hwange colliery company limited...2016/10/03 · colliery company limited for the half year ended...

HWANGE COLLIERY COMPANY LIMITED

ZSE Share Code: HCCL.ZW0009011934

JSE Share Code: HWA ISIN: ZW0009011934

LSE Share Code: HWA ISIN: ZW0009011934

Unaudited condensed interim financial results for the half year ended 30 June 2016

CHAIRMAN’S STATEMENT

On behalf of the Board of Directors, I present the unaudited condensed financial results of Hwange

Colliery Company Limited for the half year ended 30 June 2016.

FINANCIAL RESULTS

The sales revenue for the six (6) months under review was US$24.5 million compared to the US$35.3

million revenue recorded during the same period last year. The operating loss was US$25.9 million

compared to an operating loss of US$48.0 million for the comparative period last year. The Company

incurred a loss after taxation of US$22.7 million compared to the US$44.1 million loss recorded for the

same period in 2015.

There was a notable decrease in administrative costs resultant from the cost containment measures

adopted by the Company. Finance costs for the period amounted to US$1.8 million compared to US$1.1

million for the same period last year. The burden of servicing debts continued to strain the Company`s

cash flows thereby presenting working capital challenges to the Company.

Total non-current assets decreased by 5% from US$172.5 million to US$163.2 million.

PERFORMANCE

The company’s performance over the last six month fell short of budgetary targets due to low

production levels that were attributable to working capital constraints. Monthly production average was

113,862 tonnes compared to the budgeted monthly production of 340,000 tonnes. Consequently the

company could not meet the market demand occasioned by product stock-outs.

Total sales tonnage was 585,689against a budget of 1,771,820 and an actual of 842 871 for the same

period last year. HCC/HIC coal sales during the period decreased by 35% from 326 075 tonnes to 211

858tonnes. There was a decrease in the sales of coal fines and breeze from 109 110 tonnes to 64 413

tonnes for the comparative periods. Coke sales volume decreased from 7 584tonnes achieved in the first

half of 2015 to 1 040 tonnes for the period under review. This was attributed to the cancellation of toll

coking arrangements.

SCHEME OF ARRANGEMENT

The company is consummating a scheme of arrangement with its creditors in order to present a

structured plan of liquidating amounts owed. The Company was granted leave by the High Court of

Zimbabwe to convene scheme meetings with its Creditors. The scheme is due to be finalised with the

Company’s creditors in the last quarter of this financial year. It is predicted that the Scheme will ensure

that there is a structured plan for paying the Company’s debts.

OUTLOOK

Once the Scheme of Arrangement is achieved, the Company’s outlook is anchored on the following;

Cost reduction

The company is in the process of implementing comprehensive cost reduction initiatives that seek to

return it to profitability in 2017. The cost reduction initiatives are targeted at ensuring that the Company

turns around from the current gross loss to a gross profit on its production. In addition the overhead

structure is being addressed in a manner which should result in the Company achieving a net profit in

2017.The Company enjoys the competitive advantage of naturally differentiated coal because of its high

quality.

The Company is currently only producing thermal and industrial coal. It is imperative and envisaged that

underground operations commence in early 2017. This will not only make the Company benefit from

higher margins in coking coal but will also avail coal for coke production which achieves the highest

margins.

Open Cast Productivity

Open Cast production has been constrained by inadequate working capital. In parallel to the avenues

being explored to secure working capital from financial institutions, the Company has stepped up its

recovery efforts from its Debtors and disposal of coal fines to increase open cast production.

Resuscitation of Underground Mine Operations

The resuscitation of this operation requires approximately US$6.3 million for the refurbishment of a

Continuous Miner and supply of new supporting equipment. The suppliers agreed to be paid a deposit

towards the refurbishment which is expected to take between three (3) and four (4) months. The

Company is engaged in discussions with a financial institution aimed at securing the required deposit.

Coke Production

Once the Scheme of Arrangement is put in place and the Balance Sheet restructuring is completed, it will

make it easier for the Company to raise funding to resuscitate its coke oven battery. Apart from

producing coke, the coke oven battery will also supply coke oven gas to Hwange Power Station which

will substitute expensive diesel for starting up the boilers. The Coke Oven Battery also produces by-

products utilised by Zimchem in its processes.

Zimbabwe Power Company’s Stage 3 Expansion

The expansion of Zimbabwe Power Company’s Stage 3 shall result in increased coal demand where it is

expected that the Company shall supply an additional 200,000 tonnes of coal per month for power

generation purposes. In order to meet this additional demand, HCCL will conduct exploration and mine

development of the Western Areas Concession.

Coal Bed Methane Gas Opportunities

The current concessions as well as the Lubimbi Concessions have a large quantity of coal bed methane

gas deposits. The quantity and quality of these deposits is still to be determined. However, given the

maturity of coal bed methane technology, it is envisaged that the Company will beneficiate the coal bed

methane gas into domestic gas and supply a coal bed methane gas fired power station.

TURNAROUND STRATEGY

Scheme of Arrangement

As indicated above, the starting point of the turnaround strategy is the implementation of a scheme of

arrangement which is at an advanced planning stage.

Balance Sheet Restructuring

It is envisaged that the scheme of arrangement will be implemented at the same time with conversion

of some debts into long term financial instruments. It is planned to convene an Extra Ordinary General

Meeting (EGM) in the next two months at which detailed proposals will be tabled for approval by

shareholders.

Cost Reduction

Cost reduction initiatives have been underway for a while and will continue to be implemented. Current

projections are that the Company will be able to turnaround operations from a gross loss situation to a

gross profit situation in 2017. The cost reduction exercise will also entail a major overhaul of the

Company’s overhead structures, details to be contained in the EGM documents.

Raising Capital

Once the scheme of arrangement and Balance Sheet restructuring are achieved, discussions are already

underway to raise short, medium and long term capital to operate at optimum capacity and to

implement strategies contained in this statement

Increase and Re-Alignment Of

Production

Once the above is put in place, it is imperative that:-

a) The Company produces at optimum capacity.

b) The Company resuscitates production of high margin products being coking coal and coke and also

benefit from coke by product sales.

c) The Company benefits from low hanging fruits, being duff, currently stockpiled, which shall be sold to

generate cash.

Realisation Of Potential

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

a) Development of Western Areas coal concessions.

b) Development of the coal bed methane opportunity.

c) Explore the potential, if any of converting coal into fuels.

DIRECTORATE

During the period under review, Messrs N. S. Chibhanguza and I. C. Haruperi resigned from the Board of

Directors with effect from 29 February 2016. Mr J. Chininga who was Acting Board Chairman also

resigned from the Board effective 13 May 2016.

The Company as a consequence appointed Mr Wencelaus T. Kutekwatekwa, Mrs Ntombizodwa Masuku

and myself to the Board effective 13 May 2016. I was subsequently elected Board Chairman on the 19th

of May 2016.

The Company acknowledges the contribution made by the three retired Directors and welcomes the

three newly appointed Directors. The Company is particularly grateful for the contribution made by Mr

J. Chininga who acted in the capacity of Managing Director when the Company was going through a

recruitment process and also acted in the capacity of Board Chairman following the resignation of the

immediate past Chairman.

CORPORATE GOVERNANCE

The stewardship of the Company is vested in the Board, which is accountable for the affairs of the

Company. It is the Board’s responsibility to oversee compliance with good corporate governance. As

alluded to in the 2015 half year results of the Company, the board is going through an effectiveness

review process of the company’s Corporate Governance Approach. This review process is still underway

and recommendations coming out of this process will be communicated to shareholders accordingly.

APPRECIATION

Whilst the half year results are disappointing the continued support the Company and Board is getting,

should result in a significant turnaround in 2017, mainly centred on the foregoing outline.

I would like to express my gratitude to my fellow Directors, Management and Staff for their collective

efforts and dedication to Hwange Colliery Company Limited despite all the challenges. I also count on all

the support as we turn around the Company. I also appreciate the support we continue to receive from

our shareholders, customers, creditors and other stakeholders.

W. CHITANDO

CHAIRMAN

18 September 2016

REGISTERED OFFICE

7th Floor, Coal House

17 Nelson Mandela Avenue

P 0 Box 2870, Harare

Zimbabwe

CONDENSED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME for the six (6)

months ended 30 June 2016

Note 30 June 2016 USD Unaudited

30 June 2015 USD Unaudited

31 December 2015 USD

Audited

Revenue 5 24 481 645 35 349 513 67 576 220

Cost of sales (42 783 403 ) (47 591 594) (101 345 965)

Gross loss (18 301 758 ) (12 242 081 ) (33 769 745 )

Other income 218 534 212 560 470 858

Other gains and losses (net)

- (18 452 ) (19 007 )

Marketing costs (292 314 ) (673 169 ) (1 314 953 )

Administration costs

(7 491 862 ) (35 277 577 ) (60 628 370 )

Impairment loss - - (4 465 881 )

Operating loss (25 867 400 ) (47 998 719 ) (99 727 098 )

Finance costs (1 852 830 ) (1 110 496 ) (5 548 984 )

Share of loss from equity accounted investments

(765 952 ) (110 348 ) (413 134 )

LOSS BEFORE TAX (28 486 182 ) (49 219 563 ) (105 689 216 )

Income tax 6 - 5 113 418 (9 367 557)

LOSS FOR THE PERIOD/ YEAR

(28 486 182 ) (44 106 145 ) (115 056 773 )

Other comprehensive income:

Other comprehensive income for the period/year, net of tax

- - -

TOTAL COMPREHENSIVE LOSS FOR THE PERIOD/YEAR

(28 486 182 ) (44 106 145 ) (115 056 773 )

Attributable loss per share - basic

7.1 (0.16 ) (0.24 ) (0.63)

- diluted 7.2 (0.16 ) (0.24 ) (0.63)

Headline loss per share - basic

7.3 (0.16 ) (0.24 ) (0.61 )

- diluted 7.3 (0.16 ) (0.24 ) (0.61 )

CONDENSED STATEMENT OF FINANCIAL POSITION as at 30 June 2016

Note 30 June 2016 USD

Unaudited 30 June 2015 USD

Unaudited 31 December

2015 USD Audited

Non-current assets

Property, plant and equipment

8 127 210 600 155 104 414 136 344 524

Investment property

9 3 700 000 3 700 000 3 700 000

Investments accounted for using the equity method

10 15 415 582 16 484 320 16 181 534

Intangible assets 11 1 131 940 1 483 610 1 238 371

Deferred tax asset

- 14 480 975 -

Inventories non - current portion

15 009 021 - 15 009 021

162 467 143 191 253 319 172 473 450

Current assets

Stripping activity asset

12 4 804 187 8 412 361 4 849 819

Inventories 13 25 470 961 42 156 247 29 389 463

Trade and other receivables

14 30 778 163 27 291 466 31 887 617

Cash and cash equivalents

5 360 488 312 252 502 630

61 413 799 78 172 326 66 629 529

Total assets 223 880 942 269 425 645 239 102 979

EQUITY AND LIABILITIES

Capital and reserves

Share capital 16 45 962 789 45 962 789 45 962 789

Non-distributable reserves

4 358 468 4 358 468 4 358 468

Share premium 577 956 577 956 577 956

Revaluation reserve

39 948 518 39 948 518 39 948 518

Accumulated losses

(197 168 532 ) (97 731 335 ) (168 681 963 )

(106 320 801 ) (6 883 604 ) (77 834 232)

Non-current liabilities

Lease liability

17.1 2 013 044 15 043 461 3 834 644

Borrowings 18.1 17 237 866 5 990 629 25 824 359

19 250 910 21 034 090 29 659 003

Current liabilities

Lease liability 17.2 19 949 799 6 951 547 17 491 624

Borrowings 18.2 12 589 456 17 187 926 3 960 469

Trade and other payables

19 256 199 532 219 680 588 241 505 888

Provisions 20 12 157 196 11 051 598 14 265 377

Current tax liability

10 054 850 403 500 10 054 850

310 950 833 255 275 159 287 278 208

Total equity and liabilities

223 880 942 269 425 645 239 102 979

CONDENSED STATEMENT OF CASH FLOWS for the six (6) months ended 30 June 2016

Note 30 June 2016 USD

Unaudited

30 June 2015 USD

Unaudited

31 December

2015 USD

Audited

Cash generated from operating activities

Loss before taxation

(28 486 182 ) (49 219 563 ) (105 689 216 )

Adjustment for non-cash items

11 820 010 36 510 712 34 072 543

Net effect of changes in working capital

16 523 635 12 569 868 70 035 717

Net cash utilised in operations

(142 537 ) (138 983 ) (1 580 956)

Interest paid (28 656 ) (126 274 ) (571 910 )

Net cash utilised in operating activities

(171 193 ) (265 257 ) (2 152 866 )

Cash flows from investing activities

Purchase of (13 443 ) (30 804 938 ) (30 804 938 )

property, plant and equipment

Net cash utilised in investing activities

(13 443 ) (30 804 938 ) (30 804 938 )

Cash flows from financing activities

Proceeds from borrowings

- 30 804 938 33 095 739

Repayment of borrowings

(125 000 ) (410 310 ) (433 882 )

Net cash (utilised in)/generated from financing activities

(125 000 ) 30 394 628 32 661 857

Net decrease in cash and cash equivalents

(309 636 ) (675 567 ) (295 947 )

Cash and cash equivalents at beginning of the period/year

465 977 761 924 761 924

Cash and cash equivalents at end of period/year

15 156 341 86 357 465 977

CONDENSED STATEMENT OF CHANGES IN EQUITY for the six (6) months ended 30 June 2016

Share capital USD

Non-distributable reserves

USD

Share premium

USD

Revaluation reserve USD

Accumulated losses USD

Total USD

Balance at 1 January 2016

45 962 789 4 358 468 577 956 39 948 518 (168 682 350) (77 834 619)

Total comprehensive loss for the period (unaudited)

- - - - (28 486 182) (28 486 182)

Balance at 30 June 2016 (unaudited) Balances at 30

45 962 789 4 358 468 577 956 39 948 518 (197 168 532) (106 320 801)

June 2015 (unaudited) 45 962 789 4 358 468 577 956 39 948 518 (97 731 335) (6 883 604)


45 962 789 4 358 468 577 956 39 948 518 (53 625 190) 37 222 541

Total comprehensive loss for the period (unaudited)

- - - - (44 106 145) (44 106 145)


45 962 789 4 358 468 577 956 39 948 518 (53 625 190) 37 222 541

Total comprehensive loss for the year (audited)

- - - - (115 056 773) (115 056 773)

Balances at 31 December 2015 (audited)

45 962 789 4 358 468 577 956 39 948 518 (168 681 963) (77 834 232)

NOTES TO THE UNAUDITED CONDENSED FINANCIAL STATEMENTS for the six (6) months ended 30 June

2016

1. Nature of operations

Hwange Colliery Company Limited extracts, processes and distributes coal and coal products. The

Company operates a coal mine situated at Hwange and sells mainly within Zimbabwe and elsewhere in

Sub Saharan Africa.

2 Basis of preparation of the condensed financial statements

The condensed interim financial statements for the six months ended 30 June 2016 have been prepared

in accordance with IAS 34, ‘Interim financial reporting’. They do not include all of the information

required for full annual financial statements and should be read in conjunction with the audited annual

financial statements for the year ended 31 December 2015, which have been prepared in accordance

with International Financial Reporting Standards; Companies Act(Chapter 24:03) and the relevant

statutory instruments (SI 33/99 and SI 62/96).

This condensed interim financial information has been reviewed, not audited.

3 Significant accounting policies

The interim financial statements have been prepared in accordance with the accounting policies

adopted in the Company’s most recent annual financial statements for the year ended 31 December

2015.

4 Estimates

In preparing the condensed interim financial statements, the significant judgements made by

management in applying the Company’s accounting policies and the key sources of estimation

uncertainty were the same as those that applied to the audited annual financial statements for the year

ended 31 December 2015.

6 months 30 June

2016 Tonnes

6 months 30 June 2015 Tonnes

Year to 31 December 2015

5 Revenue

Coal sales

HCC/HIC 125 544 225 396 503 706

HPS coal 378 321 409 843 887 273

Coal fines and breeze 41 982 45 045 113 421

Total coal sales 545 847 680 284 1 504 400

Coke tonnes 39 842 5 475 53 874

Total sales 585 689 685 759 1 558 274

USD USD USD

Mining 20 460 370 30 333 672 57 966 532

Estates 3 645 564 4 486 687 8 610 557

Medical services 375 711 529 154 999 131

Total 24 481 645 35 349 513 67 576 220

6 months 30 June 2016

Unaudited

6 months 30 June 2015 Unaudited

Year to 31 December 2015 Audited

6 Taxation

Current tax - - -

Deferred tax - 5 113 418 9 367 557

- 5 113 418 9 367 557

As at period end, the Company had assessed tax losses amounting to USD 224 567 703 (31 December

2015: USD 208 322 404).The amount of deferred taxation asset recognised in relation to the assessed

loss has been limited to the amount of deferred taxation liabilities due to recurring losses and

unavailability of future taxable temporary differences.

7 Loss per share

7.1 Basic

Basic loss per share is calculated by dividing the loss attributable to shareholders by the weighted

average number of ordinary shares in issue during the period/year.

6 months 30 June 2016

Unaudited



Loss attributable to shareholders

(28 486 182 ) (44 106 145 ) (115 056 773 )

Weighted average number of ordinary shares in issue

183 757 366 183 757 366 183 720 699

Basic loss per share (0.16 ) (0.24 ) (0.6 3)

7.2 Diluted

Loss used to determine diluted loss per share

(28 486 182 ) (44 106 145 ) (115 056 773 )

The weighted average number of ordinary shares for the purpose of diluted loss per share are the same

as the weighted average number of ordinary shares used in the calculation of basic loss per share.


2016

7 Loss per share




7.2 Diluted

Weighted average number of ordinary shares for diluted loss per share

183 757 366 183 757 366 183 720 699

Diluted loss per share (0.16 ) (0.24 ) (0.63 )

7.3 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

Reconciliation between headline loss and basic loss:

IAS 33 - Losses (28 486 182) (44 106 145) (115 056 773)

Non - recurring items: Proceeds on sale of scrap

(7 307) (25 108 ) (50 463 )

Impairment of property, plant and equipment

- - 4 465 881

Tax effect of the above - - (1 136 970 )

Headline losses (28 493 489 ) (44 131 253 ) (111 778 325 )

Weighted average number of ordinary shares in issue:

183 757 366 183 757 366 183 720 699

Headline loss per share (0.16 ) (0.24 ) (0.61)

8 Property, plant and equipment

Carrying amount at the beginning of the period/year Depreciation charge for the period/year (8 089 973 ) (6 285 948 ) (16 707 109 ) Impairment - - (4 347 147 ) Carrying amount at the end of the period/year 127 210 600 155 104 414 136 344 524

136 344 524 129 078 977 129 078 977

Additions 31 425 32 311 385 32 680 228

Disposals (1 075 376 ) - -

Charge to profit or loss - - (4 360 425 )

9 Investment property

Fair value 3 700 000 3 700 000 3 700 000

9.1 The following amounts relating to Investment

property have been recognised in profit or loss:

Rental income 124 795 136 298 336 303

10 Investment in equity accounted investments

Investments in associates (note 10.1)

174 982 335 857 231 148

Investments in joint venture (note 10.2)

15 240 600 16 148 463 15 950 386

15 415 582 16 484 320 16 181 534

10.1 Investments in associates

Carrying amount as at beginning of period/year

231 148 446 205 446 205

Share of loss (56 166 ) (110 348 ) (215 057 )

Carrying amount at the end of the period/year

174 982 335 857 231 148

The Company holds a 49% voting and equity interest in Clay Products (Private) Limited. The Company also holds a 44% voting and equity interest in Zimchem Refineries (Private) Limited. The investments are accounted for using the equity method. The financial information for Zimchem Refiners (Private) Limited was not available for inclusion in these financial statements.

10.2 Investment in joint venture

Carrying amount as at 1 January

15 950 386 16 148 463 16 148 463

Share of loss (709 786 ) - (198 077 )

Carrying amount at the end of the period/year

15 240 600 16 148 463 15 950 386

Hwange Coal Gasification Company (Private) Limited is the only jointly controlled entity and the ultimate ownership interest is 25%. The investment in the joint venture has been accounted for using the equity method.

11 Intangible assets

Opening carrying amount

1 238 371 1 590 041 1 590 041

Additions - - 7 705

Impairment losses - - (118 734 )

Amortisation charge (106 431 ) (106 431 ) (240 641 )

Closing carrying amount

1 131 940 1 483 610 1 238 371

12 Stripping activity asset

Carrying amount at 1 January (Charge)/credit to cost of sales (510 032 ) 109 145 (2 668 474 ) Closing carrying amount 4 804 187 8 412 361 4 849 819

4 849 819 7 290 468 7 290 468

Pre-stripping costs incurred

464 400 1 012 748 227 825

13 Inventories Finished goods

Raw materials 6 683 507 5 039 725 9 430 728

Consumables 1 082 677 - -

Coal and coal fines 15 098 800 34 129 814 16 763 667

Coke 2 605 977 2 986 708 3 195 068

25 470 961 42 156 247 29 389 463

14 Trade and other receivables

Trade 26 469 495 20 010 166 33 338 281

Allowance for credit losses

(9 751 845 ) (7 743 731 ) (9 751 845 )

16 717 650 12 266 435 23 586 436

Other 14 060 513 15 025 031 8 301 181

30 778 163 27 291 466 31 887 617


2016

15 Cash and cash equivalents




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

Bank and cash balances 360 488 312 252 502 630

Bank overdrafts (204 147 ) (225 895 ) (36 653 )

156 341 86 357 465 977

16 Share capital

Authorised

204 000 000 ordinary shares of USD0.25 each

51 000 000 51 000 000 51 000 000

Issued and fully paid

110 237 432 Ordinary shares of USD0.25 each

27 559 358 27 559 358 27 559 358

5 925 699 Ordinary shares issued under share option scheme

1 514 039 1 514 039 1 514 039

29 073 397 29 073 397 29 073 397

67 557 568 ‘’A’’ Ordinary shares of USD0.25 each

16 889 392 16 889 392 16 889 392

45 962 789 45 962 789 45 962 789

17 Lease liability

17.1 Non current

Finance lease liabilities due after one year

2 013 044 15 043 461 3 834 644

17.2 Current

Finance lease liabilities due within one year

19 949 799 6 951 547 17 491 624

18 Borrowings

18.1 Non current

Loans due after one year

17 237 866 5 990 629 25 824 359

18.2 Current

Bank overdraft 204 147 225 895 36 653

Loans payable within one year

12 385 309 16 962 031 3 923 816

12 589 456 17 187 926 3 960 469

19 Trade and other payables

Trade 121 801 922 78 944 668 127 836 638

Other 134 397 610 140 735 920 113 669 250

256 199 532 219 680 588 241 505 888

20 Provisions

20.1 Provision for rehabilitation

At the beginning of the period/year

5 726 693 4 893 360 4 893 360

Additional provision made during the period/year

499 999 500 000 833 333

At the end of the period/year

6 226 692 5 393 360 5 726 693

20.2 Other provisions

Leave pay and other provisions

5 930 504 5 658 238 8 538 684

Total provisions 12 157 196 11 051 598 14 265 377

21 Segment reporting

Management currently identifies the Company’s three business units as its operating segments. These

operating segments are monitored by the Company’s Board of Directors and strategic decisions are

made on the basis of adjusted segment operating results.

Segment information for the reporting periods is as follows:

Mining USD Estates USD Medical services USD

Total USD

30 June 2016

Revenue

From external customer

20 460 390 3 645 564 375 711 24 481 645

From other segments

- 580 713 967 166 1 547 879

Total segment revenues

20 460 370 4 226 277 1 342 877 26 029 524

Segment operating loss

(46 092 838 ) (791 099 ) (1 114 782 ) (47 998 719 )

Segment assets 253 806 655 7 612 572 8 006 418 269 425 645

Segment liabilities 215 072 830 16 310 785 16 433 718 247 817 333

31 December 2015

Revenue

From external customers

57 966 532 8 610 557 999 131 67 576 220

From other segments

- 823 559 2 802 723 3 626 282

Total segment revenues

57 966 532 9 434 116 3 801 854 71 202 502

Segment operating (loss)/profit

(99 754 470 ) 24 295 3 077 (99 727 09)

22 Going concern

In view of the above, the Directors 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 interim financial statements on a going

concern basis is appropriate as supported by the following plans which are intended to address these

challenges:

22.1 Gross loss and net loss for the period

The Company incurred a gross loss of USD 18 301 758 (30 June 2015: 12 242 081; 31 December 2015:

USD 33 769 745) and a net loss for the period of USD 28 486 182 (30 June 2015: 44 106 145; 31

December 2015: 115 056 773). This was attributable to a reduction in the production volumes from 879

954 tonnes in 2015 to 683 171 tonnes in 2016 on the backdrop of high fixed overheads associated with

the Company’s operations. The losses were also a result of challenges experienced with the new

equipment commissioned in July 2015 resulting in an increase in depreciation of assets without a

corresponding increase in output.


2016

22.2 Negative equity

As at 30 June 2016 the Company’s total liabilities exceeded total assets resulting in a negative equity

position of USD 106 320 801 (30 June 2015: USD 6 883 604; 31 December 2015: USD 77 834 232. This

was attributable to recurring losses which eroded the capital and reserves.

22.3 Litigation cases

The Company had litigation cases brought against it during the period. The summary of significant legal

cases for Hwange Colliery Company Limited as at 30 June 2016 are as follows:

USD

Value of cases with writs of execution 3 655 350

Value of cases for which judgement has been passed against the Company

24 269 178

Estimated value of cases pending judgements at the courts

16 987 709

Total value of litigation cases 44 912 237

The lawsuits that have been taken against the Company by various creditors including applications,

summons and writs of execution are currently suspended by virtue of a High Court order granted on 1

June 2016. The effect of the court order is to grant the Company leave to convene a scheme meeting of

secured and unsecured creditors of the Company in terms of Section 191(1) of the Companies Act

(Chapter 24:03) (Scheme of arrangement).

22.4 Debt/lease covenants not met

As part of the ZAMCO loan agreement, the Company was obliged to insure all its movable assets and

stocks valued at USD 15 000 000 as part of collateral for the loan of USD 14 868 435. The Company has

not been able to insure these assets due to liquidity constraints.

The Company has been facing challenges in meeting scheduled repayments on loans and leases owing to

liquidity challenges.

22.5 Low machine availability

The Company acquired mining equipment worth USD 12 879 740 which was commissioned in July 2015.

There was sub optimal usage of the equipment due to a combination of factors such as alignment,

equipment design and working capital constraints.

In view of the above, the Directors 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 interim financial statements on a going

concern basis is appropriate as supported by the following plans which are intended to address these

challenges:

Balance Sheet restructuring

The government has agreed to restructure short term obligations of USD 87.9 million into long term

financial instruments. This will provide immediate relief to the constrained working capital position. The

Company is still pursuing balance sheet restructuring options, details of which are to be advised in due

course.

Settlement of creditors

The High Court of Zimbabwe granted the Company an Order to convene scheme meetings with its

Creditors on 1 June 2016. In terms of the Court Order, all lawsuits against the Company are temporarily

suspended pending the outcome of the scheme of arrangement. The Creditors will be advised of the

scheme meeting date. The scheme document detailing the structure of the schemeand proposal to

liquidate creditor claims shall also be availed to creditors. Tied to the Scheme of Arrangement, is a wider

business plan aimed at ensuring growth in production and sales. This plan should bring the working

capital position of the Company back to normal levels.

Working capital facilities

The Company is working on securing the following working capital facilities:

a) A prepayment from one of the Company’s major customers through a local bank amounting to

USD 7.5 million for working capital; and

b) A working capital facility with a local bank amounting to USD 3.5 million.

Review of contractor pricing

Management have initiated negotiations with major contractors to reduce charges in line with the

Company’s current business activity and macro-economic conditions. This is expected to result in a

reduction in the cost of sales as well as improving product profitability.

Equipment refurbishment

The Company continues to source approximately USD 6.3 million to refurbish the continuous miner,

shuttle cars and other equipment necessary for the underground mining operations. The continuous

miner broke down in August 2015 and management believes that the resumption of the underground

mining operations will add high value coal and coke to the Company’s product mix. This refurbishment

exercise is expected to be completed in the first quarter of 2017.

Restructuring of Company’s management

Following the adoption of a leaner management structure in May 2016, cost containment measures

continue to be taken. Board fees and executive management, middle level management and low level

management salaries were reduced by 50%, 25% and 20% respectively for the six(6) month period to

September 2016. The Company expects to extend the reduction of salaries for another six(6) months

from September 2016.

As a consequence, the Directors believe that the Company will continue to operate as a going concern

and that the realisation of assets and the settlement of liabilities will occur in the ordinary course of

business. These financial statements have therefore been prepared on a going concern basis.

23 Financial risk management objectives and policies

The Company’s principal financial liabilities comprise finance lease liabilities, loans payable, bank

overdrafts and trade payables. The main purpose of these financial liabilities is to raise finance for the

Company’s operations. The Company has various financial assets such as trade receivables and cash and

short term deposits, which arise directly from its operations. Exposure to credit, interest rate and

currency risk arises in the normal course of Company’s business and these are the main risks arising

from the Company`s financial instruments.

23.1 Credit risk

Management has a credit policy in place and the exposure to credit risk is monitored on an ongoing

basis. The Company assumes foreign credit risk only on customers approved by the Board and follows

credit review procedures for local credit customers.

Investments are allowed only in liquid securities and only with approved financial institutions. At the

reporting date there were no significant concentrations of credit risk. The maximum exposure to credit

risk is represented by the carrying amounts of each financial asset in the statement of financial position.

23.2 Interest rate risk

The Company’s exposure to the risk of changes in market interest rates relates primarily to the

Company’s long and short term debt obligations and bank overdrafts. The Company’s policy is to

manage its interest cost using a mix of fixed and variable rate debts

23.3 Currency risk

The Company is exposed to foreign currency risk on transactions that are denominated in a currency

other than the United States Dollar. The currency giving rise to this risk is primarily the South African

Rand.

In respect of all monetary assets and liabilities held in currencies other than the United States Dollar, the

Company ensures that the net exposure is kept to an acceptable level, by buying or selling foreign

currencies at spot rates where necessary to address short-term imbalances.

The Company’s exposure to foreign currency changes for all the other currencies is not significant.

24 Events after the reporting date

No adjusting or significant no adjusting events have occurred between the reporting date and the date

of authorisation of these financial statements.

Directors: W Chitando (Chairman), S T Makore (Managing Director), W T Kutekwatekwa, N Masuku, J

Muskwe, V Vera

3 October 2016

Zimbabwe

Sponsor: Sasfin Capital (a division of Sasfin Bank Limited)

hwange colliery company limited...2016/10/03 · colliery company limited for the half year ended...

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