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CONTENTS
LAFARGE ZAMBIA PRESENTATION
Milestones 1
About Us 2
Our Products 3
Our Customers 4
Profiles of Board and Management Team 6
2014 IN REVIEW
Chairman's Letter 12
CEO's Letter 14
Financial Highlights 16
Innovation 18
FINANCIAL INFORMATION
Financial Information 23
Notice of 23rd Annual General Meeting 64
Form of Proxy 65
LAFARGE GROUP OVERVIEW
Lafarge Group Profile 68
A Broad Presence in Africa 71
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MILESTONES
ur continuous efforts to place innovation and Osustainable construction at the forefront of Zambia's development, resulted in another
watershed year for Lafarge Zambia. Our Chilanga plant, commissioned in 2008, is set to expand again through the doubling of its present production capacity by 2018.
In 1994 we became the first company to list on the Lusaka Stock Exchange as a result of Zambia's privatisation programme. In the present day, Lafarge Zambia is the largest company listed in the Lusaka Stock Exchange Index, measured by market capitalisation and our 3,460 plus shareholders comprise local individuals, pension funds and international institutional investors.
Chilanga Cement,now Lafarge Zambia Plc,is established
Chilanga Plantcommissioned,supplying cementfor the construction of Kariba dam wall
Ndola Plantcommmissioned
First company tobe listed on theLusaka Stock Exchange
Acquired by Lafarge Group
Launch ofSupaSet
MapepeAggregates Plantcommissioned -the first Lafargeaggregates plant in Zambia
Record saleslevels achieved:1.2 million tonnes RoadCem andWallCretelaunched Concretelaboratory commissioned Name change toLafarge ZambiaPlc Achievement ofLusaka Stock ExchangeFree Float ComplianceProgramme
2014
Name change toLafarge Cement Zambia Bond Issuance:Successful issuance of ZMW200 milliondomestic mediumterm bond, the largest bond issuance in Zambian history
New plantcommmissionedat Chilanga
Launch of PowerPlus
2010
Launch ofMphamvu
2003
ABOUT US
ZAMBIALafarge Zambia is the leading building materials supplier and construction solutions provider in Zambia and the regional market, mainly the Democratic Republic of Congo (DRC). The Company operates a network of facilities, which includes two integrated cement plants in Chilanga and Ndola, and distributes by road and rail to all corners of the country and the southern DRC.
The Mapepe Aggregates Plant is able to supply up to 600 000 tonnes of high quality aggregates per annum to the market.
The Company has embarked on an expansion programme at both Chilanga and Ndola plants: “Big Chilanga” is an expansion initiative of 1,000,000 tonnes per annum and is set to come on stream before 2018.
Chilanga Plant - LusakaMapepe Aggregates Plant - Lusaka
Livingstone Depot
Ndola Plant
Chingola Depot
Chipata Depot
Kasumbalesa Depot
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Mphamvu
Mphamvu is a Portland Limestone Cement with general purpose applications from domestic concrete to large building projects. It is as cost effective and technically suitable in manual block making operations as it is on major civil construction projects
.
WallCrete
WallCrete 22,5X is a masonry cement. With superior workability and normal 28 days strength development it's the ultimate solution for the quality demands of bricklaying, plasterwork, floor screed and pointing, whether for large construction projects or individual home builders.
RoadCem
RoadCem is a slower strength-gaining cementitious binder produced at our Chilanga and Ndola plants. Roadcem is designed to meet commonly encountered soil stabilization requirements.
PowerPlus PowerPlus is a specially formulated Portland Composite Cement engineered for use in all mining activities, grouting and concrete works.
SupaSet
SupaSet is an innovative product which is specifically geared at meeting the fast setting demands of the block-making and concrete product manufacturers.
Mapepe Aggregates
Lafarge's high quality fine (0-5mm), course (5-8mm, 8-13mm, 13-22mm and 22-40mm stone) and dense grade aggregates products are used for a wide variety of construction applications from concrete to road and highway surfaces, railway ballast and fill material.
OUR PRODUCTS
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BOARD OF DIRECTORS& EXECUTIVE COMMITTEE
Directors
M. Hantuba Non Executive Chairman
M. Chibesakunda Non Executive Director
D. Mulwila Non Executive Director
S.M. O’Donnell Non Executive Director
E. Rigaux Chief Executive Officer
C. Moloseni Chief Financial Officer
Transfer Secretaries
Sharetrack Zambia Farmers House, Central Park 1 Floor Main Building (South Wing) P.O. Box 37283, Lusaka ZambiaTel: +260 211 236 783 Fax: +260 211 236 785 E-mail: [email protected]
Company Secretary
H. Kapekele
Registered Office
Farm no. 1880,Kafue Road,ChilangaPO Box 32639, Lusaka , Zambia Tel: +260 211 367 400 / 367 600E-mail: [email protected]: www.lafarge.co.zm
Auditor
Ernst & Young Chartered AccountantsTrinity Office ParkStand No 16806 Unit 910P.O. Box 35483Lusaka, ZambiaTel:+260211378300Website:www.ey.com/zm
Principal Bankers
Citibank Zambia LimitedIndo Zambia Bank LimitedStandard Chartered Bank Zambia Plc
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Muna Hantuba ChairmanChief Executive Officer - African Life Financial Services (Zambia)
Muna has over 22 years experience at board level in the financial services sector and currently sits on several boards of private and listed companies. Muna has held the Chairmanship for the Securities and Exchange Commission of Zambia and the Economic Association of Zambia. He holds a Master of Business Administration degree from Stirling University in Scotland and a Bachelor of Economics from the University of Zambia.
Emmanuel RigauxChief Executive OfficerMember of the Executive Committee
Emmanuel brings extensive international management and Lafarge Group experience gained in France, North America and the United Kingdom. He is a graduate from Ecole Normale Supérieure (Paris) and Institut d’Etudes Politiques (Paris).
Mark O’DonnellNon Executive Board MemberManaging Director, Union Gold Group
Mark O'Donnell is a non-executive Board Member and brings extensive operations and manufacturing experience gained in his current role as the Managing Director of Union Gold Group, and previously as Managing Director of ERZ Holdings, one of Zambia's largest companies with interests in engineering, manufacturing and spare parts. He sits on several boards both in the public and private sectors.
Chrissie MoloseniChief Financial OfficerMember of the Executive Committee
Chrissie brings extensive experience gained at various organizations including Alexander Forbes Malawi Ltd. She joined Lafarge in 2004 as Finance Manager/Company Secretary and later moved to Zambia as Chief Financial Officer. Chrissie holds an MBA from the University of Bradford, UK and a Bachelor of Accountancy from the University of Malawi. She is a member of the Chartered Institute of Management Accountants (CIMA), UK.
BOARD OF DIRECTORS
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Dorothy MulwilaNon-Executive Board MemberChief Executive Officer, BIMM Group of Companies
Dorothy is a seasoned administrator and legal practitioner bringing a wealth of experience gained at various organisations, including the Law Association of Zambia and then National Pensions Scheme Authority (NAPSA), and the Ministries of Lands and Foreign Affairs as Permanent Secretary. Dorothy holds an LLB (High Credit) from the University of Zambia and a BAR certificate at the National Institution of Public Administration and a Certificate in Human Rights, Netherlands.
Mwelwa ChibesakundaNon-Executive Board MemberSenior Partner, Chibesakunda & Co
Mwelwa Chibesakunda is a non-executive Board Member and brings 22 years experience in mergers, acquisitions, banking and commercial law transactions in Zambia. Mwelwa holds a Bachelor of Law from the University of Zambia and a Master of Law (LLM) in International Commercial Law from the University of Bristol, UK. Mwelwa is an Advocate of the Supreme and High Courts for Zambia.
BOARD OF DIRECTORS
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Chrissie MoloseniChief Financial OfficerMember of the Executive Committee
See Board of Directors for profile
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EXECUTIVE MANAGEMENT
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Emmanuel RigauxChief Executive OfficerMember of the Executive Committee
See Board of Directors for profile
Eugene ChunguCorporate Affairs and Sustainable Development DirectorMember of the Executive Committee
Eugene has wide experience in commercial, stakeholder relations and communications across various sectors. He has been with the Lafarge Group since 2005. He holds an MBA from Oxford Brookes University, UK, a Bachelor of Agricultural Sciences majoring in Economics from the University of Zambia and a Post Graduate Diploma in Marketing from the Chartered Institute of Marketing (CIM), UK.
David DziubinskiChilanga Plant ManagerMember of the Executive Committee
David has extensive experience gained as Plant Manager at various plants across North America with the Lafarge Group. David holds a Bachelor of Science in Geology and a Master of Science degree in Geological Engineering from the University of Alaska, USA.
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EXECUTIVE MANAGEMENT
Chembe KabandamaCommercial DirectorMember of the Executive Committee
Chembe has multi-disciplinary experience in sales and engineering with more than 15 years experience in the milling, petroleum and cement industries. Chembe holds an MBA from Eastern and Southern Africa Management Institute (ESAMI)/ Maastricht University, Holland, Bachelor of Engineering from the University of Zambia and is a Chartered Management Accountant with the Chartered Institute of Management Accountants UK.
Henri GirardChilanga Expansion Programme DirectorMember of the Executive Committee
Henri has been with the Group for more than 26 years working in various locations across the globe. He has held different positions in various capacities, ranging from Production Manager through to Vice President Engineering in the Gypsum Division where he spent 14 years. Henri holds a Bachelor of Engineering from Grenoble INP - Pagora.
Harriet Kapampa KapekeleLegal Counsel and Company SecretaryMember of the Executive Committee
Harriet began her career at Corpus Globe Legal Practitioners and later joined PricewaterHouseCoopers in 2008. She has been with Lafarge since 2009 and is the Company Secretary and Legal Counsel. Harriet holds a Bachelor of Law from the University of Zambia and was admitted to the Zambian Bar in 2005.
Roy KapesiNdola Plant ManagerMember of the Executive Committee
Roy has over 20 years experience where he has served in the positions of Works Engineer, Projects Manager, Production Manager, Works Manager and Operations Manager. Roy holds a Bachelor of Mechanical Engineering from the University of Calgary, Canada and a Post Graduate Diploma in Management from Henley Management College, UK.
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EXECUTIVE MANAGEMENT
Victor Chewe MaambahHead of Health and Safety Member of the Executive Committee
Victor has over 13 years experience in Safety, Health and Environmental Management Systems. He has worked for various institutions in Zambia and abroad. Victor is a member of the Institution of Occupational Health and Safety. He holds various certificates including an International Diploma in Occupational Health and Safety from the British Safety Council, UK.
Kaziwe KaululeMarketing Director - Concrete & AggregatesMember of the Executive Committee
Kaziwe has extensive experience gained at Group level from the Lafarge Head Office in Paris, France where he held various managerial positions. Kaziwe holds a Bachelor of Commerce Honours and a Bachelor of Science from the University of Cape Town, South Africa.
Phoebe MusondaSupply Chain DirectorMember of the Executive Committee
Phoebe has worked with the Lafarge Group for over 10 years in the United Kingdom and France. She has extensive experience in purchasing and supply chain management. Phoebe holds a Bachelor of Arts Honours in Business Economics from Oxford Brookes University and is a Member of the Chartered Institute of Purchasing and Supply (CIPS), and the Zambian Institute of Purchasing and Supply (ZIPS).
Thecra MilamboHuman Resources DirectorMember of the Executive Committee
Thecra has extensive experience gained in the SADC region working in Human Resources and Training for multinational firms including UNILEVER and NESTLE. Thecra holds a Bachelor of Arts from the University of Zambia.
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2014 IN REVIEW
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CHAIRMAN’S LETTER
MUNA HANTUBA, CHAIRMAN OF LAFARGE ZAMBIA PLC.
I have the pleasure of presenting Lafarge Zambia Plc's results for the year ended 31 December 2014.
A period of national mourning and election campaigns followed the passing away of the country's Head of State, His Excellency, Mr Michael Chilufya Sata (MHSRIP). After the country's Presidential Elections on 20 January 2015, we welcomed the election of His Excellency Mr Edgar C Lungu SC as the sixth Republican President of Zambia. The peaceful elections once again illustrated the unique, democratic character of Republican Zambia and its people, 50 years after the Independence.
Shareholders directly benefited again this year from the Company's stock performance as the Company's share price rose by 64% to end at ZMW 26 at 31 December 2014. The Company's earnings grew from ZMW 1.69 per share in 2013 to ZMW 2.12 per share in 2014 and total dividends paid of ZMW 551 million were the highest dividend awarded in the history of the Lusaka Stock Exchange (LuSE). Lafarge Zambia Plc's LuSE market value was ZMW 5.2 billion at year end.
The proposed merger of Lafarge and Holcim announced by the Lafarge Group in April 2014 to become the most advanced Group in the industry is progressing well, and Lafarge and Holcim have received clearance from the European Competition Commission for the proposed merger which is on track for H1 2015 completion. I am optimistic that Lafarge Zambia will have even more opportunities under the new Group.
Lafarge Zambia is currently focused on the new expansion programme with a state-of-the-art new mill in Ndola, where an additional 100,000 tonnes per year of milling capacity will be added. In Chilanga, the expansion plan as announced in March 2014 is on track, and a new line at the Chilanga Plant will add a further 1 million tonnes of cement production capacity per year. This new project is set to begin in 2015 and will be completed by 2018, propelling the Company into new markets, both domestic and regionally.
We remain committed to local communities to ensure that our support touches the lives of people in a meaningful way. An important milestone to this commitment is the Lafarge Foundation launched under the high patronage of the First Lady in association with other organisations such as USAID. The Lafarge Foundation has pledged to make a real impact on communities where we operate through partnerships, including employees and contractors. Lafarge Zambia has pledged ZMW 2 million over the initial three year period to be applied to the objectives of the trust.
Lafarge Zambia continues to be a major contributor to the Zambian economy in many areas including employment creation and direct contribution to the Treasury. In 2014 the Company had a tax charge of ZMW 234 million compared to ZMW 172 million in 2013.
We are excited about the Company’s future prospects and are mobilised to succeed.
I wish to express my sincere gratitude to our customers for their continued loyalty and support. I would also like to thank the shareholders for their confidence, the Lafarge Group, the Board, the Executive team and Staff for their diligence, dedication and hard work.
________________________________________Muna HantubaCHAIRMAN
17 February 2015
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2014 IN REVIEW
1
EMMANUEL RIGAUX, CHIEF EXECUTIVE OFFICER OF LAFARGE ZAMBIA PLC.
afarge Zambia turned in a strong operational and Lfinancial performance in 2014 and continued to effectively serve its high-growth markets in the midst
of a challenging trading environment marked by strong currency fluctuations, increased competition and multiple cost challenges.
The growth in the cement market was underlined by Lafarge Zambia's record cement sales at 1.2 million tonnes, which was 4 percent higher than 2013, continuing a record breaking streak. Aggregates recorded sales tonnage of 232,000 tonnes for the year and overall Company turnover grew by 22 percent to ZMW 1.384 billion from ZMW 1.132 billion in 2013, driven by high volumes, pricing actions and a better product sales mix resulting from our customer segmentation initiatives.
The Company's increase in profit after tax of 25 percent was driven by favourable sales volumes, the launch of new products, as well as cost control initiatives. Net cash generated from operating activities increased to ZMW 667 million (up 27 percent over 2013), driven by higher operating income. The Company ended 2014 in a solid cash positive position without any external debt.
At a meeting of the Board of Directors held on 17 February 2015, a final dividend of ZMW 0.85 per share for the financial year ending 31 December 2014 was proposed for approval at the Annual General Meeting in March (in addition to the ZMW 0.75 interim dividend paid in 2014).
The Company’s aggregates business added to its range of product lines offering customers wider choice with high quality standards setting Lafarge Zambia as the leader in construction solutions, not just cement.
In order to fulfill our ambition to supply construction solutions and find new relays for profitable growth we set up key partnerships in 2014 which create value both for our customers and Lafarge Zambia. The 'Lafarge Inside' partnership with Flame Construction enabled us to bring together to the Zambian market within a few months an entirely new solution of concrete ('FlameCrete') produced in volumetric ready-mix trucks with the Lafarge quality and technical back-up. The remarkable success of FlameCrete bears witness to the potential of such partnerships which we are willing to extend to other segments. The Company also signed a franchise agreement with Brunelli Construction which will enable Brunelli to produce and market two radically innovative concretes Agilia® and Hydromedia®.
Industrial performance at both Ndola and Chilanga Plants improved throughout the year, with significant improvements in Mean Time Between Failures (MTBF) and Kiln Reliability (RF) being recorded at both cement plants. Yet power quality issues, especially at Ndola, prompted frequent kiln start-ups and contributed to higher plant costs.
Diversified and broad staff training and leadership initiatives continued throughout the year. International
CHIEF EXECUTIVEOFFICER’S LETTER
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2014 IN REVIEW
1
CHIEF EXECUTIVEOFFICER’S LETTER
2014 IN REVIEW
staff training placements last between 6 to 12 months and a total of 74 percent of training hours we provided to staff was carried out abroad. We continue to upskill our local workforce and aim to make Zambia a net contributor to the Lafarge Group for managers and experts. The roadmap ahead of Lafarge Zambia is clear: increase capacity, differentiate against our competitors by providing full construction solutions and consolidate our market leadership in Zambia and the DRC.
I wish to thank our customers for their loyalty, all staff for their diligence, commitment and hard work, the Lafarge Group for its assistance, the Board for its guidance, shareholders for their confidence and all stakeholders for their loyal support.
_________________________________________Emmanuel RigauxCHIEF EXECUTIVE OFFICER
17 February 2015
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PROFILES
BOARD OF DIRECTORSFINANCIAL HIGHLIGHTS
ZMW (m)
Revenues 1,384
EBITDA 687
Profit after tax 424
Shareholders’ funds ZWM (m) 1,165
Long term debt ZWM (m) -
Market capitalisation* ZWM (m) 5,201
Number of shares in issue* 200,039,904
ZMW
Earnings per share 2.12
Dividends per share 2.75
Market price per share* 26.00
*As at 31 December 2014
Ý 22% growth in revenue
27% growth in EBITDA
4% growth in sales volumes
25% increase in profit after tax
ÝÝÝÝ
Capital expenditureCement sales
thousands
00
0
000
0
00
00 0 0 0 00 00 0
Profit after tax
00
0
00
0
00
0
00
0
00
0
00
0
0 0 0 0 0 0 0
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2014 IN REVIEW
EBITDA
00
00
00
00
00
00
00
00
0 0 0 0 0 0 0
Revenue Growth
00
00
000
00
00
00
00
0 0 0 0 0 0 0
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INNOVATION
ur research capability and relationship with the OLafarge Group's global network of knowledge and state-of-the-art cement technology, has been
pivotal in bringing new products to the market and supplying construction solutions and products to our customers.
In 2014, our efforts centred on adding value to our customers by looking at how our relationships are structured, what infrastructure and products we can provide to promote our customers' sustainability, and how we get these products to our customers. Our largest customer is the proud nation of Zambia.
Innovation in building ZambiaŸInnovation through productivityŸInnovation in customer partnershipsŸInnovative new productsŸInnovation in customer servicesŸInnovation through our peopleŸ
Innovation in building Zambia
Our support for Pave Zambia Lafarge has signed with the Road Development Agency (RDA) a Memorandum of Understanding (MoU) which defines a clear roadmap towards the construction of concrete roads in Zambia wherever the application justifies it.
As part of the MoU a task force was set up to combine the expertise of Lafarge Group in concrete roads with the local knowledge and professionalism of RDA. The task force has conducted a full technical and economic assessment which makes the case of concrete roads extremely compelling especially over a 5 year cycle versus bituminous roads. This is particularly the case in low speed, high load traffic conditions encountered along the main commercial corridors.
Following this assessment Lafarge has tasked the Concrete Lab inaugurated in 2014 to assist RDA with practical support both on conventional and on sustainable, concrete roads.
Several road sections needing repaving have been identified as pilots and tangible progress is expected in
2015 and the years to come, with the potential to transform entirely the current model towards a more sustainable road system both in terms of construction and in terms of maintenance.
Concrete LaboratoryThe Lafarge Concrete Laboratory is a key milestone for Lafarge Zambia as it offers our customers not only construction materials testing, but also innovative construction solutions under increasing standards.
We set up the Lafarge Concrete Laboratory to provide concrete and aggregates tests to improve the quality of various infrastructure projects in Zambia. It is the first of its kind and has begun drawing the attention of major constructors and clients, including the Road Development Agency.
The aggregates businessLafarge inaugurated the Mapepe Aggregates Plant at the end of 2013, the first Lafarge aggregates plant in Zambia. Erected in a record 90 days and running to full production capacity soon thereafter, our Mapepe Aggregates Plant is now providing quality aggregates products to the market with an annual capacity of over 600,000 tonnes.
Lafarge Zambia is now the preferred supplier of clear aggregates (ranging 150mm to 5mm) to the ready-mix segment.
Innovation through productivity
The Lafarge Plant Operating ModelIn 2014 we continued with the Lafarge Group initiative called the Plant Operating Model (POM), which standardises the adoption of the best practices of Lafarge's top cement plants in the world.
POM is about ensuring we have the right organisation, the right people and the right succession plans to ensure business sustainability.
With POM, we have seen improvements in plant management and health and safety processes, reductions in plant down time, better cost performance (for example, by using alternative fuels) and improved customer satisfaction.
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2014 IN REVIEW
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Innovation in customer partnerships
The Company set up key partnerships in 2014 which have created value both for customers and Lafarge Zambia.
The 'Lafarge Inside' partnership with Flame Construction enabled us to bring to the Zambian market within a few months an ent i re ly new so lut ion of concrete ('FlameCrete') produced in volumetric ready-mix trucks with the Lafarge quality and technical back-up.
This remarkable success of FlameCrete bears witness to the potential of such partnerships which the Company is willing to extend to other segments.
Lafarge Zambia also signed a franchise agreement with Brunelli Construction which will enable Brunelli to produce and market radically innovative concretes Agilia® and Hydromedia® to the market. These special concretes contain mix designs, quality certification and materials provided by Lafarge. Agilia® and Hydromedia® are global products and brands under the Lafarge Group.
Innovation in new products
RoadCem launched for soil stabilisationWe developed RoadCem to meet commonly encountered road stabilisation requirements and to enable better workability.
RoadCem, manufactured from Portland cement clinker gypsum and other additives, is a slower strength-gaining cementitious binder produced at our Chilanga and Ndola Plants.
WallCrete launched for plastering & mortaring We designed WallCrete for plastering and mortar for bricklaying so that it is easier to mix, more workable, and results in less wastage. Lafarge has also released this in 25kg bags for the convenience of home builders, and it is proving popular with the market.
Innovation in customer service
A significant portion of cement consumers are situated away from business centres, or in remote areas, and so their cement needs are not fully and regularly met by our traditional retailers. We have implemented a number of initiatives to improve their interaction with Lafarge.
Call centreWe implemented a nationwide call centre to focus on every area of customer service to our customers. The call centre uses state-of-the- art technology to handle orders, order queries and delivery tracking to provide an end-to- end seamless customer experience.
The Lafarge Customer Call Centre is a part and parcel of our overall initiatives to get closer to our customers to promote sustainable relationships.
ContainersTo improve our market penetration in 2014, we invested in an additional 80 branded containers and placed them in strategic locations nationwide (including the DRC), to improve our products' reach to retailers and individual home builders. This initiative has been appreciated by retailers of Lafarge products, who are able to sell cement closer to individual home builders, with lower business risk and more flexibility.
Bulk cement silosWe have also introduced bulk cement silos to selected customers in the contractor and precast segments. Our silos are sophisticated, environmentally friendly and efficient, and provide cost-effective storage and handling of cement.
Customers who wish to use the Silo Scheme are required to meet pre-set volume performance criteria and, once approved, enjoy additional benefits: Priority cement deliveries, no warehousing costs, no package handling, moisture protection and increased product security.
We have successfully fitted our bulk tankers with spreader bars for homogenous cement spreading for road contractors.
INNOVATION
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2014 IN REVIEW
1
Depots and consignment stockIn order to improve customer convenience, we introduced consignment stock and commissioned depots in Chipata and Kasumbalesa during the year. This initiative has proved to be an effective means of service delivery and access to our customers, especially in the DRC.
GPS TrackingRegular updates on fleet activity are provided to customers through our GPS tracking systems, now installed fleet wide. As a result, reduced truck turnaround times, improved delivery of products and improved scheduling are other benefits we have passed on to clients. 2014 also resulted in Lafarge Zambia introducing electronic, mobile based proof-of-delivery systems for our customers to better monitor the logistics of moving our products.
Innovation through our people
We strive to put people in a situation where they are able to constantly improve their skills and their contribution to business performance.
At Lafarge, we are competing for the best people with a long-term view, recognising that career development is the responsibility of both the individual, and our company, at every level.
Diversified and broad training initiatives continued throughout the year. Our Fast Track Training Programme enabled technical staff to go on international assignments for between six months to one year at international Lafarge facilities. The Lafarge Leadership Journey training is a front line supervisory training course and dove-tails with our Mentorship Programme launched towards the end of 2014. In this programme, every executive committee member is allocated a number of employees to mentor, in addition to the usual mentoring and coaching they receive from their line managers.
INNOVATION
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2014 IN REVIEW
22
23
24. Report of the Directors
26. Statement of Corporate Governance
28. Statement of Responsibility for Financial Statements
29. Report of the Independent Auditors
30. Statement of Comprehensive Income
31. Statement of Financial Position
32. Statement of Changes in Equity
33. Statement of Cash Flows
34. Notes to the Financial Statements
63. Five Year Financial Record
23
24
The Directors are pleased to present the report and the Audited Financial Statements for Lafarge Zambia Plc for the year ended 31st December 2014.
ActivitiesThe business of the Company is the manufacture and sale of cement and aggregates products. The registered address of Lafarge Zambia Plc is stand 1880 Kafue road Chilanga, Lusaka Zambia.
Financial resultsTurnover for the year was ZMW 1,384,427 thousand (2013: ZMW 1,132,607 thousand) resulting in a 22% increase over 2013. This was the result of the product volumes, improved industrial performance and product sales mix.
Net Finance Income was ZMW 6,511 thousand (2013: ZMW 16,427 thousand) from interest earned on the investment of cash balances, net of bank charges. Exchange gains arising mainly from the translation into Kwacha of Receivable, Payables and Cash Balances denominated in US Dollars amounted to ZMW 46,543 thousand for the year (2013: ZMW 16,431 thousand gain) mainly due to the depreciation of the local currency in the last quarter of the year.
Profit before tax for the year was ZMW 657,987 thousand (2013: ZMW 510,913 thousand). After providing for a taxation charge ZMW 234,068 thousand (2013: ZMW 172,283 thousand), profit after tax was ZMW 423,919 thousand (2013: ZMW 338,629 thousand).
The Company had no medium or long term obligations to financial institutions as at 31 December 2014 (2013: None).
DirectorsThe Directors who held office during the year were:
Directors' interestsNone of the Directors had a material interest in any significant contracts concluded during the year. The number of shares held by the Directors of the Company as at 31 December was:
DividendsAn interim dividend of ZMW 0.75 per share (2013: ZMW 1.5) was proposed and paid during the year. At the next Annual General Meeting the Directors will propose that a dividend of ZMW 0.85 per share be declared and paid for the year.
Property, Plant and Equipment
The principal changes to Property, Plant and Equipment related to the following additions:
During the year assets with a value of ZMW 53,169 thousand (2013: ZMW 10,207 thousand) previously in capital work in progress were completed and commissioned. The assets were transferred to the relevant class of assets.
Equity InvestmentsThe Company owns 14% of the Issued Ordinary Equity Capital of Mbeya Cement Company Limited, incorporated and operating in Tanzania. A net dividend of ZMW 1,022 thousand (2013: ZMW 1, 208 thousand) was received after deduction of Withholding Tax.
Share CapitalThe Authorised Share Capital of the Company is ZMW 12,300,000 consisting of:
LAFARGE ZAMBIA PLC
REPORT OF THE DIRECTORS for the year ended 31 December 2014
Mr M. Hantuba Non-Executive Chairman
Mr E. Rigaux Chief Executive Officer
Mr. M. Chibesakunda Non-Executive Director
Mrs C. Moloseni Chief Financial Officer
Mrs D. Mulwila Non-Executive Director
Mr S.M. O'Donnell Non-Executive Director
2014 2013
Mr M. Chibesakunda 1,500 1,500
Mr M. Hantuba 2,000 2,000
Mr D. Mulwila 18,500 18,500
Total 22,000 22,000
Kwacha thousand 2014 2013
Capital work in Progress 58,590 40,594
Vehicles, Leasehold, Furniture and Fittings - 87
58,590 40,681
Ordinary shares of ZMW 0.05 each 240,000,000
Non-cumulative Redeemable Preference Shares at ZMW 0.10 each 3,000,000
25
The Issued Capital comprises 200,039,904 Ordinary Shares with a Par Value of ZMW 10,001,995 held as follows:
The Lusaka Stock Exchange Central Share Depository Limited (LuSE CSD) holds shares in its capacity as nominee for approximately 3,460 shareholders. Other than the shareholdings listed above, the Directors are not aware of any individual shareholding that exceeds 3% of the Issued Share Capital.
Under the Articles of Association the unissued share capital of the Company is controlled by the Directors.
The Company has complied with the minimum free float requirements of the listing rules of the Lusaka Stock Exchange (LuSE) Corporate Governance Code for listed and quoted companies.
EmployeesThe average number of employees during each month of the year was:
The total remuneration paid to employees during the year was ZMW 114,421 thousand (2013: ZMW 96,662 thousand) and has been charged to profit or loss as follows:
ExportsThe value of goods exported by the Company during the year was ZMW 190,388 thousand (2013: ZMW 211,919 thousand).
DonationsThe Company supports various charitable organizations in Zambia. During the year the Company donated an amount of ZMW 2,052 thousand (2013: ZMW 1,659 thousand) comprised of Cash Donations of ZMW 1,530 thousand and Marketing Donations of ZMW 522 thousand. No donation was of a political nature.
Health and safetyThe Company has a formal Health and Safety Policy that has been approved by the Board and is designed to ensure a safe working environment. The policy is implemented through Safety Committees and through a joint participative effort between Management and staff. Health and Safety standards are regularly reviewed and updated to ensure that improvements conform to Lafarge Group policies and worldwide best practice.
EnvironmentThe Company has a formal Environmental Policy, approved by the Board, which prescribes the procedures and practices to be followed to achieve minimum environmental impact. The Company is licensed by the Zambia Environmental Management Agency (ZEMA) which monitors and regulates its performance. Lafarge Zambia Plc, as a member of the Lafarge Group, also complies with the Lafarge Group Charter on Environmental Policy.
Developments in the industry and marketThe Company operated at full capacity throughout 2014 driven by increased demand in both domestic and export markets.
Legislative developmentsTo the best of their knowledge, the Directors confirm that the Company has complied with the Factories and Public Health Act with the regulatory requirements including but not limited to the Occupational Health and Safety Act 2010 No 36 of 2010, Mines and Minerals Development Act of 2008 No 7 of 2008, Factories Act No 441 and the Zambia Environmental Management Act No 12 of 2011.
AuditorsErnst & Young's term of office ceases at the next Annual General Meeting. A resolution proposing their reappointment as Auditors and authorizing the Directors to determine their remuneration will be proposed at the Annual General Meeting.
By order of the Board
___________________________________H. Kapekele COMPANY SECRETARYLusaka, Zambia 17 February 2015
LAFARGE ZAMBIA PLC
REPORT OF THE DIRECTORS for the year ended 31 December 2014
Number of shares
% of total equity
Pan African Cement Limited 100,219,992 50.10
Financiere Lafarge 49,806,997 24.90
LuSE CSD 23,853,418 11.92
General public 26,159,497 13.08
200,039,904 100.00
2014 2013
January 603 556
February 601 556
March 601 557
April 600 587
May 604 596
June 599 601
July 598 603
August 596 606
September 593 604
October 545 602
November 539 602
December 538 601
Kwacha Thousands 2014 2013
Cost of Sales 78,040 73,418
Other Expense 36,381 23,243
114,421 96,662
26
LAFARGE ZAMBIA PLC CORPORATE GOVERNANCEREPORT for the year ended 31 December 2014
Lafarge Zambia Plc (the "Company" or "Lafarge Zambia") is committed to the principles of openness, integrity and accountability. The Directors and staff of Lafarge Zambia strive to ensure that the Company is managed in an efficient, accountable, responsible and moral manner. The Board of Directors endorses the Lusaka Stock Exchange (LuSE) Corporate Governance Code for listed and quoted companies (the "Code") and believes that, in all material respects, the Company complied with the principles of the Code throughout the year under review.
Board of DirectorsThe Board currently comprises six (6) Directors, including four (4) independent, non-executive Directors. The Board composition is balanced so that no individual or small group can dominate decision making. The depth of experience and diversity of the Board ensures that robust and forthright debate occurs on all issues of material importance to the Company.
The roles of Chairman and Chief Executive Officer ("CEO”)/ Managing Director are separate and no individual has dominant control over decision-making. The Chairman is an independent, non-executive Director appointed by the Board.
The Board is responsible to shareholders for strategy and direction, monitoring of operational performance and management, risk management processes and policies, setting of authority levels and the selection of new Directors. The Board is also responsible for the integrity and quality of communication with stakeholders, including employees, regulators and shareholders.
The Board follows a risk management framework and is responsible for the review of risk management processes in the Company and ensures that Board policies and decisions on risk are properly implemented.
The Lafarge Zambia Board meets formally at least three times annually.
Board CommitteesThe Board is assisted in the discharge of its responsibilities by sub-committees. These committees are accountable to the Board, with the exception of the Executive Committee of Management which reports to the Managing Director. Minutes of sub-committee meetings are available to Board members. Senior Management staff are invited to attend meetings where appropriate.
Record of Directors' AttendanceIn accordance with the Companies Act 1994 (as amended), listing rules of the Lusaka Stock Exchange, the Securities and Exchange Commission (SEC) Act 1993, the record of Directors' attendance and meetings held during year 2014 are available for inspection.
The meetings of the Board were presided over by the Chairman. Written notices of Board meetings, along with the agenda and other Management Reports were circulated at least seven days before the meetings. The minutes of the meetings were appropriately recorded by the Company Secretary, circulated and approved at subsequent Board Meetings.
Board MeetingsThe Board held four (4) meetings during the 2014 financial year. The following table shows membership and the attendance of Directors at the Board meetings held in the 2014 financial year:
Audit and Risk Management CommitteeThe Audit and Risk Management Committee is chaired by Mr. Mark O'Donnell, an independent, non-executive Director. The Audit and Risk Management Committee assists the Board in the discharge of its duties relating to financial reporting to all stakeholders, Compliance, Risk Management and the effectiveness of Accounting and Management Information Systems.
Issues addressed include the review of Accounting Policies, Internal and External Audit Functions, IT risks, Business Continuity Plans, Financial Reporting, Operational Risks, Risk Management, compliance and the adequacy of Management Information.
Meetings are held regularly throughout the year and are attended by Senior Management where necessary. The Committee met three (3) times in the year. The table below shows the composition and attendance of the members of the Committee at the meetings:
18/2 5/5 5/8 4/11 Total
Mr M. HantubaNon-Executive Chairman
ü ü ü ü 4
Mr E. RigauxChief Executive Officer
ü ü ü ü 4
Mr. M.ChibesakundaNon-Executive Director
ü ü ü ü 4
Mrs C. MoloseniChief Financial Officer
® ü ü ü 3
Mrs D. MulwilaNon-Executive Director
ü ü ü ü 4
Mr S.M. O'DonnellNon-Executive Director
ü ü ® ü 3
ü - Present® - Absent
Audit and Risk Management Committee
17/2 1/8 3/11 Total
Mr M. O’DonnellNon-Executive Director
ü ® ü 2
Mr. M. ChibesakundaNon-Executive Director
ü ü ü 3
ü - Present® - Absent
27
Organizational Ethics and Business IntegrityThe issue of good governance and ethical conduct is critical to counterparty and investor perceptions of a listed company. Lafarge Zambia strives to ensure that the Company's integrity and professional conduct is beyond reproach at all times. While it is probably impossible to achieve a perfect result, the Company attempts to limit the cost of unethical behavior to the Company's stakeholders.
The Company has adopted a Code of Conduct formulated by the Group and LuSE. Lafarge Zambia has a firm approach in dealing with any inappropriate or fraudulent behavior of Management or Staff, Suppliers or Customers. In the year 2014, the Code of Business Conduct was extended to all customers and contractors dealing with Lafarge to ensure they too are aware and comply with its provisions.
Executive Committee of ManagementThe Executive Committee headed by the Managing Director/CEO is responsible for the day-to-day management of the business. It is empowered and responsible for implementing the strategies and policies determined by the Board, managing the business and affairs of the Company, prioritizing the allocation of technical and human resources, and establishing best management practices.
Management ReportingThe Company has established management reporting procedures which include the preparation of Annual Strategic Plans and Budgets. Actual results are reported monthly against approved budgets and revised forecasts and compared to the prior year.
Internal ControlThe control systems are designed to safeguard the Company's assets, maintain proper accounting records and ensure the reliability of management and financial information produced by the Company. Control systems are based on best practices and established Lafarge Group Policies and Procedures and are implemented by trained personnel with an appropriate segregation of duties.
The Company's ultimate holding company, Lafarge SA, is a foreign entity which is listed on the Paris Bourse. The Group is required to comply with the requirements of the 2004 French Securities Act. This legislation requires management of listed entities to certify that they have evaluated the effectiveness of internal controls within the Group.
Insider TradingThe Board has ultimate responsibility for the Company's compliance with the rules relating to insider trading. The Company's Directors are prohibited from dealing in the Company's shares at certain periods, in accordance with the Section 52 of the Securities Act, Chapter 354 of the Law of Zambia and the Company's policy on insider trading.
Whistle BlowingThe Company is committed to conducting its affairs ethically and responsibly. Unethical behaviors cost the Company money, time, human resources and can negatively affect the Company’s reputation. All ethical abuses and fraud are reported through the Company’s internal whistle blowing process.
Employment of differently abled personsIt is the Company’s policy not to discriminate against differently abled persons.
LAFARGE ZAMBIA PLC CORPORATE GOVERNANCEREPORT for the year ended 31 December 2014
28
LAFARGE ZAMBIA PLC
STATEMENT OF R ESPONSIBILITYFOR FINANCIAL RESULTSfor the year ended 31 December 2014
The Company's Directors are responsible for the preparation of the Financial Statements of Lafarge Zambia Plc, comprising the Statement of Financial Position and Statement of Comprehensive Income, Changes in Equity and Cash Flows and the Notes to the Financial Statements which include a summary of significant accounting policies and other explanatory notes, in accordance with the International Financial Reporting Standards and the Companies Act of Zambia.
The Directors' responsibilities include: designing, implementing and monitoring internal controls relevant to the preparation and fair presentation of these Financial Statements that are free from material misstatement, whether due to fraud or error, selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances.
The Directors are also responsible for maintaining adequate accounting records and an effective system of Risk Management.
The Directors have made an assessment of the Company's ability to continue as a going concern and believe the business will be a going concern in the year ahead.
APPROVAL OF THE FINANCIAL STATEMENTSThe financial statements of the company as indicated above, were approved and signed by the Directors on 17 February 2015 and are signed on its behalf by:
___________________________________________________M. HantubaDirector
___________________________________________________E. RigauxDirector
29
LAFARGE ZAMBIA PLC
INDEPENDENT AUDITOR’SREPORT for the year ended 31 December 2014
TO THE MEMBERS OF LAFARGE ZAMBIA PLC
Report on the Financial StatementsWe have audited the accompanying Financial Statements of Lafarge Zambia Plc which comprise the Statement of Financial Position as at 31 December 2014, Statement of Comprehensive Income, Statement of Changes in Equity and Statement of Cash Flows for the year then ended, and a summary of significant accounting policies and other explanatory information set out on pages 34 to 62.
Directors' responsibility for the Financial StatementsThe Company's Directors are responsible for the preparation and fair presentation of these Financial Statements in accordance with International Financial Reporting Standards and the requirements of the Companies Act, 1994 (as amended), and for such Internal Control as the Directors determine is necessary to enable the preparation of Financial Statements that are free from material misstatements, whether due to fraud or error.
Auditor's responsibilityOur responsibility is to express an opinion on these Financial Statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. Those Standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance whether the Financial Statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the Financial Statements. The procedures selected depend on the auditor's judgement, including the assessment of the risks of material misstatement of the Financial Statements, whether due to fraud or error. In making those risk assessments the auditor considers Internal Control relevant to the entity's preparation and fair presentation of the Financial Statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's Internal Control. An audit also includes evaluating the appropriateness of Accounting Policies used and the reasonableness of Accounting estimates made by Management, as well as evaluating the overall presentation of the Financial Statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
OpinionIn our opinion, the Financial Statements give a true and fair view of the financial position of Lafarge Zambia plc as at 31 December 2014, and of its financial performance and cash flows for the year, then ended, in accordance with International Financial Reporting Standards and in the manner required by the Companies Act, 1994 (as amended).
Report On Other Legal RequirementsThe Companies Act, 1994 (as amended) requires that in the carrying out of our audit we consider whether the Company has kept proper accounting records and other registers required by this Act. In our opinion the Company has kept proper accounting records and other records and registers required by the Companies Act 1994 (as amended).
___________________________________________________
Ernst & YoungChartered Accountants
__________________________________________________Henry C Nondo Partner 17 February 2015/ Lusaka
30
LAFARGE ZAMBIA PLC
STATEMENT OFCOMPREHENSIVE INCOME for the year ended 31 December 2014
Kwacha thousands Notes 2014 2013
Revenue
Cost of sales
5 1,384,427
(474,753)
1,132,607
(401,972)
GROSS PROFIT 909,674 730,635
Selling and distribution expenses
Marketing expenses
Administration expenses
(118,283)
(10,563)
(195,300)
(71,687)
(7,777)
(175,308)
Operating Profit 585,528 475,864
Investment income
Net other gains
Finance costs
6
7
8
8,145
64,926
(612)
18,526
16,523
(933)
Profit before tax 9 657,987 510,913
Income tax expense 10 (234,068) (172,283)
Profit for the year 423,919 338,629
Other Comprehensive Income
Other Comprehensive Income not to be reclassified to profit or
loss in subsequent periods
-
-
Property, Plant and Equipment revaluation
Tax effect
680,655
(238,229)
-
-
Other Comprehensive Income net of tax 442,426 -
Total Comprehensive Income 866,345 338,629
Basic and Diluted Earnings per Share (Kwacha) 11 2.12 1.69
The notes on pages 34 to 62 form part of these financial statements
31
LAFARGE ZAMBIA PLC
STATEMENT OFFINANCIAL POSITION for the year ended 31 December 2014
Kwacha thousands Notes 2014 2013
Non-current assets
Property, Plant and Equipment
Intangible assets
Investment at fair value through profit or loss
12
13
14
1,361,330
629
21,818
654,853
665
5,910
Total non-current assets 1,383,777 661,428
Current assets
Inventories
Trade receivables
Other receivables
Amounts due from related companies
Bank and cash balances
15
16
17
18
19
151,095
78,173
53,626
134,756
173,670
125,544
18,268
13,423
203,231
346,484
Total current assets 591,320 706,951
TOTAL ASSETS 1,975,097 1,368,379
EQUITY AND LIABILITIES
Capital and Reserves
Issued capital
Revaluation reserve
Retained earnings
20
10,002
443,716
711,284
10,002
3,289
835,476
Total equity 1,165,002 848,767
Non-current liabilities
Provision for environmental liabilities
Retirement benefit plans
Deferred tax liabilities
21
22
23
28,173
798
437,191
24,987
993
173,331
Total non-current liabilities 466,162 199,311
Current liabilities
Trade payables
Other payables
Amounts due to related companies
Current tax liability
Total current liabilities
24
24
18
10
48,142
239,655
3,346
52,789
343,932
24,007
200,661
54,504
41,128
320,300
Total liabilities 810,094 519,611
Total equity and liabilities 1,975,097 1,368,379
These Financial Statements as set out on pages 30 to 62 were approved by the Board of Directors on 17
February 2015 and signed on its behalf by:
_____________________________ ______________________________ - DIRECTOR - DIRECTORM HANTUBA E RIGAUX
32
LAFARGE ZAMBIA PLC
STATEMENT OFCHANGES IN EQUITYfor the year ended 31 December 2014
Kwacha thousands
Share capital
Property revaluation
reserveRetained earnings Total
Balance at 31 December 2013 100 5,288 956,809 962,197
Profit for the year - - 338,629 338,629
Total Comprehensive Income
Final dividend paid in respect of 2012
Interim dividend in respect of 2013
Issue of share capital due to currency rebasing
-
-
-
9,902
-
-
-
-
338,629
(151,999) (300,060)
(9,902)
338,629
(151,999) (300,060)
Transfer to retained earnings-
(1,999) 1,999 -
Balance at 1 January 2014 10,002 3,289 835,476 848,767
Profit for the year
Other Comprehensive Income
-
-
- 442,426
423,919
-
423,919
442,426
Total Comprehensive income 442,426 423,919 866,345
Final dividend paid in respect of 2013
Interim dividend paid in respect 2014
Transfer to retained earnings
-
-
-
-
-
(1,999)
(400,080)
(150,030)
1,999
(400,080)
(150,030)
-
Balance at 31 December 2014 10,002 443,716 711,284 1,165,002
The notes on pages 34 to 62 form part of these financial statements
-
33
LAFARGE ZAMBIA PLC
STATEMENT OFCASH FLOWS for the year ended 31 December 2014
Kwacha thousands Notes 2014 2013
Cash flow from operating activities
Profit before tax
Adjustments for:
Gain on disposal of Property, Plant and Equipment
Dividend income
Interest income
Interest expense
Provision for retirement benefit plans
Fair Value Adjustments on Investment
Provision for environmental liabilities
Depreciation and amortisation of non-current assets
9
6
6
8
22
28
21
12/13
657,987
(2,475)
(1,022)
(7,123)
612
1,164
(15,908)
4,820
28,675
510,913
(92)
(1,208)
(17,318)
9 33
1,613
-
1 ,736
30,423
Net cash flows from operating activities before movements in working capital 666,730 5 26,066
Movements in working capital:
Increase in inventories
Increase in trade receivables
Increase in other receivables
Decrease/ increase in amounts due from related companies
Increase/ (decrease) in trade payables
Increase in other payables
(Decrease)/ increase in amounts due to related companies
(25,551)
(59,904)
(40,204)
68,475
24,134
38,994
(51,518)
(8,898)
(5,875)
(1,933)
(22,529)
(1,865)
62,102
36,191
Cash generated by operations
Income taxes paid
Retirement benefits paid
Contributions paid in to the Environmental Protection Fund
Finance cost
10
22
21
8
621,517
(191,157)
(1,360)
(1,634)
(612)
583,260
(180,001)
(2,192)
-
(933)
Net cash generated by operating activities 426,754 401,066
Cash flow from investing activities
Dividends from Mbeya Cement
Interest income from bank balances
Purchase of Property, Plant and Equipment
Proceeds from disposal of Property, Plant and Equipment
6
6
12
7
1,022
7,123
(58,590)
986
1 ,208
17,318
(40,681)
1 85
Net cash used in investing activites (49,459) (21,970)
Cash flow from financing activities
Dividend paid to owners of the Company (550,110) (452,059)
Net cash used in financing activities (550,110) (452,059)
Decrease in cash and cash equivalents (172,815) (72,963)
Cash and cash equivalents at the beginning of the year 346,484 419,448
Decrease in cash and cash equivalents at the end of the year 173,670 346,484 Represented by:Bank and cash balance 19
173,670
346,484
The notes on pages 34 to 62 form part of these financial statements
34
1. GENERAL INFORMATION
Lafarge Zambia (the "Company") is a Company incorporated in the Republic of Zambia and is listed on the Lusaka Stock Exchange. The principal activity of the Company is the manufacture and sale of cement and aggregates products.
The address of its registered office and principal place of business are disclosed in the Director's report on page 1.
1.1 Statement of compliance
The financial statements have been prepared in accordance with International Financial Reporting Standards.
1.2 Basis of preparation
The financial statements have been prepared on the historical cost basis except for certain non-current assets and financial instruments that are measured at revalued amounts or fair values. Historical cost is generally based on the fair value of the consideration given in exchange for assets.
2. NEW STANDARDS AND INTERPRETATIONS
A number of new standards, amendments to standards and interpretations are mandatory for the year ended 31 December 2014.
2.1 New standards and interpretations issued but not yet effective.
Standards issued but not yet effective up to the date of issuance of the financial statements are listed below.
This listing is of standards and interpretations issued, which the Company reasonably expects to be applicable at a future date. The Company intends to adopt those standards when they become effective.
2.1.1 New standards and amendments
IFRS 9 Financial Instruments – classification and measurementOn 24 July 2014, the International Accounting Standards Board (IASB) issued the final version of IFRS 9-Financial Instruments bringing together the classification and measurement, impairment and hedge accounting phases of the IASB's project to replace IAS 39 Financial Instruments: Recognition and Measurement and all previous versions of IFRS 9. The classification and measurement requirements address specific application issues arising in IFRS 9 (2009) that were raised by preparers, mainly from the financial services industry. The expected credit loss model addresses concerns expressed following the financial crisis that entities recorded losses too late under IAS 39.
IFRS 9 stipulates that financial assets are measured at amortised cost, fair value through profit or loss, or fair value through other comprehensive income, based on both the entity's business model for managing the financial assets and the financial asset's contractual cash flow characteristics.
Apart from the 'own credit risk' requirements, classification and measurement of financial liabilities is unchanged from existing requirements. IFRS 9 is applicable for annual periods beginning on or after 1 January 2018. The Company is still assessing the impact of the standard.
IFRS 15- Revenue from Contracts with Customers The IASB and FASB have issued their joint revenue recognition standard, IFRS 15 Revenue from Contracts with Customers, which replaces all existing IFRS and US GAAP revenue requirements. The core principle of IFRS 15 is that revenue is recognised to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.
IFRS 15 establishes a five-step model that will apply to revenue earned from a contract with a customer (with limited exceptions), regardless of the type of revenue transaction or the industry. The standard's requirements will also apply to the recognition and measurement of gains and losses on the sale of some non-financial assets that are not an output of the entity's ordinary activities (e.g., sales of property, plant and equipment or intangibles). Extensive disclosures will be required, including disaggregation of total revenue; information about performance obligations; changes in contract asset and liability account balances between periods and key judgements and estimates.
The standard is for effective for annual periods beginning on or after 1 January 2017 and the Company is still assessing the impact of the standard.
IAS 16 and IAS 38 clarification of Acceptable Methods of Depreciation and AmortisationThe IASB issued amendments to IAS 16 Property, Plant and Equipment and IAS 38 Intangible Assets prohibiting the use of revenue-based depreciation methods for fixed assets and limiting the use of revenue-based amortisat ion methods for intangible assets. The amendments are effective prospectively. The amendment becomes effective for annual periods beginning on or after 1 January 2016 and is not expected to have an effect on the Company as the Company does not use revenue methods to depreciate its assets
LAFARGE ZAMBIA PLC
NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2014
35
2.1.2 Improvements to existing standards
2010 - 2012 annual cycle of improvements (issued December 2013) In December 2013, the IASB issued two cycles of Annual Improvements to IFRSs that contain changes to 9 standards. The changes are effective from 1 July 2014 either prospectively or retrospectively. A summary of each amendment is described below:
IFRS 13 Fair value measurement - Portfolio exceptionThe amendment clarifies that the portfolio exception in IFRS 13 can be applied to financial assets, financial liabilities and other contracts. The amendment is not expected to affect the Company as it does not have financial assets, financial liabilities and other contracts that meet this criterion.
IAS 16 Property, plant and equipment and IAS 38 Impairment - Revaluation method-proportionate restatement of accumulated depreciationThe amendment clarifies that revaluation can be performed by adjusting the gross carrying amount of the asset to market value or by determining the market value of the carrying amount and adjusting the gross carrying amount proportionately so that the resulting carrying amount equals the market value The amendment also clarif ied that accumulated depreciation/ amortisation is the difference between the gross carrying amount and the carrying amount of the asset (i.e., gross carrying amount –accumulated depreciation/amortisation = carrying amount).
The amendment to IAS 16.35 (b) and IAS 3 8 . 8 0 ( b ) c l a r i f i e s t h a t t h e a c c u m u l a t e d depreciation/amortisation is eliminated so that the gross carrying amount and carrying amount equal the market value. The Company has not revalued its land and buildings and will consider the amendment when it becomes effective.
IAS 24 Related party disclosures - Key management personnelThe amendment clarifies that a management entity – an entity that provides key management personnel services – is a related party subject to the related party disclosures. In addition, an entity that uses a management entity is required to disclose the expenses incurred for management services. The amendment is not expected to have an impact on the Company as no entity provides key management services to the Company.
2012 – 2014 Annual improvement cycle (issued September 2014)In September 2014, the IASB issued Annual Improvements to IFRSs 2012-2014 Cycle, which contains five amendments to four standards, excluding consequential amendments. The amendments are
effective for annual periods beginning on or after 1 January 2016. Below is a list of applicable amendments.
IFRS 7 – Servicing Contracts Paragraphs 42A - H of IFRS 7 require an entity to provide disclosures for any continuing involvement in a transferred asset that is derecognised in its entirety. The Board was asked whether servicing contracts constitute continuing involvement for the p u r p o s e s o f a p p l y i n g t h e s e d i s c l o s u r e requirements. The amendment clarifies that a servicing contract that includes a fee can constitute continuing involvement in a financial asset. An entity must assess the nature of the fee and arrangement against the guidance for continuing involvement in paragraphs IFRS 7.B30 and IFRS 7.42C in order to assess whether the disclosures are required. The Company will consider the clarification where applicable.
IFRS 7 – Applicability of the offsetting disclosures to condensed interim financial statements.In December 2011, IFRS 7 was amended to add guidance on offsetting of financial assets and financial liabilities. In the effective date and transition for that amendment, paragraph 44R of IFRS 7 states that “An entity shall apply those amendments for annual periods beginning on or after 1 January 2013 and interim periods within those annual periods. The interim disclosure standard, IAS 34, does not reflect this requirement, however, and it is not clear whether those disclosures are required in the condensed interim financial report.
The amendment removes the phrase 'and interim periods within those annual periods' from paragraph 44R, clarifying that these IFRS 7 disclosures are not required in the condensed interim financial report. However, the Board noted that IAS 34 requires an entity to disclose ' an explanation of events and transactions that are significant to an understanding of the changes in financial position and performance of the entity since the end of the last annual reporting period'. Therefore, if the IFRS 7 disclosures provide a significant update to the information reported in the most recent annual report, the Board would expect the disclosures to be included in the entity's condensed interim financial report. The Company will consider the amendment where applicable when it becomes effective.
IAS 34 Disclosure of information 'elsewhere in the interim financial report’IAS 34 requires entities to disclose information in the notes to the interim financial statements “if not disclosed elsewhere in the interim financial report”.
LAFARGE ZAMBIA PLC
NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2014
36
However, it is unclear what the Board means by 'elsewhere in the interim financial report'.
The amendment states that the required interim disclosures must either be in the interim financial statements or incorporated by cross-reference between the interim financial statements and wherever they are included within the greater interim financial report (e.g., in the management commentary or risk report).
The Board specified that the other information within the interim financial report must be available to users on the same terms as the interim financial statements and at the same time. If users do not have access to the other information in this manner, then the interim financial report is incomplete. The Company will consider the amendment when it becomes effective.
IFRS 5 – Changes in methods of disposal Assets (or disposal groups) are generally disposed of either through sale or through distribution to owners. The amendment to IFRS 5 clarifies that changing from one of these disposal methods to the other should not be considered to be a new plan of disposal, rather it is a continuation of the original plan. There is therefore no interruption of the application of the requirements in IFRS 5.
The amendment must be applied prospectively to changes in methods of disposal that occur in annual periods beginning on or after 1 January 2016, with earlier application permitted. The Company will consider the amendment where applicable when it becomes effective.
2.2 New standards and interpretations issued but not yet effective in 2014
IFRS 15 Revenue from Contracts with CustomersIFRS 15 replaces all existing revenue requirements (IAS 11 Construction Contracts, IAS 18 Revenue, IFRIC 13 Customer Loyalty Programmes, IFRIC 15 Agreements for the Construction of Real Estate, IFRIC 18 Transfers of Assets from Customers and SIC 31 Revenue – Barter Transactions Involving Advertising Services) in IFRS and applies to all revenue arising from contracts with customers. It also provides a model for the recognition and measurement of sales of some non-financial assets including disposals of property, equipment and intangible assets.
The standard outlines the principles an entity must apply to measure and recognise revenue. The core principle is that an entity will recognise revenue at an amount that reflects the consideration to which the entity expects to be entitled in exchange for transferring goods or services to a customer.
3. SIGNIFICANT ACCOUNTING POLICIES
3.1 Revenue and other income recognition
Sale of goodsRevenue is measured at the fair value of the consideration received or receivable and represents amounts receivable for goods provided in the normal course of business, net of discounts and value added tax, during the year.
Revenue from the sale of goods is recognized when all the following conditions are satisfied:
l the Company has transferred to the buyer the significant risks and rewards of ownership of the goods;l the Company retains neither continuing managerial involvement to the degree usually associated with ownership nor effective control over the goods sold;l the amount of revenue can be measured reliably;l it is probable that the economic benefits associated with the transaction will flow to the entity; and the costs incurred or to be incurred in respect of the transaction can be measured reliably.
Specifically, revenue from sale of goods is recognized when goods are delivered and legal title is passed.
Dividend incomeDividend income from investments is recognized when the shareholder's right to receive payment has been established (provided that it is probable that the economic benefits will flow to the Company and the amount of income can be reliably measured).
Interest incomeInterest income from a financial asset is recognized when it is probable that the economic benefits will flow to the Company and the amount of revenue can be measured reliably.
Interest income is accrued on a time basis, by reference to the principal outstanding and at the effective interest rate applicable, which is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset to that asset's net carrying amount on initial recognition.
3 .2 Leases
Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee. All other leases are classified as operating leases. Operating lease payments are recognized as an expense on a straight-line basis over the lease term, except where another systematic basis is more representative of the time pattern in which economic benefits from the leased asset are consumed. Contingent rentals arising under operating leases are recognized as an expense in the period in which they are incurred.
LAFARGE ZAMBIA PLC
NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2014
37
In the event that lease incentives are received to enter into operating leases, such incentives are recognized as a liability. The aggregate benefit of incentives is recognized as a reduction of rental expense on a straight-line basis, except where another systematic basis is more representative of the time pattern in which economic benefits from the leased asset are consumed.
3 .3 Foreign currencies
The financial statements of the Company are presented in the currency of the primary economic environment in which the entity operates (its functional currency). The results and financial position of the Company are expressed in Zambian Kwacha (ZMW), which is the functional currency of the Company and the presentation currency for the financial statements.
In preparing the financial statements of the Company transactions in currencies other than the entity's functional currency (foreign currencies) are recognized at the rates of exchange prevailing at the dates of the transactions. At the end of each reporting period, monetary items denominated in foreign currencies are retranslated at the rates prevailing at that date. Non-monetary items carried at fair value that are denominated in foreign currencies are retranslated at the rates prevailing at the date when the fair value was determined. Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rates at the date of the transaction.
3.4 Retirement benefit costs
The Company's employees are members of a separately administered defined contribution pension scheme. Payments to the defined contribution retirement benefit plan are recognised as an expense when employees have rendered service entitling them to the contributions. The Company's contributions are charged to profit or loss as they become payable in accordance with the rules of the scheme.
For fixed term contract employees a gratuity is payable at the end of the contract period and is accrued as a provision and settled at the end of the contracted period. Contract periods range from one to two years.
The Company contributes to the National Pension Scheme Authority (NAPSA) for its eligible employees as provided for by Law. Membership, with the exception of expatriate employees, is compulsory and monthly contributions by both employer and employees are made. The employer's contribution is charged to profit or loss in the year in which it arises.
3.5 Taxation
Income tax expense represents the sum of the tax currently payable and deferred tax.
3.5.1 Current tax
The tax currently payable is based on taxable profit for the year. Taxable profit differs from profit as reported in the statement of Profit or loss and other comprehensive income because of items of income or expense that are taxable or deductible in other years and items that are never taxable or deductible. The Company's liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the end of the reporting period.
3.5.2 Deferred tax
Deferred tax is recognised on differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit. Deferred tax liabilities are generally recognised for all taxable temporary differences except to the extent that they arise from:
a) Initial recognition of goodwill; orb) the initial recognition of an asset or liability in
a transaction which:
i) is not a business combination:ii) at the time of the transaction, affects neither accounting profit nor taxable profit (tax loss).
Deferred tax assets are generally recognised for all deductible temporary differences to the extent that it is probable that taxable profits will be available against which those deductible temporary differences can be utilised.
The carrying amount of deferred tax assets is reviewed at each reporting period and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered.
Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the period in which the liability is settled or the asset realised, based on tax rates (and tax laws) that have been enacted or substantively enacted by the end reporting period. The measurement of deferred tax liabilities and assets reflects the tax consequences that would follow from the manner in which the Company expects, at the end of the reporting period, to recover or settle the carrying amount of its assets and liabilities.
Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities and when
LAFARGE ZAMBIA PLC
NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2014
38
they relate to income taxes levied by the same taxation authority and the Company intends to settle its current tax assets and liabilities on a net basis.
Current and deferred tax are recognised as an expense or income in profit or loss, except when they relate to items that are recognised outside profit or loss (whether in other comprehensive income or directly in equity), in which case the tax is also recognised outside profit or loss.
3.6 Value Added Tax
Expenses and assets are recognised net of the amount of value added tax, except:
l When the value added tax incurred on a purchase of assets or services is not recoverable from the taxation authority, in which case, the value added tax is recognised as part of the cost of acquisition of the asset or as part of the expense item, as applicable
l When receivables and payables are stated with the amount of value added tax included .
The net amount of sales tax recoverable from, or payable to, the taxation authority is included as part of receivables or payables in the statement of financial position.
3.7 Property, Plant and Equipment
Leasehold land and buildings, and plant and equipment held for use in the production or supply of goods or services, or for administrative purposes, are stated in the statement of financial position at their revalued amounts, being the fair value at the date of revaluation less any subsequent accumulated depreciation and subsequent accumulated impairment losses. Revaluations are performed with sufficient regularity such that the carrying amounts do not differ materially from those that would be determined using fair values at the end of the reporting period. The Company prepares a discounted cashflow annually to assess whether the carrying amount materially from the fair value. Where the difference of the carrying value and the fair value is not material the Company does not effect an adjustment to the carrying value.
Any revaluation increase arising on the revaluation of plant and equipment, and leasehold land and buildings is recognised in other comprehensive income, except to the extent that it reverses a revaluation decrease for the same asset previously recognised in profit or loss, in which case the increase is credited to profit or loss to the extent of the decrease previously expensed. A decrease in the carrying amount arising on the revaluation of such plant and equipment, and land and buildings is recognised in profit or loss to the extent that it exceeds the balance, if any, held in the properties revaluation reserve relating to a previous
revaluation of that asset.
Vehicles, furniture and fittings are stated at cost less accumulated depreciat ion and accumulated impairment losses.
On the subsequent sale or retirement of revalued leasehold land and buildings, and plant and equipment, the attributable revaluation surplus remaining in the revaluation reserve is transferred directly to retained earnings. A transfer is made from revaluation reserve to retained earnings when the asset is derecognized and as the asset is used by the entity based on the difference between depreciation based on the revalued carrying amount and the depreciation based on the asset's original cost.
Properties in the course of construction for production, supply or administrative purposes, are carried at cost less any recognised impairment loss. Cost includes professional fees and other directly attributable costs to bring it to its present location and use. Depreciation of these assets, on the same basis as other property assets, commences when the assets are ready for their intended use.
Depreciation is recognised so as to write off the cost or valuation of assets (other than properties under construction) less their residual values over their useful lives, using the straight-line method. The estimated useful lives, residual values and depreciation method are reviewed at each year end, with the effect of any changes in estimate accounted for on a prospective basis.
An item of property, plant and equipment is derecognized upon disposal or when no future economic benefits are expected to arise from the continued use of the asset. Any gain or loss arising on the disposal or retirement of an item of property, plant and equipment is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognised in profit or loss. The rates of depreciation used are based on the useful lives as follows:
LAFARGE ZAMBIA PLC
NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2014
Average annual rate of Depreciation (%)
Average useful Life
Plant and machinery 3 - 10 10 – 30 years
Mobile equipment and vehicles 13 – 25 5 – 8 years
Office equipment and IT 25 – 33 3 – 4 years
Leasehold property 2 - 24 4 - 50 years
39
3.8 Intangible assets
Intangible assets with finite useful lives that are acquired separately are carried at cost less accumulated amortization and accumulated impairment losses. Amortization is recognized on a straight-line basis over their estimated useful lives. The estimated useful life and amortization method are reviewed at the end of each reporting period, with the effect of any changes in estimate being accounted for on a prospective basis. The useful lives of the intangibles are between 10 to 25 years.
At the end of each reporting period the Company reviews the carrying amounts of its tangible assets and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). Where it is not possible to estimate the recoverable amount of an individual asset the Company estimates the recoverable amount of the cash-generating unit to which the asset belongs.
The Recoverable amount is the higher of fair value less costs of disposal and value in use. In assessing value in use the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted. If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount the carrying amount of the asset (cash-generating unit) is reduced to its recoverable amount.
3.9 Impairment of tangible and intangible assets
An impairment loss is recognised immediately in profit or loss unless the relevant asset is carried at a revalued amount, in which case the impairment loss is treated as a revaluation decrease.
Where an impairment loss subsequently reverses, the carrying amount of the asset (cash-generating unit) is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset (cash-generating unit) in prior years. A reversal of an impairment loss is recognised immediately in profit or loss unless the relevant asset is carried at a revalued amount, in which case the reversal of the impairment loss is treated as a revaluation increase.
3.10 Inventories
Inventories are stated at the lower of cost and net realisable value. Cost is calculated using the weighted average method and includes direct material cost and those overheads that have been incurred in bringing the
inventories to their present location and condition. Net realisable value represents the estimated selling price for inventories less all estimated costs necessary to make the sale.
3.11 Provisions
Provisions are recognised when the Company has a present obligation (legal or constructive) as a result of a past event, it is probable that the Company will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation.
The amount recognised as a provision is the best estimate of the consideration required to settle the present obligation at the end of each reporting period, taking into account the risks and uncertainties surrounding the obligation. Where a provision is measured using the cash flows estimated to settle the present obligation, its carrying amount is the present value of those cash flows.
When some or all of the economic benefits required to settle a provision are expected to be recovered from a third party, a receivable is recognised as an asset if it is virtually certain that reimbursement will be received and the amount of the receivable can be measured reliably.
3.12 Provision for environmental costs
An obligation to incur environmental costs arises when environmental disturbance is caused by the development or ongoing production of a mine. These costs are charged to profit or loss over the life of the operation through the depreciation of the unwinding of the discount on the provision. The cost estimates are reviewed periodically and are adjusted to reflect known developments which may have an impact on the costs estimates or life of operations. The cost of the related asset is adjusted for changes in the provision due to factors such as updated cost estimates, changes to lives of operations, new disturbances and revisions to discount rates. The unwinding of the discount is shown as a financing cost in profit or loss.
Costs for restoration of subsequent site damage which is caused on an ongoing basis during production are provided for at their net values and charged to profit or loss as extraction progresses.
3.13 Financial Instruments
Initial recognition and measurementFinancial instruments within the scope of IAS 39 Financial Instruments: Recognition and Measurement are classified as financial assets or liabilities at fair value through profit or loss, loans and receivables, held to maturity investments, available for sale of financial assets or loans and borrowing as appropriate. The Company determines the classification of its financial
LAFARGE ZAMBIA PLC
NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2014
40
instruments at initial recognition.
Purchases or sales of financial assets that require delivery of assets within a time frame established by regulation or convention in the marketplace (regular way trades) are recognised on the trade date, i.e., the date that the Company commits to purchase or sell the asset.
The Company's financial assets include cash and short-term deposits, trade and other receivables, and amounts due from related companies while financial liabilities compromise trade and other payables and amounts due to related companies.
All financial instruments are recognised initially at fair value, plus transaction costs, except in the case of financial assets and liabilities at fair value through profit or loss. Subsequent measurement of financial instruments depends on their classifications as described below.
Investments at fair value through profit and lossThe Company has designated an investment held in an associate company as at fair value through profit or loss upon initial recognition. This financial asset is designated upon initial recognition on the basis that it is part of a group of financial assets which are managed and have their performance evaluated on a fair value basis, in accordance with risk management and investment strategies of the Company.
The investment is recognized at fair value through profit and loss and is recorded in the Statement of Financial Position at fair value. Subsequent changes in the fair value of this financial instrument are recorded in net gain or loss on investment at fair value through profit loss. Dividends earned on this investment are recorded separately as dividend revenue.
Loans and receivablesLoans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market.
Loans and receivables assets are subsequently carried at amortised cost using the effective interest method. Gains and losses are recognised in profit or loss when the loans and receivables are derecognised or impaired, as well as through the amortisation process. Loans and receivables are included in current assets if they are expected to mature within 12 months of the reporting date. The Company's loans and receivables comprise, cash and bank balances, trade and other receivables and amounts due from related companies.
Cash and cash equivalentsFor the purpose of the statement of cash flow, cash and cash equivalents consist of cash and deposits in banks, net of outstanding bank overdrafts. Borrowings are offset against cash deposits and near cash
assets where there is a legally enforceable right to set off the recognised amounts and there is an intention to settle on a net basis, or to realise the asset and settle the liability simultaneously. Similarly, interest expense and income are offset when the liability and asset can be offset.
Loans and borrowingsLoans and borrowings are initially recognised at the fair value of the consideration received less directly attributable transaction costs. Subsequently, interest-bearing loans and borrowings are measured at amortised cost using the effective interest method. The Company's loans and borrowings compromise trade and other payables and amounts due to related companies.
De-recognition of financial assets and liabilitiesA financial asset (or, where applicable, a part of a financial asset or part of a group of similar financial assets) is primarily derecognised (i.e., removed from the Group's consolidated statement of financial position) when:
l The rights to receive cash flows from the asset have expired , or
l The Company has transferred its rights to receive cash flows from the asset or has assumed an obligation to pay the received cash flows in full without material delay to a third party under a 'pass-through' arrangement; and either (a) the Company has transferred substantially all the risks and rewards of the asset, or (b) the Company has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset
A financial liability is derecognised when the obligation under the liability is discharged or cancelled or expires. When an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantial ly modif ied, such an exchange or modification is treated as the derecognition of the original liability and the recognition of a new liability. The difference in the respective carrying amounts is recognised in the statement of profit or loss.
Impairment of financial assetsThe Company assesses at each reporting date whether there is any objective evidence that a financial asset or a group of financial assets is impaired. A financial asset or a group of financial assets is deemed to be impaired if, and only if, there is objective evidence of impairment as a result of one or more events that has occurred after the initial recognition of the asset (an incurred loss event) and that loss event has an impact on the estimated future cash flows of the financial asset or the group of financial assets that can be reliably estimated.
LAFARGE ZAMBIA PLC
NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2014
41
Evidence of impairment may include indications that the debtor or a group of debtors is experiencing significant financial difficulty, default or delinquency in interest or principal payments, the probability that they will enter bankruptcy or other financial reorganisation and where observable data indicate that there is a measurable decrease in the estimated future cash flows, such as changes in arrears or economic conditions that correlate with defaults.
For financial assets carried at amortised cost, the Company first assesses individually whether objective evidence of impairment exists individually for financial assets that are individually significant, or collectively for financial assets that are not individually significant. If the Company determines that no objective evidence of impairment exists for an individually assessed financial asset, whether significant or not, it includes the asset in a group of financial assets with similar credit risk characteristics and collectively assesses them for impairment. Assets that are individually assessed for impairment and for which an impairment loss is, or continues to be recognised are not included in a collective assessment of impairment.
The carrying amount of the asset is reduced through the use of an allowance account and the amount of the loss is recognised in profit or loss. Loans and receivables together with the associated allowance are written off when there is no realistic prospect of future recovery and all collateral has been realised or has been transferred to the Company. If, in a subsequent year, the amount of the estimated impairment loss increases or decreases because of an event occurring after the impairment was recognised, the previously recognised impairment loss is increased or reduced by adjusting the allowance account. If a future write-off is later recovered, the recovery is credited to finance costs in profit or loss.
Fair value measurementThe company measures non-financial assets such as property, plant and equipment and financial assets such as investments in equities at fair value at reporting date.
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value measurement is based on the presumption that the transaction to sell the asset or transfer the liability takes place either:l In the principal market for the asset or liability, orl In the absence of a principal market, in the most advantageous market for the asset or liabilityl The principal or the most advantageous market must be accessible to by the company.l The fair value of an asset or a liability is measured using the assumptions that market participants would use when pricing the asset or liability, assuming that market participants act in their economic best interest.l A fair value measurement of a non-financial asset takes
into account a market participant's ability to generate economic benefits by using the asset in its highest and best use or by selling it to another market participant that would use the asset in its highest and best use.l The Company uses valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fair value, maximizing the use of relevant observable inputs and minimizing the use of unobservable inputs.l All assets and liabilities for which fair value is measured or disclosed in the financial statements are categorised within the fair value hierarchy, described as follows, based on the lowest level input that is significant to the fair value measurement as a whole:
l Level 1 — Quoted (unadjusted) market prices inactive markets for identical assets or liabilities.l Level 2 — Valuation techniques for which the lowest level input that is significant to the fair value measurement is directly or indirectly observablel Level 3 — Valuation techniques for which the lowest level input that is significant to the fair value measurement is unobservable.
For assets and liabilities that are recognised in the financial statements on a recurring basis, the Company determines whether transfers have occurred between Levels in the hierarchy by re-assessing categorization (based on the lowest level input that is significant to the fair value measurement as a whole) at the end of each reporting period.
3.14 Current versus non-current classification
The Company presents assets and liabilities in statement of financial position based on current/non-current classification. An asset is current when it is:
l Expected to be realised or intended to be sold or consumed in normal operating cyclel Held primarily for the purpose of tradingl Expected to be realised within twelve months after the reporting period, orl Cash or cash equivalent unless restricted from being exchanged or used to settle a liability for at least twelve months after the reporting period.
All other assets are classified as non-current.
A liability is current when:
l It is expected to be settled in normal operating cyclel It is held primarily for the purpose of tradingl It is due to be settled within twelve months after the reporting period, orl There is no unconditional right to defer the settlement of the liability for at least twelve months after the reporting period.
LAFARGE ZAMBIA PLC
NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2014
42
The Company classifies all other liabilities as non-current.
Deferred tax assets and liabilities are classified as non-current assets and liabilities.
3.15 Operating segments
For management purposes the Company has two operating divisions, Chilanga Plant near Lusaka and Ndola Plant in Ndola and these are all treated as one operating segment as they are all in the activity of manufacturing and processing of cement which is the company's main product. Management has aggregated the operating divisions and indeed the products because they consider that nature of the production processes, class of customers and the method used to distribute are similar for all its products. The operating divisions on which the Company reports its primary segment data are markets, being domestic and export for only the revenue component.
The information reported and aggregated in the primary statements constitutes the operating segment as noted above.
Management monitors the operating results of its business for the purpose of making decisions about performance assessments.
The Company's assets and liabilities, finance costs, depreciation, material item of income and expense, income tax expense and profit are measured at the Company's level represented by one operating segment. The results of the company's operating segment are summarized below:
Chilanga sales revenue: ZMW 965,339 ThousandNdola sales revenue: ZMW 418,988 Thousand
4.0 CRITICAL ACCOUNTING JUDGEMENTS AND KEY SOURCES OF ESTIMATION UNCERTAINTY
4.1 Critical judgement in applying accounting policies
In the application of the Company's accounting policies, which are described in note 3, the directors are required to make judgements, estimates and assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods.
4.2 Key sources of estimation uncertainty
The following are the key assumptions concerning the future, and other key sources of estimation uncertainty at the end of the reporting period, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year.
4.2.1 Estimates of asset lives, residual values and depreciation methods.
Property, plant and equipment are depreciated over their useful life taking into account residual values. Useful lives and residual values are assessed annually. Useful lives are affected by maintenance programmes and future productivity. Future market conditions determine the residual values. Depreciation is calculated on a straight line bases which may not represent the actual usage of the asset. Refer Note 12 for the carrying amount of property , plant and equipment.
4.2.2 Fixed assets impairment review
Impairment tests on property, plant and equipment are only done if there is an impairment indicator. Future cash flows are based on management's estimate of future market conditions. These cash flows are then discounted and compared to the current carrying value, and, if lower, the assets are impaired to the present value of the cash flows. Impairment tests are based on information available at the time of testing. These conditions may change after year-end.
4.2.3 Receivables provision
Management has made a provision for bad and doubtful receivables based on the ageing of the trade receivables and believe that the provision is adequate to absorb the current irrecoverable debtors. Refer note 16 for the carrying amount of trade receivables.
4.2.4 Income taxes
The Company is subject to income taxes in the Republic of Zambia. There are many transactions and calculations for which the ultimate tax determination is uncertain during the ordinary course of business. The Company recognises liabilities for anticipated tax based on estimates of whether additional taxes will be due. Where the final tax outcome of these matters is different from the amounts that were initially recorded, such differences will impact on the income tax and deferred tax provisions in the period in which such determination is made. Refer note 10 and note 24 for the income tax balances.
4.2.6 Fair value of financial instruments
When the fair value of financial assets and financial liabilities recorded in the statement of financial position
LAFARGE ZAMBIA PLC
NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2014
43
cannot be derived from active markets, their fair value is determined using valuation techniques including the discounted cash flow model. The inputs to these models are taken from observable markets where possible, but where this is not feasible, a degree of judgment is required in establishing fair values. The judgments include considerations of inputs such as liquidity risk, credit risk and volatility. Changes in assumptions about these factors could affect the reported fair value of financial instruments. Refer note 28 for the carrying amount of financial assets at fair value through profit or loss and the assumptions and estimates used to determine the fair value.
4.2.7 Revaluation of property, plant and equipment
The Company carries its plant equipment at fair value, with changes in fair value being recognised in the income statement. In addition, it measures land and buildings at revalued amounts with changes in fair value being recognised in other comprehensive income. The company engaged an independent valuation specialist to assess fair value of the land and buildings as at 31 December 2014. For plant equipment, a valuation methodology based on a gross replacement cost model was used. Land and buildings were valued by reference to market-based evidence, using comparable prices adjusted for specific market factors such as nature, location and condition of the property.
4.2.8 Provision for environmental costs
As part of the identification and measurement of assets and liabilities, the Company has recognised a provision for environmental obligations associated with the Plant. In determining the carrying value of the provision, assumptions and estimates are made in relation to revision of discount rates, updated cost environmental cost estimates, changes to l ives of operations, new disturbances and the expected timing of those costs. Refer note 21 for the carrying amount of provision for environmental costs.
LAFARGE ZAMBIA PLC
NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2014
44
LAFARGE ZAMBIA PLC
NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2014
Kwacha thousands 2014 2013
5. OPERATING SEGMENTS
Revenue
Local Revenue
Export Revenue
1,194,039
190,388
920,687
211,920-
1,384,427 1,132,607
There was no revenue from one customer that exceeded 10% of the Company's gross revenue. All non – current assets of the Company are located in Zambia
6. INVESTMENT INCOME
Dividends from Mbeya Cement
Interest income from bank balances
1,022
7,123
1,208
17,318
8,145 18,526
7. OTHER GAINS
Other gains and losses comprise the following:
Gain on disposal of Property, Plant and Equipment
Foreign Exchange gains
Foreign Exchange losses
Fair Value Gain on Mbeya valuation
2,475
396,381
(349,838)
15,908
92
22,072
(5,642)
-
Net other gains 64,926 16,523
The Kwacha was volatile throughout the year. However, the last quarter
witnessed increased volatility against major currencies.
The table below shows the movements in the US
Dollar exchange rates during the year:
Mid-market exchange rate as at 1 January
Mid-market exchange rate as at 31 December
Average depreciation
5.52
6.35
15%
5.40
5.47
1.3%
45
LAFARGE ZAMBIA PLC
NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2014
Kwacha thousands 2014 2013
8. FINANCE COSTS
Interest expense (612) (933)
Net finance costs (612) (933)
Interest expense for the period relates to amounts due to related parties
9. PROFIT BEFORE TAX
Profit before tax is stated after crediting:
Gain on disposal of Property, Plant and Equipment and charging: 2,475 92
Depreciation and amortisation
Management and technical services expenses
28,675
63,266
30,423
88,266
Pension schemes – defined contributions
Donations
Directors remuneration
8,821
2,052
802
4,207
1,659
456
Staff costs 107,056 96,669
10. INCOME TAX EXPENSE
Current tax
Deferred tax (note 23)
208,437
25,631
166,901
5,382
234,068 172,283
Income tax is calculated at 35% on income from domestic sales and 15% on income from export sales for the estimated assessable profit for the year. The movements during theyear on the income tax account are as follows:
Payable in respect of year
Payable in respect of previous years
202,818
41,128
166,901
54,228
Tax paid during the year
243,946
(191,157)
221,129
(180,001)
Balance at end of the year included in current liabilities 52,789 41,128
The total charge for the year can be reconciled to the accounting profit as follows:
Profit before tax 657,987 510,913
Tax on accounting profit at 35%
Disallowed staff welfare and related expenses
Benefit of lower rate of tax on taxation of export income
230,295
7,958
(13,877)
178,819
5,822
(11,330)
Effect of temporal differences (15,939) (1,028)
Tax expense for the year 208,437 172,283
(933)
46
LAFARGE ZAMBIA PLC
NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2014
Kwacha thousands 2014 2013
11. EARNINGS PER SHARE
Basic and diluted earnings per share (Kwacha) 2.12 1.69
Earnings per share is based on earnings after taxation of ZMW 423,919
thousand, (2013: ZMW 338,629 thousand), divided by the number of ordinary
shares in issue during the year of 200,039,904 (2013: 200,039,904).
12.PROPERTY, PLANT AND EQUIPMENT
Leasehold properties
Plant and equipment
Vehicles, furniture
and fittings
Capital
work in
progress Total
COST OR VALUATION
At 1 January 2013 64,183 670,197 34,114 49,009 817,504
Additions - - 87 40,594 40,681
Projects completed
Disposals
201
-
7,880
(521)
2,125
(69)
(10,207)
-
(0)
(590)
At 31 December 2013 64,384 677,556 36,257 79,397 857,595
Additions - - - 58,590 58,590
Projects completed
Reclassification
Revaluation
Disposals
1,636
(22,108)
-
(1,441)
51,532
10,773
526,763
-
-
11,334
-
(4,413)
(53,169)
-
-
-
-
-
526,736
(5,854)
At 31 December 2014 42,471 1,266,625 43,178 84,818 1,437,093
DEPRECIATION
At 1 January 2013 14,856 127,424 30,574 - 172,854
Depreciation expense
Eliminated on disposal
Reclassification
4,000
-
-
-
24,447
(428)
-
-
2,028
(69)
-
-
-
-
-
-
30,475
(497)
-
-
At 31 December 2013 18,856 151,443 32,533 - 202,832
Depreciation expense
Revaluation
Reclassification
Eliminated on disposal
3,595
-
(10,631)
(1,441)
22,750
(153,893)
8,379
-
2,330
-
6,300
(4,413)
- -
-
-
28,675
(153,893)
4,048
(5,854)
At 31 December 2014 10,379 28,680 36,705 - 75,764Carrying value
At 31 December 2014 32,092 1,237,884 6,476 84,818 1,361,330
At 31 December 2013 45,528 526,342 3,814 79,397 654,853
47
LAFARGE ZAMBIA PLC
NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2014
LAFARGE ZAMBIA PLC
NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2014
Kwacha thousands
12.PROPERTY, PLANT AND EQUIPMENT (continued)
The reclassification was carried out to enable the company to be in line with the Lafarge group asset classification.
Plant and machinery were revalued by the Company using the gross replacement cost method and the amount shown reflects the fair value of the assets as at the reporting date. The useful lives are reviewed on an annual basis.
The revaluation reserve arises on the revaluation of property, plant and equipment. Where revalued plant and equipment are sold, the portion of the revaluation reserve that relates to that asset and is effectively realized is transferred directly to retained earnings. The amortisation of revaluation reserve relates to the depreciation on the revalued amount.
As at 31 December 2014 the Directors performed a revaluation of the plant and equipment using the Gross Replacement Cost to determine the open market value in accordance with the International Valuation Standards note 3 – Valuation of Plant and Machinery. The gross replacement method is defined as the estimated cost of acquiring a new or modern substitute asset having the same productive capacity as the existing asset, together with the associated expenses directly related to installation of the asset. Had the Property, Plant and Equipment been measured on a historical cost basis their carrying amount, would have been as follows:
Property, Plant and Equipment 2014 2013
Net book value without revaluation
Net book value with revaluation
680,674
1,361,330
535,676
654,835
Difference 680,656 119,159
The value is determined using recent observable inputs based on the cost model of the planned new line in Chilanga cement plant which will be a 2,500 tons per day plant (tpd). The valuation also accounts for the differences in the model plant and the existing plants differ in terms of technology as follows:
l Capacity : Daily rated production per kiln (tpd) is adjusted to reflect that the model plant and the cement plants being revalued have different production capacities.
l Technology: Based on the heat consumption (mega joule per tonne) which reflects the technological efficiency levels at which coal is consumed by the kiln.
l Kiln Reliability Factors which is a further reflection of the operational efficiency of the plants based on engineers report.
For this method the Directors determined the gross replacement of the new plant, (based on actual quotes) and then they considered the above factors and the remaining useful life of an average of 8 years for the Ndola cement plant to 24 years for the Chilanga plant.
Significant increases (decreases) in gross replacement cost in isolation would result in a significantly higher (lower) fair value. Refer to note 28 for the fair value hierarchy. The Directors consider that the fair value of the plant and equipment and leasehold properties as at 31 December 2014 is at least equal to their carrying values as reflected in the statement of financial position based on their gross replacement cost valuation method.
In accordance with Section 193 of the Companies Act, 1994 (as amended), the Register of Land and Buildings is available for inspection by members and their duly authorized agents at the registered office of the Company.
48
Kwacha thousands 2014 2013
13. INTANGIBLE ASSETS
The intangible assets relate to mining licences purchased by the Company forthe exploration and extraction of limestone. The licences are measuredinitially at original purchase cost and amortised on a straight line basis, fromthe year of purchase by the Company, over their beneficial lives. The licenseshave an average useful life of 25 years
Mineral rights
License cost paid in connection with a right to mine for limestone and shale inthe allocated area are capitalised as an intangible asset and amortised overthe term of license once the legal right to perform mining activities has beenacquired, unless the directors conclude that a future economic benefit is morelikely than not to be realised. All other rights which include directlyattributable employee remuneration, material and fuel used, surveying costs,drilling costs and payments made to contractors are capitalised aspart of Property, Plant and Equipment.
Cost
Balance at beginning of the year
Acquisitions during the year
943
-
943
-
Balance at end of the year 943 943
Accumulated amortisation and impairment
Balance at beginning of the year
Amortisation expense
278
36
240
38
Balance at end of the year 314 278
Carrying value at end of the year 629 665
The amortization expense has been included in the line item, administration expenses, in the statement of comprehensive
income.
LAFARGE ZAMBIA PLC
NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2014
49
14. INVESTMENT AT FAIR VALUE THROUGH PROFIT OR LOSS
The Company owns 14% of the issued ordinary equity capital of Mbeya Cement
Company Limited, a related company incorporated and
operating in Tanzania.
Opening balance
Gain on revaluation
5,910
15,908
5,910
-
21,818 5,910
The Company has designated the investment in Mbeya as at fair value through profit or loss upon initial recognition. This financial asset is designated upon initial recognition on the basis that it is part of a group of financial assets which are managed and have their performance evaluated on a fair value basis, in accordance with risk management and investment strategies of the Company.
The Company has invested in Mbeya Cement Company which is not quoted in an active market. Transactions in this investment do not occur on a regular basis. The Company used a market based valuation technique to determine the fair value of the investment. The Company's directors determine the comparable public companies (peers) based on industry, size, leverage and strategy, and calculates an appropriate trading multiple for each comparable company identified. The multiple is calculated by dividing the enterprise value of the comparable company by an earnings measure. The trading multiple is then discounted for considerations such as illiquidity and size differences between the comparable companies based on company-specific facts and circumstances. The discounted multiple is applied to the corresponding earnings measure of the Mbeya Cement Company to measure the fair value. The Company classifies the fair value of these investments as Level 3.
Valuation technique and significant unobservable inputs
Description
Mbeya Cement Company
Valuation technique
EBITDA* multiple
Unobservable =Input=
EBITDA multiple of peer companyDiscount
Multiple Utilized/Discount
4.6x
30%
*Earnings before Interest, Tax , Depreciation and Amortisation
An increase or decrease in the EBITDA multiple of a comparative entity will result in an increase/ decrease in the fair value measurement. Refer to note 29 for the fair value hierarchy.
Kwacha thousands 2014 2013
LAFARGE ZAMBIA PLC
NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2014
50
LAFARGE ZAMBIA PLC
NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2014
Kwacha thousands 2014 2013
15. INVENTORIES
Stores and spares
Provision for obsolete stock
72,042
(4,547)
69,570
(3,085)
67,495 66,485
Raw materials and consumables
Cement
Process goods
Goods in transit
45,607
12,899
25,094
-
38,681
5,929
13,779
671
151,095 125,544
During the year, inventory expensed amounted to ZMW 92,280 thousand (2013:ZMW 95,969 thousand) for inventories carried at net realisable value. This isrecognised in cost of sales.
16. TRADE RECEIVABLES
Trade receivables principally comprise amounts receivable in respect of thesale of cement and clinker.
The balance comprises:
Gross trade receivables
Allowance for doubtful debts
82,494
(4,321)
21,617
(3,348)
At 31 December 2014 78,173 18,268
The average credit period on sales of cement is 30 days. The Company hasprovided fully for all receivables over 90 days because historical experience issuch that receivables that are past due beyond 90 days are generally notrecoverable. Trade receivables above 90 days are provided for based onestimated irrecoverable amounts from the sale of cement, determined byreference to past default experience.
Included in trade receivables are debtors with a carrying value of ZMW 19,058thousand (2013: ZMW 1,416 thousand) which are past due over 30 days atreporting date for which no provision has been made as there has not been asignificant change in credit quality and the amounts are still consideredrecoverable.
Ageing of past due but not impaired debts is as analysed below:
60-90 days
90-120 days
9,016
10,042
705
710
Total 19,058 1,416
The movement in the allowance for bad debts is as follows:
The balance comprises:
Balance at the beginning of the year
Additional Provision
Repayment during the year
(3,348)
(973)
-
(4,260)
(2,878)
3,790
(4,312) (3,348)
51
In determining the recoverability of the trade receivables the Companyconsiders any change in the credit quality of the trade receivable from the datecredit was initially granted up to the reporting date. The concentration of thecredit risk is limited due to the customer base being large and unrelated.Accordingly, management believes that no further credit provision is requiredin excess of the allowance for doubtful debts.
Ageing of impaired trade receivables is shown below:
90 - 120 days
120 -180 days
Over 180 days
(99)(2,561)(1,662)
--
(3,348)
Total (4,312) (3,348)
LAFARGE ZAMBIA PLC
NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2014
Kwacha thousands 2014 2013
16. TRADE RECEIVABLES (Continued)
17. OTHER RECEIVABLES
Prepaid expenses
Sundry receivables
Employee loans
44,104
9,424
98
9,477
3,596
350
53,626 13,423
The employees loans are at 10% interest and are payable over 12 months. The
sundry receivables are mainly interest free and are recoverable within 12
months.
52
Kwacha thousands 2014 2013
18.RELATED PARTY TRANSACTIONS
Lafarge S.A., a company registered in France, owns 75% of the issued share capital of
Lafarge Zambia Plc through its owned subsidiaries, Financiere Lafarge and Pan African
Cement Limited. The Company has balances with, and has transacted with, the following related Lafarge
Group companies:
Country of
incorporation RelationshipLafarge S.A.
Bamburi Cement Limited
Hima Cement Limited
Mbeya Cement Company Limited
Lafarge Building Materials MEA
Lafarge Cement Malawi Limited
Lafarge Cement Zimbabwe Limited
Lafarge TCEA
Lafarge Industries South Africa
(Proprietary) Limited
France
Kenya
Uganda
Tanzania
Egypt
Malawi
Zimbabwe
France
South Africa
Holding company
Fellow subsidiary
Fellow subsidiary
Fellow subsidiary
Fellow subsidiary
Fellow subsidiary
Fellow subsidiary
Fellow subsidiary
Fellow subsidiary
The following balances were outstanding at the end of the reporting period
Amounts due from related companies
Lafarge Cement Malawi Limited
Lafarge Cement Zimbabwe Limited
Lafarge Cement Wapco Nigeria Plc
Bamburi Cement Limited
Lafarge S.A.
Lafarge Industries South Africa (Proprietary) Limited
3,570
3,318
-
-
127,868
-
11,050
1,637
285
60
189,995
205
134,756 203,231
The investment held with Lafarge SA is a short-term cash investment of ZMW 127,868
(2013: ZMW 189,995) for the excess cash that is centrally managed and ultimately
invested by Lafarge SA treasury team. The investment attracts interest at 0.3% above the
prevailing US$ LIBOR, is unsecured and runs for a period of 3 months.
Amounts due to related companies
Lafarge S.A.
Lafarge TCEA France
Lafarge Industries South Africa (Proprietary) Limited
Lafarge building Materials MEA
Lafarge Cement Malawi Limited (sundry)
Mbeya Cement Company Limited
-
3,186
-
160
-
-
49,632
565
794
2,708
593
212
3,346 54,504
LAFARGE ZAMBIA PLC
NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2014
53
18. RELATED PARTY TRANSACTIONS (continued)
The financial effects of transactions with the related parties were as follows:
Sale of goods:
Lafarge Cement Malawi Limited
Lafarge Cement Zimbabwe Limited
Mbeya Cement Company Limited
4,259
2,994
-
21,896
8,551
3,125
Total 7,253 33,572
Management and technical services expenses:
Lafarge S.A. 63,266 88,266
Purchase of goods:
Lafarge Cement Zimbabwe Limited 2,249 1,192
The above relates to the purchase of clinker from Zimbabwe
Terms and conditions of transactions with related parties
The sales to and purchases from related parties are made on terms equivalentto those that prevail in arm's length transactions. Outstanding balances at theyear-end are unsecured and interest free and settlement is in cash exceptwhen otherwise stated.
The investment with the related parties is made on terms equivalent to thosethat prevail in arm's length transactions. There have been no guaranteesprovided or received for any related party receivables or payables. Theremuneration of Directors and other key management during the year was as follows:
Short term benefits
Post-employment benefits
9,236
1,671
10,606
2,173
10,907 12,779
LAFARGE ZAMBIA PLC
NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2014
Kwacha thousands 2014 2013
54
Kwacha thousands 2014 2013
19. BANK AND CASH BALANCES
Fixed term bank deposit
Bank and cash balances
-
173,670
200,000
146,484
173,670 346,484
For the purposes of the statement of cash flows, cash and cash equivalents
includes cash on hand and in banks and investments in money market
instruments.
20. ISSUED CAPITAL
Authorised
240,000,000 ordinary shares of ZMW 0.05 each
3,000,000 7% non-cumulative redeemable
preference shares of ZMW 0.10 each
12,000
300
12,000
300
12,300 12,300
Issued and fully paid
200,039,904 ordinary shares of ZMW 0.05 each
10,002
10,002
LAFARGE ZAMBIA PLC
NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2014
21. PROVISION FOR ENVIRONMENTAL LIABILITIES
At beginning of the year
Current year interest charge
Contributions to the fund
24,987
4,820
(1,634)
23,252
3,359
(1,623)
At end of the year 28,173 24,987
The balances will be payable after more than one year.
The environmental provision represents the best estimate of the expenditure
required to settle the obligation to rehabilitate environmental disturbances
caused by operations. The Company is expected to make contributions to the
Environmental Protection Fund, controlled by the Mines Safety department
under the Ministry of Mines and Mineral Development, over a period of five
years after which the fund will be assessed for adequacy. The Company has
engaged the Mines Safety Department to identify the best methodology to
secure the total closure costs through a bond.
55
Kwacha thousands 2014 2013
22. RETIREMENT BENEFIT PLANS
At beginning of the year
Current year charge
Paid during the year
993
1,164
(1,360)
1,573
1,613
(2,192)
At end of the year 798 993
The total costs charged to the profit or loss of ZMW 1,164 thousand (2013ZMW 1,613 thousand) represent provisions made for gratuities related tocertain non unionised and unionised staff.
The Company operates a defined contribution pension scheme for certain of itsemployees. The scheme is funded by contributions from both the Company andits employees, and is managed by AON Zambia Limited. This definedcontribution plan is funded by a specified percentage contribution from payrollcosts charged to profit or loss. There were no outstanding contributions as at31 December 2014 (2013: nil). The assets of the scheme are held separatelyfrom those of the Company in funds under the control of the trustees.In addition, all permanent employees, with the exception of expatriates, aremembers of the National Pension Scheme Authority (NAPSA) in accordancewith the requirements of the Law.
LAFARGE ZAMBIA PLC
NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2014
23. DEFERRED TAX
The following are the major deferred tax liabilities/(assets) recognised by the Company and their movements during the year :
Accelerated tax
depreciation
Asset
revaluations Other Total
At 1 January 2013 181,109 3,337 (16,497) 167,949
Arising in the year 7,953 (1,028) (1,542) 5,382
At 31 December 2013189,062 2,309 (18,039) 173,331
Arising in the year 8,863 238,229 16,768 263,860
At 31 December 2014 197,925 240,538 (1,271) 437,192
2014 2013
Reconciliation of deferred tax liability
Balance as at 1 January
Deferred tax expense charged to profit or loss
173,331
25,631
167,949
5,382
Deferred tax expense charged to other Comprehensive Income 238,229 -
At 31 December 2014 437,191 173,331
56
Kwacha thousands 2014 2013
24. TRADE AND OTHER PAYABLES
Trade and other payables principally comprise amounts outstanding in respect
of trade purchases and ongoing costs, as well as amounts accrued in respect of
operating costs.
The Directors consider that the carrying amount of trade payables
approximates their fair value due to their short term nature
Trade payables 48,141 24,007
The average credit period for purchases is 30 days. No interest is charged on
the trade payables. The Company has risk management policies in place to
ensure that all payables are paid within the credit timeframe.
Other payables
Other payables comprise:
Sundry accruals
Sundry payables
Employee related liabilities
Advances from cement customers
Dividend payable
97,491
53,589
19,083
53,727
15,765
52,344
46,057
17,395
35,683
49,182
239,655 200,661
Included in employee related liabilities is accrual for leave pay:
Balance at the beginning of the year
Reversed/ additional accruals during in the year
6,238
(2,512)
4,665
1,573
Balance at the end of the year 3,726 6,238
LAFARGE ZAMBIA PLC
NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2014
57
LAFARGE ZAMBIA PLC
NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2014
25. COMMITMENTS, CONTINGENT LIABILITIES AND ASSETS
CommitmentsThe eleventh schedule of the Mines and Minerals (Environmental) Regulationsof 1997 requires that the Company will make contributions for five years to the Environmental Protection Fund (EPF). The estimated contributions are based on environmental management performance.
The contributions are in two parts (i) a 10% lump sum for plants in Category 2 and 20% lump sum for plants in Category 3 calculated as a percentage of estimated closure costs, and as the balance in form of a bank guarantee, letter of Credit or Insurance Bond acceptable to the Minister of Mines and Mineral Development.
The Company is in the process of obtaining a bond for all the 3 plants in line with the operational guidelines of the EPF. The guarantee will be in place by 31 March 2015 as required by the Mines Safety Department. Contingent LiabilitiesThere are no other material contingencies.
Contingent AssetsThere are no material contingent assets.
26. OPERATING LEASE ARRANGEMENTS
In Zambia, the title of ownership for all leasehold land is held by the state. TheCompany therefore makes use of the land on a 99 year non-cancellable lease.
Not longer than 1 year
Longer than 1 year and not longer than 5 years
Longer than 5 years
650
2,600
32,282
650
2,600
32,932
35,532 36,182
Kwacha thousands 2014 2013
58
Kwacha thousands 2014 2013
27. FINANCIAL INSTRUMENTS
Capital managementThe Company manages its capital to ensure that it will be able to continue as a going concern and maintain healthy ratios while maximising the return to stakeholders through the optimization of its equity. The Company's overall strategy remains unchanged from 2013.
The capital structure of the Company consists of equity attributable to equity holders of the Company, comprising issued capital, reserves and retained earnings as disclosed on the Statement of Changes in Equity.
Gearing ratioThe Company's finance department reviews the capital structure on a regular basis. As part of this review the cost of capital and the risks associated with each class of capital are considered. The company is wholly funded by equity:
Debt (i)Less: cash and cash equivalents
(173,670)
(346,484)
Equity (ii) 1,160,562 848,767
Net debt to equity ratio - -
(I) Debt refers to long and short-term borrowing(ii) Equity includes all capital and reserves of the Company
Details of the significant accounting policies and methods adopted, including the criteria for recognition, the basis of measurement and the basis on which income and expenses are recognised, in respect of each class of financial asset, financial liability and equity instrument are disclosed in the accounting policies to the financial statements.
Categories of financial instrumentsFinancial assets
Loans and receivables- Trade receivables- Amounts due from related parties- Other receivables- Bank and Cash balances
78,173
134,75653,626
173,670
18,268203,231 13,423
346,484
Financial assets at fair value through profit or loss
Investment in unquoted shares 21,818 5,910
Total financial assets
Financial liabilities 462,043 587,317
Other financial liabilities- Trade payables- Other payables- Amounts due to related parties- Retirement benefits
48,141 239,655 3,346 798
24,007199,295
54,504993
Total financial liabilities 291,940 278,800
LAFARGE ZAMBIA PLC
NOTES TO THEFINANCIAL STATEMENTS for the year ended 31 December 2014
59
LAFARGE ZAMBIA PLC
NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2014
Kwacha thousands 2014 2013
27. FINANCIAL INSTRUMENTS (continued)
Financial risk management objectivesThe Company’s finance department coordinates access to the domestic markets, monitors and manages the financial risks relating to operations of the Company. These risks include market rates (including currency risks, fair value, interest rate risk, and price risk), credit risk, liquidity risk and cash flow interest rate risk.
The Company does not enter into or trade financial attachments, including derivative financial investments for speculative purposes.
Market riskThe Company’s activities expose it primarily to the financial risks of changes in foreign currency exchange rates and interest rates. The company negotiates with commercial banks to transact at favourable rates too manage its exposure to interest rate and foreign currency risk.
There has been no change to the Company’s exposure to market risks or the manner in which it manages and measures its risk.
Foreign currency risk managementThe Company undertakes certain transactions denominated in foreign currencies. Hence exposures to exchange rate fluctuations arise. Exchange rate exposures are managed within approved policy parameters as approved by the Board of Directors.
The Company is exposed to foreign exchange risk which arises primarily with respect to trade receivables and bank and cash balances which are denominated in US dollars. Foreign exchange risk also arises from supplier payments denominated in US Dollars, South african rands and Euros.
At 31 December 2014, if the US Dollar had appreciated or depreciated by 25% against the Kwacha with all other variables held constant, the increase or decrease in the profit or loss for the year would be ZMW 11,636 thousand (2013: ZMW 12,042 thousand) higher or lower, mainly as a result of foreign denominated balances and foreign currency denominated bank accounts. The assumed 25% movement for the foreign currency rate sensitivity analysis is based on current market trends and there is no impact on equity.
Below is the Kwacha equivalent of the financing assets and liabilities that are denominated in foreign currencies.
AssetsUS dollar denominatedEuro denominatedSouth African Rand denominated
51,568 24,342 270
46,4016,8799,317
76,180 62,597
LiabilitiesUS dollar denominatedEuro denominatedSouth African Rand denominated
52,464
232,44351
4,791
9045
85,419 5,699
60
27. FINANCIAL INSTRUMENTS (continued)
Interest rate risk management
The Company is not exposed to significant risk of changes in the market interest rate as the Company's main financialinstruments have fixed rate of return or charge. These are also accounted for at amortised cost as such the carrying amount isunaffected by changes in market interest rates. The Company in this regard manages and monitors daily funding requirements toanticipate funding requirements and the Company to source inexpensive financing alternatives when such funds are needed.
LAFARGE ZAMBIA PLC
NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2014
Liquidity risk managementThe Company manages liquidity risk by maintaining adequate reserves and banking facilities and by continuously monitoringforecast and actual cash flows and matching the maturity profile of financial assets and liabilities.
The following table details the Company's remaining contractual maturity for its non- derivate financial assets and liabilities. Thetable is based on the undiscounted contractual maturities of the financial assets and liabilities.
Year ended 31 December 2014
1 to 3 months
3 months to1 year 1 – 5 years Total
Liabilities
Trade payables
Other payables
Retirement benefit plans
Amounts due to related parties
48,141
239,655
-
3,346
-
-
-
-
-
-
798
-
48,141
239,655
798
3,346
291,142 - 798 291,142
Credit Risk Management
Credit Risk Management refers to the risk that counterparty will default on its critical obligation resulting in financial loss to the Company. The Company is exposed to credit risk in respect of trade other receivables and amounts due from related parties. The Company’s policy is to closely monitor the creditworthness of all its debtors by reviewing their ability to pay as well as their continued operations and transactions with the Company on a regular basis.
The Company’s maximum exposure to credit risk is analysed below 2014 2013
Trade receivables
Other receivables
Amounts due from related parties
78,173
53,626
134,756
18,268
13,432
203,231
266,555 234,922
61
28. FAIR VALUE MEASUREMENTS
The following table provides the fair value measurement hierarchy of the Company's Property, Plant and Equipment and Financial
assets at fair value through profit or loss.
Fair value hierarchy as at 31 December 2013:
Assets measured at fair valueYear of
Valuation
TotalZMW’000
L2-
Significant observable
inputs
ZMW’000
L3-
Significant unobservable
inputs
ZMW’000
Plant and Equipment:Lusaka and Ndola Cement Plant
Investment at fair value through profit or loss
Mbeya Cement Company
2013
2013
526,342
5,910
- 526,342
5,910
Fair value hierarchy as at 31 December 2014:
Assets measured at fair valueYear of
ValuationTotal
ZMW’000
L2-
Significant observable
inputs
ZMW’000
-L3
Significant unobservable
inputs
ZMW’000
Plant and equipment:Lusaka and Ndola cement plant
Investment at fair value through profit or loss
Mbeya Cement Company
2014
2014
1,266,625
21,818
-
-
1,266,625
21,818
There have been no transfers between level 1, 2 and level 3 during the year.
Sensitivity Analysis – Plant and Machinery
To determine the gross replacement cost, the Company uses the number of years in use, which have ranged between 5 to 8 years
for the Ndola plant, and an average 15 to 24 years for the Chilanga 2 plant. The significant unobservable input used is the total
project cost for the new plant that is currently under installation adjusted for the expected useful life for the plant, reliability factor,
and capacity utilization factor (kiln capacity).
The following table demonstrates the sensitivity to a reasonably possible change in the project cost (the most significant input) with
all other variables held constant, of the impact on the fair value of plant and machinery:
Increase/ (Decrease) in discount rates:
Effect on Plant and Machinery at fair value through profit or loss for the year ended 31 December 2014 Increase / (Decrease)
10%(10%)
117, 845 (117, 845)
A 10% increase in the discount rates of the cement plant will result in an increase in the fair value approximating ZMW 117,845 while a decrease will result in a decrease in the fair value of approximately ZMW 117,845, as above.
LAFARGE ZAMBIA PLC
NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2014
62
28. FAIR VALUE MEASUREMENTS (continued)
Sensitivity Analysis – Plant and MachineryTo determine the fair value of the investment at fair value through profit or loss, the Company uses the EV/EBITDA multiples of
comparable companies. This is done by computing the EV/EBITDA multiple of the selected comparable cement company in
Tanzania.
The following table demonstrates the sensitivity to a reasonably possible change in the EV/EBITDA multiple (the most significant
input) with all other variables held constant, of the impact on the fair value of the investment at fair value through profit or loss.
Increase/ Decrease in Comparable Company: EBITDA
Effect on Investments for the year ended 31 December 2014 (Increase/Decrease)
10%(10%)
2,700 (2,700)
A 10% increase in the EBITDA multiple of the comparable companies will result in an increase in the fair value of approximately ZMW 2,700 while a decrease will result in a decrease in the fair value of approximately ZMW 2,700, as above.
29. EVENTS AFTER THE REPORTING DATE There are no significant events after the reporting date which would require adjustments or disclosure in these Financial Statements.
LAFARGE ZAMBIA PLC
NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2014
63
LAFARGE ZAMBIA PLC
FIVE YEAR FINANCIAL RECORD for the year ended 31 December 2014
2014 2013 2012 2011 2010
('000 tonnes)
Cement production 1,245 1,175 1,074 987 787
Cement sold
Domestic
Export
Clinker sales
1,080
142
1
955
219
3
808
260
32
684
303
57
502
274
150
1,223 1,176 1,099 1,043 926
Aggregates Sales 232 - - - -
Kwacha thousands
Statement of Comprehensive Income
Turnover 1,384,427 1,132,607 992,355 879,162 733,900
Profit before tax
Income tax expense
657,987
(234,068)
510,913
(172,283)
437,210
(141,456)
324,052
(97,071)
197,010
(55,242)
Profit for the year 423,919 338,629 295,754 226,981 141,768
Earnings Per Share - Kwacha 2.12 1.69 1.48 1,14 0.71
Statement of Financial Position
Net assets employed
Property, Plant and Equipment
Equity investment in related company
Net current assets
1,361,959
21,818
247,387
654,853
5,910
387,315
645,353
5,910
488,290
654,962
5,910
321,943
661,967
5,910
200,642
1,631,164 1,048,078 1,139,553 982,815 868,519
Liabilities due after one year
Long term borrowings
Provision for environmental liabilities Retirement benefits
Deferred tax liabilities
-
28,173
798
437,191
-
24,987
993
173,331
-
7,834
1,573
167,949
-
12,503
1,854
164,987
-
9,413
1,976
165,617
466,162 848,767 962,197 803,471 691,513
Financed by
Share capital
Reserves
10,002
1,155,000
10,002
838,765
100
962,097
100
803,371
100
691,413
1,631,164 848,767 962,197 803,471 691,513
64
LAFARGE ZAMBIA PLC
NOTICE OF 23RD ANNUALGENERAL MEETING
Notice is hereby given that the 23rd Annual General Meeting of the members of Lafarge Zambia Plc will be held at the Taj Pamodzi Hotel, Lusaka, Zambia on 24 March 2015 at 9:00 hrs to transact the following business.
1. To approve the minutes of the 22nd Annual General Meeting held on 31 March 2014.2. To receive and consider the Annual Financial Statements for the year ended 31 December 2014, including the Directors' Report and Report of the Auditor.3. To consider, and if thought fit, declare a dividend.4. To determine the remuneration of the Directors.5. To approve the remuneration of the Auditor for the year ended 31 December 2014 and appoint an Auditor for the ensuing year.6. To elect Directors.7. To transact other competent business of which due notice has been given.
ProxyA member entitled to attend and vote at the meeting is entitled to appoint any person or persons (whether a member of the Company or not) to attend and, on a poll, vote in his/her stead. Proxy forms must be lodged at the registered office of the Company at least 48 hours before the meeting. A proxy form is attached in this Report.
By order of the Board
___________________________________________H. KapekeleCompany SecretaryLafarge Cement Zambia Plc
17 February 2015
Board Directors: M. Hantuba - Non Executive Chairman, E. Rigaux - Chief Executive Officer, M. Chibesakunda - Non Executive Director, C. Moloseni - Chief Financial Officer, D. Mulwila - Non Executive Director
S.M. O'Donnell - Non Executive Director
Registered Office: Farm no. 1880, Kafue Road, Chilanga, PO Box 32639, Lusaka, Zambia, Tel: +260 211 367 400 / 367 600, E-mail: [email protected]
Transfer Secretaries, Sharetrack Zambia, Farmers House, Central Park,E-mail: [email protected]
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LAFARGE ZAMBIA PLC
FORM OF PROXY
or failing him/her THE CHAIRMAN OF THE MEETING as my/our proxy and/or representative, to vote at his/her discretion for me/us and on my/our behalf at the 23rd Annual General Meeting of the members of the Company, to be held at the Taj Pamodzi Hotel, Lusaka, Zambia on 24 March at 9:00 hrs and at every adjournment thereof.
Note: A member entitled to attend and vote at this meeting may appoint another person (whether a member of the Company or not) to attend, speak and vote in his/her stead. This form of proxy should be signed and returned so as to reach the Company Secretary at the registered office at least 48 hours before the meeting.
H. Kapekele
Head Office
6666
LAFARGE GROUP OVERVIEW
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1. We’re World LeadersCreated in 1833, Lafarge is the world leader in both building materials and as a construction solutions provider, with top-ranking positions in its business activities: No. 1 worldwide in Cement, No. 2 worldwide in Aggregates & and No.4 in Concrete. Lafarge is located in 61 countries with 63,000 employees.
Ranked among the top 10 of 500 Companies evaluated by the “Carbon Disclosure Project” in recognition of their strategy and actions against global warming.
2. We’re Committed to respect, care and excellence Lafarge places the customer at the heart of its concerns. It offers the construction industry and the general public innovative solutions, bringing greater safety, comfort and quality to their everyday surroundings.
Lafarge has long-term presence in the business and has a high degree of vertical integration.
Lafarge focuses on product quality and consistency, product differentiation, as well as developing stronger operational efficiencies.
The business model focuses on achieving excellence in local management while capitalising on best practices developed throughout the world.
3. We Practise InnovationLafarge has the largest building materials laboratory in the world, and more than 1,300 employees in R&D and its technical programme.
Innovation is undoubtedly one of the driving forces in Lafarge's strategy. Lafarge also has formal partnerships with some of the world's best research teams and universities in Europe, the United States and Asia (MIT, Berkeley, CNRS, etc).
4.We’re Committed To Sustainable DevelopmentFor many years, Lafarge has been committed to a deliberate strategy of sustainable development that combines industrial know-how with performance, value creation, respect for employees and local cultures, as well as environmental protection and the conservation of natural resources and energy.
The Company is committed to progress and attentive to the ever-changing needs of local communities,
contributing to the improvement of the quality of lives by setting up development programmes in the key areas of health care, shelter, education and youth empowerment in a sustainable manner.
The Sustainability Ambitions 2020 plan articulates additional programmes (both international and local), which are organised around 34 ambitions and based on the following three pillars, to establish Lafarge as a leading sustainability company across the globe.
4. We’re Building CommunitiesHealth and Safety – zero fatalities and eliminated LTIs for employees and contractors.
Diversity – 35 percent of senior management positions to be held by women.
Volunteer Working – 1,000,000 volunteer hours per year.
5. We’re Building the Circular EconomyLocal Job Creation – 75 percent of our country operations will implement a plan for local job creation
Affordable Housing – 2,000,000 people to have access to affordable and sustainable housing.
Sustainable Products and Services – €3 billion (euros) target for new sustainable solutions, products and services
6. Building SustainablyCo2 Emissions – we aim for a 33 percent reduction of our CO2 emissions per tonne of cement.
Non-Fossil Fuels – 50 percent use of non-fossil fuels in our cement plants.
Reused and Recycled Materials – 20 percent of our concrete to contain reused or recycled materials
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LAFARGE GROUP ADVANTAGE
LAFARGE GROUP OVERVIEW A BROAD PRESENCEIN AFRICA
With 14 strategic African locations and over 25 years experience in African markets, Lafarge Group's portfolio of 13 cement plants and 5 grinding stations is growing and actively exporting cement and aggregates to the rest of Africa,
The Lafarge Group’s countries of operation are:-
- Benin - Tanzania - Cameroun - Malawi- Kenya - Uganda- Nigeria - Zambia- South Africa - Zimbabwe- Reunion/ Mauritius - Egypt- Algeria - Morocco
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LAFARGE GROUP
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