Cottco Holdings Limited 2014 annual report

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Cottco Holdings Limited the single largest ginner and marketer of Cotton in sub-Saharan Africa listed on the Zimbabwe Stock Exchange recently released their Annual Reoprt. Check out insights into this company in their presentation which appears below
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Cottco Holdings Limited 2014 annual report

  1. 1. 2014 Annual Report www.cottcoholdings.co.zw
  2. 2. Contents Notice To Shareholders 2 Proxy Form And Change Of Address Notice 3 Vision, Mission And Value Statements 6 Group Profile 7 Corporate Information 9 Board Of Directors 10 Group Companies’ Board Composition 13 Board Committees And Group Management 13 Corporate Governance Statement 15 Chairman’s Statement 18 Directors’ Responsibility Statement 21 Managing Director’s Report 23 Cottco In The Community 26 Directors’ Report 27 Independent Auditor’s Report 31 Statement Of Profit Or Loss 32 Statements Of Comprehensive Income 33 Statements Of Financial Position 34 Group Statement Of Changes In Equity 35 Company Statement Of Changes In Equity 36 Statements Of Cash Flows 37 Group Primary Segment Reports 38 Group Secondary Segment Reports 39 Accounting Policies 40 Notes To The Financial Statements 48 Shareholders’ Analysis 76 Shareholders’ Calendar 76
  3. 3. Distribution of InputsWe equip our farmers with the resources they require to grow premium quality cotton. Our journey starts with the end in mind Cottco Holdings Limited 2014 Annual Report | 1 |
  4. 4. Notice is hereby given that the 6th Annual General Meeting of the members of Cottco Holdings Limited will be held at the Rainbow Towers, Harare, Zimbabwe on Friday, 29 August 2014 at 11:30 hours for the following business: ORDINARY BUSINESS 1. FINANCIAL STATEMENTS To receive and adopt the financial statements for the year ended 31 March 2014 together with the reports of the Directors and the auditors thereon. 2. ELECTION OF DIRECTORS During the year, the following Directors were appointed to the Board: Messrs F Kembo, J Maposa, A Adam, C Chihuri, D Ncube and Ms R Maunze. In terms of Article 32.1 of the Company's Articles of Association, all the Directors who were appointed after the annual general meeting will be retiring. The retiring Directors, being eligible, offer themselves for re-election. 3. DIRECTORS' REMUNERATION To approve the fees paid to the Directors for the the year ended 31 March 2014. 4. AUDITORS To approve the remuneration of the auditors and to consider the re-appointment of KPMG as auditors for the ensuing year. NOTE: A member entitled to attend and vote at the meeting may appoint any person or persons to attend and speak in his stead. A proxy need not be a member of the Company. Proxies must be lodged with the Secretary at least 48 hours before the time of holding the meeting. BY ORDER OF THE BOARD P Manamike COMPANY SECRETARY 26 June 2014 REGISTERED OFFICE 1 Lytton Road Workington Harare Notice to Shareholders | 2 | Cottco Holdings Limited 2014 Annual Report
  5. 5. Change of Address Notice 6th Annual General Meeting Cottco Holdings Limited 2014 Annual Report | 3 | Proxy Form 6th Annual General Meeting NAME: (In full block letters) _________________________________________________________________________________________ _______________________________________________________________________________________________________________ NEW ADDRESS: _________________________________________________________________________________________________ _______________________________________________________________________________________________________________ _______________________________________________________________________________________________________________ OLD ADDRESS: _________________________________________________________________________________________________ _______________________________________________________________________________________________________________ _______________________________________________________________________________________________________________ I/We ________________________________________________________________________________________________________________ being the registered holder/holders of_______________________________________________________________________________________ shares in Cottco Holdings Limited hereby appoint ______________________________________________________________________ Of __________________________________________________________________________________________________________________ or failing him, the Chairman of the meeting, as my/our proxy to vote on my/our behalf at the sixth annual general meeting of the Company to be held on Friday, 29 August 2014 at 11:30 hours and at any adjournment thereof. Signed this __________________________________________________________________ day of ________________________________________ 2014 Signature of shareholder ________________________________________________________________________________________________ NOTE: A member entitled to attend and vote at the meeting may appoint any person or persons to speak in his stead. A proxy need not be a member of the Company. Proxies must be lodged with the Secretary at least forty-eight hours before the meeting.
  6. 6. | 4 | Cottco Holdings Limited 2014 Annual Report STAMP STAMP Transfer Secretaries Cottco Holdings Limited First Transfer Secretaries (Private) Limited P O Box 11 Harare Zimbabwe Transfer Secretaries Cottco Holdings Limited First Transfer Secretaries (Private) Limited P O Box 11 Harare Zimbabwe
  7. 7. Cotton Planting The journey begins with planting at the right time and using the best inputs to ensure a good harvest Cottco Holdings Limited 2014 Annual Report | 5 |
  8. 8. Our Vision, Mission and Value Statements Our Vision To be a dominant agro-industrial business in our chosen markets. Our Values We believe in honesty and integrity • trust is the foundation of our business. We believe in innovation, teamwork and mutual respect • together we achieve exceptional results. We are passionate about delivering world class quality products and services • it is the cornerstone of our success. We cherish our role as creators and custodians of wealth • it is our legacy for present and future generations. Our Mission To be the leading producers, processors and marketers of agro- industrial commodities and brands of world-class quality in the markets we serve. We are dedicated to achieving superior returns for our shareholders and to pursuing growth opportunities by optimising our competencies and leveraging on our resource base. We foster innovation and all round excellence in everything we do. | 6 | Cottco Holdings Limited 2014 Annual Report
  9. 9. PREAMBLE Cottco Holdings Limited is an agro-industrial group which was incorporated in Zimbabwe in July 2008 and subsequently reverse listed on the Zimbabwe Stock Exchange in September 2008, in place of The Cotton Company of Zimbabwe Limited (Cottco) through a Group restructuring exercise. INVESTMENTS Cottco Holdings Limited wholly owns The Cotton Company of Zimbabwe Limited (Cottco), which has six ginneries across Zimbabwe. Cottco is the single largest ginner of cotton in Southern Africa, and is involved in every facet of cotton production and sales. This includes the provision of agronomic advisory services, processing and selling of planting seed, supply of chemicals and fertiliser, ginning, warehousing as well as marketing of lint and cotton seed in global and local markets. Group Profile Group Structure 100% Cottco International (Proprietary) Limited 100% 100% Zambrano Investments (Private) Limited Incorporating 100% COMPANY PRINCIPAL ACTIVITIES PRODUCTS MARKETS Cottco Africa, Asia and EuropeGinning of seed cotton and selling of lint and by products of the ginning process. Lint, ginned seed, delinted seed and linters. Exhort AfricaProcessing of frozen vegetables. Frozen carrots, beans, peas, cauliflower, sweet corn, broccoli etc. Zambrano Investment vehicle for inflation hedged assets. Quoted shares. Zimbabwe PRINCIPAL ACTIVITIES Cottco International Investment company International operations. Africa Cottco Holdings Limited 2014 Annual Report | 7 |
  10. 10. Extension ServicesWe take pride in our ability to share our specialised expertise with our valued farmers | 8 | Cottco Holdings Limited 2014 Annual Report
  11. 11. Registered Office Company Secretary 1 Lytton Road P Manamike Workington Harare P.O. Box 2697 HARARE ZIMBABWE Tel: 263-4-771981-5 Fax: 263-4-753854 Email: info@cottcoholdings.com Website: www.cottcoholdings.com Auditors Transfer Secretaries KPMG Chartered Accountants (Zimbabwe) First Transfer Secretaries Mutual Gardens No. 1 Armagh Avenue 100 The Chase (West) Off Enterprise Road, Eastlea Emerald Hill HARARE HARARE ZIMBABWE ZIMBABWE Main Bankers Lawyers Gill Godlonton & Gerrans Kantor & Immerman Atherstone & Cook Beverly Court 19 Selous Avenue 7th Floor 100 Nelson Mandela Avenue HARARE Mercury House HARARE ZIMBABWE George Silundika Avenue ZIMBABWE HARARE ZIMBABWE Corporate Information African Export-Import Bank 72 (B) El Maahad El Eshteraky Street Heliopolis CAIRO 11341 EGYPT Standard Chartered Bank Zimbabwe Limited Africa Unity Square Sam Nujoma Street HARARE ZIMBABWE CBZ Bank Limited 60 Kwame Nkrumah Avenue HARARE ZIMBABWE African Banking Corporation Limited 1 Endeavor Crescent Mount Pleasant Business Park HARARE ZIMBABWE Development Bank of Southern Africa Halfway House NSSF Building Midrand, 1685 SOUTH AFRICA Ecobank Zimbabwe Limited Sam Levy’s Office Park Block A, 2 Piers Road Borrowdale HARARE ZIMBABWE Cottco Holdings Limited 2014 Annual Report | 9 |
  12. 12. Board of Directors Mr Freeman Kembo (Chairman) Mr Collins Chihuri (Managing Director)Mr James Maposa (Deputy Chairman) Ms Rufaro Maunze Dr Douglas NcubeMr Ayoob Adam Mr Pious Manamike (Company Secretary) | 10 | Cottco Holdings Limited 2014 Annual Report
  13. 13. Mr Freeman Kembo (Chairman) Freeman has been on the Cottco Holdings Limited board since December 2013. He holds a Bachelor of Accountancy (Honours) degree from the University of Zimbabwe. Freeman is a member of the Institute of Chartered Accountants of Zimbabwe having qualified in 1984. He is also a fellow of the Chartered Institute of Management Accountants (CIMA). Freeman is a former partner in the assurance and accountancy practice of Coopers and Lybrand, now PricewaterhouseCoopers. On leaving Coopers and Lybrand, Freeman joined Intermarket Discount House Limited as the finance director. He was pivotal in creating the Intermarket Financial Services Group which was involved in retail and wholesale banking, life assurance, mortgage finance, reinsurance and stock broking. Freeman left the Intermarket Group in 2002 and is involved in various consortiums which acquired businesses in brick manufacturing, clothing manufacturing, coal mining and motor spares. Freeman sits on a number of boards among them OK Zimbabwe Limited, Beta Holdings Limited and Quton Seed Company (Private) Limited. Mr James Maposa (Deputy Chairman) James has been on the Cottco Holdings Limited board since December 2013. He is currently the country manager for Anglo American Corporation’s Unki Platinum Mines, previously having been the managing director of Anglo American Corporation Zimbabwe. He has extensive experience in the mining industry in which he has served for over 27 years. During this period he served two terms as President of the Chamber of Mines. James has served on a number of boards including Bindura Nickel Corporation Limited, Zim Alloys and National Foods Holdings Limited. He is currently serving on the boards of Hippo Valley Tongaat Hulett, Anglo American Corporation Zimbabwe, South Ridge Limited and Medical Investments Limited (Avenues Clinic). He is also the chairman of the Anglo American Pension Funds. He is an Honours graduate of the University of Kent at Canterbury and of the University of Stellenbosch Business School. Mr Collins Chihuri (Managing Director) Collins was appointed Managing Director of The Cotton Company of Zimbabwe Limited (Cottco) in January 2014. He rejoined Cottco after a six year stint with an industry competitor where he was the chief operating officer. Collins holds a Masters in Business Administration and a Bachelor of Accountancy (Honours) degree, both from the University of Zimbabwe. He also holds a certificate in Humanitarian and Development Studies with the same university. He is a Chartered Secretary and a Chartered Management Accountant. Collins, who has a wealth of experience covering finance and administration, corporate services and operations management, started his working career as a graduate trainee with Anglo American in 1988, rising to the level of company secretary in 1993. Collins joined Cottco as the company secretary in December 1997, and headed the operations division from January 2005 up to December 2007. Mr Ayoob Adam Ayoob has been on the Cottco Holdings Limited board since February 2014. He is the founder and chief executive officer of Equivest Asset Management (Private) Limited since its inception in 2001. Ayoob attained a BCompt degree from the University of South Africa and qualified as Chartered Certified Accountant (FCCA) in 2000 after working at PricewaterhouseCoopers for 5 years. Ayoob has sat on the boards of several companies including Baines Avenue Clinic and the previously listed ZSE counter Tractive Power Holdings Limited. Ms Rufaro Maunze Rufaro has been a Cottco Holdings Limited board member since February 2014. She holds a Masters degree in Development Finance with Stellenbosch Business School, is a holder of an Honours degree from the University of South Africa, and is also a member of the Institute of Chartered Accountants of Zimbabwe having qualified in 2004. After qualifying, Rufaro pursued a career in Australia, initially as a senior manager in the Deloitte Sydney office where she was part of a core expert team that led the transition of various entities from Australian GAAP to IFRS. Following this, she worked as the national director for technical training and advisory for PFK Australia. In 2008 Rufaro joined Westpac Banking Corporation, Australia’s second largest commercial bank, where she held various leadership positions both in finance and strategic operations. On her return to Zimbabwe, Rufaro established Tsambe Business Advisory, a boutique strategic advisory organisation that specialises in the development and delivery of tailored business solutions for organisations across a number of sectors which include international development, manufacturing, private equity, financial services and telecoms. Rufaro is the former chairperson of the Australia Africa Business Council which she remains actively involved in since her return to Zimbabwe. Dr Douglas Ncube Douglas has been on the Cottco Holdings Limited board since February 2014. His first job, in 1973, was as a cotton specialist for the then Rhodesia Cotton Growers’ Association where he was seconded to the Department of Agriculture in the Ministry of Internal Affairs. His first work station was in Gokwe before he was transferred in 1975 to head office in Harare to become responsible for the national cotton extension effort. After Zimbabwe gained its independence, Douglas rose through the ranks to become chief of crop production in 1983. In 1984, he joined the Cotton Marketing Board as assistant general manager (operations) before moving to Triangle Sugar Corporation as their cotton gin manager between 1987 and 1996. He moved back to Harare to work for Cargill as general manager (cotton) from June 1996 to 1999. He relocated to the United Kingdom in August 2000 to pursue PhD studies and while there he worked for the Royal Mail as manager and lectured International Studies at Regent’s College in London. Douglas returned to Zimbabwe in September 2010 to join MandiRukuni Seminar as an agricultural consultant and academic programmes coordinator for Masters and PhD degrees. He is a fellow and councillor of the Zimbabwe Institute of Management. He is also a member of several agricultural associations including the African Agricultural Economics and the International Association of Agricultural Economics. He is also a member of the Institute of Directors, Zimbabwe. Douglas holds a PhD in Agricultural Business and Management from the University of Derby, England; a Masters in Farm Business Management from the Imperial College, USA; an MBA from Nottingham Trent University, England; a diploma in Agricultural Sciences, and various other certificates and diplomas in management and education. Mr Pious Manamike (Company Secretary) Pious was appointed Company Secretary in August 2008. He joined the Group in 2005 after holding various positions in finance and administration for 15 years. He holds a Bachelor of Accountancy (Honours) degree from the University of Zimbabwe, a Masters in Business Administration from Midlands State University and is a Chartered Secretary. He is a past president of the Institute of Chartered Secretaries and Administrators in Zimbabwe (ICSAZ). Cottco Holdings Limited 2014 Annual Report | 11 | Board of Directors (continued)
  14. 14. Cotton Harvesting Picking cotton too early or too late can make or break the yield, so timing is everything | 12 | Cottco Holdings Limited 2014 Annual Report
  15. 15. Subsidiaries The Cotton Company of Zimbabwe Limited F Kembo - Chairman J P Maposa - Deputy Chairman C Chihuri - Managing Director* A Adam D Ncube R Maunze * Executive Director Exhort Enterprises (Private) Limited C Chihuri - Chairman* D Rambanepasi* Zambrano Investments (Private) Limited C Chihuri - Chairman* D Rambanepasi* Cottco International (Proprietary) Limited C Chihuri - Chairman* D Rambanepasi* GroupCompanies’ BoardComposition Board Committees Audit Committee A Adam - Chairman R Maunze D Ncube Remuneration Committee J Maposa - Chairman F Kembo C Chihuri Investment Committee F Kembo - Chairman J Maposa A Adam C Chihuri R Maunze Technical Committee D Ncube - Chairman A Adam R Maunze Group Management Cottco Holdings Limited C Chihuri - Managing Director D Rambanepasi - Head of Finance P Manamike - Company Secretary The Cotton Company of Zimbabwe Limited C Chihuri - Managing Director D Rambanepasi - Head of Finanace P Piki - Head of Operations C Pitara - Engineering Executive K Zvihwati - Acting Head of Ginning and Sales T Guta - Human Resources Executive M Mubaiwa - Treasurer M Mundandishe - Information Technology Executive N Mushangwe - Financial Controller BoardCommittees andGroupManagement Cottco Holdings Limited 2014 Annual Report | 13 |
  16. 16. Buyingthe Crop The most rewarding experience for all farmers is seeing the fruits of their labour translate into handsome earnings. We aim to be the partner of choice for all our farmers | 14 | Cottco Holdings Limited 2014 Annual Report
  17. 17. The Group is committed to the principles of ethics, transparency, responsibility, integrity and accountability in dealings with its stakeholders. The primary objective of corporate governance systems is to ensure that Directors, Executives and Management carry out their responsibilities effectively and efficiently. The Group's structures are therefore continuously reviewed and updated to ensure compliance with applicable laws and generally accepted corporate governance practices. FINANCIAL STATEMENTS The Directors recognise that they are responsible for the preparation and integrity of the financial statements and related information contained in the annual report in a manner that fairly presents the state of affairs and the results of the Group's operations. The annual financial statements have been independently audited by the Company's external auditors. Their report is presented on page 31. INTERNAL CONTROL The Group has developed and continues to maintain and develop systems of internal control. These controls are designed to provide reasonable, but not absolute, assurance as to the reliability of the financial statements to safeguard, verify and maintain accountability of assets and to prevent and detect misstatement and loss. The internal auditors have been tasked to ensure compliance with policies, procedures and internal controls and systems through continuous programmes that are designed to cover all risks and provide regular feedback to executive management and the Audit Committee. The internal audit function had free and unrestricted access to the Audit Committee. BOARD OF DIRECTORS All companies in the Group have unitary board structures. The boards of active companies meet regularly, retaining full and effective control over the respective companies and monitoring the performance of executive management. To ensure unity of objectives and proper co-ordination, each company elects management representatives to sit on the various boards. Each board is responsible for maintaining the direction and control of its company through: • Setting and playing a prominent role in strategic development as well as determining the strategic direction of the company and/or the Group; • Determining performance targets and the remuneration of Executive Management; • Monitoring management’s performance against targets; • Liaising with internal and external auditors on the financial and business affairs of the company; • Reviewing, deciding and acting on material business transactions and/or matters; and • Promoting ethical conduct in the business affairs of the Group. The composition of each board ensures a well balanced team with a broad range of business and industry expertise. The Board of Cottco Holdings Limited comprises five non-executive Directors and one executive Director. The Chairman of the Board is a non-executive Director. All Directors have access to outside professional advice through the Company Secretary who is responsible to the Board for ensuring that correct procedures are followed. The Managing Director is responsible for the day-to-day management of the Company. There is clear separation of responsibility between the Board and Management. ATTENDANCE OF BOARD MEETINGS The Board met eight times during the year under review. The number of Directors' meetings and the number attended by each Director during the period are: Held Attended BL Nkomo (Chair) 8 8 I Chagonda 7 7 CC Chitiyo 7 6 P St L Devenish 8 8 CB Mudzimuirema 8 8 AF Nhau 7 7 LF Preston 7 1 JP Rooney 7 4 F Kembo 1 1 JP Maposa 1 1 V Lapham 1 1 Board meetings are held at least once every quarter. BOARD COMMITTEES The Board has established committees to assist in discharging its duties as follows: 1. Audit Committee; 2. Remuneration Committee; 3. Investment Committee; and 4. Technical Committee. Audit Committee The Audit Committee consists of three non-executive Directors and is chaired by one of them. The Audit Committee is responsible for: • Internal and external audit policy; • Reviewing the performance of external auditors; • Reviewing the scope, adequacy and effectiveness of the internal audit function; • Reviewing and acting on matters relating to financial and internal control, fraud, regulatory compliance, accounting policies, financial reporting and disclosure; • Reviewing financial statements prior to publication and adoption by the Board of Directors; • Reviewing material financial transactions and projects prior to adoption by the Board of Directors; and Corporate Governance Statement Cottco Holdings Limited 2014 Annual Report | 15 |
  18. 18. CorporateGovernanceStatement(cont’d) | 16 | Cottco Holdings Limited 2014 Annual Report • Reviewing business risks and the adequacy of the Group’s risk management systems and processes. Both the internal audit function and the external auditors have unrestricted access to the Audit Committee and all of their significant findings are brought to the attention of the Audit Committee and the Board. The Audit Committee meets at least once every quarter. The Committee met four times during the year. Members' attendance of these meetings is shown below: Held Attended CC Chitiyo (Chair) 4 4 I Chagonda 4 4 P St L Devenish 4 4 CB Mudzimuirema 4 4 AF Nhau 4 4 JP Rooney 4 3 Remuneration Committee The Remuneration Committee consists of two non-executive Directors, as well as the Managing Director, and is chaired by a non-executive Director. The Committee's tasks are to review, assess and make recommendations to the main Board on the following matters: • The Group’s remuneration policies in general; • Remuneration packages for top management, especially executive Directors; • Incentive schemes including share incentive plans; • Measurement criteria for the performance of executive Directors; and • The development of people and succession planning. The Remuneration Committee met three times during the year. Members' attendance of these meetings is shown below: Held Attended BL Nkomo (Chair) 2 2 CC Chitiyo 2 2 P St L Devenish 2 2 J Maposa 1 1 F Kembo 1 1 C Chihuri 1 1 Investment Committee The Investment Committee consists of four non-executive Directors and one executive Director. The Committee is responsible for: • Providing advice to the Board in establishing policies related to investments and making recommendations thereon to the Board for approval; • Reviewing, approving and recommending to the Board investment transactions that management may consider within the investment guidelines; • Monitoring the management of investment funds; • Evaluating investment performance, taking into account investment policies, guidelines and risk levels; • Monitoring as required, staff's compliance with guidelines and processes of the investment policy; and • Reviewing annually the continued appropriateness of the investment policy and recommending to the Board any proposed modifications. The Investment Committee meets, largely, on an ad hoc basis. It met twice during the year. Held Attended AF Nhau (Chair) 1 1 CC Chitiyo 1 1 P St L Devenish 1 1 CB Mudzimuirema 1 1 JP Rooney 1 1 I Chagonda 1 1 F Kembo (Chair) 1 1 J Maposa 1 1 A Adam 1 1 C Chihuri 1 1 R Maunze 1 1 Technical Committee The Technical Committe was established during the last quarter of the financial year. It consists of three non-executive Directors. The Committee is responsible for: • Regularly reviewing the Group’s inputs scheme strategy; • Evaluating the perfomance of inputs and pesticides; • Reviewing the integrity of the Group’s crop forecasts; and • Evaluating the Group’s intake strategy. The Technical Committee meets at least once every quarter. Held Attended D Ncube (Chair) 1 1 F Kembo 1 1 A Adam 1 1 C Chihuri 1 1 R Maunze 1 1 SHARE DEALINGS BY DIRECTORS, MANAGEMENT AND STAFF The Group's policy concerning dealings in the shares of Cottco Holdings Limited and its listed subsidiaries, by Directors, Management, Staff and their immediate families, stipulates the periods when they can or cannot deal in its shares. DIRECTORS' INTERESTS The Directors of the Company are required to disclose, in writing, any material interest in any significant contract with the Group that may result in a conflict or potential conflict of interest. No such conflicts were reported during the year. EMPLOYEE RELATIONS The Group has formally constituted works councils in each operating company. These deal with issues that affect the employees directly and provide platforms for: • Productivity improvements; • Information sharing and dissemination; • Enhancing good employer/employee relations; • Consultation and dispute/conflict resolution; and • Collective bargaining.
  19. 19. GinningThe ginning process involves the separation of lint from seed cotton to produce lint and ginned seed Cottco Holdings Limited 2014 Annual Report | 17|
  20. 20. Chairman’s Statement FreemanKembo OVERVIEW The financial year ended 31 March 2014 was a challenging one for the Group and was characterised by macro-economic uncertainties, increased volatility in the agri-commodity sector and an acute decline in cotton production which was observed across the Sub-Saharan Africa region. The liquidity challenges that the economy has endured over the years persist. In December 2013, we announced the unbundling of the Group which received immense shareholder support and successfully raised US$45 million. The net proceeds were used to recapitalise the Cotton business in order to underwrite its profitable growth and escalate cash flow generation. The actions we took this year were designed to ensure that the Group is well positioned for long-term growth, to deliver strong and consistent financial results. Through pursuing improved agronomic practices and continued investment in our farmers, agricultural policy and human capital, Cottco Holdings continues to maintain its market leadership position. The Group continues to change lives and transform communities for the better through its flagship contract farming scheme which, over the years, has empowered the majority of families in cotton producing areas. This has been achieved by providing them with production means and access to cash income. We continue to recognise the importance of our Zimbabwean farmers to the growth of the cotton industry and are committed to remaining their partner of choice. OPERATIONS REVIEW Continuing operations Cotton The year under review witnessed an acute decline in cotton production in Zimbabwe and the region. National cotton output declined from 250,000 tonnes in 2012/13 to 145,000 tonnes in the 2013/14 season, a decrease of 42%. The decline was attributed to a myriad of factors, chief among them poor rainfall distribution across the country and a reduction in inputs support by the cotton industry on speculation of poor industry compliance and excessive side-marketing. The Cotton business recorded intake volumes of 35,000 tonnes. Despite the Cotton business achieving lower than expected intake volumes, inputs scheme recoveries improved by 9% in line with expectation. Impairment losses attributable to the inputs scheme therefore declined and a loss of US$2.8 million recorded in the current year only represents an increase in our provision on account of current year inputs scheme receivables. Improvements in on-farm yields continue to remain a focus area. International lint prices firmed marginally from 80 US cents per pound last year to an average of 89 US cents per pound. The outlook for cotton prices remains bearish as production is forecast to outpace global consumption for a fifth consecutive year running. Demand for the Cotton business's lint however remains strong. Discontinued operations Seed The Seed business’ results for the first 10 months of the year recorded a 1% decrease in revenue despite growth in maize and wheat volumes which grew by 16% and 31%, respectively. Soya bean and cotton seed sales were however negative with declines of 39% and 11%, respectively. Fast Moving Consumer Goods (FMCG) The FMCG business' profit before tax improved by 65% for the 10 months to January 2014. The company's improved financial performance was driven by changes to the business's product mix. FINANCIAL RESULTS The Group's interests in Seed Co Limited (Seed Co) and Olivine Holdings Limited (Olivine) were disposed of in January 2014 as part of the Group's unbundling process. The Group's financial performance for the year | 18 | Cottco Holdings Limited 2014 Annual Report
  21. 21. ended 31 March 2014 therefore only incorporates the results of Seed Co and Olivine for the 10 months ended 31 January 2014, which was the effective date of disposal. All assets and liabilities of both Seed Co and Olivine were derecognised after this date. Both entities are disclosed in the group statement of profit or loss as discontinued operations. Revenue from continuing operations amounted to US$42 million (2013: US$129.1 million), a decrease of 67%. The decrease in revenue was mainly driven by a 77% decrease in sales volumes recorded by the Cotton business, a direct result of the reduced intake volumes recorded. Group operating margins declined from an operating profit of $5.9 million to an operating loss of US$22.3 million owing to low production volumes and the resultant low cost absorption. Margins also declined due to higher seed cotton prices versus declining lint prices. Cotton business’ impairment charges at US$6.9 million (last year: US$14.2 million) were 51% lower than last year. The quantum of increase in the allowance for credit losses was not repeated in the current year as a notable improvement in inputs scheme recoveries was achieved. The Group realised a gain of US$37.2 million arising from the disposal of its interests in Seed Co and Olivine. Profit for the year amounted to US$14.9 million against a loss of US$2.1 million last year. The Group's debt at 31 March 2014 amounted to US$41.6 million compared to US$126 million at 31 March 2013. Net proceeds amounting to US$32.8 million which had been received as at 31 March 2014 were applied to the Group's borrowings. A further decline in borrowings is expected in the coming financial year when the Group's recapitalisation processes are concluded. OUTLOOK We have refocused the Group to drive resurgent performance in the Cotton business driven by a stronger balance sheet and complemented by reforms in the cotton industry's regulations. The stipulation of minimum funding thresholds for all ginners by the Agricultural Marketing Authority should underpin an increase in cotton crop production. The aforementioned national effort to resuscitate the cotton industry is motivated by the fact that cotton remains a significant foreign currency earner in the agricultural sector. International lint prices are expected to continue to soften as the world market responds to uncertainties on China's stock policies. Despite the odds, the World Bank is projecting global economic growth of 2.8%. As cotton is a consumption crop and not a food crop, its prospects are closely tied to the health of the global economy. Ongoing cost reduction measures in the Cotton business are bearing fruit and will continue to do so into the future. With a significant portion of the Group's debt having been eliminated, finance costs, which have in the past hamstrung the Group's financial performance, will decline significantly. The Group's funding model has also evolved and we will, in the coming year, exploit available opportunities in supply chain financing to further reduce the costs of financing. DIRECTORATE Following the restructuring of the Group, the entire board stepped down while Messrs Freeman Kembo, James Maposa, Ayoob Adam, Collins Chihuri, Dr Douglas Ncube and Ms Rufaro Maunze were appointed to the Board during the year. My fellow Directors and I wish the outgoing board all the best in their future endeavours and thank them most sincerely for their valuable contribution to the Group's successful capital raising initiatives. DIVIDEND In light of the ongoing recapitalisation of the business, the Directors have decided not to declare a dividend for the year ended 31 March 2014. APPRECIATION On behalf of the Board, I would like to offer my heartfelt thanks to the Cottco Holdings team for their loyalty, commitment and tireless efforts in pushing the Group forward under difficult conditions. I wish to also thank my fellow Directors on the Board, our shareholders, business partners and stakeholders for their unstinting support. We will continue to build on our distinctive strengths and valuable experience gained through tough times to deliver value to our shareholders. F Kembo CHAIRMAN 26 June 2014 Cottco Holdings Limited 2014 Annual Report | 19 | Chairman’sStatement(cont’d)
  22. 22. LintSelection The lint is carefully selected and graded by our experienced staff | 20 | Cottco Holdings Limited 2014 Annual Report
  23. 23. ACCOUNTING RECORDS AND FINANCIAL STATEMENTS The Directors are responsible for the maintenance of adequate accounting records as well as the preparation and integrity of the financial statements and related information contained in the annual report in a manner that fairly presents the state of affairs and the results of the Group's operations. EXTERNAL AUDITORS' ROLE The external auditors are responsible for carrying out an independent audit of the financial statements in accordance with International Standards on Auditing and reporting their findings thereon. SYSTEMS OF INTERNAL CONTROL The Directors are also responsible for the Group's systems of internal financial control. These are designed to provide reasonable, but not absolute, assurance as to the reliability of the financial statements and to safeguard, verify and maintain accountability of assets and to prevent and detect misstatement and loss. Nothing has come to the attention of the Directors to indicate that any material breakdown in the functioning of these controls, procedures and systems has occurred during the year under review. GOING CONCERN After reviewing the Group's budgets and related financial projections, the Directors have no reason, in all material respects, to believe that the Group will not continue to operate in the foreseeable future. Accordingly, these financial statements have been prepared on a going concern basis. ACCOUNTING POLICIES In preparing the Group financial statements set out on pages 32 to 75, appropriate accounting policies have been applied, as have the relevant International Financial Reporting Standards, unless otherwise stated, and are supported where necessary by reasonable and prudent judgement and estimates. APPROVAL OF FINANCIAL STATEMENTS The financial statements for the year ended 31 March 2014 have been approved by the Board of Directors and are signed on its behalf by: F Kembo C Chihuri CHAIRMAN MANAGINGDIRECTOR 26 June 2014 Directors’ ResponsibilityStatement Cottco Holdings Limited 2014 Annual Report | 21 |
  24. 24. | 22 | Cottco Holdings Limited 2014 Annual Report
  25. 25. Cottco Holdings Limited 2014 Annual Report | 23 | Managing Director’sReport Collins Chihuri OVERVIEW The year ended 31 March 2014 was an eventful year for the business. The Group was restructured resulting in a complete disinvestment from Seed Co Limited (Seed Co) and Olivine Holdings Limited (Olivine) while the cotton industry experienced an unprecedented decline in production volumes. On the positive side, The Cotton Company of Zimbabwe Limited (Cottco) received a much needed injection of capital from its shareholders. OPERATIONS REVIEW Continuing operations The Cotton business performed below expectation as the national crop slumped to 145,000 tonnes. This acute decrease in cotton output was not unique to Zimbabwe as the same was observed across the region. The regional phenomenon was attributed to a number of factors, chief among them poor rainfall distribution. Most of our cotton growing areas experienced prolonged mid-season dry spells which culminated in poor on farm yields. Side marketing continued to be a problem, a situation that deteriorated when the industry realised the quantum of the volume shortfall on expected national production. Errant industry players capitalised on their poorly funded inputs schemes and offered higher producer prices and induced rampant side marketing. Cottco's intake volumes consequently declined to 35,000 tonnes. Discontinued operations The Group's interests in Seed Co and Olivine were disposed of during the year. While their performance results for the ten months to 31 January 2014 have been consolidated into the Group's statement of profit or loss, their financial performance is distinctly disclosed as discontinued operations in compliance with International Financial Reporting Standards. The Group's strategic investment in Seed Co paid off as its disposal successfully raised US$30.4 million for the recapitalisation of Cottco and a gain of US$45.6 million was realised on its disposal. Olivine continued to wrestle with working capital constraints and, consequently, the company reported a loss. As at 31 March 2014, the Group's entire interest in Olivine was transferred to a trust which will hold Olivine shares on behalf of shareholders until they are disposed of. PEOPLE Pursuant to the strategic initiatives to right size the business, the Company will, in the new financial year, finalise a business restructuring exercise designed to remodel the business along its seasonal cycle. Critical skills have been identified and a retention program is in place. The focus, going forward, is on improving the effectiveness of our people through a combination of employee wellness programmes, harmonious industrial relations and talent management. SAFETY, HEALTH AND ENVIRONMENT We remain committed to conducting business in a sustainable manner and we continuously examine the way in which we do business and endeavour to create a positive impact on the environment. Through our field operations we train our growers to adopt sustainable methods of agriculture and we continue to raise awareness on the safe application and disposal of pesticides and herbicides.
  26. 26. Safety awareness continued to be an area of focus. No fatalities were recorded during the year while work-related injuries declined by 46%. The business continues to provide free annual medical consultations to all employees whilst the company's HIV and AIDS awareness programs are bearing fruit. The voluntary counselling and testing sessions conducted at all our depots were received positively by our staff. ISO CERTIFICATION I am pleased to report that, following audits performed during the year, certification for ISO 9001:2008 was retained. We shall strive to ensure that the renowned Cottco brand remains visible. OUTLOOK The recapitalisation of Cottco has paved way for a stronger and more competitive business. Focus will remain on increasing our production volumes while containing costs. Improved service delivery to our farmers will remain central to the business as farmer retention will be essential in maintaining our market leadership. We will continue to leverage on our 45 year old heritage and experience for the benefit of all our stakeholders. ACKNOWLEDGEMENTS I wish to pay tribute to the Board, our stakeholders and employees for their effort and commitment during the past year. C Chihuri MANAGING DIRECTOR 26 June 2014 Managing Director’s Report (cont’d) | 24 | Cottco Holdings Limited 2014 Annual Report
  27. 27. Cottco Holdings Limited 2014 Annual Report | 25 |
  28. 28. | 26 | Cottco Holdings Limited 2014 Annual Report Contributing to the country's economic and social development remains a key component of the Company's culture. Through various initiatives and activities, the Group fulfilled this commitment during the year. The Schools Rugby Festival (2001 - 2013) Through Cottco, the Group is proud to have sponsored the annual schools rugby festival for the last 12 years. The festival, which was run under the auspices of the Zimbabwe Rugby Union, aimed to develop young talent and to increase the visibility of the sport to rural schools where the game was virtually unknown. As the sport increased in popularity, we noted, with pride, the positive impact it had on the health and education of children at participating schools. Under Cottco's sponsorship, the rugby festival grew to become a major rugby event in Africa and became recognised worldwide as an excellent example of rugby development. The success of the rugby festival in developing world-class talent is evidenced in the likes of Tendai 'Beast' Mtawarira, Brian Mujati, Daniel Hondo, Pete Benade and Tonderai Chavhanga who all played at the rugby festival during their formative years. The festival held in the financial year ended 31 March 2014 is the last one that the Group will be sponsoring. As a business we are fully convinced that we have taken schools rugby to great heights and now we move on to other areas in need of young talent development, with specific focus on disadvantaged communities. Sasakaritanda Secondary School Project, Sanyati The Group believes its future depends on the sustainable development of our communities. In pursuit of this objective, a borehole and water pump were donated to the Sanyati community of Sasikaritanda. Prior to this, residents in the area were subjected to an 8 km walk to the nearest source of water, and in some instances, school children had to bring water from home to school for their own use. Developmental Impact of the Inputs Credit Scheme The Group, through Cottco, pioneered small scale contract farming in 1992. Today, Cottco's inputs credit scheme is the largest in the country and supports in excess of 105,000 hectares of land belonging to over 65,000 families who are mostly located in the semi-arid regions of the country. Mutually beneficial engagements with farmers have continued to exist which have made cotton contract farming a success story that is being replicated across the agricultural sector. The beneficiaries of Cottco's inputs scheme are the unbanked rural population who would otherwise have no income and no access to production means. Through the contract farming scheme, our growers are provided with inputs on credit and receive agronomic advice from our experienced agronomists who are involved at every stage of cotton production. As a result of this financial support, Cottco growers have over the years received an average annual income of US$48 million. This income stream has sustained many rural growth points and towns such as Gokwe, Checheche in Chipinge, Mount Darwin, Muzarabani and Sanyati. The improved standard of life and literacy levels in all our cotton communities is testament to the positive socio-economic impact of our contract farming scheme. The direct and indirect benefits of Cottco's inputs credit scheme, which are acknowledged by our farmers, communities and government, have therefore necessitated its continued existence. From its success, we have drawn the courage and fulfillment to continue financing a segment of the population that most financial institutions have dared not to. Cottco intheCommunity
  29. 29. The Directors have pleasure in presenting their report together with the audited financial statements for the year ended 31 March 2014. PRINCIPAL ACTIVITIES Cottco Holdings Limited is an agro-industrial group with interests in cotton ginning and marketing. The Company was incorporated in July 2008 then as AICO Africa Limited and was reverse listed on the Zimbabwe Stock Exchange in September 2008, in place of The Cotton Company of Zimbabwe Limited. The Company changed its name to Cottco Holdings Limited during the year. DIRECTORS' RESPONSIBILITY STATEMENT The Directors believe that the financial information that has been presented fairly reflects the underlying performance of the Group and its entities for the year ended 31 March 2014 and its financial position as of that date. SHARE CAPITAL The authorised share capital of the Company is 1,500,000,000 ordinary shares of US$0.01 per share, of which 1,094,957,266 are issued and fully paid. Movements in the issued share capital for the year were as follows: 31 March 31 March 2014 2013 Number of Number of shares shares Issued share capital as at 1 April 2013 534,125,676 534,125,676 Rights issue 560,831,590 - Issued share capital as at 31 March 2014 1,094,957,266 534,125,676 RESERVES The movements in the reserves of the Group are as shown in the statement of changes in equity. DIRECTORS' SHAREHOLDING The details of Directors' shareholding are shown in the shareholder analysis report accompanying the financial statements. IMPAIRMENT The statement of profit or loss includes impairment losses amounting to US$9.2 million for the Group. Of this amount, US$6.9 million was recorded in the Cotton business, while US$2.2 million was recorded in the Seed business. Impairment losses were in respect of trade and other receivables, inventories, inputs scheme receivables as well as property, plant and equipment. OPERATING RESULTS The results for the year are summarised below and are set out in more detail in the accompanying financial statements. Commentary on these results is also provided in the Chairman's and Managing Director's reports. Restated 31 March 31 March 2014 2013 US$'000 US$'000 Profit/(loss) before taxation 2,988 (10,179) Income tax (expense)/credit (320) 507 Profit/(loss) after tax - continuing operations 2,668 (9,672) Profit after tax from discontinued operations 12,188 7,581 Profit/(loss) for the year 14,856 (2,091) Attributable to: Equity holders of the parent 5,851 (6,711) Non-controlling interest 9,005 4,620 14,856 (2,091) Share capital 10,950 5,341 Capital reserves 26,511 21,190 Retained earnings (5,883) 46,777 Equity attributable to equity holders of the parent 31,578 73,308 Non-controlling interest - 39,944 Total equity 31,578 113,252 CAPITAL EXPENDITURE Capital expenditure for the year ended 31 March 2014 amounted to US$0.7 million for continuing operations. DISPOSAL OF INTEREST IN SUBSIDIARY During the year under review, the Company completely disinvested from Seed Co Limited through a partial disposal of its shareholding and a distribution of the balance of the shares through a dividend in specie. DISCONTINUED OPERATIONS The intended sale of the frozen vegetables business, Exhort Enterprises (Private) Limited, and/or its assets has not yielded desired results. There has been a lot of interest but the liquidity challenges appear to have imposed a dearth of capacity to fund the acquisition of this asset. This business was discontinued four years ago and only a minimal cost is required to maintain the property and other Directors’ Report Cottco Holdings Limited 2014 Annual Report | 27 |
  30. 30. assets therein. There was no trading in this business during the year under review and there are no plans to resume operations in the interim. TREASURY The Group’s capital raising initiatives were concluded during the year. The capital raised was applied to extinguishing loans in Cottco which had been guaranteed by AICO Africa Limited. Subsequent to this recapitalisation, the Board saw the need to further restructure Cottco’s balance sheet in order to strengthen the business and pursuant to this, the Group has commenced negotiations with potential investors and the market will be continously apprised of developments on this front. DIVIDENDS In light of the ongoing recapitalisation of the business, the Directors have decided not to declare a dividend for the year ended 31 March 2014. DIRECTORS All Directors of the Company stepped down during the year and new Directors were appointed in their places. The new Directors are Messrs F Kembo, J Maposa, A Adam, C Chihuri, D Ncube and Ms R Maunze. In terms Article 32.1 of the Company's Articles of Association all the new Directors will step down at the forthcoming Annual General Meeting but, being eligible, offer themselves for re-election. AUDITORS Members will be asked to approve the remuneration of the auditors for the year ended 31 March 2014 and to consider the reappointment of KPMG as auditors for the ensuing year. For and on behalf of the Board P Manamike COMPANY SECRETARY 26 June 2014 Directors’Report(cont’d) | 28 | Cottco Holdings Limited 2014 Annual Report
  31. 31. Lint Our premium quality lint is in demand and is sold to diverse markets all over the world Cottco Holdings Limited 2014 Annual Report | 29 |
  32. 32. | 30 | Cottco Holdings Limited 2014 Annual Report The Cotton Company of Zimbabwe Limited Exporter of the year in the agricultural sector for four consecutive years. The Cotton Company of Zimbabwe Limited Exporter of the year in the agricultural sector for four consecutive years.
  33. 33. KPMG Mutual Gardens 100 The Chase (West), Emerald Hill P O Box 6, Harare Zimbabwe Telephone +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, a Swiss co-operative. Independent Auditor’s Report Cottco Holdings Limited 2014 Annual Report | 31 | We have audited the consolidated and separate financial statements of Cottco Holdings Limited, which comprise the consolidated statement of financial position as at 31 March 2014, 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 32 to 75. Directors' responsibility for the consolidated financial statements Cottco 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 the directors, 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 and separate financial position of Cottco Holdings Limited as at 31 March 2014, and its consolidated and separate 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 8 August 2014
  34. 34. Group Company Restated 31 March 31 March 31 March 31 March 2014 2013 2014 2013 Note US$'000 US$'000 US$'000 US$'000 Continuing operations Revenue 1 42,001 129,072 - - Cost of sales (41,285) (88,635) - - Gross profit 716 40,437 - - Other operating income 1,048 726 505 19,201 Operating expenses (24,080) (35,305) (5,293) (2,518) Administration expenses (15,526) (13,840) (5,258) (2,498) Distributing and selling expenses (1,532) (7,973) (35) (9) Other operating expenses (7,022) (13,492) - (11) (Loss)/profit from operations 2 (22,316) 5,858 (4,788) 16,683 Investment income 3 67 274 516 813 Other gains and losses 4 1,419 (198) (28,289) - Interest expense (13,409) (16,113) - (1,176) Gain/(loss) on disposal of Group entities 10,11 37,227 - (4,918) - Profit/(loss) before taxation 2,988 (10,179) (37,479) 16,320 Taxation 5 (320) 507 (3,347) 431 Profit/(loss) after taxation from continuing operations 2,668 (9,672) (40,826) 16,751 Profit from discontinued operations 6 12,188 7,581 - - Profit/(loss) for the year 14,856 (2,091) (40,826) 16,751 Attributable to: Equity holders of the parent 5,851 (6,711) (40,826) 16,751 Non-controlling interest 9,005 4,620 - - 14,856 (2,091) (40,826) 16,751 Earnings/(loss) per share Basic earnings/(loss) per share (US cents) 7 0.93 (1.26) (6.51) 3.14 Diluted earnings/(loss) per share (US cents) 7 0.92 (1.21) (6.43) 3.01 Earnings/(loss) per share - continuing operations Basic earnings/(loss) per share (US cents) 7 0.43 (1.81) (6.51) 3.14 Diluted earnings/(loss) per share (US cents) 7 0.42 (1.74) (6.43) 3.01 Earnings/(loss) per share - discontinued operations Basic earnings/(loss) per share (US cents) 7 0.51 1.42 - - Diluted earnings/(loss) per share (US cents) 7 0.50 1.36 - - |32|CottcoHoldingsLimited2014AnnualReport Statements ofProfitorLossfor the year ended 31 March 2014
  35. 35. CottcoHoldingsLimited2014AnnualReport|33| Statements of Comprehensive Incomefor the year ended 31 March 2014 Group Company Restated 31 March 31 March 31 March 31 March 2014 2013 2014 2013 US$'000 US$'000 US$'000 US$'000 Profit/(loss) for the year 14,856 (2,091) (40,826) 16,751 Other comprehensive loss Items that will never be reclassified to profit or loss Impairment of property, plant and equipment (net of tax) (2,493) - - - Revaluation of property, plant and equipment (net of tax) - 897 - - (2,493) 897 - - Items that may be reclassified to profit or loss Exchange differences on translating foreign operations (net of tax) (2,085) (7,268) - - Change in fair value of available for sale investments (net of tax) - - (15,230) (35,429) Movement in capital reserve - - - 4,879 (2,085) (7,268) (15,230) (30,550) Other comprehensive loss (net of tax) (4,578) (6,371) (15,230) (30,550) Total comprehensive income/(loss) 10,278 (8,462) (56,056) (13,799) Total comprehensive income/(loss) attributable to: Equity holders of the parent 2,926 (9,389) (56,056) (13,799) Non-controlling interest 7,352 927 - - 10,278 (8,462) (56,056) (13,799)
  36. 36. Group Company 31 March 2014 31 March 2013 31 March 2014 31 March 2013 Note US$'000 US$'000 US$'000 US$'000 ASSETS Non-current assets Property, plant and equipment 8 29,867 103,321 13 167 Intangible assets 15 20 - - Investment property 9 - 332 - - Other financial assets 18 5 1,157 - - Investments held in subsidiaries 10 - - 11,056 106,282 Investment held in joint venture 11 - - - 12,460 Other receivables 12 808 997 - - Total non-current assets 30,695 105,827 11,069 118,909 Current assets Biological assets 14 - 620 - - Inventories 15 23,414 70,343 - - Inputs scheme receivables 16 6,501 10,610 - - Trade and other receivables 17 7,615 92,643 4,397 131 Other financial assets 18 - 52 - - Assets classified as held for sale 28 15,373 1,454 5,724 - Bank and cash balances 19 759 6,735 155 542 Balances owed by Group companies 22 - - 17 6,062 Total current assets 53,662 182,457 10,293 6,735 Total assets 84,357 288,284 21,362 125,644 EQUITY AND LIABILITIES Capital and reserves Share capital 23 10,950 5,341 10,950 5,341 Capital reserves 23 26,511 21,190 97,140 104,544 Retained earnings (5,883) 46,777 (91,845) 9,732 Equity attributable to equity holders of the parent 31,578 73,308 16,245 119,617 Non-controlling interest - 39,944 - - Total equity 31,578 113,252 16,245 119,617 Non-current liabilities Borrowings 24 5,809 11,805 - - Deferred tax liabilities 13 331 14,144 - 641 Finance lease liabilities 27 - 314 - - Total non-current liabilities 6,140 26,263 - 641 Current liabilities Borrowings 24 27,984 62,595 - 3,984 Trade and other payables 25 7,618 30,683 851 273 Provisions 26 2,403 - - - Finance lease liabilities 27 - 985 - - Taxation payable 359 2,461 (74) 40 Bank overdrafts 19 7,808 51,578 - - Liabilities classified as held for sale 28 467 467 - - Balances owed to Group companies 22 - - 4,340 1,089 Total current liabilities 46,639 148,769 5,117 5,386 Total equity and liabilities 84,357 288,284 21,362 125,644 |34|CottcoHoldingsLimited2014AnnualReport Statements of Financial Positionas at 31 March 2014 F Kembo - CHAIRMAN 26 June 2014 C Chihuri - MANAGING DIRECTOR 26 June 2014
  37. 37. ATTRIBUTABLE TO EQUITY HOLDERS OF THE PARENT Non- TOTAL Share Capital Retained Total controlling EQUITY capital reserves earnings interest US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 Balance as at 31 March 2012 5,341 26,515 51,695 83,551 41,243 124,794 Changes in equity for 2013 Total comprehensive (loss)/income (Loss)/profit - - (6,711) (6,711) 4,620 (2,091) Other comprehensive loss - (2,923) 245 (2,678) (3,693) (6,371) - (2,923) (6,466) (9,389) 927 (8,462) Transactions with equity holders of the parent Contributions and distributions Share-based payment transactions - 97 - 97 86 183 Acquisition of interest in foreign subsidiary - (45) (50) (95) 95 - Disposal of interest in foreign subsidiary - (2,454) - (2,454) (822) (3,276) Dividend paid and recieved within the Group - - 1,598 1,598 - 1,598 Dividend paid - - - - (1,585) (1,585) - (2,402) 1,548 (854) (2,226) (3,080) Balance as at 31 March 2013 5,341 21,190 46,777 73,308 39,944 113,252 Changes in equity for 2014 Total comprehensive (loss)/income Profit - - 5,851 5,851 9,005 14,856 Other comprehensive loss - (2,504) (421) (2,925) (1,653) (4,578) - (2,504) 5,430 2,926 7,352 10,278 Transactions with equity holders of the parent Contributions and distributions Share-based payment transactions - (1,705) - (1,705) - (1,705) Issue of shares 5,609 9,530 - 15,139 - 15,139 Disposal of interest in local subsidiary - - 2,662 2,662 (47,296) (44,634) Dividend paid - - (60,752) (60,752) - (60,752) 5,609 7,825 (58,090) (44,656) (47,296) (91,952) Balance as at 31 March 2014 10,950 26,511 (5,883) 31,578 - 31,578 CottcoHoldingsLimited2014AnnualReport|35| Group Statement of Changes in Equityfor the year ended 31 March 2014
  38. 38. Share Capital Retained Total capital reserves earnings equity US$'000 US$'000 US$'000 US$'000 Balance as at 31 March 2012 5,341 134,997 (7,019) 133,319 Changes in equity for 2013 Total comprehensive (loss)/income Profit - - 16,751 16,751 Other comprehensive loss - (30,550) - (30,550) - (30,550) 16,751 (13,799) Transactions with equity holders of the parent Contributions and distributions Share-based payment transactions - 97 - 97 Balance as at 31 March 2013 5,341 104,544 9,732 119,617 Changes in equity for 2014 Total comprehensive loss Loss - - (40,826) (40,826) Other comprehensive loss - (15,230) - (15,230) - (15,230) (40,826) (56,056) Transactions with equity holders of the parent Contributions and distributions Share-based payment transactions - (1,704) - (1,704) Issue of shares 5,609 9,530 - 15,139 Dividend paid - - (60,751) (60,751) 5,609 7,826 (60,751) (47,316) Balance as at 31 March 2014 10,950 97,140 (91,845) 16,245 |36|CottcoHoldingsLimited2014AnnualReport Company Statement of Changes in Equityfor the year ended 31 March 2014
  39. 39. Group Company 31 March 2014 31 March 2013 31 March 2014 31 March 2013 Notes US$'000 US$'000 US$'000 US$'000 Cash flows from operating activities Operating cash flows before re-investing in working capital 20 28,250 31,277 (6,140) (1,165) Working capital movements 21 (10,578) 17,860 5,607 (16,909) Interest paid (20,878) (24,090) - - Net taxation paid (8,708) (5,433) (1,629) - Net cash (utilised in)/generated from operations (11,914) 19,614 (2,162) (18,074) Cash flows from investing activities Interest received 185 297 25 - Dividend received - - - 18,143 Proceeds from disposal of property, plant and equipment 3,752 130 57 - Proceeds from sale of investments, including cash and cash equivalents disposed of 65,945 175 23,370 - Acquisition of property, plant and equipment (6,657) (10,931) - (53) Acquisition of other investments - (953) (32,831) - Net cash inflow/(outflow) from investing activities 63,225 (11,282) (9,379) 18,090 Cash flows from financing activities Proceeds from issue of share capital 15,139 - 15,139 - Proceeds from issue of share options - 22 - - Net third party borrowings (paid)/raised (28,656) (3,652) (3,985) 232 Increase in finance lease liabilities - (205) - - Dividends paid - (1,585) - - Net cash (outflow)/inflow from financing activities (13,517) (5,420) 11,154 232 Net increase/(decrease) in cash and cash equivalents 37,794 2,912 (387) 248 Cash and cash equivalents Balance at the beginning of the year (44,843) (47,054) 542 294 Effect of exchange rate fluctuations on cash held - (701) - - Cash and cash equivalents at the end of the year 19 (7,049) (44,843) 155 542 CottcoHoldingsLimited2014AnnualReport|37| Statements of Cash Flowsfor the year ended 31 March 2014
  40. 40. BUSINESS SEGMENT Cotton FMCG Seed Other Total Consolidation Total Discontinued Continuing business business business investment eliminations operations operations US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 31 March 2014 Revenue 42,001 21,129 109,506 - 172,636 - 172,636 130,635 42,001 (Loss)/profit from operations (19,497) 60 24,431 (4,104) 890 1,285 2,175 24,491 (22,316) Investment income 43 4 114 516 677 (491) 186 119 67 Other gains/(losses) 1,368 9 712 (28,324) (26,235) 28,330 2,095 676 1,419 Interest expense (13,900) (1,084) (6,673) - (21,657) 491 (21,166) (7,757) (13,409) Profit on disposal of Group entities - - - - - 37,227 37,227 - 37,227 Income tax (expense)/credit 3,458 197 (5,538) (3,447) (5,330) (331) (5,661) (5,341) (320) (Loss)/profit for the year (28,528) (814) 13,046 (35,359) (51,655) 66,511 14,856 12,188 2,668 Segment net assets Segment assets 76,022 - - 28,031 104,053 (19,696) 84,357 1,301 83,056 Segment liabilities (55,251) - - (7,223) (62,474) 9,695 (52,779) (467) (52,312) 20,771 - - 20,808 41,579 (10,001) 31,578 834 30,744 Other information Capital expenditure 676 - - - 676 - 676 - 676 Depreciation 3,215 - - 56 3,271 - 3,271 - 3,271 Impairment 6,903 - - 64,621 71,524 (64,621) 6,903 - 6,903 31 March 2013 Revenue 138,009 24,362 110,642 - 273,013 (9,091) 263,922 (134,850) 129,072 Profit/(loss) from operations 7,828 (984) 19,283 16,760 42,887 (18,724) 24,163 18,305 5,858 Investment income 1,379 61 217 814 2,471 (1,919) 552 278 274 Other gains/(losses) 18 (66) 381 (215) 118 - 118 316 (198) Interest expense (16,832) (1,873) (7,418) (1,176) (27,299) 1,907 (25,392) (9,279) (16,113) Income tax (expense)/credit (171) 880 (2,912) 431 (1,772) 240 (1,532) (2,039) 507 (Loss)/profit for the year (7,778) (1,982) 9,551 16,614 16,405 (18,496) (2,091) 7,581 (9,672) Segment net assets Segment assets 109,051 24,380 157,449 126,402 417,282 (128,998) 288,284 (1,387) 286,897 Segment liabilities (86,580) (13,952) (76,486) (7,825) (184,843) 9,811 (175,032) 467 (174,565) 22,471 10,428 80,963 118,577 232,439 (119,187) 113,252 (920) 112,332 Other information Capital expenditure 824 403 9,651 53 10,931 - 10,931 - 10,931 Depreciation 3,532 1,083 3,605 156 8,376 - 8,376 - 8,376 Impairment 14,212 1,233 3,758 - 19,203 - 19,203 4,991 14,212 |38|CottcoHoldingsLimited2014AnnualReport Group Primary Segment Reportsfor the year ended 31 March 2014
  41. 41. Group Secondary Segment Reportsfor the year ended 31 March 2014 Cottco Holdings Limited 2014 Annual Report | 39 | GEOGRAPHICAL SEGMENT Discontinued Continuing Zimbabwe Rest of Africa Europe and Asia Total operations operations US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 31 March 2014 Revenue from external customers 84,717 68,376 19,543 172,636 130,635 42,001 Segment assets 84,014 343 - 84,357 1,301 83,056 Capital expenditure 676 - - 676 - 676 31 March 2013 Revenue from external customers 93,436 76,831 93,655 263,922 134,850 129,072 Segment assets 217,239 71,045 - 288,284 1,387 286,897 Capital expenditure 4,668 6,263 - 10,931 - 10,931 Composition of geographical segments Segment Operating companies Products and services Zimbabwe Cottco Holdings Limited Investment company The Cotton Company of Zimbabwe Limited Ginning of seed cotton and selling of lint and by-products of the ginning process Seed Co Limited Development, production and selling of broad acre crop seeds Quton Seed Company (Private) Limited Development, production and selling of cotton seeds Exhort Enterprises (Private) Limited Manufacturing and selling of fast moving consumer goods Olivine Holdings (Private) Limited Manufacturing and selling of fast moving consumer goods Zambrano Investments (Private) Limited Investment company Rest of Africa Cottco International (Proprietary) Limited Investment company Seed Co International and subsidiaries Development, production and selling of broad acre crop seeds Europe and Asia None None Sales for segments outside Zimbabwe are made by all Group companies and are not limited to companies operating outside the Zimbabwe geographical segment. Basis of pricing inter-segment sales Inter-segment transfers, segment revenue, segment expenses and segment results include transfers between business segments and geographical segments. Such transfers are accounted for at market prices charged to unaffiliated customers for similar goods and services. Those transfers are eliminated on consolidation.
  42. 42. 1. REPORTING ENTITY Cottco Holdings Limited (the “Company”) is a limited liability company incorporated in Zimbabwe and is listed on the Zimbabwe Stock Exchange. The consolidated financial statements of the Company as at, and for the year ended, 31 March 2014 comprise the Company and its subsidiaries (together referred to as the “Group” and individually as “Group entities”), and the Group's interest in a jointly controlled entity. The principal activities of the Group are: the buying and ginning of seed cotton, the marketing of cotton lint and ginned seed, the production and selling of crop planting seeds, the production and selling of fast moving consumer goods (“FMCGs”), the procurement and selling of crop inputs. 2. BASIS OF PREPARATION (a) Statement of compliance The consolidated and separate financial statements have been prepared in compliance with International Financial Reporting Standards (IFRS) and in the manner required by the Zimbabwe Companies Act (Chapter 24:03). The financial statements were approved by the Board of Directors on 26 June 2014. (b) Basis of measurement The consolidated financial statements have been prepared on the historical cost basis except for the following: • property, plant and equipment held at valuation; • financial instruments at fair value through profit or loss are measured at fair value; • available-for-sale financial assets are measured at fair value; • biological assets are measured at fair value less estimated costs to sell; and • investment property is measured at fair value. (c) Functional and presentation currency These consolidated financial statements are presented in United States dollars (US dollars), which is the Group's functional currency. All financial information presented in US dollars has been rounded to the nearest thousand. (d) Use of estimates and judgements The preparation of 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 notes: Note 8 Property, plant and equipment Note 9 Investment property Note 10 Investments held in subsidiaries Note 11 Investment held in joint venture Note 31.4 Share-based payments Measurement of fair values A number of the Group's accounting policies and disclosures require the measurement of fair values for both financial and non-financial assets and liabilities. The Group annually reviews significant unobservable inputs and valuation adjustments. If third-party information, such as broker quotes or pricing services, is used to measure fair values, then the Group assesses the evidence obtained from the third parties to support the conclusion that such valuations meet the requirements of IFRS, including the level in the fair value hierarchy in which such valuations should be classified. Accounting Policies | 40 | Cottco Holdings Limited 2014 Annual Report
  43. 43. Cottco Holdings Limited 2014 Annual Report | 41 | Accounting Policies (cont’d) (d) Use of estimates and judgements (continued) Measurement of fair values (continued) When measuring the fair value of an asset or a liability, the Group uses market observable data as far as possible. Fair values are categorised into different levels in a fair value hierarchy based on the inputs used in the valuation techniques as follows: • Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities. • Level 2: inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices). • Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs). If the inputs used to measure the fair value of an asset or a liability might be categorised in different levels of the fair value hierarchy, then the fair value measurement is categorised in its entirety in the same level of the fair value hierarchy as the lowest level input that is significant to the entire measurement. The Group recognises transfers between levels of the fair value hierarchy at the end of the reporting period during which the change has occurred. Further information about the assumptions made in measuring fair values is included in notes 8, 9,10,11 and 31. 3. SIGNIFICANT ACCOUNTING POLICIES The principal accounting policies set out below have been applied consistently by all entities within the Group. The accounting policies adopted by the Group are consistent with those used in the preparation of prior year consolidated financial statements. (a) Basis of consolidation Subsidiaries Subsidiaries are entities controlled by the Group. The Group controls an entity when it is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. The financial statements of subsidiaries are included in the consolidated financial statements from the date on which control commences until the date on which control ceases. Loss of control When the Group loses control over a subsidiary, it derecognises the assets and liabilities of the subsidiary, and any related non-controlling interest and other components of equity. Any resulting gain or loss is recognised in profit or loss. Any interest retained in the former subsidiary is measured at fair value when control is lost. Acquisitions from entities under common control Business combinations arising from transfers of interests in entities that are under the control of the shareholder that controls the Group are accounted for as if the acquisition had occurred at the date that common control was established. The assets and liabilities acquired are recognised at the carrying amounts recognised previously in the Group's consolidated financial statements. The components of equity of the acquired entities are added to the same components within Group equity. Jointly controlled entities A joint venture is a contractual arrangement whereby the Group and other parties undertake an economic activity that is subject to joint control, that is when the strategic financial and operating policy decisions relating to the activities of the joint venture require the unanimous consent of the parties sharing control. Joint venture arrangements that involve a separate entity in which each venturer has an interest are referred to as jointly controlled entities. The Group reports its interests in jointly controlled entities using proportionate consolidation. The Group's share of the assets, liabilities, income and expenses of jointly controlled entities are combined with the equivalent items in the consolidated financial statements on a line-by-line basis. Any goodwill arising on the acquisition of the Group's interest in a jointly controlled entity is accounted for in accordance with the Group's accounting policy for goodwill arising on business combinations (see below). Transactions eliminated on consolidation Intra-group balances and transactions, and any unrealised gains and losses or income and expenses arising from intra-group transactions are eliminated in preparing the consolidated financial statements.
  44. 44. | 42 | Cottco Holdings Limited 2014 Annual Report Accounting Policies (cont’d) (a) Basis of consolidation (continued) Discontinued operation A discontinued operation is a component of the Group's business, the operations and cash flows of which can be clearly distinguished from the rest of the Group and which: • represents a separate major line of business or geographica l area of operations; • is part of a single co-ordinated plan to dispose of a separate major line of business or geographical area of operations; or • is a subsidiary acquired exclusively with a view to re-sale. Classification as a discontinued operat ion occurs at the earlier of disposal or when the operation meets the criteria to be classified as held- for-sale. When an operation is classified as a discontinued operation, the comparative statement of profit or loss and other comprehensive income (OCI) is re-presented as if the operation had been discontinued from the start of the comparative year. b) Adoption of new and revised reporting standards The following revised standards issued by the International Financial Reporting Interpretations Committee (IFRIC) are effective for the year: Standard/Interpretation Subject Effective date IAS 1 amendment Presentation of Financial Statements: Annual periods beginning on or after 1 July 2012 Presentation of Items of Other Comprehensive Income IFRS 13 Fair Value Measurement 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. 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 disclosures to be made by the Group. At the date of authorisation of the financial statements of Cottco Holdings Limited for the year ended 31 March 2014, the following standards and interpretations were in issue but not yet effective: Standard/Interpretation Subject Effective date IAS 27 Separate Financial Statements (2013) Annual periods beginning on or after 1 January 2014 IAS 32 Offsetting Financial Assets and Financial Liabilities Annual periods beginning on or after 1 January 2014 IAS 36 Recoverable Amount Disclosures for Non-Financial Assets Annual periods beginning on or after 1 January 2014 IFRS 9 (2009) Financial Instruments Effective date to be determined IFRS 9 (2010) Financial Instruments Effective date to be determined IFRS 10 Consolidated Financial Statements Annual periods beginning on or after 1 January 2014 IFRIC 21 Levies Annual periods beginning on or after 1 January 2014 IFRS 14 Regulatory Deferral Accounts Annual periods beginning on or after 1 January 2016 IAS 19 Defined Benefit Plans: Employee Contributions Annual periods beginning on or after 1 January 2015 IAS 39 Novation of Derivatives and Continuation of Hedge Accounting Annual periods beginning on or after 1 January 2014 IFRS 15 Revenue from Contracts with Customers Annual periods beginning on or after 1 January 2017 The Directors are of the opinion that the impact of the application of the applicable standards and interpretations will be as follows: Amendments to IAS 32 Financial Instruments Presentation: Offsetting Financial Assets and Financial Liabilities The amendments clarify when an entity can offset financial assets and financial liabilities.This amendment 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 March 2015. Recoverable Amount Disclosures for Non-Financial Assets (Amendments to IAS 36) 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. 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 March 2015.
  45. 45. Cottco Holdings Limited 2014 Annual Report | 43 | Accounting Policies (cont’d) b) Adoption of new and revised reporting standards (continued) 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 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. IFRS 15 - Revenue from Contracts with Customers IFRS 15 specifies how and when an IFRS reporter will recognise revenue as well as requiring such an entity to provide users of financial statements with more informative, relevant disclosures. The standard provides a single, principles based five step model to be applied to all contracts with customers. The core principle of IFRS 15 is that an entity will recognise revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. This core principle is delivered in a five step model framework: • Identify the contract(s) with a customer; • Identify the performance obligations in the contract; • Determine the transaction price; • Allocate the transaction price to the performance obligations in the contract; and • Recognise revenue when (or as) the entity satisfies a performance obligation. Application of this guidance will depend on the facts and circumstances present in a contract with a customer and will require the exercise of judgement. c) Property, plant and equipment Property, plant and equipment is measured at cost or valuation 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, direct labour and any other costs directly attributable to bringing the asset to the location and condition necessary for it to be capable of operating in the manner intended by management. Items of property, plant and equipment are revalued at least once every five years, or earlier if it becomes apparent that their fair values differ materially from their carrying amounts. When parts of an item of property, plant and equipment have different useful lives, they are accounted for as separate items of property, plant and equipment. 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. The cost of the day-to- day servicing of property, plant and equipment is recognised in profit or loss when incurred. Depreciation is recognised in profit or loss on a straight line basis over the useful life of each item of property, plant and equipment as follows: Buildings 15 - 50 years Plant and equipment 5 - 40 years Land and capital work in progress are not depreciated. Depreciation methods, useful lives and residual values of items of property, plant and equipment are reassessed at each reporting date. Depreciation is not charged when the carrying amount of an item of property, plant and equipment becomes equal to or less than the residual value. The gain or loss arising from the derecognition of an item of property, plant and equipment is included in profit or loss when the item is derecognised.
  46. 46. | 44 | Cottco Holdings Limited 2014 Annual Report Accounting Policies (cont’d) d) Research and development costs Research and development costs are recognised in profit or loss in the period in which they are incurred. e) Impairment 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 financial assets are impaired includes: • default or delinquency by a debtor; • restructuring of an amount due to the Group on terms that the Group would not consider otherwise; • indications that a debtor or issuer will enter bankruptcy; • adverse changes in the payment status of borrowers or issuers; • the disappearance of an active market for a security; or • observable data indicating that there is measurable decrease in expected cash flows from a group of financial assets. 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. Impairment losses on available-for-sale financial assets are recognised by reclassifying the losses accumulated in the fair value reserve to profit or loss. The amount reclassified is the difference between the acquisition cost (net of any principal repayment and amortisation) and the current fair value, less any impairment loss previously recognised in profit or loss. An impairment loss in respect of financial assets other than those at amortised cost is calculated as the difference between its carrying amount and its current fair value. 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. 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. For available for sale financial assets that are equity securities, the reversal is recognised directly in equity. For other financial assets the reversal is recognised in profit or loss. 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. For goodwill and intangible assets that have indefinite lives or that are not yet available for use, the recoverable amount is estimated at each reporting date. 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 in other gains or losses. 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. 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. An impairment loss in respect of goodwill is not reversed. In respect of other assets, impairment losses recognised in prior periods are assessed at each reporting date for any indications that the loss has decreased or no longer exists. An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. f) Investment property Investment property, which is property held for capital appreciation, is measured initially at its cost, including transaction costs. Subsequent to initial recognition, investment property is measured at fair value. Gains and losses arising from changes in the fair value of investment property are included in profit or loss in the period in which they arise.
  47. 47. Cottco Holdings Limited 2014 Annual Report | 45 | Accounting Policies (cont’d) g) Biological assets Biological assets are measured at fair value less costs to sell, with any change therein recognised in profit or loss. Costs to sell include all costs that would be necessary to sell the assets. In cases where, upon initial recognition of a biological asset, the fair value of such asset is not available and alternative estimates of fair value are determined to be unreliable, then such a biological asset is measured at cost less accumulated depreciation and accumulated impairment losses. Thereafter, once the fair value of such biological asset becomes reliably measurable, it is subsequently measured at fair value less costs to sell. h) Inventories and stores Inventories are measured at the lower of cost and net realisable value. Cost is determined on the following bases: Inventory category Basis of valuation Seed cotton Actual weighted average cost. Packaging, stores and consumables At weighted average cost. Lint and ginned seed The proportion that the realised value of each product bears to the weighted average costs of the seed cotton, ginning and other direct production costs. Planting seed Actual seed cost, other direct material costs and processing related costs. Linters and delinted seed The proportion that the realised sales value of each product bears to the weighted average costs of the ginned seed and other direct mechanical delinting costs. FMCG's Actual weighted average cost. i) Foreign currencies Foreign currency transactions Foreign currency transactions (which are 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 balance sheet 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. Translation of foreign operations Assets, liabilities, income and expenses of foreign operations, are translated into US dollars at exchange rates ruling at the reporting date. The income and expenses of foreign operations, excluding operations in hyperinflationary economies, are translated to US dollars at exchange rates ruling on the date of the transaction. Foreign currency differences arising from translation of foreign operations are recognised directly in equity as a non-distributable foreign currency translation reserve (FCTR). The FCTR is part of capital reserves. When a foreign operation is disposed of, in part or in full, the relevant amount in the FCTR is transferred to profit or loss. j) Financial instruments The Group's financial instruments are classified into the following categories: fair value through profit or loss (FVTPL), held-to-maturity, and loans and receivables. Classification depends on the nature and purpose of the financial assets and is determined at the time of initial recognition. The Group does not hold or issue derivative financial instruments. Financial assets - recognition and de-recognition Financial assets are recognised initially at fair value, when the Group has rights or other access to economic benefits. 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 of the risks and rewards of ownership of the financial asset are transferred, or it neither transfers nor retains substantially all of the risks and rewards of ownership and does not retain control over the transferred asset. Any interest in such de-recognised financial assets that is created or retained by the Group is recognised as a separate asset or liability. The Group de-recognises a financial liability when its contractual obligations are discharged or cancelled, or expire. Financial assets - measurement Subsequent to initial recognition, these instruments are measured as set out below: Financial assets at fair value through profit or loss (FVTPL) A financial asset is classified as at FVTPL where it is held for trading. A financial asset is classified as held for trading if: it has been acquired principally for the purpose of selling in the near future; or it is a part of an identified portfolio of financial instruments that the Group manages together and has a recent actual pattern of short term profit taking. Financial assets at FVTPL are stated at fair value, with any resultant gain or loss recognised in profit or loss. The net gain or loss recognised in profit or loss incorporates any dividend or interest earned on the financial asset. Financial assets at FVTPL consist of listed securities. The fair value is determined with reference to market prices.
  48. 48. Accounting Policies (cont’d) j) Financial instruments (continued) Loans and receivables Trade receivables, inputs scheme receivables, loans and other receivables are measured at fair value on initial recognition, and are subsequently measured at amortised cost using the effective interest rate method. Appropriate allowances for estimated irrecoverable amounts are recognised in profit or loss when there is objective evidence that the asset is impaired. The allowance recognised is measured as the difference between the asset's carrying amount and the present value of estimated future cash flows discounted at the effective interest rate computed at initial recognition. Held-to-maturity debt securities At subsequent reporting dates, debt securities for which the Group has expressed the intention and ability to hold to maturity (held-to-maturity debt securities) are measured at amortised cost using the effective interest rate method, less any impairment losses. An impairment loss is recognised in the profit or loss when there is objective evidence that the asset is impaired, and is measured as the difference between the investment's carrying amount and the present value of estimated future cash flows discounted at the effective interest rate computed at initial recognition. Impairment losses are reversed in subsequent periods when an increase in the investment's recoverable amount can be related objectively to an event occurring after the impairment was recognised, subject to the restriction that the carrying amount of the investment at the date the impairment is reversed shall not exceed what the amortised cost would have been had the impairment not been recognised. Cash and cash equivalents Cash and cash equivalents comprises cash balances, call deposits and investments in money market instruments. The carrying amount of cash and cash equivalents approximates their fair value. Any gain or loss arising from marking to market is recognised in profit or loss. Bank overdrafts that are repayable on demand and form an integral part of the Group's cash management strategy are included as a component of cash and cash equivalents. Investments in subsidiaries (Financial assets) These assets are initially recognised at fair value plus any directly attributable transaction costs. Subsequent to initial recognition, they are measured at fair va lue and changes therein, other than impairment losses and foreign currency differences on debt instruments, are recognised in OCI and accumulated in the capital reserve. When these assets are de-recognised, the gain or loss accumulated in equity is reclassified to profit or loss. Financial liabilities - recognition and measurement Financial liabilities are recognised when there is an obligation to transfer benefits and that obligation is a contractual liability to deliver cash or another financial asset or to exchange financial instruments with another entity on potentially unfavourable terms. Where these criteria no longer apply, a financial liability is no longer recognised. Financial liabilities are recognised, initially, at fair value. Subsequent to initial recognition, these instruments are measured as set out below: Borrowings Borrowings are recorded at amortised cost and less any payments made. Borrowing costs that are directly attributable to the acquisition, construction or production of a qualifying asset are capitalised as part of the cost of that asset. Capitalisation of borrowing costs ceases when substantially all activities necessary to prepare the qualifying asset for its intended use or sale are complete. Trade and other payables Trade and other payables are stated at cost adjusted for payments made to reflect the value of the anticipated economic outflow of resources. Offset If a legally enforceable right exists to set-off recognised amounts of financial assets and liabilities, which are in determinable monetary amounts and the Group intends to settle on a net basis, the relevant financial assets and liabilities are offset. k) Prepayments Prepayments are stated at cost. Cost is determined by reference to the actual amount paid. l) Leases Leased assets Leases in terms of which the Group assumes substantially all risks and rewards of ownership are classified as finance leases. Upon initial recognition the leased asset is measured at an amount equal to the lower of its fair value and the present value of the minimum lease payments. Subsequent to initial recognition, the asset is accounted for in accordance with the accounting policy applicable to that asset. Other leases are operating leases and, except for investment property, the leased assets are not recognised in the Group's statement of financial position. Investment property held under an operating lease is recognised in the Group's statement of financial position at its fair value. Lease payments Payments made under the operating leases are recognised in profit or loss on a straight-line basis over the term of the lease. Lease incentives received are recognised as an integral part of the total lease expense, over the term of the lease. Minimum lease payments made under finance leases are apportioned between the finance expense and the reduction of the outstanding liability. The finance expense is allocated to each period during the lease term so as to produce a constant periodic rate of interest on the remaining balance of the liability. Contingent lease payments are accounted for by revising the minimum lease payments over the remaining term of the lease when the lease adjustment is confirmed. m) 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 risk specific to the liability. | 46 | Cottco Holdings Limited 2014 Annual Report

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