Annual Report - Zimbabwe Stock Exchange · 2019-04-01 · 1998: DZL acquired 60% equity in...

Dairibord Holdings Limited1225 Rekayi Tangwena Avenue, Belvedere, Harare

P O Box 587, Harare , ZimbabweTelephone : + 263 4 790801-5, 779035-45

2017Annual Report

Dairibord H

oldings Limited | 2017 A

nnual Report

www.dairibord.com

Accolades and Associations2017 MARKETERS ASSOCIATION OF ZIMBABWE (MAZ) - SUPER BRAND AWARDS

1. FMCG Dairy Sector - 2nd Runner up, Dairibord Lacto2. FMCG Dairy Sector - Winner, Dairibord Chimombe3. FMCG Non Alcoholic Brew Sector – Winner, Pfuko4. FMCG Non-Alcoholic Cordials Sector - 1st runner up, Lyons Quench5. Hot Beverages Sector - 1st runner up, Quick Brew6. FMCG Non Alcoholic Beverages Sector - 2nd Runner up, Cascade

Business Associations Membership: 1. ConfederationofZimbabweIndustries(CZI)2. InstituteofDirectorsZimbabwe(IoDZ)3. ZimbabweBusinessCouncilonWellness4. MarketersAssociationofZimbabwe5. BuyZimbabwe6. ZimbabweDairyIndustryTrust(ZDIT)7. ZimbabweDairyProcessorsAssociation(ZDPA)

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Dairibord Holdings Limited 2017 Annual Report

Scope of our Report

We are pleased to present the annual report for Dairibord Holdings Limited,acompanylistedontheZimbabweStockExchange(ZSE)whichincludeDairibordZimbabwe(Private)Limited,DairibordMalawiLimitedandfourpropertycompaniesnamelySlimlineInvestments(Private)Limited,GoldblumInvestments(Private)Limited,ChatmosEnterprises(Private)LimitedandQualinnex(Private)Limitedfortheyearended31 December 2017.

Thisreportistargetedatabroadrangeofourstakeholderswiththeaimofpresentingabalancedreviewofmaterialissuesfromouroperations.ThereportincludesouroperationsinZimbabweandMalawi.

Reporting FrameworkThis report is prepared using Global Reporting Initiatives (GRI)SustainabilityReportingGuidelinesinmeasuringourprogresstowardssustainability.ThisreportisoursecondsustainabilityreportpreparedmeetingGRIG4SustainabilityReportingGuidelines(Core).

OursustainabilityreportingisintegratedwithourfinancialstatementspreparedinaccordancewiththeInternationalFinancialReportingStandards(IFRS).ThefinancialstatementswereauditedbyErnst&YoungCharteredAccountants(Zimbabwe).Anindependentauditors’reportonthefinancialstatementscontainedinthisreportappearsonpage 38 of our annual report.

Forward looking StatementsCertainstatementsinthisreportconstitute‘forwardlookingstatements’.Suchstatementsinvolveknownandunknownrisks,uncertaintiesandotherfactorsthatmaycausetheactualresults,performances,objectivesorachievementsofDairibordHoldingstobemateriallydifferentfromfutureresults,performance,objectivesorachievementsexpressedorimplied in forward looking statements.

TheperformanceofDairibordHoldingsissubjecttoeffectsofchangesintheoperatingenvironmentandotherfactors.DairibordHoldingsLimitedundertakesnoobligationtoupdatepubliclyortoreleaseanyrevisionoftheseforwardlookingstatementstoreflecttheeventsorcircumstancesafterthedateofpublicationofthisreportortoreflecttheoccurrenceofunanticipatedevents.

Wewouldwelcomeyourfeedbackonourreportingandanysuggestionsyou have in terms of material issues you would like to see incorporated inourreportfor2018.Todoso,pleaseemailMercyNdoroon:[email protected]

Chairman GroupChiefExecutive

OVERVIEW

CorporateProfileandHistory 3

Vision,Mission&Values 4

Group Structure 5

GroupBrands&Markets 6

Our Business Model 7

Group Performance Summary 11

GOVERNANCE, ETHICS & ENGAGEMENTS

Chairman’sStatement 12

GroupChiefExecutive’sReviewofOperations 15

CorporateGovernance&Ethics 19

Dairibord Holdings Limited Board and Senior Management 21

Sustainability Strategy 22

Risk Management 24

MaterialIssuesandReportBoundary 26

StakeholderEngagement 27

PERFORMANCE

SustainabilityPerformance 29

StatementofDirectors’Responsibility 36

Report of the Directors 37

IndependentAuditor’sReport 38

Annual Financial Statements 41

ANNEXURE

GlossaryofTerms 77

GRIContentIndex 78

Shareholder Analysis 80

NoticetoShareholders 82

Shareholders’Calendar 83

FormofProxy Loose

CorporateInformation 84

Content

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DairibordHoldingsLimitedisamanufacturerandmarketerofqualitymilk,foodsandbeverages.ThecompanyislistedontheZimbabweStockExchange (ZSE). Its operating subsidiaries are Dairibord Zimbabwe (Private) Limited and DairibordMalawi Limited. The company also has100%interestinfourpropertycompanies,namely,GoldblumInvestments(Private)Limited,ChatmossEnterprises(Private)Limited,QualinnexProperties(Private)LimitedandSlimlineInvestments(Private)Limited.

TheGroupproducesanextensiverangeofproductswhichincludeliquidmilks(longandshortshelflife),foods(yoghurts,icecreams,condimentsandspreads)andbeverages(cordials,readytodrinkdairyandnon-dairy,teaandwater)whicharemarketedanddistributedindomesticandexportmarkets.

DairibordHoldingsLimitedisa leadingfoodsandbeveragescompanywithover45brands. InZimbabwe,theGrouphasfactories inHarare,Chitungwiza and Chipinge whilst the factory in Malawi is located in Blantyre.

Corporate Profile and History

Parastatal Phase1952: TheDairyMarketingScheme introducedunder theAgriculturalMarketingAct, in

1951,establishedTheDairyMarketingBoardon1October1952toprovidefor:i. Thereceptionofallmilkdeliveredtoitii. Themanufactureandorderlymarketingofmilkanddairyproductsiii. Theadministrationofregulationsapplicabletoproducerregistrations

Priorto1952,therewerefour(4)co-operativesthroughoutthecountry.Thesewere:i. ManicalandCo-operativeii. MatabelelandCo-operativeiii. MidlandsCo-operativeIv. MashonalandCo-operative

Commercialization and Privatization Phase1991: DMBcommercializedunder theEconomic StructuralAdjustmentProgram (ESAP)

afteryearsoflossmakingoperations1994: DMB’slegalstatuschangedfromaparastataltoDairibordZimbabweLimited(DZL)

under the Companies Act owned by Government 100%. 1995: Preparationsforprivatizationundertaken,DZLbecameprofitableandself-financing

with a virtually unencumbered balance sheet.1996: Governmentannouncedplanstoprivatizestateenterprises1997: Processofprivatizationcompleted.Dairibordbecamethefirststateownedcompany

in Zimbabwe to be privatised with Government divesting out 75% to privateinvestors.DairibordwaslistedontheZimbabweStockExchangeon15September1997.

Acquisitions and restructuring 1998: DZLacquired60%equityinDairibordMalawi1998: Government sold the remaining 25% equity to private investors2001: DZLacquired100%ownershipofLyonsZimbabwebusiness2002: DZLacquired40%shareholdinginM.ECharhons,aconfectionarycompany2003: AtransportandlogisticscompanyNFBLogisticsowned100%byDZLwasformed2005: DZLrestructuredintoaholdingcompanywithstand-alonesubsidiaries.2006: Holdingcompany’snamechangedfromDairibordZimbabweLimitedtoDairibordHoldingsLimitedinordertoclearly

demarcatetheoperatingcompanyDairibordZimbabwe(Private)LimitedfromtheHoldingcompany2012: DairibordHoldingsdisposedthe40%equityinM.ECharhontoCairnsHoldings2013: DairibordHoldingscommencedtherationalisationoffactoriesandthisresultedinthemothballingofMutareand

BulawayofactoriesandoperationsfromthetwofactoriesweremovedtotheHarareandChitungwizafactories.2017: GrouprestructuresZimbabweoperationsintooneoperatingentityeffectivelytransferringLyonsandNFBoperations

intoDairibordZimbabwe(Private)Limited

1991to

1997

1952

1998to

2017

HISTORY OF THE COMPANY

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VISIONTobetheleadingfoodsandbeveragescompanyinAfrica,commandingapositionofsustainablemarketleadershipdrivenbystrongbrandsandsuperior human capital.

OUR MISSIONToprovideourcustomerswiththebestqualityfoodsandbeveragesforthesustenanceofgoodhealth.

OUR VALUESInnovation: Wearecommittedtoinnovationandaddressingchangingcustomers’needsandwewillcontinuouslydevelopourprocessestoproduce a wide variety of quality new products and services

Integrity: Ourintegritywillbedisplayedinallourinteractionwithstakeholderswhileembracingenvironmentallyfriendlypractices.

Responsibility: Asacorporatecitizen,wearecommittedtodischargingourdutiesresponsiblyinallourdealingswithstakeholders.

Accountability: Wetakeresponsibilityforourownactions.

Fairness: We will be fair in all our dealings.

Team work:Weshallnurtureaspiritofteamworktooptimisesynergiesandbenefitfrommutualco-existence.

Vision, Mission and Values

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Group Structure

Dairibord Holdings Limited

Dairibord Malawi Limited

68.4%

Goldblum Investments(Private)Limited

100%

Dairibord Zimbabwe(Private)Limited

100%

Slimline Investments(Private)Limited

100%

QualinnexInvestments(Private)Limited

100%

Lyons Africa (Private)Limited

(Dormant)

100%

Chatmos Enterprises(Private)Limited

100%

NFBLogistics(Private)Limited

(Dormant)

100%

Lyons Zimbabwe(Private)Limited

(Dormant)100%

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OurGroupbrandsunderDairibordZimbabwe(Private)LimitedandDairibordMalawiLimitedareshowninthetablebelow:

Product Category Product Type Brands

Dairibord Zimbabwe (Private) Limited Dairibord Malawi Limited

Liquid Milks

Long Shelf Life

Cultured

Short Shelf Life

Flavoured Milks

Cream

Dairibord Steri MilkDairibord ChimombeDairibord Supermilk

Dairibord Lacto

DairibordChing’ombe

Dairibord Chambiko

Dairibord Fresh Milk

Dairibord Fiesta

Dairibord Fresh Cream

Foods

Yoghurts

IcecreamSticks

BulkIceCreams

Sauces&Condiments

Dairibord YummyDairibord Froot ScoopDairibord Yogie

NuttySquirrelSkippy ChocBigga BearSuper SplitPlus 20Monsta MouseGreen GiantMelloIceTropical

Dairibord Real dairyLyons Maid

RabroyTomatoSauceRabroy Salad CreamRabroy MayonnaiseRabroyTangyMayonnaiseLyonsPeanutButter

Dairibord YoghurtDairibord YogieYuphoria

DairibordIceLollies

DairibordIceCreams

Beverages

ReadyToDrink

Crushes&Cordials

BottledWater

Tea

Drinking Chocolate

CascadePfuko-Udiwo MaheuNutriplusFun‘nFreshNatural Joy

Quench

Dairibord Aqualite

QuickBrewTeaBags

Lyons Drinking Chocolate

Family Choice JuicesJuice UpDairibordTangie

Family Choice

Group Brands and Markets

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Our Business Model

TheGroupcreatesvaluethroughmanufacturinganddistributionoffoodsandbeverages.Ourbusinessmodelwentthroughrealignmentin2017toenhancevaluecreation.TherealignmententailedtheconsolidationofthreebusinessunitsintooneentityDairibordZimbabwe(Private)Limited).Therestructuringculminatedinaleaner,efficientmarketfacingorganisationalstructure.

Our StakeholdersTheGroup’sstakeholdersareacriticalcapitalinputintoourbusinessmodel.Understandingourstakeholders’interestsandaddressingthemasacriticalcomponentofourvaluecreationprocess.

Our stakeholder portfolio and their key interests

Stakeholders Issues of interest

Our Customers and consumers § Product quality§ Prices§ Payment terms§ Tradesupportandpromotions

Investors § Turnaroundofthebusiness§ Profitability§ Investments§ Dividend policy§ Sustainability of performance

Suppliers § Prices of materials and other inputs§ Quality and consistence of supply§ Payment terms

Farmers § Extensionservices§ Raw milk prices§ Quality premium scheme§ Other support services e.g heifer procurement, veterinary support and stock feeds

procurement

Government and Regulators § Foreign currency availability§ Importregulations§ Compliancewithlawsandregulations§ Utilitiessupplyandpricing

Communities § Corporate social responsibility§ CleanEnvironment

Employees § Security of employment § Traininganddevelopment§ Conditionsofservice§ Health and safety

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Our Business Model (continued)

Focus• Liquid Milks, Foods

and Beverages

Priorities• Milk supply growth• Revenue growth through new andexistinglines

• Defending and growing market share

• Securing foreign currency to support product supply

Opportunities•Milkdemandexceedingsupply• Strong demand across all

categories• ExportsintotheSADCregion• Diversifyingproductportfoliosin

line within our mission.

Key Strengths• Aportfoliofocusedonpromotingandsustaininggood health

• Competitivebrands• Diversifieddistribution

channels• Nationwidedistribution

network

OUR STRATEGY AT A GLANCE

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Our Business Model (continued)

OUR VALUE CHAIN

Stage of the value chain Comments

Inputs

Raw milkRawmilkissourcedfromindependentfarmerswhosigncontractsofsupplywiththecompany.Thepricingofmilkismarketdeterminedtoretaincompetitiveness.Milkcollectionistheresponsibilityofthecompany.

Raw materials comprise of Skimmed Milk Powder, Full Cream Milk Powder, Sugar, Orange Juices, Fruit Setse.t.c.PackagingmaterialscompriseofHigh-DensityPolyethylene(HDPE),PolyethyleneTerephthalate(PET),paperpackaginge.t.c.

DuetodepressedindustrialactivityinZimbabweandMalawi,mostrawmaterialsareimportedexposingthebusinesstoglobalcommoditypricevolatilitiesandforeignexchangefluctuations.

Utilities [electricity, water, coal and other fuels]Utilitiesavailabilityiserraticandatahighcostparticularlywaterandelectricity.Thebusinessreliesonstandbyfacilitiestosupportoperationsduringpowerandwateroutages.

ThecommissioningofKaribaSouthUnit7&8willimprovepowersupplyin2018.

Human Capital [contract and permanent]Labourispartlycontractedandpartlypermanent.Wagesfornon-managerialemployeesarenegotiatedthroughnationalemploymentcouncilsonanannualbasis,.

ProcessesTheGroupundertakesvalueadditionbyconvertingtheinputsintovalueaddedproducts.TheGroupoperates5mainfactories[4inZimbabweand1inMalawi].

Outputs and distribution channels

Product portfolioTheGroupsoutputsaredividedintothefollowingportfolios:�� Liquid Milks�� Foods and �� Beverages

Distribution Channels�� Modern trade:Thischanneliscomposedoflargeretailoutlets.�� Wholesalers:Thechanneliscomprisedoflargeandmediumscalewholesalers.�� General trade: Composed of small to medium scale retailers and convenience stores.�� Vending:Thisisacashchannelwithindependentvendorsbuyingstocksforresaleonadailybasis.�� Franchises:MostfranchisesoperatefromtheGroup’spremisesformerlyoperatedasdistribution

depots. �� Hospitality and institutions:Thechannelfocusesonhotels,schoolsandsimilarinstitutions.�� Exports: TradeisdonemainlywithcustomersinZambia,Mozambique,Botswana,SouthAfricaand

Malawi.

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Group Performance Summary

Financial Performance 2017 2016 % Change US$ US$ Revenue 103,147,437 93,422,853 10%Earningsbeforeinterest,tax,depreciationandamortisation 9521690 1257385 667%Operatingprofit/(loss) 4,058,212 (3,897,834) 204%Profit/(loss)fortheyear 1,354,967 (5,450,312) 125%Netcashflowsgeneratedfromoperatingactivities 6,239,306 4,495,605 39%Netassets 45,419,619 44,064,652 3% Share information Number Number Number of ordinary shares in issue at the end of period 358,000,858 358,000,858 Weighted average number of shares 358,000,858 358,000,858 Share performance Earningspershare US cents US cents -Basic 0.45 (0.20) 325%-Diluted 0.45 (0.20) 325% Closingmarketprice(UScents) 13.40 6.90 94%Netassetvaluepershare(UScents) 12.70 12.25 4% US$ US$ Marketcapitalisation 47,972,115 24,702,059 94%

Sustainability Performance

Indicator % change from 2016

Solidwastedisposal(tons) 24%

Electricityconsumption(MWh) 7%

Coalconsumed(tons) 3%

Dieselconsumed(000L) 6%

Labourturnover(reduction) 4%

Socialresponsibilityspend($000) 4%

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INTRODUCTIONThebusinesspostedasignificantlyimprovedsetofresultsfortheyearended31December2017.Acombinationofstrongdemand,increasedcapacity and the realignment of the corporate and organisationalstructuresallpositivelyimpactedtheoverallperformancefortheperiod.

OPERATING ENVIRONMENTTheoperatingenvironmentwascharacterizedbypronounced foreigncurrencyshortageswhichaffectedproductsupply,andconstrainedthebusiness’ ability to fully exploit volumegrowthopportunities. Theallitemsyear-on-year inflationclosed theyearat3.46%,with the foodsandnon-alcoholicbeveragesinflationat6.60%.Despitethechallenges,demandwasfirm,benefitingfromGovernmenteffortstopromotelocalmanufacturingthroughvariousmeasuresincludingSI122of2017.

Goingforward,theoperatingenvironment isexpectedto improveonthe back of new policy initiatives by the government. In particular,Governmentthrust,toinstilconfidencethroughsecurityoftenureonfarms,isexpectedtospurrawmilkgrowthandagricultureproductionin general.

GROUP PERFORMANCE

Raw Milk IntakeIncreasedcompetitionforrawmilkandconstrainedlevelsofproductivity,atfarmlevel,hadanegativeimpactonGrouprawmilkintake.Rawmilkreceivedfromfarmersforthefullyeardeclined16%onprioryear.TheGroup is pursuing various initiatives to increasemilk intakewhich iscurrentlybelowmarketdemand. Specific strategies includeupscalingproductivityfortheexistingherd,attractingmorefarmers,andgrowingtheherdthroughtheheiferprocurementscheme.TheHeiferProgramwhich started in2012, isnowcontributing15%of rawmilk intake inZimbabwe.

Volumes and revenueVolumessold,at89.423millionlitres,were8%above2016levels.Firmmarket demand across all product categories, and increased capacity to support beverages and liquid milks benefited volumes. Volumesachieved were however not optimal due to forex driven productshortages,adverseweatherconditionsinthefirstquarteroftheyear,andsalesdisruptionsduringsystemmigrationonconsolidationoftheoperations.CartonisedUHTmilkandPfukovolumesgrewsignificantly,benefitting from increased capacity invested in 2016. Other productlineswhich recorded significant growth, on account of firmdemand,were Steri milk, yoghurts, and condiments.

Revenue increased 10%, to $103.147 million, on account of the 8%volumegrowthanda2%nominalpriceadjustmenteffectedtomitigatecostincreases.Theaveragesellingpriceperlitre,for2017,was3centshigherthanthe$1.12achievedin2016.Goingforward,thebusinesswillcontinuetodriverevenuethroughvolumegrowthinitiatives.

ProfitabilityProfitability significantly improved in 2017, spurred by execution oftheturnaroundstrategyembarkedonatthebeginningoftheyear.Theprogramwasaimedatintegratingthebusinessintoalean,efficientandprofitable operation. Consequently, selling,marketing, administrationand other overheads decreased by $4.877million (16%) from 2016.Excluding the$2.8milliononceoffcosts charged in2016,overheadsdecreasedby$2.077million.

Chairman’s Statement 2017

Dr. L.L. TsumbaChairman

“Profitability significantly improved in 2017, spurred

by execution of the turnaround strategy”

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TheGrouprecordedanoperatingprofitof$4.058million,aturnaroundfromanoperatinglossof$3.898millionin2016.EBITDAalsoimprovedsignificantlyfrom$1.257millionin2016,to$9.522millionin2017.Afteraccountingforonceoffretrenchmentcostsof$0.847millionandanetinterestbillof$0.740million,theGrouprecordedaprofitbeforetaxof$2.471million,comparedtoa2016lossbeforetaxof$4.881million.Thenewlowcostoperatingmodeladoptedwillcontinuetobenefitthebusinessinthefuture.

DairibordMalawiLimitedrecordedanoperatinglossof$0.550million,anincreaseonthe2016operatinglossof$0.146million.TheBoardreviewedtheperformanceofthebusinessandbelievestheMalawimarketisattractivetoholdandgrowthebusiness.

Cash generationNetcashgeneratedfromoperationsincreasedto$6.239million,upfrom$4.496milliongeneratedin2016,benefitingfromtheimprovedoperatingperformance.Thecashwasutilisedtofinancecapitalexpenditureof$1.972million,andrepaymentofborrowingsof$2.370million.Interestbearingborrowings(includingoverdraft)amountedto$7.874millionatyearend,25%belowDecember2016.

Cashandcashequivalentsamountedto$5.819millionatperiodend,from$3.467millionattheendofDecember2016,mainlyduetofailuretoremitforeignpayments.Thebusinessisfocusingonutilisingthecashbalancestoenhancethestockreplacementprogram.

OUTLOOK Notingtheprogressmadebythebusinesstodate,andtherenewedoptimismforeconomicturnaround,focuswillbeonthefollowing:• Improvingprofitabilitythroughvolumegrowthandcostcontainment• Optimallyutilisingcashresourcestoprocureinputsrequiredinordertoensureadequateproductsupply• Maximisingcapacityutilisationtomeetdemand• Contributingtowardsforeigncurrencygenerationthroughexportsintotheregion• Improvingefficienciesacrosstheentirevaluechain,andimprovingtheinternalcontrolenvironment

DIVIDEND DECLARATIONConsideringtheimprovedperformanceofthebusiness,cashgeneration,andthereducedcapitalexpenditureplangoingforward,theBoardresolvedtodeclareadividendof0.20UScentspersharefortheyear.Therecorddateforthedividendwillbe18May2018,lastcum-dividenddate15May2018andtheex-dividendtradingdatebeing16May2018.Thedividendispayableonoraround28May2018.

DIRECTORATEInlinewiththecompany’sarticlesofassociation,IwillberetiringandsteppingdownasChairmanoftheBoardattheAnnualGeneralMeetingtobeheldinMay2018,afterhavingservedforsixyears.Inthisregard,IwishtoexpressmysincereappreciationtotheBoardandallstakeholdersforthe support given over the years.

Theprocessofselectingmyreplacementiscurrentlyinprogressandtheoutcomewillbecommunicatedinduecourse.

APPRECIATIONOnbehalfoftheBoard,allowmenowtoexpressmygratitudetoourvariousstakeholders,managementandstafffortheunwaveringsupporttotheoperationsandsuccessofthecompany.

Dr. L. L. TsumbaChairman8 March 2018

Chairman’s Statement 2017 (Continued)

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Group Chief Executive’s Review of Operations

PERFORMANCE OVERVIEW The year 2017 marked a turnaround for the Group. The businesssuccessfully executed its turn around plan and results attest to theprogress made.

Thefollowingachievementswererecordedduringtheperiod:• Reversalofpreviousyearlossesculminatinginreturntoprofitability.

Thebusinesspostedanoperatingprofitof$4.058millionfromapreviousyearoperatinglossof$3.898million.

• A16%reductioninoverheadcostsresultingfromtherestructuringprogram. Excluding non-recurring costs incurred in 2016, thereductioninoverheadswas8%.

• Line extensions,mainly Pfuko flavours, Fun’n Fresh, Natural Joyand Tangy Mayonnaise were well received by the market andcontributed towards volume growth

• Leveragedonexistingcapacitytomeetincreasingdemandacrossall key lines.

• A combination of increased demand, higher capacity utilisationandlineextensionsdrovevolumeandrevenuegrowthby8%and10%respectively

• Significant improvement in the internal control environment tominimise losses.

Optimalexploitationofincreaseddemandwashoweverconstrainedbyforeign currency shortages which worsened in the second half of 2017. OPERATING ENVIRONMENTDemandfirmedin2017benefitingfromimprovedminingoutput,thestrong 2016/2017 agricultural performance and government supportforlocalindustrythroughSI122.ThesepositivedevelopmentsresultedinanestimatedGDPgrowthof3.7%in2017upfrom0.6%realisedin2016(MinistryofFinance).Output fromthemanufacturingsector,asmeasuredbytheConfederationofZimbabweIndustry(CZI),increasedby 5.5% in response to increased demand on the local market.

Foreign currency supply worsened during the year largely due to protractedtradedeficits.Thecountry’stradedeficitendedtheyear2017at$1.457billionfrom$2.182billionin2016.ThegaphoweverremainsunsustainablegivenlowlevelsofexportsandtheabsenceofsignificantlinesofcreditfromInternationalFinancialInstitutions(IFIs)andForeignDirectInvestment.Theforeigncurrencyconstraintsimpactedonbothinflationandproductsupply.

Year-on-YearinflationrevertedtoapositiveterritoryinFebruary2017and accelerated in the second half of the year. All items Year on Year (y-o-y) inflationattheendof2017wasat3.46%whilethefoodsandnon-alcoholicbeveragesinflationwas6.60%.This increaseininflationwasagainstaprioryearnegativey-o-yinflationof-0.93%.

ThestrengtheningoftheZARby20%versustheUSDmainlytowardsendoftheyearhadanegative impactonZARdenominated imports.DespitethenegativeimpactoftheappreciationoftheZAR,thetrend,ifmaintained,willmake Zimbabwean productsmore competitive vs.South African products in the region.

NationalmilkproductioninZimbabwewasflaton2016at66.4millionlitres mainly due to floods in the first four months of the year andincidentsoffootandmouthdisease.Thecountry’smilkoutputremainsbelowdemandwhichisestimatedat120millionlitresperannum.Bothgovernment and private sector remain key players in addressing the demand-supply imbalance going forward.

“The business is in a much better position to remain a leader in the

dairy industry”

Anthony MandiwanzaGroupChiefExecutive

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Group Chief Executive’s Review of Operations (continued)

PERFORMANCE OVERVIEW

Revenue and volumes soldVolumesoldfortheperiodwas8%aboveprioryearat89.423millionwhile revenue grew 10% to $103.147 million. Volume growth wasrecorded across the entire portfolio. Themismatch between volumeand revenue growth was on account of price increases. Average price perlitreincreasedby2%to$1.15lowerthantheyearonyearinflationof 3.46%.

Portfolio performanceThe charts below show the volume and revenue performance byportfolio:

Liquid MilksThe Liquid Milks portfolio benefited from the new capacitycommissioned in 2016 to process and pack 1 litre cartonised UHTmilk.Overallvolumesincreasedby8%from2016.Thislineextension,previously imported from South Africa, has been well received by the marketridingontheChimombebrand.Potentialdemandwasnotfullysatisfiedduetomaterialsavailabilitychallenges,mainlyrawmilk,milkpowders and packaging materials. Another volume driver was Steri milk which grew 15% above prior year supported by consistency in product quality and supply.

FoodsThe foods portfolio started to recover after several years of decline.Volumegrowthfortheportfoliowasat10%.KeyvolumedriverswereYoghurts, Tomato Sauce, Salad Cream and Mayonnaise. VolumesbenefitedfromgovernmentsupportforlocalindustrythroughSI122.

BeveragesBeveragescontributiontototalvolumewasat52%whilevolumegrowthwas10%aboveprioryear.Lineextensions,i.e.PfukoFlavors(Strawberry,ButtermilkandBanana),Fun’nFresh1LandNatural Joy1Lwerewellreceived by consumers and these present a growth opportunity for the category going forward.

Portfolio MixThechartsbelowshowthevolumeandrevenuemixbyportfolio:

Foods

Foods

With turnover spread across theentireportfolio, thebusiness is lessexposed to over concentration on a single line or portfolio. Goingforward,inlinewiththemissionoftheGroup,opportunitiesinthethreecategories will be pursued in order to grow the topline.

PROFITABILITYThe return to profitability in 2017 was driven by volume growthinitiatives, business restructuring and improved internal controlenvironment.TheGroup’soperatingprofitmarginimprovedto4%fromanoperatinglossmarginof-4%in2016.

Materials costs increased by 10%, driven by growth in volume sold and increasesinpricesofinputs.Theincreaseininputpriceswasmitigatedby price increases which closed the year at 2% above 2016. Undertherestructuringexercise,manning levelsdeclinedby59fromprioryearlevel.Theretrenchementprocesswascompletedinthefirsthalf of the year and full year impact will be realised in 2018. Other areas of focus under the restructuring exercise includedHeadOfficerelocation and value chain integrationwhichwere completed during2017.Thevaluechainconsolidationpresentedsavingsopportunitiesinmanufacturing,procurementandsalesanddistributionwhichwillalsohaveapositiveimpactin2018.

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The impact of the restructuring was a 16% reduction in non-manufacturingoverheadsand10%declineinlabourcosts.Thesavingswereaheadofthe$2milliontargetat$4.869million.Therebasingofthe overhead cost structure will ensure sustainable earnings for the Group going forward.

BorrowingsInterest bearing borrowings (including overdraft) ended the year at$7.785million,25%belowthe31December2016balance,onaccountofimprovedcashgeneration.The“allin”averagecostofborrowingasat 31 December 2017 was 8%.

Withagearinglevelof18%,thebusinesscanleverageonthefinancialposition,toinvestinopportunitiesastheyarise.

Cash generationCashgenerationsignificantlyimprovedin2017onaccountofimprovedEBITDAmarginwhichincreasedto9%from1%in2016.Thebusinessended the year with net cash resources of $5.730 million up from$2.735millionthepreviousperiod.ThoughtheGroupincreaseditscashgeneration,thebalancesarenotreadilytransferableforpayingforeignobligations.

Going forward, the Group will focus on value preservation throughstrategic deployment of cash resources to secure inventories.

InvestmentsInvestmentsdeclinedto$2.4millionfrom$5.4millioninlinewiththeGroup’s strategy to focus on utilizing existing capacity.Major capitalinvestment items were in sachet filling equipment, refrigerationequipment and the water reservoir for the Chitungwiza factory.

In2018,investmentswillbeinthefollowingitems:• Coldchainequipmenttoenhancedistributioncapacity• UHTsachetfillingequipmenttosupportliquidmilks• Distributionvehiclesand• Efficiencyenhancementsinmanufacturing

Dairibord Malawi Limited (DML)DairibordMalawiLimitedremained ina lossmakingposition in2017posting an operating loss of $0.550 million. The market remainsattractiveandworkisinprogresstoassessthebestmeanstoresuscitatethe business.

MILK SUPPLY ThegraphbelowshowstherawmilkintakeperformancefortheGroupin2017:

- 16% - 20% + 15%

Rawmilk remainsacritical rawmaterial for thebusiness.During theyear, Group milk intake declined by 16% comprising a 20% decline for Zimbabweoperationsand15%growthinMalawi.

MilkintakedeclineinZimbabwewasduetoacombinationofincreasedcompetitionanddepressedproductivityatfarmlevel.

TheGrouphasputinplaceseveralinitiativesaimedatgrowingtheherd,improvingveterinarysupport,feedformulationandinputprocurement.Theseinitiatives,togetherwiththeimprovedQualityPremiumScheme(QPS)willdrivemilkintakein2018.

Government policy on land tenure, particularly issuance of 99 yearleasesandthecommandlivestockscheme,willbenefitmilkproductionatnationallevel.

BRAND BUILDINGDuringtheyear,thebusinessmaintainedafairlystrongbrandpositionacross major lines. This was confirmed through the 2017MarketersassociationofZimbabweSuperbrandawardswon.Accoladeswereasfollows:1. FMCG Dairy Sector - 2nd Runner up, Dairibord Lacto2. FMCG Dairy Sector - Winner, Dairibord Chimombe3. FMCG Non Alcoholic Brew Sector – Winner, Pfuko4. FMCG Non-Alcoholic Cordials Sector - 1st runner up, Lyons Quench5. Hot Beverages Sector - 1st runner up, Quick Brew6. FMCG Non Alcoholic Beverages Sector - 2nd Runner up, Cascade

During the year, the business launched the following lines to improve productrange:• 1LFun’nFresh• 1L Natural Joy, and• TangyMayonnaise

Marketacceptanceforthesebrandswassatisfactoryandthesebrandswill support growth going forward.

Otherinitiativestobuildourbrandswillbepursuedfocusingon:• Enhancingtheroutetomarket• Investingincoldchainequipment• Investingintradesupportandautomationofsalesprocesses

SUSTAINABILITYTheGroupcontinuestoensurethatsustainabilityispartofourstrategy.Embeddingsustainability inourdecisionmakingandanalysisenablesthe Group to ensure that our business model is inclusive and responsive tomaterial impacts and opportunities in our operating environmentand stakeholders.

HUMAN CAPITALTheGroupmaintainedastable industrial relationsclimateduringtheyear especially during retrenchment negotiations. The negotiationsweresuccessfullyexecutedinlinewiththelawwithnodisputesarisingfrom the process.

The new structure which emerged from the restructuring wassuccessfullystaffedandtheGroupisnowfocusingonconsolidatingthegainsoftheexercisethroughthefollowing.• Strengtheningbusinesscontinuityandskillsretentionstrategy• Partnering global business schools for Executive leadership

18



development• GraduateTraineeProgramtodevelopskillspipeline• Enhancingmanpowerproductivitybyridingontheleanerstructure

andperformancebasedremunerationmodel

INTERNAL CONTROL ENVIRONMENTTheinternalcontrolenvironmenthasbeenenhancedtoreducelossesrelated to internal controlweaknessesparticularlyaround receivablesand inventories. Changes to strengthen the internal control environment includethefollowing:• InvestmentinSalesForceAutomationtoenablerealtimerecording

andexecutionoftransactions• Online uploading of sales documents to improve transaction trail

and document retrieval• Strengtheningtheorganisationalstructurearoundinventorycontrol

andreceivablescollections

OUTLOOK Thechangesingovernmentpolicyhaverenewedoptimismforeconomicrecovery.Despitethechanges,therearecriticalaspectsoftheeconomythat present uncertainties about the future particularly resolutionof foreign currency issues, settlement of international debts andrealignmentofgovernmentexpenditure.

At company level, demand is expected to remain firm while profit

marginswillbeimpactedbyforeigncurrencyavailabilityandinflation.Performancein2018willbedrivenby:• Further improvement in efficiencies across the entire value chain

ridingon thenewbusinessmodel.Areaspresentingpotentialareprocurementofmaterials,manufacturingandsalesanddistribution

• Optimally utilizing cash resources to procure inputs necessary forensuring adequate product supply

• Maximizing capacity utilisation to meet existing demand in themarket

• Increasing milk intake through increased productivity andrecruitment of new farmers

• Drivingbrandswithpotentialincludingnewlineextensions• Driving exports into the region to enhance foreign currency

generation.

Managementisconfidentthatthebusinessisinamuchbetterpositionto remain a leader in the dairy industry and further improvement is envisaged going forward.

A. MandiwanzaGroup Chief Executive8 March 2018

Dairibord Pfuko-Udiwo, buttermilk flavour

19


Governance and Management ApproachTheBoardofDirectorsisresponsibleforthedirectionandcontroloftheGroup,settingitsstrategicaims,providingleadershiptoputthemintoeffect,supervisingmanagementandreportingtoshareholdersontheirstewardship. Tothatend ithasestablishedappropriatepoliciesandprocedurestogoverntheconductofthecompany’sbusinessanddeliberationsoftheboard.TheBoardaffirmsitscommitmenttoensuretheGroupactsinaresponsibleandtransparentmannerfromaneconomic,environmentalandsocialperspectivewhilecreatingsustainablevalueandbenefitstoallstakeholders.

The Groupwill endeavour to align existing corporate governance practiceswith theNational Code of Corporate Governance in Zimbabwe(ZIMCODE).TheGroupwillcontinuetoobservebestpracticesincorporategovernancebycontinuouslybenchmarkingwithinternationalbestpracticescontainedinTheKingIVReportonCorporateGovernanceforSouthAfrica,OrganisationforEconomicCooperationandDevelopment(OECD1999)PrinciplesofCorporateGovernanceandPrinciplesofCorporateGovernanceintheCommonwealth(CACGGuidelines1999).Thefollowingisabroadreviewofthepresentstructureandpractices:

Business EthicsTheGroupadoptedaZeroToleranceApproachtocorruptioninallbusinessdealingswithstakeholders.Allcasesinvolvingcorruptionarecarefullyinvestigated.Dependingonthecase,thecompanymayinvolveexperts,externalauditorsandthepolice.TheGroupplanstodevelopcapacitytoenablemanaging,aligninganddevelopingpoliciesonhumanrightsinlinewiththeUnitedNationsGuidingPrinciplesonHumanRightsandBusinessparticularlyinoursupplychain.

Communication with ShareholdersTheGroupprovidesplatformsforshareholderstocommunicatewiththeBoard.Someoftheplatformsincludeannualgeneralmeetings,pressannouncementsofperformance(Interimandyearend),companywebsite,formalmeetingswithshareholdersandinvestors,presentationsanduseofshareholdersvotingrightssystem.

Share DealingsDirectorsandManagementarerequiredtodeclareanydealingsinthesharesofthecompany.Theyarerequiredtodeclareanyotherintereststhatmaymateriallyaffectthecompany.

DirectorsandallGroupemployeesarenotpermittedtodealdirectlyorindirectlyinthesharesofthecompanyduring:• Theperiodfromtheendoftheinterimandannualreportingperiodstotheannouncementoftheinterimandannualresults.

• Anyperiodthattheyareawareofanynegotiationsordetailswhichmayaffectshareprice.

Board Structure and ExpertiseThepresentboardcomprisesofninenon-executivedirectorsincludingtheChairman(82%)andtwoexecutivedirectors(18%).Anon-executivedirectorchairstheboard.Theboardmeetsatleastquarterly.Membersoftheboardpossessvariousexpertisethatincludebusiness,finance,manufacturing and human resources management.

Appointment and Retirement of Non-Executive DirectorsIntermsofthecompany’sArticlesofAssociation,athirdofnon-executivedirectorsretirefromofficebyrotationattheannualgeneralmeetingandareeligibleforre-election.

Professional AdviceItisBoardpolicythatprovidedtheboardagreesthatthereisajustifiablecase,directorsshallbeentitledtoseekindependentprofessionaladviceatcompany’sexpenseinthefurtheranceoftheirduties.

Corporate Governance & Ethics

20


Corporate Governance & Ethics (continued)

SUB-COMMITTEES:

Committee Members Main Function

Finance&Audit Mr.DavidHasluck(Chairman)Mrs.RachelPfungwaKuparaMr. Josphat SachikonyeMr. Nobert Chiromo

TheCommitteemonitorsthecompany’soverallcontrolprocedures,riskmanagementandfinancialreporting.ItprovidesdirectoversightandliaisononbehalfoftheBoardwithbothinternalandexternalauditors.TheCommitteereviewsallsignificantGrouprisks,aswellasriskmitigationinitiativesandtheireffectivenessonaquarterlybasis.

Remuneration Dr.LeonardL.Tsumba(Chairman)Mr. David HasluckMr. Antony Mandiwanza

Thiscommitteeisresponsibleforreviewingthecompany’sremunerationpoliciesandapprovingremunerationpackagesforseniorexecutives.

Nominations Dr.LeonardL.Tsumba(Chairman)Mrs. Sibusisiwe ChindoveMr. Cleton MahembeMr. Antony Mandiwanza

Thiscommitteeconductssearchesandreceivesnominations,carriesoutbackgroundandreferencechecksandmakesrecommendationsoncandidatesforboardmembership.Itreviewstheadequacyoftheexpertise,relevanceandindependenceoftheboard.TheCommitteealsoco-ordinatestheevaluationoftheperformanceoftheboard.

InvestmentsCommittee

Mr.NobertChiromo(Chairman)Mrs.RachelPfungwaKuparaMr. Cron Von Seidel

The Investments committee reviews proposed investments andrecommendstotheboardforapproval.Thecommitteealsoundertakespostimplementationreviewofprojectsagainstintendedobjectives.

Milk Supply Development Committee(MSDC)

Mr.ChristopherR.J.Hawgood(Chairman)Mr. Josphat SachikonyeMr. David Hasluck

TheroleoftheMilkSupplyDevelopmentCommitteeistodrivethemilksupplygrowthstrategyfortheGroup.Keyobjectivesaretoreducethecostofrawmilkproduction,increasingoutputatfarmlevelandimprovingfarmlevelefficiencies.

ATTENDANCE TO MEETINGS DURING 2017

Year of appointment Committees

Main Board Finance & Audit Nominations Remunerations Investments MSDC

Attended Attended Attended Attended Attended Attended

Dr.L.L.Tsumba 2012 4/4 n/a 2/2 1/1 n/a n/a

Mrs. S. Chindove 2006 2/4 n/a 2/2 n/a n/a n/a

Mr. N. Chiromo** 2012 2/2 5/5 n/a n/a 1/1 n/a

Mr. D. Hasluck 2015 4/4 5/5 n/a 1/1 n/a 2/2

Mr. C. R. J. Hawgood** 2017 2/2 n/a n/a n/a n/a 2/2

Mrs.R.P.Kupara 2015 2/4 5/5 n/a n/a 1/1 n/a

Mr. C. Mahembe 1997 4/4 n/a 2/2 n/a n/a n/a

Mr. A. Mandiwanza* 1997 4/4 n/a 2/2 1/1 n/a n/a

Ms. M. R. Ndoro* 2009 4/4 n/a n/a n/a n/a n/a

Mr. J. Sachikonye 2009 4/4 4/5 n/a n/a n/a 1/2

Mr. Cron von Seidel 2016 3/4 n/a n/a n/a 1/1 n/a

*Executive**Mr.N.ChiromoandMr.C.R.J.HawgoodwereappointedtothemainBoardon24May2017and8August2017respectively.

21


Dairibord Holdings Limited Board and Management

BOARD OF DIRECTORSDr.LeonardL.Tsumba - (Chairman)Mr.AntonyMandiwanza - (GroupChiefExecutive)*Mr. David HasluckMrs. Subusisiwe ChindoveMrs.RachelPfungwaKuparaMr. Josphat SachikonyeMs.MercyR.Ndoro - (GroupFinanceDirector)*Mr. Cron Von SeidelMr. Cleton MahembeMr. Nobert ChiromoMr. Christopher R. J. Hawgood*Executive

EXECUTIVE COMMITTEE AntonyMandiwanza - GroupChiefExecutiveMercy R. Ndoro - Finance DirectorTheodoraMarimo - ManufacturingExecutiveTraceyMutaviri - MarketingExecutiveEuniceGanyawu - CommercialExecutiveAnnaDhlamini - BusinessInformationSystemsExecutiveBernardChakeredza - AuditExecutiveEduardStratenus - ProcurementExecutiveGilbertTakabarasha - HumanResourcesandAdministrationExecutive

22


Sustainability Strategy

Management ApproachTheGrouprecognisesthatoperatinginasociallyandenvironmentallyfriendlymanneriskeytothelongtermsuccessandcompetitivenessofthecompany.Thebusinessiscommittedtoinvestinginsystemstomanageandaddresssustainabilityimpactsarisingfromouroperations.Assuch,theGroupmanagessustainabilityperformanceinlinewithourpoliciesandbusinessmodel.TheGroupusestheGlobalReportingInitiatives(GRI)’sG4SustainabilityReportingGuidelinesasamodelforbenchmarkingandmeasuringperformanceofoursustainablebusinessinitiativesandpractices.

Governance TheGrouphasasustainabilityteamresponsiblefordrivingthesustainabilityagendaforthebusinessundertheleadershipofMs.MercyNdoro,FinanceDirector.Ourprocessesaresuchthatonceamaterialissueisidentified,thesustainabilityteamevaluatesmaterialityandimpactofsuchissuesbasedoneconomic,environmentalandsocialsignificanceatcompanylevelandthebusinessaswhole.

Stakeholder EngagementTheGroup’sstakeholderengagementstrategyispartoftheoverallcorporateaffairsandriskmanagementstrategy.Ourstakeholdersincludeinvestors,employees,communities,government,regulators,suppliers,farmers,customersandothers.Regularstakeholderengagementisdonetocapturematerialconcernsasaninputintotheorganization’sstrategy.

Inclusive businessInclusivebusinessistheprofitableintegrationofthelessprivilegedmembersofthesocietyandsmallandmicroenterprisesinthecorevaluechainoflargercompanies.PeopleandenterprisesattheBaseofthePyramid(BoP)canbeinvolvedassuppliers,distributors,retailers,consumers,entrepreneurs&innovatorsandasadditionalemployees.

Theimpactofthebusinessasacommercialenterpriseonthelowtomiddleincomesectionsofsocietyisreflectedinthebusinessmodelwhichengagestheminbothupstreamanddownstreamoperations.

Thediagrambelowshowsthemajorlinkagesbetweenthebusinessandthebottomofthepyramidstakeholders.TheGroup’scommitmenttotheseengagementsislong-termandmutuallybeneficial.

Farmers Vendors Franchises or distributors

• Guaranteed market for milk produced• Extensionservices• Creditfacilitiesforherddevelopment,

stock feeds, equipment and other farm requirements

• Lobbying government for favourable agriculture policies

• Provision of uniforms and equipment• Transportationtoandfromsellingpoints

• Creditfacilities• Utilisationofcompanypremisesto

conduct business• Marketingsupport

23


Capital ManagementTheGrouprecognizesthevariousformsofcapital,bothfinancialandnon-financial,whicharenecessaryforrunningaprofitableandsustainableenterprise.AspartoftheGroup’sbusinessmodel,allformsofcapitalareintegratedandtheseare:

Financial capital: Human capital: Social capital: Natural capital: Intellectual capital:

• Thesearethefinancialresources that are used to fund our businessactivitiesandsupport our strategy. Thisincludesequityfrom shareholders, loansfromfinancialinstitutionsandtradepartners.

• Thisreferstotheemployees as well as the processes used to engage and developthem.Criticalcomponents are the skills,capabilities,knowledge and experiencerelevanttothe advancement of theGroup’sstrategy

• Thisistheadvantagewe enjoy from relationshipswithkey stakeholders including government, customers, employees, suppliersandfinancialinstitutions.

• Thisreferstothenatural environment from which inputs are produced and outputs and waste disposed into. As a manufacturingentity,wearecommittedtopreserving this natural capital as well as workingtooptimizebenefitse.g.throughsolar energy.

• Thisreferstotheknowledge developed by the business through research and developmenteffortsto enable the business to remain ahead of competitionandinfluencetrendsinourchosen domains.

Sustainability Strategy (continued)

24


Risk Management PhilosophyRiskisembeddedintheGroup’sactivities.ThemanagementofriskacrosstheGroupisnotastandaloneactivitybutratheranintegralpartofouroperations.Therisksidentifiedinthisreportarethemajoruncertaintiesintermsoflikelihoodandimpact.Theboardcontinuestomonitorthebusinessandtheoperatingenvironmenttoidentifyanddevelopstrategiestomitigateemergingrisks.

Group Risk Management FrameworkTheBoardisterminallyresponsibleforriskgovernance.TheBoardhasdelegatedtheriskmanagementfunctiontotheBoardFinanceandAuditCommittee.ThecompositionoftheFinanceandAuditCommitteeismadeupofNon-ExecutiveDirectorsonly.TheFinanceandAuditcommitteeisaccountabletothemainBoardofDirectors.ThemandateoftheFinanceandAuditCommitteeregardingriskistoensurethattheGrouphasadequatesystemstoidentify,measure,predict,prepareforandrespondadequatelytoanyrisksthattheorganizationmayface.

Operational StructureManagementisaccountabletotheBoardfordesigning,implementingandmonitoringtheGroup’sriskmanagementproceduresandeveryfunctionalmanagerisresponsibleformanagingrisksintheirareasofresponsibility.

Toensuretheefficientmonitoringandassessmentofriskmanagementsystems,theGroupChiefInternalAuditorisresponsibleforevaluatingtheadequacyandoperationaleffectivenessoftheprocedures.TheGroupChiefInternalAuditorreportstotheFinanceandAuditCommittee.

Main risks affecting the Group and mitigating measures

Risk category Specific exposures Mitigants

Socio-political� Unsustainable wage demands� Workinterruptionduetoindustrial

actions

� Proactiveparticipationinwagenegotiations.� Promotingcordialinternalindustrialrelationsclimatetominimize

tension.

Legal/Regulatory

Non-compliancewithtaxlaws� Taxhealthchecksdoneregularly� Frequentengagementwithauthoritiesontaxlawsandother

related developments.

Product and workplace safety below standard

� Operatingstandardsaremaintainedaboveminimumrequirements.

� Quality issues resolved amicably with customers in line with quality policy.

� Investmentsbeingdonetoupscalelabcapabilitiesintestingqualityofrawmilk,rawmaterialsandfinishedproducts.

� CertificationwithregulatorslikeNationalSocialSecurityAuthority,EnvironmentalManagementAgencyandtheMinistryofAgriculturearesoughtbeforecommencingoperations.

� ISO9000:QualityAssuranceprocedurescertified� ISO22001:FoodSafetyManagementSystemscertificationinplace

forDZPLandDML.

Economic risk

Declining consumer disposable incomes� Widenproductofferingtocaterforallclassesinsociety� Priceadjustmentstoretaincompetitiveness

Increasedcompetition

� Investinginbrandbuilding.TheGroupwonseveralSuperbrandsAwards in 2017.

� Maintain superior product quality and customer service.� Continuousinvestmentinresearchanddevelopment.

Technological riskTechnologyobsolescenceofplantandITplatforms

� Continuousplantmodernisation� UpgradesofITplatforms

Risk Management

25


Business risk

Failure of the business model to create superior and sustainable performance

� Consolidatedoperatingsubsidiariestoeliminateduplicationofrolesandreducecostseffective1January2017

� Business now has a lower overhead cost structure� Strategic realignment to the new environment where bigger

internationalplayersarecomingtoinvestinZimbabwe

Workstoppages/operationalfailureduetomaterials non-availability, power outages and otherunforeseenoperationalrisks

� Engagingfinancialinstitutionsforforexprioritisation� Drivingexportstocontributetowardsforexrequirements� Increasinginvestmentinstockstoimproveproductsupply� Reduced terms for receivables to preserve value of monetary

assets� Investedinstandbygeneratorsandboreholestoensureconsistent

supplyofutilities.Chitungwizawaterreservoircommissionedin2017 and the Simon Mazorodze water tanks are in progress.

Highcommoditypricesimpactingnegativelyon product margins

� Continuousnegotiationwithsuppliers� Developingrelationshipswithalternativesuppliers� Trackingpricetrendsandsecuringorderswhenpricesare

favourable

Inadequaterawmilkintakevolumes

� Improvedthemilksupplystrategybeyondheiferprocurementfocusingonherdgrowth,feedformulationandprocurement,veterinarysupportandartificialinsemination

� Rideonthe99yearleasestopromotelongterminvestmentsatfarm level

Talent riskLoss of skilled employees

� Competitiveremunerationtoimproveretention� Traininganddevelopmentofstafftoensureanadequateskillspool

Inadequatesuccessionplanning� Several management development programs are underway viz.

MBAs,GraduateTraineesandFoodandDairyTechnologytraining

Financial Risk Financialriskiscomprehensivelydealtwithinthenotestothefinancialstatementsonpages74to76

Risk Management (continued)

Risk category Specific exposures Mitigants

26


Materiality ProcessTheGroup’sapproachtoidentifyingmaterialaspectsfordisclosureisinfluencedbythestakeholderengagementprocessandinternalevaluation.ThisprocesstakesintoaccounttheoperatingenvironmentsinZimbabweandMalawi.TheapproachtomaterialitybytheGroupisbroadlyguidedbytheGRI’sSustainabilityReportingGuidelinestoensureconsistenceinourapproachesandbasisforreporting.

IDENTIFICATION TheGroupengagesallFunctionalHeadsandSustainabilityTeamLeaders;

PRIORITISATION TheprocessofprioritisationisconductedthroughWorkshops,RiskmanagementmeetingsandStakeholderEngagement

APPROVAL ReviewofmaterialissuesisconductedbyGroupSustainabilityTeamandSeniorManagement

Report BoundaryReportingboundaryfortheGroupisdefinedbywherematerialimpactsareidentifiedwithintheGroup’soperations.TheGroupassessesenvironmental and social issues deemed to be of high impact to the Group and our stakeholders. Boundary of the report content and performance indicatorsareapprovedatGrouplevelfollowinganevaluationprocess.ThisreportcoverssustainabilityperformancefromouroperationsinbothZimbabweandMalawi.

Material Issues and Reporting Boundary

27


Stakeholder Engagement

TheGroupengagesstakeholdersfrequentlytoidentifymaterialissuesandareasofconcern.Ourstakeholderengagementisdecentralizedtobusinessunitsandfunctionstoensurespeedyresponsetomaterialissues.Anyissuesthatcannotberesolvedatfunctionallevelareescalatedtotheseniormanagementandtheboardforguidance.Duringtheyear,theGroupidentifiedandrespondedtoissuesconcerningourstakeholdersandthebusiness.Thetablebelowshowsasummaryofkeyengagementsheldduringtheyear:

Stakeholder Method of Engagement Material Issues Discussed Result/Action taken

Customers and consumers

� Customer satisfactionsurveys

� Business review meetings

� Social media platforms

� Product quality� Product supply� Pricing� Payment terms� New product

launches

� Prices adjusted to absorb increase in input costs. � Payment terms reduced to align with prevailing market

conditionswheresuppliersaredemandingprepayments� Newlineextensionssuccessfullylistedinallstoresandwell

received by the market. � Product supply remains a key challenge given the foreign

currency supply constraints

Government and regulatory Authorities

� Officialrepresentations(letters)

� Representationsthrough industry bodies

� Formalmeetings� Policybriefings� Compliance

inspections

Creationofalevelplayingfieldbetweenimportsandexports

� StatutoryInstrument(SI)64replacedbySI122of2017balancing the need to ensure local industry support and product availability

� Secured adequate import permits for milk powders to augment local raw milk

� 99yearleasesenablinglong-terminvestmentsatfarmlevel� Government policy changes will however open up local space

tobiggerinternationalplayersgoingforward

Regulatory compliance � Businessremainscompliantwithregulationsincludingforeigncurrency,tax,environmentalandsafetyrequirements

WaterandElectricityoutages

� Successfully commissioned a 1.5 million litres water reservoir fortheChitungwizafactory.Thisfacilityhas5dayscoverforthefactory’swaterrequirements.

� Work is in progress for the Simon Mazorodze water tanks and commissioningisexpectedinthefirsthalfof2018

� ElectricitysupplyremainsachallengebutweanticipateresolutiononcekeypowerprojectsbyZESAarecommissioned

Suppliers including farmers

� Formalmeetings� Supplierbriefings� Workshops

Raw milk supply initiativesandpricing

� Issuesraisedarebeingaddressedthroughthemilksupplydevelopment unit around feed, quality premiums, herd growth initiativesandveterinarysupport

� Initiativesexpectedtoresultinincreasedrawmilkintakein2018

Prices, quality and supply consistence for key inputs

� Supplyofkeyrawmaterialsremainsachallengeduetoforexsupply constraints

� Forexcostraintsalsoimpactedinputprices.� Business is working with banks to secure foreign currency.

Cashflowconstraintsdueto suppliers demanding prepayments

� Prepayments being done to secure supply.� Ridingonexistingrelationshipstonegotiatebetterterms.

28


Stakeholder Method of Engagement Material Issues Discussed Result/Action taken

Employees � Roadshows� Works council

meetings� One on one

discussions

� Conditionsofservice� Retrenchment

packages

� Industrialrelationsclimatewasstablethroughouttheyear� Co-operationreceivedfromemployeesduringretrenchment

processes.

Investors and Analysts

� AGMs� Briefings� Adhocmeetings

with investors

� Business turnaround� Sustainability of

performance� Strategy

� Businessreturnedtoprofitabilityin2017onthebackoftherestructuring undertaken.

� Overhead costs declined by 16% while labour costs decreased by 10%.

� Business rebased its cost structure and performance will benefitgoingforward.

Financial Institutions

Formalmeetings Foreign currency

Funding requirements

Tenureandinterestrates

� Significantsupportobtainedinformofforexallocations.� Despitethesupport,theforexavailableremainsbelow

requirementsimpactingabilitytosatisfypotentialdemand� Moredetailonfinancialmanagementandriskisonpage74.

Stakeholder Engagement (continued)

The Group has put in place several initiatives aimed at growing the herd, improving veterinary support, feed formulation and input procurement

29


Sustainability Performance

ENVIRONMENTAL PERFORMANCE

Management ApproachTheGroupcontinuestomonitorandreportonitssolidandliquidmaterialsdischargedintotheenvironment.TheGroup’soperationsadddirectlyandindirectlytothewastethatgoesintotheenvironment.Thenatureofbothoperationsandfinalproductsthereforeimpactstheaggregateenvironmental performance for the business.

Environmental Management Priorities• Reductioninconsumptionofenergyandhencesaveonbothcostsandimpactonenvironment• Enhancingproductresponsibilitythroughcontributingtowardscollectionandrecyclingofplasticpackaging• Optimisingemissionsperformanceinlinewithregulatoryrequirementsandbenchmarks• Responsibleutilisationofwater

PerformanceThe table below shows the physical quantities discharged into the environment as a result of our operations or consumption of our products:

Materials Used UnitsYear

2017 2016

PET Tons 885 453

HDPE Tons 2,353 2,109

Oils and Grease Tons 9 8

Plasticpackaging Tons 178 449

Detergents Tons 193 240

Paper packaging Tons 1,554 312

Polypropylene Tons 238 368

HDPEandPETdischargeincreasedsignificantlyduetoan8%growthinoverallvolumes.ThevolumegrowthwasdrivenbyproductspackedmainlyinPETandHDPEmaterialandthesearePfukoMaheu,SteriMilk,TomatoSauceandSaladCream.PaperpackagingalsoincreaseddrivenbyvolumegrowthforthecartonisedUHTmilkandjuices.PlasticPackagingdeclinedduetodepressedsalesvolumesonRuombaandLacto.

Recycling Initiatives: PETRECOZIMTheGroupcontinuedtosupporttheindustryrecyclinginitiativethroughPETRECOZIM,aPETrecyclingcompany.

TheperformancesummaryforPETRECOZIMin2017wasasfollows:

UnitsYear

2017 2016

Wastecollections Tons 1 105 739

Recycled material sold Tons 802 588

Revenue generated US$ 254,000 123,000

Duringtheyear,Wastecollectionsincreasedby50%from2016.Recycledmaterialsincreasedby36%whiletherewasa106%increaseinrevenuegenerated from sales of processed waste materials.

TheGroup’scontributiontowardsoperatingcostswas$14,765upfrom$7,072in2016.

Dairibordcontinuestobecommittedtowardstheinitiative.AreasoffocusforPETRECOZIMarerecruitmentofnewindustryplayers,openingupnewmarketsandincreasingcollectionvolumes.

30


Sustainability Performance (continued)

Energy Consumption – Within the Organisation

Energy Type UnitYear

2017 2016

Electricity MWh 13,960 14,979

Heating(Coal) Tons 6,587 6,788

Gases Tons 12 18

Electricityandcoalconsumptiondeclinedonaccountofefficienciesinenergyutilisation.Thisdeclinewasdespiteasignificantgrowthinvolumeof output.

Energy Consumption – Outside the OrganisationSavingswererealisedondieselconsumptionduetoimproveddistributionefficienciesafterroutetomarketconsolidation.Petrolconsumptionbenefitedfromthereducednumberofmanagersfollowingretrenchmentsconcludedinthefirsthalfof2017.

Energy Type UnitYear

2017 2016

Diesel ‘000’Litres 2,093 2,228

Petrol ‘000’Litres 157 170

WATERWaterconsumptionimprovedvs.2016asthebusinessfocusedonachievinglowerwaterusageperlitreofoutput.Theimprovementalsoimpactedoverall performance of the business.

Source UnitYear

2017 2016

Municipal Cubic Litres 328,049 413,152

Borehole Cubic Litres 177,396 210,014

Watersupplyremainedconstrainedlargelyduetoinfrastructurebottlenecksatlocalauthorities.

Toimprovewateravailability,particularlyattheChitungwizaFactory,a1.5millionlitresreservoirwasinstalledduringtheyearandthiswillprovide5dayscoverforthefactory.Thereservoirhasenabledthebusinesstoreducecostofwaterperlitre.Waterprocuredfromthirdpartieswasaveraging$12/cubicmetercomparedto$1.40/cubicmeterfromlocalauthorities.Thetotalcostofinvestinginthewaterreservoirwas$0.12million.WorkisinprogresstoinstallwatertanksattheSimonMazorodzefactorytoensurestablewatersupplyandavoidproductiondisruptions.

EMMISSIONS, EFFLUENTS, AND WASTEAftersuccessfullycommissioningtheHarareFactoryEffluentTreatmentplantin2016atacostof$0.345million,thebusinessisnowtreatingitseffluentdischargetomeetenvironmentallyfriendlychemicalcomposition.Goingforward,investmentsineffluenttreatmentfacilitiesatotherfactorieswillbeexplored. SOCIAL AND COMMUNITY INVESTMENT

Human Capital Maintenance

Management ApproachHumancapitalformsthecoreofthebusinessdriversfortheGroup.Attracting,developingandretainingourhumancapitalremainsastrategicimperative.Tooptimizeperformanceofthehumancapital,theGroupprovidesaworkenvironmentbasedonfairness,integrity,non-discrimination,equalopportunity,empowermentandmutualrespect.TheGroupalsorecognisesthatrespectforhumanrightsandoperatingwithintherequirementsof the law enhances overall performance of the business.

31



Human Capital Management Priorities TheGroup’shumancapitalstrategyfocusesonthefollowingpriorities:

Healthy and safety. Traininganddevelopment.ProductivityenhancementRespect and fair treatment of all employees.Equalopportunityformarginalizedgroupsincludinggenderequality.

Performance Measurement/ Management Increase/(Decrease) in Head Count

Employee Category UnitYear

2017 2016

Permanent Count (81) (64)

Contract Count 22 2

Total (59) (62)

Labourturnovercontinuedonadownwardtrendparticularlyforpermanentemployeesdrivenbythebusinessmodelrealignmentimplementedin2017andemployeesreachingretirementage.ComparedtoDecember2016,headcountasatendof2017declinedby59.

Total Employees at Year End

Employee Category UnitYear

2017 2016

Permanent Count 668 749

Contract Count 662 640

Total 1,330 1,389

Despitethereductioninheadcountvs.prioryear,theGroupremainsasignificantemployerretainingheadcountabove1000.

Employees Gender DistributionTotalnumberoffemaleemployeesdecreasedfrom201to189in2017.TheGroupremainscommittedtoemployingfemaleemployees.TheGrouphas an equal pay policy for both male and female employees.

Thetablebelowshowsperformancerelativetothetotalnumberofemployees.

Employee Gender Category UnitYear

2017 2016

Female Count 190 201

Male Count 1,140 1,188

Total 1,330 1,389

Apprentices, Graduate trainees and Students on attachment

Thetablebelowprovidessummarytotalsattheendoftheyear:

Category UnitYear

2017 2016

Apprentice Count - 1

GraduateTrainees Count 2 -

StudentsonAttachment Count 19 26

Total 21 27

Goingforward,theGroupwillbeincreasingthenumberofGraduatetraineesandapprenticestofillintheskillspipelinetoaddresssuccessionandbusinesscontinuity.

32


Health & Safety Healthandsafetyattheworkplacearekeyinachievinghigherlevelsofproductivity.KeyprioritiesfortheGroupare: • Provision of health and safety training to achieve zero harm at the work place• Regularreviewoffactorydesignstoimplementmeasuresthatimproveoccupationalsafety• Factoryclinicsatsomeoperatingfactories• Medical aid support for all employees• RunningawarenessprogramsforHIVandAIDS

Work Related Accidents/InjuriesTheperformanceoftheGroupwithrespecttoworkplacehealthandsafetyisshownbelow:

Indicators UnitYear

2017 2016

HazardsforwhichinternalSTOPNotesissued Incidence - 2

Numberoflosttimeinjuries Count 28 20

Totalnumberofinjuries Count 127 135

Number of lost days Days 337 332

Toaddresstheinjuryfrequencyrategoingforward,disciplinaryproceduresaretakenwherenegligenceisidentified.Trainingonsafetyforallnewemployees is now mandatory in order to improve awareness. A comprehensive training calendar is now in place and this will improve the overall approachtosafetystartingatindividuallevelthroughtoshiftsanddepartments.

Health & Safety Training and Awareness Programmes

Programme UnitYear

2017 2016

Wellness Programme Employees 15 13

Anti-Retroviraltherapy Employees 7 8

Medical aid Employees 579 653

Peer educators Count 14 17

HIV/AIDSawarenesscampaigns Activities 4 4

Clinics Counts 1 1

First Aid workers Count 48 50

PRODUCTS RESPONSIBILITYResponsibilityforourproductsdoesnotendwhenourproductsleaveourfacilities.Responsibilityextendstotheconsumptionoftheproductsand disposal of the product packaging.

Ourprioritiesinthisregardareasfollows:• Testingofrawmaterialsbeforeuseinproductionprocesses• Testingoffinishedgoodsbeforedeliveryintothemarket• Assessmentofsupplierstoensuretheymeetqualitystandardsandotheroperationalrequirementsforresponsiblebusiness• Certificationsbyindustrystandardsboardstoalignwithindustrybenchmarks• Customer complaint handling procedures

Thefollowingcertificationshavebeenmaintainedin2017:• ISOcertification.DZPLandDMLarecertifiedunderISO22000:2005FoodSafetyManagementSystems.

• MinistryofHealthandSAZcertificationofallproducts


33


COMMUNITY INVESTMENTDairibord‘scorporatesocialinvestmentprogrammespresentanopportunityforthebusinesstointeractwithandgivebacktosociety.ItisthroughthesocialinvestmentprogrammesthattheGrouphasmanagedtostayconnectedtothecommunitieswithinwhichitoperates.Thestrategyfocusesonpromotinghealthylife-styles,supportingandempoweringtheneedy,educationandinvolvementinenvironmentalmatters.

Thetablebelowsummarizeskeycommunityinvestmentprogramsundertakenduringtheyear:

Community Priority Areas Key Activities and Beneficiaries 2017 Amount ($) 2016 Amount ($)

Health and social welfare Dairibord has over the years been supporting the vulnerablegroupsof society throughmonthlyandperiodicdonationsof itsnutritious foodsandbeverages tohomesof thevulnerablewhoincludethedisabled,theelderlyandorphanedchildren.Specificbeneficiariesare:� Jairos Jiri Southerton, Harare� RekayiTangwenaChildren’sHome,Nyanga� SocietyfortheDestituteandAged,Harare

8,500 18,721

Environmental activities Thebusiness iscognizantofthefactthat itspackagingmaterialsmust be responsibly disposed of after consumption. In 2017DairibordpartneredtheMunicipalityofHararebyprovidinglitterbinsasitscontributiontowardskeepingthecityclean.

13,560 -

Sports Dairibord promotes healthy lifestyles and young talent through sports. 2017 was the 4th year of Dairibord sponsoring the iconic week-longDairibordSchoolsRugbyFestival.

162,000 164,200

Education 8beneficiarieswereontheDairibordbursaryschemeduringtheyear under review. Four of the beneficiarieswere at local stateuniversitiesandtherestinhighschools.

9,285 19,165

Total Community Investments 193, 345 202,085


In 2017 Dairibord partnered the Municipality of Harare by providing litter bins as its contribution towards keeping the city clean.

34



ECONOMIC

Financial Support from GovernmentTheGroupacknowledgesthatinsomeinstancesgovernmentmayassistcompanieswhoseobjectivesarealignedwithnationalstrategicobjectives.Assuch,theGroupbenefitedfromtheReserveBankofZimbabwe(RBZ’s)exportincentiveschemein2017.Thetotalamountreceivedundertheschemewas$39,732.

Payments to Government

PaymentsYear

2017 2016

ValueAddedTax(VAT) 1,526,763 701,022

CorporateTaxes 138,631 206,602

Total 1,665,394 907,624

Economic Value Generated and Distributed 2017 2016 US$ 000 US$ 000Sources of value Salesrevenue 103,147 93,423Otherincome 269 215Costofmaterialsandothercosts (81,957) (78,381)Depreciationandamortization (5,463) (5,155)Value added 15,996 10,102 Application toEmployees(wages,salaries,&benefits) 12,785 13,999totheGovernment(incometax,capitalgainsanddeferredtax) 1,116 570toLenders(interestexpense) 740 983RetainedintheCompany 1,355 (5,450) 15,996 10,102

35


Dairibord Schools Rugby Festival

36


Statement of Directors’ Responsibility

TheDirectorsarerequiredbytheCompaniesAct(Chapter24:03)topreparefinancialstatementsforeachfinancialyeargivingatrueandfairviewofthestateofaffairsofthecompanyasattheendofthefinancialperiodaswellastheprofitandcashflowsforthesameperiod.

TheDirectorsareresponsibleformaintainingrecords,whichdisclosewithreasonableaccuracythefinancialpositionofthecompany,andwhichenablethemtoensurethattheconsolidatedfinancialstatementscomplywiththeCompaniesAct(Chapter24:03).TheDirectorsarealsoresponsibleforsafeguardingtheassetsoftheCompanyandforpreventinganddetectingfraudandotherirregularities.

TheDirectorsconsiderthatinthepreparationofthesefinancialstatements,reasonableandprudentjudgmentsandestimateshavebeenmade.InternationalFinancialReportingStandardshavealsobeenfollowedwhereapplicablewithsuitableaccountingpolicieshavingbeenconsistentlyapplied.

TheDirectorsrecognizeandacknowledgetheirresponsibilityfortheGroup’ssystemsofinternalcontrol.ThesesystemsareadequatetoprovidereasonableassurancethattheassetsoftheGrouparesafeguardedandthataccuraterecords,necessaryforthepreparationofthefinancialstatements, are maintained.

TheDirectorshavesatisfiedthemselvesthattheGroupisinasoundfinancialposition,andhasadequateresourcestocontinueinoperationalexistencefortheforeseeablefuture.Accordingly,yourDirectorsbelievethatthepreparationofthesefinancialstatements,onagoingconcernbasis is appropriate.

ThefinancialstatementshavebeenauditedbytheGroup’sExternalAuditors,Ernst&Young,whohavebeengivenunrestrictedaccesstoallfinancialrecordsandrelateddata,includingminutesofallmeetingsoftheBoardofDirectorsandCommitteesoftheBoard.TheannualreportwaspreparedunderthesupervisionoftheFinanceDirector,Ms.M.Ndoro(PAABNumber:04593).Thedirectorsconfirmthatallrepresentationsmade to the independent auditors during the audit were valid and appropriate.

Thefinancialstatementsfortheyearended31December2017havebeenapprovedbytheBoardofDirectorsandaresignedonitsbehalfbytheChairmanoftheBoard,DrL.L.TsumbaandbytheGroupChiefExecutive,Mr.A.Mandiwanza.

Dr. L. L. Tsumba A. MandiwanzaChairman Group Chief Executive8 March 2018

37


TheDirectorshavepleasureinsubmittingtheirtwentythirdannualreport,togetherwithauditedfinancialstatementsoftheGroupfortheyearended 31 December 2017.

SHARE CAPITALTheauthorizedsharecapitalis425000000ordinarysharesofUS$0.0001each.Thenumberofissuedordinarysharesremainedat358000858.

RESERVESThemovementinthedistributablereservesduringtheyearisoutlinedbelowinUS$:

Distributablereservesatthebeginningoftheyear 17968630Profitfortheyear 1609810Transferfromcapitalreservesonsaleofassets 154857Distributablereservesattheendoftheyear 19733297

MovementsinotherreservesareshownintheStatementofChangesinEquityandinthenotestothefinancialstatements.

INVESTMENTSThebalanceduefromCairnsstillremainsat$734248,accruesinterestat5%perannumandwillbepaidby2020.Thefullamountreceivablewasimpairedin2012.TheCompanyreceivedalltheinterestearnedduringtheyear. PROPERTY PLANT AND EQUIPMENT Expenditureonproperty,plantandequipmentduringtheperiodwasUS$2.4million.ExpenditurefortheyearJanuarytoDecember2018isplannedatUS$6.2million.ThisexpenditureistobefinancedmainlyfromtheGroup’sownresources.

DIVIDENDTheBoarddeclaredadividendof0.2UScentspersharefortheyearended31December2017.Therecorddateforthedividendwillbe18May2018,lastcum-dividendtradingdateis15May2018andtheex-dividendtradingdatebeing16May2018.Thedividendwillbepaidonorabout28 May 2018.

DIRECTORSInaccordancewitharticle107ofthecompany’sArticlesofAssociation,Mr.N.ChiromoandMr.C.R.J.Hawgoodwhowereappointeddirectorsofthecompanywitheffectfrom24May2017and8August2017respectively,willretire,andbeingeligible,offerthemselvesforre-election.

Inaccordancewitharticle100ofthecompany’sArticlesofAssociation,Mr.J.SachikonyeandMrs.R.P.Kupara,retirebyrotationandbeingeligible,offerthemselvesforre-election.

Inaccordancewitharticle85(A)ofthecompany’sArticlesofAssociation,Mr.D.HasluckisduetoretirefromtheBoard.Thecompanywillseektheextensionofhistermofofficebyanotheryear.

Dr.L.L.Tsumba,whohasservedtheboardasChairmanforthelastsixyears,willberetiringattheconclusionoftheAnnualGeneralMeetingtobe held in May 2018.

AUDITORSMemberswillbeaskedtoapprovetheremunerationoftheauditors,Ernst&YoungCharteredAccountants(Zimbabwe)of$102500,fortheyearended 31 December 2017 and their re-appointment as Auditors to the company for the ensuing year.

M. NdoroCompany Secretary

08 March 2018

Report of the Directors

Independent Auditor’s ReportTo the Shareholders of Dairibord Holdings Limited

Report on the Audit of the Consolidated Financial Statements

Opinion WehaveauditedtheconsolidatedandcompanyfinancialstatementsofDairibordHoldingsLimitedanditssubsidiaries(“theGroup”)setoutonpages41to76,whichcomprisetheconsolidatedandcompanystatementsoffinancialpositionasat31December2017,andtheconsolidatedandcompanystatementsofprofitorlossandothercomprehensiveincome,theconsolidatedandcompanystatementsofchangesinequityandtheconsolidatedandcompanystatementsofcashflowsfortheyearthenended,andnotestotheconsolidatedfinancialstatements,includingasummaryofsignificantaccountingpolicies.

Inouropinion,theconsolidatedandcompanyfinancialstatementspresentfairly,inallmaterialrespects,theconsolidatedandcompanyfinancialpositionofDairibordHoldingsLimitedasat31December2017,andtheconsolidatedandcompanyfinancialperformanceandconsolidatedandcompanycashflowsfortheyearthenendedinaccordancewithInternationalFinancialReportingStandards.

Basis for OpinionWeconductedourauditinaccordancewithInternationalStandardsonAuditing(ISAs).OurresponsibilitiesunderthosestandardsarefurtherdescribedintheAuditor’sResponsibilitiesfortheAuditoftheConsolidatedFinancialStatementssectionofourreport.WeareindependentofthegroupinaccordancewiththeInternationalEthicsStandardsBoardforAccountants’CodeofEthicsforProfessionalAccountants(IESBACode)andotherindependencerequirementsapplicabletoperformingauditsoffinancialstatementsinZimbabwe.WehavefulfilledourotherethicalresponsibilitiesinaccordancewiththeserequirementsandtheIESBACode.Webelievethattheauditevidencewehaveobtainedissufficientand appropriate to provide a basis for our opinion.

Key Audit MattersKeyauditmattersarethosemattersthat,inourprofessionaljudgement,wereofmostsignificanceinourauditoftheconsolidatedandcompanyfinancialstatementsofthecurrentperiod.Thesematterswereaddressedinthecontextofourauditoftheconsolidatedandcompanyfinancialstatementsasawhole,andinformingouropinionthereon,andwedonotprovideaseparateopiniononthesematters.Foreachmatterbelow,ourdescriptionofhowourauditaddressedthematterisprovidedinthatcontext.

WehavefulfilledtheresponsibilitiesdescribedintheAuditor’sresponsibilitiesfortheauditofthefinancialstatementssectionofourreport,includinginrelationtothesematters.Accordingly,ourauditincludedtheperformanceofproceduresdesignedtorespondtoourassessmentoftherisksofmaterialmisstatementofthefinancialstatements.Theresultsofourauditprocedures,includingtheproceduresperformedtoaddressthemattersbelow,providethebasisforourauditopinionontheaccompanyingfinancialstatements.

Key Audit Matter How the matter was addressed in the audit

Impairment of receivables/allowance for credit losses We performed audit procedures which included:

�� Theallowanceforcreditlossesisconsideredtobeamatterofmostsignificancetotheauditasitrequirestheapplicationofjudgementanduseofsubjectiveassumptionsbymanagement.Theevaluationof the allowance for credit losses is based on the specific tradedebtors’ circumstances as evaluated by management using thespecificdebtors’riskprofile.

�� The estimation of the value of collateral provided by customersandassessmentoftheagingprofilestodeterminerecoverabilityoftrade and other receivables which are past due but not impaired, involvesasignificantelementofjudgement.

�� The disclosures in relation to the allowance for credit lossesare included in notes 2.4 and 19 of the consolidated financialstatements.

�� We evaluated the policies put in place by management and the assumptionsappliedindeterminingtheallowanceforcreditlosses.

�� Re-computed the allowance for credit losses based on the group widemodelandtakingaccountofspecificcircumstancesuniquetosome of the customers.

�� Where trade receivable balances are past due and management have not impaired these balances on the basis of customer commitments to payment plans we reviewed adherence to the payment plans and post year end movements in balances.

�� Reviewed value assigned to collateral held as security for trade receivable balances which are past due but not impaired and assessed adequacy thereof.

�� Weinspectedlawyers’confirmationsformattershandledduringtheyear to identifyanymatters thatwere indicativeofbalances thatmay not be recoverable.

38

Independent Auditor’s Report - (continued)

Key Audit Matter How the matter was addressed in the audit

Inventories valuation and existence We performed audit procedures which included among others:Asat31December2017, theGroup’s inventoryasdisclosed innote17wasvaluedat$12119852whichisasignificantbalancetothetotalassetsoftheGroup.Thebusinessisamanufacturingentity,characterisedbyhighvolumesofproduction therefore inventoryvaluationandexistence is relevant to theGroup.

We have identified inventory as a key audit matter as it is an area whichrequiredsignificantauditoreffortduetothevaluationprocessthatincludes�� Appropriateallocationofoverheadswhenvaluingmanufacturedinventory

or products.

�� Completeness of costs directly related with the purchase of imported inventory.

In addition the process of determining existence of inventory requiressignificanttimeduetoinventorybeingheldatseverallocationsandmadeupofsmallitemsthatarepronetomisappropriation.

Weperformedauditprocedureswhichincluded:�� Reviewed the inventory valuations for compliancewithGroup policy andInternationalAccountingStandard2“Inventories.”

�� Forthemanufacturedgoods,weverifiedthebillofmaterialsandothercostsincluded in the cost of inventory. We recalculated the overhead and labour absorptionratesusedinthemanufacturingprocessandcomparedthesetothestandardcostingrateforreasonableness.

�� For the imported raw materials and other consumables, we validated the costbuild-upofthetotalcostsdirectlyattributabletobringingtheinventorytotheirpresentlocationandconditionasperIAS2.

�� Performedtestsatyear-endtoconfirmifinventoryiscarriedatlowerofcostandnetrealisablevalueasrequiredbyInternationalAccountingStandard2

�� Totestthequantityofinventoryonhandatsignificantlocations,weattendedtheinventorycountsattherespectivesites.

�� We assessed the appropriateness of the process around the recording of inventoryreceivedandissuedoutaswellastheidentificationofobsoleteinventory during the inventory counts

Other InformationOther information comprises of information that is included in the Annual Report that includes the Chairman’s Statement, the Directors’ResponsibilityStatementandtheReportoftheDirectors,butdoesnotincludethefinancialstatementsandourauditorsreportthereon.TheDirectorsareresponsiblefortheOtherInformation.

OuropinionontheconsolidatedandcompanyfinancialstatementsdoesnotcovertheOtherInformationandwedonotexpressanauditopinionor any form of assurance conclusion thereon.

Inconnectionwithourauditoftheconsolidatedandcompanyfinancialstatements,ourresponsibilityistoreadtheOtherInformationand,indoingso,considerwhethertheOtherInformationismateriallyinconsistentwiththefinancialstatementsorourknowledgeobtainedintheaudit,orotherwiseappearstobemateriallymisstated.If,basedontheworkwehaveperformedontheotherinformationobtainedpriortothedateofthisauditor’sreport,weconcludethatthereisamaterialmisstatementofthisOtherInformation,wearerequiredtoreportthatfact.Wehavenothing to report in this regard.

Responsibilities of the Directors for the Financial StatementsThedirectorsareresponsible forthepreparationandfairpresentationof theconsolidatedandcompanyfinancialstatements inaccordancewithInternationalFinancialReportingStandardsandtherequirementsoftheCompaniesAct(Chapter24:03),andforsuchinternalcontrolasthedirectorsdetermineisnecessarytoenablethepreparationofconsolidatedandcompanyfinancialstatementsthatarefreefrommaterialmisstatement, whether due to fraud or error. Inpreparingtheconsolidatedandcompanyfinancialstatements,thedirectorsareresponsibleforassessingthegroupandcompany’sabilitytocontinueasagoingconcern,disclosing,asapplicable,mattersrelatedtogoingconcernandusingthegoingconcernbasisofaccountingunlessthedirectorseitherintendtoliquidatethegroupandorcompanyortoceaseoperations,orhavenorealisticalternativebuttodoso.

Auditor’s Responsibilities for the Audit of the Financial StatementsOurobjectivesaretoobtainreasonableassuranceaboutwhethertheconsolidatedandcompanyfinancialstatementsasawholearefreefrommaterialmisstatement,whetherduetofraudorerror,andtoissueanauditor’sreportthatincludesouropinion.Reasonableassuranceisahighlevelofassurance,butisnotaguaranteethatanauditconductedinaccordancewithISAswillalwaysdetectamaterialmisstatementwhenitexists.Misstatementscanarisefromfraudorerrorandareconsideredmaterial if, individuallyor intheaggregate,theycouldreasonablybeexpectedtoinfluencetheeconomicdecisionsofuserstakenonthebasisoftheseconsolidatedfinancialstatements.

AspartofanauditinaccordancewithISAs,weexerciseprofessionaljudgementandmaintainprofessionalscepticismthroughouttheaudit.Wealso:• Identifyandassesstherisksofmaterialmisstatementoftheconsolidatedandcompanyfinancialstatements,whetherduetofraudorerror,

designandperformauditproceduresresponsivetothoserisks,andobtainauditevidencethatissufficientandappropriatetoprovideabasisforouropinion.Theriskofnotdetectingamaterialmisstatementresultingfromfraudishigherthanforoneresultingfromerror,asfraudmayinvolvecollusion,forgery,intentionalomissions,misrepresentations,ortheoverrideofinternalcontrol.

• Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, butnotforthepurposeofexpressinganopinionontheeffectivenessoftheGroupandCompany’sinternalcontrol.

• Evaluatetheappropriatenessofaccountingpoliciesusedandthereasonablenessofaccountingestimatesandrelateddisclosuresmadebythe directors.

39

Independent Auditor’s Report - (continued)

Auditor’s Responsibilities for the Audit of the Financial Statements - (continued)• Concludeontheappropriatenessofthedirectors’useofthegoingconcernbasisofaccountingandbasedontheauditevidenceobtained,

whetheramaterialuncertaintyexists related toeventsor conditions thatmaycast significantdoubton thegroup’sability to continueas a going concern. Ifwe conclude that amaterial uncertainty exists,weare required todrawattention inour auditor’s report to therelateddisclosuresintheconsolidatedandcompanyfinancialstatementsor,ifsuchdisclosuresareinadequate,tomodifyouropinion.Ourconclusionsarebasedontheauditevidenceobtaineduptothedateofourauditor’sreport.However,futureeventsorconditionsmaycausethegrouptoceasetocontinueasagoingconcern.

• Evaluatetheoverallpresentation,structureandcontentoftheconsolidatedandcompanyfinancialstatements,includingthedisclosures,andwhethertheconsolidatedandcompanyfinancialstatementsrepresenttheunderlyingtransactionsandeventsinamannerthatachievesfairpresentation.

• Obtainsufficientappropriateauditevidenceregardingthefinancial informationoftheentitiesorbusinessactivitieswithinthegrouptoexpressanopinionontheconsolidatedandcompanyfinancialstatements.Weareresponsibleforthedirection,supervisionandperformanceof the group audit.

Wecommunicatewiththedirectorsregarding,amongothermatters,theplannedscopeandtimingoftheauditandsignificantauditfindings,includinganysignificantdeficienciesininternalcontrolthatweidentifyduringouraudit.

We also provide the directors with a statement that we have complied with relevant ethical requirements regarding independence, and to communicatewiththemallrelationshipsandothermattersthatmayreasonablybethoughttobearonourindependence,andwhereapplicable,related safeguards.

Fromthematterscommunicatedwiththedirectors,wedeterminethosemattersthatwereofmostsignificanceintheauditoftheconsolidatedandcompanyfinancialstatementsofthecurrentperiodandarethereforethekeyauditmatters.Wedescribethesemattersinourauditor’sreportunless laworregulationprecludespublicdisclosureaboutthematterorwhen, inextremelyrarecircumstances,wedeterminethatamattershouldnotbecommunicatedinourreportbecausetheadverseconsequencesofdoingsowouldreasonablybeexpectedtooutweighthepublicinterestbenefitsofsuchcommunication.

Report on Other Legal and Regulatory RequirementsInouropinion,theconsolidatedandcompanyfinancialstatements,haveinallmaterialrespects,beenproperlypreparedincompliancewiththedisclosurerequirementsofandinthemannerrequiredbytheCompaniesAct(Chapter24:03).

Theengagementpartnerontheauditresultinginthisindependentauditor’sreportisMrFungaiKuipa(PAABNumber207).

ERNST & YOUNGCHARTERED ACCOUNTANTS (ZIMBABWE)REGISTERED PUBLIC AUDITORS

15 MARCH 2018

40

41


GROUP COMPANY 2017 2016 2017 2016 Notes US$ US$ US$ US$Revenue 103,147,437 93,422,853 1,480,936 2,792,506 Costofsales (74,271,611) (67,581,049)* - -Gross profit 28,875,826 25,841,804 1,480,936 2,792,506 Fair value adjustment on investment property 12 - 83,801 - - Otheroperatingincome 4 268,861 131,480 597 163Sellinganddistributionexpenses (18,283,708) (18,615,661)* - -Administrationexpenses (6,159,860) (10,518,050) (1,195,222) (2,976,040)Otheroperatingexpenses 5 (642,907) (821,208) - (59,196) Operating profit/(loss) 6 4,058,212 (3,897,834) 286,311 (242,567)Restructuringcosts (847,373) - (436,882) -IncomearisingfromrestructuringoftheGroup 14.1 - - - 30,112,962Financecosts 7 (811,927) (1,062,697) (585,008) (894,375)Financeincome 8 72,012 80,025 857,962 1,076,914

Profit/(loss) before taxation 2,470,924 (4,880,506) 122,383 30,052,934

Incometax(expense)/credit 9 (1,115,957) (569,806) (58,976) 53,712

Profit/(loss) for the year 1,354,967 (5,450,312) 63,407 30,106,646

Other comprehensive income: Other comprehensive income to be reclassified to profit or loss in subsequent periods Exchangedifferencesontranslatingforeignoperations - (63,949) - - Other comprehensive income not to be reclassified to profit or loss in subsequent periods Revaluationofproperties - 1,998,700 - -Deferredtaxonrevaluation - (521,899) - - 1,476,801 - -

Total comprehensive income - 1,412,852 - - Total comprehensive income/(loss) for the year 1,354,967 (4,037,460) 63,407 30,106,646 Profit/(loss) attributable to: Equityholdersoftheparent 1,609,810 (5,386,179) 63,407 30,106,646Non-controllinginterests (254,843) (64,133) - - 1,354,967 (5,450,312) 63,407 30,106,646 Total comprehensive income/(loss) attributable to: Equityholdersoftheparent 1,609,810 (3,990,765) 63,407 30,106,646Non-controllinginterests (254,843) (46,695) - - 1,354,967 (4,037,460) 63,407 30,106,646 Earnings/ (loss) per share (cents) Basicearnings/(loss)fortheyearattributabletoordinaryequityholdersoftheparent 10 0.45 (1.50) Dilutedearnings/(loss)fortheyearattributabletoordinaryequityholdersoftheparent 10 0.45 (1.50) *Theseamountsdonotcorrespondtothe2016annualreportastherehavebeenreclassificationbetweencostofsalesandselling&distributioncosts.Refer to Note 3 for further details.

Statements of profit or loss and other comprehensive incomefor the year ended 31 December 2017

42


GROUP COMPANY 2017 2016 2017 2016 Notes US$ US$ US$ US$Assets Non-current assets Property,plantandequipment 11 40,895,715 43,062,308 73,004 173,256Investmentproperty 12 1,305,000 2,186,000 - -Intangibleassets 13 455,643 553,794 112,256 125,417Investmentinsubsidiaries 14 - - 47,111,145 34,273,543Long-termloansreceivable 15 - - 7,024,260 9,459,638Othernon-currentfinancialassets 16 - 121,526 - 5,096Deferredtaxasset 26 26,174 85,150 26,174 85,150 42,682,532 46,008,778 54,346,839 44,122,100 Current assets Inventories 17 12,119,852 13,303,887 - -Amountsowedbygroupcompanies 18.1 - - 1,922,333 14,953,171Prepayments 1,553,843 854,717 - 7,528 Tradeandotherreceivables 19 10,043,187 10,332,128 110 21,521Short-termloansreceivable 15 - - 2,974,083 2,979,475Cashandcashequivalents 20 5,819,110 3,467,286 200,534 23,110 29,535,992 27,958,018 5,097,060 17,984,805Assetsclassifiedasheldforsale 21 - 569,447 - - 29,535,992 28,527,465 5,097,060 17,984,805 Total assets 72,218,524 74,536,243 59,443,899 62,106,905 Equity and liabilities Equity Share capital 22.1 35,800 35,800 35,800 35,800 Sharepremium 22.2 1,379,664 1,379,664 1,379,664 1,379,664Non-distributablereserves 22.3 24,318,766 24,188,219 17,016,597 17,016,597Reservesofassetsclassifiedasheldforsale - 285,404 - -Retainedearnings 19,733,297 17,968,630 29,572,413 29,509,006Equity attributable to owners of the parent 45,467,527 43,857,717 48,004,474 47,941,067 Non-controllinginterests (47,908) 206,935 - -Total equity 45,419,619 44,064,652 48,004,474 47,941,067 Non-current liabilities Interest-bearingborrowings 23.1 3,831,399 6,651,355 2,606,532 5,796,324Deferredincome 24 218,908 - - -Deferredtaxliability 26 5,422,557 4,457,585 - - 9,472,864 11,108,940 2,606,532 5,796,324 Current liabilities Tradeandotherpayables 27 13,277,541 15,522,524 291,169 706,681Interest-bearingborrowings 23.2 3,953,308 3,065,983 3,513,351 2,979,474Bankoverdraft 20 89,333 732,315 - -AmountsowedtoGroupcompanies 18.2 - - 5,028,373 4,683,359Incometaxpayable 5,859 41,829 - - 17,326,041 19,362,651 8,832,893 8,369,514 Total liabilities 26,798,905 30,471,591 11,439,425 14,165,838 Total equity and liabilities 72,218,524 74,536,243 59,443,899 62,106,905

DR L. L .TSUMBA A. MANDIWANZA Chairman Group Chief Executive 8 March 2018

Statements of financial positionas at 31 December 2017

43


GROUP COMPANY 2017 2016 2017 2016 Notes US$ US$ US$ US$

Operating activities Profit/(loss) before tax 2,470,924 (4,880,506) 122,383 30,052,934 Adjustedfor: Depreciationofproperty,plantandequipment 11 5,357,180 5,051,002 96,035 87,807Amortisationofintangibleassets 13 106,297 104,217 13,161 13,161Profitondisposalofproperty,plantandequipmentandassetsheldforsale (57,668) (32,284) - -Financeincome (72,012) (80,025) (857,962) (1,076,914)Inventorywrittenoff 17 768,832 1,286,000 - -Allowancesforcreditlosses 19 334,953 1,373,479 - -Grantsreleasedtoprofitandloss 24 (87,829) - - -Fairvalueadjustmentoninvestmentproperty - (83,801) - -Incomearisingongrouprestructuring - - - (30,112,962)Financecosts 811,927 1,062,697 585,008 894,375Workingcapitaladjustments:Decreaseininventories 354,306 3,398,241 - -(Increase)/decreaseintradeandotherreceivablesandprepayments (967,422) 926,776 34,032 142,801Decrease/(increase)inamountsowedbygroupcompanies - - 193,236 (777,445)Increaseinamountsowedtogroupcompanies - - 345,014 686,060Decreaseintradeandotherpayables (1,829,624) (2,360,892) (415,512) (94,265) 7,189,864 5,764,904 115,395 (184,448)Interestpaid (811,927) (1,062,697) (585,008) (894,375)Incometaxpaid (138,631) (206,602) - - Net cashflows generated from/(used in) operating activities 6,239,306 4,495,605 (469,613) (1,078,823) Investing activities Purchaseofplantandequipment 11 (1,964,151) (5,403,495) (783) (60,012)Purchaseofintangibleassets 13 (8,146) - - -Proceedsfromsaleofproperty,plantandequipment 94,279 418,951 5,000 -Proceedsfromsaleofassetsclassifiedasheldforsale&investmentproperty 625,217 124,261 - -Grants received 24 306,737 - - - Decreaseinlongtermprepayments - 220,904 - -Loansissuedtosubsidiaries - - (582,000) (5,472,315)Loansrepaidbysubsidiaries - - 3,022,770 6,379,468Financeincome 72,012 80,025 857,962 1,076,914 Net cashflows (used in)/ generated from investing activities (874,052) (4,559,354) 3,302,949 1,924,055 Financing activities Proceedsfromborrowings 33.3 1,870,587 5,946,319 582,000 4,916,912Repaymentofborrowings 33.3 (4,241,035) (5,971,419) (3,237,912) (5,797,706) Net cash outflow from financing activities (2,370,448) (25,100) (2,655,912) (880,794) Netincrease/(decrease)incashandcashequivalents 2,994,806 (88,849) 177,424 (35,562)Netforeignexchangedifference - 13,905 - -Cashandcashequivalentsatbeginningoftheperiod 2,734,971 2,809,915 23,110 58,672 Cash and cash equivalents at the end of the period 20 5,729,777 2,734,971 200,534 23,110

Statements of cash flowsfor the year ended 31 December 2017

44


Statements of Changes in Equityfor the year ended 31 December 2017

GROUP

COMPANY

Attributable to equity holders of the parent Reserves Non - of assets Non - Share Share distributable classified as Retained controlling Total Capital Premium reserves held for sale earnings Total interests equity US$ US$ US$ US$ US$ US$ US$ US$ (Note 22.3) As at 1 January 2016 35,800 1,379,664 22,912,784 355,659 23,164,575 47,848,482 253,630 48,102,112 Lossfortheyear - - - (5,386,179) (5,386,179) (64,133) (5,450,312)Othercomprehensiveincome - - 1,395,414 - 1,395,414 17,438 1,412,852Total comprehensive income - - 1,395,414 - (5,386,179) (3,990,765) (46,695) (4,037,460)Transfertoretainedearningsonsaleofassets - - (119,979) (70,255) 190,234 - - - As at 31 December 2016 35,800 1,379,664 24,188,219 285,404 17,968,630 43,857,717 206,935 44,064,652 Profit/(loss)fortheyear - - - - 1,609,810 1,609,810 (254,843) 1,354,967 Other comprehensive income - - - - - - - Total comprehensive income - - - - 1,609,810 1,609,810 (254,843) 1,354,967 Transfertoretainedearningsonsaleofassets (154,857) 154,857 - - -Transfertoreservesonreclassicationofassets - - 130,547 (130,547) - - - -As at 31 December 2017 35,800 1,379,664 24,318,766 - 19,733,297 45,467,527 (47,908) 45,419,619

Retained Non earnings/ Share Share distributable (accumulated Capital Premium reserves losses) Total US$ US$ US$ US$ US$ As at 1 January 2016 35,800 1,379,664 17,016,597 (597,640) 17,834,421 Profitfortheyear - - - 30,106,646 30,106,646 Other comprehensive income - - - - -Total comprehensive income - - - 30,106,646 30,106,646 - As at 31 December 2016 35,800 1,379,664 17,016,597 29,509,006 47,941,067 Profitfortheyear - - - 63,407 63,407 Other comprehensive income - - - - -Total comprehensive income - - - 63,407 63,407 As at 31 December 2017 35,800 1,379,664 17,016,597 29,572,413 48,004,474

45


1. Corporate information TheconsolidatedfinancialstatementsofDairibordHoldingsLimitedanditssubsidiaries(collectively,theGroup)fortheyearended31December2017

wereauthorisedforissueon8March2018inaccordancewitharesolutionofthedirectors.DairibordHoldingsLimitedisacompanyincorporatedanddomiciledinZimbabwewhosesharesarepubliclytradedthroughtheZimbabweStockExchange.Theregisteredofficeislocatedat1225RekayiTangwenaAvenue,inHarare.TheGroup’sprincipalactivitiesarethemanufacturing,processing,marketinganddistributionofmilkproducts,foodsand beverages.

2.1 Basis of preparation Theconsolidatedfinancialstatementsarebasedonthestatutoryrecordsthataremaintainedunderthehistoricalcostconvention,exceptforland

andbuildingsandinvestmentpropertythathavebeenmeasuredatfairvalue.TheconsolidatedfinancialstatementsarepresentedinUnitedStatesDollars(US$).

Statement of compliance TheconsolidatedfinancialstatementshavebeenpreparedinaccordancewithInternationalFinancialReportingStandards(IFRS).

2.2 Basis of consolidation TheconsolidatedfinancialstatementscomprisethefinancialstatementsofDairibordHoldingsLimitedanditssubsidiariesasat31December2017.

ControlisachievedwhentheGroupisexposed,orhasrights,tovariablereturnsfromitsinvolvementwiththeinvesteeandhastheabilitytoaffectthosereturnsthroughitspowerovertheinvestee.Specifically,theGroupcontrolsaninvesteeifandonlyiftheGrouphas:• Powerovertheinvestee(i.e.existingrightsthatgiveitthecurrentabilitytodirecttherelevantactivitiesoftheinvestee)• Exposure,orrights,tovariablereturnsfromitsinvolvementwiththeinvestee,and• Theabilitytouseitspowerovertheinvesteetoaffectitsreturns

WhentheGrouphaslessthanamajorityofthevotingorsimilarrightsofaninvestee,theGroupconsidersallrelevantfactsandcircumstancesinassessingwhetherithaspoweroveraninvestee,including:• Thecontractualarrangementwiththeothervoteholdersoftheinvestee• Rights arising from other contractual arrangements• TheGroup’svotingrightsandpotentialvotingrights

TheGroupre-assesseswhetherornotitcontrolsaninvesteeiffactsandcircumstancesindicatethattherearechangestooneormoreofthethreeelementsofcontrol.ConsolidationofasubsidiarybeginswhentheGroupobtainscontroloverthesubsidiaryandceaseswhentheGrouplosescontrolofthesubsidiary.Assets,liabilities,incomeandexpensesofasubsidiaryacquiredordisposedofduringtheyearareincludedintheconsolidatedfinancialstatementsfromthedatetheGroupgainscontroluntilthedatetheGroupceasestocontrolthesubsidiary.

Profitorlossandeachcomponentofothercomprehensiveincome(OCI)areattributedtotheequityholdersoftheparentoftheGroupandtothe

non-controllinginterests,evenifthisresultsinthenon-controllinginterestshavingadeficitbalance.Whennecessary,adjustmentsaremadetothefinancialstatementsofsubsidiariestobringtheiraccountingpoliciesintolinewiththeGroup’saccountingpolicies.Allintra-groupassetsandliabilities,equity,income,expensesandcashflowsrelatingtotransactionsbetweenmembersoftheGroupareeliminatedinfullonconsolidation.

Achangeintheownershipinterestofasubsidiary,withoutachangeofcontrol,isaccountedforasanequitytransaction.IftheGrouplosescontroloverasubsidiary,it:• Derecognisestheassets(includinggoodwill)andliabilitiesofthesubsidiary.• Derecognises the carrying amount of any non – controlling interest.• Derecognisesthecumulativetranslationdifferences,recordedinequity• Recognisesthefairvalueoftheconsiderationreceived• Recognises the fair value of any investment retained• Recognisesanysurplusordeficitinprofitorloss.• Reclassifiestheparent’sshareofcomponentspreviouslyrecognizedinothercomprehensiveincometoprofitorlossorretainedearnings,as

appropriate,aswouldberequirediftheGrouphaddirectlydisposedoftherelatedassetsorliabilities.

Notes to the Financial Statements

46


2.3 Changes in accounting policies and disclosures TheGroupappliedforthefirsttimecertainamendmentstothestandards,whichareeffectiveforannualperiodsbeginningonorafter1January

2017.TheGrouphasnotearlyadoptedanystandards,interpretationsoramendmentsthathavebeenissuedbutarenotyeteffective.Thenatureandtheimpactofeachamendmentisdescribedbelow:

Amendments to IAS 7 Statement of Cash Flows: Disclosure Initiative Theamendmentsrequireentitiestoprovidedisclosureofchangesintheirliabilitiesarisingfromfinancingactivities,includingbothchangesarising

fromcashflowsandnon-cashchanges(suchasforeignexchangegainsorlosses).

TheGrouphasprovidedtheinformationforboththecurrentandthecomparativeperiodinNote33.3

Amendments to IAS 12 Income Taxes: Recognition of Deferred Tax Assets for Unrealised Losses Theamendmentsclarifythatanentityneedstoconsiderwhethertaxlawrestrictsthesourcesoftaxableprofitsagainstwhichitmaymakedeductions

onthereversalofdeductibletemporarydifferencerelatedtounrealisedlosses.Furthermore,theamendmentsprovideguidanceonhowanentityshoulddeterminefuturetaxableprofitsandexplainthecircumstancesinwhichtaxableprofitmayincludetherecoveryofsomeassetsformorethan their carrying amount.

TheGroupappliedamendmentsretrospectively.However,theirapplicationhasnoeffectontheGroup’sfinancialpositionandperformanceastheGrouphasnodeductibletemporarydifferencesorassetsthatareinthescopeoftheamendments.

2.4 Significant accounting judgements, estimates and assumptions Thepreparationoftheconsolidatedfinancialstatementsrequiresmanagementtomakejudgements,estimatesandassumptionsthataffectthe

reportedamountsofrevenues,expenses,assetsandliabilities,andthedisclosureofcontingentliabilities.Uncertaintyabouttheseassumptionsandestimatescouldresultinoutcomesthatrequireamaterialadjustmenttothecarryingamountofassetsorliabilitiesaffectedinfutureperiods.

Suchestimatesandassumptionsarebasedonhistoricalexperienceandvariousotherfactorsthatarebelievedtobereasonableinthecircumstancesandconstitutemanagement’sbestjudgementatthedateofthefinancialstatements.

Estimates and assumptions Thekeyassumptionsconcerningthefutureandotherkeysourcesofestimationuncertaintyatthereportingdate,thathaveasignificantriskof

causingamaterialadjustmenttothecarryingamountsofassetsandliabilitieswithinthenextfinancialyeararedescribedbelow:TheGroupbaseditsassumptionsandestimatesonparametersavailablewhentheconsolidatedfinancialstatementswereprepared.Existingcircumstancesandassumptionsaboutthefuturedevelopments,however,maychangeduetomarketchangesorcircumstancesarisingbeyondthecontroloftheGroup.Suchchangesarereflectedintheassumptionswhentheyoccur.

i. Useful lives and residual values of property, plant and equipment TheGroupassessesusefullivesandresidualvaluesofproperty,plantandequipmenteachyeartakingintoconsiderationpastexperience,technology

changesandthelocaloperatingenvironment.Residualvalueswerereassessedduringtheyearandwerestillinlinewiththosedeterminedlastyear.ReferNote2.5(i)fortheusefullivesofproperty,plantandequipmentandNote11forthecarryingamountofproperty,plantandequipmentbalances.

ii. Revaluation of land and buildings and investment property TheGroupmeasuresfreeholdlandandbuildingsandinvestmentpropertyatfairvaluewithchangesinfairvaluebeingrecognisedinother

comprehensiveincomeforlandandbuildingsandprofitorlossforinvestmentproperty.Adirectorsvaluationwasperformedtodeterminefairvalue of freehold land and buildings and investment property as at 31 December 2017. Land and buildings were valued by reference to market-based evidence,usingcomparablepricesadjustedforspecificmarketfactorssuchasnature,locationandconditionoftheproperty.Refernote11and12forthecarryingamountoflandandbuildingsandinvestmentpropertyaswellastheestimatesandassumptionsusedtodeterminethefairvalues.

iii) Impairment of non-financial assets TheGroupassessesateachreportingdatewhetherthereisanyobjectiveevidencethatafinancialassetoragroupoffinancialassetsisimpaired.

Afinancialassetoragroupoffinancialassetsisdeemedtobeimpairedif,andonlyif,thereisobjectiveevidenceofimpairmentasaresultofoneormoreeventsthathasorhaveoccurredaftertheinitialrecognitionoftheasset(anincurred‘lossevent’)andthatlosseventhasanimpactontheestimatedfuturecashflowsofthefinancialassetorthegroupoffinancialassetsthatcanbereliablyestimated.Evidenceofimpairmentmayincludeindicationsthatthedebtorsoragroupofdebtorsisexperiencingsignificantfinancialdifficulty,defaultordelinquencyininterestorprincipalpayments,probabilitythattheywillenterbankruptcyorotherfinancialreorganisationandwhereobservabledataindicatethatthereisameasurable

Notes to theFinancialStatements(continued)

47



2.4 Significant accounting judgements, estimates and assumptions (continued) iii) Impairment of non-financial assets (continued) decreaseintheestimatedfuturecashflows,suchaschangesinarrearsoreconomicconditionsthatcorrelatewithdefaults.RefertoNote19for

the carrying amount of receivables and allowance for credit losses.

2.5 Summary of significant accounting policiesa) Government grants

Governmentrelatedgrantsarerecognisedwherethereisreasonableassurancethatthegrantwillbereceivedandallattachedconditionswillbecompliedwith.Whenthegrantrelatestoanexpenseitem,itisrecognisedasincomeonasystematicbasisovertheperiodsthattherelatedcosts,forwhichitisintendedtocompensate,areexpensed.Whenthegrantrelatestoanasset,itisrecognisedasincomeinequalamountsovertheexpectedusefullifeoftherelatedasset.

WhentheGroupreceivesgrantsofnon-monetaryassets,theassetandthegrantarerecordedatnominalamountsandreleasedtoprofitorlossovertheexpectedusefullifeoftheasset,basedonthepatternofconsumptionofthebenefitsoftheunderlyingassetbyequalannualinstalments.

ThegrantisdisclosedinNote24.

b) Foreign currency translation TheconsolidatedfinancialstatementsarepresentedinUnitedStatesDollars,whichisalsotheparentcompany’sfunctionalcurrency.Eachentityin

theGroupdeterminesitsownfunctionalcurrencyanditemsincludedintheconsolidatedfinancialstatementsofeachentityaremeasuredusingthatfunctionalcurrency.

Transactions and balances TransactionsinforeigncurrenciesareinitiallyrecordedbytheGroupentitiesattheirrespectivefunctionalcurrencyratesprevailingatthedateof

thetransaction.Monetaryassetsandliabilitiesdenominatedinforeigncurrenciesaretranslatedatthefunctionalcurrencyspotrateofexchangerulingatthereportingdate.

AlldifferencesarisingonsettlementortranslationofmonetaryitemsaretakentoprofitorlosswiththeexceptionofmonetaryitemsthataredesignatedaspartofthehedgeoftheGroup’snetinvestmentinaforeignoperation.Thesearerecognisedinothercomprehensiveincomeuntilthedisposalofthenetinvestment,atwhichtime,thecumulativeamountisreclassifiedtoprofitorloss.Taxchargesandcreditsattributabletoexchangedifferencesonthosemonetaryitemsarealsorecordedinothercomprehensiveincome.

Non-monetaryitemsthataremeasuredintermsofhistoricalcostinaforeigncurrencyaretranslatedusingtheexchangeratesasatthedatesoftheinitialtransactions.Non-monetaryitemsmeasuredatfairvalueinaforeigncurrencyaretranslatedusingtheexchangeratesatthedatewhenthefairvalueisdetermined.Thegainorlossarisingontranslationofnon-monetaryitemsmeasuredatfairvalueistreatedinlinewiththerecognitionofgainorlossonchangeinfairvalueoftheitem(i.e.,translationdifferencesonitemswhosefairvaluegainorlossisrecognisedinothercomprehensiveincomeorprofitorlossarealsorecognisedinothercomprehensiveincomeorprofitorloss,respectively).

Group companies OnconsolidationtheassetsandliabilitiesofforeignoperationsaretranslatedintoUnitedStatesDollarsattherateofexchangeprevailingatthe

reportingdateandtheirstatementsofcomprehensiveincomearetranslatedatexchangeratesprevailingatthedateofthetransactions.Theexchangedifferencesarisingfromtranslationarerecognisedinothercomprehensiveincomeandpresentedintheforeigncurrencytranslationreserveinequity.However,iftheoperationisanon-wholly-ownedsubsidiary,thentherelevantproportionateshareofthetranslationdifferenceis allocated to the non-controlling interests.

Ondisposalofaforeignoperation,thecomponentofothercomprehensiveincomerelatingtothatparticularforeignoperationisreclassifiedtoprofitorlossaspartofthegainorlossondisposal.

c) Revenue and other income recognition RevenueisrecognisedtotheextentthatitisprobablethattheeconomicbenefitswillflowtotheGroupandtherevenuecanbereliablymeasured.

Revenueismeasuredatthefairvalueoftheconsiderationreceivedorreceivable,excludingdiscounts,rebates,andvalueaddedtax.TheGroupassessesitsrevenuearrangementsagainstspecificcriteriainordertodetermineifitisactingasprincipaloragent.TheGrouphasconcludedthatitisactingasaprincipalinallofitsrevenuearrangementssinceitistheprimaryobligorinalltherevenuearrangementshaspricinglatitudeandisalsoexposedtoinventoryandcreditrisks.Thespecificrecognitioncriteriadescribedbelowmustalsobemetbeforerevenueisrecognised:

48


2.5 Summary of significant accounting policies (continued)c) Revenue and other income recognition (continued)

Sale of goods Revenuefromthesaleofgoodsisrecognisedwhenallthefollowingconditionshavebeensatisfied:

i. theentityhastransferredtothebuyerthesignificantrisksandrewardsofownershipofthegoods,usuallyondeliveryofthegoods;ii. theentityretainsneithercontinuingmanagerialinvolvementtothedegreeusuallyassociatedwithownershipnoreffectivecontroloverthe

goodssold;iii. theamountofrevenuecanbemeasuredreliably;iv. itisprobablethattheeconomicbenefitsassociatedwiththetransactionwillflowtotheentity;andv. thecostsincurredortobeincurredinrespectofthetransactioncanbemeasuredreliably.

Interest income Forallfinancialinstrumentsmeasuredatamortisedcost,interestincomeisrecordedusingtheeffectiveinterestrate(EIR),whichistheratethat

exactlydiscountstheestimatedfuturecashpaymentsthroughtheexpectedlifeofthefinancialinstrumentorashorterperiod,whereappropriate,tothenetcarryingamountofthefinancialassetorliability.Interestincomeisincludedinfinanceincomeinthestatementofcomprehensiveincome.

Dividend income RevenueisrecognisedwhentheGroup’srighttoreceivepaymentisestablished,whichisgenerallywhentheshareholdersapprovethedividend.

Rendering of services Managementfeeincomeisrecognisedwhentheholdingcompanyhasprovidedservicestothesubsidiaries.Themanagementservicesareprovided

on a daily basis and invoiced monthly based on a cost recovery basis. Royalties Royaltiesarechargedbytheholdingcompanytothesubsidiaryforitsuseofthebrandsandpatentswhichareownedbytheformer.Thesubsidiary

usesthebrandsandpatentsonadailybasisthroughproductionandmarketingofgoodsandtheholdingcompanyinvoicesforuseofitsbrandsmonthly.

d) Taxes

Current income tax Currentincometaxassetsandliabilitiesforthecurrentandpriorperiodsaremeasuredattheamountexpectedtobereceivedfromorpaidtothe

taxauthorities.ThetaxratesandtaxlawsusedtocomputetheamountarethosethatareenactedorsubstantivelyenactedatthereportingdateinthecountrieswheretheGroupoperatesandgeneratestaxableincome.

Currentincometaxrelatingtoitemsrecogniseddirectlyinequityorothercomprehensiveincomeisrecognisedinequityorothercomprehensiveincomeandnotinprofitorloss.Managementperiodicallyevaluatespositionstakeninthetaxreturnswithrespecttosituationsinwhichapplicabletaxregulationsaresubjecttointerpretationandestablishesprovisionswhereappropriate.

Deferred tax Deferredtaxisprovidedusingtheliabilitymethodontemporarydifferencesatthereportingdatebetweenthetaxbasesofassetsandliabilities

andtheircarryingamountsforfinancialreportingpurposesatthereportingdate.Deferredtaxliabilitiesarerecognisedforalltaxabletemporarydifferences,except:- Wherethedeferredtaxliabilityarisesfromtheinitialrecognitionofgoodwillorofanassetorliabilityinatransactionthatisnotabusiness

combinationandatthetimeofthetransaction,affectsneithertheaccountingprofitnortaxableprofitorloss,and- Inrespectoftaxabletemporarydifferencesassociatedwithinvestmentsinsubsidiariesandassociates,wherethetimingofthereversalofthe

temporarydifferencescanbecontrolledanditisprobablethatthetemporarydifferenceswillnotreverseintheforeseeablefuture.

Deferredtaxassetsarerecognisedforalldeductibletemporarydifferences,carryforwardofunusedtaxcreditsandunusedtaxlosses,totheextentthatitisprobablethattaxableprofitwillbeavailableagainstwhichthedeductibletemporarydifferences,andthecarryforwardofunusedtaxcreditsandunusedtaxlossescanbeutilisedexcept:- Wherethedeferredtaxassetrelatingtothedeductibletemporarydifferencearisesfromtheinitialrecognitionofanassetorliabilityina

transactionthatisnotabusinesscombinationand,atthetimeofthetransaction,affectsneithertheaccountingprofitnortaxableprofitorloss.


49


2.5 Summary of significant accounting policies (continued)d) Taxes (continued)

Deferred tax (continued)- Inrespectofdeductibletemporarydifferencesassociatedwithinvestmentsinsubsidiariesandassociates,deferredtaxassetsarerecognised

onlytotheextentthatitisprobablethatthetemporarydifferenceswillreverseintheforeseeablefutureandtaxableprofitwillbeavailableagainstwhichthetemporarydifferencescanbeutilised.

Thecarryingamountofdeferredtaxassetsisreviewedateachreportingdateandreducedtotheextentthatitisnolongerprobablethatsufficienttaxableprofitwillbeavailabletoallowallorpartofthedeferredtaxassettobeutilised.Unrecogniseddeferredtaxassetsarereassessedateachreportingdateandarerecognisedtotheextentthatithasbecomeprobablethatfuturetaxableprofitswillallowthedeferredtaxassettoberecovered.Deferredtaxassetsandliabilitiesaremeasuredatthetaxratesthatareexpectedtoapplyintheyearwhentheassetisrealisedortheliabilityissettled,basedontaxrates(andtaxlaws)thathavebeenenactedorsubstantivelyenactedatthereportingdate.

Deferredtaxrelatingtoitemsrecognisedoutsideprofitorlossisrecognisedoutsideprofitorlossincorrelationtotheunderlyingtransactioneitherin other comprehensive income or directly in equity.

Deferredtaxassetsanddeferredtaxliabilitiesareoffset,ifalegallyenforceablerightexiststosetoffcurrenttaxassetsagainstcurrentincometaxliabilitiesandthedeferredtaxesrelatetothesametaxableentityandthesametaxationauthority.

Taxbenefitsacquiredaspartofabusinesscombination,butnotsatisfyingthecriteriaforseparaterecognitionatthatdate,wouldberecognisedsubsequentlyifnewinformationaboutfactsandcircumstanceschanged.Theadjustmentwouldeitherbetreatedasareductiontogoodwill(aslongasitdoesnotexceedgoodwill)ifitoccurredduringthemeasurementperiodorrecognisedinprofitorlossifitisincurredafterthemeasurementperiod.

Value added tax Revenues,expensesandassetsarerecognisednetoftheamountofvalueaddedtaxexcept:

- Wherethevalueaddedtaxincurredonapurchaseofassetsorservicesisnotrecoverablefromthetaxationauthority,inwhichcasethevalueaddedtaxisrecognisedaspartofthecostofacquisitionoftheassetoraspartoftheexpenseitemasapplicable

- Receivablesandpayablesthatarestatedwiththeamountofvalueaddedtaxincluded. ThenetamountofValueAddedTaxrecoverablefrom,orpayableto,thetaxationauthorityisincludedaspartofreceivablesorpayablesinthe

statementoffinancialposition.

e) Pensions and other post-employment benefits and termination benefits Pensions and other post-employment benefits

RetirementbenefitsareprovidedforGroupemployeesthroughindependentlyadministereddefinedcontributionfunds,includingtheNationalSocialSecurityAuthoritySchemeinZimbabweandNationalSocialSecurityFundinMalawi.Contributionstothedefinedcontributionfundarerecognisedinprofitorlossastheyfalldue.ThecostofretirementbenefitsapplicabletotheNationalSocialSecurityAuthoritySchemeandNationalSocialSecurityFundisdeterminedbythesystematicrecognitionoflegislatedcontributions.

Termination benefits Terminationbenefitsareemployeebenefitsprovidedinexchangefortheterminationofanemployee’semploymentasaresultofeitheranentity’s

decisiontoterminateanemployee’semploymentbeforethenormalretirementdateoranemployee’sdecisiontoacceptanofferofbenefitsinexchangefortheterminationofemployment.TheGrouprecognisesterminationbenefitsasaliabilityandanexpenseattheearlierofwhentheofferofterminationcannotbewithdrawnorwhentherelatedrestructuringcostsarerecognisedunderIAS37Provisions,ContingentLiabilitiesandContingentAssets.

Terminationbenefitsaremeasuredaccordingtothetermsoftheterminationcontract.Whereterminationbenefitsareduemorethan12monthsafterthereportingperiod,thepresentvalueofthebenefitsshallbedetermined.Thediscountrateusedtocalculatethepresentvalueshallbedeterminedbyreferencetomarketyieldsonhighqualitycorporatebondsattheendofthereportingperiod.

f) Share-based payment Employees(includingseniorexecutives)oftheGroupreceiveremunerationintheformofshare-basedpaymenttransactions,wherebyemployees

renderservicesasconsiderationforequityinstruments(‘equity-settledtransactions’).


50


2.5 Summary of significant accounting policies (continued)f) Share-based payment (continued)

Equity-settled transactions` Thecostofequity–settledtransactionswithemployeesismeasuredbyreferencetothefairvalueatthedateonwhichtheyaregranted.Thefair

valueisdeterminedbyanexternalvaluer.Thecostofequity–settledtransactionsisrecognisedtogetherwithacorrespondingincreaseinequity,overtheperiodinwhichtheperformanceand/orserviceconditionsarefulfilled,endingonthedateonwhichtherelevantemployeesbecomefullyentitledtotheaward(‘thevestingdate’).

Thecumulativeexpenserecognisedforequity–settledtransactionsateachreportingdateuntilthevestingdatereflectstheextenttowhichthevestingperiodhasexpiredandtheGroup’sbestestimateofthenumberofequityinstrumentsthatwillultimatelyvest.Thechargeorcreditrecognisedinprofitorlossforaperiodrepresentsthemovementsincumulativeexpenserecognisedasatthebeginningandendofthatperiod.

Noexpenseisrecognisedforawardsthatdonotultimatelyvest. Thedilutiveeffectofoutstandingoptionsisreflectedasadditionalsharedilutioninthecomputationoftheearningspershare(Note9).

g) Financial assets Initial recognition FinancialassetswithinthescopeofIAS39areclassifiedasfinancialassetsatfairvaluethroughprofitorloss,loansandreceivables,held-to-maturity

investments,available-for-salefinancialassets,asappropriate.TheGroupdeterminestheclassificationofitsfinancialassetsatinitialrecognition.Allfinancialassetsarerecognisedinitiallyatfairvalueplus,inthecaseofinvestmentsnotatfairvaluethroughprofitandloss,directlyattributabletransactioncosts.Purchasesorsalesoffinancialassetsthatrequiredeliveryofassetswithinatimeframeestablishedbyregulationorconventioninthemarketplace(regularwaytrades)arerecognisedonthetradedatesi.e.thedatethattheGroupcommitstopurchaseorselltheasset.

TheGroup’sfinancialassetsincludecashandshorttermdeposits,tradeandotherreceivablesandloansandreceivables.

Subsequent measurement Thesubsequentmeasurementoffinancialassetsdependsontheirclassificationasfollows:

Loans and receivables Loansandreceivablesarenon-derivativefinancialassetswithfixedordeterminablepaymentsthatarenotquotedinanactivemarket.Afterinitial

measurementsuchfinancialassetsaresubsequentlymeasuredatamortisedcostusingtheeffectiveinterestratemethod(EIR),lessimpairment.

AmortisedcostiscalculatedbytakingintoaccountanydiscountorpremiumonacquisitionandfeesorcoststhatareanintegralpartoftheEIR.TheEIRamortisationisincludedinfinanceincomeinthestatementofcomprehensiveincome.Thelossesarisingfromimpairmentarerecognisedinthestatementofcomprehensiveincomeinotheroperatingexpenses.

Impairment of financial assets TheGroupassessesateachreportingdatewhetherthereisanyindicationthatafinancialassetorgroupoffinancialassetsisimpaired.Afinancial

assetoragroupoffinancialassetsisdeemedtobeimpairedif,andonlyif,thereisobjectiveevidenceofimpairmentasaresultofoneormoreeventsthathaveoccurredafterinitialrecognitionoftheasset(anincurred‘lossevent’)andthatthelosseventhasanimpactontheestimatedfuturecashflowsofthefinancialassetorgroupoffinancialassetsthatcanbereliablyestimated.

Evidenceofimpairmentmayincludeindicationsthatthedebtorsoragroupofdebtorsisexperiencingsignificantfinancialdifficulty,defaultordelinquencyininterestorprincipalpayments,theprobabilitythattheywillenterbankruptcyorotherfinancialreorganisationandwhereobservabledataindicatesthatthereisameasurabledecreaseintheestimatedfuturecashflows,suchaschangesinarrearsoreconomicconditionsthatcorrelatewith defaults.

Financial assets carried at amortised cost Forfinancialassetscarriedatamortisedcost,theGroupfirstassesseswhetherobjectiveevidenceofimpairmentexistsindividuallyforfinancial

assetsthatareindividuallysignificant,orcollectivelyforfinancialassetsthatarenotindividuallysignificant.IftheGroupdeterminesthatnoobjectiveevidenceofimpairmentexistsforanindividuallyassessedfinancialasset,whethersignificantornot,itincludestheassetinagroupoffinancialassetswithsimilarcreditriskcharacteristicsandcollectivelyassessesthemforimpairment.Assetsthatareindividuallyassessedforimpairmentandforwhichanimpairmentlossis,orcontinuestobe,recognisedarenotincludedinacollectiveassessmentofimpairment.

Ifthereisobjectiveevidencethatanimpairmentlosshasbeenincurred,theamountofthelossismeasuredasthedifferencebetweentheasset’s


51


2.5 Summary of significant accounting policies (continued)g) Financial assets (continued)Impairment of financial assets (continued)

carryingamountandthepresentvalueofestimatedfuturecashflows(excludingfutureexpectedcreditlossesthathavenotyetbeenincurred).Thepresentvalueoftheestimatedfuturecashflowsisdiscountedatthefinancialasset’soriginaleffectiveinterestrate.Ifaloanhasavariableinterestrate,thediscountrateformeasuringanyimpairmentlossisthecurrenteffectiveinterestrate.

Thecarryingamountoftheassetisreducedthroughtheuseofanallowanceaccountandtheamountofthelossisrecognisedinprofitorloss.Interestincomecontinuestobeaccruedonthereducedcarryingamountandisaccruedusingtherateofinterestusedtodiscountthefuturecashflowsforthepurposeofmeasuringtheimpairmentloss.Theinterestincomeisrecordedaspartoffinanceincomeinthestatementofcomprehensiveincome.

LoanstogetherwiththeassociatedallowancearewrittenoffwhenthereisnorealisticprospectoffuturerecoveryandallcollateralhasbeenrealisedorhasbeentransferredtotheGroup.If,inasubsequentyear,theamountoftheestimatedimpairmentlossincreasesordecreasesbecauseofaneventoccurringaftertheimpairmentwasrecognised,thepreviouslyrecognisedimpairmentlossisincreasedorreducedbyadjustingtheallowanceaccount.Ifafuturewriteoffislaterrecovered,therecoveryiscreditedtofinancecostsinthestatementofcomprehensiveincome.

Derecognition of financial assets Afinancialasset(or,whereapplicableapartofafinancialassetorpartofagroupofsimilarfinancialassets)isderecognisedwhen:

• Therightstoreceivecashflowsfromtheassethaveexpired.• TheGrouphastransferreditsrightstoreceivecashflowsfromtheassetorhasassumedanobligationtopaythereceivedcashflowsinfull

withoutmaterialdelaytoathirdpartyundera‘passthrough’arrangement;andeither(a)theGrouphastransferredsubstantiallyalltherisksandrewardsoftheasset,or(b)theGrouphasneithertransferrednorretainedsubstantiallyalltherisksandrewardsoftheasset,buthastransferred control of the asset.

WhentheGrouphastransferreditsrightstoreceivecashflowsfromanassetorhasenteredintoapass-througharrangement,andhasneithertransferrednorretainedsubstantiallyalloftherisksandrewardsoftheassetnortransferredcontroloftheasset,theassetisrecognisedtotheextentoftheGroup’scontinuinginvolvementintheasset.

Inthatcase,theGroupalsorecognisesanassociatedliability.Thetransferredassetandtheassociatedliabilityaremeasuredonabasisthatreflects

therightsandobligationsthattheGrouphasretained.

ContinuinginvolvementthattakestheformofaguaranteeoverthetransferredassetismeasuredattheloweroftheoriginalcarryingamountoftheassetandthemaximumamountofconsiderationthattheGroupcouldberequiredtorepay.

h) Financial liabilities Initial recognition and measurement FinancialliabilitieswithinthescopeofIAS39areclassifiedasfinancialliabilitiesatfairvaluethroughprofitorlossorloansandborrowings,as

appropriate.TheGroupdeterminestheclassificationofitsfinancialliabilitiesatinitialrecognition.Allfinancialliabilitiesarerecognisedinitiallyatfairvalueandinthecaseofloansandborrowings,plusdirectlyattributabletransactioncosts.

TheGroup’sfinancialliabilitiesincludetradeandotherpayablesandloansandborrowings.

Subsequent measurement Themeasurementoffinancialliabilitiesdependsontheirclassificationasfollows:

Interest bearing borrowings Afterinitialrecognition,interestbearingborrowingsaresubsequentlymeasuredatamortisedcostusingtheeffectiveinterestratemethod.Gainsand

lossesarerecognisedinprofitorlosswhentheliabilitiesarederecognisedaswellasthroughtheeffectiveinterestratemethod(EIR)amortisationprocess.AmortisedcostiscalculatedbytakingintoaccountanydiscountorpremiumonacquisitionandfeesorcoststhatareanintegralpartoftheEIR.

TheEIRamortisationisincludedinfinancecostsinthestatementofprofitandloss.


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2.5 Summary of significant accounting policies (continued)h) Financial liabilities (continued)

Trade and other payables Tradeandotherpayablesaresubsequentlymeasuredatamortisedcostusingtheeffectiveinterestratemethod.

De-recognition of financial liabilities Afinancialliabilityisderecognisedwhentheobligationundertheliabilityisdischargedorcancelledorexpires.Whenanexistingfinancialliability

isreplacedbyanotherfromthesamelenderonsubstantiallydifferentterms,orthetermsofanexistingliabilityaresubstantiallymodified,suchanexchangeormodificationistreatedasade-recognitionoftheoriginalliabilityandtherecognitionofanewliability,andthedifferenceintherespectivecarryingamountsisrecognisedinprofitorloss.

Offsetting of financial instruments Financialassetsandfinancialliabilitiesareoffsetandthenetamountreportedintheconsolidatedstatementoffinancialpositionif,andonlyif,

thereisacurrentlyenforceablelegalrighttooffsettherecognisedamountsandthereisanintentiontosettleonanetbasis,ortorealisetheassetsandsettletheliabilitiessimultaneously.

i) Property, plant and equipment Propertyismeasuredatfairvaluelesssubsequentaccumulateddepreciationandsubsequentimpairmentlossesrecognisedafterthedateofthe

revaluation.Valuationsareperformedfrequentlytoensurethatthefairvalueofarevaluedassetdoesnotdiffermateriallyfromitscarryingamount.Plant,furniture,fittings,equipmentandmotorvehiclesarestatedatcostlessaccumulateddepreciationandaccumulatedimpairmentlosses,ifany.

Arevaluationsurplusisrecordedinothercomprehensiveincomeandcreditedtotheassetrevaluationreserveinequity,excepttotheextentthatitreversesarevaluationdecreaseofthesameassetpreviouslyrecognisedinprofitorloss,inwhichcasetheincreaseisrecognisedinprofitorloss.Arevaluationdeficitisrecognisedinprofitorloss,excepttotheextentthatitoffsetsanexistingsurplusonthesameassetrecognisedintheassetrevaluationreserve.

Costincludesthecostofreplacingpartoftheplantandequipmentandborrowingcostforlongtermconstructionprojectsiftherecognitioncriteriaaremet.Whensignificantpartsofpropertyplantandequipmentarerequiredtobereplacedatintervals,theGrouprecognizessuchpartsasindividualassetswithspecificusefullivesanddepreciatesthemaccordingly.Likewise,whenamajorinspectionisperformed,itscostisrecognisedinthecarryingamountoftheplantandequipmentasareplacementiftherecognitioncriteriaaresatisfied.Allotherrepairsandmaintenancecostsarerecognisedinprofitorlossasincurred.

TheGroup’spolicyistodepreciateproperty,plantandequipmentevenlyovertheexpectedlifeofeachasset,withtheexceptionthatnodepreciationischargedonlandandassetsunderconstructionandnotyetinuse.Theexpectedusefullivesoftheproperty,plantandequipmentareasfollows:Freehold Buildings 40 yearsPlant 3 -10 yearsFurniture,fittingsandequipment 2–10yearsMotor vehicles- Light 5 years- Heavy vehicles and trailers 8 years

Thecarryingamountsofproperty,plantandequipmentarereviewedateachreportingdatetoassessiftheyarerecordedinexcessoftheirrecoverableamountsandwherecarryingvaluesexceedtheestimatedrecoverableamounts,assetsarewrittendowntotheirrecoverableamounts.

Anitemofproperty,plantandequipmentisderecognisedupondisposalorwhennofutureeconomicbenefitsareexpectedfromitsuse.Anygainorlossarisingonderecognitionoftheasset(calculatedasthedifferencebetweenthenetdisposalproceedsandthecarryingvalueoftheasset)isincludedinprofitorlossintheyeartheassetisderecognised.

Theassets’residualvalues,usefullivesanddepreciationmethodsarereviewedandadjustedifappropriate,ateachfinancialyearend.Adjustmentsaremadeprospectivelyasachangeinaccountingestimate.

j) Impairment of non-financial assets TheGroupassessesateachreportingdatewhetherthereisanindicationthatanassetmaybeimpaired.Ifanyindicationexists,orwhenannual

impairmenttestingforanassetisrequired,theGroupestimatestherecoverableamountoftheasset.Anasset’srecoverableamountisthehigher


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2.5 Summary of significant accounting policies (continued)j) Impairment of non-financial assets (continued)

ofanasset’sorcashgeneratingunit’s(CGU)fairvaluelesscostsofdisposalanditsvalueinuseandisdeterminedforanindividualasset,unlesstheassetdoesnotgeneratecashinflowsthatarelargelyindependentofthosefromotherassetsorgroupofassets.

WherethecarryingamountofanassetorCGUexceedsitsrecoverableamount,theassetisconsideredimpairedandiswrittendowntoitsrecoverableamount.Inassessingvalueinuse,theestimatedfuturecashflowsarediscountedtotheirpresentvaluesusingapre-taxdiscountratethatreflectscurrentmarketassessmentsofthetimevalueofmoneyandtherisksspecifictotheasset.Indeterminingfairvaluelesscostsofdisposal,recentmarkettransactionsaretakenintoaccount,ifavailable.Ifnosuchtransactionscanbeidentified,anappropriatevaluationmodelisused.Thesecalculationsarecorroborated,byvaluationmultiples,quotedpublicsharepricesforpubliclytradedentitiesorotheravailablefairvalueindicators.

TheGroupbasesitsimpairmentcalculationondetailedbudgetsandforecastcalculations,whicharepreparedseparatelyforeachoftheGroup’scashgeneratingunits,towhichtheindividualassetsareallocated.Thesebudgetsandforecastcalculationsgenerallycoveraperiodoffiveyears.Forlongerperiodsalongtermgrowthrateiscalculatedandappliedtoprojectedfuturecashflowsafterthefifthyear.

Impairmentlossesofcontinuingoperations,includingimpairmentoninventories,arerecognisedinprofitorlossinthoseexpensecategoriesconsistentwiththefunctionsoftheimpairedassets,exceptforapropertypreviouslyrevaluedwheretherevaluationwastakentoothercomprehensiveincome.Inthiscase,theimpairmentisalsorecognisedinothercomprehensiveincome,uptotheamountofanypreviousrevaluation.

Forassetsexcludinggoodwill,anassessmentismadeateachreportingdate,astowhetherthereisanyindicationthatpreviouslyrecognisedimpairmentlossesmaynolongerexistormayhavedecreased.Ifsuchindicationexists,theGroupestimatestheasset’sorcashgeneratingunit’srecoverableamount.Apreviouslyrecognisedimpairmentlossisreversedonlyiftherehasbeenachangeintheassumptionsusedtodeterminetheasset’srecoverableamountsincethelastimpairmentlosswasrecognised.Thereversalislimitedsothatthecarryingamountoftheassetdoesnotexceeditsrecoverableamount,norexceedthecarryingamountthatwouldhavebeendetermined,netofdepreciation,hadnoimpairmentlossbeen recognised for the asset in prior years.

Suchreversalisrecognisedinprofitorlossunlesstheassetiscarriedatarevaluedamount,inwhichcasethereversalistreatedasarevaluationincrease.

k) Investment properties Investmentpropertiesaremeasuredinitiallyatcost,includingtransactioncosts.Subsequenttoinitialrecognition,investmentpropertiesarestated

atfairvaluewhichreflectsmarketconditionsatthereportingdate.Gainsorlossesarisingfromchangesinthefairvaluesofinvestmentpropertiesareincludedinprofitorlossintheperiodinwhichtheyarise,includingthecorrespondingtaxeffect.FairvaluesaredeterminedbasedonanannualevaluationperformedbyanaccreditedexternalindependentvaluerapplyingavaluationmodelrecommendedbytheInternationalValuationStandardsCommittee.

Investmentpropertiesarederecognisedeitherwhentheyhavebeendisposedoforwhentheyarepermanentlywithdrawnfromuseandnofutureeconomicbenefitisexpectedfromtheirdisposal.Thedifferencebetweenthenetdisposalproceedsandthecarryingamountoftheassetisrecognisedinprofitorlossintheperiodofde-recognition.

Transfersaremadeto(orfrom)investmentpropertyonlywhenthereisachangeinuse.Foratransferfrominvestmentpropertytoowner-occupiedproperty,thedeemedcostforsubsequentaccountingisthefairvalueatthedateofchangeinuse.Ifowneroccupiedpropertybecomesaninvestmentproperty, the Group accounts for such property in accordance with the policy stated under property, plant and equipment up to the date of change in use.

l) Leases Thedeterminationofwhetheranarrangementis,orcontains,aleaseisbasedonthesubstanceofthearrangementatinceptiondate.Thearrangement

isassessedforwhetherfulfilmentofthearrangementisdependentontheuseofaspecificassetorassetsorthearrangementconveysarighttousetheassetorassets,evenifthatrightisnotexplicitlyspecifiedinanarrangement.

Group as a lessee Operatingleasepaymentsarerecognisedasanoperatingexpenseinprofitorlossonastraightlinebasisovertheleaseterm.


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2.5 Summary of significant accounting policies (continued)l) Leases (continued)

Group as a lessor LeasesinwhichtheGroupdoesnottransfersubstantiallyalltherisksandrewardsofownershipofanassetareclassifiedasoperatingleases.Initial

directcostsincurredinnegotiatingandarranginganoperatingleaseareaddedtothecarryingamountoftheleasedassetandrecognisedovertheleasetermonthesamebasisasrentalincome.Contingentrentsarerecognisedasrevenueintheperiodinwhichtheyareearned.

m) Borrowing costs Borrowingcostsdirectlyattributabletotheacquisition,constructionorproductionofanassetthatnecessarilytakesasubstantialperiodoftimeto

getreadyforitsintendeduseorsalearecapitalisedaspartofthecostoftherespectiveassets.Allotherborrowingcostsareexpensedintheperiodtheyoccur.Borrowingcostsconsistofinterestandothercoststhatanentityincursinconnectionwiththeborrowingoffunds.

n) Inventories Inventoriesarevaluedatthelowerofcostandnetrealisablevalue.Costsincurredinbringingeachproducttoitspresentlocationandconditions

areaccountedforasfollows:• Materials and consumables are valued at the purchase cost on a weighted average basis.• Finishedgoodsandworkinprogressarevaluedatthedirectmaterialscosts,labourandanappropriateportionofmanufacturingoverheads

basedonnormaloperatingcapacity,butexcludingborrowingscosts. Netrealisablevalueistheestimatedsellingpriceintheordinarycourseofbusiness,lessestimatedcostsofcompletionandestimatedcostsnecessary

to make the sale.

o) Cash and cash equivalents Cashandcashequivalentsinthestatementoffinancialpositioncomprisecashatbanksandonhandandshort-termdepositswithamaturityof

three months or less.

p) Provisions ProvisionsarerecognisedwhentheGrouphasapresentobligation(legalorconstructive)asaresultofpasteventsanditisprobablethatan

outflowofresourcesembodyingeconomicbenefitswillberequiredtosettletheobligationandareliableestimatecanbemadeoftheamountoftheobligation.WheretheGroupexpectssomeorallofaprovisiontobereimbursed,forexampleunderaninsurancecontract,thereimbursementis recognised as a separate asset but only when the reimbursement is virtually certain.

Theexpenserelatingtoanyprovisionispresentedinprofitorlossnetofanyreimbursement.Iftheeffectofthetimevalueofmoneyismaterial,provisionsarediscountedusingacurrentpre-taxratethatreflects,whereappropriate,therisksspecifictotheliability.Wherediscountingisused,theincreaseintheprovisionduetothepassageoftimeisrecognisedasafinancecost.

q) Non-current assets held for sale and discontinued operations Non-currentassetsanddisposalgroupsclassifiedasheldforsalearemeasuredatloweroftheircarryingamountandfairvaluelesscoststosell.

Non-currentassetsanddisposalgroupsareclassifiedasheldforsaleiftheircarryingamountswillberecoveredprincipallythroughasaletransactionratherthanthroughcontinuinguse.Thisconditionisregardedasmetonlywhenthesaleishighlyprobableandtheassetordisposalgroupisavailableforimmediatesaleinitspresentcondition.Managementmustbecommittedtothesale,whichshouldbeexpectedtoqualifyforrecognitionasacompletedsalewithinoneyearfromthedateofclassification.

Inthestatementofcomprehensiveincome,incomeandexpensesfromdiscontinuedoperationsarereportedseparatelyfromincomeandexpensesfromcontinuingoperations,downtothelevelofprofitaftertaxes,evenwhentheGroupretainsanon-controllinginterestinthesubsidiaryafterthatsale.Theresultingprofitorloss(aftertaxes)isreportedseparatelyinthestatementofcomprehensiveincome.

Property,plantandequipmentandintangibleassetsonceclassifiedasheldforsalearenotdepreciatedoramortised.

r) Intangible assets Intangibleassetsacquiredseparatelyaremeasuredoninitialrecognitionatcost.Thecostofintangibleassetsacquiredinabusinesscombinationis

theirfairvaluesasatthedateofacquisition.Followinginitialrecognition,intangibleassetsarecarriedatcostlessanyaccumulatedamortisationandaccumulatedimpairmentlosses.Internallygeneratedintangibleassets,excludingcapitaliseddevelopmentcosts,arenotcapitalisedandexpenditureisreflectedinprofitorlossintheyearinwhichtheexpenditureisincurred.


55


2.5 Summary of significant accounting policies (continued) r) Intangible assets (continued) Theusefullivesofintangibleassetsareassessedaseitherfiniteorindefinite.Intangibleassetswithfinitelivesareamortisedovertheirusefullife

andassessedforimpairmentwheneverthereisanindicationthattheintangibleassetmaybeimpaired.CurrentlytheGroupintangibleassetsconsistofassetsassessedasfiniteandareamortisedoveraperiodof10years.

Theamortisationperiodandtheamortisationmethodforanintangibleassetwithafiniteusefullifearereviewedatleastattheendofeachreportingperiod.Changesintheexpectedusefullivesortheexpectedpatternofconsumptionoffutureeconomicbenefitsembodiedintheassetisaccountedforbychangingtheamortisationperiodormethod,asappropriate,andaretreatedaschangesinaccountingestimates.Theamortisationexpenseonintangibleassetswithfinitelivesisrecognisedinprofitorlossintheexpensecategorythatisconsistentwiththefunctionoftheintangibleassets.

Intangibleassetswithindefiniteusefullivesarenotamortised,butaretestedforimpairmentannually,eitherindividuallyoratthecashgeneratingunitlevel.Theassessmentofindefinitelifeisreviewedannuallytodeterminewhethertheindefinitelifecontinuestobesupportable.Ifnot,thechangeinusefullifefromindefinitetofiniteismadeonaprospectivebasis.

Gainsorlossesarisingfromde-recognitionofanintangibleassetaremeasuredasthedifferencebetweenthenetdisposalproceedsandthecarryingamountoftheassetandarerecognisedinprofitorlosswhentheassetisderecognised.

Research and development costs Researchcostsareexpensedasincurred.DevelopmentexpendituresonanindividualprojectarerecognisedasanintangibleassetwhentheGroup

candemonstrate:• Thetechnicalfeasibilityofcompletingtheintangibleassetsothattheassetwillbeavailableforuseorsale• Itsintentiontocompleteanditsabilitytouseorselltheasset• Howtheassetwillgeneratefutureeconomicbenefits• Theavailabilityofresourcestocompletetheasset• Theabilitytomeasurereliablytheexpenditureduringdevelopment

Followinginitialrecognitionofthedevelopmentexpenditureasanasset,theassetiscarriedatcostlessanyaccumulatedamortisationandaccumulatedimpairmentlosses.Amortisationoftheassetbeginswhendevelopmentiscompleteandtheassetisavailableforuse.Itisamortisedovertheperiodofexpectedfuturebenefit.Amortisationisrecordedincostofsales.Duringtheperiodofdevelopment,theassetistestedforimpairmentannually.

s) Fair value measurement TheGroupmeasuresnon-financialassetssuchaslandandbuildingsandinvestmentproperty,atfairvalueatreportingdate.

Fairvalueisthepricethatwouldbereceivedtosellanassetorpaidtotransferaliabilityinanorderlytransactionbetweenmarketparticipantsatthemeasurementdate.Thefairvaluemeasurementisbasedonthepresumptionthatthetransactiontoselltheassetortransfertheliabilitytakesplaceeither:• Intheprincipalmarketfortheassetorliability,or• Intheabsenceofaprincipalmarket,inthemostadvantageousmarketfortheassetorliability

TheprincipalorthemostadvantageousmarketmustbeaccessibletobytheGroup.

Thefairvalueofanassetoraliabilityismeasuredusingtheassumptionsthatmarketparticipantswouldusewhenpricingtheassetorliability,assumingthatmarketparticipantsactintheireconomicbestinterest.

Afairvaluemeasurementofanon-financialassettakesintoaccountamarketparticipant’sabilitytogenerateeconomicbenefitsbyusingtheassetinitshighestandbestuseorbysellingittoanothermarketparticipantthatwouldusetheassetinitshighestandbestuse.

TheGroupusesvaluationtechniquesthatareappropriateinthecircumstancesandforwhichsufficientdataisavailabletomeasurefairvalue,maximisingtheuseofrelevantobservableinputsandminimisingtheuseofunobservableinputs.

Allassetsandliabilitiesforwhichfairvalueismeasuredordisclosedinthefinancialstatementsarecategorisedwithinthefairvaluehierarchy,describedasfollows,basedonthelowestlevelinputthatissignificanttothefairvaluemeasurementasawhole:• Level1-Quoted(unadjusted)marketpricesinactivemarketsforidenticalassetsorliabilities.• Level2-Valuationtechniquesforwhichthelowestlevelinputthatissignificanttothefairvaluemeasurementisdirectlyorindirectlyobservable


56


2.5 Summary of significant accounting policies (continued)s) Fair value measurement (continued)• Level3-Valuationtechniquesforwhichthelowestlevelinputthatissignificanttothefairvaluemeasurementisunobservable

Forassetsandliabilitiesthatarerecognisedinthefinancialstatementsonarecurringbasis,theGroupdetermineswhethertransfershaveoccurredbetweenLevelsinthehierarchybyreassessingcategorisation(basedonthelowestlevelinputthatissignificanttothefairvaluemeasurementasawhole)attheendofeachreportingperiod.

t) Current versus non-current classification TheGrouppresentsassetsandliabilitiesinstatementoffinancialpositionbasedoncurrent/non-currentclassification. Anassetisclassifiedascurrentwhenitis:

• Expectedtoberealisedorintendedtobesoldorconsumedinnormaloperatingcycle• Held primarily for the purpose of trading• Expectedtoberealisedwithintwelvemonthsafterthereportingperiod,or• Cashorcashequivalentunlessrestrictedfrombeingexchangedorusedtosettlealiabilityforatleasttwelvemonthsafterthereportingperiod.

Allotherassetsareclassifiedasnon-current. Aliabilityiscurrentwhen:

• Itisexpectedtobesettledinnormaloperatingcycle• Itisheldprimarilyforthepurposeoftrading• Itisduetobesettledwithintwelvemonthsafterthereportingperiod,or• Thereisnounconditionalrighttodeferthesettlementoftheliabilityforatleasttwelvemonthsafterthereportingperiod

TheGroupclassifiesallotherliabilitiesasnon-current.Deferredtaxassetsandliabilitiesareclassifiedasnon-currentassetsandliabilities.

u) Investments in subsidiaries Investmentsinsubsidiariesintheseparatefinancialstatementsareinitiallyaccountedforatcost,whichistheconsiderationpaidortransferredas

atthedateofacquisition.Subsequenttoinitialrecognition,theinvestmentsinsubsidiariesareaccountedforatcostlessaccumulatedimpairmentlosses.

2.6 Standards and amendments issued but not yet effective Thestandardsandinterpretationsthatareissued,butnotyeteffective,uptothedateofissuanceoftheGroup’sfinancialstatementsaredisclosed

below.TheGroupintendstoadoptthesestandards,ifapplicable,whentheybecomeeffective.

IFRS 9 Financial Instruments InJuly2014,theIASBissuedthefinalversionofIFRS9FinancialInstrumentsthatreplacesIAS39FinancialInstruments:RecognitionandMeasurement

andallpreviousversionsofIFRS9.IFRS9bringstogetherallthreeaspectsoftheaccountingforfinancialinstrumentsproject:classificationandmeasurement,impairmentandhedgeaccounting.IFRS9iseffectiveforannualperiodsbeginningonorafter1January2018,withearlyapplicationpermitted.Exceptforhedgeaccounting,retrospectiveapplicationisrequiredbutprovidingcomparativeinformationisnotcompulsory.Forhedgeaccounting,therequirementsaregenerallyappliedprospectively,withsomelimitedexceptions.

TheGroupplanstoadoptthenewstandardontherequiredeffectivedate.During2017,theGrouphasperformedahigh-levelimpactassessmentofallthreeaspectsofIFRS9.ThispreliminaryassessmentisbasedoncurrentlyavailableinformationandmaybesubjecttochangesarisingfromfurtherdetailedanalysesoradditionalreasonableandsupportableinformationbeingmadeavailabletotheGroupinthefuture.Overall,theGroupexpectsnosignificantimpactonitsstatementoffinancialpositionandequityexceptfortheeffectofapplyingtheimpairmentrequirementsofIFRS9.TheGroupexpectsahigherlossallowanceresultinginanegativeimpactonequityandwillperformadetailedassessmentinthefuturetodeterminetheextent.

(a) Classification and measurement TheGroupdoesnotexpectasignificantimpactonitsbalancesheetorequityonapplyingtheclassificationandmeasurementrequirementsofIFRS

9. Loansaswellastradereceivablesareheldtocollectcontractualcashflowsandareexpectedtogiverisetocashflowsrepresentingsolelypayments

ofprincipalandinterest.Thus,theGroupexpectsthatthesewillcontinuetobemeasuredatamortisedcostunderIFRS9.However,theGroupwillanalysethecontractualcashflowcharacteristicsofthoseinstrumentsinmoredetailbeforeconcludingwhetherallthoseinstrumentsmeetthecriteriaforamortisedcostmeasurementunderIFRS9.


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2.6 Standards and amendments issued but not yet effective (continued)(b) Impairment

IFRS9requirestheGrouptorecordexpectedcreditlossesonallofitsdebtsecurities,loansandtradereceivables,eitherona12-monthorlifetimebasis.TheGroupexpectstoapplythesimplifiedapproachandrecordlifetimeexpectedlossesonalltradereceivables.TheGroupexpectsanimpactonitsequity,butitwillneedtoperformamoredetailedanalysiswhichconsidersallreasonableandsupportableinformation,includingforward-lookingelementstodeterminetheextentoftheimpact.TheGroupdoesnotexpectamaterialimpact.

Ontheloansreceivablesandotherrelatedpartybalancesintheseparatefinancialstatements,theCompanywillapplythegeneralapproach.Nomaterialimpactisexpected.

IFRS 2 Classification and Measurement of Share-based Payment Transactions – Amendments to IFRS 2 TheIASBissuedamendmentstoIFRS2Share-basedPaymentinrelationtotheclassificationandmeasurementofshare-basedpaymenttransactions.

Theamendmentsaddressthreemainareas:• Theeffectsofvestingconditionsonthemeasurementofacash-settledshare-basedpaymenttransaction.Theamendmentsclarifythatthe

approachusedtoaccountforvestingconditionswhenmeasuringequity-settledshare-basedpaymentsalsoappliestocash-settledshare-basedpayments.

• Theclassificationofashare-basedpaymenttransactionwithnetsettlementfeaturesforwithholdingtaxobligations.Thisamendmentaddsanexceptiontoaddressthenarrowsituationwherethenetsettlementarrangementisdesignedtomeetanentity’sobligationundertaxlawsorregulationstowithholdacertainamountinordertomeettheemployee’staxobligationassociatedwiththesharebasedpayment.Thisamountisthentransferred,normallyincash,tothetaxauthoritiesontheemployee’sbehalf.Tofulfilthisobligation,thetermsoftheshare-basedpaymentarrangementmaypermitorrequiretheentitytowithholdthenumberofequityinstrumentsthatareequaltothemonetaryvalueoftheemployee’staxobligationfromthetotalnumberofequityinstrumentsthatotherwisewouldhavebeenissuedtotheemployeeuponexercise(orvesting)oftheshare-basedpayment(‘netsharesettlementfeature’).Wheretransactionsmeetthecriteria,theyarenotdividedintotwocomponentsbutareclassifiedintheirentiretyasequity-settledshare-basedpaymenttransactions,iftheywouldhavebeensoclassifiedintheabsenceofthenetsharesettlementfeature.

• Theaccountingwhereamodificationtothetermsandconditionsofashare-basedpaymenttransactionchangesitsclassificationfromcash-settledtoequitysettled.Theamendmentclarifiesthat,ifthetermsandconditionsofacash-settledshare-basedpaymenttransactionaremodified,withtheresultthatitbecomesanequity-settledshare-basedpaymenttransaction,thetransactionisaccountedforasanequity-settledtransactionfromthedateofthemodification.Anydifference(whetheradebitoracredit)betweenthecarryingamountoftheliabilityderecognisedandtheamountrecognisedinequityonthemodificationdateisrecognisedimmediatelyinprofitorloss.

Theamendmentareeffectiveforannualperiodsbeginningonorafter1January2018.Onadoption,entitiesarerequiredtoapplytheamendmentswithoutrestatingpriorperiods,butretrospectiveapplicationispermittedifelectedforallthreeamendmentsandothercriteriaaremet.Earlyapplicationispermitted.TheGroupcurrentlydoesnothaveshareoptionsandthereforethisamendmentwillnothaveanyimpact.

IFRS 15 Revenue from Contracts with Customers IFRS15wasissuedinMay2014andestablishesafive-stepmodeltoaccountforrevenuearisingfromcontractscustomers.UnderIFRS15,revenue

isrecognisedatanamountthatreflectstheconsiderationtowhichanentityexpectstobeentitledinexchangefortransferringgoodsorservicesto a customer.

The new revenue standard will supersede all current revenue recognition requirements under IFRS. IFRS15establishesafive-stepmodelthatwillapplytorevenueearnedfromacontractwithacustomer(withlimitedexceptions),regardlessofthe

typeofrevenuetransactionortheindustry.Thestandard’srequirementswillalsoapplytotherecognitionandmeasurementofgainsandlossesonthesaleofsomenon-financialassetsthatarenotanoutputoftheentity’sordinaryactivities(e.g.,salesofproperty,plantandequipmentorintangibles).Extensivedisclosureswillberequired,includingdisaggregationoftotalrevenue;informationaboutperformanceobligations;changesincontractassetandliabilityaccountbalancesbetweenperiodsandkeyjudgmentsandestimates.

Eitherafullretrospectiveapplicationoramodifiedretrospectiveapplicationisrequiredforannualperiodsbeginningonorafter1January2018.Earlyadoptionispermitted.TheGrouphascontractswithsomecustomersonwhichrebatesarepayablewhencertainrevenuelevelshavebeenachievedandtherewillbeapossibleimpactonrevenuerecognitioninrespectthis.TheGroupwillperformadetailedassessmentoftheimpactofthestandardonitscontractswithcustomers.TheGroupwilladoptthemodifiedapproachandapplythechangesprospectively.


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2.6 Standards and amendments issued but not yet effective (continued)(b) Impairment (continued)

IFRS 16 - Leases TheInternationalAccountingStandardsboard(IASB)issuedIFRS16inJanuary2017whichrequireslesseestorecognizeassetsandliabilitiesfor

most leases on their balance sheets. Under the new standard, a lease is a contract or part of a contract that conveys the right to use an asset for a periodoftimeinexchangeforconsideration.Tobealease,acontractmustconveytherighttocontroltheuseoftheidentifiedasset,whichcouldbeaphysicallydistinctportionofanasset.

Thestandardwillbeeffectiveforannualperiodsbeginningonorafter1January2019.TheGroupisstillassessingtheimpactofthestandard.

Amendments to IAS 40-Transfers of Investment Property Theamendmentsclarifywhenanentityshouldtransferproperty,includingpropertyunderconstructionordevelopmentinto,oroutofinvestment

property.Theamendmentsstatethatachangeinuseoccurswhenthepropertymeets,orceasestomeet,thedefinitionofinvestmentpropertyandthereisevidenceofthechangeinuse.Amerechangeinmanagement’sintentionsfortheuseofapropertydoesnotprovideevidenceofachange in use.

Entitiesshouldapplytheamendmentsprospectivelytochangesinusethatoccuronorafterthebeginningoftheannualreportingperiodinwhichtheentityfirstappliestheamendments.Anentityshouldreassesstheclassificationofpropertyheldatthatdateand,ifapplicable,reclassifypropertytoreflecttheconditionsthatexistatthatdate.RetrospectiveapplicationinaccordancewithIAS8isonlypermittedifthatispossiblewithouttheuseofhindsight.Earlyapplicationoftheamendmentsispermittedandmustbedisclosed.Theamendmentiseffectiveforannualperiodsbeginningonorafter1January2018.Thestandardisnotexpectedtohaveamajorimpact.

IFRIC Interpretation 22 Foreign Currency Transactions and Advance Consideration Theinterpretationclarifiesthatindeterminingthespotexchangeratetouseoninitialrecognitionoftherelatedasset,expenseorincome(orpart

ofit)onthede-recognitionofanon-monetaryassetornon-monetaryliabilityrelatingtoadvanceconsideration,thedateofthetransactionisthedateonwhichanentityinitiallyrecognisesthenonmonetaryassetornon-monetaryliabilityarisingfromtheadvanceconsideration.Iftherearemultiplepaymentsorreceiptsinadvance,thentheentitymustdetermineadateofthetransactionsforeachpaymentorreceiptofadvanceconsideration.TheIFRICiseffectiveforannualperiodsbeginningonorafter1January2018.TheGroupisstillassessingtheimpacttheadoptionoftheinterpretationwillhaveonthefinancialstatements.

Entitiesmayapplytheamendmentsonafullyretrospectivebasis.Alternatively,anentitymayapplytheinterpretationprospectivelytoallassets,expensesandincomeinitsscopethatareinitiallyrecognisedonorafter:(i) ThebeginningofthereportingperiodinwhichtheentityfirstappliestheinterpretationOr(ii) Thebeginningofapriorreportingperiodpresentedascomparativeinformationinthefinancialstatementsofthereportingperiodinwhich

theentityfirstappliestheinterpretation.Earlyapplicationofinterpretationispermittedandmustbedisclosed.First-timeadoptersofIFRSarealsopermittedtoapplytheinterpretationprospectivelytoallassets,expensesandincomeinitiallyrecognisedonorafterthedateoftransitiontoIFRS.

Theamendmentsareintendedtoeliminatediversityinpractice,whenrecognisingtherelatedasset,expenseorincome(orpartofit)onthede-recognitionofanon-monetaryassetornon-monetaryliabilityrelatingtoadvanceconsiderationreceivedorpaidinforeigncurrency.Theadoptionofthestandardisnotexpectedtohaveamaterialimpact.

Theamendmentsshouldbeappliedretrospectivelyandareeffectivefrom1January2018,withearlierapplicationpermitted.Ifanentityappliesthoseamendmentsforanearlierperiod,itmustdisclosethatfact.Thechangesarenotexpectedtohaveamaterialimpact.

IFRIC 23-Uncertainty over Income Tax Treatments Theinterpretationclarifiedthedeterminationoftaxableprofit(taxloss),taxbases,unusedtaxlosses,unusedtaxcreditsandtaxrates,whenthere

isuncertaintyoverincometaxtreatmentsunderIAS12.Anentityisrequiredtousejudgementtodeterminewhethereachtaxtreatmentshouldbeconsideredindependentlyorwhethersometaxtreatmentsshouldbeconsideredtogether.Thedecisionshouldbebasedonwhichapproachprovidesbetterpredictionsoftheresolutionoftheuncertainty.

Anentityistoassumethatataxationauthoritywiththerighttoexamineanyamountsreportedtoitwillexaminethoseamountsandwillhavefull

knowledgeofallrelevantinformationwhendoingso.


59


2.6 Standards and amendments issued but not yet effective (continued) IFRIC 23-Uncertainty over Income Tax Treatments (continued) Anentityhastoconsiderwhetheritisprobablethattherelevantauthoritywillaccepteachtaxtreatment,orgroupoftaxtreatments,thatitused

orplanstouseinitsincometaxfiling.• Iftheentityconcludesthatitisprobablethataparticulartaxtreatmentisaccepted,theentityhastodeterminetaxableprofit(taxloss),tax

bases,unusedtaxlosses,unusedtaxcreditsortaxratesconsistentlywiththetaxtreatmentincludedinitsincometaxfilings.• Iftheentityconcludesthatitisnotprobablethataparticulartaxtreatmentisaccepted,theentityhastousethemostlikelyamountorthe

expectedvalueofthetaxtreatmentwhendeterminingtaxableprofit(taxloss),taxbases,unusedtaxlosses,unusedtaxcreditsandtaxrates.Thedecisionshouldbebasedonwhichmethodprovidesbetterpredictionsoftheresolutionoftheuncertainty.

Thechangesareeffectiveonannualperiodsbeginningonorafter1January2019.Theadoptionoftheinterpretationisnotexpectedtohaveamaterialimpactonthetaxableincomeorlossesasthecurrentdeterminationoftaxableincomeorlossestakesintoaccount,asafaraspossible,thetaxlegislationamendedtimefromtime.

IAS 23 –Borrowing Costs-Borrowing Costs eligible for capitalisation Theamendmentsclarifythatanentitytreatsaspartofgeneralborrowingsanyborrowingoriginallymadetodevelopaqualifyingassetwhen

substantiallyalloftheactivitiesnecessarytopreparethatassetforitsintendeduseorsalearecomplete.• Anentityappliesthoseamendmentstoborrowingcostsincurredonorafterthebeginningoftheannualreportingperiodinwhichtheentity

firstappliesthoseamendments.• Anentityappliesthoseamendmentsforannualreportingperiodsbeginningonorafter1January2019withearlierapplicationpermitted.

2.7 General disclosures Thefollowingexchangerateswereusedinthepreparationofthesefinancialstatements: USD1: Statement of Statement of financial position comprehensive income

MalawiKwacha 734.78 734.78 South African Rand 12.06 15.25 EURO 0.86 0.89

60



3 Restatement of prior year cost of sales and selling and distribution expenses InJanuary2017,theGroupintergratedtheoperationsofDairibordZimbabwe(Private)Limited,LyonsandNFBLogisticsintooneoperatingbusinessunit.In

2016,NFBoperatedasastandalonebusinessunitprovidingtransportservicestoDairibordZimbabwe(Private)LimitedandLyonsandtheNFBoperatingcosts,e.gfuelcostandtrucksdepreciation,relatedtoprovidingthisservice,wereclassifedascostofsales.Theintergrationofthe3businessunitsresultedinNFBLogisticsbecomingadepartmentofthesalesdepartmentandresultantlythecostsoftheunitarenowpartofsellinganddistribution.Inordertohavecomparability,the2016costofsalesandsellinganddistributioncostshavebeenrestatedasfollows:

Selling & Cost of sales distribution US$ US$

Aspreviouslystated 74,506,769 11,689,941 Reclassification (6,925,720) 6,925,720 Restated 67,581,049 18,615,661 There is no impact on profit and loss. Group Company 2017 2016 2017 2016 US$ US$ US$ US$4 Other operating income Profitondisposalofproperty,plantandequipment,assetsclassifiedas held for sale and investment property 57,668 31,165 - - Profitondisposalofscrap 76,729 72,684 - - Grantincome 87,829 - - - Sundryincome 46,635 27,631 597 163 268,861 131,480 597 163 5 Other operating expenses

Exchangelossonforeigncurrencytranslation 258,763 328,484 - - Retrenchmentcosts - 65,887 - 59,196 Impairment-Inventory 384,144 426,837 - - 642,907 821,208 - 59,196 6 Operating profit/ (loss) is stated after charging the following: Auditfees 142,523 149,253 8,871 33,617 Depreciationofproperty,plantandequipment 5,357,180 5,051,003 96,035 207,878 Amortisationofintangibleassets 106,297 104,217 13,161 13,161 Directorsemoluments-forservicesasdirectors 124,643 167,811 111,305 95,515 -salariesandbenefits 726,667 1,099,930 495,736 694,022

-terminationbenefits 304,444 - 304,444 -

Employee benefits expense -Salariesandwages 12,294,605 13,467,306 599,558 1,721,102 -Pensioncosts 328,785 349,932 26,332 71,088 -NationalSocialSecurityAuthority 161,370 181,676 7,292 8,332 12,784,760 13,998,914 633,182 1,800,522 7 Finance costs Interestonborrowings 811,927 1,062,697 585,008 894,375

8 Finance income Interestreceivedonloansandinvestments 72,012 80,025 857,962 1,076,914 9 Taxation Currentincometax: 64,189 61,049 - - Capitalgainstax 27,820 16,659 - - Deferredtaxcharge/(credit) 1,023,948 492,098 58,976 (53,712) -Currentyearcharge/(credit) 1,023,948 (930,976) 58,976 (53,712) - Prior year under provision - 1,423,074 - -

1,115,957 569,806 58,976 (53,712)

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Group Company 2017 2016 2017 2016 US$ US$ US$ US$ 9 Taxation (continued)

Tax rate reconciliation Standardrate 25.75% (25.75%) 25.75% 25.75% Assessed loss not recognised 14.10% - - - Prioryearincometaxchargeunderprovision - 36.4% - - EffectofhighertaxrateinMalawi 0.93% (0.44%) - - Disallowedexpenses 4.45% 1.36% 22.23% 0.14% Propertiesdeferredtaxchargedatalowerrate - (2.90%) - - Dividendincomenottaxable - - - (26.06%) Depreciationonpassengermotorvehicleexcesscostineligiblefortaxallowances - 2.00% - - Effectofcapitalgainstax 0.90% 0.57% - - Other(non-taxable)/non-deductibleitems (0.97%) 0.44% 0.21% 0.35%

Effective tax rate 45.16% 11.68% 48.19% 0.18%

10 Earnings per share Basicearningspershareamountsarecalculatedbydividingnetprofitfortheyearattributabletoordinaryequityholdersoftheparentbytheweighted

average number of ordinary shares outstanding during the year. Dilutedearningspershareamountsarecalculatedbydividingthenetprofitattributabletoordinaryequityholdersoftheparentbytheweightedaverage

number of ordinary shares outstanding during the year plus the weighted average number of ordinary shares that would be issued on conversion of all the dilutivepotentialordinarysharesintoordinaryshares.

The following reflects the income and share data used in the basic and diluted earnings per share computations: Group 2017 2016 US$ US$ Profit/(loss) attributable to ordinary equity holders of the parent for basic earnings 1,609,810 (5,386,179) 2017 2016 No. No. Weighted average number of ordinary shares for basic earnings per share 358,000,858 358,000,858 Number of shares in issue 358,000,858 358,000,858 Weighted average number of ordinary shares for diluted earnings per share 358,000,858 358,000,858 Therearenodilutivepotentialordinarysharesinissue.Theshareoptionsexpiredon31December2016.

Therehavebeennoothertransactionsinvolvingordinarysharesorpotentialordinarysharesbetweenthereportingdateandthedateofcompletionofthese

financialstatements.

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11 Property, plant and equipment

GROUP COMPANY Freehold Capital Furniture Furniture land and Plant and work in and Motor and Motor buildings equipment progress Fittings vehicles Total Fittings vehicles Total US$ US$ US$ US$ US$ US$ US$ US$ US$ Cost or valuation At 1 January 2016 14,724,449 36,605,113 722,248 1,024,189 6,915,574 59,991,573 417,359 771,735 1,189,094 Additions - 5,769,355 (688,402) 103,343 219,199 5,403,495 60,012 - 60,012Revaluation 1,745,815 - - - - 1,745,815 - - -Transferfrominvestment property 444,302 - - - - 444,302 - - - Transfertoinvestmentproperty (1,079,000) - - - - (1,079,000) - - -Assetsheldforsale - 118,293 - - - 118,293 - - -Disposals (220,800) (45,144) - (131,425) (437,192) (834,561) - - -Exchangeadjustments (81,911) (172,587) - 123,372 (22,701) (153,827) - - - At 31 December 2016 15,532,855 42,275,030 33,846 1,119,479 6,674,880 65,636,090 477,371 771,735 1,249,106 Additions - 2,342,246 (33,846) 93,568 - 2,401,968* 783 - 783Transferfrominvestment property 586,000 - - - - 586,000 - - - Transferfromheldforsale(Note21) 260,472 - - - - 260,472 - - -Disposals - - - - (546,656) (546,656) - (169,758) (169,758)At 31 December 2017 16,379,327 44,617,276 - 1,213,047 6,128,224 68,337,874 478,154 601,977 1,080,131 Accumulated depreciation and impairment At 1 January 2016 (104,294) (14,067,213) - (810,070) (3,304,936) (18,286,513) (350,540) (637,503) (988,043)Depreciationchargefortheyear (167,581) (4,024,043) - (113,916) (745,462) (5,051,002) (41,493) (46,314) (87,807)Revaluation 252,886 - - - - 252,886 - - -Disposals 14,835 10,526 - 87,251 343,189 455,801 - - -Exchangeadjustments - 135,984 - (87,603) 6,665 55,046 - - - At 31 December 2016 (4,154) (17,944,746) - (924,338) (3,700,544) (22,573,782) (392,033) (683,817) (1,075,850)Depreciationchargefortheyear (334,780) (4,385,354) - (119,983) (517,063) (5,357,180) (57,834) (38,201) (96,035)Disposals - - - - 488,803 488,803 164,758 164,758 At 31 December 2017 (338,934) (22,330,100) - (1,044,321) (3,728,804) (27,442,159) (449,867) (557,260) (1,007,127) Net book value At 31 December 2017 16,040,393 22,287,176 - 168,726 2,399,420 40,895,715 28,287 44,717 73,004

At 31 December 2016 15,528,701 24,330,284 33,846 195,141 2,974,336 43,062,308 85,338 87,918 173,256

*Acquisitions for cash flow purposes 1964151Totaladditions 2,401,968non-cashadditions(financedbyvendorloan)(Note33.3) (437,817)


63



GROUP COMPANY 2017 2016 2017 2016 US$ US$ US$ US$11.1 Reconciliation of opening and closing carrying amounts

Net carrying amount at 1 January 43,062,308 41,705,060 173,256 201,051 Cost 65,636,090 59,991,573 1,249,106 1,189,094 Accumulateddepreciationandimpairment (22,573,782) (18,286,513) (1,075,850) (988,043) Movement for the year: Additions 2,401,968 5,403,495 783 - Revaluation - 1,998,701 - - Netcarryingamountofdisposals (57,853) (378,760) (5,000) - Depreciationchargefortheyear (5,357,180) (5,051,002) (96,035) (87,807) Transferfrominvestmentproperty(note12) 586,000 444,302 - - Transferfromassetsheldforsale(note21) 260,472 118,293 - - Transfertoinvestmentproperty - (1,079,000) - - Netexchangeadjustment - (98,781) - - Net carrying amount at 31 December 40,895,715 43,062,308 73,004 173,256 Cost 68,337,874 65,636,090 1,080,131 1,249,106 Accumulateddepreciationandimpairment (27,442,159) (22,573,782) (1,007,127) (1,075,850)

11.2 Property revaluation Thevaluationofpropertywasperformedinlinewithmarketvalueson31December2016. Therevaluedpropertyconsistsofcommercial,residentialandindustrialbuildingsinZimbabweandMalawi.

Fairvalueofthepropertieswasdeterminedbyusingmarketcomparablemethod.Thismeansthatvaluationsperformedbythevaluerarebasedonactivemarketprices,significantlyadjustedfordifferenceinthenature, locationorconditionofthespecificproperty.Landandbuildingswerevaluedasat31December 2016 by Dawn Property Consultancy , an accredited independent valuer .

Significantunobservabledata Residentialbuildings US$550-US$1,200 Commercialbuildings US$900-US$1,200 Pricepersquaremetre US$650-US$950 `Significantincreases(decreases)inestimatedpricepersquaremetreinisolationwouldresultinasignificantlyhigher/(lower)fairvalue.

ReferNote32forfairvaluehierarchy,whichalsoincludesinvestmentproperty,andNote22.3forthemovementintherevaluationreserve.

Iflandandbuildingsweremeasuredusingcostmodel,thecarryingamountwouldbeUS$7630693(2016:US$7873844)

11.3 Property secured against borrowings PropertywithacarryingamountofUS$13,395,950(2016:US$14,185,342)isencumberedagainstinterestbearingborrowings(Note23).

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GROUP COMPANY 2017 2016 2017 2016 US$ US$ US$ US$

12 Investment property Balance at 1 January 2,186,000 1,467,501 - - Transferfromproperty,plantandequipment - 1,079,000 - - Transferbacktoproperty,plantandequipment (586,000) (444,302) - - Disposals (295,000) - - - Fair value adjustment - 83,801 - - Balance at 31 December 2017 1,305,000 2,186,000 - -

TheGroup’s investment property comprises of 12 commercial properties located across the country. As at 31December 2017, somepropertieswere

transferredfrominvestmentpropertytoproperty,plantandequipmentastheywerenolongerleasedtothirdparties.

Thepropertieswererevaluedasat31December2016byDawnPropertiesConsultancy.RefertoNote10forthevaluationtechniqueandkeyunobservableinputs used to value the property. Management performed a fair value assessment at 31 December 2017 and the movement in fair value was not material.

Revenue and expenses relating to investment property GROUP COMPANY 2017 2016 2017 2016 US$ US$ US$ US$ Rental income from leasing 84,880 84,880 - - Operatingcosts (26,571) (26,571) - - Net income 58,309 58,309 - - 13 Intangible assets Cost At 1 January 1,064,316 1,064,316 138,578 138,578 Additions 8,146 - - At 31 December 1,072,462 1,064,316 138,578 138,578 Amortisation At 1 January (510,522) (406,305) (13,161) - Chargefortheyear (106,297) (104,217) (13,161) (13,161) At 31 December (616,819) (510,522) (26,322) (13,161) Net book value 455,643 553,794 112,256 125,417 Reconciliation of opening and closing carrying amounts Net carrying amount at 1 January 553,794 658,011 125,417 138,578 Cost 1,064,316 1,064,316 138,578 138,578 Accumulatedamortisation (510,522) (406,305) (13,161) - Movement for the year: Additions 8,146 - - - Amortisation (106,297) (104,217) (13,161) (13,161) Net carrying amount at 31 December 455,643 553,794 112,256 125,417 Cost 1,072,462 1,064,316 138,578 138,578 Accumulatedamortisation (616,819) (510,522) (26,322) (13,161) Theintangibleassetsconsistofcomputersoftwareandabusinessintelligencesystem.

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14 Group re-organisation and investment in subsidiaries 14.1 In2016,theGroupimplementedarestructuringwhichresultedinDairibordHoldingsLimiteddirectlyowningtheoperatingsubsidiaries.Therestructuring

resultedinsignificantincomeintheseparatefinancialstatementsofthecompanyof$30112962in2016whichwasalleliminatedonconsolidation.


DairibordZimbabwe(Private)Limited - - 25,531,867 12,694,265 GoldblumInvestmentsPrivateLimited - - 11,464,006 11,464,006 ChatmossEnterprisesPrivateLimited - - 4,075,705 4,075,705 QuallinnexInvestments(Private)Limited - - 2,139,430 2,139,430 SlimlineInvestmentsPrivateLimited - - 3,392,330 3,392,330 Dairibord Malawi Limited - - 507,807 507,807 NFBLogistics(Private)Limited - - - - - - 47,111,145 34 273 543

During the year, the Company increased its investment in Dairibord Zimbabwe Private Limited by converting an intercompany receivable of$12837602toequity

15 Loans receivable15.1 Long-term loans receivable

DairibordZimbabwe(Private)Limited - - 9,782,282 12,439,113 Dairibord Malawi Limited - - 216,061 - - - 9,998,343 12,439113 Less:Amountsfallingduewithinoneyear - - (2,974,083) (2,979,475) - - 7,024,260 9,459,638

15.2 Short-term loans receivable Amountsfallingduewithinoneyearoflongtermloansreceivable - - 2,974,083 2,979,475 - - 2,974,083 2,979,475

16 Other non-current financial assets Loansreceivable - 5,096 - 5,096

Other receivable - 116,430 - - - 121,526 - 5,096

The long term loans receivable relate to loans that were issued tosubsidiaries at an all-in cost of between 5% and 11% per annum and are repayable by 2019. The holding company raises loans from banks foronlending to subsidiaries.

In2016,otherreceivablerepresents capitalexpenditurecontributiontoPetrecozim,aplasticrecyclingcompanyformedbycompanieswhichuseplasticbottles inwhich thegrouphasa10%equity interest. The loan isinterestfreeandwillberepaidoncethecompanyisfullyoperational.Asat31 December 2017, an impairment on the receivable was made.

17 Inventories Packagingandrawmaterials(atcost) 8,057,837 8,279,976 - -

Sparesandgeneralconsumables(atcost) 3,249,092 2,724,201 - - Finishedgoods(atlowerofcostandnetrealisablevalue) 812,923 2,299,710 - - Total inventories 12,119,852 13,303,887 - - TheamountofinventoriesrecognisedasanexpenseincostofsalesfortheperiodwasUS$58,833,905(2016:$53,564,483).

During2017,stocklossesamountingtoUS$768,832(2016:US$1,286,000)wasrecognisedasanexpenseincostofsales.

66




18 Group companies Thefollowingbalancesarisefromnormaltradingactivities:

18.1 Amounts owed by group companies DairibordMalawiLimited - - - 196,134 DairibordZimbabwe(Private)Limited - - 1,922,333 14,757,037 - - 1,922,333 14,953,171

ThedecreaseintheamountowedbyDairibordZimbabwe(Private)Limitedis a result of conversion of the balance into equity. Refer to note 14.

18.2 Amounts owed to group companies GoldblumInvestments(Private)Limited - - 2,571,605 2,453,149 ChatmossEnterprises(Private)Limited - - 1,100,051 984,709 QualinexProperties(Private)Limited - - 537,931 476,809 SlimlineInvestments(Private)Limited - - 818,786 768,692 - - 5,028,373 4,683,359 Allgrouptransactionsareinterestfree,andarerepayableondemand. 19 Trade and other receivables Tradereceivables 9,063,375 9,431,717 - - Otherreceivables 979,812 900,411 110 21,521 10,043,187 10,332,128 110 21,521 Asat31December2017,receivablesofUS$1,806,681(2016:US$1,680,605) wereprovidedfor.Thefollowingisamovementintheimpairmentof receivablesbalance: Openingbalance 1,680,605 532,549 - - Chargefortheyear 334,953 1,373,479 - - Baddebtswrittenoff (208,877) (225,423) - - At 31 December 1,806,681 1,680,605 - - Theageinganalysisoftradereceivableswasasfollows: Neither Past due but past due nor not impaired Total impaired 30-60 days 60 +days US$ US$ US$ US$

At31December2017 9,063,375 7,046,966 1,396,266 620,143 At31December2016 9,431,717 7,071,588 1,572,404 787,725

Tradecreditisgenerallyofferedon30daycredittermsandnointerestischarged within the credit period.

See note 33.1 on credit risk of trade receivables to understand how the Group manages and measures credit quality of trade receivables that are neither past due nor impaired.

20 Cash and cash equivalents Forthepurposeofthestatementofcashflows,cashandcashequivalentsconsistof: Cashatbanksandonhand 5,819,110 3,467,286 200,534 23,110 Bankoverdraft (89,333) (732,315) - - 5,729,777 2,734,971 200,534 23,110 TheGrouphasabankoverdraftfacilityofUS$1millionat7%perannum,unutilisedatyearend.DairibordMalawihasanoverdraftfacilityofK70million

(US$95,266)withNBSBankataninterestrateof31%.

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21 Assets classified as held for sale Intheprioryears,certainresidentialpropertieswereclassifiedasheldforsalefollowingaBoardresolutiontosellsomeresidentialpropertiesandinvest

thecashinplantandmachinery.Oftheopeningheldforsaleassetsof$569447,propertiesworth$308875weresoldduringtheyearandthosewhichmanagement determined could not be sold in the year were put back to property, plant and equipment.

Themajorclassesofassetsclassifiedasheldforsaleasat31December2017areasfollows: GROUP 2017 2016 US$ US$

Property - 569,447

Reconciliation of assets held for sale Openingbalance 569,447 827,915 Disposals (308,975) (140,175) Transfertoproperty,plantandequipment(Note11.1) (260,472) (118,293) Closing balance - 569,447

22 Issued capital and reserves 22.1 Share capital GROUP AND COMPANY 2017 2016 Authorised shares No. No. OrdinarysharesofUS$0.0001each 425,000,000 425,000,000 No. US$ Ordinary shares issued and fully paid At 1 January 2016 358,000,858 35,800 Shareoptionsexercisedduringtheyear - - At 31 December 2016 358,000,858 35,800 Shareoptionsexercisedduringtheyear - - At 31 December 2017 358,000,858 35,800 SubjecttothelimitationsimposedbytheCompaniesAct(Chapter24:03),intermsofaresolution passedbythecompanyingeneralmeeting,theunissuedshareshavebeenplacedatthedisposal of the directors. Share option scheme Theoptionsgrantedin2011expiredon31December2016. GROUP AND COMPANY 2017 2016 US$ US$

22.2 Share premium At31December 1,379,664 1,379,664

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22.3 Non-distributable reserves Group Attributable to equity holders of the parent

Foreign Foreign Share currency currency Asset Other Option translation conversion revaluation capital Total reserve reserve reserve reserve reserves reserves US$ US$ US$ US$ US$ US$ Balance at 1 January 2016 16,797 (4,379,704) 18,641,370 8,516,537 117,784 22,912,784 Othercomprehensiveincome - (43,741) - 1,439,155 - 1,395,414 Gross - (43,741) - 1,944,919 - 1,901,178 Incometaxeffect - - - (505,764) - (505,764)

Transfertoretainedearningsondisposalofassets - - (119,979) - (119,979)

Balance at 31 December 2016 16,797 (4,423,445) 18,641,370 9,835,713 117,784 24,188,219 Other comprehensive income - - - - - - Gross - - - - Incometaxeffect - - - - - Transferbackfromheldforsalereserve - - - 130,547 - 130,547

Balance at 31 December 2017 16,797 (4,423,445) 18,641,370 9,966,260 117,784 24,318,766 Company Foreign Share currency Option conversion reserve reserve Total US$ US$ US$ Balance at 1 January 2016 16,797 16,999,800 17,016,597 Exerciseofshareoptions - - Balance at 31 December 2016 16,797 16,999,800 17,016,597 Exerciseofshareoptions - - - Balance at 31 December 2017 16,797 16,999,800 17,016,597 Nature and purpose of reserves Foreigncurrencytranslationreserve Theforeigncurrencytranslationreserveisusedtorecordexchangedifferencesarisingfromthetranslationofthefinancialstatementsoftheforeign

subsidiary. Foreigncurrencyconversionreserve TheforeigncurrencyconversionreservearoseasaresultofchangeinfunctionalcurrencyfromtheZimbabwedollartotheUnitedStatesdollar. Itrepresentstheresidualequityinexistenceasatthechangeoverperiodandhasbeendesignatedasnon-distributablereserve.

Assetrevaluationreserve Theassetrevaluationreserveisusedtorecordincreasesinthefairvalueoflandandbuildingsanddecreasestotheextentthatsuchdecreasesrelatetoan

increase on the same asset previously recognised in equity. Othercapitalreserves ThisrelatestotheprofitmadeontheacquisitionofadditionalinterestinDairibordMalawiLimited.

Shareoptionreserve Theshareoptionreserveisusedtorecognisethevalueofequity-settledshare-basedpaymentsprovidedtoemployees,includingkeymanagement

personnel,aspartoftheirremuneration.

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GROUP COMPANY

Borrowing cost (%) United States Malawi 2017 2016 2017 2016 dollar Kwacha Maturity US$ US$ US$ US$

23 Interest bearing borrowings

23.1 Long term borrowingsa) BankloanMalawi 31% Sept2018 - 61,323 - -b) PTABank-2014Loan 10.6% May2019 2,676,312 3,921,253 2,676,312 3,921,253d) BankloanZimbabwe(2015) 8.3% Nov2020 2,151,071 3,054,500 2,151,071 3,054,500e) BankloanZimbabwe(2016) 7.8% July-Sep2019 1,292,500 1,690,000 1,292,500 1,690,000f) TetraPak 8% Sept2022 880,217 880,217 - -g) TetraPak(DairibordMalawi) 10% 437,819 - - -h) BankloanMalawi 31% 288,589 - - - 7,726,508 9,607,293 6,119,883 8,665,753 Less:Amountsfallingduewithinoneyear (3,895,109) (2,955,938) (3,513,351) (2,869,429) 3,831,399 6,651,355 2,606,532 5,796,324

23.2 Short term borrowingsc) Securedloan 10.6% - 110,045 - 110,045a) BankloanMalawi 31% Sept2018 58,199 - - - 58,199 110,045 - 110,045 Add:Portionoflongtermloansfalling duewithinoneyear 3,895,109 2,955,938 3,513,351 2,869,429 3,953,308 3,065,983 3,513,351 2,979,474

Total interest bearing borrowings 7,784,707 9,717,338 6,119,883 8,775,798

a) 33% secured loan Thefacilitywasusedinfinancingtheacquisitionofplantandequipment.Theloan,togetherwiththeloandisclosedin(h)issecuredover

property,plantandequipmentof$1.9million.

b) PTA Secured loan Theloanfinancedcapitalprojects.TheloanissecuredoverimmovablepropertyworthUS$9millionandtheassetsfunded.Theoriginalfacility

availablewas$6millionandwasfullydrawn.Theloanwillbefullypaidby6May2019.

c) Secured loan ThisloanwasusedtofundpartofthecapitalprojectsatDairibordZimbabwe(Private)Limited.Thiswasa2.5yearfacilityandwasfullyrepaidon31

March 2017.

d) Bank Loan Zimbabwe ThisloanwasusedtoacquireplantandequipmentatDairibordZimbabwe(Private)Limited.Theloanwillbefullypaidby10November2020. ItissecuredoverpropertywithabookvalueofUS$4,499,490.

e) Bank Loan Zimbabwe Thisfacilitywasusedtofinancecapitalexpenditureandissecured,togetherwiththeotherfacilityin(d)above,onpropertyworthUS$4.5million.The

facilityhasatenureof3yearsandwillbefullypaidby6September2019.

f) Tetra Pak Thisisanoffshorevendorfinancefacilitywhichfinancedpartofthecapitalexpenditurein2016.Thefacilitybearsinterestat8%perannumandhas

a6yeartenureincludingoneyeargraceperiod.CapitalrepaymentswereduetostartinSeptember2017andanamountofUS$60701wasoverdueas at 31 December 2017.

g) Tetra Pak (Malawi) ThisisavendorloanwhichfinancedpartofcapitalexpenditureinMalawi.Theloanwillberepaidover5yearsstartingDecember2018.

h) Bank loan Malawi Thisisaloanforworkingcapitalwithatenureof36months.Theloanissecuredoverproperty,plantandequipmentofUS$1.9million.

70




24 Grants received AGrantwasreceivedfromtheUnitedNationsDevelopmentProgramme

undertheMalawiChallengeInnnovationFund(MICF)forthepurchaseofacartonfillingandpackingplant.

At I January 2017 - - - - Received during the year 306 737 - - - Releasedtoprofitandloss (87829) - - - At 31 December 2017 218,908 - - - Current - - - - Non-current 218908 - - -

25 Borrowings powers Thedirectorsmayborrowanysumofmoneynotexceedingtheaggregateoftwicetheissuedandpaidupsharecapitalofthecompanyandtheaggregateof

the amounts standing to the credit of all the reserve accounts and share premium account. Banking facilities At31December2017,thebankingfacilitiesinplaceinZimbabweamountedto$8.12million(2016:$10.78million).Thefacilitiesexpirebetween10May

2018 and 20 November 2020. InMalawithebankingfacilitiesamountedtoMK253000000(US$344000).Thefacilitiesexpireby28February2024.


26 Deferred taxation Deferredtaxrelatestothefollowing: Property,investmentpropertyandpropertyclassifiedasheldforsale 2,727,453 2,846,256 - - Plantandequipment 4,685,191 4,532,930 10,152 63,266 Intangibleassets 117,328 142,524 28,984 - Inventory (40,237) (24,555) - - Accountsreceivable (424,977) (429,197) - - Unrealisedlossonexchange (36,919) (9,675) - - Unutilisedtaxloss (1,665,409) (2,581,079) (57,933) (126,438) Leavepayandotherprovisions 33,953 (104,769) (7,377) (21,978) Net liability/(asset) 5,396,383 4,372,435 (26,174) (85,150) Disclosedasfollowsonthestatementoffinancialposition: Asset 26 174 85,150 26,174 85,150 Liability 5,422,557 4,457,585 - - Reconciliation of deferred tax Openingbalanceasof1January 4,372,435 3,363,006 (85,150) (31,438) Taxexpense/(credit)recognisedinprofitorloss 1,023,948 492,098 58,976 (53,712) Taxexpenserecognisedthroughothercomprehensiveincome - 521,899 - - Effectofexchangeratechange - (4,568) - - Closing balance as at 31 December 5,396,383 4,372,435 (26,174) (85,150)

TheGrouphas tax losseswhicharose in4 companiesofUS$7,384,517 (2016:US$9,930,205) thatareavailable foroffsetagainst future taxableprofits.DeferredtaxassethasbeenrecognisedforlossesofUS$6,223,587.DeferredtaxassetforanassessedlossUS$1,160,930hasnotbeenrecognisedinrespectofassessedlossesinonesubsidiaryasitnotprobablethatsufficienttaxableincomewillbegeneratedagainstwhichtheassetcanbeutilised.

71



GROUP COMPANY 2017 2016 2017 2016 US$ US$ US$ US$27 Trade and other payables Tradepayables 10,297,679 12,742,511 - - Otherpayables 2,979,862 2,780,013 291,169 706,681 13,277,541 15,522,524 291,169 706,681 Termsandconditionsoftradeandotherpayables: Tradeandotherpayablesarenon-interestbearingandareon14-30dayterms. GROUP 2017 2016 US$ US$28 Commitments and contigencies Capitalcommitments: Authorisedandcontractedfor 492,650 290,000 Authorised and not contracted for 5,737,461 2,210,000 6,230,111 2,500,000

TheGroup’scapitalexpenditurewillbefinancedfromtheGroup’sownresourcesandborrowings. Litigation TheGroupisarespondentinvariousemployeeclaimsforunfairdismissalandvendorlitigations.

Onthebasisoflegaladvicetheclaimsarenotvalidandtherewillbenooutflowofresources.

Operating lease commitments - Group as lessee TheGroupenteredintoacommercialleaseonacommercialbuilding.Theleaseisforaoneyearperiodwitha

renewal optionincluded inthecontract.TherearenorestrictionsplacedupontheGroupinentering intothelease.

Futureminimumrentalspayableundertheoperatingleasesasat31Decemberareasfollows: Withinoneyear 20,472 29,322 Operating lease commitments -Group as Lessor TheGroupenteredintocommercialleaseswithtenantsoncommercialbuildings. Theleasesareforaoneyearperiodwitharenewaloptionincludedinthecontract. TherearenorestrictionsplacedupontheGroupinenteringintothelease. Futureminimumrentalspayableundertheoperatingleasesasat31Decemberareasfollows: Withinoneyear 79,150 88,350 29 Related party disclosures

29.1 TheconsolidatedfinancialstatementsincludethefinancialstatementsofDairibordHoldingsLimitedandthesubsidiarieslistedinthefollowingtable:

% equity Interest

Country of Name Incorporation 2017 2016 Dairibord Malawi Limited Malawi 68.4 68.4 NFBLogistics(Private)Limited(dormant) Zimbabwe 100 100 DairibordZimbabwe(Private)Limited Zimbabwe 100 100 LyonsAfrica(Private)Limited(dormant) Zimbabwe 100 100 LyonsZimbabwe(Private)Limited(dormant) Zimbabwe 100 100 GoldblumInvestments(Private)Limited Zimbabwe 100 100 SlimlineInvestments(Private)Limited Zimbabwe 100 100 ChatmossEnterprises(Private)Limited Zimbabwe 100 100 QualinnexProperties(Private)Limited Zimbabwe 100 100

72



2017 2016 US$ US$29.2 Company

Managementfeesreceivedfromsubsidiaries 1,030,936 1,892,506 Royaltiesreceivedfromsubsidiaries 450,000 900,000 Loans issued to subsidiaries 582,000 5,472,315 Loansrepaidbysubsidiaries 3,022,770 6,379,468 Interestincomeonloanstosubsidiaries 816,264 1,052,584

ReferNote15and18forloansreceivablefromsubsidiariesandrelatedpartybalancesrespectively.

29.3 Key management personnel transactions

Compensation Group Shorttermemployeebenefits 2,202,204 3,195,241 Terminationbenefits 363,842 - Pensioncontributions 38,349 86,790 Total compensation paid 2,607,395 3,282,031

Company Shorttermemployeebenefits 513,105 1,546,892 Terminationbenefits 304,444 - Pensioncontributions 11,033 29,079 Total compensation paid 828,582 1,575,971 30 Pension and retirement plans

30.1 Defined contribution funds AllemployeesoftheGroupareeligibletobemembersofdefinedcontributionsfunds. 30.2 National Social Security Authority Scheme ThisisaschemeestablishedundertheNationalSocialSecurityAuthorityAct(1989). Contributionperemployeeis3.5%permonthuptoamaximumpensionablesalaryof $700.ThisschemeisadefinedcontributionschemefromtheGroup’sperspective.

30.3 Pension costs charged to profit and loss during the year

Group

NationalSocialSecurityAuthorityScheme-Zimbabwe 161,370 181,676 Definedcontributionfunds 293,920 349,932 455,290 531,608

Company NationalSocialSecurityAuthorityScheme-Zimbabwe 7,292 8,332 Definedcontributionfunds 26,332 71,088 33,624 79,420

31 Material partly-owned subsidiary Financialinformationofsubsidiarythathasmaterialnon-controllinginterestsareprovidedbelow:

Portionofequityinterestheldbynon-controllinginterests:

Country of incorporation Name and operation 2017 2016

Daribord Malawi Limited Malawi 31.6% 31.6%

2017 2016 US$ US$

Accumulatedbalancesofmaterialnon-controllinginterest: (47,908) 206,935 Lossallocatedtonon-controllinginterest (254,843) (64,133) Thesummarisedfinancialinformationofthesubsidiaryisprovidedbelow.Thisinformationisbasedonamountsbeforeinter-companyeliminations.

73


31 Material partly-owned subsidiary (continued) Dairibord Malawi Limited summarised statement of profit or loss for 2017

2017 2016 US$ US$

Revenue 3,306,059 3,344,749 Costofsales (2,722,101) (2,469,781) Administrativeexpenses (1,134,793) (1,020,5640 Financecosts (93,394) (123,794) Loss before tax (644,229) (269,390) Incometax(expense)/credit (162,236) 66,437 Loss for the year (806,465) (202,953) Other comprehensive income - 55,185 Total comprehensive income (806,465) (147,768)

Attributabletonon-controllinginterests (254,843) (46,695) Dairibord Malawi Limited summarised statement of financial position as at 31 December 2017.

Inventories,receivablesandcashandbankbalances(current) 1,007,167 529,274 Property,plantandequipmentandothernon-currentfinancialassets(non-current) 1,905,367 1,152,843 Tradeandotherpayables(current) (1,581,628) (865,236) Interest-bearingloansandborrowings(current) (154,396) (38,109) Interest-bearingloansandborrowingsanddeferredtaxliabilities(non-current) (1,328,118) (123,915)

Total equity (151,608) 654,857 Attributabletoequityholdersofparent (103,700) 447,922 Non-controllinginterest (47,908) 206,935 Summarised cash flow information for the year ended 31 December 2017 Operating (12,025) (178,159) Investing (602,660) 109,666 Financing 845,951 (148,320) Net increase/(decrease) in cash and cash equivalents 231,266 (216,813)

32 Fair value measurement ThefollowingtableprovidesthefairvaluemeasurementhierarchyoftheGroup’sassets. Quantitativedisclosuresfairvaluemeasurementhierarchyforassets:

Group As at 31 December 2017 Fair value measurement using

Total Quoted prices Significant Significant in active markets observable unobservable Assets measured at fair value (Level 1) inputs (Level 2) inputs (Level 3) US$ US$ US$ US$ Revaluedproperty(Note11) 16,040,393 - - 16,040,393 Investmentproperty(Note12) 1,305,000 - - 1,305,000 TherehavebeennotransfersbetweenLevel1andLevel2. As at 31 December 2016 Fair value measurement using

Total Quoted prices Significant Significant in active markets observable unobservable Assets measured at fair value (Level 1) inputs (Level 2) inputs (Level 3) US$ US$ US$ US$

Revaluedproperty(Note11) 15,528,701 - - 15,528,701 Investmentproperty(Note12) 2,186,000 - - 2,186,000 TherehavebeennotransfersbetweenLevel1andLevel2.


74


33 Financial Risk Management objectives and policies TheGroup’sprincipalfinancialliabilitiescomprisetradepayablesandinterest-bearingborrowings.Themainpurposeofthesefinancialinstrumentsistoraise

financefortheGroups’soperations.TheGrouphasvariousfinancialassetssuchastradereceivablesandcashwhicharisedirectlyfromitsoperations.

ThemainriskarisingfromtheGroup’sfinancialinstrumentsareinterestraterisk,liquidityrisk,foreigncurrencyriskandcreditrisk.Theserisksaremanagedasfollows:

33.1 Credit risk Creditriskistheriskthatacounterpartywillnotmeetitsobligationsunderafinancialinstrumentorcustomercontractleadingtoafinancialloss.TheGroup

isexposedtocreditriskfromitsoperatingactivities(primarilyfortradereceivablesandloannotes)andfromitsfinancingactivities,includingdepositswithbanksandfinancialinstitutions,foreignexchangetransactionsandotherfinancialinstruments.

Trade receivables Customercreditrisk ismanagedbyeachbusinessunitsubjecttotheGroup’sestablisedpolicy ,proceduresandcontrolrelatingtocustomercreditrisk

management.Creditlimitsareestablishedforallcustomersbasedoninternalratingcriteria.Creditqualityofthecustomerisassessedthroughextensivecreditverificationproceduresandindividualcreditlimitsaredefinedinaccordancewiththisassessment.Customerswithoutstandingbalancesareregularlymonitored.

Therequirementforimpairmentisanalysedateachreportingdateonanindividualbasisforallcustomers.Themaximumexposuretocreditriskatthereportingdateisthecarryingamountofeachclassoffinancialassetdisclosedinnote19.Fordebtorspastdue,theGroupconsiderswhethertheassetissecuredornotandwheretheassetissecured,andthesecurityisconsideredadequatetocoverthecarryingamountofthedebt,thespecificassetisnotimpaired.TheGroupevaluatestheconcentrationofcreditriskaslowsincethebalancesarewidelyspread.

Cash balances TheGrouponlydepositscashwithfinancialinstitutionswithhighcreditratings.Themaximumexposuretoriskisequaltothecarryingamountofcashand

bank balances as disclosed in note 20.

33.2 Liquidity risk TheGroupconsistentlymonitorsitsrisktoashortageoffunds.ThisrequiresthattheGroupconsidersthematurityofbothitsfinancialinvestmentsand

financialassetse.gaccountsreceivable,otherfinancialassetsandprojectedcashflowsfromoperations.TheGroup’sobjectiveistomaintainabalancebetweencontinuityoffundingandflexibilitythroughtheuseofbankloansanddebentures.

ThetablebelowsummariesthematurityprofileoftheGroupandCompany’sfinancialliabilitiesasat31December2017basedoncontractualundiscountedpayments:

On 0 to 3 3 to 12 1 to 5 + 5 Total demand months months years years US$ US$ US$ US$ US$ US$ GROUP Liabilities

As at 31 December 2017 Interestbearingborrowings - 1,044,510 3,156,726 4,209,270 - 8,410,506 Tradeandotherpayables - 13,277,541 - - - 13,277,541 - 14,322,051 3,156,726 4,209,270 - 21,688,047 As at 31 December 2016 Interestbearingborrowings - 564,629 3,764,883 6,797,876 - 11,127,388 Tradeandotherpayables - 15,522,523 - - - 15,522,523 - 16,087,152 3,764,883 6,797,876 - 26,649,911 COMPANY Liabilities As at 31 December 2017 Interestbearingborrowings - 952,603 2,881,006 2,796,429 - 6,630,038 Tradeandotherpayables - 291,169 - - - 291,169 Amounts owed to Group companies - 5,028,373 - - - 5,028,373 - 6,272,145 2,881,006 2,796,429 - 11,949,580 As at 31 December 2016 Liabilities Interestbearingborrowings - 508,915 3,641,337 5,798,408 - 9,948,660 Tradeandotherpayables - 706,681 - - - 706,681 AmountsowedtoGroupcompanies - 4,683,359 - - - 4,683,359 - 5,898,955 3,641,337 5,798,408 - 15,338,700


75



33.3 Changes in liabilities arising from financing activities

Year ended 31 December 2017 01-Jan-17 Cash flows Other 31-Dec-17 new loans repayments movements Non cash loan

Currentinterestbearingloansandborrowings 3,065,983 1,500,002 (1,503,123) 890,446 - 3,953,308 Noncurrentinterestbearingborrowingsandloan 6,651,355 370,585 (2,737,912) (890,446) 437,817 3,831,399 Total 9,717,338 1,870,587 (4,241,035) - 437,817 7,784,707 Othermovementsrepresentsthereclassificationbetweencurrentandnoncurrentborrowings.

Thenoncashmovementarosefromfinancingofplantandequipmentonatermloan. Year ended 31 December 2016 01-Jan-16 Cash flows Other 31-Dec-16 new loans repayments movements Exchange loss

Currentinterestbearingloansandborrowings 5,187,620 690,411 (2,240,036) (569,086) (2,926) 3,065,983 Noncurrentinterestbearingborrowingsandloan 4,561,863 5,255,908 (3,731,383) 569,086 (4,119) 6,651,355 Total 9,749,483 5,946,319 (5,971,419) - (7,045) 9,717,338

33.4 Foreign currency risk Foreigncurrencyriskistheriskthatthefairvalueorfuturecashflowsofafinancialinstrumentwillfluctuatebecauseofchangesinforeignexchangerates.

TheGroup’sexposuretotheriskofchangesinforeignexchangeratesrelatesprimarilytotheGroup’soperatingactivities(whenrevenuesorexpensesaredenominatedinadifferentcurrency),andtheGroup’snetinvestmentinsubsidiaries.TheGrouplimitsexposuretoexchangeratefluctuationsbyeitherpre-payingforpurchasesorretainingstockuntiltheforeigncurrencytosettletherelatedliabilityhasbeensecured.TheGroup’sforeigncurrencyliabilitiesasat31December2017standatUS$2600000andwiththeforeigncurrencyshortagesfacingtheeconomy,itisverydifficulttopaythese.

ThefollowingtabledemonstratesthesensitivitytoareasonablepossiblechangeintheEuroandRandexchangerate, GROUP

Effect Change in on profit Effect rates before tax on equity 2017 +10% 234,117 173,832 -10% (264,594) (196,461) 2016 +10% 101,847 75,621 -10% (119,738) (88,905) Inthecompanyseparatefinancialstatements,therearenoforeigndenominatedassetsandliabilities.

BecauseoftheinvestmentinMalawi,theGroup’sstatementoffinancialpositioncanbeaffectedsignificantlybymovementsintheMalawiKwacha.

ThefollowingtablerepresentstheeffectonprofitbeforetaxtoareasonablechangeintheMalawiKwachatoUnitedStatesDollarontheconsolidationof

Malawioperations: GROUP Change in Effect on loss Effect on rates before tax pre-tax equity 2017 +10% (45,452) (16,845) -10% 37,949 13,782

2016 +10% (22,058) 74,201 -10% 18,304 (60,966)

33.5 Interest rate risk Interestrateriskistheriskthatthefairvalueorfuturecashflowsofafinancialinstrumentwillfluctuatebecauseofchangesinmarketinterestrates.TheGroup’sexposuretotheriskofchangesinmarketinterestratesrelatesprimarilytotheGroup’slongtermobligationswithfloatinginterestrates.

TheGroupmanagesitsinterestrateriskbyhavingabalancedportfoliooffixedandvariablerateloansandborrowings.TheGroup’spolicyistokeepmostofitsborrowingsatfixedratesofinterests;withanoptiontore-negotiateinterestratesfortermloanseveryyear.

33.6 Capital management TheprimaryobjectiveoftheGroup’scapitalmanagementistoensurethattheGroupmaintainsahealthycapitalratioinordertosupportthebusinessand

maximizeshareholdervalue.

TheGroupmanagesitscapitalstructureandmakesadjustmentstoitinlightofchangesintheeconomicenvironment.Tomaintainoradjustthecapitalstructure the Group may adjust the dividend payment to shareholders, return capital to shareholders, or issue new shares. No changes were made to the

76



33.6 Capital management (continued) objectives,policiesorprocessesduringtheyearended31December2017.

TheGroupmonitorscapitalusingagearingratio,whichisnetdebtdividedbytotalcapitalplusnetdebt.TheGroup’spolicyistokeepthegearingratiouptoamaximumof50%.TheGroupincludeswithinnetdebt,interestbearingloansandborrowings,tradeandotherpayables,lesscashandcashequivalents.

2017 2016 US$ US$

Interestbearingborrowings(Note23) 7,784,707 9,717,338 Bankoverdraft 89,333 732,315 Tradeandotherpayables(Note27) 13,277,541 15,522,524 Lesscashandshort-termdeposits(Note20) (5,819,110) (3,467,286)

NetDebt 15,332,471 22,504,891 Equity 45,419,619 44,064,652

Capitalanddebt 60,752,090 66,569,543

Gearingratio 25.2% 33.8%

34 Segment Information

34.1 TheGrouphasfour(2016:5)operatingsegmentswhicharelistedbelow.Thelogisticsbusiness,whichoperatedasaseparatebusinesssegmentin2016wasconsolidatedintomanufacturingoperationsin2017.The2016segmentreporthasbeenrestatedtoreflectthereportingsegmentsadoptedin2017

Zimbabwemanufacturinganddistribution-manufactureandmarketingofmilks,foodsandbeverages Malawimanufacturinganddistribution-manufactureandmarketingofmilks,foodsandbeverages Properties-leasingofproperties Corporate - management services

Managementmonitorstheoperatingresultsofitsbusinessunitsseparatelyforthepurposeofmakingdecisionsaboutresourceallocationandperformanceassessment.

Adjustments Manufacturing Manufacturing and (Zimbabwe) (Malawi) Logistics Properties Corporate eliminations Group US$ US$ US$ US$ US$ US$ US$ Year ended 31 December 2017 Revenue Externalcustomers 99,757,716 3,306,059 - 83,662 - - 103,147,437 Inter-segment 221,877 - - 664,152 1,480,936 (2,366,965) - Total revenue 99,979,593 3,306,059 - 747,814 1,480,936 (2,366,965) 103,147,437 Results Depreciation,andamortisation 4,946,275 83,758 - 324,246 109,199 - 5,463,478 Operatingprofit/(loss) 3,944,267 (550,836) - 378,469 286,312 - 4,058,212 Segmentassets 52,735,455 2,912,533 - 23,892,146 59,443,896 (66,765,506) 72,218,524 Segmentliabilities 29,243,892 3,064,147 - 609,216 11,439,424 (17,557,774) 26,798,905 Capitalexpenditure 1,555,271 851,510 - 2,550 783 - 2,410,114 Year ended 31 December 2016 (Restated) Revenue Externalcustomers 89,884,323 3,218,084 235,566 84,880 - - 93,422,853 Inter-segment 5,913,362 126,665 8,054,105 664,152 - (14,758,284) - Total revenue 95,797,685 3,344,749 8,289,671 749,032 - (14,758,284) 93,422,853 Results Depreciation 4,278,878 119,454 502,026 153,592 101,268 - 5,155,218 Operating(loss)/profit (4,180,555) (145,596) 476,125 570,639 (242,568) (375,879) (3,897,834) Segmentassets 53,384,615 1,682,117 7,339,907 23,716,029 62,539,649 (74,126,074) 74,536,243 Segmentliabilities 36,140,439 1,027,261 2,856,568 678,085 14,598,583 (24,829,345) 30,471,591 Capitalexpenditure 5,110,626 17,571 215,286 - 60,012 - 5,403,495

Theadjustmentsandeliminationscolumnsrelatetointer-segmentstransactionsandbalanceswhichareeliminatedonconsolidation.

35 Events after the reporting date Therearenosignificanteventswhichtookplaceafter31December2017.

77


DML - DAIRIBORDMALAWILIMITED

DHL - DAIRIBORDHOLDINGSLIMITED

DZPL - DAIRIBORDZIMBABWE(PRIVATE)LIMITED

HDPE - HIGHDENSITYPOLYETHYLENE

GDP - GROSSDOMESTICPRODUCT

IFRS - INTERNATIONALFINANCIALREPORTINGSTANDARDS

ISO - INTERNATIONALSTANDARDSORGANISATION

MBA - MASTERSOFBUSINESSADMINISTRATION

NSSA - NATIONALSOCIALSECURITYAUTHORITY

PET - POLYETHYLENETERAPHTHALATE

PBT MARGIN - PROFITBEFORETAXMARGIN

SADC - SOUTHERNAFRICADEVELOPMENTCOMMUNITY

SAZ - STANDARDSASSOCIATIONOFZIMBABWE

SBU - STRATEGICBUSINESSUNIT

SKU - STOCKKEEPINGUNIT

ZSE - ZIMBABWESTOCKEXCHANGE

ZIMRA - ZIMBABWEREVENUEAUTHORITY

Glossary of Terms

78


GRI Content Index - ‘‘Core’’

GRI Indicator Page No. External Assurance

STRATEGY AND ANALYSIS

G4.1 15 Not Assured

ORGANISATIONAL PROFILE

G4-3 Cover Not Assured

G4-4 6 Not Assured

G4-5 84 Not Assured

G4-6 3 Not Assured

G4-7 80, 81 Not Assured

G4-8 6 Not Assured

G4-9 9, 11, 15, 31,41

Not Assured

G4-10 31 Not Assured

G4-11 N/A Not Assured

G4-12 9 Not Assured





IDENTIFIED MATERIAL ASPECTS AND BOUNDARIES








STAKEHOLDER ENGAGEMENT

G4-24 7 Not Assured




REPORT PROFILE

G4-28 2 Not Assured

G4-29 2 Not Assured

G4-30 2 Not Assured

G4-31 2 Not Assured



GOVERNANCE


ETHICS AND INTEGRITY


79


SPECIFIC STANDARD DISCLOSURESMaterial Aspects: DMA and Indicators

Page (s) Omission External Assurance

ECONOMIC

Economic Performance

G4-EC1 Direct economic value generated and distributed (see Financial Statements). 34, 41, 76 n/a Assured

G4-EC3 Coverage of the Organisation’s defined contribution plan. 49 n/a Assured

G4-EC4 Significant financial assistance received from government. 34 n/a Not Assured

ENVIRONMENTAL

Materials

G4-EN1 Material used by weight or volume. 29 n/a Not Assured

G4-EN2 Percentage materials used that are recycles materials. n/a n/a Not Assured

Energy

G4-EN3 Direct energy consumption by primary energy source. 30 n/a Not Assured

G4-EN4 Indirect energy consumption by primary source. 30 n/a Not Assured

Water

G4-EN8 Total water withdrawn by source. 30 n/a Not Assured

Emissions, Effluents, and Waste

G4-EN16 Total direct and indirect greenhouse gas emissions by weight. n/a n/a Not Assured

SOCIAL PERFORMANCE INDICATORS

Employment

G4-LA1 Employees and Turnover. 31 n/a Not Assured

G4-LA7 Health and Safety Incidences. 32 n/a Not Assured

GRI Content Index ‘‘Core’’ (continued)

80


Shareholders Analysis 31 December 2017

Number of Issued Shareholders % Shares % Size of Shareholding 1-5000 5,086 1.06 3,784,781 91.18% 5001-10000 105 0.21 757,273 1.88% 10001-25000 107 0.52 1,847,030 1.92% 25001-50000 71 0.75 2,670,604 1.27% 50001-100001 66 1.31 4,692,995 1.18% 100001-200000 45 1.90 6,801,953 0.81% 200001-500000 40 3.61 12,931,892 0.72% 500001-1000000 23 4.54 16,238,212 0.41% 1000001 and Above 35 86.11 308,276,118 0.63% 5,578 100.00 358,000,858 100.00 % Trade Classification PensionFunds 142 21.85 78,205,902 2.55%ForeignNominee 15 18.69 66,895,573 0.27%LocalCompanies 286 16.52 59,142,093 5.13%Local Nominee 68 14.81 53,034,413 1.22%InsuranceCompanies 13 13.91 49,794,194 0.23%LocalIndividualResident 4,821 6.63 23,747,689 86.43%OtherInvestments&Trust 39 3.48 12,475,694 0.7%Foreign Companies 3 1.64 5,874,010 0.05%New non resident 25 1.57 5,623,732 0.45%Trusts 5 0.63 2,254,314 0.09%FundManagers 7 0.08 289,010 0.13%Other 27 0.06 208,816 0.48%DeceasedEstates 94 0.06 197,886 1.69%Charitable 29 0.05 177,370 0.52%Banks 2 0.02 70,262 0.04%ForeignIndividualResident 2 0.00 9,900 0.04% 5,578 100.00 358,000,858 100.00 %

Top Ten Shareholders StanbicNominees(Pvt)Ltd 127,821,887 35.70%OldMutualLifeAssuranceCompanyZimbabweLimited 47,254,213 13.20%SerrapinInvestments(Pvt)Ltd 45,206,444 12.63%SCBNominees033663900002 21,966,389 6.14%MiningIndustryPensionFund 17,667,266 4.93%NationalSocialSecurityAuthority 11,123,595 3.11%DairibordEmployeeShareTrust 10,000,000 2.79%AntonyMandiwanza 8,295,193 2.32%OldMutualZimbabweLimited 6,368,443 1.78%LalibelaLimited 5,739,057 1.60%Other 56,558,371 15.80% 358,000,858 100.00 % Directors' Shareholding Dr.L.L.Tsumba -S.Chindove 2,637,879C. Mahembe 138,575A.S.Mandiwanza 9,419,115J.H.K.Sachikonye 266M. R. Ndoro 3,167,513D. Hasluck -R.P.Kupara -R.C.VonSeidel 14,396,196N. Chiromo -C. R. J. Hawgood 1,000,000

81


Shareholders Analysis 31 December 2016

Number of Issued Shareholders % Shares % Size of Shareholding 1 5000 5,102 90.85% 3,797,970 1.06% 5001 10000 116 2.07% 838,891 0.23% 10001 25000 108 1.92% 1,828,093 0.51% 25 001 50 000 73 1.30% 2,730,246 0.76% 50 001 100 000 70 1.25% 5,003,753 1.40% 100 001 200 000 44 0.78% 6,628,702 1.85% 200001 500000 42 0.75% 13,095,439 3.66% 500 001 1 000 000 26 0.46% 18,544,020 5.18% 1 000 001 above 35 0.62% 305,533,744 85.34% 5 616 100.00% 358,000,858 100.00% Trade Classification Local companies 318 5.66% 107,867,167 30.13%PensionFunds 156 2.78% 79,931,467 22.33%Nominees foreign 20 0.36% 73,274,643 20.47%Localindividualresidents 4872 86.75% 72,328,139 20.20%InvestmentandTrust 32 0.57% 4,598,497 1.28%Employeesharetrust 1 0.02% 10,000,000 2.79%New non - residents 24 0.43% 5,566,706 1.55%Nominees Local 41 0.73% 1,282,227 0.36%Fundmanagers 11 0.20% 1,099,123 0.31%InsuranceCompanies 8 0.14% 955,155 0.27%Banks 2 0.04% 70,262 0.02%Other 131 2.33% 1,027,472 0.29% 5 616 100.00% 358,000,858 100.00% Top Ten Shareholders StanbicNominees(Pvt)Ltd. 118,597,201 33.1%OldMutualLifeAssuranceCompanyZimbabweLimited 47,360,266 13.2%SerrapinInvestments(Pvt)Ltd 44,542,780 12.4%SCBNominees033663900002 22,519,630 6.3%MiningIndustryPensionFund 17,667,266 4.9%NationalSocialSecurityAuthority 10,282,425 2.9%DairibordEmployeeShareTrust 10,000,000 2.8%MandiwanzaAntony 8,295,193 2.3%OldMutualZimbabweLimited 6,368,443 1.8%LalibelaLimited 5,739,057 1.6%Other 66,628,597 18.6% 358,000,858 100.0% Directors’ Shareholding Dr.L.L.Tsumba -S.Chindove 2,637,879T.Mabika 1,643,832C. Mahembe 138,575 H. Makuwa 100 A.S.Mandiwanza 9,419,115J.H.K.Sachikonye 266M. R. Ndoro 3,167,513 D. Hasluck -R.P.Kupara -V.C.Seidel 14,396,196

82


Notice to Shareholders

Noticeisherebygiventhatthetwenty-thirdAnnualGeneralMeetingofmembersofDairibordHoldingsLimitedwillbeheldintheLa-Fontaine,MeiklesHotel,onWednesday16May2018at12:00hours.

Ordinary Business1. ToreceiveandadopttheFinancialStatementsfortheyearended31December2017,togetherwithreportsoftheDirectorsandAuditors

thereon.

2. ToelectDirectorsoftheCompany: Inaccordancewitharticle100ofthecompany’sArticlesofAssociation,Mr.J.SachikonyeandMrs.R.P.Kupara,retirebyrotationandbeing

eligible,offerthemselvesforre-election.

Inaccordancewitharticle107ofthecompany’sArticlesofAssociation,Mr.N.ChiromoandMr.C.R. J.Hawgoodwhowereappointeddirectorsofthecompanywitheffectfrom24May2017and8August2017respectively,retire,andbeingeligible,offerthemselvesforre-election.

ToapprovetheextensionofthetermofofficeforMr.D.HasluckwhoisduetoretirefromtheBoardintermsofArticle85AoftheArticlesofAssociationofthecompanyforoneyear.

Dr.L.LTsumba,whohasservedtheboardasChairmanforthelastsixyears,willberetiringattheconclusionofthisAnnualGeneralMeetingintermsofarticle85AoftheCompany’sArticlesofAssociation.

3. Toapprove the remunerationof theauditors for thepastauditand re-appointErnstandYoungCharteredAccountants (Zimbabwe)asauditors for the current year.

4. Toapprovetheremunerationofthedirectorsforthepastyear.

5. Toapprovethedividendof0.20UScentspersharedeclaredon8March2018.

Notes1. IntermsoftheCompaniesAct(Chapter24:03)amemberentitledtoattendandvoteatameetingisentitledtoappointaproxytoattend

andvoteonapollandspeakinhisstead.AproxyneednotbeamemberoftheCompany.

2. Intermsofclause77oftheCompany’sArticlesofAssociation,instrumentsofproxymustbelodgedattheregisteredofficeofthecompanyatleastforty-eighthoursbeforethetimeappointedforholdingthemeeting.

3. MembersarerequestedtoadvisetheTransferSecretariesinwritingofanychangeofaddressandbankingdetails.

By order of the board

M. NdoroCompany Secretary17 April 2018

83


Shareholders’ Calendar

2017 Annual Report Published April 2018

Twenty-thirdAnnualGeneralMeeting 16May2018

Interimreportfor6monthsto30June2018anddividendannouncement August2018

FinancialYearEnd 31December2018

Publicationoftheresultsforthe12monthsending31December2018anddividendannouncement March2019

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Corporate Information

Dairibord Holdings LimitedCompanyRegistrationNo.2168/94www.dairibord.com

Registered Office1225RekayiTangwenaAvenue,BelvedereHarare

Postal AddressPOBox587,Harare,ZimbabweTelephoneNumbers:+2634790801-5,779035-45

Company SecretaryMercy R NdoroE-mail:[email protected]

AuditorsErnst&YoungCharteredAccountants(Zimbabwe)Angwa CityJuliusNyerereWay/KwameNkrumahAveP.OBox62or702Harare

Principal BankersStandardCharteredBankofZimbabweLimitedStanbicBankZimbabweLimitedBarclaysBankofZimbabweLimited

Transfer SecretariesCorpserve(Private)Limited4thFloor,ZBCentreCnr1stStreetandKwameNkrumahAvenueHarareZimbabwe

Sustainability Reporting Advisors InstituteofSustainabilityAfrica(Insaf)22 Walter Hill Avenue EastleaHarareZimbabwe

Dairibord Holdings Limited1225 Rekayi Tangwena Avenue, Belvedere, Harare

P O Box 587, Harare , ZimbabweTelephone : + 263 4 790801-5, 779035-45

2017Annual Report

Dairibord H

oldings Limited | 2017 A

nnual Report

www.dairibord.com

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