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HWA - Hwange Colliery Company Limited - Hwange: Audited company results for the
financial year ended 31 December 2011
HWANGE COLLIERY COMPANY LIMITED
(Incorporated in Zimbabwe)
Code: HWA ISIN: ZW0009011934
HWANGE: AUDITED COMPANY RESULTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2011
INTRODUCTION - CHAIRMAN`S REPORT
It gives me great pleasure to present the audited Company results for the
financial year ended 31 December 2011. This is my first Statement to
Shareholders since the new Board of Directors assumed office in August 2011.
OPERATING ENVIRONMENT
The developments in the global economy in 2011 had an adverse effect on the
national economy. Subdued global economic recovery and the eurozone debt crisis
had the manifold effect of depressing global coal prices.
The negative effects of the sovereign debt crisis worsened the availability of
foreign lines of credit required for the recapitalisation of businesses in
general, Hwange Colliery Company included.
Price stability has been a major characteristic of the multiple currency system.
Annual inflation remained low and stable in 2011 at levels below 5%. While the
national economy recorded positive growth, the Company continued to face
recapitalisation challenges, although registering growth in production volumes
and revenues.
The appreciation of the South African Rand against the US$ in 2011 generated
adverse inflationary pressures and this affected the cost of imported spares.
Lending rates remained relatively high, largely sustained by persistent
liquidity shortages, high credit demand, high associated risks and limited lines
of credit.
The demand for Coal products in the domestic market in 2011 registered marginal
increases. The manufacturing and agricultural sectors operated below capacity
but showed signs of recovery which will spare demand for coal products going
forward.
Coke exports were affected by a decline in demand in both the regional and
international markets, however coal exports demand remained firm on the backdrop
of a global coal production deficit.
PERFORMANCE OVERVIEW
Sales Statistics
Product 2011 2010
HPS coal 1 450 230 1 759 095
HCC/HIC coal 815 538 533 299
Coal Fines 190 975 151 036
Total Coal 2 456 743 2 443 430
Coke (Incl breeze) 74 877 67 513
TOTAL 2 531 620 2 510 943
The company`s sales volume performance had a marginal increase of 1%. Production
volumes though higher than in the previous year, were affected by delays in the
recapitalisation of the Company operations which is long overdue. The major
mining equipment, the dragline had persistent breakdowns during the period under
review.
The acquisition of mining equipment, through a short term funding facility,
initially forecasted for January 2011 only materialized in July 2011. The
repairs to the coke oven battery were done successfully and the Company was now
implementing a rolling rebuild.
Total coal and coke sales for the year at 2 531620 tonnes were comparative to 2
510 943 tonnes sold in 2010. Export sales increased by 27% to 203 096 tonnes
against 160 052 tonnes for the previous year.
The Company`s production mix continued to be in favour of HPS coal that is
supplied to Zimbabwe Power Company (ZPC)`s Hwange Power Station. A total of 1
450 230 tonnes were supplied to the power station compared to the 1 759 095
tonnes delivered the previous year. This is attributed to reduced coal offtake
by Hwange Power Station.
The Hwange Coking Coal (HCC) and Hwange Industrial Coal (HIC) sales volume
amounted to 815 538 tonnes and were 53% above the tonnage of 533 299 tonnes
achieved the previous year. A total of 190 975 tonnes of coal fines were sold
during the year to the local and export markets and this was 26% above the 151
036 tonnes sold the previous year.
Coke sales, including breeze, amounted to 74 877 tonnes and this was 11% above
the 67 513 tonnes sold the previous year. There were significant movements of
coke sales ex stockpile to export customers in the region and mainly to South
Africa.
FINANCIAL PERFORMANCE
In all material respects, the company complied with the International Financial
Reporting Standard (IFRS) and the disclosure requirements of the Companies Act
(Chapter 24:03).
The company achieved a turnover for the year of US$107.9 million and this was 9%
above the US$98.9 million turnover achieved the previous year. Revenue was
affected by low production volumes, slow movement in coke sales and the stagnant
coal prices and low coke prices both local and export. Exports contributed $13.4
million which was13% of turnover for the year compared to $11.9 million or 12%
for the previous year.
The gross profit margin of 32% was slightly lower than the 34% for the
comparative period last year. This was attributed to the sales mix.
The company`s operating profit was US$4.1 million compared to US$9.4 million
achieved in 2010. The share of profit from equity accounted investments amounted
to US$2.2 million compared to a share of profit of US$2.8 million achieved the
previous year.
The attributable profits for the year amounted to US$3.9 million and this was a
36% reduction from the net profit after tax of US$6.3 million achieved the
previous year.
The gain on the revaluation of property plant and equipment amounting to $42
million resulted in total comprehensive income for the year of $43.8 million
compared to last year`s amount of $6.3 million.
The property, plant and equipment increased from US$88.2 million to US$129.4
million mainly because of the revaluation of the assets and new mining equipment
acquisitions.
Current assets were valued at US$62 million and this was comparable to the US$67
million for the previous year.
The current liabilities remained stagnant at US$88 million and comprised mainly
of provisions, trade creditors and borrowings. The company continued to finance
the recapitalization initiatives through short term facilities as there was no
long term structures in the market.
The Company wrote off the long outstanding Commonwealth Development Corporation
and West LB gas pipeline loans amounting to $21 million.
The cash generated from operating activities of US$1.2 million is after taking
into account the effect of the right off of the long outstanding gas pipeline
loans. The company`s cash, cash equivalence and overdrafts at year end stood at
US$1.2 million and was 86% above last year`s balance of US$0.6 million.
DIVIDEND
The Board has resolved not to consider payment of a dividend in view of the
current recapitalization initiatives and the need to turnaround the business.
QUALITY, SAFETY, HEALTH AND ENVIRONMENT
The companysuccessfully 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 again was no fatality during the year.
Provision for the rehabilitation of the mined out areas at the opencast mine has
been increased and expenditure would start in 2012. The company continued with
its programme to mitigate the challenge of the acid mine drainage from the
closed old underground mines and reinforced the oils management programme.
The company`s thrust in health delivery systems and public health programmes is
self-sustainability. The Company managed to prevent adverse diseases like
malaria, cholera and typhoid. The awareness campaigns were used to manage the
HIV and AIDS related diseases.
CORPORATE SOCIAL RESPONSIBILITY
In pursuit of its corporate social responsibility policy, the Company continued
to implement the following programmes centred on the surrounding community,
education, health and sport;
- Administered Hwange town`s commercial activities outside the jurisdiction of
the Hwange Local Board area.
- Administered the six (6) primary schools and one (1) secondary school.
- Operated a fully fledged two hundred (200) bed hospital supported by five (5)
industrial clinics. Also ran a rural clinic outreach programme for Hwange
District communities.
- Supported a skills training programme covering 47 skills upgrade trainees, 7
operatives, 126 apprentices, 32 Cadets, 66 student nurses and 27graduate
trainees.
- Supported various sporting activities in the District as well as other
National sporting activities.
STRATEGIC THRUST
The new Board of Directors has adopted a broad and integrated strategy to
turnaround the fortunes of the Company. Various initiatives have been undertaken
to stimulate organic growth, ranging from cost containment to optimal equipment
deployment, while efforts to raise capital continue. In the short term
structuring equipment seller`s credit remains a key focus. There is anticipated
improved cash-flow performance driven by exports. The export marketing of coal
and coke will enhance business growth. Focus will be on overseas markets, the
SADC region, Asia and Europe.
OUTLOOK
The Zimbabwean economy grew by 8.4% in 2010 and by 9.3% in 2011. Economic
activity is projected to further grow by 9.4% in 2012, underpinned by strong
performance in the finance, mining, manufacturing, tourism, and agriculture
sectors.
The recovery in the manufacturing sector is slow because of lack of long term
finance to recapitalize operations. The expected interventions to boost capacity
utilisation in industry and strong performance by the agricultural sector would
stimulate the rather subdued domestic demand. The envisaged favourable
international commodity prices are likely to result in increased demand in 2012.
The Company`s aggressive export marketing strategy opened prospective markets in
the Asian market. The export drive is anchored on access to port space in
Maputo, Mozambique.
The company is working on securing additional coal concessions in order to boost
its resource and reserves base.
The funding initiatives with a regional developmental financial institution did
not materialize during the year. Efforts in this regard continue.
DIRECTORATE
At the Annual General Meeting (AGM) of 03 August 2011, Messrs.` T Ndlovu, A M
Ngapo and J Nqindi and Ms. R Sibanda retired by rotation in terms of the
Articles of Association and did not seek re-election. A resolution was passed
for the removal of Messrs.` F Chasi, S I Mutumbwa, T Savanhu and Mrs T T Mlobane
and Mrs P Mupfumira, notwithstanding their tenure of office.
At the same AGM, Messrs.` N. S Chibanguza, J Chininga, I C Haruperi, N Jiyane, J
R Mawere, F Mutamangira, L Nkomo, V Vera and Ms. S Mapfuwa, were elected
Directors of the Company.
At the meeting of the Board of Directors held on 17 August 2011, Mr F
Mutamangira was unanimously elected Chairman.
Mr J R Mawere resigned from the Board on 25 August 2011.
APPRECIATION
I would like to thank my fellow Board Members for the commitment demonstrated
since assuming office in August of 2011. My appreciation also goes to the
management team and staff for their continued commitment and support rendered
during the year.
On behalf of the Board of Directors, I would like to express my sincere
gratitude to all the stakeholders for their support to Hwange Colliery Company.
MR. F. MUTAMANGIRA
CHAIRMAN
23 March 2012
ANNUAL REPORT AND FINANCIAL STATEMENTS
The annual report and financial statements for the year ended 31 December 2011
will be distributed to members on or before 31 May 2012 and the annual general
meeting will be held on Friday 29 June 2012.
By Order of the Board
T K Ncube
COMPANY SECRETARY
23 March 2012
STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 31 DECEMBER 2011
2011 2010
USD USD
Revenue 107 98 926
895 986 994
Cost of sales (72 410 017) (65
572 846)
Gross profit 35 33 354
485 969 148
Other income 1 074 865 3 218
774
Other gains and losses 536
707 (504 462)
Marketing costs (1 711 550) (607 962)
Administrative costs (26
(31 255 191) 058 612)
Operating profit 4 130 9 401
800 886
Finance cost (1 828 594) (1 552 929)
Share of profit from equity 2 192 887 2 830 455
accounted investments
PROFIT BEFORE INCOME TAX 4 495 093 10 679 412
Income tax expense (4 447 689)
( 592 831)
PROFIT FOR THE YEAR 3 902 262 6 231 723
Other comprehensive income:
Gain on revaluation of land and 41 981 341 -
buildings
Tax effect of revaluation of (2 099 067) -
land and buildings
Share of other comprehensive - 66 244
income of equity accounted
investments, net of tax
Other comprehensive income, net 39 882 274 66 244
of tax
TOTAL COMPREHENSIVE INCOME FOR 43 6 297 967
THE YEAR 784 536
Attributable earnings per share
- basic
0.02 0.03
- diluted
0.02 0.03
STATEMENT OF FINANCIAL POSITION AS AT 31 DECEMBER 2011
2011 2010
ASSETS USD USD
Non Current Assets
Property, plant and equipment 129 367 047 88 249 605
Investment property 3 700 000 3 700 000
Investments accounted for using 17 652 946 11 835 967
the equity method
Intangible assets 2 228 630 -
152 948 623 103 785 572
Current Assets
Pre-stripped overburden 7 274 611 3 809 866
Inventory 28 16 699
996 129 214
Trade and other receivables 24 616 869 45 289 062
Financial assets at fair value 2 868 2 918
through profit or loss
Bank and cash balances 1 782 574 1 203 216
62 673 051 67 004 276
Total assets 215 621 674 170 789 848
EQUITY AND LIABILITIES
Capital and Reserves
Share capital 45 549 963 45 549 963
Derived equity 4 358 468 4 358 468
Revaluation reserve 39 948 518 39 948 518
Retained earnings 12 723 506 8 887 488
102 580 455 58 795 919
Non current liabilities
Lease liability 1 469 468 2 938 939
Deferred income tax 23 561 518 20 869 620
25 030 986 23 808 559
Current liabilities
Borrowings 23 865 057 26 014 401
Trade and other payables 56 709 502 57 366 782
Provisions 6 358 577 3 848 891
Current income tax liability 1 077 097 955 296
88 010 233 88 185 370
Total equity and liabilities 215 621 674 170 789 848
STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 DECEMBER 2011
Share Derived Revalu- Retained
ation
Capital equity Reserve Earnings Total
USD USD USD USD USD
Balance at 1 45 549 963 4 358 468 - 2 589 521 52 497 952
January 2010
Total - - 66 244 6 231 723 6 297 967
comprehensive
income for
the year:
Profit for - - - 6 231 6 231 723
the year 723
Other - - 66 244 - 66 244
comprehensive
income for
the year
Balance at 31 45 549 4 358 66 244 8 821 58 795
December 2010 963 468 244 919
Balance at 1 45 549 963 4 358 468 66 244 8 821 244 58 795 919
January 2011
Total - - 39 882 274 3 902 262 43 784 536
comprehensive
income for
the year:
Profit for - - - 3 902 262 3 902 262
the year
Other - - 39 882 - 39 882
comprehensive 274 274
income for
the year
Balance at 31 39 948 518 12 723 102 580
December 2011 45 549 963 4 358 468 506 455
STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 31 DECEMBER 2011
2011 2010
USD USD
CASH GENERATED FROM OPERATIONS
Profit before income tax 4 495 093 10 679 412
Adjustment for non-cash items:
Profit from disposal of - (7 117)
property, plant and equipment
Unrealised exchange (gain)/loss (536 757) 589 554
Share of profit from equity (2 192 887) (2 830 455)
accounted investments
Finance cost 1 828 594 1 552 929
Depreciation and impairment 11 829 395 7 638 342
losses
Fair value adjustment on - (85 000)
investment property
Fair value adjustment on 50 ( 92)
financial assets
Operating cash flow before 15 423 488 17 537 573
changes in working capital
Changes in working capital:
Increase in inventory (15 921 007) (5 168 446)
(Increase)/Decrease in pre- (3 464 745) 1 101 510
stripped overburden
Increase in trade and other (1 263 583) (19 311 876)
receivables
Increase in provisions 2 631 487 1 336 585
Increase in trade and other 1 441 787 18 603 686
payables
Cash generated from operating (1 152 573) 14 099 032
activities
Finance cost (1 581 407) (1 389 557)
Net cash generated from (2 733 980) 12 709 475
operating activities
CASH FLOWS FROM INVESTING
ACTIVITIES
Acquisition of property, plant (10 965 496) (11 768 917)
and equipment
Acquisition of mining rights (200 000) -
Acquisition of ERP, other (2 028 630) -
software and development cost
Proceeds from the disposal of - 12 342
motor vehicles
Net cash flows from investing (13 194 126) (11 756 575)
activities
CASH FLOWS FROM FINANCING
ACTIVITIES
Repayment of borrowings (8 278 187)
(10 973 913)
Proceeds from loans raised 24 765 016 9 419 686
Net cash flows from financing 16 486 829 (1 554 227)
activities
Net decrease in cash, cash 558 723 (601 327)
equivalents and bank overdrafts
Cash, cash equivalents and bank 647 420 1 248 894
overdrafts at beginning of the
year
Exchange loss on bank balances (145) ( 147)
Cash, cash equivalents and bank 1 205 998 647 420
overdrafts at end of year
Johannesburg
29 March 2012
Sponsor
Sasfin Capital (a division of Sasfin Bank Limited)
Date: 29/03/2012 09:32:01 Supplied by www.sharenet.co.za
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