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Hwa - Hwange Colliery Company Limited - Chairman`s Statement To Shareholders

Release Date: 31/03/2011 15:21:04      Code(s): HWA
HWA - Hwange Colliery Company Limited - Chairman`s Statement to Shareholders    
HWANGE COLLIERY COMPANY LIMITED                                                 
(Previously Wankie Colliery Company Limited)                                    
(Incorporated in Zimbabwe)                                                      
Code: HWA    ZW0009011934                                                       
Audited Financial Statements for the year ended 31 December 2010                
CHAIRMAN`S STATEMENT TO SHAREHOLDERS                                            
INTRODUCTION                                                                    
It is my pleasure to present the audited Company results for the financial year 
ended 31 December 2010.                                                         
OPERATING ENVIRONMENT                                                           
The past year was characterized by the stabilization of the national economy    
following the introduction of the multi currency system in the previous year.   
While the national economy recorded positive growth, companies continued to face
challenges on the liquidity and working capital fronts. Despite interest and    
inflation rates stabilizing, the unavailability of foreign lines of credit      
persisted.                                                                      
The volatility between the United States dollar and the South African rand      
continued to affect the cost of imported spares.                                
The Coal and Coke prices dropped in the latter part of year thereby eroding the 
Company`s incomes.                                                              
The demand for Coal products in the domestic market was generally firm driven   
mostly by the power generation industry. The other sectors operated below       
capacity.                                                                       
However coal and coke exports were affected by a decline in demand in both the  
regional and international markets.                                             
PERFORMANCE OVERVIEW                                                            
Sales Statistics                                                                
 Product                         2010                2009                       
 HPS coal                        1 759 095           1 033 968                  
 HCC/HIC coal                    533 299             429 213                    
Coal Fines                      151 036             185 726                    
 Total Coal                      2 443 430           1 648 933                  
 Coke (Incl breeze)              67 513              61 018                     
 TOTAL                           2 510 943           1 709 951                  
It is pleasing to note that despite the challenges in the macroeconomic         
environment, the company`s production and sales volume performance increased by 
47%.                                                                            
The company secured short term funding and procured mining equipment that       
boosted production performance at the three (3) mines; JKL, Chaba, and 3 Main   
Underground mines. Further similar funding structure is planned for the ensuing 
year.                                                                           
Total coal and coke sales for the year at 2 510 943 tonnes were significantly   
above 1 709 951 tonnes sold in 2009. Export sales stood at 160 052 tonnes       
against 158 062 tonnes for the previous year.                                   
HPS coal supplies to Zimbabwe Power Company (ZPC)`s Hwange Power Station        
amounted to 1 759 095 tonnes and were 70% above the                             
1 033 994 tonnes delivered in 2009.                                             
The Hwange Coking Coal (HCC) and Hwange Industrial Coal (HIC) sales amounted to 
533 299 tonnes and were 24% above the tonnage of 429 213 tonnes achieved the    
previous year. A total of 151 036 tonnes of coal fines were sold during the year
to the local and export markets and this was 23% below the 185 726 tonnes sold  
the previous year.                                                              
Coke sales, including breeze, amounted to 67 513 tonnes and this was comparable 
to the 61 018 tonnes sold the previous year. The coke oven battery underwent    
major repairs and only started production in September 2010.  However, some     
repairs to the coke oven battery are still ongoing.                             
FINANCIAL RESULTS                                                               
The company complied with the International Financial Reporting Standard (IFRS) 
in all material respects.                                                       
The company achieved a turnover for the year of US$98.9 million and this was 49%
above the figure of US$66.4 million achieved the previous year. Exports         
contributed 12% of turnover. The gross profit margin of 34% was slightly lower  
than the 35% for the comparative period last year.                              
The company recorded an operating profit of US$9.4 million compared to US$6     
million achieved in 2009. The share of profit from equity accounted investments 
amounted to US$2.8 million compared to a share of loss of US$0.4 million        
incurred last year.                                                             
The attributable profits for the year amounted to US$ 6.3 million and this was  
142% above the net profit after tax of US$2.6 million achieved the previous     
year.                                                                           
The property, plant and equipment increased from US$71.6 million to US$88.2     
million because of new capital acquisitions.                                    
Current assets amounted to US$67 million and this was above the US$49 million   
for the same period last year.                                                  
The current liabilities also increased from US$58.3 million to US$88.2 million  
and comprised mainly of trade creditors and borrowings. The company was also    
financing the recapitalization initiatives through short term facilities as     
there was no long term structures in the market.                                
DIVIDEND                                                                        
The Board has resolved not to consider payment of a dividend in view of the need
to recapitalize the business.                                                   
QUALITY, SAFETY, HEALTH AND ENVIRONMENT                                         
The company successfully went through the ISO 9001:2008 Quality Management      
System surveillance audit.                                                      
The company`s safety programmes achieved the objective of an accident free      
working environment. There was no fatality during the year.                     
Provisions have been made to commence the rehabilitation of the mined out areas 
at the opencast. The company continued to face the challenge of the acid mine   
drainage from the closed old underground mines and measures to manage the risk  
were undertaken. A permanent solution is being pursued in liaison with the      
Environmental Management Authority.                                             
The company`s health programmes effectively managed the prevalent diseases like 
malaria. The awareness campaigns were used to manage the HIV and AIDS related   
diseases.                                                                       
OUTLOOK                                                                         
The country`s economy is projected to continue to grow in 2011. The envisaged   
increased capacity utilisation in industry, coupled with the prospect of a good 
agricultural season would revitalize domestic demand. The growth in exports will
hinge on the company focusing on new regional and overseas markets.             
The company secured a medium term financing facility for the acquisition of     
additional mining equipment and delivery will be between March and June 2011.   
This development is expected to further boost productivity.                     
The company is working on securing additional coal concessions in order to boost
its resource and reserves base. The company is optimistic that its current      
funding initiatives will materialize during the year and that product demand    
will firm in the second half of the year.                                       
DIRECTORATE                                                                     
There have been no other changes to the company`s Board of Directors for the    
period under review.                                                            
APPRECIATION                                                                    
I would like to thank my fellow Board Members, management and staff for their   
continued commitment and support rendered during the year.                      
I would also like to express my sincere gratitude to all the stakeholders for   
their support.                                                                  
MR. T. SAVANHU                                                                  
CHAIRMAN                                                                        
25 March 2011                                                                   
Annual Report and Financial Statements                                          
The annual report and financial statements for the year ended 31 December 2010  
will be distributed to members on or before 31 May 2011 and the annual general  
meeting will be held on Thursday 30 June 2011.                                  
By Order of the Board                                                           
T K Ncube                                                                       
SECRETARY                                                                       
25 March 2011                                                                   
Statement of comprehensive income                                               
for the year ended 31 December 2010                                             
                                                2010           2009             
                                                USD            USD              
                                                                                
Revenue                                          98 926 994      66 363 128     
                                                -              -                
Cost of sales                                    (65 572        (43 047         
                                                846)           784)             

Gross profit                                     33 354 148     23 315 344      
                                                                                
Other income                                     3 218 774      258 389         
Other gains and losses (net)                     ( 504 462)     269 007         
Marketing costs                                  ( 607 962)     (654 340)       
Administrative costs                             (26 058        (17 408         
                                                612)           112)             

Operating profit                                 9 401 886      5 780 288       
                                                                                
Finance cost                                     (1 552 929)    (383 975)       

Share of profit / (loss)                         2 830 455      (425 830)       
from equity accounted                                                           
investments                                                                     

PROFIT BEFORE INCOME TAX                         10 679 412     4 970 483       
                                                                                
Income tax expense                               (4 447 689)    (2 380 962)     

PROFIT FOR THE YEAR                              6 231 723      2 589 521       
                                                                                
Other comprehensive income,                                                     
net of tax                                                                      
                                                                                
Share of other comprehensive                                                    
income of equity accounted                                                      
investments, net of tax                                                         
                                                66 244         -                
TOTAL COMPREHENSIVE INCOME                       6 297 967      2 589 521       
FOR THE YEAR                                                                    

Attributable earnings per     - basic            0.03           0.01            
share                                                                           
                             - diluted          0.03           0.01             
Statement of financial position                                                
 as at 31 December 2010                                                         
                                 2010           2009           1Jan 2009        
 ASSETS                          USD            USD            USD              

 Non Current Assets                                                             
 Property, plant and             88 249 605     71 577 664     74 190 966       
 equipment                                                                      
Investment property             3 700 000      3 615 000      3 615 000        
 Investments accounted                                                          
 for using the equity                                                           
 method                                                                         
11 835 967     2 804 298      1 797 827        
 Intangible assets               -              -              -                
                                                                                
                                 103 785 572    77 996 962     79 603 793       
Current Assets                                                                 
 Pre-stripped                    3 809 866      4 911 376      4 911 376        
 overburden                                                                     
 Inventory                       16 699 214     17 665 738     15 476 387       
Trade and other                 45 289 062     25 377 186     7 802 272        
 receivables                                                                    
 Financial assets at                                                            
 fair value through                                                             
profit or loss                                                                 
                                 2 918          2 826          1 124            
 Bank and cash balances          1 203 216      1 249 983      206 485          
                                 67 004 276     49 207 109     28 397 644       
Total assets                    170 789 848    127 204 071    108 001 437      
                                                                                
 EQUITY AND LIABILITIES                                                         
                                                                                
Capital and Reserves                                                           
 Share capital                   45 549 963     45 549 963     -                
 Derived equity                  4 358 468      4 358 468      49 908 431       
 Retained earnings               8 887 488      2 589 521      -                
58 795 919     52 497 952     49 908 431       
                                                                                
 Non-current                                                                    
 liabilities                                                                    
Lease liability                 2 938 939      -              -                
 Deferred income tax             20 869 620     16 421 931     14 996 265       
                                 23 808 559     16 421 931     14 996 265       
 Borrowings                      26 014 401     28 375 606     22 247 200       
Trade and other                 57 366 782     26 440 980     20 849 541       
 payables                                                                       
 Provisions                      3 848 891      2 512 306      -                
 Current income tax              955 296        955 296        -                
liability                                                                      
                                                                                
                                 88 185 370     58 284 188     43 096 741       
 Total equity and                170 789 848    127 204 071    108 001 437      
liabilities                                                                    
                                                                                
 Statement of changes in equity                                                 
 for the year ended 31 December 2010                                            
Derived       Retained      Total          
                       Share         equity        Earnings                     
                       Capital                                                  
                       USD           USD           USD           USD            

 Change in functional  -             49 908 431    -             49 908 431     
 currency                                                                       
 Redenomination of     45 549 963    (45 549       -             -              
share capital                       963)                                       
 Total comprehensive   -             -             2 589 521     2 589 521      
 income for the year                                                            
                                                                                
Balance at 31         45 549 963    4 358 468     2 589 521     52 497 952     
 December 2009                                                                  
                                                                                
                                                                                
Balance at January    45 549 963    4 358 468     2 589 521     52 497 952     
 2010                                                                           
 Total comprehensive   -             -             6 297 967     6 297 967      
 income for the year                                                            

 Balance at 31         45 549 963    4 358 468     8 887 488     58 795 919     
 December 2010                                                                  
 Statement of cash flows                                                        
for the year ended 31 December 2010                                            
                                               2010           2009              
                                               USD            USD               
 CASH GENERATED FROM OPERATIONS                                                 

 Profit before income tax                      10 679 412     4 970 483         
 Adjustment for non-cash items:                                                 
                                               (7 117)        (41 134)          
589 554        (267 305)         
                                               (2 830 455)    425 831           
                                               1 552 929      383 975           
                                               7 638 342      9 628 100         
(85 000)       -                 
                                               (92)            (1 702)          
                                                                                
 Operating cash flow before changes in         17 537 574     15 098 248        
working capital                                                                
                                                                                
                                               2010           2009              
                                               USD            USD               
Changes in working capital :                                                   
                                               (5 168 446)    (13 022           
                                                              211)              
                                               1 101 510      (4 911 376)       
(19 311        2 149 410         
                                               876)                             
                                               1 336 585      1 247 172         
                                               18 603 686     3 667 912         

 Cash generated from operating                 14 099 032     4 229 154         
 activities                                                                     
                                                                                
Finance cost                                  (1 389 557)    (162 471)         
 Income tax paid                               -              -                 
                                                                                
 Net cash generated from operating             12 709 475     4 066 683         
activities                                                                     
CASH FLOWS FROM INVESTING ACTIVITIES                                            
                                                                                
Purchase of property, plant and                (11 768       (3 499 436)        
equipment                                      917)                             
Proceeds from the disposal of motor            12 342        41 134             
vehicles                                                                        
                                                                                
Net cash flows from investing                  (11 756       (3 458 302)        
activities                                     575)                             
                                                                                
CASH FLOWS FROM FINANCING ACTIVITIES                                            

Repayment of borrowings                        (10 973       600 000            
                                              913)                              
Proceeds from loans raised                     9 419 686     -                  

Net cash flows from financing                  (1 554 227)   600 000            
activities                                                                      
                                                                                
Net increase in cash, cash                     (601 327)     1 208 381          
equivalents and bank overdrafts                                                 
Cash, cash equivalents and bank                1 248 894     206 485            
overdrafts at beginning of the year                                             
Exchange loss on bank balances                 (147)         (165 972)          
                                                                                
                                                                                
Cash, cash equivalents and bank                647 420       1 248 894          
overdrafts at end of year                                                       
31 March 2011                                                                   
Sponsor                                                                         
Sasfin Capital                                                                  
(A division of Sasfin Bank Limited)                                             
Date: 31/03/2011 15:21:03 Supplied by www.sharenet.co.za                     
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