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HWANGE COLLIERY COMPANY LIMITED - Year end results

Release Date: 06/05/2019 07:05
Code(s): HWA     PDF:  
 
Wrap Text
Year end results

HWANGE COLLIERY COMPANY LIMITED
(Incorporated in Zimbabwe under registration number 381/1954)
ZSE Share Code: HCCL.ZW ISIN: ZW0009011934
JSE Share Code: HCCL.ZW ISIN: ZW0009011934
LSE Share Code: HCCL.ZW ISIN: ZW0009011934


AUDITED ABRIDGED FINANCIAL RESULTS
For the year ended 31 December 2018


ADMINISTRATOR’S STATEMENT

On behalf of the administration team, I present the audited financial results of Hwange Colliery Company
Limited for the year ended 31 December 2018.



FINANCIAL PERFORMANCE



The Company’s performance worsened in 2018 in comparison to the 2017 financial year. The loss for the
year increased by 79% from US$43.8million recorded in 2017 to US$78.4million during the year under
review.



Revenue increased by 27% from US$54.5 million in 2017 to US$69.1 million in 2018. This increase is
attributed to increased sales volume from the 1.2 million tonnes recorded in 2017 to 1.5 million tonnes in
2018.



PERFORMANCE



The financial performance was poor against comparable period in 2017 despite increased production and
sales volumes mainly as a result of the impairment of some assets as well as subdued coal prices against
increased input costs. The company’s performance for the period under review also fell short of
budgetary targets. This was due to low production levels attributable to working capital constraints.
Monthly production average was 150,000 tonnes compared to the budgeted monthly production of
300,000 tonnes. As a result, the Company failed to meet the market demand.

Total sales tonnage was 1,522,209 tonnes against a budget of 3,541,860 compared to 1,288,485 and
3,607,799 respectively recorded in 2017. Cost of sales increased by 36% as a result of increased input
cost which was driven by the parallel market exchange rate that was being used by most suppliers to
charge their products in RTGS.



REVIEW OF OPERATIONS



As demonstrated by the improved sales and production volumes, there are signs of recovery despite the
widening of the loss position which was mainly a result of impairment of assets and striping activity assets
written off which contributed about $27m. The strategic priorities for the Company’s year-end were the
following;



a)      Increased Production and Sales.

During the year under review, the Company focused on increasing production and sales. Production
increased to 1.79 million tonnes from the 1.2 million tonnes recorded in 2017 and sales increased to 1.5
million tonnes from the 1.2 million tonnes recorded in 2017.



b)      Open Cast Mining

The Company’s own open cast operation contributed 366,959 tonnes for the year which represents 20%
of the total year end production and the contractor operation contributed 1,220,859 tonnes for the year
which represents 68% of the total year end production. There is need to increase own production to over
50% of total production going forward. There were constraints in the logistics and processing section of
the value chain which are being addressed. Coal movement was largely by road which is an expensive
mode of transportation. The revival of the National Railways of Zimbabwe and our own conveyor belt to
the power station will come as a solution to the logistical requirements for the product to reach to
customers in a cost-effective way. Efforts continue to be made to secure working capital.




c)      Optimization of Underground Mine Operations

The Company continued to optimise underground mine operations and managed to do over 35 000
tonnes for the best month and the aim is to increase production to 50 000 tonnes per month. While the full
production of the underground mine operations were delayed, it’s a sign towards recovery as production
of high value products is set and the Company’s capacity to generate export sales from coking coal and
coke is enhanced. Foreign currency remained a challenge during the year, as most of the underground
equipment spares are imported from South Africa.



d)      Coke Production

The Company is still pursuing takeover project of the Hwange Coal Gasification Company (HCGC) Coke
oven battery pursuant to a BOOT Agreement with its Chinese partners in HCGC. Engagements remain in
place to ensure that this is achieved without placing risk on the Company. The Company has placed more
emphasis and attention on the building of its own coke oven battery going forward.



e)      Cost reduction

The Company adopted a low-cost high productivity strategy. This has enabled the Company to
significantly reduce its costs. The employment costs have reduced owing to the short time working
arrangement as well as revision of employment benefits in line with industry best practice as well as
Company’s capacity to pay. The strategy was however negatively affected by the macroeconomic
environment which pushed prices of inputs up.



f)      Improve efficiencies and competitiveness
As the Company increases the thrust on the core business of mining, it will also look at ways of allowing
other entities to assist in the running of town services such as road maintenance, electrical power
distribution and sewage treatment. The adoption of enterprise resource planning systems to automate the
administration of the business will also improve efficiencies and lower the cost per ton of coal produced.



OUTLOOK



Strategic plans to unearth the Company’s potential are being developed and these include:-



a)      Increasing the volume of high value and high margin coking coal

The company will continue to focus more on underground mine operations and opencast operations at
the JKL pit in order to increase high value coking coal in the product mix.



b)      Toll coking and replacement of Hwange Colliery’s Coke Oven Battery



The company will pursue toll coking arrangements with the available coke oven batteries in order to
generate foreign currency from the export of coke in the medium to long term. The company will also
consider options to construct own coke oven battery using the cheaper modern technologies.



c)      Fixed and mobile plant repair and restoration of full capacity

As a mine that has operations spread-out on a wide geographic area, it is important to use efficient
means of transporting coal from the pits to the processing plants and the rail siding. Therefore, the repair
and full capacity restoration of the coal handling plant, conveyor belts and the No 2 processing plant is a
key enabler for high volume and least cost production. Urgent attention will be to increase excavators,
repair the HMS plant and acquire the third shuttle car for underground.



d)      Development of new Concessions

The life of mine at the current open cast operations is estimated to be less than 10 years. Therefore, the
non-renewal of the Western Areas coal fields mining rights threatens the future of the company as well as
the 25-year coal supply agreement which was signed with the Zimbabwe Power Company’s Hwange
Power Station Stage 3 expansion. These new developments require the company to plead for the
renewal of the western areas or get alternative reserves around the current mining areas if there are any
chances to supply stage 3 expansion with coal and also guarantee of the opencast mining operations to
beyond 10 years.



e)      Increase volume of export sales

Given the deliberate focus on increasing the mix of high value and margin coking coal and coke, the
Company will grow its market share in the neighbouring countries. Hwange Colliery’s coking coal and
coke meets exacting quality specifications in the ferro-chrome industries and smelters. In collaboration
with the National Railways of Zimbabwe, the Company will develop dedicated solutions for the delivery of
coking coal and coke products to customers in the region and within the country.



Zimbabwe Stock Exchange and JSE Limited LISTING

The company’s Listings on the Zimbabwe Stock Exchange and the JSE Limited was suspended on 02
November 2018 and remains suspended.



DIRECTORATE



During the year under review Hwange Colliery Company was placed under reconstruction in terms of
section 4 of the reconstruction of State-Indebted Insolvent Companies Act (chapter 24:27). I was
appointed as administrator, assisted by: Mutsa Mollie Jean Remba & Munashe Shava.

Owing to the above Messrs Muskwe J, Vera V, Masuku N and Tome E.N ceased to be non-executive
directors of Hwange Colliery Company Limited with effect from 26 October 2018.



APPRECIATION

I would like to express my gratitude to the administration team, management and Staff for their collective
efforts and dedication to the Company.



B. Moyo (MR)

Administrator

26 April 2019



Auditor’s Statement

The summary of the financial statements should be read in conjunction with the full set of audited
financial statements of Hwange Colliery Company Limited for the year ended 31 December 2018 which
have been audited by Independent Auditors Messrs Grant Thornton Chartered Accountants Zimbabwe.
The audit opinion on the company’s financial statements is an adverse opinion in respect of going
concern status of the company; non-compliance with International Accounting Standard 21, The effects of
Changes in Foreign Exchange Rates; and the inclusion of the Financial results of the company’s
investments in associates and joint venture company for the year ended 31 December 2018 which have
not been audited.



The audit report includes a section on key audit matters comprising of allowance for credit losses,
recognition of revenue, valuation of inventory for coal and coal related products; provision for
rehabilitation, understatement of payables and taxation



CONDENSED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME
FOR THE YEAR ENDED 31 DECEMBER 2018

                            Notes                       2018               2017
                                                        USD                 USD
Revenue                      5                    69 144 019         54 497 858
Cost of Sales                                   (72 540 235)       (53 150 059)
Gross (loss)/profit                              (3 396 216)          1 347 799
Other Income                 7                     1 312 918            795 358
Other gains and losses       8                             -             (3 609)
Marketing Costs                                    (584 759)        (1 232 479)
Administrative costs                            (32 261 863)       (25 098 637)
Impairment of assets         14                 (19 607 454)                   -
Care and maintenance                             (6 314 355)                   -
Loss on disposal of                                        -        (6 521 040)
treasury bills
Operating loss before                           (60 851 728)       (30 712 608)
interest and tax
Finance costs                9                  (17 614 462)       (13 062 019)
Share of profit/(loss)
from equity accounted
investments                  10                       23 507           (63 113)
Loss before tax              11                 (78 442 683)       (43 837 740)
Income tax expense           12                            -                  -
Loss of the year                                (78 442 683)       (43 827 740)
Other Comprehensive
income
Share        of     other
comprehensive income
of equity accounted                                        -                   -
investment, net of tax
Other comprehensive
income, net of tax                                         -                   -
Total     comprehensive
loss for the year                               (78 442 683)       (43 837 740)
Attributable loss per       13.1                      (0.43)             (0.24)
share -basic
-diluted                    13.2                      (0.43)              (0.24)
Headline      Loss    per
share - basic               13.3                      (0.31)              (0.20)
-diluted                    13.4                      (0.31)              (0.20)




CONDENSED STATEMENT OF FINANCIAL POSITION AS AT 31 DECEMBER 2018

                            Notes                      2018               2017
                                                       USD                USD
ASSETS
Non current assets
Property, plant and          14                  80 135 517        107 569 137
equipment
Investment Property         15                   4 490 000          4 490 000
Investments accounted
for using the equity        16                  14 776 538         14 753 031
Intangible assets           17                     486 448            699 311
Inventories – non
current portion             18                   6 812 230          8 138 714
Stripping activity asset    19                   1 471 273                  -
                                               108 172 006        135 650 193
Current assets
Stripping activity asset                                 -          8 871 563
Inventories                 20                  16 948 244         13 413 017
Trade and other             21                  31 914 245         31 427 775
receivables
Cash and cash               23                   1 562 699          8 864 181
equivalents
                                                50 425 188         62 576 536
Total Assets                                   158 597 194        198 226 729
Equity and liabilities
Capital Reserve
Share capital               24                  45 962 789         45 962 789
Share Premium                                      577 956            577 956
Non-distributable
reserve                                          4 358 468          4 358 468
Revaluation reserve                             39 948 518         39 948 518
Accumulated losses                           (380 872 376)      (302 429 693)
                                             (290 024 645)      (211 581 962)
Non current liabilities
Finance lease and           25                    500 000               600 000
liability
Borrowings                 26.1                169 393 312        150 312 838
Long term creditors         27                 212 511 251        210 226 850
Income tax liability                            10 054 850         10 054 850
                                               392 459 413        371 194 538


Current Liabilities
Finance lease liability     25                     811 190            390 959
Borrowings                 26.2                    545 455                  -
Trade and other             27                  38 644 022         24 364 013
receivables
Provisions                  28                  16 161 759         13 859 171
                                                56 162 426         38 614 153
Total equity and                               158 597 194        198 226 729
liabilities


CONDENSED STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 31 DECEMBER 2018

                           Notes    2018               2017
                                     USD                USD
Loss before tax               (78 442 683)       (43 837 740)
Adjustment for non-
cash items:
Foreign exchange loss                     -           3 609
Insurance claim             7     (304 243)           (129)
Finance cost                9    17 614 462      13 062 019
Impairment of assets       14    19 607 454               -
Inventory write down of
spares products                   3 408 769               -
Depreciation               14    11 993 174      13 399 288
Share of profit/(loss)
from equity accounted
investments                        (23 507)          63 113
Amortisation               17       212 863         269 530
Treasury bills discount           (892 349)               -
reversal
Discount received                   441 721      (1 756 767)
Operating cash flow
before changes in               (27 267 781)    (18 797 077)
working capital
Changes in working
capital:
(Increase)/decrease in           (2 208 743)      2 895 528
inventory
Decrease/(Increase) in            7 400 290      (8 871 563)
stripping activity asset
Increase in receivables           (486 470)     (13 132 468)
Increase in provisions            2 302 588        2 695 829
Increase/(decrease) in           14 280 009    (212 673 109)
trade and other
payables
Cash utilised in                 (5 980 107)   (247 882 860)
operating activities
Interest paid                    (1 254 171)               -
Net cash flows utilised
in operating activities
                                 (7 234 278)   (247 882 860)
Cash flows from
investing activities
Acquisition of property,         (4 167 008)     (1 707 063)
plant and equipment
Cash flows from
financing activities
(Decrease)/increase in           (5 896 901)    210 226 850
long term creditors
Proceeds from                    12 789 048      52 284 000
borrowings
Repayment of                     (2 792 343)     (4 335 506)
borrowings
Proceeds from                              -            129
insurance
 Net cash flows
 generated from                   4 099 804      258 175 473
 financing activities
 Net decrease in cash
 and cash equivalents            (7 301 482)       8 585 550
 Cash and cash
 equivalents at                   8 864 181          278 631
 beginning of the year
 Cash and cash
 equivalents at end of    23      1 562 699        8 864 181
 year


CONDENSED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 DECEMBER 2018



                                                          Non-
                             Share       Share    distributable    Revaluation    Accumulated
                            Capital   Premium        Reserves         Reserve          Losses                Total
                              USD         USD             USD            USD              USD                USD

 Balance as at 1         45 962 789   577 956       4 358 468      39 948 518     (258 591 953)       167 744 222
 January 2017
 Total                            -           -               -               -    (43 837 740)       (43 837 740)
 comprehensive
 loss for the year
 Balance at 31           45 962 789   577 956       4 358 468      39 948 518     (302 429 693)      (211 581 962)
 December 2017
 Balance at 1            45 962 789   577 956       4 358 468      39 948 518     (302 429 693)      (211 581 962)
 January 2018
 Total                            -           -               -               -    (78 442 683)      (784 422 683)
 comprehensive
 loss for the year
 Balance at 31           45 962 789   577 956       4 358 468      39 948 518     (380 872 376)      (290 024 645)
 December 2018




NOTES TO THE ABRIDGED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018

    1. Nature of operations and general information
       Hwange Colliery Company Limited is a Company whose principal activities include extraction,
       processing and distribution of coal and coal products and provision of health services and various
       retail goods and services. Its activities are grouped into the following three (3) areas:
           i)   Mining - the extracting, processing and distribution of coal and coal products.
           ii)  Medical services - provides healthcare to staff members and the surrounding community
           iii) Estates - the division provides properties for rental and sell retail goods and services

The Company is a limited liability Company incorporated and domiciled in Zimbabwe. It is listed primarily
on the Zimbabwe Stock Exchange (ZSE), and has secondary listing on the Johannesburg Stock
Exchange

(JSE) and London Stock Exchange (LSE).
The company’s financial statements were authorised for issue by the Administrator on 26 April 2019



Functional and presentation currency

These financial statements are presented in United States Dollars being the functional and reporting
currency of the primary economic environment in which the Company operates. The continued
constrained exchangeability between the United States Dollars and Real Time Gross Settlement or Bond
notes and coins require application of IAS 21: The Effects of Changes in Foreign Currency Rates.
However, the Company was not able to comply with the requirements of this standard due to the need to
adhere to the requirements of Statutory Instrument 33 of 2019.



Use of estimates and judgements – Determination of the functional currency

In 2009, the Government introduced the multi-currency regime. The United States Dollar (USD) became
the principal trading currency and was accepted as both the functional and presentation currency by most
entities in Zimbabwe including the Company. Due to the shortages of foreign currency, which started in
2016 the Reserve Bank of Zimbabwe introduced significant monetary and exchange control policies
between 2016 to date. The following are some of the major policies introduced:

    1. Introduction of government directives to open the Real Time Gross Settlement System (RTGS) to
       use other currencies (i.e. ZAR etc.) and the requirement for entities to further adopt and embrace
       multi-currencies.
    2. Introduction of $200 million worth of bond notes in addition to the bond coins initially issued at 1:1
       rate to the USD.
    3. Promulgation of new legislation in the form of statutory instruments 122A of 2017 that defines
       currency to include bond notes and coins only for the purposes of the regulations. Statutory
       Instrument 122A of 2017 was crafted with the objective of curbing illegal dealings in currency and
       giving the police special powers to confiscate the currency notes.
    4. Priority listing of foreign payments which brought an impact on the timing of settlement of foreign
       payables.
    5. The separation of RTG FCA accounts and Nostro FCA accounts with effect from 15 October
       2018.

The shortage of cash and funded Nostro bank accounts saw the emergence of different prices for goods
and services settled via Real time Gross Settlement System (RTGS), Point of sale (POS) and mobile
money. As a result of this and other factors, the Administrators had to make an assessment to determine
whether the use of the USD as the Company’s functional currency is still appropriate and are the financial
statements complying with the guidelines of IAS 21. The different modes settlement does not result in
change in functional currency. The Administrator concluded that the USD is still the functional currency
for the Company and the RTGS$ for year under review was pegged at as 1:1 with the US$.

    2   Statement of Compliance
        The abridged financial results of the Company have been prepared using accounting policies
        consistent with International Financial Reporting Standards (IFRS) and International Accounting
        Standards (IASB). The same accounting policies, presentation and methods followed in the
        abridged financial results are as applied in the Company latest annual financial statements. The
        Company’s partially complied with the International Financial Reporting Standards due to the
        requirements to comply with Statutory Instrument 33 of 2019.

    3   Changes in accounting policies
   3.1       New and revised IFRS affecting amounts reported and/or disclosures in the financial
             statements

             In the current year, the Company applied a number of new and revised IFRSs issued by the
             International Accounting Standards Board (IASB) that are mandatorily effective for an
             accounting period that begins on or after 1 January 2018. The amended standards,
             described below, did not have a material impact on the financial position or performance of
             the Company: -

             IFRS 9, Financial Instruments,
             IFRS 9 replaces IAS 39 ‘Financial Instruments: Recognition and Measurement’. It makes
             major changes to the previous guidance on hedge accounting, classification and
             measurement of financial assets and introduces an ‘expected credit loss’ model for the
             impairment of financial assets.

             There were no differences arising from the adoption of IFRS 9 in relation to classification,
             measurement and impairment of financial instruments.


The adoption of IFRS 9 has impacted the following areas:


   •     The classification and measurement of the Company’s financial assets. Management holds
         financial assets to hold and collect the associated cash flows.
   •     The impairment of financial assets applying the expected credit loss model. This affects the
         Company’s trade receivables measured at amortised cost. For contract assets arising from IFRS
         15 and trade receivables, the Company applies a simplified model of recognising lifetime
         expected credit losses as these items do not have a significant financing component.

   3.2       New Standards, amendments and interpretations to existing standards that are not yet
             effective and have not been adopted early by the Company

              IFRS 16 ‘Leases’
              IFRS 16 will replace IAS 17 and three related interpretations. It completed the IASB’s long-
              running project to overhaul lease accounting. Leases will be recorded on the statement of
              financial position in the form of a right-of-use asset and a lease liability. IFRS 16 is effective
              from periods beginning on or after 1 January 2019. Management is yet to fully assess the
              impact of the Standard and therefore is unable to provide quantified information. However, in
              order to determine the impact, the Company is in the process of:
   •     performing a full review of all agreements to assess whether any additional contracts will now
         become a lease under IFRS 16’s new definition.
   •     deciding which transitional provision to adopt; either full retrospective application or partial
         retrospective application (which means comparatives do not need to be restated). The partial
         application method also provides optional relief from reassessing whether contracts in place are,
         or contain, a lease, as well as other reliefs. Deciding which of these practical expedients to adopt
         is important as they are one-off choices.
   •     assessing their current disclosures for finance leases and operating leases as these are likely to
         form the basis of the amounts to be capitalised and become right-of-use assets
   •     determining which optional accounting simplifications apply to their lease portfolio and if they are
         going to use these exemptions.

   4     Summary of accounting policies
     4.1    Overall considerations
            The financial statements have been prepared using the measurement bases specified by
            IFRSs for each type of asset, liability, income and expense. The measurement bases are
            more fully described in the accounting policies below.

     4.2    Investment in associates and joint ventures
            Investment in associates and joint ventures are accounted for using the equity method

            The carrying amount of the investments is increased or decreased to recognise the
            Company’s share of the profit or loss and other comprehensive income of the associate or
            joint venture. These changes include subsequent depreciation, amortisation or impairment of
            the fair value adjustments of the assets and liabilities

            Unrealised gains/losses on transactions between the Company and its associates or joint
            ventures are eliminated to the extent of the Company’s interest in those entities. Where
            unrealised losses are eliminated, the underlying asset is also tested for impairment.


     4.3    Revenue Recognition
            Revenue comprises revenue from the sale of goods and the rendering of services. Revenue
            is measured by reference to the fair value of consideration received or receivable by the
            company for goods supplied and services provided, excluding sales taxes, rebates, and trade
            discounts.

     4.4    Operating expenses
            Operating expenses are recognised in profit or loss upon utilisation of the service or at the
            date of their origin. Expenditure for warranties is recognised and charged against the
            associated provision when the related revenue is recognised.

     4.5    Finance costs
            Finance costs are reported on an accrual basis using the effective interest method.



NOTES TO THE ABRIDGED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018



                                                                        2018                      2017
                                                                        USD                       USD
 5                         Revenue
                           Mining                                56 787 889                 44 292 950
                           Medical services                       2 045 280                    668 434
                           Estates                               10 310 850                  9 536 474
                                                                 69 144 019                 54 497 858


6 Segment reporting

For management purposes, the Company is organised into divisions based on its products and services
and has three reportable segments, as follows:

I) Mining – the extracting, processing and distribution of coal and coal products
ii) Medical services – provides healthcare to staff members and the surrounding community, and

iii) Estates – the division provides properties for rental and sell retail goods and services.

No operating segments have been aggregated to form the above reportable operating segments.



Management currently identifies the Company’s three business lines as its operating segments. These
operating segments are monitored by the Company’s management and strategic decisions are made on
the basis of adjusted segment operating results.

The Company’s revenues from external customers are divided into the following geographical areas:

                            Sales within Zimbabwe                   66 786 802                   51 970 674
                            Sales elsewhere in                       2 357 217                    2 527 184
                            Sub-Saharan Africa
                            Total Revenue                           69 144 019                   54 497 858
 7                          Other Income
                            Insurance claims                           304 243                         129
                            Rental income                              465 525                     528 879
                            Sale of scrap metal                        241 624                      90 037
                            Sundry income                              301 526                     176 313
                                                                     1 312 918                     795 358
 8                          Other     gains    and
                            losses
                            Foreign exchange loss                              -                    (3 609)
 9                          Finance costs
                            Interest on loans and
                            overdrafts                              17 485 367                   12 884 362
                            Interest on leases                         129 095                      177 657
                                                                    17 614 462                   13 062 019


Interest on loans and overdraft comprise of interest charged on the Government of Zimbabwe debt at a
rate of 7% per annum, ZAMCO and EXIM loan and finance lease facilities at an interest rate of 7% and
LIBOR + 3.5% per annum respectively.

10 Share of losses from equity accounted investments

Included in this amount is the Company’s share of loss after tax from:

                            Clay Products                               23 507                     (63 113)
                            (Private) Limited
                            Hwange Coal                                        -                          -
                            Gasification Company
                                                                        23 507                     (63 113)
 11                         Loss before tax
                            Loss before tax for the
                            year has been arrived
                            at after charging the
                            following:
                            Expected credit losses                   1 164 968                    2 891 699
                            Amortisation                               212 863                      269 530
                            Annual licence fees –                            -                      125 000
                            mining rights
                            Audit fees                                  91 375                       91 375
                           Depreciation on                          11 993 174                   13 399 288
                           property, plant and
                           equipment
                           Impairment of assets                     19 607 454                            -
                           Directors’
                           emoluments:
                                   -    Executive                      441 065                     439 606
                                        Directors
                                   -    Non-                            71 370                     143 319
                                        Executive
                                        Directors

                           Employee benefits                        19 094 941                  26 783 564
                           expense
                           Retrenchment                                     -                    2 346 042
                           package
                           Loss on disposal of                              -                    6 521 040
                           Treasury bills  

 11.1                   Employee benefits
                        expense
                        Salaries and other                         17 816 032                   25 175 753
                        contributions
                        Contribution to Mining                        974 373                    1 056 360
                        Industry Pension Fund
                        Contribution to                               304 536                      551 451
                        National Social
                        Security Authority
Employee benefit expense amounting to USD 6 694 782 (2017: USD 11 558 294) was charged directly to
cost of sales.

 12                        Income tax

 12.1                      Current tax
                           Current tax                                          -                          -
                           Deferred tax                                         -                          -
                           Income tax
                           (credit)/expense
 13                        Loss per share
 13.1                      Basic
                           Loss attributable to
                           shareholders                         (78 442 683)              (43 837 740)
                           Weighted        average
                           number of ordinary
                           share issue                           183 720 699               183 720 699
                           Basic loss per share
                                                                       (0.43)                     (0.24)


Basic loss per share is calculated by dividing the loss attributable to shareholders by the weighted
average number of ordinary shares purchased by the Company and held as treasury shares.



13.2 Diluted
        For diluted loss per share the weighted average number of ordinary shares in issue is adjusted to
        assume conversion of all dilutive potential ordinary shares.

        The Company has one category of dilutive potential ordinary shares being share options granted
        to employees.

The loss used in the calculation of all diluted loss per share measures are the same as those for the
equivalent basic loss per share measures, as outlined above.

                            Loss used to determine
                            diluted loss per share
                                                                  (78 442 683)              (43 837 740)
                            Weighted average
                            number of ordinary                    183 720 699                183 720 699
                            shares in issue
                            Diluted loss per share                       (0.43)                    (0.24)


13.3 Headline loss per share

        Headline loss per share excludes all items of a capital nature and represents an after-tax amount.
        It is calculated by dividing the headline loss shown below by the number of shares in issue during
        the year.

                            IAS 33 – Loss for the                 (78 442 683)              (43 837 740)
                            year
                            Non-recurring items:
                            Proceeds on sale of                      (241 624)                   (90 037)
                            scrap
                            Retrenchment costs                              -                  4 382 064
                            Impairment costs                       19 607 454                          -
                            Stripping activity asset
                            impairment                              7 400 290                           -
                            Loss on disposal of
                            treasury bills                           (892 350)                 6 521 040
                            Tax effect of the above                (4 756 921)               (2 260 089)
                            Headline loss                         (57 325 834)              (35 284 762)
                            Weighted average
                            number of ordinary                    183 720 699                183 720 699
                            shares in issue
                            Headline loss per share                      (0.31)                    (0.19)
           13.4             Diluted headline loss
                            per share
                            Loss used to determine
                            diluted headline loss                 (57 325 834)              (35 284 762)
                            per share
                            Weighted average
                            number of ordinary                    183 720 699                183 720 699
                            shares in issue
                            Diluted headline loss                        (0.31)                    (0.20)
                            per share
            14              Property, plant and
                            equipment
                            Carrying amount at the                 107 569 137                119 261 362
                            beginning of the year
                            Additions                                4 167 008                  1 707 063
                            Impairment                            (19 607 454)                          -
                            Depreciation                          (11 993 174)               (13 399 288)
                            Carrying amount at the
                            end of year                             80 135 517                107 569 137


NOTES TO THE ABRIDGED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018



14.1 Finance Lease arrangements

        The Company has certain property that is held under a finance lease arrangement. As at 31
December 2018, the carrying amount of the property is USD 670 931 (2017: USD 720 931) included in
freehold land and buildings. Finance lease liabilities are secured by the related assets held under finance
leases.

            15              Investment property
                            Valuation at 1 January                   4 490 000                  4 490 000
                            Fair value gains
                            (included in other gains                           -                          -
                            and losses)
                            Valuation at 31                          4 490 000                  4 490 000
                            December


The following amount has been recognised in the statement of comprehensive income:

                            Rental income                              465 525                    528 879
            16              Investments accounted
                            for using the equity
                            method
                            Investments in                              23 507                            -
                            associates
                            Investments in joint                    14 753 031                 14 753 031
                            venture
                                                                    14 776 538                 14 753 031
           16.1             Investments in
                            associates
                            Carrying amount as at                              -                   63 113
                            1 January
                            Share loss                                  23 507                    (63 113)
                            Carrying amount as at
                            31 December                                 23 507                            -


The Company holds a 49% voting and equity interest in Clay Products (Private) Limited. Hwange Colliery
Company Limited also holds 44% voting and equity interest in Zimchem Refineries (Private) Limited. The
investments are accounted for under the equity method.
The shares are not publicly listed on a stock exchange and hence published price quotes are not
available. The aggregate amounts of certain financial information of the associates can be summarised
as follows:



        16.2 investment in joint venture

                              Carrying amount as at                   14 753 031           14 753 031
                              1 January
            17                Intangible assets
                              Carrying amount at the
                              beginning of the year                      699 311               968 841
                              Amortisation                             (212 863)             (269 530)
                              Carrying amount at the
                              end of year                                486 448              699 311


The Company has an enterprise resource planning (ERP) software that supports the administration and
control of the Company. Some modules for mine planning and marketing are still to be developed. Mining
rights comprise coal mining claims which are yet to be mined. No intangible assets have been pledged as
security for liabilities.

The company has four (4) mining concessions, Hwange Concession, Lubimbi East and Lubimbi West.
The special grants, Lubimbi East and Lubimbi West measure 9 648, 4 200 and 10 995 hectares of
minable area respectively and were awarded by the government of Zimbabwe on 31 July 2015.

            18                Inventories – non
                              current portion
                              Balance at 1 January                     9 732 259           10 683 011
                              Additions to stockpiles                    281 260                    -
                              Sales                                  (1 205 808)            (950 752)
                              Balance at 31                            8 807 711            9 732 259
                              December
                              Balance at end of year
                              is classified as follows:
                              Non-current portion                      6 812 230            8 138 714
                              Current portion                          1 995 481            1 593 545
                              (included inventories)
                                                                       8 807 711            9 732 259


The Company accumulated coal fines over the years for which an active market was identified in 2009.
Coal fines in excess of the average annual uptake of the product have been classified as non-current
assets.

No coal fines were written down in 2018 (2017: USD nil)

19 Stripping activity asset

 Balance at 1 January                               8 871 563             -
 Current year pre-stripping costs                   -             8 871 563
 provision for impairment                           (7 400 290)           -
 Balance at 31 December                             1 471 273     8 871 563
 Balance at end of year allocated as follows
 Non-current assets                                 1 471 273           -
 Current Assets                                            -      8 871 563
 Balance at end of year                             1 471 273     8 871 563
 20.Inventories
 Raw materials/consumables                          6 150 610     9 144 097
 Finished goods
 -Coal                                              8 802 153     2 675 375
 -Coal Fines (note 18)                              1 995 481     1 593 545
                                                   16 948 244    13 413 017

During the year ended 31 December 2018, a total of 3 408 769 (2017: USD 307 544) worth of inventories
was included in profit and loss as an expense resulting from write down of inventories to net realisable
value.

No reversal of previous write-downs was recognised as a reduction of expense in 2018 (2017: nil)



21. Trade and other receivables


 Trade receivables, gross                              33 414 497             45 444 344
 Allowance for credit losses                           (24 595 962)           (23 430 994)
 Trade receivables, net                                8 818 535              22 013 350
 Other receivables                                     23 095 710             9 414 425
                                                       31 915 245             31 427 775

All amounts are short-term. The net carrying value of trade receivables is considered a reasonable
approximation of fair value.



The Company adopted IFRS 9 “Financial instruments” from 1 January 2018 which resulted in changes in
the accounting policy on trade receivables. The Company elected the simplified approach to measuring
expected credit losses which uses a lifetime expected loss allowance for all trade receivables and
contract assets. To measure the expected credit losses, the credit risk and credit profile of each
receivable was considered on an individual basis.



22 Related party balances and transactions



Included in the trade receivable and trade payable balances are related party balances that resulted from
transactions that occurred between Hwange Colliery Company Limited and its related parties


                          Related party
                          receivables
                          Hwange Coal                            6 731 667                15 229 281
                          Gasification Company
                          Clay Products
                          (Private) Limited                         53 766                    53 341
                          Zimchem                                  238 077                   235 581
                                                                 7 023 510                15 518 203

                          Related party
                          payables:
                          Hwange Coal                            4 338 672                14 011 004
                          Gasification Company
                          Zimchem Refineries                        24 639                    39 666
                          (Private) Limited
                                                                 4 363 311                14 050 670
                          Transactions with
                          Hwange Coal                            5 549 868                 4 833 006
                          Gasification Company
                          (HCGC)
                          Transactions with Clay
                          Products (Private)
                          Limited                                 62 533                       7 705
                          Transactions with
                          Zimchem Refineries
                          (Private) Limited                       26 645                     19 481
                          Loans from                         138 174 513                119 955 416
                          shareholders  
                          Transactions with key
                          management                           3 559 978                  3 285 191
                          personnel

23 Cash and cash equivalents



For the purposes of statement of cash flows, cash and cash equivalents include cash on hand in banks
net of outstanding bank overdrafts



                          Bank and cash                           1 562 699                8 864 181
                          balances


NOTES TO THE ABRIDGED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018

                                          2018         2017
                                           USD          USD
  24   Share capital
       Authorised
       204 000 000 ordinary
       shares of USD0.25           51 000 000    51 000 000
       each
       Issued and fully paid
       110 237 432 Ordinary
       shares of USD0.25           27 559 358   27 559 358
       each
       5 925 699 Ordinary
       shares issued under
       share option scheme          1 514 039   1 514 039
       67 557 568 “A”
       Ordinary shares of         16 889 392   16 889 392
       USD0.25 each
                                  45 962 789   45 962 789
25     Finance Lease Liability
       Non-current                   500 000      600 000
       Current                       811 190      390 969
                                   1 311 190      990 969
       The finance lease
       liability carrying
       amount is disclosed as
       follows:
25.1   OK Zimbabwe
       Long term portion            500 000       600 000
       Add: short term portion      811 190       390 969
       Finance lease liability
       Principal                   1 000 000     1 000 000
       Accrued interest
                                     311 190       (9 031)
                                   1 311 190      990 969
 26    Borrowings
26.1   Long term loans
       Export Import Bank of
       India (EXIM)               14 430 000    13 703 666
       Government of             138 174 513   119 955 416
       Zimbabwe
       Zimbabwe Asset
       Management                 16 788 799    16 653 756
       Corporation (ZAMCO)
                                 169 393 312   150 312 838
       Less – Current portion
       of long-term loans                  -             -
                                 169 393 312   150 312 838
26.2   Short term loans
       CBZ                          545 455              -
27     Trade and other
       payables-current
       Trade                      16 478 846     9 383 539
       Other                      22 165 176    14 981 474
                                  38 644 022    24 364 013
       Trade and other
       payables – long term
       trade                      89 873 683    73 277 839
       Other                     122 637 568   136 949 011
                                 212 511 251   210 226 850
28     Provisions
       Provisions for
       rehabilitation              8 683 675     7 217 507
       Other provisions
                                   7 478 084     6 641 664
                                  16 161 759    13 859 171
       28.1  Provisions for
             rehabilitation
             At 1 January charged
             to profit or loss:     7 217 507    6 371 883
             Additional provisions
             made during the year   1 466 168      845 624

             At 31 December         8 683 675    7 217 507
       28.2 Other provisions
            Death benefits          4 095 801    3 528 559
            Leave pay and bonus
            provisions              3 382 283    3 113 105

                                    7 478 084    6 641 664


29 Going concern

The Company is experiencing the following challenges which have an effect on its ability to continue
operating as a going concern:

29.1 Recurring losses

The Company incurred a loss for the year of USD 78 442 683 (2017: USD43 837 740). The increase in
the reported loss by the Company is mainly attributable to non-recurring expenditure recognised by the
Company through the impairment of assets amounting to USD 27 007 744.



29.2 Negative Equity

As at 31 December 2018, the Company’s total liabilities exceeded total assets resulting in a negative
equity position of USD290 024 645 (2017: USD 211 581 962). This is attributable to recurring losses
which eroded the capital and reserves.



29.3 Low machine availability

        The Company experienced low machine availability mainly as a result of technical challenges
        faced in operating the equipment and inadequate working capital



        In view of the above, the Administrators have assessed the ability of the Company to continue to
        operate as a going concern and are of the view that the preparation of these financial statements
        on a going concern basis is appropriate as supported by the following plans which are intended to
        address these challenges.



        Hwange placed under reconstruction

        Hwange Colliery Company Limited has been placed under reconstruction in terms section 4 of
        the reconstruction of State-indebted insolvent Companies Act (chapter 24:27). This was done to
        rescue the company from current difficulties which resulted in liabilities of the company exceeding
        assets which is technical insolvent. This is expected to give a professional and fresh approach to
        try and give the company a chance to overcome the bottlenecks which were centered on poor
        production and sales volumes.



        Comprehensive production and sales plan

        The company has put in place a comprehensive production and sales plan which will be driven by
        own mining at 3 main underground mine and JKL opencast mine. This plan will see 3 mains
        producing an average of 35 000 MT per month of high value coking coal in the first of 2019 and
        will increase production to 40 000 MT per month in July and to 50 000 MT in October 2019. JKL
        operation will produce an average of 70 000 MT per month in the first half of 2019 and increase
        the volumes to 120 000 in the 2nd half. This will be 50% power coal and 50% high value coking
        coal. The mining contractor is also expected to produce 100 000 MT per month as from July
        2019. This will be 50% industrial coal and 50% power coal. This production plan will see the
        company shifting away from the traditional approach of relying more on the contractor capacity
        than its own production.



The sales plan will be driven by the sale of high value coking coal to mainly coke batteries and industry.
The company is also planning to start producing coke by the second half of 2019 through toil coking. The
company has capacity and market to produce and sale a minimum of 45 000 MT of coking coal locally.
The company have also made significant steps towards penetrating the southern market which has
potential for 30 000 MT of coking coal and 10 000 MT of industrial coal which will bring the much needed
foreign currency .The company has put in place a mechanism to raise significant amounts of foreign
currency from both exports and domestic sale .The foreign currency will. be used to fund working capital
and capital projects that are required to increase production to 170 000 MT of HCCL own mining.

The key projects that are expected to stabilise production to the planned level of 170 000 MT for HCCL
own mining is the acquisition of 2 excavators for opencast and a third shuttle car for 3 main. The projects
will be funded mainly from the internally generated resources through the sale of coking coal and some
prepayment arrangements with some key customers.

Cost control and working capital management strategies
The company is also going to implement a very tight cost control and working capital management
system by allocating most of the cash resources towards the operations requirements. This will ensure
that the company will only spend what they have generated. This will be achieved by ensuring that most
customers will be paying upfront on all their orders and also paying most creditors upfront. This will stop
the ballooning of liabilities which has pushed the company into negative net current assets.

Continuing with the scheme of arrangement
The company will continue with the scheme of arrangement, agreed payment plan to creditors although
the time line maybe adjusted a bit through engagements with all the creditors. This strategy will see the
company reversing the gross loss in 2019 and start moving towards profitability.

30. Operating environment
In 2017, the economic environment had started to show signs of distortions where a ‘multi-tiered’ pricing
regime was creeping into the economy in which similar goods and services were being priced differently
depending on the mode of payment, whether USD cash, electronic payment, mobile money or bond notes
and coins.

The 2018 operating environment was characterised by significant monetary and fiscal policy reforms that
commenced in October 2018.
Distortions in the foreign exchange market negatively affected the economic environment resulting in the
proliferation of
the ‘multi-tiered’ pricing where settlement of transactions was depending on the mode of payment,
whether USD cash, electronic payment, mobile money or bond notes and coins.

During the Year, the company predominantly transacted in RTGS FCA (electronic payments), including
mobile money, bond notes and coins

Events after the reporting date
On 20 February 2019 the Reserve Bank of Zimbabwe (RBZ) Governor announced a new Monetary Policy
Statement whose Highlights were as follows:

30.1 The domination of RTGS balances, bond notes and coins collectively as RTGS dollars “RTGS $ and
subsequent inclusion of RTGS dollars as part of the multi-currency system.

30.2 RGTS dollars to be used by all entities (including government) and individuals in Zimbabwe for
purposes of pricing goods and services, recorded debts, accounting and settlement of domestic
transactions.

30.3 The establishment of an inter-bank foreign exchange market where the exchange would be
determined by market forces.

On 22 February 2019, Statutory Instrument 33 of 2019 was issued. The Statutory instrument prescribed
the accounting for RTGS balances and bond notes, and USD transactions as well as the related
conversions. It also gave effect to the introduction of the RTGS dollars as a legal tender. In terms of this
statutory instrument, ‘for accounting and other purposes’ certain assets and liabilities on the effective date
would be deemed to be RTGS dollars at a rate of 1:1 to the USD and would become opening RTGs dollar
values from the effective date. Following this, the Administrators adopted RTGS dollars as its functional
and reporting currency with effect from 22 February 2019.

Adjusting events
The announcement of the Monetary Policy Statement on 20 February 2019 and the subsequent issuance
of ‘SI 33/2019’ on 22 February 2019 were considered by management to be adjusting events after the
reporting period, which, in terms of IAS 10-events after the reporting period, would require adjustments to
the financial statements. However, ‘SI 33/2019’ prescribed specific accounting treatment for assets and
liabilities which was in not consistent with International Finical reporting Standards (IFRSs), in the light of
the lack of consistency between the requirements of IFRSs and ‘SI 33/ 2019’ management were guided
by ‘SI 41/2019’ which states that in the case on any inconsistency between a local pronouncement issued
by the board through a notice in the Government Gazette and any international standard ,the local
pronouncement shall take precedence to the extent of the inconsistency. Management have therefore
prepared these financial statements in USD and applied a rate of 1:1 between USD.

A sensitivity analysis for events after the reporting period for the finical year ended 31 December 2018 is
shown below.

Components of reported amounts                  Sensitivity analysis


                                                         Non-              Total   Total RTGS      Total RTGS $
                  Monetary        Monetary                                                                          Total RTGS $
                                                     Monetary      translated at   $ translated     translated at
                    Assets/         Assets/                                                                          translated at
                                                       Assets/           rate of      at rate of          rate of
                  Liabilities     Liabilities                                                                              rate of
                                                     Liabilities   US1:RTGS$       US1:RTGS$       US1:RTGS$3.
                Nostro FCA      Nostro FCA                                                                          US1:RTGS$4
                                                   Nostro FCA                  1             2.5                5
 Element
 ASSETS
 Property,
 Plant and                  -               -      80 135 517       80 135 517      80 135 517        80 135 517      80 135 517
 equipment
 investment
                           -               -      4 490 000     4 490 000     4 490 000       4 490 000       4 490 000
 property
 Investment
 accounted
 for using                 -               -     14 776 538    14 776 538    14 776 538      14 776 538      14 776 538
 the equity
 method
 Intangible
                           -               -       486 448       486 448        486 448         486 448         486 448
 assets
 Inventories
 - noncurrent              -               -      6 812 230     6 812 230     6 812 230       6 812 230       6 812 230
 portion
 Stripping
 activity                  -               -      1 471 273     1 471 273     1 471 273       1 471 273       1 471 273
 asset
 Inventories               -               -     16 948 244    16 948 244    16 948 244      16 948 244      16 948 244
 Trade and
 other           2 048 535       29 865 710               -    31 914 245    34 987 049      37 035 584      38 059 852
 receivables
 Cash and
 cash              43 578         1 519 121               -     1 562 699     1 628 066       1 671 644       1 693 433
 equivalents
 Total
                 2 092 113       31 384 831     125 120 250   158 597 194   161 735 364     163 827 477     164 873 534
 Assets

EQUITY AND LIABILITIES

 Share
                       -         45 962 789               -    45 962 789    45 962 789      45 962 789      45 962 789
 capital
 Share                                                           577 956        577 956         577 956         577 956
                       -            577 956               -
 Premium
 Non-
 Distributabl          -          4 358 468               -     4 358 468     4 358 468       4 358 468       4 358 468
 e reserve
 Revaluation
                       -         39 948 518      39 948 518    39 948 518    39 948 518      39 948 518      39 948 518
 reserve
 Translation
                       -                   -              -             -   (53 383 783)    (88 972 972)   (106 767 566)
 reserve
 Accumulate                                                      (380 872      (380 872
                       -       (380 872 376)              -                                (380 872 376)   (380 872 376)
 d losses                                                            376)          376)
 Total
                                                                 (290 024      (343 408
 shareholder           -       (290 024 645)              -                                (378 997 617)   (396 792 211)
                                                                     645)          428)
 ’s equity

LIABILITIES

 Finance
 lease                     -        1 311 190             -     1 311 190     1 311 190       1 311 190       1 311 190
 liability
 Borrowings     14 430 000        155 508 767             -   169 938 767   191 583 767     206 013 766     213 228 766
 Long term
                23 251 302        189 259 948             -   212 511 251   247 388 204     270 639 506     282 265 157
 creditors
 Trade and
 other                     -       38 644 022             -    38 644 022    38 644 022      38 644 022      38 644 022
 payables
 Income Tax
                           -       10 054 850             -    10 054 850    10 054 850      10 054 850      10 054 850
 liability
 Provisions              -         16 161 760             -    16 161 760    16 161 760      16 161 760      16 161 760
 Total          37 681 302        410 940 537             -   448 621 839   505 143 792     542 825 094     561 665 745
 liabilities
 Total equity
 and            37 681 302   120 915 892            -    158 597 194   161 735 364   163 827 477    164 873 534
 liabilities

31 Administration
The Government on the 26th of October 2018 granted a reconstruction order for Hwange Colliery Limited
under the Reconstruction of State-Indebted Insolvent Companies Act [Chapter 24:7] (No 27 of 2004)

31.1 The following were appointed:

Mr. Bekitemba Moyo - Administrator
Ms. Mutsa Mollie Jean Remba - Assistant Administrator
Mr. Munashe Shava - Assistant Administrator


Zimbabwe

6 May 2019

Sponsor: Sasfin Capital (a member of the Sasfin Group)

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