAS 29 and IAS 21 hasnot been complied with in converting the financial information during the period of hyper inflation into an applicablemeasurement base at the date of reporting for the following reasons:• The consumer price indices (CPI) for the period August to December 2008 have not been published by the Zimbabwe Statistical Office at the time of authorisation and approval of these financial statements. The liberalisation of the Zimbabwean economy and the formal adoption of alternative trade currencies as from 01 February 2009 is unlikely to result in further release of these CPI’s.• Furthermore, due to the existence of multiple economic factors and market distortions which were considered to be pervasive to the national economic environment, inflation could not be accurately measured by other means.2.3 Significant accounting judgements, estimates and assumptionsThe preparation of the Company’s financial statements requires the Company’s Directors and Management to makejudgements, estimates and formulate assumptions that may affect the reported amounts of revenues, expenses, assets,liabilities and the disclosure of contingent liabilities/ assets at the reporting period end date. Estimates and judgements arecontinually evaluated, and are based on historical experience and other factors, including expectations of future eventsthat are believed to be reasonable under the circumstances. However, uncertainty about these assumptions and estimatescould result in outcomes that could require a material adjustment to the carrying amount of the asset or liability affectedin the future.JudgementsIn the process of applying the Company’s accounting policies, management has made the following judgements, apartfrom those involving estimates, which have the most significant effect on the amounts recognised in the financialstatements. The Company’s Directors are of the opinion that the Statement of Financial Position represents a true and fairposition of the Company. • Useful lives and residual values of property, plant and equipment The Company assesses the useful lives and residual values of property, plant and equipment each period, taking into account past experience and macro-economic changes. • Fair values The Company makes estimates and judgements in the valuation of property, plant and equipment, and the valuation of financial assets (such as trade receivables). Judgement is required in determining fair values of assets. The Company may also rely on independent opinions of experts in related specialist fields. Zimplow Limited « 19 » 2010 Annual Report
  21. 21. Notes to the Financial Statementsfor the year ended 31 December 2010 (continued)2.4 Summary of significant accounting policiesSegment reportingOperating segments provide products or services that are subject to risks and rewards that are different from those ofother operating segments. Operating segments are considered reportable segments when their operating results andfinancial position are: • Regularly reviewed by the Company’s chief operating decision makers as part of the decision making process regarding resources to be allocated towards each segment’s operations; and • Duly assessed against internally determined key performance indicators.The Company’s reportable segments, for which internal financial management information is available and consistentlyreviewed, are distinctly determined across the different product types manufactured and their customer markets served.Detailed information on the reportable segments identified and presented is disclosed in note 4.Basis of Consolidations and business combinationsSubsidiaries are all entities over which the Company has the power to govern the financial and operating policies so asto obtain benefits from their activities. The existence and effect of potential voting rights that are currently exercisableor convertible are considered when assessing whether the Company controls another entity. Subsidiaries are fullyconsolidated from the effective date on which control is transferred to the Company. They are de-consolidated fromthe effective date that control ceases. The acquisition method of accounting is used to account for the acquisition ofsubsidiaries and business units by the Company. The cost of an acquisition is measured at the aggregate of the fairvalues, at the date of exchange, of assets given, equity instruments issued and liabilities incurred or assumed at the dateof exchange for control of the acquiree or business unit. Acquisition – related costs are recognised, as incurred, in theStatement of Comprehensive Income, as part of profit or loss for the period.Inter-company transactions, balances and unrealised gains on transactions between Company entities are eliminated.Unrealised losses are also eliminated but considered an impairment indicator of the asset transferred. Accounting policiesof subsidiaries and business units are changed where necessary to ensure consistency with the policies adopted by theCompany.Non – controlling interests in the net assets of consolidated subsidiaries are identified separately from the Company’sequity therein. The interest of non–controlling shareholders may be initially measured either at fair value or at the non –controlling interest’s proportionate share of the acquiree’s identifiable net assets. The choice of measurement basis is madeon an acquisition – by – acquisition basis. Subsequent to acquisition, non–controlling interests consist of the amountattributed to such interests at initial recognition and the non–controlling interest’s share of changes in equity since thedate of the combination. Total comprehensive income is attributed to non controlling interest even if this results in thenon controlling interest having a deficit balance.Changes in the Company’s interest in a subsidiary that do not result in a loss of control are accounted for as equitytransactions. Any difference between the amount by which the non – controlling interests are adjusted and the fair valueof the consideration paid or received is recognised directly in equity and attributed to owners of the company.Where applicable, the cost of acquisition includes any asset or liability resulting from a contingent considerationarrangement, measured at its acquisition date fair value. Subsequent changes in such fair values are adjusted against thecost of acquisition where they qualify as measurement period adjustments (refer below). All other subsequent changes inthe fair value of contingent consideration classified as an asset or liability are accounted for in accordance with relevantIFRS. Changes in the fair value of contingent consideration classified as equity are not recognised. Zimplow Limited « 20 » 2010 Annual Report
  22. 22. Notes to the Financial Statementsfor the year ended 31 December 2010 (continued)The acquiree’s identifiable assets , liabilities and contigent liabilities that meet the conditions for recognition under IFRS 3(2008) are recognised at the fair value at the acquisition date , except that; • Non-current assets (or disposal groups) that are classified as held for sale in accordance with IFRS 5: “Non-current Assets Held for Sale and Discontinued Operations”, which are recognised and measured at fair value less costs to sell; • Liabilities or equity instruments related to the replacement by the Company of an acquiree’s share based payment awards, which are measured in accordance with IFRS 2: “Share Based Payment” • Deferred tax assets or liabilities and liabilities or assets related to employee benefit arrangements, which are recognised and measured in accordance with IAS 12: “Income Taxes” and IAS 19: “Employee Benefits” respectively.If the initial accounting for a business combination is incomplete by the end of the reporting period in which thecombination occurs, the Company reports provisional amounts for the items for which the accounting is incomplete.Those provisional amounts are adjusted during the set measurement period, or additional assets or liabilities arerecognised, to reflect new information obtained about facts and circumstances that existed as of the acquisition date that,if known, would have affected the amounts recognised as of that date.The aforementioned measurement period is the period from the date of acquisition to the date the Company receivescomplete information about facts and circumstances that existed as of the acquisition date – and is subject to a maximumof one year.The early adoption by the Company, of IFRS 3 (Revised): “Business Combinations”, has resulted in the prospectiveapplication of the amended Standard’s requirements. The early adoption of IFRS 3 (Revised) has also prompted the earlyadoption of IAS 27 (Revised), the related requirements of which are generally applied on a retrospective basis. The natureof the amendments to the Revised Standards, as collectively applied to the Company’s scope of business combinations, didnot result in any retrospective implications.The Company’s subsidiaries and acquired business units, as at the current Statement of Financial Position date, compriseone wholly owned subsidiary: Bulawayo Steel Products (Private) Limited and two business units currently trading asCompany divisions: CT Bolts and Tassburg. The net assets (excluding immovable property) of Tassburg (Private) Limitedwere acquired on 31 December 2008. The transaction was not based on any provisional or contingent arrangements.GoodwillGoodwill arising in a business combination is recognised as an asset at the date that control is acquired (the acquisitiondate). Goodwill is measured as the excess of the sum of the consideration transferred, the amount of any non – controllinginterest in the acquiree and the fair value of the acquirer’s previously held equity interest (if any) in the entity over thefair value of the identifiable net assets recognised. Following initial recognition, goodwill is measured at cost less anyaccumulated impairment losses. Goodwill is not amortised, but is reviewed for impairment annually or more frequentlyif events or changes in circumstances indicate that the carrying value may be impaired. Impairment losses relating togoodwill cannot be reversed in future periods.For the purpose of impairment testing, goodwill acquired in a business combination is, from the acquisition date, allocatedto each of the Company’s cash-generating units that are expected to benefit from the synergies of the combination,irrespective of whether other assets or liabilities of the entity are assigned to those units. Each unit to which the goodwillis so allocated: • Represents the lowest level within the entity at which the goodwill is monitored for internal management purposes; and • Is not larger than a reportable segment determined in accordance with IFRS 8: “Operating Segments”.Impairment is determined by assessing the recoverable amount of the cash-generating unit to which the goodwill relates. Zimplow Limited « 21 » 2010 Annual Report
  23. 23. Notes to the Financial Statementsfor the year ended 31 December 2010 (continued)Where the recoverable amount of the cash-generating unit is less than the carrying amount, an impairment loss isrecognised. Where goodwill forms part of the cash-generating unit and part of the operation within that unit is disposedof, the goodwill associated with the operation disposed of is included in the carrying amount of the operation whendetermining the gain or loss on disposal of the operation. Goodwill disposed of in this circumstance is measured based onthe relative values of the operation disposed of and the portion of the cash-generating unit retained.Bargain purchase gainIf, after reassessment, the Company’s interest in the net fair value of the acquiree’s identifiable net assets exceeds the sumof the consideration transferred, the amount of any non – controlling interest in the acquiree and the fair value of theacquirer’s previously held equity interest in the acquiree (if any), the excess is recognised immediately, in profit or loss as abargain purchase gainFunctional and presentation currencyItems included in the financial statements of each of the Company’s entities are measured using the currency of theprimary economic environment in which the entities operate (“the functional currency”). In line with note 2.1 on the basisof financial statement preparation, the Company’s functional and presentation currencies can be analysed as follows:1 January 2009 – 31 December 2009Functional and presentation currency: US$In line with the liberalisation of the Zimbabwean economy, the Company set itself for a primary currency trade changeand, as from 1 January 2009, adopted the US$ as its functional currency, as determined in line with guidance offered inIAS 21.Foreign currency translationsTransactions in currencies other than the entity’s functional currency (foreign currencies) are translated into theCompany’s functional currency using the exchange rates prevailing at the date of the transaction. Monetary assets andliabilities denominated in foreign currency are translated at the related exchange rate prevailing at the period reportingend date. Foreign exchange differences arising on translation are recognised in the Statement of Comprehensive Incomeas part of profit or loss for the period, except when deferred in equity as qualifying cash flow hedges and qualifying netinvestment hedges. Non – monetary assets and liabilities denominated in foreign currency are translated into functionalcurrency at the market exchange rate prevailing at the date of the transaction.Non-current assets held for saleNon current assets and disposal groups are classified as held for sale if their carrying amount will be recovered principallythrough a sale transaction rather than through continuing use. This condition is regarded as met only when a sale is highlyprobable and the asset (or disposal group) is available for immediate sale in its present condition. Management must becommitted to the sale which should be expected to qualify for recognition as a completed sale within one yearfrom the date of classification.Non current assets (and disposal groups) classified as held for sale are measured at the lower of their previous carryingamount and fair value less cost to sell.Debt and equity instruments are classified as either financial liabilities or as equity in accordance with the substance ofcontractual arrangements.Income and revenue recognitionRevenue is measured at the fair value of the consideration received or receivable. Revenue excludes value added tax andother sales related duties, and is reduced for estimated customer returns, rebates, discounts and other similar allowances. Zimplow Limited « 22 » 2010 Annual Report
  24. 24. Notes to the Financial Statementsfor the year ended 31 December 2010 (continued)Sale of GoodsRevenue from the sale of goods is recognised when all the following conditions are satisfied:The Company has transferred to the buyer the significant risks and rewards of ownership of the goods;The Company retains neither continuing managerial involvement to the degree usually associated with ownership noreffective control over the goods sold; • The amount of revenue can be measured reliably; • It is probable that the economic benefits associated with the transaction will flow to the entity; and • The costs incurred or to be incurred in respect of the transaction can be measured reliably.Dividend and Interest revenueDividend revenue from investments is recognised when the shareholder’s right to receive payment has been established(provided that it is probable that the economic benefits will flow to the Company and the amount of revenue can bemeasured reliably).Interest revenue is accrued on a time proportionate basis, by reference to the principal outstanding and at the effectiveinterest rate applicable, which is the rate that exactly discounts estimated future cash receipts through the expected lifeof the financial asset to that asset’s net carrying amount.Other incomeOther income is recognised in the period that it is due and receivable.Property, plant and equipmentProperty, plant and equipment are measured at fair value less accumulated depreciation and impairment losses, if any,recognised after the date of a revaluation. Valuations, performed by the Company’s Directors or independent externalvaluers, are performed frequently enough to ensure that the fair value of a revalued asset does not differ materially fromits carrying amount.When items of property, plant and equipment are revalued, any accumulated depreciation at the date of a revaluationis restated proportionately with the change in the gross carrying amount of the asset so that the carrying amount afterrevaluation equals its revalued amount.Any revaluation surplus (increase in the carrying amount of an asset as a result of a revaluation) is recognised in othercomprehensive income in the Statement of Comprehensive Income and accumulated in equity (revaluation reserve) inthe Statement of Changes in Equity. The increase is recognised in profit or loss to the extent that it reverses a revaluationdecrease of the same asset previously recognised in profit or loss.If an asset’s carrying amount is decreased as a result of a revaluation, the decrease shall be recognised in profit or loss.The decrease, however, is recognised in other comprehensive income to the extent of any credit balance existing in therevaluation surplus in respect of that asset. The decrease recognised in other comprehensive income reduces the amountaccumulated in equity as a revaluation reserve.An annual transfer, within the Statement of Changes in Equity, from the asset revaluation reserve to retained earnings,is made for the difference between depreciation based on the revalued carrying amount of the assets and depreciationbased on the original cost. Zimplow Limited « 23 » 2010 Annual Report
  25. 25. Notes to the Financial Statementsfor the year ended 31 December 2010 (continued)Subsequent costs are included in an asset’s carrying amount or recognised as a separate asset, as appropriate, onlywhen it is probable that future economic benefits associated with the item will flow to the Company and the cost ofthe item can be measured reliably. All other repairs and maintenance are recognised in profit or loss in the Statement ofComprehensive Income during the financial period in which they are incurred.Upon disposal, any revaluation reserve relating to the particular asset being sold is transferred to retained earnings.Depreciation is calculated on a straight line basis over the following asset class useful life spans in order to allocate theircost or revalued amounts to their residual values: • Buildings: 50 years; • Plant and machinery: 5 to 50 years; • Motor vehicles: 5 years; • Office furniture and computer equipment: 4 to 10 years.An item of property, plant and equipment is derecognised upon disposal or when no future economic benefits are expectedfrom its use or disposal. Any gain or loss arising on derecognition of the asset (calculated as the difference betweenthe net disposal proceeds and the carrying amount of the asset) is included in profit or loss in the year the asset isderecognised.The useful lives and residual values of assets are reviewed and adjusted, if appropriate, at each reporting period end date,with the effect of any changes in estimate accounted for on a prospective basis. Where the residual value of an assetincreases to an amount equal to or greater than the asset’s carrying amount, depreciation will cease to be charged on theasset until its residual value subsequently decreases to an amount below its carrying amount.Impairment of non financial assetsThe Company assesses at each reporting period end date whether there is an indication that an asset may be impaired. Ifany such indication exists, or when annual impairment testing for an asset is required, the Company’s management makesan estimate of the asset’s recoverable amount. An asset’s recoverable amount is the higher of an asset’s or cash generatingunit’s fair value less costs to sell and its value in use, and is determined for an individual asset, unless the asset does notgenerate cash inflows that are largely independent of those from other assets or group of assets. Where the carryingamount of an asset exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverableamount. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-taxdiscount rate that reflects current market assessments of the time value of money and the risks specific to the asset.Impairment losses of continuing operations are recognised in profit or loss in the Statement of Comprehensive Income inthose expense categories consistent with the function of the impaired asset.An assessment is made at each reporting period end date as to whether there is any indication that previously recognisedimpairment losses may no longer exist or may have decreased. If such indication exists, the recoverable amount isestimated.A previously recognised impairment loss is reversed only if there has been a change in the estimates used to determine theasset’s recoverable amount since the last impairment loss was recognised. If that is the case the carrying amount of theasset is increased to its recoverable amount. That increased amount cannot exceed the carrying amount that would havebeen determined, net of depreciation, had no impairment loss been recognised for the asset in prior periods. Such reversalis recognised in profit or loss unless the asset is carried at its revalued amount, in which case the reversal is treated asa revaluation increase and recognised in other comprehensive income. After such a reversal, the depreciation charge isadjusted in future periods to allocate the asset’s revised carrying amount, less any residual value, on a systematic basis,over its remaining useful life. Zimplow Limited « 24 » 2010 Annual Report
  26. 26. Notes to the Financial Statementsfor the year ended 31 December 2010 (continued)LeasesThe determination of whether an arrangement is, or contains a lease is based on the substance of the arrangement atinception date. Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risksand rewards of ownership to the lessee. All other leases are classified as operating leases.The Company’s lease transactions in place throughout the current reporting period only extend as far as the Company’scapacity as a lessee under operating lease arrangements.Company as a lesseeLeases where the Company does not transfer substantially all the risks and benefits of ownership of the asset are classifiedas operating leases. Operating lease payments are recognised as an expense on a straight-line basis over the lease term,except where another systematic basis is more representative of the time pattern in which economic benefits from theleased asset are consumed. Contingent rentals arising under operating leases are recognised as an expense in the periodin which they are incurred.Contingent rentals:Contingent rentals are lease payments, or portions thereof, that are not fixed in amount but are based on the futureamount of a factor that is susceptible to change other than with the passage of time. Contigent rents are recognised asan expense in the period in which they are incurred. The CT Bolts premises where the Company operates from were leasedunder such terms for part of the current reporting period. Details regarding lease transactions are as disclosed in note 13.In the event that lease incentives are received to enter into operating leases, such incentives are recognised as a liability.The aggregate benefit of incentives is recognised as a reduction of rental expense on a straight-line basis, except whereanother systematic basis is more representative of the time pattern in which economic benefits from the leased asset areconsumed.Borrowing costsBorrowing costs directly attributable to the acquisition, construction or production of assets that necessarily take asubstantial period of time to get ready for their intended use or sale are capitalised as part of the cost of the respectiveassets. All other borrowing costs are expensed in the period they occur. Borrowing costs consist of interest and other coststhat an entity incurs in connection with the borrowing of funds.Investment income earned on the temporary investment of specific borrowings pending their expenditure on qualifyingassets is deducted from the borrowing costs eligible for capitalisation.Research and development costsExpenditure on research activities is recognised as an expense in the period in which it is incurred.An internally – generated intangible asset arising from development (or from the development phase of an internalproject) is recognised if, and only if, all of the following have been demonstrated: • The technical feasibility of completing the intangible asset so that it will be available for use or sale; • The intention to complete the intangible asset and use or sell it; • The ability to use or sell the intangible asset; • How the intangible asset will generate probable future economic benefits; • The availability of adequate technical, financial and other resources to complete the development and to use or sell the intangible asset; and • The ability to measure reliably the expenditure attributable to the intangible asset during its development. Zimplow Limited « 25 » 2010 Annual Report
  27. 27. Notes to the Financial Statementsfor the year ended 31 December 2010 (continued)The amount initially recognised for internally – generated intangible assets, is the sum of the expenditure incurred fromthe day when the intangible asset first meets the recognition criteria listed above. Where no internally – generated intangibleasset can be recognised, development expenditure is charged to profit or loss in the period in which it is incurred.Subsequent to initial recognition, internally – generated intangible assets are reported at cost less accumulatedamortisation and impairment losses, on the same basis as intangible assets acquired separately. Any expenditurecapitalised is amortised over the period of expected future sales from the related project.The carrying value of development costs is reviewed for impairment annually when the asset is not yet in use or morefrequently when an indication of impairment arises during the reporting period.InventoriesInventories are valued at the lower of cost and net realisable value. Costs incurred in bringing each product to its presentlocation and condition, are accounted for as follows:Raw materials - purchase costs on weighted average costFinished goods and work in progress - costs of direct materials, labour and a proportion of manufacturing overheads basedon normal operating capacity but excluding borrowing costs.Net realisable value is the estimated selling price in the ordinary course of the business, less estimated costs ofcompletion and the estimated costs necessary to make the sale.Cash and cash equivalentsCash and cash equivalents comprise cash at banks, cash on hand and short term highly liquid deposits with an originalmaturity of three months or less.For presentation purposes of the Statement of Cash Flows, cash and cash equivalents consist of cash and cash equivalentsas defined above, net of outstanding bank overdrafts.ProvisionsProvisions are recognised when the Company has a legal or constructive obligation as a result of past events, and whenit is probable that an outflow of resources embodying economic benefits will be required to settle the obligation, and areliable estimate of the amount of the obligation can be made.Where the effect of the time value of money is considered material, the amount of a recognised provision represents thepresent value of the expenditures expected to be required to settle the obligation.Employee entitlements to annual leave are recognised when they accrue to employees. A provision is made for theestimated liability for annual leave as a result of services rendered by the employees up to the reporting period end date.Dividend distributionDividend distribution to the Company’s shareholders is recognised as a liability in the Company’s financial statements inthe period in which the dividends are approved by the Company’s shareholders and declared.Key managementKey management include Company executive directors and management having authority and responsibility for planning,directing and controlling the activities of Zimplow Limited, in its parent entity capacity, as well as its Company memberentities. Zimplow Limited « 26 » 2010 Annual Report
  28. 28. Notes to the Financial Statementsfor the year ended 31 December 2010 (continued)Company entity membersThe Company’s member entities at the reporting period end, all incorporated, registered and operating (where applicable)as trading concerns in Zimbabwe, include: • Bulawayo Steel Products (Pvt) Ltd • The Zimplow TrustTaxationThe tax expense for the period comprises current and deferred tax. Tax is recognised in the statement of comprehensiveincome in profit or loss, except to the extent that it relates to items recognised directly as other comprehensive income. Inthis case, the tax is also recognised in other comprehensive income.Current taxThe tax currently payable is based on taxable profit for the period. Taxable profit differs from profit as reported in theStatement of Comprehensive Income because it excludes items of income or expense that are taxable or deductible inother periods and it further excludes items that are permanently non - taxable or non - deductible. The Company’s liabilityfor current tax is calculated using tax rates that have been enacted or substantively enacted by the reporting period enddate.Deferred taxDeferred tax is recognised on differences between the carrying amounts of assets and liabilities in the financialstatements and the corresponding tax bases used in the computation of taxable profit, and is accounted for using theliability method. Deferred tax liabilities are generally recognised for all taxable temporary differences, and deferred taxassets are generally recognised for all deductible temporary differences to the extent that it is probable that taxableprofits will be available against which those deductible temporary differences can be utilised. Such assets and liabilitiesare not recognised if the temporary difference arises from goodwill or from the initial recognition (other than in a businesscombination) of other assets and liabilities in a transaction that affects neither the taxable profit nor the accountingprofit.Deferred tax liabilities are recognised for taxable temporary differences associated with investments in subsidiaries andassociates, and interests in joint ventures, except where the Company is able to control the reversal of the temporarydifference and it is probable that the temporary difference will not reverse in the foreseeable future. Deferred tax assetsarising from deductible temporary differences associated with such investments and interests are only recognised to theextent that it is probable that there will be sufficient taxable profits against which to utilise the benefits of the temporarydifferences and they are expected to reverse in the foreseeable future.The carrying amount of deferred tax assets is reviewed at each reporting period end date and reduced to the extent that itis no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered.Deferred tax assets and liabilities are measured at the tax rate that are expected to apply in the year when the asset isrealised or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at thereporting date.Deferred tax relating to items recognised outside prifit or loss is recognised outside profit or loss. Deferred tax items arerecognised in correlation to the underlying transaction either in other comprehensive income or directly in equity.Deferred tax assets and deferred tax liablities are offset, if a legally enforceable right exists to set off current tax assetagainst current income tax liabilities and the deferred taxes relate to the same taxable entity and the same taxationauthority. Zimplow Limited « 27 » 2010 Annual Report
  29. 29. Notes to the Financial Statementsfor the year ended 31 December 2010 (continued)Value added taxRevenues, expenses and assets are recognised net of the amount of Value Added Tax except: • Where the Value Added Tax incurred on a purchase of assets or services is not recoverable from the taxation authority, in which case the Value Added Tax is recognised as part of the cost of acquisition of the asset or as part of the expense item applicable; and • With receivables and payables that are stated with the amount of Value Added Tax included. The net amount of Value Added Tax recoverable from, or payable to the taxation authority is included as part of receivables or payables in the Statement of Financial Position as at the end of the reporting period.Employee benefitsDefined contribution plansCurrent contributions to the Zimplow Pension Fund, which is a defined contribution fund, and contributions to the NationalSocial Security Authority (NSSA), which are determined by legislation (as promulgated under the National Social SecurityAct 1989), are recognised as an expense when employees have rendered service entitling them to the contributions .TheCompany’s obligations under the NSSA scheme are limited to specific contributions legislated from time to time.Termination benefitsThe Company recognises gratuity and other termination benefits in the financial statements when it has a presentobligation relating to termination.Financial instrumentsFinancial assetsInitial recognitionThe Company’s financial assets falling within the scope of IAS 39: “Financial Instruments: Recognition and Measurement”include cash and short term deposits, trade and other receivables, and equity investments in a portfolio of quotedcompanies on the Zimbabwe Stock Exchange (ZSE). Financial assets are recognised initially at fair value plus transactioncosts, in the case of investments not at fair value through profit or loss, directly attributable transaction costs.Purchases or sales of financial assets that require delivery of assets within a time frame established by regulation orconvention in the market – place (regular way purchases) are recognised on the trade date, i.e. the date that the Companycommits to purchase or sell the assets. Company management, in line with guidance prescribed in IAS 39, determines theclassification of its financial assets at initial recognition. The Company has not taken out any derivative instruments.Subsequent measurementThe subsequent measurement of financial assets depends on their classification.The Company’s non – cash and cash equivalent financial asset profile is classified and measured as follows:Available for sale financial assets (AFS)Listed shares held by the Company that are traded in an active market are classified as being Avalaible For Sale and arestated at fair value. The fair value of the ZSE traded investments is recognised with direct reference to trading pricesas published on the Stock Exchange. Gains and Losses arising from the changes in fair value are recognised in othercomprehensive income and accumulated in the Available For Sale revaluation reserve with the exception of impairmentlosses. Where the investments are disposed of or are determined to be impaired, the cumulative gain or loss previouslyaccumulated in the Available for Sale revaluation reserve is reclassified to profit or loss. Dividends on AFS equityinstruments are recognised in profit or loss in the statement of Comprehensive Income when the Company’s right toreceive the dividends is established. Zimplow Limited « 28 » 2010 Annual Report
  30. 30. Notes to the Financial Statementsfor the year ended 31 December 2010 (continued)Loans and receivablesTrade receivables, loans and other receivables that have fixed or determinable payments that are not quoted in an activemarket are classified as loans and receivables. Loans and receivables are measured at amortised cost using the effectiveinterest method, less any impairment. Interest income is recognised by applying the effective interest rate, except forshortterm receivables when the recognition of interest would be immaterial.Derecognition of financial assetsThe Company derecognises a financial asset only when the contractual rights to the cash flows from the asset expire; or ittransfers the financial asset and substantially all the risks and rewards of ownership of the asset to another entity. If theCompany neither transfers nor retains substantially all the risks and rewards of ownership and continues to control thetransferred asset, the Company recognises its retained interest in the asset and an associated liability for amounts it mayhave to pay. If the Company retains substantially all the risks and rewards of ownership of a transferred financial asset,the Company continues to recognise the financial asset and also recognises a collateralised borrowing for any relatedproceeds received.Impairment of financial assetsFinancial assets are assessed for indicators of impairment at each reporting period end date. Financial assets are impairedwhere there is objective evidence that, as a result of one or more loss events that occurred after the initial recognitionof the financial asset, the estimated future cash flows of the investment have been impacted. For asset, such as tradereceivables, assets that are assessed not to be impaired individually are subsequently assessed for impairment on acollective basis. Objective evidence of impairment for a portfolio of receivables include the Company’s past experienceof collecting payments, an increase in the number of delayed payments in the portfolio past the average credit period, aswell as observable changes in national or local economic conditions that correlate with default on receivables. For listedequity investments classified as Available For Sale, a significant or prolonged decline in the fair value of the security belowits cost is considered to be objective evidence of impairment. Where there is evidence of impairment, the cumulative loss- measured as the difference between the aquisition costs and the current fair value, less any impairment loss on thatinvestment previously recognised in profit or loss, is removed from Available For Sale reserve and recognised in profit orloss.For financial assets carried at amortised cost, the amount of the impairment is the difference between the asset’s carryingamount and the present value of estimated future cash flows, discounted at the financial asset’s original effective interest rate.The carrying amount of the financial asset is reduced by the impairment loss directly for all financial assets with theexception of trade receivables, where the carrying amount is reduced through the use of an allowance account. Whena trade receivable is considered uncollectible, it is written off against the allowance account. Subsequent recoveriesof amounts previously written off are credited against the allowance account. Changes in the carrying amount of theallowance account are recognised in profit or loss.With reference to the Company’s financial asset portfolio, if, in a subsequent period, the amount of the impairment lossdecreases and the decrease can be related objectively to an event occurring after the impairment was recognised, thepre viously recognised impairment loss is reversed through profit or loss to the extent that the carrying amount of theinvestment at the date the impairment is reversed does not exceed what the amortised cost would have been had theimpairment not been recognised.Equity instrumentsAn equity instrument is any contract that evidences a residual interest in the assets of an entity after deducting all of itsliabilities. Equity instruments issued by the Company are recorded at the proceeds received, net of direct issue costs andare presented in the Statement of Changes in Equity as owner based equity transactions. Zimplow Limited « 29 » 2010 Annual Report
  31. 31. Notes to the Financial Statementsfor the year ended 31 December 2010 (continued)Financial liabilitiesFinancial liabilities are classified as either financial liabilities at fair value through profit or loss or other financial liabilities.The Company’s financial liabilities are limited to trade and other payables, and interest bearing loans and borrowings. TheCompany’s management has not designated any financial liabilities as financial liabilities at fair value through profit orloss.The Company’s financial liabilities and borrowings are initially measured at fair value, net of transaction costs.Financial liabilities are subsequently measured at amortised cost using the effective interest method, with the interestexpense recognised on an effective yield basis.Derecognition of financial liabilitiesThe Company derecognises financial liabilities when, and only when, the Company’s obligations are discharged, cancelledor they expire.Effective interest methodThe effective interest method is a method of calculating the amortised cost of a financial asset/ liability and of allocatinginterest income/ expense over the relevant period. The effective interest rate is the rate that exactly discounts estimatedfuture cash receipts/ payments (including all fees on points paid or received that form an integral part of the effectiveinterest rate, transaction costs and other premiums or discounts) through the expected life of the financial asset/ liability,or, where appropriate, a shorter period.Offsetting of financial instrumentsFinancial assets and financial liabilities are offset and the net amount reported in the Statement of Financial Position if,and only if, there is a currently enforceable legal right to offset the recognised amounts and there is an intention to settleon a net basis, or to realise the assets and settle the liabilities simultaneously. Zimplow Limited « 30 » 2010 Annual Report
  32. 32. Notes to the Financial Statementsfor the year ended 31 December 2010 (continued)3. Operating Profit Year Ended Year Ended 31 Dec 2010 31 Dec 2009 US$ US$The operating profit before taxation is arrived atAfter charging;Administration expenses 1 874 733 1 363 344Auditors remuneration: Current year 68 165 62 152Depreciation of property, plant and equipment:Buildings 29 516 29 475Plant and equipment 241 714 194 877 271 230 224 352Impairment on property, plant and equipment - 4 435Directors’ emolumentsFees 45 094 18 209Other emoluments 200 400 158 188 245 494 176 397Selling expensesSelling expenses 512 689 377 777Discount to Customers 203 257 -Provision for doubtful debts 12 925 -Research and development costs 275 -Staff costs:Salaries and allowances 2 697 176 1 239 253Provisions for Gratuity 11 261 79 732National Social Security Authority 86 716 62 251 2 795 153 1 381 236After crediting:Net Exchange gain 8 167 -Net Exchange loss (6 405)Profit/(Loss) on disposal of property, plant and equipment 40 594 (2 173) Zimplow Limited « 31 » 2010 Annual Report