ZIMPLOW: 2009 annual report

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Zimplow Limited 2009 annual report

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ZIMPLOW: 2009 annual report

  1. 1. ZIMPLOW LIMITED 2009 Annual Report
  2. 2. Mission, Vision and Core Values MISSION To avail quality affordable and reliable products on time every time to the mining, farming, con- struction and manufacturing sectors. VISION To have a local presence in all African countries south of the Sahara for all our products by 2020 (36 by 2020) CORE VALUES Integrity Being absolutely truthful and accepting responsibility for our actions. Quality Being professional and quality oriented in everything we do. Teamwork Working together to achieve a common goal. Dependability Our customers, employees and suppliers must be able to count on us. Fun Embracing a positive attitude and spontaineity.
  3. 3. Contents Directorship and Administration 1 Notice to Shareholders 2 Chairman’s Review 3 Report of The Directors 5 Corporate Governance 6 Directors’ Responsibility Statement 6 Financial Highlights 7 Report of The Independent Auditors 8 Consolidated Statement of Comprehensive Income 10 Consolidated Statement of Financial Position 11 Consolidated Statement of Changes In Equity 12 Consolidated Statement of Cash Flows 13 Notes To The Financial Statements 14 Statement of Value Added 44 Shareholders’ Analysis 45 Financial Review 2009 46 Financial Calendar 47 Supplementary Information 48 ZIMPLOW LIMITED - Annual Report 2009
  4. 4. Directorship and Administration DIRECTORS: O M Chidawu (Chairman) Z Kumwenda* P Devenish N Kudenga D Mkonto* B Mitchell* N Nhira P Whata AR Rowland (Resigned June 2009) * Executive COMPANY SECRETARY: D Mkonto TRANSFER SECRETARIES: Corpserve (Private) Limited Cnr 1st Street / Union Avenue Harare AUDIT COMMITTEE: N Kudenga (Chairman) P Devenish REMUNERATION COMMITTEE: O M Chidawu (Chairman) P Whata EXECUTIVE COMMITTEE: O M Chidawu Z Kumwenda D Mkonto B Mitchell P Whata REGISTERED OFFICE: 39 Steelworks Road, Heavy Industrial Sites, PO Box 1059, Bulawayo AUDITORS: Ernst & Young Derry House 6th Avenue / Fife Street Bulawayo BANKERS: African Banking Corporation Limited Barclays Bank of Zimbabwe Limited Kingdom Bank Limited Merchant Bank of Central Africa Limited National Merchant Bank Limited CURRENCY OF FINANCIAL STATEMENTS: United States Dollars PERIOD OF FINANCIAL STATEMENTS: Year ended 31 December 2009 1 ZIMPLOW LIMITED - Annual Report 2009
  5. 5. Notice to Shareholders FIFTY-NINTH ANNUAL GENERAL MEETING Notice is hereby given that the Fifty-Ninth Annual General Meeting of shareholders will be held at the CT Bolts Division Office, Falcon Street and Wanderer Road, Bulawayo on 31 March 2010 at 10.00 hours to transact the following business: AGENDA Ordinary Business 1. To approve the minutes of the Annual General Meeting held on 19 November 2008. 2. To receive and adopt the directors’ report and audited financial statements for the year ended 31 December 2009. 3. To elect directors in place of Messrs B Mitchell and N Nhira , who retire from office by rotation. All being available, they offer themselves for re-election. 4. To approve the payment of final dividend number 66 of US$0.0012 per share proposed and paid on 18 November 2009. 5. To approve the remuneration of directors for the year ended 31 December 2010. 6. To fix the auditors’ remuneration for the year ended 31 December 2009. 7. To appoint auditors for the financial year ending 31 December 2010. BY ORDER OF THE BOARD D MKONTO (MRS) Company Secretary 39 Steelworks Road P.O. Box 1059 BULAWAYO 25 February 2010 A member entitled to attend and vote is entitled to appoint one or more proxies to act in the alternative and to attend and vote and speak in his stead. Such proxy need not be a member of the company. Proxy forms must be lodged at the registered office of the com- pany not less than forty-eight hours before the time of the meeting. 2 ZIMPLOW LIMITED - Annual Report 2009
  6. 6. Chairman’s Review Introduction I have pleasure in providing a report under a totally different economic, social and political climate from that which prevailed in 2008. Additionally, the world economic platform has significantly shifted since my last report. Oil and steel prices dropped signif- icantly and have since recovered again. The world financial crisis has drastically shifted economic power from the West to the East, with China dominating the world economic scene. In the meantime, your group did not lose focus on its clear direction of maintaining export markets while retaining the local mar- ket share in spite of global challenges. Group Operations and Financial Results In May 2009, the Group’s Directors approved the current 18 month reporting period. The change in period end from 30 June to 31 December, was predominantly done with the view of affording the Group’s Directors and Management the opportunity to appropriately deal with the pervasive impact of recently adopted policies on economic liberalisation by the Government of National Unity (GNU) in February 2009. This commentary will be limited to the twelve months reporting period of January 2009 to December 2009. The group results for the June 2008 to December 2008 are reported in Zimbabwe Dollars and included in the notes to these financial statements. The Group operating profit before tax for the period of US$2.8 million has been achieved through strict cost control, improved export margins derived from the removal of retentions by the Central Bank and increased sales of spare parts that carry better margins. Attributable earnings of US$2.2 million were enhanced by a reduced effective tax rate of 20.6% because the company exported more than 50% of its manufactured output in volume terms, although this translated to 38% of total sales value. Mealie Brand Division Volume sales of full implements for this division were 35% down from the previous year. Export volumes declined by 53% putting them back to the 2007 levels. The decline was predominantly due to the exit of the Angolan market which contributed significant- ly to prior year exports. Drought and competition in East Africa also weighed down on our volumes there . Local volumes for full implements increased by 18% from previous year. The local distributors started to recapitalise themselves again, and this had a spin off effect on our implement sales. CT Bolts This is a business that relies on the local market. The division has experienced a surge in its sales indicating some form of growth within the economy. The division posted an operating profit of US$132 597. Tassburg This division operated at less than 30% capacity and the bolt section did not operate during for the period under review. The divi- sion posted an operating profit of US$ 21 321. Recovery of this business is basically dependent on recovery of the construction sector. 3 ZIMPLOW LIMITED - Annual Report 2009
  7. 7. Chairman’s Review Dividend proposed Your directors proposed a dividend of US 0.0012 cents per share during the period which at current profit levels, represent an 8 times cover. The group will gradually move to its traditional policy of 3 times cover, subject to growth strategies , prevailing economic conditions and availability of sufficient free cashflows. Statement of Financial Position The group’s financial position was very strong. The significant part of the statement of financial position is represented by investments in working capital. Replacement of plant and machinery is ongoing. Prospects The group will continue to pursue a business model that focuses on the steel and fastener products. Mealie Brand will continue to focus on the growth of the export markets and at the same time consolidate the local market. The El Nino effect is a cause for concern for this division. CT Bolts has started moving towards a growth mode. The division will take advantage of strategic supplier relationships that it is currently enjoying to dominate the local fastener distribution. Tassburg’s bolt plant will be physically moved to Bulawayo. The screw plant will continue to operate and management is confi- dent that when the construction sector starts booming, the division will in turn experience a rebound. The economic platform, which appears ready for a take off, is being hampered by the absence of sufficient foregn direct invest- ment in the economy and lack of working capital within the financial sector. Infrastructure rehabilitation has not started, erratic energy and water supplies are a huge threat to businesses in 2010. Huge wage and salary demands which are being based on consumption rather than economic reasons may also cripple this sector Directorship Changes The board announces the stepping down of Mr AR Rowland as the Group Chief Executive with effect from 1st July 2009. Mr Rowland has decided to pursue personal interests. On behalf of the Board, I would like to extend my appreciation to Mr AR Rowland for holding the business together during his nine years at Zimplow and wish him the very best in his endeavours. I would also like to welcome Mr Z. Kumwenda as the new Group Chief Executive with effect from 1st July 2009. Z Kumwenda was pre- viously the Managing Director of the Zimplow - Mealie Brand Division for five years. Acknowledgment On behalf of the board, I would like to acknowledge the contributions from our staff, customers, suppliers, banks and other serv- ice providers for their continued support to the group. My appreciation goes to management and board members for achieving a commendable result for the year. O M Chidawu Chairman 25 February 2010 4 ZIMPLOW LIMITED - Annual Report 2009
  8. 8. Report of the Directors Your directors’ report on the operations of Zimplow Limited for the year ended 31 December 2009 is as follows: PROFIT AND APPROPRIATION The profit and relative appropriations are as follows: 31 December 2009 US$ Profit after taxation 2 221 953 Equity dividend paid (392 486) Retained earnings brought forward - Retained earnings carried forward 1 829 467 DIVIDENDS A final dividend number 66 of US$0.0012 per share was proposed on 18 November 2009. SHARE CAPITAL The unissued ordinary shares of 172 927 076 have been placed under the control of the directors, in terms of Extraordinary General Meetings of Members held on 30 August 1989, 10 November 2004, 16 November 2005 and 14 November 2007. FIXED ASSETS Capital expenditure for the year ended 31 December 2009 totalled US$ 343 072. Capital commitments for the year to 31 December 2010 amount to US$ 1 075 599. DIRECTORATE The names of the directors and secretary are those in office at the time of the printing of this Notice (25 February 2010). AUDITORS Messrs Ernst & Young remain in office until the conclusion of the Annual General Meeting on 31 March 2010, at which members will be asked to fix their remuneration for the year under review and to appoint the auditors for the ensuing year. Messrs Ernst & Young have indicated their willingness to continue in office. For and on behalf of the Board Chairman Chief Executive Officer OM Chidawu Z. Kumwenda 5 ZIMPLOW LIMITED - Annual Report 2009
  9. 9. Corporate Governance BOARD OF DIRECTORS The board of directors consists of a non-executive chairman, three executive directors and four non-executive directors. The chairmen of the various committees are all non-executive directors. The board meets regularly to review results, dictate policy, formulate overall strategy and approve the budgets. They have introduced structures of corporate governance, certain functions and responsibilities have been delegated to the following committees. Their terms of reference and composition are regularly reviewed. AUDIT COMMITTEE The audit committee liaises with the company’s external auditors. The external auditors have unrestricted access to the audit commit- tee. The annual and half yearly statements and financial reporting matters are reviewed by the committee at appropriate intervals. REMUNERATION COMMITTEE This committee sets the remuneration of the executive directors and approves guidelines for the company’s pay reviews. EXECUTIVE COMMITTEE The executive committee sits in between board meetings to deliberate and consider detailed operational issues of the company which includes strategy implementation. DIRECTORS’ RESPONSIBILITY STATEMENT The directors are responsible for: 1. Selecting appropriate accounting policies and applying them consistently. 2. Making judgements and estimates that are both reasonable and prudent. 3. Stating whether applicable accounting standards have been followed subject to any material departures disclosed and explained in the financial statements. 4. Preparing the financial statements on a “going concern” basis unless it is inappropriate to presume that the company will contin- ue in business. 5. Safeguarding the assets of the company and taking reasonable steps for the prevention and detection of fraud and other irregu- larities. 6. Keeping proper accounting records. 6 ZIMPLOW LIMITED - Annual Report 2009
  10. 10. Financial Highlights 31 December 2009 US$ Turnover 9 061 718 Profit before taxation 2 819 253 Profit after taxation 2 221 953 Total assets 10 970 752 Market capitalisation 8 176 823 Ordinary Share Performance (US$ cents per share) Basic earnings 0.01 Operating cash flow 0.006 Weighted average number of shares 327 072 924 7 ZIMPLOW LIMITED - Annual Report 2009
  11. 11. Chartered Accountants (Zimbabwe) Derry House Cnr Fife Street/6th Avenue P.O. Box 437 Bulawayo Independent Auditor’s Report Tel: +263 9 76111 To the members of Zimplow Limited Fax: +263 9 72359 We have audited the accompanying financial statements of Zimplow Limited as set out on pages 10 to 47, which comprise the state- ment of financial position at 31 December 2009, and the statement of comprehensive income, the statement of changes in equity, and statement of cash flows for the year then ended, and the notes to the financial statements, which include a summary of significant accounting policies and other explanatory notes. Directors’ Responsibility for the Financial Statements The Company’s Directors are responsible for the preparation and fair presentation of these financial statements in accordance with International Financial Reporting Standards (IFRS) and in the manner required by the Companies Act (Chapter 24:03). This responsibil- ity also includes: designing, implementing and maintaining internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting poli- cies; and making accounting estimates that are reasonable in the circumstances. Auditors’ 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 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 auditors’ judgement, including the assessment of the risks of material misstatement of the finan- cial statements, whether due to fraud or error. In making those risk assessments, the auditors consider 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 cir- cumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Basis for adverse opinion on all comparative information; the statement of comprehensive income and statement of cash flows. Non-compliance with International Accounting Standard (‘IAS’) 29 (Financial Reporting in Hyperinflationary Economies) and International Accounting Standard (‘IAS’) 21 (The Effects of Foreign Exchange Rates) The Company operated under a hyperinflationary economy in the prior year. The entity changed its functional currency to United States Dollars with effect from 1 January 2009. All comparative information, the statement of comprehensive income, and the statement of cash flows have not been prepared in conformity with International Financial Reporting Standards in that the requirements of IAS 29 and IAS 21 have not been complied with in converting the financial information during the period of hyperinflation into an applicable measurement base at the date of reporting for the following reasons: • the inability to reliably measure inflation because of the interaction of multiple economic factors which were pervasive to the Zimbabwean economic environment as explained in note 2.1; and • the inability to adjust items that are recorded in the currency of a hyperinflationary economy (i.e. the Zimbabwe dollar) into a unit of measure that is current at the remeasurement date as more fully explained in note 2.1. 8 ZIMPLOW LIMITED - Annual Report 2009
  12. 12. Chartered Accountants (Zimbabwe) Derry House Cnr Fife Street/6th Avenue P.O. Box 437 Bulawayo Independent Auditor’s Report ( continued ) Tel: +263 9 76111 Fax: +263 9 72359 Non-compliance with IAS 1: Presentation of financial statements The Directors have not presented any comparative information as required by IAS 1 because they believe the information will be misleading for reasons stated in note 2.1. Adverse opinion on non-compliance with International Financial Reporting Standards on all comparative information, the state- ment of comprehensive income, and the statement of cash flows. In our opinion, because of the significance of the matters described in the Basis for Adverse Opinion paragraph, all the compara- tive information, the statement of comprehensive income and the statement of cash flows do not give a true and fair view of the of the results of the Company’s operations and cash flows for the year ended 31 December 2009 in accordance with International Financial Reporting Standards. Unqualified opinion on the statement of financial position In our opinion, the statement of financial position, in all material respects, gives a true and fair view of the financial position of Zimplow Limited at 31 December 2009 in accordance with International Financial Reporting Standards. Report on other legal and regulatory other requirements In our opinion, the financial statements have not been properly prepared in compliance with the disclosure requirements of the Companies Act (Chapter 24:03) and Statutory Instruments (SI 33/99 and SI 62/96) due to the inability to comply with IAS 1 and IAS 21. In our opinion, the company has complied, in all material respects with the Financial Reporting Guidance. This guidance was issued jointly by the Public Accountants and Auditors Board, The Zimbabwe Stock Exchange and the Zimbabwe Accounting Practices Board to assist preparers of financial statements in converting their financial statements from Zimbabwe Dollars into their new functional currency in a manner that is consistent with the principles of IFRS, in as far as practicable, in the Zimbabwean economic environment, at the date of the change in functional currency. Chartered Accountants (Zimbabwe) Bulawayo 26 March 2010 9 ZIMPLOW LIMITED - Annual Report 2009
  13. 13. Consolidated Statement of Comprehensive Income for the year ended 31 December 2009 Notes 31 December 2009 US$ TURNOVER 9 061 718 Domestic 5 631 169 Export 3 430 549 Cost of sales 4 676 701 Gross profit 4 385 017 Net operating expenses 1 593 951 Operating profit 3 2 791 066 Finance revenue 57 362 Finance costs (29 175) Profit before taxation 2 819 253 Income Tax Expense 5.1 (597 300) Profit after taxation for the year 2 221 953 Other Comprehensive income : Fair Value Gain on Available for Sale Financial Assets 119 526 Income Tax Relating to components of other comprehensive income. 5.3 (17 929) Other comprehensive income for the year 101 597 Total comprehensive income for the year 2 323 550 Basic Earnings Per share (cents) 17 0.01 10 ZIMPLOW LIMITED - Annual Report 2009
  14. 14. Consolidated Statement of Financial Position as at 31 December 2009 Notes 31 December 2009 US$ EQUITY AND LIABILITIES Issued Capital and Reserves 6 7 066 581 Available for Sale Reserve 101 597 Retained earnings 1 829 467 8 997 645 Non Current Liabilities Deferred tax liability 5.3 618 860 Current Liabilities Trade and other payables 10.1 980 708 Short term Provisions 10.2 140 627 Income tax payable 232 912 1 354 247 TOTAL EQUITY AND LIABILITIES 10 970 752 ASSETS Non Current Assets Property, Plant and Equipment 7 2 668 756 Available for Sale Financial Assets 14 177 604 2 846 360 Current Assets Inventories 8 5 829 151 Trade and other receivables 9 1 163 878 Other current assets 91 412 Cash and cash equivalents 11 1 039 951 8 124 392 TOTAL ASSETS 10 970 752 Chairman Chief Executive Officer O M CHIDAWU Z. Kumwenda 25 February 2010 11 ZIMPLOW LIMITED - Annual Report 2009
  15. 15. Consolidated Statement of Changes in Equity for the year ended 31 December 2009 Share Available for Retained Total Capital sale reserve earnings and reserves US$ US$ US$ US$ Balance at 1 January 2009 7 066 581 – – 7 066 581 Payment of dividend – – (392 486) (392 486) Total Comprehensive income for the year – 101 597 2 221 953 2 323 550 Balance at 31 December 2009 7 066 581 101 597 1 829 467 8 997 645 12 ZIMPLOW LIMITED - Annual Report 2009
  16. 16. Consolidated Statement of Cashflows for the year ended 31 December 2009 31 December 2009 US$ CASH FLOWS FROM OPERATING ACTIVITIES Net operating income before dividends, interest, taxation and exchange gains/losses 2 791 066 Adjustment for non cash items: Depreciation of property, plant and equipment 224 352 Loss on disposal of property, plant and equipment 2 173 Loss on disposal of shares 167 Impairment loss 4 435 Operating income before working capital changes 3 022 193 Increase in inventories (2 322 490) Decrease in trade and other receivables 199 491 Increase in trade and other payables 1 004 452 Cash generated by operating activities 1 903 646 Interest received 57 362 Interest paid (29 175) Taxation paid (342 455) Net cash flows from operating activities 1 589 378 CASH FLOWS FROM INVESTING ACTIVITIES Purchase of property, plant and equipment (343 072) Proceeds on disposal of property,plant and equipment 23 538 Proceeds on disposal of shares 974 Net cash invested (318 560) CASH FLOWS FROM FINANCING ACTIVITIES Dividend paid to equity shareholders (392 486) Increase in cash and cash equivalents 878 332 Cash and cash equivalents at 1 January 2009 161 619 Cash and cash equivalents at 31 Decenber 2009 1 039 951 Operating cashflow per share(cents) 0.006 13 ZIMPLOW LIMITED - Annual Report 2009
  17. 17. Notes to the Financial Statements for the year ended 31 December 2009 1. Corporate information The financial statements for the reporting period ended 31 December 2009 were authorised for issue in accordance with a resolution of the Group’s Directors on 25 February 2010. Zimplow Limited, the Group’s parent entity, is a Zimbabwe – based concern. The Group operates three divisions as fol- lows: • Mealie Brand: engaged in the manufacture and distribution of animal – drawn agricultural implements, hoes and metal fasteners. Products include ploughs, cultivators, harrows, ridgers, ground nut shellers and planters. The Mealie Brand factory is situated in Bulawayo; • CT Bolts: engaged in the manufacture and distribution of metal fasteners for the mining, construction and agricultur- al industries. Products include industrial screws, mild steel bolts, sockets and anchoring products, nails, nuts, wash- ers, lags, chrome bolt covers and fittings. The CT Bolts factory is situated in Bulawayo with an operating branch locat- ed in Harare; • Tassburg: engaged in the manufacture and distribution of wood screws, veranda bolts and high tensile bolts for the household furniture, construction industries and mining. The Tassburg factory is situated in Harare. 2. Basis of preparation 2.1 Reporting period end change In May 2009, the Group’s Directors approved the current 18 month reporting period. The Group thereafter successful- ly lodged an application with the relevant authorities. The change in period end from 30 June to 31 December, was predominantly done with the view of affording the Group’s Directors and Management the opportunity to appropriately deal with the pervasive impact of recently adopted policies on economic liberalisation, as promulgated by the Government of National Unity (GNU) in Zimbabwe in February 2009. 1 July 2008 – 31 December 2008 The financial statements have not been prepared in accordance with International Financial Reporting Standards (IFRS), in that International Accounting Standard 29 (IAS 29): “Financial Reporting in Hyperinflationary Economies”, has not been complied with for the reasons stated below. The Consumer Price Indices (CPI) for the period August to December 2008 have not been published by the Zimbabwe Statistical Office at the time of the authorisation and approval of these financial statements. The liberalisation of the Zimbabwean economy and the formal adoption of alternative trade currencies as from 1 February 2009 are unlikely to result in the further release of these CPIs. Furthermore, due to the existence of multiple economic factors and market distortions which were considered to be pervasive to the national economic environment, inflation could not be accu- rately measured by other means. Accordingly, the Group has not been able to produce inflation – adjusted financial statements. Due to the significant lev- els of inflation experienced during the six month period to 31 December 2008, the Group’s Directors are of the opinion that the presentation of historical financial statements in Zimbabwe dollars (Z$) will not allow for any meaningful expla- nation or analysis. Supplementary information has been presented in Zimbabwean dollars (Z$) , which was the reporting currency of the Group at that time. 1 January 2009 – 31 December 2009 In line with the liberalisation of the national economy, the Group set itself for a core currency trade transition and, as from 1 January 2009, adopted the US$ as its functional currency, as determined and in line with guidance offered in IAS 21: “The Effects of Changes in Foreign Exchange Rates”. The financial statements are prepared in accordance with the going concern principle and are prepared on the histori- cal cost basis except for the revaluation of certain financial instruments. Historical cost is generally based on the fair value of the consideration given in exchange for assets. 14 ZIMPLOW LIMITED - Annual Report 2009
  18. 18. Notes to the Financial Statements for the year ended 31 December 2009 (continued) The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It also requires the Group’s Directors and Management to exercise its judgement in the process of applying the Group’s accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the primary financial statements are disclosed in note 2.3. Comparatives Changes to the Zimbabwe currency system as described in note 2.3 on the operating environment, the unavailability of official CPI statistics and the existence of multiple and distorted exchange rates during the six month period to 31 December 2008, matched with the adoption of the US$ as the Group’s functional currency on 1 January 2009, have resulted in no comparative financial data being presented and disclosed in the current financial statements. Statement of compliance With reference to the above, the financial statements have not been prepared in accordance with IFRS, in that IAS 29 has not been complied with for the six month period ended 31 December 2008. Additionally, the financial statements have not been prepared in accordance with IAS 21, in that both comparatives and transactions incurred for the six month period to 31 December 2008, have not been translated in accordance with the Standard’s guidance. In related regard, IAS 7: “Statement of Cash Flows” has not been complied with in so far as the Group’s Statement of Cash Flows for the preceding reporting period and the current 18 month reporting period ended 31 December 2009, have not been com- piled and presented as part of the primary financial statements. Further to the above, IAS 1: “Presentation of Financial Statements” has similarly not been complied with, in that the aforementioned information has not been included and duly presented in the current period’s annual financial state- ments. The following paragraphs set out the principal accounting policies of the Group in compliance with IFRS promulgated by the International Accounting Standards Board (IASB). Unless otherwise stated, these are consistent with prior years. 2.2 Adoption of standards and interpretations The following new and revised standards and interpretations have been adopted in the current period and have affect- ed the amounts and disclosures reported in these financial statements: Standards and amendments adopted early by the Group • Early adopted in 2009 IAS 27 (Revised): “Consolidated and Separate Financial Statements” (effective for accounting periods beginning on or after 1 July 2009). Specific amendments relate to accounting for non – controlling interests in a subsidiary entity as well as accounting for the loss of control of a subsidiary. Disclosure enhancements enabling users of financial state- ments to more effectively evaluate the nature of the relationship between the acquirer and its subsidiaries have been introduced. IFRS 3 (Revised): “Business Combinations” (effective for business combinations for which the acquisition date is on or after 1 July 2009). The IFRS revisions are primarily focused on enhancing the relevance, reliability and comparability of the information that an entity provides in its financial statements about a business combination and its effects. Specific guidance has been introduced on how an acquirer: - Recognises and measures in its financial statements the identifiable assets acquired, the liabilities assumed and any non – controlling interest in an acquiree; - Recognises and measures the goodwill acquired in a business combination or a gain from a bargain purchase; - Determines what information to disclose to enable users of the financial statements to evaluate the nature and finan- cial effects of a business combination. The amendments regarding IAS 27 (Revised) and IFRS 3 (Revised) have been adopted prospectively for related transac- tions after the date of early adoption. Accordingly, no restatements would be required in respect of transactions entered into prior to the date of adoption. Although the changes to these Standards are considered significant, particularly where step – up acquisitions and non – controlling interests exist in business combinations, the Directors of the Group have 15 ZIMPLOW LIMITED - Annual Report 2009
  19. 19. Notes to the Financial Statements for the year ended 31 December 2009 (continued) assessed the related impact to the entity’s existing business combination transactions (as at period end and the date of authorisation of these financial statements) as insignificant, largely due to the wholly owned nature of the parent enti- ty’s shareholding in its investee subsidiary and the nature of business unit acquisitions undertaken by the Group. Adopted in 2009 IFRS 2 (Revised): “Share Based Payments” (effective for accounting periods beginning on or after 1 January 2009); IFRS 7: “Financial Instruments: Disclosures” (Amended) (effective for annual periods beginning on or after 1 January 2009). The impact of the amendments will be to expand the disclosures in respect of fair value measurements and liq- uidity risks. IFRS 8: “Operating Segments” (effective for accounting periods beginning on or after 1 January 2009). The Standard sets out disclosure requirements for information about an entity’s operating segments. These reportable segments are largely determined by an entity’s chief operating decision makers and form the internal financial management reference source. This key revision replaces the requirement to determine primary and secondary reporting segments of an entity. IAS 1 (Revised): “Presentation of Financial Statements” (effective for accounting periods beginning on or after 1 January 2009). Apart from optional primary financial statement title changes which the Group has elected to adopt, the Standard’s revisions are primarily associated with the need to aggregate information in the financial statements on the basis of shared characteristics. In this regard, key changes include: - The presentation of only “owner” based equity movements in the Statement of Changes in Equity; - All “non – owner” changes in equity (i.e. comprehensive income) being presented in one Statement of Comprehensive Income or in two statements (a separate Statement of Comprehensive income and a Statement of Comprehensive Income). The entity has opted for the one statement approach. Components of comprehensive income are not permitted to be presented in the Statement of Changes in Equity; - The need to present a Statement of Financial Position (previously termed the Balance Sheet) as at the beginning of the earliest comparative period in a complete set of financial statements when an entity appliesan accounting poli- cy retrospectively or makes a retrospective restatement, as defined in IAS 8: “Accounting Policies, Changes in Accounting Estimates and Errors”, or when an entity reclassifies items in the financial statements; - The need to disclose reclassification adjustments and income tax relating to each component of other comprehen- sive income. IAS 16 (Amended): “Property, Plant and Equipment” (effective for accounting periods beginning on or after 1 January 2009). The Standard largely provides clarification on the recognition of subsequent costs associated with a related asset; measurement and recognition guidance regarding asset dismantlement, removal and restoration costs, and asset exchange transactions; as well as further explanatory guidance on asset residual value determination. IAS 19 (Revised): “Employee Benefits” (effective towards changes to benefits that occur on or after 1 January 2009); IAS 20 (Revised): “Accounting for Government Grants and Disclosure of Government Assistance” (effective for account- ing periods beginning on or after 1 January 2009); IAS 23 (Revised): “Borrowing Costs” (effective for accounting periods beginning on or after 1 January 2009). The Standard removes the option to expense borrowing costs relating to qualifying assets. The Standard instead prescribes, a prospective application basis, that borrowing costs directly attributable to the acquisition, construction or production of a qualifying asset be included in the cost of the underlying asset. IAS 32 (Revised): “Financial Instruments Presentation” (effective for accounting periods beginning on or after 1 January 2009). The Standard requires certain financial instruments to be classified as equity whereas, prior to these amend- ments, such instruments would have typically been classified as financial liabilities. 16 ZIMPLOW LIMITED - Annual Report 2009
  20. 20. Notes to the Financial Statements for the year ended 31 December 2009 (continued) IAS 36 (Amended): “Impairment of Assets” (effective for accounting periods beginning on or after 1 January 2009). The Standard requires disclosure of the estimates used in the determination of recoverable asset amounts. The changes that have been made in the Standard are primarily concerned with the impairment test for goodwill and other intangible assets. IAS 39 : “Financial Instruments ; Recognitions and Measurement” The ammendments to IAS 39 permit an entity to reclassify non derivative financial assets out of the “fair value through profit or loss” (FVTPL) and “Available for Sale” (AFS) categories in very limited circumstances. Such reclassifications are permitted from 1 July 2008. The effect of reclassification is that subsequent movements in fair value of these securities are recognised in other comprensive income (unless they are determined to be impaired) rather than profit or loss. The group has reclassified certain non derivative financial assets out of held for trading (part of fair value through prof- it category) to AFS financial assets. Reclassifications are accounted for at the fair value of the financial assets at the date of classification. The adoption of the above Standard revisions will have no material impact on the financial statements of the Group in the period of initial application. Standards, amendments and interpretations to existing standards that are in issue but not yet effective and have not been early adopted by the Group • Not relevant as at the current report period end date: IAS 28 (Revised): “Investments in Associates” (effective for accounting periods beginning on or after 1 July 2009); IAS 31 (Revised): “Interests in Joint Ventures” (effective for accounting periods beginning on or after 1 July 2009); • Interpretations effective in 2009 (accounting period beginning 1 July 2008), but not relevant IFRIC 12: “Service Concession Arrangements” (effective for accounting periods beginning on or after 1 January 2008); IFRIC 13: “Customer Loyalty Programmes” (effective for accounting periods beginning on or after 1 July 2008); IFRIC 14: “IAS 19 – The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction” (effec- tive for accounting periods beginning on or after 1 January 2008). IFRIC 15: “Agreements for the Construction of Real Estate” (effective for accounting periods beginning on or after 1 January 2009); IFRIC 16: Hedges of a Net Investment in a Foreign Operation” (effective for accounting periods beginning on or after 1 October 2008). 2.3 Significant accounting judgements, estimates and assumptions The preparation of the Group’s financial statements requires the Group’s Directors and Management to make judge- ments, estimates and formulate assumptions that may affect the reported amounts of revenues, expenses, assets, lia- bilities and the disclosure of contingent liabilities/ assets at the reporting period end date. Estimates and judgements are continually evaluated, and are based on historical experience and other factors, includ- ing expectations of future events that are believed to be reasonable under the circumstances. However, uncertainty about these assumptions and estimates could result in outcomes that could require a material adjustment to the carry- ing amount of the asset or liability affected in the future. Judgements In the process of applying the Group’s accounting policies, management has made the following judgements, apart from those involving estimates, which have the most significant effect on the amounts recognised in the financial statements. 17 ZIMPLOW LIMITED - Annual Report 2009
  21. 21. Notes to the Financial Statements for the year ended 31 December 2009 (continued) Foreign Currency Translations 1 July 2008 – 31 December 2008 Specific assumptions in place regarding the impact of the above on the Group’s opening equity and net asset positions, as presented in the Statement of Changes in Equity, are duly described in note form within this Statement, the Statement of Cash Flows and where appropriate, the notes on respective financial statement components. The Group’s Directors are of the opinion that the opening Statement of Financial Position represents a true and fair posi- tion and will be adopted as a base for financial reporting in subsequent periods. • Useful lives and residual values of property, plant and equipment The Group assesses the useful lives and residual values of property, plant and equipment each period, taking into account past experience and macro-economic changes. • Fair values The Group makes estimates and judgements in the valuation of property, plant and equipment, and the valuation of financial assets (such as trade receivables). Judgement is required in determining fair values of assets. The Group may also rely on independent opinions of experts in related specialist fields. 2.4 Summary of significant accounting policies Segment reporting Operating segments provide products or services that are subject to risks and rewards that are different from those of other operating segments. Operating segments are considered reportable segments when their operating results and financial position are: • Regularly reviewed by the Group’s chief operating decision makers as part of the decision making process regarding resources to be allocated towards each segment’s operations; and • Duly assessed against internally determined key performance indicators. The Group’s reportable segments, for which internal financial management information is available and consistently reviewed, are distinctly determined across the different product types manufactured and their customer markets served. Detailed information on the reportable segments identified and presented is disclosed in note 4. Basis of Consolidations and business combinations Subsidiaries are all entities over which the Group has the power to govern the financial and operating policies so as to obtain benefits from their activities. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether the Group controls another entity. Subsidiaries are fully consolidat- ed from the effective date on which control is transferred to the Group. They are de-consolidated from the effective date that control ceases. The acquisition method of accounting is used to account for the acquisition of subsidiaries and busi- ness units by the Group. The cost of an acquisition is measured at the aggregate of the fair values, at the date of exchange, of assets given, equity instruments issued and liabilities incurred or assumed at the date of exchange for con- trol of the acquiree or business unit. Acquisition – related costs are recognised, as incurred, in the Statement of Comprehensive Income, as part of profit or loss for the period. Inter-company transactions, balances and unrealised gains on transactions between Group entities are eliminated. Unrealised losses are also eliminated but considered an impairment indicator of the asset transferred. Accounting poli- cies of subsidiaries and business units are changed where necessary to ensure consistency with the policies adopted by the Group. Non – controlling interests in the net assets of consolidated subsidiaries are identified separately from the Group’s equi- ty therein. The interest of non–controlling shareholders may be initially measured either at fair value or at the non – con- trolling interest’s proportionate share of the acquiree’s identifiable net assets. The choice of measurement basis is made on an acquisition – by – acquisition basis. Subsequent to acquisition, non–controlling interests consist of the 18 ZIMPLOW LIMITED - Annual Report 2009
  22. 22. Notes to the Financial Statements for the year ended 31 December 2009 (continued) amount attributed to such interests at initial recognition and the non–controlling interest’s share of changes in equity since the date of the combination. Total comprehensive income is attributed to non controlling interest even if this results in the non con- trolling interest having a deficit balance. Changes in the Group’s interest in a subsidiary that do not result in a loss of control are accounted for as equity transactions. Any difference between the amount by which the non – controlling interests are adjusted and the fair value of the consideration paid or received is recognised directly in equity and attributed to owners of the company. Where applicable, the cost of acquisition includes any asset or liability resulting from a contingent consideration arrangement, measured at its acquisition date fair value. Subsequent changes in such fair values are adjusted against the cost of acquisition where they qualify as measurement period adjustments (refer below). All other subsequent changes in the fair value of contin- gent consideration classified as an asset or liability are accounted for in accordance with relevant IFRS. Changes in the fair value of contingent consideration classified as equity are not recognised. The acquiree’s identifiable assets , liabilities and contigent liabilities that meet the conditions for recognition under IFRS 3 (2008) are recognised at the fair value at the acquisition date , except that; • Non-current assets (or disposal groups) that are classified as held for sale in accordance with IFRS 5: “Non-current Assets Held for Sale and Discontinued Operations”, which are recognised and measured at fair value less costs to sell; • Liabilities or equity instruments related to the replacement by the Group of an acquiree’s share based payment awards, which are measured in accordance with IFRS 2: “Share Based Payment” • Deferred tax assets or liabilities and liabilities or assets related to employee benefit arrangements, which are recognised and measured in accordance with IAS 12: “Income Taxes” and IAS 19: “Employee Benefits” respectively. If the initial accounting for a business combination is incomplete by the end of the reporting period in which the combination occurs, the Group reports provisional amounts for the items for which the accounting is incomplete. Those provisional amounts are adjusted during the set measurement period, or additional assets or liabilities are recognised, to reflect new information obtained about facts and circumstances that existed as of the acquisition date that, if known, would have affected the amounts recognised as of that date. The aforementioned measurement period is the period from the date of acquisition to the date the Group receives complete information about facts and circumstances that existed as of the acquisition date – and is subject to a maximum of one year. The early adoption by the Group, of IFRS 3 (Revised): “Business Combinations”, has resulted in the prospective application of the amended Standard’s requirements. The early adoption of IFRS 3 (Revised) has also prompted the early adoption of IAS 27 (Revised), the related requirements of which are generally applied on a retrospective basis. The nature of the amendments to the Revised Standards, as collectively applied to the Group’s scope of business combinations, did not result in any retrospec- tive implications. The Group’s subsidiaries and acquired business units, as at the current Statement of Financial Position date, comprise one wholly owned subsidiary: Bulawayo Steel Products (Private) Limited and two business units currently trading as Group divisions: CT Bolts and Tassburg. The net assets (excluding immovable property) of Tassburg (Private) Limited were acquired on 31 December 2008. The transaction was not based on any provisional or contingent arrangements. Goodwill Goodwill arising in a business combination is recognised as an asset at the date that control is acquired (the acquisition date). Goodwill is measured as the excess of the sum of the consideration transferred, the amount of any non – controlling interest in the acquiree and the fair value of the acquirer’s previously held equity interest (if any) in the entity over the fair value of the iden- tifiable net assets recognised. Following initial recognition, goodwill is measured at cost less any accumulated impairment loss- es. Goodwill is not amortised, but is reviewed for impairment annually or more frequently if events or changes in circumstances indicate that the carrying value may be impaired. Impairment losses relating to goodwill cannot be reversed in future periods. For the purpose of impairment testing, goodwill acquired in a business combination is, from the acquisition date, allocated to each of the Group’s cash-generating units that are expected to benefit from the synergies of the combination, irrespective of whether other assets or liabilities of the entity are assigned to those units. Each unit to which the goodwill is so allocated: 19 ZIMPLOW LIMITED - Annual Report 2009
  23. 23. Notes to the Financial Statements for the year ended 31 December 2009 (continued) • Represents the lowest level within the entity at which the goodwill is monitored for internal management purposes; and • Is not larger than a reportable segment determined in accordance with IFRS 8: “Operating Segments”. Impairment is determined by assessing the recoverable amount of the cash-generating unit to which the goodwill relates. Where the recoverable amount of the cash-generating unit is less than the carrying amount, an impairment loss is recog- nised. Where goodwill forms part of the cash-generating unit and part of the operation within that unit is disposed of, the goodwill associated with the operation disposed of is included in the carrying amount of the operation when deter- mining the gain or loss on disposal of the operation. Goodwill disposed of in this circumstance is measured based on the relative values of the operation disposed of and the portion of the cash-generating unit retained. Bargain purchase gain If, after reassessment, the Group’s interest in the net fair value of the acquiree’s identifiable net assets exceeds the sum of the consideration transferred, the amount of any non – controlling interest in the acquiree and the fair value of the acquirer’s previously held equity interest in the acquiree (if any), the excess is recognised immediately, in profit or loss as a bargain purchase gain Functional and presentation currency Items included in the financial statements of each of the Group’s entities are measured using the currency of the pri- mary economic environment in which the entities operate (“the functional currency”). In line with note 2.1 on the basis of financial statement preparation, the Group’s functional and presentation currencies can be analysed as follows: 1 July 2008 – 31 December 2008 Functional currency: Z$ (that of a hyperinflationary economy) Due to the adverse Zimbabwean economic environment experienced during the previous financial year, and in particu- lar the six month period ended 31 December 2008, limitations have been noted in fulfilling the financial reporting process, as related to inflation – adjusting financial data in accordance with the requirements of IAS 29, and in turn, pre- senting financial data in an alternative currency. 1 January 2009 – 31 December 2009 Functional and presentation currency: US$ In line with the liberalisation of the Zimbabwean economy, the Group set itself for a primary currency trade change and, as from 1 January 2009, adopted the US$ as its functional currency, as determined in line with guidance offered in IAS 21. Foreign currency translations Transactions in currencies other than the entity’s functional carrency (foreign currencies) are translated into the Group’s functional currency using the exchange rates prevailing at the date of the transaction. Monetary assets and liabilities denominated in foreign currency are translated at the related exchange rate prevailing at the period reporting end date. Foreign exchange differences arising on translation are recognised in the Statement of Comprehensive Income as part of profit or loss for the period, except when deferred in equity as qualifying cash flow hedges and qualifying net invest- ment hedges. Non – monetary assets and liabilities denominated in foreign currency are translated into functional cur- rency at the market exchange rate prevailing at the date of the transaction. Non-current assets held for sale Non current assets and disposal groups are classified as held for sale if their carrying amount will be recovered princi- pally through a sale transaction rather than through continuing use. This condition is regarded as met only when a sale is highly probable and the asset (or disposal group) is available for immediate sale in its present condition. Management must be committed to the sale which should be expected to qualify for recognition as a completed sale within one year from the date of classification. Non current assets (and disposal groups) classified as held for sale are measured at the lower of their previous carrying 20 ZIMPLOW LIMITED - Annual Report 2009
  24. 24. Notes to the Financial Statements for the year ended 31 December 2009 (continued) amount and fair value less cost to sell. Debt and equity instruments are classified as either financial liabilities or as equity in accordance with the substance of con- tractual arrangements. Income and revenue recognition Revenue is measured at the fair value of the consideration received or receivable. Revenue excludes value added tax and other sales related duties, and is reduced for estimated customer returns, rebates, discounts and other similar allowances. Sale of Goods Revenue from the sale of goods is recognised when all the following conditions are satisfied: The Group has transferred to the buyer the significant risks and rewards of ownership of the goods; The Group retains neither continuing managerial involvement to the degree usually associated with ownership nor effective control over the goods sold; • The amount of revenue can be measured reliably; • It is probable that the economic benefits associated with the transaction will flow to the entity; and • The costs incurred or to be incurred in respect of the transaction can be measured reliably. Dividend and Interest revenue Dividend revenue from investments is recognised when the shareholder’s right to receive payment has been established ( pro- vided that it is probable that the economic benefits will flow to the group and the amount of revenue can be measured reliably). Interest revenue is accrued on a time proportionate basis, by reference to the principal outstanding and at the effective interest rate applicable, which is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset to that asset’s net carrying amount. Other income Other income is recognised in the period that it is due and receivable. Property, plant and equipment Property, plant and equipment are measured at fair value less accumulated depreciation and impairment losses, if any, recog- nised after the date of a revaluation. Valuations, performed by the Group’s Directors or independent external valuers, are per- formed frequently enough to ensure that the fair value of a revalued asset does not differ materially from its carrying amount. When items of property, plant and equipment are revalued, any accumulated depreciation at the date of a revaluation is restat- ed proportionately with the change in the gross carrying amount of the asset so that the carrying amount after revaluation equals its revalued amount. Any revaluation surplus (increase in the carrying amount of an asset as a result of a revaluation) is recognised in other compre- hensive income in the Statement of Comprehensive Income and accumulated in equity (revaluation reserve) in the Statement of Changes in Equity. The increase is recognised in profit or loss to the extent that it reverses a revaluation decrease of the same asset previously recognised in profit or loss. If an asset’s carrying amount is decreased as a result of a revaluation, the decrease shall be recognised in profit or loss. The decrease, however, is recognised in other comprehensive income to the extent of any credit balance existing in the revaluation surplus in respect of that asset. The decrease recognised in other comprehensive income reduces the amount accumulated in equity as a revaluation reserve. An annual transfer, within the Statement of Changes in Equity, from the asset revaluation reserve to retained earnings, is made for the difference between depreciation based on the revalued carrying amount of the assets and depreciation based on the original cost. Subsequent costs are included in an asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be meas- 21 ZIMPLOW LIMITED - Annual Report 2009
  25. 25. Notes to the Financial Statements for the year ended 31 December 2009 (continued) ured reliably. All other repairs and maintenance are recognised in profit or loss in the Statement of Comprehensive Income dur- ing the financial period in which they are incurred. Upon disposal, any revaluation reserve relating to the particular asset being sold is transferred to retained earnings. Depreciation is calculated on a straight line basis over the following asset class useful life spans in order to allocate their cost or revalued amounts to their residual values: • Buildings: 50 years; • Plant and machinery: 5 to 50 years; • Motor vehicles: 5 years; • Office furniture and computer equipment: 4 to 10 years. An item of property, plant and equipment is derecognised upon disposal or when no future economic benefits are expected from its use or disposal. Any gain or loss arising on derecognition of the asset (calculated as the difference between the net dispos- al proceeds and the carrying amount of the asset) is included in profit or loss in the year the asset is derecognised. The useful lives and residual values of assets are reviewed and adjusted, if appropriate, at each reporting period end date, with the effect of any changes in estimate accounted for on a prospective basis. Where the residual value of an asset increases to an amount equal to or greater than the asset’s carrying amount, depreciation will cease to be charged on the asset until its residual value subsequently decreases to an amount below its carrying amount. Impairment of non financial assets The Group assesses at each reporting period end date whether there is an indication that an asset may be impaired. If any such indication exists, or when annual impairment testing for an asset is required, the Group’s management makes an estimate of the asset’s recoverable amount. An asset’s recoverable amount is the higher of an asset’s or cash generating unit’s fair value less costs to sell and its value in use, and is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or group of assets. Where the carrying amount of an asset exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount. 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. Impairment losses of continuing operations are recognised in profit or loss in the Statement of Comprehensive Income in those expense categories consistent with the function of the impaired asset. An assessment is made at each reporting period end date as to whether there is any indication that previously recognised impairment losses may no longer exist or may have decreased. If such indication exists, the recoverable amount is estimated. A previously recognised impairment loss is reversed only if there has been a change in the estimates used to determine the asset’s recoverable amount since the last impairment loss was recognised. If that is the case the carrying amount of the asset is increased to its recoverable amount. That increased amount cannot exceed the carrying amount that would have been deter- mined, net of depreciation, had no impairment loss been recognised for the asset in prior periods. Such reversal is recognised in profit or loss unless the asset is carried at revalued amount, in which case the reversal is treated as a revaluation increase and recognised in other comprehensive income. After such a reversal, the depreciation charge is adjusted in future periods to allocate the asset’s revised carrying amount, less any residual value, on a systematic basis, over its remaining useful life. Leases The determination of whether an arrangement is, or contains a lease is based on the substance of the arrangement at incep- tion date. Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee. All other leases are classified as operating leases. The Group’s lease transactions in place throughout the current reporting period only extend as far as the Group’s capacity as a lessee under operating lease arrangements. Group as a lessee Leases where the Group does not transfer substantially all the risks and benefits of ownership of the asset are classified as 22 ZIMPLOW LIMITED - Annual Report 2009
  26. 26. Notes to the Financial Statements for the year ended 31 December 2009 (continued) operating leases. Operating lease payments are recognised as an expense on a straight-line basis over the lease term, except where another sys- tematic basis is more representative of the time pattern in which economic benefits from the leased asset are consumed. Contingent rentals arising under operating leases are recognised as an expense in the period in which they are incurred. Contingent rentals: Contingent rentals are lease payments, or portions thereof, that are not fixed in amount but are based on the future amount of a factor that is susceptible to change other than with the passage of time. Contigent rents are recognised as an expense in the period in which they are incurred. The CT Bolts premises where the Group operates from were leased under such terms for part of the current reporting period. Details regarding lease transactions are as disclosed in note 12. In the event that lease incentives are received to enter into operating leases, such incentives are recognised as a liability. The aggregate benefit of incentives is recognised as a reduction of rental expense on a straight-line basis, except where another sys- tematic basis is more representative of the time pattern in which economic benefits from the leased asset are consumed. Borrowing costs Borrowing costs directly attributable to the acquisition, construction or production of assets that necessarily take a substantial period of time to get ready for their intended use or sale are capitalised as part of the cost of the respective assets. All other borrowing costs are expensed in the period they occur. Borrowing costs consist of interest and other costs that an entity incurs in connection with the borrowing of funds. Investment income earned on the temporary investment of specific borrowings pending their expenditure on qualifying assets is deducted from the borrowing costs eligible for capitalisation. Research and development costs Expenditure on research activities is recognised as an expense in the period in which it is incurred. An internally – generated intangible asset arising from development (or from the development phase of an internal project) is recognised if, and only if, all of the following have been demonstrated: • The technical feasibility of completing the intangible asset so that it will be available for use or sale; • The intention to complete the intangible asset and use or sell it; • The ability to use or sell the intangible asset; • How the intangible asset will generate probable future economic benefits; • The availability of adequate technical, financial and other resources to complete the development and to use or sell the intan- gible asset; and • The ability to measure reliably the expenditure attributable to the intangible asset during its development. The amount initially recognised for internally – generated intangible assets, is the sum of the expenditure incurred from the day- when the intangible asset first meets the recognition criteria listed above. Where no internally – generated intangible asset can be recognised, development expenditure is charged to profit or loss in the period in which it is incurred. Subsequent to initial recognition, internally – generated intangible assets are reported at cost less accumulated amortisation and impairment losses, on the same basis as intangible assets acquired separately. Any expenditure capitalised is amortised over the period of expected future sales from the related project. The carrying value of development costs is reviewed for impairment annually when the asset is not yet in use or more frequent- ly when an indication of impairment arises during the reporting period. Inventories Inventories are valued at the lower of cost and net realisable value. Costs incurred in bringing each product to its present loca- tion and condition, are accounted for as follows: Raw materials - purchase costs on weighted average cost 23 ZIMPLOW LIMITED - Annual Report 2009
  27. 27. Notes to the Financial Statements for the year ended 31 December 2009 (continued) Finished goods and work in progress - costs of direct materials, labour and a proportion of manufacturing overheads based on normal operating capacity but excluding borrowing costs. Net realisable value is the estimated selling price in the ordinary course of the business, less estimated costs of completion and the estimated costs necessary to make the sale. Cash and cash equivalents Cash and cash equivalents comprise cash at banks, cash on hand and short term highly liquid deposits with an original matu- rity of three months or less. For presentation purposes of the Statement of Cash Flows, cash and cash equivalents consist of cash and cash equivalents as defined above, net of outstanding bank overdrafts. Provisions Provisions are recognised when the Group has a legal or constructive obligation as a result of past events, and when it is prob- able that an outflow of resources embodying economic benefits will be required to settle the obligation, and a reliable estimate of the amount of the obligation can be made. Where the effect of the time value of money is considered material, the amount of a recognised provision represents the pres- ent value of the expenditures expected to be required to settle the obligation. Employee entitlements to annual leave are recognised when they accrue to employees. A provision is made for the estimated liability for annual leave as a result of services rendered by the employees up to the reporting period end date. Dividend distribution Dividend distribution to the Group’s shareholders is recognised as a liability in the Group’s financial statements in the period in which the dividends are approved by the Group’s shareholders and declared. Key management Key management include Group executive directors and management having authority and responsibility for planning, directing and controlling the activities of Zimplow Limited, in its parent entity capacity, as well as its Group member entities. Group entity members The Group’s member entities at the reporting period end, all incorporated, registered and operating (where applicable) as trad- ing concerns in Zimbabwe, include: • Bulawayo Steel Products (Pvt) Ltd • The Zimplow Trust Taxation The tax expense for the period comprises current and deferred tax. Tax is recognised in the statement of comprehensive income in profit or loss, except to the extent that it relates to items recognised directly as other comprehensive income. In this case, the tax is also recognised in other comprehensive income. Current tax The tax currently payable is based on taxable profit for the period. Taxable profit differs from profit as reported in the Statement of Comprehensive Income because it excludes items of income or expense that are taxable or deductible in other periods and it further excludes items that are permanently non - taxable or non - deductible. The Group’s liability for current tax is calculat- ed using tax rates that have been enacted or substantively enacted by the reporting period end date. Deferred tax Deferred tax is recognised on differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit, and is accounted for using the liability method. Deferred tax liabilities are generally recognised for all taxable temporary differences, and deferred tax assets are generally recognised for 24 ZIMPLOW LIMITED - Annual Report 2009
  28. 28. Notes to the Financial Statements for the year ended 31 December 2009 (continued) all deductible temporary differences to the extent that it is probable that taxable profits will be available against which those deductible temporary differences can be utilised. Such assets and liabilities are not recognised if the temporary difference aris- es from goodwill or from the initial recognition (other than in a business combination) of other assets and liabilities in a trans- action that affects neither the taxable profit nor the accounting profit. Deferred tax liabilities are recognised for taxable temporary differences associated with investments in subsidiaries and asso- ciates, and interests in joint ventures, except where the Group is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future. Deferred tax assets arising from deductible temporary differences associated with such investments and interests are only recognised to the extent that it is probable that there will be sufficient taxable profits against which to utilise the benefits of the temporary differences and they are expected to reverse in the foreseeable future. The carrying amount of deferred tax assets is reviewed at each reporting period end date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered. Value added tax Revenues, expenses and assets are recognised net of the amount of Value Added Tax except: • Where the Value Added Tax incurred on a purchase of assets or services is not recoverable from the taxation authority, in which case the Value Added Tax is recognised as part of the cost of acquisition of the asset or as part of the expense item applicable; and • With receivables and payables that are stated with the amount of Value Added Tax included. The net amount of Value Added Tax recoverable from, or payable to the taxation authority is included as part of receivables or payables in the Statement of Financial Position as at the end of the reporting period. Employee benefits Defined contribution plans Current contributions to the Zimplow Pension Fund, which is a defined contribution fund, and contributions to the National Social Security Authority (NSSA), which are determined by legislation (as promulgated under the National Social Security Act 1989), are recognised as an expense when employees have rendered service entitling them to the contributions .The Group’s obliga- tions under the NSSA scheme are limited to specific contributions legislated from time to time. Termination benefits The Group recognises gratuity and other termination benefits in the financial statements when it has a present obligation relat- ing to termination. Financial instruments Financial assets Initial recognition The Group’s financial assets falling within the scope of IAS 39: “Financial Instruments: Recognition and Measurement” include cash and short term deposits, trade and other receivables, and equity investments in a portfolio of quoted companies on the Zimbabwe Stock Exchange (ZSE). Financial assets are recognised initially at fair value plus transaction costs, in the case of investments not at fair value through profit or loss, directly attributable transaction costs. Purchases or sales of financial assets that require delivery of assets within a time frame established by regulation or conven- tion in the market – place (regular way purchases) are recognised on the trade date, i.e. the date that the Group commits to purchase or sell the assets. Group management, in line with guidance prescribed in IAS 39, determines the classification of its financial assets at initial recognition. The Group has not taken out any derivative instruments that would ordinarily have been designated as hedging instruments. 25 ZIMPLOW LIMITED - Annual Report 2009
  29. 29. Notes to the Financial Statements for the year ended 31 December 2009 (continued) Subsequent measurement The subsequent measurement of financial assets depends on their classification. The Group’s non – cash and cash equivalent financial asset profile is classified and measured as follows: Available for sale financial assets (AFS) Listed shares held by the Group that are traded in an active market are classified as being AFS and are stated at fair value. The fair value of the ZSE traded investments is recognised with direct reference to trading prices as published on the Stock Exchange. Gains and Losses arising from the changes in fair value are recognised in other comprehensive income and accumulated in the AFS revaluation reserve with the exception of impairment losses. Where the investments are disposed of or are determined to be impaired, the cumulative gain or loss previously accumulated in the Available for Sale revalua- tion reserve is reclassified to profit or loss. Dividends on AFS equity instruments are recognised in profit or loss in the state- ment of Comprehensive Income when the Group’s right to receive the dividends is established. Loans and receivables Trade receivables, loans and other receivables that have fixed or determinable payments that are not quoted in an active market are classified as loans and receivables. Loans and receivables are measured at amortised cost using the effective interest method, less any impairment. Interest income is recognised by applying the effective interest rate, except for short- term receivables when the recognition of interest would be immaterial. Derecognition of financial assets The Group derecognises a financial asset only when the contractual rights to the cash flows from the asset expire; or it transfers the financial asset and substantially all the risks and rewards of ownership of the asset to another entity. If the Group neither transfers nor retains substantially all the risks and rewards of ownership and continues to control the trans- ferred asset, the Group recognises its retained interest in the asset and an associated liability for amounts it may have to pay. If the Group retains substantially all the risks and rewards of ownership of a transferred financial asset, the Group con- tinues to recognise the financial asset and also recognises a collateralised borrowing for any related proceeds received. Impairment of financial assets Financial assets are assessed for indicators of impairment at each reporting period end date. Financial assets are impaired where there is objective evidence that, as a result of one or more loss events that occurred after the initial recog- nition of the financial asset, the estimated future cash flows of the investment have been impacted. For asset, such as trade receivables, assets that are assessed not to be impaired individually are subsequently assessed for impairment on a collective basis. Objective evidence of impairment for a portfolio of receivables include the Group’s past experience of collecting payments, an increase in the number of delayed payments in the portfolio past the average credit period, as well as observable changes in national or local economic conditions that correlate with default on receiv- ables. For listed equity investments classified as AFS, a significant or prolonged decline in the fair value of the security below its cost is considered to be objective evidence of impairment. Where there is evidence of impairment, the cumulative loss - measured as the difference between the aquisition costs and the current fair value, less any impairment loss on that investment previously recognised in profit or loss, is removed from AFS reserve and recognised in profit or loss. For financial assets carried at amortised cost, the amount of the impairment is the difference between the asset’s carry- ing amount and the present value of estimated future cash flows, discounted at the financial asset’s original effective inter- est rate. The carrying amount of the financial asset is reduced by the impairment loss directly for all financial assets with the excep- tion of trade receivables, where the carrying amount is reduced through the use of an allowance account. When a trade receivable is considered uncollectible, it is written off against the allowance account. Subsequent recoveries of amounts previously written off are credited against the allowance account. Changes in the carrying amount of the allowance account are recognised in profit or loss. With reference to the Group’s financial asset portfolio, if, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised, the pre- 26 ZIMPLOW LIMITED - Annual Report 2009
  30. 30. Notes to the Financial Statements for the year ended 31 December 2009 (continued) viously recognised impairment loss is reversed through profit or loss to the extent that the carrying amount of the investment at the date the impairment is reversed does not exceed what the amortised cost would have been had the impairment not been recognised. Equity instruments An equity instrument is any contract that evidences a residual interest in the assets of an entity after deducting all of its liabili- ties. Equity instruments issued by the Group are recorded at the proceeds received, net of direct issue costs and are presented in the Statement of Changes in Equity as owner based equity transactions. Financial liabilities Financial liabilities are classified as either financial liabilities at fair value through profit or loss or other financial liabilities.The Group’s financial liabilities are limited to trade and other payables, and interest bearing loans and borrowings. The Group’s man- agement has not designated any financial liabilities as financial liabilities at fair value through profit or loss. The Group’s financial liabilities and borrowings are initially measured at fair value, net of transaction costs. Financial liabilities are subsequently measured at amortised cost using the effective interest method, with the interest expense recognised on an effective yield basis. Derecognition of financial liabilities The Group derecognises financial liabilities when, and only when, the Group’s obligations are discharged, cancelled or they expire. Effective interest method The effective interest method is a method of calculating the amortised cost of a financial asset/ liability and of allocating inter- est income/ expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash receipts/ payments (including all fees on points paid or received that form an integral part of the effective interest rate, trans- action costs and other premiums or discounts) through the expected life of the financial asset/ liability, or, where appropriate, a shorter period. Offsetting of financial instruments Financial assets and financial liabilities are offset and the net amount reported in the Statement of Financial Position if, and only if, there is a currently enforceable legal right to offset the recognised amounts and there is an intention to settle on a net basis, or to realise the assets and settle the liabilities simultaneously. 27 ZIMPLOW LIMITED - Annual Report 2009
  31. 31. Notes to the Financial Statements for the year ended 31 December 2009 (continued) 3. Operating Profit 31 December 2009 US$ The operating profit before taxation is arrived at After charging; Administration expenses 1 363 344 Auditors remuneration: Current year 62 152 Depreciation of property, plant and equipment: Buildings 29 475 Plant and equipment 194 877 224 352 Impairment Loss 4 435 Directors’ emoluments Fees 18 209 Other emoluments 158 188 176 397 Selling expenses 377 777 Staff costs: Salaries and allowances 1 239 253 Provisions for Gratuity 79 732 National Social Security Authority 62 251 1 381 236 After crediting: Net Exchange gains/(loss) (6 405) (Loss)/Profit on disposal of property, plant and equipment (2 173) 28 ZIMPLOW LIMITED - Annual Report 2009

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