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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 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited (`JSE`). The JSE does not, whether expressly, tacitly or implicitly, represent, warrant or in any way guarantee the truth, accuracy or completeness of the information published on SENS. The JSE, their officers, employees and agents accept no liability for (or in respect of) any direct, indirect, incidental or consequential loss or damage of any kind or nature, howsoever arising, from the use of SENS or the use of, or reliance on, information disseminated through SENS.
