Statement of Accounting Policies
for the year ended 31 December 2017
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 board of directors on 13th March 2018.
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.
2 Statement of compliance
The financial statements of the Company have been prepared in accordance with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB). The financial statements are based on statutory records that are maintained under the historical cost convention. Investment property, land and buildings are held under the fair value model.
3 Changes in accounting policies
3.1 New and revised standards and interpretations – Adopted
The Company has not adopted any new standards or amendments that have a significant impact on the Company’s results or financial position.
3.2 Standards, amendments and interpretations to existing standards that are not yet effective and have not been
adopted early by the Company
IFRS 15 ‘Revenue from Contracts with Customers’
“IFRS 15 presents new requirements for the recognition of revenue, replacing IAS 18 ‘Revenue’, IAS 11 ‘Construction Contracts’, and several revenue-related Interpretations. The new standard establishes a control-based revenue recognition model and provides additional guidance in many areas not covered in detail under existing IFRSs, including how to account for arrangements with multiple performance obligations, variable pricing, customer refund rights, supplier repurchase options, and other common complexities.
IFRS 15 is effective for reporting periods beginning on or after 1 January 2018. The Company’s management have not yet assessed the impact of IFRS 15 on these financial statements.
IFRS 9 ‘Financial Instruments’
The IASB recently released IFRS 9 ‘Financial Instruments’ (2014), representing the completion of its project to replace IAS 39 ‘Financial Instruments: Recognition and measurement’. The new standard introduces extensive changes to IAS 39’s guidance on the classification and measurement of financial assets and introduces a new ‘expected credit loss’ model for the impairment of financial assets. IFRS 9 also provides new guidance on the application of hedge accounting. The Company’s management have yet to assess the impact of IFRS 9 on these financial statements. The new standard is required to be applied for annual reporting periods beginning on or after 1 January 2018.
IFRS 16 ‘Leases’
IFRS 16 will replace IAS 17 and three related Interpretations. It completes 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 (Note 28) 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
Investments 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.
4.3.1 Sale of goods
Revenue from sale of coal and related products is recognised when the Company has transferred to the buyer the significant risks and rewards of ownership, generally when the customer has taken undisputed delivery of the goods.
4.3.2 Dividend income
Dividend revenue from investments is recognised when the Shareholder’s right to receive payment has been established.
4.3.3 Interest income
Interest revenue is accrued on a time basis, by reference to the principal outstanding and at effective interest rate applicable, which is the rate that exactly discounts estimated future cash receipts, through the expected life of the financial asset to that asset’s net carrying amount.
4.3.4 Rendering of services
Revenue from the rendering of services from the hospital, estates and investment property is recognised in the accounting period in which the services are rendered, by reference to completion of the specific transaction assessed on the basis of the actual service provided as a proportion of the total services to be provided.
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.
4.6 Earnings per share
The Company presents basic and diluted earnings per share (EPS) data for its ordinary shares. Basic EPS is calculated by dividing the profit or loss attributable to ordinary shareholders of the Company by the weighted average number of ordinary shares outstanding during the period. Diluted EPS is determined by adjusting the profit or loss attributable to ordinary Shareholders and the weighted average number of ordinary shares outstanding for the effects of all dilutive potential ordinary shares, which comprise share options granted to employees.
4.7 Property, plant and equipment
Freehold land and buildings and property, plant and machinery are stated at historical cost less depreciation and impairment losses. Historical cost includes expenditure that is directly attributable to the acquisition of the items.
Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Company and the cost of the item can be measured reliably. The carrying amount of the replaced part is derecognised. All other repairs and maintenance are charged to profit or loss during the financial period in which they are incurred.
Increases in the carrying amount arising on revaluation of land and buildings are credited to capital reserves in the Shareholders’ equity. Decreases that offset previous increases of the same asset are charged against capital reserves directly in equity; all other decreases are charged to profit or loss. Each year the difference, between depreciation based on the revalued carrying amount of the asset charged to statement of comprehensive income and depreciation based on the asset’s original cost, is transferred from ‘’capital reserves’’ to ‘’retained earnings’’.
Land, capital work in progress and pre-stripped overburden are not depreciated. All other property, plant and equipment are depreciated on a straight line basis or amortised at rates estimated to write-off the cost or valuation of such assets over their expected useful lives
The expected useful lives are as follows:
Buildings 35 to 40 years
Permanent works 7 to 40 years
Plant, machinery and movable equipment 7 to 30 years
Motor vehicles 5 years
The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at each reporting date. An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its estimated recoverable amount.
An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its estimated recoverable amount.
4.7.2 Gains and losses on disposal
Gains and losses on disposals are determined by comparing the proceeds with the carrying amount and are recognised within other income in profit or loss.
4.8 Intangible assets
Intangible assets include acquired mining rights and acquired and internally developed software used in production or administration that qualify for recognition as an intangible assets. They are accounted for using the cost model whereby capitalised costs are amortised on a straight-line basis over their estimated useful lives, as these assets are considered finite. Residual values and useful lives are reviewed at each reporting date. In addition, they are subject to impairment testing. The following useful lives are applied:
Mining rights – amortised over the estimated life of coal reserves
ERP and other software’s – 10 years
Amortisation charge for the year is included within ‘depreciation, amortisation and impairment of non-financial assets’.
Acquired computer software licenses are capitalised on the basis of the costs incurred to acquire and install the specific software. Subsequent expenditure on brands is expensed as incurred. Costs associated with maintaining computer software, i.e. expenditure relating to patches and other minor updates as well as their installation, are expensed as incurred.
4.9 Impairment of non-financial assets
Assets that are subject to depreciation and amortisation are reviewed for impairment, whenever events or changes in circumstances indicated that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’ s fair value less cost to sell and value in use. For the purposes of assessing impairment, assets
are grouped at the lower levels for which there are separate identifiable cash flows (cash- generating units). Nonfinancial assets that suffered an impairment, are reviewed for possible reversal of the impairment at each reporting date.
4.10 Investment property
Investment property, which is property held to earn rentals and/or for capital appreciation, is measured initially at its cost, including transaction costs. Subsequent to initial recognition, investment property is measured at fair value determined by external independent valuers’. Investment property is not subject to depreciation. Gains and losses arising from changes in the fair value of investment property are recognised in profit or loss.
On disposal of an investment property, the difference between the net disposal proceeds and the carrying amount is charged or credited to profit or loss; any amounts on capital reserves relating to that investment property are transferred to retained earnings.
4.11 Financial assets
The Company classifies its financial assets in the following categories: at fair value through profit or loss and loans and receivables. The classification depends on the purpose for which the financial assets were acquired. Management determines the classification of its financial assets at initial recognition.
4.11.1 Financial assets at fair value through profit or loss
Financial assets at fair value through profit or loss are financial assets held for trading. A financial asset is classified in this category if acquired principally for the purpose of selling in the short-term. Derivatives are also categorised as held for trading unless they are designated as hedges. Assets in this category are classified as current assets.
The Company’s financial assets are marketable securities that are carried at market value, which is calculated by reference to quoted selling prices at the date of business on the reporting date.
4.11.2 Loans and receivables
Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They are included in current assets, except for maturities greater than 12 months after the reporting date. These are classified as non-current assets. The Company’s loans and receivables comprise ‘trade and other receivables’ and ‘cash and cash equivalents’ in the statement of financial position.
4.11.3 Trade receivables
Trade receivables are recognised initially at fair value and subsequently measured at amortised cost, using the effective interest method, less provision for impairment. A provision for impairment of trade receivables is established when there is objective evidence that the Company will not be able to collect all amounts due according to the original terms of the receivables. The carrying amount of the asset is reduced through the use of an allowance account, and the amount of the loss is recognised in profit or loss within ‘’selling and marketing costs’’. When a trade receivable is uncollectible, it is written off against the allowance account for trade receivables. Subsequent recoveries of amounts previously written off are credited against ‘’selling and marketing costs’’ in profit or loss.
4.11.4 Cash and cash equivalents
Cash and cash equivalents includes cash in hand, deposits held at call with banks, other short-term highly liquid investments and bank overdrafts. Bank overdrafts are shown within borrowings in current liabilities on the reporting date.
4.12 Stripping activity asset
Stripping asset activity represents the cost of overburden removed to expose coal and is capitalised during the course of development. The portion relating to reserves expected to be mined in the next twelve months (12) is
transferred to current assets and is charged to cost of production as the coal is mined whilst the portion that is expected to be mined after twenty four (24) months is recognised under non-current assets as other assets.
After initial recognition, the stripping activity asset is carried at cost less depreciation and impairment losses.
Inventories are stated at the lower of cost and net realisable value. The cost of consumable stores is determined using the weighted average cost method. The cost of finished goods is determined on an average cost of production basis. Net realisable value is the estimated selling price in the ordinary course of business, less applicable variable selling expenses.
4.14 Share capital
Ordinary shares are classified as equity. Mandatorily redeemable preference shares are classified as liabilities.
Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net of tax, from the proceeds.
Where a Company purchases the Company’s equity share capital (treasury shares), the consideration paid, including any directly attributable incremental costs (net of income taxes) is deducted from equity attributable to the Company’s equity holders until the shares are cancelled or reissued. Where such shares are subsequently reissued, any consideration received, net of any directly attributable incremental transaction costs and the related income tax effects, is included in equity attributable to the Company’s equity holders.
4.15 Current and deferred income tax
The tax expense for the period comprises current and deferred tax. Tax is recognised in the statement of profit or loss, except to the extent that it relates to items recognised directly in equity.
The current income tax charge is calculated on the basis of the tax laws enacted or substantively enacted at the reporting date
Deferred income tax is recognised, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the financial statements. However, the deferred income tax is not accounted for if it arises from initial recognition of an asset or liability in a transaction other than a business
combination that at the time of the transaction affects neither accounting nor taxable profit or loss.
Deferred income tax is determined using tax rates (and laws) that have been enacted or substantially enacted by the reporting date and are expected to apply when the related deferred income tax asset is realised or the deferred income tax liability is settled.
Deferred income tax assets are recognised only to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilised.
Deferred income tax is provided on temporary differences arising on investments in associates, except where the timing of the reversal of the temporary difference is controlled by the Company and it is probable that the temporary difference will not reverse in the foreseeable future.
Deferred tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax liabilities and when the deferred income tax assets and liabilities relate to income taxes levied by the same taxation authority on either the taxable entity or different taxable entities where there is an intention to settle the balances on a net basis.
Leases of property, plant and equipment where the Company has substantially all the risks and rewards of ownership are classified as finance leases. Finance leases are capitalised at the lease’s commencement at the lower of the fair value of the leased property and the present value of the minimum lease payments.
Each lease payment is allocated between the liability and finance charges so as to achieve a constant rate on the finance balance outstanding. The corresponding rental obligations, net of finance charges, are included in other long-term payables. The interest element of the finance cost is charged to the statement of profit or loss over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period. The property, plant and equipment acquired under finance leases is depreciated over the shorter of the useful life of the asset and the lease term.
4.17 Dividend distribution
Dividend distribution to the Company’s Shareholders is recognised as a liability in the Company’s financial statements in the period in which the dividends are approved by the Company’s Shareholders.
4.18 Trade payables
Trade payables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method.
Borrowings are recognised initially at fair value, net of transaction costs incurred. Borrowings are subsequently stated at amortised cost using the effective interest method.
Fees paid on the establishment of loan facilities are recognised as transaction costs of the loan to the extent that it is probable that some or all of the facility will be drawn down. In this case, the fee is deferred until the draw-down occurs. To the extent there is no evidence that it is probable that some or all of the facility will be drawn down, the fee is capitalised as a pre-payment for liquidity services and amortised over the period of the facility to which it relates.
Borrowings are classified as current liabilities unless the Company has an unconditional right to defer settlement of the liability for at least 12 months after the reporting date.
4.20 Employee benefits
4.20.1 Pension and retirement schemes
The Company is a member of the Mining Industry Pension Fund which is independently administered as a defined contribution scheme. All full time permanent employees are members and the scheme provides for contributions by both employer and employee. The Company’s contributions to the defined contribution pension plans are charged to statement of profit or loss in the year to which they relate. The Company and all employees must contribute to the National Social Security Authority statutory pension and benefits scheme, which is a defined contribution scheme.
4.20.2 Equity compensation benefits
The stock option program allows employees to acquire shares in the Company. When the options are exercised equity is increased by the amount of the proceeds received.
4.20.3 Short-term employee benefits
Short term employee benefits, including holiday entitlement, are measured at an undiscounted amount and recognised as an expense in the profit or loss during the period in which the services are rendered. Short term benefits expected to be paid are recognised as a liability (accrued expense), after deducting any amount already paid.
Provisions are recognised when the Company has a present legal or constructive obligation as a result of past events; it is probable that an outflow of resources will be required to settle the obligation; and the amount has been reliably estimated. Provisions are not recognised for future operating losses.
Where there are a number of similar obligations, the likelihood that an outflow will be required in settlement is determined by considering the class of obligations as a whole. A provision is recognised even if the likelihood of an outflow with respect to any one item included in the same class of obligations may be remote.
Provisions are measured at the present value of the expenditures expected to be required to settle the obligation using a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the obligation. The increase in the provision due to passage of time is recognised as interest expense.
4.21.1 Rehabilitation and restoration costs
The Company recognises provisions for the restoration and rehabilitation of mined areas. The provision recognised represents management’s best estimate of the present value of the future costs required. Significant estimates and assumptions are made in determining the amount of restoration and rehabilitation provisions. Those estimates and assumptions deal with uncertainties such as: requirements of the relevant legal and regulatory framework; the magnitude of possible contamination and the timing, extent and costs of required restoration and rehabilitation activity. These uncertainties may result in future actual expenditure differing from the amounts currently provided.
The provision recognised for each site is periodically reviewed and updated based on the facts and circumstances available at the time. Changes to the estimated future costs for operating sites are recognised in the statement of financial position by adjusting the restoration and rehabilitation provision.
4.22 Segment reporting
The Company has three operating segments: the Mining, Medical Services and Estates. In identifying these operating segments, management generally follows the Company’s service lines representing its main products and services.
Each of these operating segments is managed separately as each requires different technologies, marketing approaches and other resources. All inter-segment transfers are carried out at arm’s length basis.
For management purposes, the Company uses the same measurement policies as those used in its financial statements.
4.23 Related parties
For the purposes of these financial statements, a party is considered to be related to the Company if:
4.23.1 The party has the ability, directly or indirectly through one or more intermediaries, to control the Company or exercise significant influence over the Company in making financial and operating policy decisions, or has joint control over the Company;
4.23.2 The Company and the party are subject to common control;
4.23.3 The party is an associate of the Company or a joint venture in which the Company is a venture;
4.23.4 The party is a member of key management personnel of the Company or the Company’s parent, or a close family member of such an individual, or is an entity under the control, joint control or significant influence of such individuals;
4.23.5 The party is a close family member of a party referred to in 4.23.1 or is an entity under the control, joint control or significant influence of such individuals; or
4.23.6 The party is a post-employment benefit plan which is for the benefit of employees of the Company or of any entity that is a related party of the Company. Close family members of an individual are those family members who may be expected to influence, or be influenced by, that individual in their dealings with the entity.