ZCCM Investments Holdings Plc Annual report and financial statements for the year ended 31 March 2016 ZCCM Investments Holdings Plc for the year ended 31 March 2016 Contents Page Directorate and administration 1 Management committee 2 Chairman’s statement 3 - 7 Report of the directors 8 - 12 Operations report ? Subsidiary companies’ performance 13 - 14 ? Associate companies’ performance 15 - 19 ? Other investee companies 20 - 21 ? Corporate social responsibility and environmental review 22 - 23 Directors’ responsibilities in respect of the preparation of financial statements 24 Independent auditors’ report 25 - 26 Consolidated and company statements of financial position 27 - 28 Consolidated and company statements of profit or loss and other comprehensive income 29 - 31 Consolidated and company statements of changes in equity 32 - 33 Consolidated and company statements of cash flows 34 - 35 Notes to the financial statements 36 - 142 Corporate information 143 - 144 1 ZCCM Investments Holdings Plc Annual report for the year ended 31 March 2016 DIRECTORATE AND ADMINISTRATION DIRECTORS The Directors who held office during the year to 31 March 2016 and up to the date of this report were: Mr. C Mwananshiku Non Executive Director (Retired 27 July 2016) Ms. S Mutemba Non Executive Director (Retired 27 July 2016) Dr. B K E Ng’andu Non Executive Director (Retired 27 July 2016) Mrs. P C Kabamba Non Executive Director (Retired 27 July 2016) Mr. P Taussac Non Executive Director Mr. P M Chanda Non Executive Director (Retired 27 July 2016 and reappointed 15 December 2016) Dr P C Kasolo Executive Director (Appointed 19 February 2016) Mr F K Yamba Non-Executive Director (Appointed 15 December 2016) and Vice Chairperson Mr M C Kaluba Non-Executive Director (Appointed 15 December 2016) Mr T D Mulonga Non-Executive Director (Appointed 31 October 2016 and retired on 18 January 2017) Mr Y Kachinda Non-Executive Directors (Appointed 19 January 2017) A new chairman was in the process of being appointed as at the date of this report. 2 ZCCM Investments Holdings Plc Annual report (continued) for the year ended 31 March 2016 MANAGEMENT COMMITTEE Management officials who held office during the year to 31 March 2016 and up to the date of this report were: Dr. P Kasolo Chief Executive Officer Mr. C Chabala Chief Corporate Services Officer /Company Secretary Ms. M Chanda Chief Investments Officer (Separated 31 January 2016) Mr. M T Chipata Chief Financial Officer Ms. Y Mkandawire General Counsel Ms. W Mangambwa Chief Risk and Internal Audit Officer Mrs. L Mukwasa Human Resources Manager (Separated 28 February 2016) Mr. C Mjumphi Corporate Manager (Appointed 23 March 2017) Mrs L M Kakoma Public Relations Manager (Appointed 8 January 2016) Mr. S C Mubano Acting Chief Investments Officer (Appointed 23 February 2016) Mr P Banda Human Resource Manager (Appointed 3 March 2017) 3 ZCCM Investments Holdings Plc Annual report (continued) for the year ended 31 March 2016 CHAIRMAN’S STATEMENT On behalf of the Board of Directors, I am pleased to share with you the performance of ZCCM Investments Holdings Plc (ZCCM-IH) as a Company and that of its investee companies during the financial year ended 31 March 2016. As ZCCM-IH’s investment is largely in the mining sector, the Company experienced low to static growth owing to the challenges faced by the mining sector in general. The mining sector was faced with a significant energy deficit which affected production negatively and consequently led to a reduction in revenues. The situation was further compounded by low commodity prices particularly copper due to increased supply on the market and reduced demand mainly in high copper consumer countries such as China. As a result of the foregoing, investment in the mining sector was reduced and mainly concentrated on consolidation of already existing operations. The lower than expected performance in the mining sector resulted in reduced revenues and impairment of the value of certain investee companies for the Company and consequently a loss at Group level. Global economy The International Monetary Fund (IMF) World Economic Outlook estimated global economic growth to slow to 3.1% in 2016, reflecting a more subdued growth in advanced economies due to geopolitical reasons mainly in Europe and weaker than expected growth economic activity in the United States of America. It is further projected that the global economy will marginally increase to around 3.4% in 2017. Regarding the prospects of Sub-Saharan Africa, the IMF projected a sharp slowdown in growth generally due to a reduction in demand for commodities on which the Sub-Saharan African economies rely. Growth for the region as a whole fell to 3.5 percent in 2015 and remained within the same range as at 31 March 2016. This figure has been the lowest level in some 15 years, and may remain unchanged in 2017. Global annual copper production remained constant at around 18.7 million tonnes as at December 2015. LME copper prices declined by 26%, from US$ 6,359 per tonne at the end of December 2014 to US$4,710 per tonne at the end of December 2015. The decline in copper prices as well as the challenges in the energy sector resulted in a lower than expected growth in the Zambian economy of just above 3 percent in 2016 (growth was projected to be around 5 percent). Other sectors such as agriculture could not provide the needed buffer as severe weather conditions impacted negatively on the sector resulting in reduced production of commercial crops. The manufacturing sector was equally negatively affected by the energy deficit and unstable exchange rates (depreciation of the kwacha) which increased the cost of production and consequently reduced demand for locally manufactured goods. 4 ZCCM Investments Holdings Plc Annual report (continued) for the year ended 31 March 2016 CHAIRMAN’S STATEMENT (continued) Financial performance The Group recorded turnover of K 199 million (2015: K242 million) and operating loss of K 846 million (2015: K2, 179 million). The Group reported a loss before tax of K 2,906 million (2015: K 1,329 million). The Group recorded a loss after tax of K 2,912 million (2015: K 987 million). The Group’s share of loss of equity accounted investees’ was K 2,210 million (2015: Profit of K 321 million). 199,00 242,00 (846) (2 179) (2 500,00) (2 000,00) (1 500,00) (1 000,00) (500,00) 500,00 2016 2015 K-million Turnover Operating- Profit/Loss (2 906) (2 912) (2 210) (1 329) (987) 321 (3 500) (3 000) (2 500) (2 000) (1 500) (1 000) (500) 500 Profit/Loss Before Tax Profit/Loss After Tax Share of Profit/Loss K -million 2016 2015 5 ZCCM Investments Holdings Plc Annual report (continued) for the year ended 31 March 2016 CHAIRMAN’S STATEMENT (continued) Financial performance (continued) The Group’s retained earnings as at 31 March 2016 were positive at K 147 million (2015: K 3,058 million). The reduction in retained earnings is attributed to an increase in the share of losses as a result of operating losses reported by the investee companies mainly: Kansanshi Mining Plc, Konkola Copper Mines Plc and Copperbelt Energy Corporation Plc. The Company’s retained earnings were K87 million (2015: K 512 million). Strategic and new investments Recapitalisation of Ndola Lime Company (NLC) The recapitalisation project at NLC continued. ZCCM-IH provided an additional shareholder loan of K28.7 million (US$ 2.82 million) for the Ndola Lime Recapitalisation Project. The Second Vertical Kiln (“VK-2”) is still undergoing hot commissioning. Furthermore, there are plans to restructure the operations of NLC to improve its performance in response to the changing market environment. Real Estate As part of its diversification program, ZCCM-IH has acquired the Trinity Park offices located along Alick Nkhata road. The premises consist of three identical buildings suitable for up-market office accommodation. ZCCM-IH offices will move to one of the buildings while two-thirds of the buildings have been leased out to other tenants. ZCCM-IH will continue to seek for opportunities in this sector as it has huge and varied potential. 147 87 3 058 512 500 1 000 1 500 2 000 2 500 3 000 3 500 Group Company Retained Earnings-K-million Retained Earnings 2016 Retained Earnings 2015 6 ZCCM Investments Holdings Plc Annual report (continued) for the year ended 31 March 2016 CHAIRMAN’S STATEMENT (continued) GRZ Share Sell Down and Transfer of Shares During the presentation of the 2015 National Budget, the Minister of Finance directed the Securities and Exchange Commission (SEC) to ensure that all listed Companies on the Lusaka Stock Exchange (LuSE) complied with the LuSE minimum free (public) float requirements of 25% of the shares. In this regard, the Finance Minister announced GRZ’s intention to reduce its shareholding in ZCCM-IH from 87.5% to 60.3% by selling some of its shares. Subsequently, GRZ transferred its 60.3% to the Industrial Development Corporation (IDC) while the 27.2% were offered to the public through a Preferential Secondary Market Offer. The objectives of the Preferential Secondary Market Offer were as follows: i) to increase economic participation of Zambian citizens in economic development through a Preferential Secondary Market Offer of shares to Zambian citizens; ii) to ensure a broad distribution of shares in order to increase the liquidity and trading of ZCCM-IH shares on the LuSE; iii) to comply with LuSE Listings Requirements with regard to the minimum percentage of shareholding available to the public; iv) implement GRZ’s initial intention of the second phase of privatisation, specifically the sale of part of its shares in ZCCM-IH; and v) to raise revenue for the Treasury through the sale of GRZ’s shares in ZCCM-IH. The results of the share sell down was an under-subscription due to low liquidity in the market. Generally, the stock market experienced low growth as evidenced from the share price index on the LuSE. Amidst the challenges of the past, ZCCM-IH is confident that with improved prospects in the mining sector, there will be an increased appetite for investment in the sector through the purchase of shares on the stock exchange. Capital market The ZCCM-IH share price on the Lusaka Stock Exchange closed the year at K40 (2015: K40). The market capitalisation as at 31 March 2016 remained unchanged at K6, 431 million (2015: K6, 431 million). The static share price is indicative of the general stock market performance, which has experienced low liquidity and hence low share transactions. Outlook Beyond these current challenges, the underlying drivers of growth in Sub-Saharan Africa that have been in play domestically in the region over the past decade most importantly, the much improved business environment generally continue to be in place, and favorable demographics are poised to support these drivers over the coming decades. These will anchor medium-term growth prospects. The Zambian economy is expected to continue on a recovery path and maintain a steady growth of around 3.4 percent in 2017. This growth is hinged on key sector policy interventions in agriculture, tourism, industrialisation and mining within a diversification framework. The move to more cost reflective tariffs is expected to improve investment in the energy sector which will help drive growth in the key sectors of the economy. As the majority of ZCCM-IH’s investment remains in the mining industry, the Company is confident that the industry will perform better in the coming years premised on the recent improvements in the copper prices as a result of anticipated demand in the United States of America, China and Europe. 7 ZCCM Investments Holdings Plc Annual report (continued) for the year ended 31 March 2016 CHAIRMAN’S STATEMENT (continued) Outlook (continued) The commissioning of the 150 MW power plant by Maamba Collieries Limited (MCL) is a success story for ZCCM-IH and its partners who have worked tirelessly to ensure the project was completed. Once the plant is fully operational, it will provide the much needed dependable and sustainable base load power, which is crucial for the country’s economic growth and energy security. In response to the challenges faced by the Company and in order to increase shareholder value, ZCCM-IH will implement a robust strategy aimed at taking advantage of the opportunities that exist in various sectors of the economy including mining, energy, agriculture and real estate. ZCCM-IH is better placed to leverage its position and expand its operations in sectors of the economy that offer opportunities. Directorate During the year, the following changes were made to the Directorate: Mr Cosmas Mwananshiku Retired Non-Executive Director Dr Bwalya Ng'andu Retired Non-Executive Director Mrs Pamela C Kabamba Retired Non-Executive Director Ms Sophie Mutemba Retired Non-Executive Director Mr Paul Chanda Retired and reappointed Non-Executive Director Mr Fredson Yamba Appointed Non-Executive Director Mr Mateyo Kaluba Appointed Non-Executive Director Mr Yollard Kachinda Appointed Non-Executive Director Dr Pius C Kasolo Appointed Executive Director Appreciation I express sincere gratitude to my fellow Board members, the immediate past Board members, the Management and Staff of ZCCM-IH for their dedication and commitment during the past year. I again extend my gratitude to the investee companies for their efforts and contributions during the year. Director 8 ZCCM Investments Holdings Plc Annual report (continued) for the year ended 31 March 2016 REPORT OF THE DIRECTORS The Directors submit their report together with the audited financial statements for the year ended 31 March 2016, which disclose the state of affairs of ZCCM Investments Holdings Plc (‘the Company’) and its subsidiaries (together “the Group”). Shareholding As at 31 March 2016, the Group has the following interests in the undernoted companies: 1 Ndola Lime Company Limited 2 Misenge Environmental and Technical Services Ltd 100.00% 100.00% 3 Kariba Minerals Limited 50.00% 4 Maamba Collieries Limited 35.00% 5 Konkola Copper Mines Plc 20.60% 6 Kansanshi Mining Plc 20.00% 7 Copperbelt Energy Corporation Plc 20.00% 8 Lubambe Copper Mine Plc 20.00% 9 CNMC Luanshya Copper Mines Plc 20.00% 10 NFC Africa Mining Plc 15.00% 11 Chibuluma Mines Plc 15.00% 12 Investrust Bank Plc 10.60% 13 Chambishi Metals Plc 10.00% 14 Mopani Copper Mines Plc 10.00% 15 Nkana Alloy Smelting Company Limited 10.00% Share capital The authorised share capital of the Company remained unchanged at K2,000,000 divided as follows: 120,000,000 “A” Ordinary Shares of K 0.01 each; and 80,000,000 “B” Ordinary Shares of K 0.01 each. There were no changes in the issued share capital of K1,608,003 with a nominal value of K1,608,003 during the year which remained as detailed below: Number of shares Amount K At beginning and end of year 160,800,286 1,608,003 9 ZCCM Investments Holdings Plc Annual report (continued) for the year ended 31 March 2016 REPORT OF THE DIRECTORS (continued) The shares were held as follows: SHAREHOLDER Class Shareholding Amount Number of Shares % K Industrial Development Corporation A 96,926,669 60.30 969,267 Minister of Finance B 27,735,173 17.30 277,352 NAPSA B 24,120,043 15.00 241,200 Other Shareholders B 12,018,401 7.40 120,184 Total A and B 160,800,286 100.00 1,608,003 The 12,018,401 “B” ordinary shares are thinly spread and as at 31 March 2016 were held by 4,341 noncontrolling shareholders, mainly based in Europe. Directors’ interests in shares According to the register of directors’ shareholdings: • Mr P Taussac who held office at the end of the financial year had 160,589 shares in the Company. These shares were all held in Mr Tuassac’s name. • Dr P C Kasolo who also held office at the end of the financial year had 2000 shares in the Company. PRINCIPAL ACTIVITIES ZCCM –IH (“ the Company’’) is an investment holding company which has a primary listing on the Lusaka Stock Exchange and secondary listings on the London and Euronext Stock Exchanges. The Company has the majority of its investments held in the copper mining sector of Zambia. Its principal activities include managing the Zambian Government’s stake in the mining sector. Other activities include: ? developing and implementing investment strategies and aligning company operations towards maximizing of shareholder value; ? monitoring investee companies to ensure they consistently declare reasonable dividends and ensure Company growth; ? ensuring effective representation on the boards of the investee companies; ? establishing and securing joint venture partnerships for projects assessed to be viable; and ? promoting Zambian ownership and management in mining assets. 10 ZCCM Investments Holdings Plc Annual report (continued) for the year ended 31 March 2016 REPORT OF THE DIRECTORS (continued) Functions of the Company In its transformed state as an investments holding company, the Company’s strategic focus areas are as follows: ? Strategic Focus Area 1: Leveraging and consolidating existing investments in the Copper Mining Sector and pursue other copper assets; ? Strategic Focus Area 2: Diversifying into other minerals; ? Strategic Focus Area 3: Investing in Mining Related Sectors; ? Strategic Focus Area 4: Investing in Mining Related Manufacturing; ? Strategic Focus Area 5: Treasury Management; ? Strategic Focus Area 6: Reducing legacy liabilities; and ? Strategic Focus Area 7: Reposition the company. DIVIDENDS PAID During the year to March 2016, there were no dividends proposed (2015:K251 million). CORPORATE GOVERNANCE The Group continued to operate by enforcing good corporate governance practices and observing the separation of powers between the Directors and Management on one hand and the Chairman of the Board and the Chief Executive Officer on the other. All Directors on the Board, except the Chief Executive Officer, were non-executive during the financial year. Company activities were further streamlined by the full utilisation of the existing Audit, Remuneration and Investments Committees of the Board whose membership as at the date of this report is indicated below: Audit Committee Remuneration Committee Mr. M C Kaluba (Chairman) Mr. T D Mulonga Dr P C Kasolo Mr P Taussac Mr. P M Chanda (Chairman) Mr F K Yamba Mr T D Mulonga Dr P C Kasolo Investments Committee Mr. P Taussac (Chairman) Mr M C Kaluba Mr P M Chanda Dr P Kasolo Mr M T Chipata Mr S. Mubano Mr.C Mpundu Mr. B Nundwe Mr P D Chisanga Non-executive Director Non-executive Director Non-executive Director Chief Executive Officer & Executive Director Chief Financial Officer Acting Chief Investments Officer Co-opted Member Co-opted Member Co-opted Member 11 ZCCM Investments Holdings Plc Annual report (continued) for the year ended 31 March 2016 REPORT OF THE DIRECTORS (continued) CORPORATE GOVERNANCE (continued) Record of Attendance of Board and Committee Meetings held during the year to 31 March 2016 Board Meetings: Date of Meeting 21.04.15 19.06.15 02.11.15 08.12.15 24.02.16 31.03.16 Mr Cosmas Mwananshiku (Chairman) ? ? ? ? ? ? Dr Bwalya Ng'andu ? ? ? ? ? ? Mrs Pamela C Kabamba ? ? ? ? ? ? Ms Sophie Mutemba ? ? ? ? ? ? Mr Phillipe Taussac - ? ? ? ? ? Mr Paul Chanda ? ? ? ? ? ? Dr Pius C Kasolo - - - - ? ? Audit Committee Meetings: Date of Meeting 09.06.15 27.10.15 01.12.15 23.02.16 17.03.16 30.03.16 Mr Cosmas Mwananshiku (Chairman) ? ? ? ? ? ? Mrs Pamela C Kabamba ? ? ? ? ? ? Ms Sophie Mutemba ? ? ? ? Mr Paul Chanda ? ? - - - - Mr Phillipe Taussac - - ? ? ? ? Dr Pius C Kasolo - - - ? ? ? Investments Committee Meetings: Date of Meeting 05.06.15 18.09.15 02.12.15 18.03.16 Dr Bwalya Ng'andu (Chairman) ? ? ? ? Mrs Pamela C Kabamba ? ? ? ? Mr Phillipe Taussac ? ? ? ? Mr Charles Mpundu - ? ? ? Mr Patrick Chisanga ? ? ? ? Mr Basil Nundwe ? - - - Dr Pius Kasolo ? ? ? ? Mr Mabvuto Chipata ? ? ? ? Mr Paul Chanda - - ? ? Remuneration Committee Meetings: Date of Meeting 10.06.15 17.09.15 01.12.15 16.03.16 Ms Sophie Mutemba (Chairlady) ? ? ? ? Dr Bwalya Ng'andu ? ? ? ? Mr Cosmas Mwananshiku ? ? ? ? Mr Paul Chanda ? ? ? ? Dr Pius C Kasolo ? ? ? ? 12 ZCCM Investments Holdings Plc Annual report (continued) for the year ended 31 March 2016 REPORT OF THE DIRECTORS (continued) Average number and remuneration of employees The total remuneration of employees during the year amounted to K72.9 million (2015: K81.4 million) for the Group and K25.9 million (2015: K22.5 million) for the Company. The average number of employees was as follows: Month Subsidiaries Company Group Month Subsidiaries Company Group April 2015 481 43 524 October 2015 503 43 546 May 2015 523 43 566 November 2015 500 43 543 June 2015 518 43 561 December 2015 483 43 526 July 2015 514 43 557 January 2016 479 42 521 August 2015 506 43 549 February 2016 473 41 514 September 2015 521 43 564 March 2016 469 40 509 Staff expenses 2016 2015 Subsidiary Companies 46,993 58,938 ZCCM-IH 25,905 22,490 72,898 81,428 Signed on their behalf by: ........................................ ......................................... Director Director 13 ZCCM Investments Holdings Plc Annual report (continued) for the year ended 31 March 2016 OPERATIONS REPORT (A) Subsidiary Companies The performance of the subsidiary companies for the year ended 31 March 2016 is summarised below: 1 Ndola Lime Company Limited Ndola Lime Company Limited (NLC) reported total revenues for the financial year ended 31st March 2016 of K196.6 million (2015: K195.7 million) and a loss after tax of K86.3 million (2015: K17.7 million). The company’s results during the year were affected by reduced sales margins, prolonged run of the inefficient rotary kiln, year-end inventory adjustments, additional depreciation charges arising from the commissioned new plant and exchange losses. ZCCM-IH continued to provide financial support towards the completion of the Ndola Lime Recapitalisation Project. During the year an additional shareholder loan of K28.7 million (US$2.82 million) was provided. The project is expected to increase the company’s production volume at a reduced unit cost of production by using alternative cheaper fuel and is still undergoing hot commissioning. The conversion of the ZCCM-IH shareholder loans into equity amounting to K659 million significantly improved NLC’s gearing. There were no dividends declared during the year under review (2015: nil). 2 Misenge Environmental and Technical Services Limited Rehabilitated Gullies at TD 10- Mufulira Misenge Environmental and Technical Services Limited (METS) earned a total of K6.22 million as revenue for the year ended 31st March 2016 (2015: K6.23 million). METS recorded a loss after tax of K2.9 million (2015: K0.6 million). 14 ZCCM Investments Holdings Plc Annual report (continued) for the year ended 31 March 2016 OPERATIONS REPORT (continued) (A) Subsidiary Companies (continued) 2 Misenge Environmental and Technical Services Limited (continued) METS was awarded a contract as a project management consultant firm during the nine month preparatory stage of the Zambian Mining Environmental Remediation and Improvement Project (ZMERIP). ZMERIP is a World Bank led project whose “objective is to reduce environmental health risks to the local population associated with the mining sector in critically polluted areas in Kabwe and Copperbelt provinces through improved capacity of the key institutions”. This is expected to improve METS’s income base going forward. There were no dividends declared during the year under review (2015: nil). 3 Mawe Exploration and Technical Services Limited and Nkandabwe Coal Mine Limited Further to the decision by the Board of ZCCM-IH to re-instate Mawe as a technical department within ZCCMIH and the cancellation of the mining licence that had been issued to ZCCM-IH with respect to Nkandabwe Coal Mines Limited (formerly Collum Coal Mine Limited), the Board took a decision to unwind the two companies. Consequently the process of unwinding the two entities continued during the period under review. 15 ZCCM Investments Holdings Plc Annual report (continued) for the year ended 31 March 2016 OPERATIONS REPORT (continued) (B) Associate Companies’ Performance The performance of associate companies for the year ended 31 March 2016 is summarised below: 1. Kariba Minerals Limited For the financial year ended 31st March 2016, Kariba Minerals Limited (Kariba) reported revenues of K19.3 million (2015: K11.1 million) with a profit after tax of K5.6 million (2014: K0.06 million). The company’s current liabilities exceeded its current assets by K32.5 million (2015: K22.2 million) and the company had negative equity of K55.3 million (2015: K39.1 million) as 31st March 2016. During the period under review, Kariba held two auctions for high quality amethyst that grossed over US$653,800 in total revenue. Going forward, the company will continue with its operational activities with continued support from the shareholders. Kariba projects profitability in 2018 that will be driven by an increase in mining production. There were no dividends declared during the financial year ended 30th June 2015 (2014: nil). 2. Maamba Collieries Limited Maamba Collieries Limited (MCL) reported total revenue of K121.9 million (US$12.3 million) for the year ended 31st March 2016 (2015: K94.5 million (US$14.6 million)) and had profit after tax of K52.9 million (US$5.4 million) (2015: Loss K503 million (US$0.069 million)). The company’s current assets exceeded its liabilities by K1, 180 million (US$105.6 million) as at 31st March 2016 (2015: US$103.7 million). Additionally, the company has accumulated losses amounting to K999.5 million (US$89.4 million) (2015: K1, 136.4 million (US$95.2 million)). MCL’s 300-megawatt fully integrated coal-fired power plant reached Financial Closure on 28th July 2015. The peak funding of the project was capped at US$843 million and funded on a debt/equity ratio of 70:30. ZCCM-IH and Nava Bharat (Singapore) Pte Limited (Nava Bharat) have contributed US$253 million toward the project, and US$590 million is debt in form of long term loans from Development Financial Institutions and Commercial Banks. The power plant is the first private power project in the Sub-Saharan region to receive Export Credit Agency insurance cover from China Export and Credit Insurance Corporation (Sinosure). MCL signed a 20-year power purchase agreement to supply 100% of the power plant’s output to ZESCO. In May 2015, ZCCM-IH issued a letter of credit (LC) of US$8.75 million, through Standard Chartered Bank Zambia as a contingent equity support for the thermal power plant at Maamba. In support of the LC, the funds were placed as a fixed term deposit at a Kwacha interest rate of 14% and fixed exchange rate of K7.385/US$. Subsequent to year-end, the first 150 MW was commissioned on 7th August 2016 and the next 150 MW was commissioned in November 2016 where after Nava Bharat will be responsible for the operation and maintenance of the power plant. There were no dividends declared during the year under review (2015: nil). 16 ZCCM Investments Holdings Plc Annual report (continued) for the year ended 31 March 2016 OPERATIONS REPORT (continued) 3. Konkola Copper Mines Plc Konkola Copper Mines (KCM) reported total revenue of K9, 607 million (US$972.5 million) for the financial year ended 31st March 2016 (2015: K7, 006 million (US$1,077.1 million)). The reduction in revenue was attributed to lower metal prices. The net loss for the year was at K3, 685.7 million (US$373.1 million) (2015: K1, 243.6 million (US$191.3 million) loss). Total finished copper production during the year was up 7.7% at 182 thousand tonnes for the year ending March 2016 (2015: 169 thousand). During the year under review, KCM focused on increasing production volumes and addressing some productivity challenges that the company faced in the past. The increased production was firstly driven by a 22.5% increase at the Konkola Deep underground mine due to improved ore grade and concentrator recoveries, and the completion of the rehabilitation work on 1-Shaft. Secondly, the Tailings Leach Plant (TLP) production improved by 5.8% due to higher plant reliability and higher throughput. Lastly, finished copper production from third parties rose by 3.1% due to higher availability of third party feed. However, there was a 25% decline at the Nchanga plant because the plant was placed under care and maintenance in the quarter ending 31st December 2015, due to low copper prices. Moving forward, KCM’s strategy is to strive for higher operating productivity levels at the Konkola underground mine, more reliable TLP facility with potential to increase recoveries, increased usage of the smelter by processing third-party concentrates from Zambia and DRC, and improved cost cutting measures. Subsequent to year end, ZCCM-IH filed a Claim Form with the English High Court on 6th June 2016 to recover outstanding sums in excess of US$100 million due to it from KCM, pursuant to the terms of the Settlement Agreement entered into in 2013. On 16 December 2016, ZCCM-IH was successful in its application for default judgment. KCM was ordered to pay all sums owed to ZCCM-IH pursuant to the Settlement Agreement (plus associated contractual interest) within thirty (30) days. The total amount to be paid by KCM amounted to approximately US$103 million. KCM was also ordered to reimburse ZCCM-IH 80% of the costs it had incurred in pursuing its claim. Further directions were given to determine whether KCM made payments to Vedanta Group Companies in breach of the prohibition on doing so under the Settlement Agreement. If and to the extent it is determined that such payments were made, ZCCM-IH will be entitled to recover additional sums from KCM. There were no dividends declared during the year under review (2015: nil). 17 ZCCM Investments Holdings Plc Annual report (continued) for the year ended 31 March 2016 OPERATIONS REPORT (continued) 4. Kansanshi Mining Plc Kansanshi Mining Plc (KMP) had sales revenue of K15, 699 million (US$1, 586.1 million) (2015: K10, 204.4 million (US$1, 568.7 million)) for the financial year ended 31st March 2016. The net loss for the year was at K5, 110.9 million (US$517.4 million) (2015: Profit of K4,169.6 million (US$792.7 million)). Total copper production was down 14% at 226,674 tonnes (2015: 262,287 tonnes) due to lower oxide and sulphide throughput during the first half of the year. KMP intentionally reduced throughput in order to match KMP’s acid consumption with the smelter’s rampup to commercial production, while gold production was 12% lower at 136,257 ounces (2014: 154, 431 ounces) due to lower concentrate production and lower head grade. The lower sales volumes were offset by the introduction of the KMP smelter in 2015 that recorded revenue of US$403 million. In 2015, KMP completed the copper smelter well ahead of schedule and commercial production was declared on 1st July 2015. KMP’s smelter processed 709,188 tonnes of concentrate in 2015 and produced a total of 150, 292 tonnes of copper anode and 645,000 tonnes of sulphuric acid. The KMP smelter achieved an overall copper recovery of 98%. Subsequent to year end, ZCCM-IH filed a Notice of Arbitration on 26th October 2016 in London (UK) against Kansanshi Holdings Limited and Kansanshi Mining PLC. Further, on 28th October 2016 ZCCM-IH commenced legal proceedings in Lusaka, Zambia, against First Quantum Limited, FQM Finance Limited, Philip K.R. Pascal, Arthur Mathias Pascal, Clive Newall, Martin R. Rowley and Kansanshi Mining PLC for various claims arising from transactions between Kansanshi Mining Plc and FQM Finance Limited. Total dividends paid during the period under review amounted to K59.3 million (US$8 million) (2015: K113 million (US$18 million)). The amount payable to ZCCM-IH was K11.9 million (US$1.6 million) (2015: K22.6 million (US$3.6 million). 18 ZCCM Investments Holdings Plc Annual report (continued) for the year ended 31 March 2016 OPERATIONS REPORT (continued) 5. Copperbelt Energy Corporation Plc The group’s revenue increased from K4, 339.9 million (US$667.2 million) for the year ended 31 March 2015 to K6, 392.5 million (US$647.1 million) for the year ended 31 March 2016. The increase in revenue was driven by the improvement in the average billing efficiency at Abuja Electricity Distribution Plc (AED). The group posted a net loss of K2, 236.3 million (US$226.4 million) (2015: K1, 283.1 million (US$197.3 million)). The net losses were driven by provisions for bad debt totalling US$94.5 million and impairment charges on property, plant and equipment of US$86.1 million at AED. Copperbelt Energy Corporation Plc’s (CEC) revenue decreased insignificantly to K2, 875.7 million (US$291.1 million) (2014: K1, 898.6 million (US$291.9 million). Total energy sales to the mines was 2.8% lower at 4,092GWh (2014: 4,208GWh) due to the national energy deficit and the falling prices of copper on the world market, which negatively impacted operations at the mines. The net profit for the year was K390.2 million (US$39.5 million) (2014: K218.5 million (US$33.6 million) due to increase in power trading at K236.1 million (US$23.9 million) (2014: K68.3 million (US$10.5 million)) through the Southern African Power Pool (SAPP) Day Ahead Market. SAPP is the regional organisation of power utilities within the Southern African Development Community (SADC) formed in 1995 and whose aim is to create a competitive regional electricity market for all SADC Member States. Power trading revenue was recorded as part of other income and was not yet classified as a core business activity in the normal course of business. The CEC share price on the LuSE moved from K 0.63 as at end of March 2015 to K 0.72 at end of March 2016, representing capital gains of 14.29% year-on-year. For the period under review, CEC paid out a total of K184.5 million (US$16.4 million) (2015: K90 million (US$14 million)) in dividend payments. ZCCM-IH’s share was K36.9 million (US$3.28 million) (2015:K18 million). 19 ZCCM Investments Holdings Plc Annual report (continued) for the year ended 31 March 2016 OPERATIONS REPORT (continued) 6. Lubambe Copper Mine Limited Lubambe Copper Mine Limited’s (LCM) financial results for the year ending 31st March 2016 showed revenues of K931 million (US$94.2 million) (2015: K1,071 million (US$164.7 million)) and reported a net loss of K3,810.2 million (US$385.7 million) (2015:K539.2 million (US$78 million) loss). The loss was driven by LCM’s impairment of property, plant and equipment upon revision of the mine plan and a decrease in the short term copper price outlook. An impairment of K1,105.8 million (US$111.94 million) was recognised in the income statement as part of operating expenses. LCM continued to face operational challenges during the year under review. The major challenge LCM has faced in the recent past has been dilution of concentrates with the effect that production ramp up could not be achieved due to stoppable reserves required not being generated at the rate planned on account of slower than anticipated access development progress and overall rates being below target. Following an extensive ore body stoping design review conducted by SRK Consulting, Lubambe evaluated various slot development methods and equipment requirements with the recommended solution being inverse raise using 3x Sandvik DL411-15 long hole drill rigs. There were no dividends declared during the year ended 30th June 2015 (2014: nil). 7. CNMC Luanshya Copper Mines Plc CNMC Luanshya Copper Mines plc (CNMC) recorded a turnover of K1,867.7 million (US189.1 million) for the year ended 31st March 2016 (2015: K1, 741.1 million (US$267.7 million)). The loss after tax was K1, 052.1 million (US$106.5 million) (2014:K72.2 million (US$11.1 million) profit). CNMC planned to produce 46,000t of copper metal which included 16,000t copper in concentrate from Baluba Mine and 30,000t of copper cathode from Muliashi Mine. By the end of 31 December 2015, Baluba Mine and Muliashi Mine produced 11,371t and 33,101t of copper metal respectively. Thus in 2015 the total copper production was 44,472t, representing 96.68% of the annual plan. As noted, Muliashi Mine exceeded its annual production target for 2015 whilst Baluba Mine did not achieve its annual production target. The failure by Baluba mine to meet its target is attributed to the difficulty in mining the gently inclined thin ore body with its variable structure and the increasing reclaimed tonnage and decreasing geological grade and also the fact that the mine had been put on Care and Maintenance since September 2015 because of power shortages. There were no dividends paid during the year ended 31st December 2015 (2014: nil). 20 ZCCM Investments Holdings Plc Annual report (continued) for the year ended 31 March 2016 OPERATIONS REPORT (continued) (C) Other Investments 1. NFC Africa Mining Plc NFCA continued with the development of the South East Ore Body project. The company reported project expenditure of K2,669.2 million (US$270.2 million) as at 31st March 2016. Total planned project investment is K8,219.1 (US$832 million). Once completed, the project is expected to extend the life of the mine for 20 years. The design and annual capacity at full production is estimated at 3.3 million tonnes of ore containing 60 thousand tonnes of copper. The project is expected to be completed in 2018. There were no dividends paid during the year ended 31st December 2015 (2016: nil). 2. Chibuluma Mines Plc Net revenue for the financial year ended 31st December 2015 was K656.9 million (US$66.5 million) (2014: K691.4 (US$106.3 million)). Net loss over the same period was K312.2 million (US$31.6 million) (2014: K144.4 million (US$22.2 million profit)). Chibuluma Mines Plc’s (CMP) cash position reduced to US$0.056 million as at 31st December 2014 (2014: US$8 million). The loss was mainly due to the low copper prices and an impairment loss of US$13.4 million on property, plant and equipment. Production was negatively affected by the poor availability of mine equipment, which, coupled with low copper prices led to constrained cash flow at the company. Consequently, CMP embarked on cost saving measures and a survival plan with emphasis on reduced and targeted mining and processing activities at the mine. As mine reserves get exhausted CMP has been exploring the Chifupu project for the last two years to extend the life of mine and have been actively exploring new mining activities. However, due to cash flow constraints, works on the Chifupu project have reduced and CMP is evaluating the option of starting production early at the Chifupu project to recover some of the investments incurred on the project. No dividends were paid for the financial year ended 31st December 2015 (2014: US$10.8 million). 3. Investrust Bank plc Investrust Bank Plc (Investrust) recorded a 19% decrease in net interest income to K39.77 million during the year ended 31st December 2015 (2014: K49.30 million). This was driven by the increase in interest rates in fixed term deposits and inter-bank lending. During the year under review, the bank did not expand the physical branch network. Rather, the bank focused on consolidating operations in its branch networks. In 2015, Investrust embarked on a capital raising exercise through a Claw back Rights Offer to meet the minimum capital requirement set by Bank of Zambia. ZCCM-IH fully underwrote the offer and the results, subsequent to year end, indicated that ZCCM-IH ended up with 48% of the shareholding in the bank ZCCM-IH made an application for waiver of a mandatory offer to the SEC and the SEC approved the application on condition that ZCCM-IH sold down its shareholding to below 35% which is the trigger for a mandatory offer. ZCCM-IH has since sold 3.2% of its shares in the bank and is currently at 45.4% shareholding. The bank’s share price on the LuSE closed the period under review at K13.50 (2014: K13.50). There were no dividends declared during the financial year ended 31st March 2016 (2015: Nil). 21 ZCCM Investments Holdings Plc Annual report (continued) for the year ended 31 March 2016 OPERATIONS REPORT (continued) (c) Other Investments (continued) 4. Chambishi Metals Plc During the financial year ended 31st December 2015, Chambishi Metals Plc (Chambishi) generated total revenues of K2, 015.3 million (US$204 million) (2014: K1, 883 million (US$289.50 million)). The net loss was at K396.1 million (US$40.1 million) (2014: K88.5 million (US$13.6 million)). ZCCM-IH has been engaging with Chambishi on the perennial losses and it was agreed that Chambishi would have to scale up production to be able to generate enough gross profits to cover all its operational costs and to generate profits. This would necessitate creating further capacity particularly for copper beyond the current capacity of 55,000 tonnes. A study is being undertaken to assess the financial implications of this proposal. During the period under review, Chambishi commenced a research project to improve revenue at the plant. The research involves plant optimization, improved technology at the plant to improve recoveries and a global market study to identify suitable concentrates from which high value metals such as gold and silver can be extracted. 5. Mopani Copper Mines plc During the financial year ended 31st December 2015, Mopani Copper Mines Plc (Mopani) reported net revenue of K11, 017 million (US$1,121 million) (2014: K8, 696 million (US$1,337 million)). The net loss was at K2, 815 million (US$285 million) mainly as a result of lower copper sales prices and losses on forex revaluations (2014: K150 million (US$23 million)). During the year ending 31st December 2015, Mopani produced a total of 92.2 thousand tonnes of copper from own source (2014: 109.9 thousand tonnes). Total production including third party feed totalled 184.7 thousand tonnes (2014: 185.1 thousand tonnes). Mopani Copper Mines (MCM) commenced the partial suspension of operations in September 2015 and reduced smelter operating capacity. This was done in view of the lower copper environment. During the suspension period, MCM focused on making capital improvements on the Synclinorium Shaft at Nkana, and the Mindola Deeps and Mufulira Deeps projects. The Synclinorium project was successfully commissioned on 5th May 2016 on time and on budget at a total project cost of $323m. The 1,280m shaft will extend the life of the Nkana mine by 20 to 25 years. The two other shafts, the Mufulira and Mindola Deeps shafts are being sunk at a budgeted cost of $$559m. The projects are scheduled to be completed in the first half of 2017. The capital projects are aimed at reducing operational costs and improving long-term competitiveness. There were no dividends paid during the financial year ended 31st December 2015 (2014: nil). 22 ZCCM Investments Holdings Plc Annual report (continued) for the year ended 31 March 2016 OPERATIONS REPORT (continued) 6. Nkana Alloy Smelting Company Limited The interlocutory order of injunction served on the Company in the past, restraining it from interfering with activities on the slag dump was still in effect. The plaintiffs, Lunga Mineral and Exploration Limited, were handed the property for purposes of commencing prospecting works at the site as per mineral processing licence until determination of the matter. The order further directed that the plaintiffs and the local community it has partnered with, be given reasonable, unfettered and immediate access to the process area. (d) Corporate Social Responsibility and Environmental Review A) Corporate Social Responsibility The Company continued to meet its social obligations during the year by supporting social and cultural events and educational programs among others. Further, the Company made material donations to the Cancer Centre at the University Teaching Hospital (UTH) during the commemoration of the International Women’s Day on the 8th March 2016. In total, the Company spent K0.2 million (2015: K0.09 million) in supporting various corporate social responsibility activities. ZCCM-IH members of staff presenting gifts to the Cancer Centre at UTH in Lusaka. 23 ZCCM Investments Holdings Plc Annual report (continued) for the year ended 31 March 2016 OPERATIONS REPORT (continued) (B) Environmental Review (continued) The Company’s environmental related activities continued to be managed through Misenge Environmental and Technical Services Company Limited (METS), a wholly owned subsidiary of ZCCM-IH. Some of the major activities undertaken included the following: • Integrated Case Management (ICM) – Monitoring and Testing: METS conducted home visitations in some townships of Kabwe. The purpose of conducting the visitations was to assess and assist caregivers, of children with persistently high lead levels, on the implementation of messages on prevention of lead exposure and poisoning. Further, ICM clinics and soil monitoring tests were conducted in various communities in Kabwe. • Inspection and Maintenance of Tailing Dams (TD) and Over Burdens (OB) in Kitwe, Mufulira. This included water sampling and testing from the spillways as well as dam seepage to ensure that there was limited contamination of water. • Monitoring of the Radioactive Waste Storage Building in Kalulushi: radiation surveys were conducted to determine typical background dose rates and ensure that the levels were maintained within acceptable limits. Dr. Pius C. Kasolo Lusaka Chief Executive Officer 2017 24 ZCCM Investments Holdings Plc Annual report (continued) for the year ended 31 March 2016 Directors’ responsibilities in respect of the preparation of consolidated and separate financial statements The directors are responsible for the preparation and fair presentation of the consolidated and separate financial statements of ZCCM Investments Holdings Plc, comprising the statements of financial position at 31 March 2016, the statements of profit or loss and other comprehensive income, changes in equity and cash flows for the year then ended, and the notes to the financial statements, which include a summary of significant accounting policies and other explanatory notes, in accordance with International Financial Reporting Standards and the requirements of the Companies Act of Zambia. In addition, the directors are responsible for preparing the annual report. The directors are also responsible for such internal controls as they determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error and for maintaining adequate accounting records and an effective system of risk management. The directors have made an assessment of the company and its subsidiaries’ ability to continue as going concerns and have no reason to believe the businesses will not be going concerns in the year ahead. The auditor is responsible for reporting on whether the consolidated and separate financial statements are fairly presented in accordance with International Financial Reporting Standards and the requirements of the Companies Act of Zambia. Approval of the financial statements The consolidated and separate financial statements of ZCCM Investments Holdings Plc, as identified in the first paragraph, were approved by the board of directors on ……… and signed on its behalf by: ------------------------------- -------------------------- Director Director 25 ‘ KPMG CHARTERED ACCOUNTANTS Telephone +260 211 372 900 First Floor, Elunda Two Website www.kpmg.com Addis Ababa Roundabout Rhodes Park, Lusaka P O Box 31282 Lusaka, Zambia Independent auditors’ report to the shareholders of ZCCM Investments Holdings Plc Report on the financial statements We have audited the consolidated and separate financial statements of ZCCM Investments Holdings Plc, which comprise the statements of financial position at 31 March 2016, the statements of profit or loss and other comprehensive income, changes in equity and cash flows for the year then ended, and notes to the financial statements comprising a summary of significant accounting policies and other explanatory information, as set out on pages 27 to 139. Directors’ responsibility for the financial statements The 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 and Securities Act of Zambia, and for such internal control as the directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. Auditors’ responsibility Our 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 about 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 our judgement, including the assessment of the risk of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, we consider 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. KPMG Chartered Accountants, a Zambian partnership, is a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (”KPMG International”), a Swiss entity. All rights reserved. Partners: A list of the partners is available at the above mentioned address 26 Opinion In our opinion, these financial statements present fairly, in all material respects, the consolidated and separate financial position of ZCCM Investments Holdings Plc as at 31 March 2016, and its consolidated and separate financial performance and consolidated and separate cash flows for the year then ended in accordance with International Financial Reporting Standards, and the requirements of the Companies Act and Securities Act of Zambia. Report on other legal and regulatory requirements In accordance with Section 173 (3) of the Companies Act of Zambia, we report that, in our opinion, the required accounting records, other records and registers have been properly kept in accordance with the Act. In accordance with section 149 of the Securities Act of Zambia, we report as follows: In terms of relevant International Standards applicable to audit, review and other assurance engagements we were unable to accept and perform an engagement on the existence, adequacy and effectiveness or otherwise of the internal control system of the Company, as required by section 149 of the Securities Act, for the Act does not specify which internal control framework to use in assessment of the Company’s internal control. We have not performed any audit, review or other assurance engagement in relation to these matters and accordingly we do not express any assurance opinion or conclusion thereon. KPMG Chartered Accountants 2017 Jason Kazilimani, Jr AUD/F000336 Partner 27 ZCCM Investments Holdings Plc Consolidated statement of financial position as at 31 March 2016 In thousands of Kwacha Notes 2016 2015 Assets Property, plant and equipment 15 1,030,284 775,616 Intangible assets 16 673 1,030 Investment property 17 100,778 15,000 Investment in associates 19 6,852,955 5,886,415 Financial assets at fair value through profit or loss 20 238,247 290,229 Trade and other receivables 22 313,641 200,285 Deferred tax assets 30 698,304 646,046 Non-current assets 9,234,882 7,814,621 Inventories 21 35,349 53,097 Trade and other receivables 22 136,019 78,551 Held-to-maturity investment securities 23 355,172 514,007 Cash and cash equivalents 24 35,850 43,782 Current assets 562,390 689,437 Total assets 9,797,272 8,504,058 Equity Share capital 27(i) 1,608 1,608 Share premium 27(ii) 2,089,343 2,089,343 Reserves 28 6,088,394 2,221,476 Retained earnings 146,883 3,057,532 Equity attributable to shareholders 8,326,228 7,369,959 - Liabilities Borrowings 29 221,754 198,567 Trade and other payables 25 29,437 - Deferred tax liabilities 30 211,786 292,820 Retirement benefits 31 2,904 2,334 Provisions for environmental rehabilitation 32 263,491 45,798 Non-current liabilities 729,372 539,519 Bank overdraft 24 319 - Borrowings 29 70,890 68,886 Trade and other payables 25 256,834 186,299 Provisions 26 139,197 98,538 Current tax liabilities 12 232,542 130,431 Retirement benefits 31 41,890 47,996 Provisions for environmental rehabilitation 32 - 62,430 Current liabilities 741,672 594,580 Total liabilities 1,471,044 1,134,099 Total equity and liabilities 9,972,272 8,504,058 The financial statements were approved for issue by the Board of Directors on ...................... 2017 and signed on its behalf by: ……………………………. ……………………………. Director Director The notes on pages 36 to 139 are an integral part of these consolidated and separate financial statements. 28 ZCC M Investments Holdings Plc Company statement of financial position as at 31 March 2016 In thousands of Kwacha Notes 2016 2015 Assets Property, plant and equipment 15 29,658 22,304 Intangible assets 16 540 860 Investment property 17 100,778 15,000 Investments in subsidiaries 18 95,644 157,120 Investment in associates 19 3,831,768 3,787,416 Financial assets at fair value through profit or loss 20 238,247 290,229 Trade and other receivables 22 313,642 493,836 Non-current assets 4,610,277 4,766,765 Trade and other receivables 22 95,722 251,921 Held-to-maturity investment securities 23 355,172 514,007 Cash and cash equivalents 24 34,982 25,920 Current assets 485,876 791,848 Total assets 5,096,153 5,558,613 Equity Share capital 27(i) 1,608 1,608 Share premium 27(ii) 2,089,343 2,089,343 Reserves 28 2,000,626 1,917,082 Retained earnings 87,245 512,147 Equity attributable to shareholders 4,178,822 4,520,180 Liabilities Borrowings 29 155 384 Deferred tax liabilities 30 245,519 641,115 Retirement benefits 31 2,904 2,334 Provisions for environmental rehabilitation 32 218,754 34,246 Non-current liabilities 467,332 678,079 Borrowings 29 237 27,614 Trade and other payables 25 77,466 37,861 Provisions 26 136,588 98,538 Current tax liabilities 12 235,708 133,911 Provisions for environmental rehabilitation 32 - 62,430 Current liabilities 449,999 360,354 Total liabilities 917,331 1,038,433 Total equity and liabilities 5,096,153 5,558,613 The financial statements were approved for issue by the Board of Directors on………….2017 and signed on its behalf by: …………………………… ……………………………….. Director Director The notes on pages 36 to 139 are an integral part of these consolidated and separate financial statements. 29 ZCCM Investments Holdings Plc Consolidated statement of profit or loss and other comprehensive income for the year ended 31 March 2016 In thousands of Kwacha Notes 2016 2015 Revenue 6 198,661 241,989 Cost of sales (180,368) (130,873) Gross profit 18,293 111,116 Other income 7 9,882 12,433 Environmental expenses 8 (73,282) (50,233) Administration expenses 9 (801,021) (2,252,769) Operating loss (846,128) (2,179,453) Finance income 419,347 684,635 Finance costs (227,893) (114,685) Net finance income 11 191,454 569,950 Share of (loss)/profit of equity-accounted investees, net of tax 19(b) (2,210,199) 280,535 Loss before tax (2,864,873) (1,328,968) Income tax (expense)/credit 12 (47,356) 341,851 Loss for the year (2,912,229) (987,117) Other comprehensive income Items that will never be reclassified to profit or loss Revaluation on property, plant and equipment 15 16,748 9,289 Deferred tax on revaluation reserve 30 (4,733) (3,717) Actuarial loss on defined benefit pension plans 31 983 (101) Deferred tax on defined benefit actuarial loss 30 (344) 35 Equity-accounted investees- share of OCI (204) - 12,450 5,506 Items that are or may be reclassified to profit or loss Foreign currency translation differences - equity - accounted investees 19 3,855,844 597,689 Equity-accounted investees- share of OCI (266,397) - 3,589,447 597,689 Other comprehensive income, net of tax 3,601,897 603,195 Total comprehensive income 689,668 (383,922) Loss attributable to: Owners of the company (2,259,890) (863,962) Non-controlling interests (652,339) (123,155) (2,912,229) (987,117) Total comprehensive income attributable to: Owners of the company 535,182 (336,023) Non-controlling interests 154,486 (47,899) 689,668 (383,922) Earnings per share Basic earnings per share (K) 13 (18.11) (6.14) Diluted earnings per share (K) 13 (18.11) (6.14) The notes on pages 36 to 139 are an integral part of these consolidated and separate financial statements. 30 ZCC M Investments Holdings Plc Company statement of profit or loss and other comprehensive income for the year ended 31 March 2016 In thousands of Kwacha Notes 2016 2015 Revenue 6 48,782 45,065 Other income 7 9,665 12,126 Environmental expense 8 (77,892) (49,042) Administration expenses 9 (892,493) (1,638,265) Operating loss (911,938) (1,630,116) Finance income 455,255 726,795 Finance costs (218,427) (112,303) Net finance income 11 236,828 614,492 Loss before tax (675,110) (1,015,624) Income tax credit 12 248,843 375,723 Profit/(loss) for the year (426,267) (639,901) Other comprehensive income Items that will never be reclassified to profit or loss Revaluation of property, plant and equipment 15 - 9,289 Deferred tax on revaluation reserve 30 - (3,251) Actuarial loss on defined benefit pension plans 31 983 (101) Deferred tax on defined benefit actuarial loss 30 (344) 35 639 5,972 Items that are or maybe reclassified to profit or loss Available-for-sale investments in subsidiaries – net change in fair value 18 (720,663) (244,079) Available-for-sale investments in associates – net change in fair value 19 44,352 (1,742,580) Deferred tax on fair value change on subsidiaries 30 252,232 85,428 Deferred tax on fair value change on investments 30 (15,523) 609,903 Available-for-sale investments in associates – amounts reclassified to profit or loss 19 78,232 - Available-for-sale investments in subsidiaries – amounts reclassified to profit or loss 18 720,663 Deferred tax on fair value change on investments in associates reclassified to profit or loss 30 (27,381) - Deferred tax on fair value change on investments in subsidiaries reclassified to profit or loss 30 (252,232) 79,680 (1,291,328) Other comprehensive income, net of tax 80,319 (1,285,356) Total comprehensive income (345,948) (1,925,257) Earnings per share Basic earnings per share (K) 13 (2.65) (3.98) Diluted earnings per share (K) 13 (2.65) (3.98) The notes on pages 36 to 139 are an integral part of these consolidated and separate financial statements. 31 ZCCM Investments Holdings Plc Consolidated statement of changes in equity for the year ended 31 March 2016 In thousands of Kwacha Notes Share capital Share premium Revaluation reserve Translation reserve Retained earnings Total Balance at 1 April 2014 1,608 2,089,343 8,367 1,610,063 4,295,351 8,004,732 Total comprehensive income Loss - - - - (987,117) (987,117) Other comprehensive income Revaluation surplus on property, plant and equipment 15 - - 9,289 - - 9,289 Deferred tax on revaluation reserve 30 - (3,717) - - (3,717) Currency translation – equity accounted investees 19 - - - 597,689 - 597,689 Amortisation of revaluation reserve 28 - - (215) - 215 - Actuarial loss on defined benefit 31 - - - - (101) (101) Deferred tax on defined benefit actuarial gains 30 - - - - 35 35 Total comprehensive income - - 5,357 597,689 (986,968) (383,922) Transaction with owners of the company-contributions and distributions Dividend 14 - - - - (250,851) (250,851) Total transactions with owners of the Company - - - - (250,851) (250,851) Balance at 31 March 2015 1,608 2,089,343 13,724 2,207,752 3,057,532 7,369,959 Balance at 1 April 2015 1,608 2,089,343 13,724 2,207,752 3,057,532 7,369,959 Total comprehensive income Loss for the year (2,912,229) (2,912,229) Other comprehensive income Revaluation surplus on property, plant and equipment 15 - - 16,748 - - 16,748 Deferred tax on revaluation reserve 30 - - (4,733) - - (4,733) Currency translation – equity accounted investees 19 - - - 3,855,844 - 3,855,844 Amortisation of revaluation reserve 28 - - (941) - 941 - Actuarial loss on defined benefit 31 - - - - 983 983 Deferred tax on defined benefit actuarial gains 30 - - - - (344) (344) Total comprehensive income - - 11,074 3,855,844 (2,910,649) 956,269 Transaction with owners of the company-contributions Balance at 31 March 2016 1,608 2,089,343 24,798 6,063,596 146,883 8,326,228 Retained earnings are the carried forward recognised income, net of expenses, of the Group plus current period loss attributable to shareholders. The notes on pages 36 to 139 are an integral part of these consolidated and separate financial statements. 32 ZCCM Investments Holdings Plc Company statement of changes in equity for the year ended 31 March 2016 In thousands of Kwacha Notes Share capital Share Premium Revaluation reserve Fair value reserve Retained earnings Total Balance at 1 April 2014 1,608 2,089,343 5,406 3,196,966 1,402,965 6,696,288 Total comprehensive income Loss - - - - (639,901) (639,901) Other comprehensive income Revaluation of property, plant and equipment 15 - - 9,289 - - 9,289 Deferred tax on revaluation reserve 30 - - (3,251) - - (3,251) Actuarial loss on defined benefit 31 - - - - (101) (101) Deferred tax on defined benefit actuarial loss 30 - - - - 35 35 Change in fair value of available-for-sale investments in subsidiaries 18 - - - (244,079) - (244,079) Deferred tax fair value change on subsidiaries 30 - - - 85,428 - 85,428 Change in fair value of available-for-sale investments in associates 19 - - - (1,742,580) - (1,742,580) Deferred tax fair value change on investments 30 - - - 609,903 - 609,903 Total comprehensive income - - 6,038 (1,291,328) (639,967) (1,925,257) Transactions with owners of the Company - contributions and distributions Dividend 14 - - - - (250,851) (250,851) Total transactions with owners of the Company - - - - (250,851) (250,851) Balance at 31 March 2015 1,608 2,089,343 11,444 1,905,638 512,147 4,520,180 2,,1 Balance at 1 April 2015 1,608 2,089,343 11,444 1,905,638 512,147 4,520,180 Total comprehensive income Profit for the year - - - - (426,267) (426,267) Other comprehensive income Amortisation of revaluation surplus - - (726) - 726 - Actuarial loss on defined benefit 31 - - - - 983 983 Deferred tax on defined benefit actuarial loss 30 - - - - (344) (344) Change in fair value of available-for-sale investments in associates 19 - - - 122,585 - 122,585 Deferred tax fair value change on investments 30 - - - (38,315) (38,315) Total comprehensive income - - (726) 84,270 (424,902) (341,358) Balance at 31 March 2016 1,608 2,089,343 10,718 1,989,908 87,245 4,178,822 Retained earnings are the carried forward recognised income, net of expenses, of the Company plus current period profit or loss attributable to shareholders. The notes on pages 36 to 139 are an integral part of these consolidated and separate financial statements. ZCCM Investments Holdings Plc Consolidated statement of cash flows for the year ended 31 March 2015 In thousands of Kwacha 34 Cash flows from operating activities Note 2016 2015 Loss (2,912,229) (987,117) Adjustments for: Depreciation 15 26,343 20,965 Amortisation 16 482 312 Impairment loss on property, plant and equipment 15 1,159 1,008 Interest income 11 (67,888) (52,729) Interest expense 11 5,157 1,630 Chambishi metals borrowing reversal 29 (41,359) - Interest expense on borrowings 29 130,754 55,603 Unrealised foreign currency loss 356 - Change in fair value on financial assets at fair value through profit or loss 20 51,982 57,881 Impairment of investments 19 630,323 573,806 Fair value change on investment property 17 (491) (3,670) Defined benefits expense 31 1,637 732 Share of profit of equity – accounted investees, net of tax 19 2,210,199 (280,535) Profit on disposal of property, plant and equipment 7 - (27) Tax expense 12 47,356 (341,851) Change in: 83,781 (953,992) Inventories 17,748 (28,877) Trade and other receivables (170,826) 1,460,000 Trade and other payables and provisions 140,633 21,812 Provision for environmental rehabilitation 155,263 48,393 Cash generated from operating activities 226,599 547,824 Interest paid (5,157) (1,630) Tax paid 12 (83,614) (11,241) Benefits paid (6,190) (5,656) Net cash from operating activities 131,638 529,297 Cash flows from investing activities Interest received 11 67,888 52,729 Dividend received 19 48,782 - Proceeds from disposal of property, plant and equipment - 27 Acquisition of property and equipment 15 (265,422) (155,426) Acquisition of intangible assets 16 (125) (199) Acquisition of investment property 17 (85,287) - Proceeds on maturity of fixed deposits 23 514,007 108,623 Acquisition of held to maturity investments 23 (355,172) (514,007) Net cash used in investing activities (75,329) (639,881) Cash flows from financing activities Proceeds from borrowings 29 - 2,900 Repayment of borrowings 29 (64,204) (3,674) Dividend paid 14 - (250,851) Net cash used in financing activities (64,204) (251,625) Net decrease in cash and cash equivalents (7,895) (230,581) Effect of movement in exchange rates on cash held (356) - Cash and cash equivalents at 1 April 43,782 274,363 Cash and cash equivalents at 31 March 24 35,531 43,782 Cash and cash equivalents includes bank overdrafts that are repayable on demand and form an integral part of the Groups cash management. ZCCM Investments Holdings Plc Consolidated statement of cash flows for the year ended 31 March 2015 In thousands of Kwacha 36 The notes on pages 36 to 139 are an integral part of these consolidated and separate financial statements. ZCCM Investments Holdings Plc Company statement of cash flows for the year ended 31 March 2015 In thousands of Kwacha 35 Note 2016 2015 Cash flows from operating activities Profit/(loss) (426,267) (639,901) Adjustments for: Depreciation 15 2,470 1,767 Amortisation 16 445 218 Impairment of assets 15 - 987 Impairment of investee companies 78,232 Fair value changes of financial assets at fair value through profit or loss 20 51,982 57,881 Impairment of investment in subsidiaries 18 720,663 - Chambishi metals borrowing reversal 29 (41,359) - Defined benefits expense 31 1,637 732 Fair value change on investment property 17 (491) (3,670) Interest expense on borrowings 29 13,753 8,463 Interest receivable 11 (103,796) (52,190) Interest expense 11 893 640 Unrealised foreign currency loss 356 - Tax credit/expense 12 (248,843) (375,723) 49,675 (1,000,796) Change in: Trade and other receivables (322,794) 1,328,682 Trade and other payables 39,605 6,087 Provisions 38,050 Provision for environmental rehabilitation 122,078 47,203 Cash generated from operating activities (73,386) 381,176 Interest paid (893) (640) Tax paid 12 (83,614) (11,241) Retirement paid (84) (796) Net cash (used in) /from operating activities (157,977) 368,499 Cash flows from investing activities Interest received 11 103,796 52,190 Acquisition of property, plant and equipment 15 (9,824) (4,883) Acquisition of intangible assets 16 (125) (127) Acquisition of investment property 17 (85,287) - Proceeds on maturity of fixed deposits 23 514,007 108,623 Acquisition of held to maturity investments 23 (355,172) (514,007) Equity contribution in subsidiary 18 - (474) Net cash flows from/( used in) investing activities 167,395 (358,678) Cash flows from financing activities Dividend paid 14 - (250,851) Net cash used in financing activities - (250,851) Increase/(decrease) in cash and cash equivalents 9,418 (241,030) Effect of movement in exchange rates on cash held (356) - Cash and cash equivalents at 1 April 25,920 266,950 Cash and cash equivalents at 31 March 24 34,982 25,920 The notes on pages 35 to 133 are an integral part of these consolidated and separate financial statements. 36 ZCCM Investments Holdings Plc Notes to the financial statements for the year ended 31 March 2016 In thousands of kwacha 1 Reporting entity ZCCM Investments Holdings Plc (the “Company” or “ZCCM – IH”) is domiciled in Zambia. The Company’s registered office is at Mukuba Pension House, 5309 Dedan Kimathi Road. P.O Box 30048, Lusaka. These consolidated financial statements comprise the Company, its subsidiaries and investments in associates (collectively the ‘Group’ and individually ‘Group companies’). The principal activity of the Company is to manage the Zambian Government’s stake in the mining sector, as the Zambian Government through the Industrial Development Corporation (IDC), is the principal shareholder of the entity. The Company’s shares are listed on the Lusaka Stock Exchange (LuSE), the London Stock Exchange and Euronext. 2 Basis of accounting These consolidated and separate financial statements have been prepared in accordance with International Financial Reporting Standards (IFRSs) and the requirements of the Companies Act of Zambia. They were authorised for issue by the Company’s board of directors on 30 April 2017. Details of the Group’s accounting policies, including changes during the year, are included in note 39. 3 Functional and presentation currency These financial statements are presented in Zambian Kwacha, which is the Company’s functional currency. All amounts presented in Kwacha have been rounded to the nearest thousand, unless otherwise indicated. Several of the Company’s equity investments prepare financial statements in US Dollars which is their functional currency, due to the nature of the industry in which they operate. This has resulted in a foreign currency translation reserve at the consolidated level. More detail is included in note 19. 4 Use of estimates and judgements In preparing these financial statements, management has made judgements, estimates and assumptions that affect the application of the Group and Company’s accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to estimates are recognised prospectively. a) Judgements There are no judgements made in applying accounting policies that have the most significant effects on the amounts recognised in the consolidated and separate financial statements. 37 ZCCM Investments Holdings Plc Notes to the financial statements for the year ended 31 March 2016 In thousands of kwacha 4 Use of estimates and judgements (continued) (b) Assumptions and estimation uncertainties Information about assumptions and estimation uncertainties that have a significant risk of resulting in a material adjustment in the year ending 31 March 2016 is included in the following notes: • Note 31 - measurement of defined benefit obligations: key actuarial assumptions. • Notes 18, 19 & 20 – measurement of fair value of investee companies; key assumptions about discounted cash flow assumptions. • Note 39(h) - impairment test: key assumptions underlying recoverable amounts; and • Note 34 - recognition and measurement of provisions and contingencies: key assumptions about the likelihood and magnitude of an outflow of resources. Measurement of fair values A number of the Group’s accounting policies and disclosures require the measurement of fair values, for both financial and non-financial assets and liabilities. The Group has an established control framework with respect to the measurement of fair values. Significant valuation issues are reported to the Group Audit Committee. This includes the Group finance department that held overall responsibilities for overseeing all significant fair value measurement including level 3 fair values and reports directly to the Chief Financial Officer (CFO). The finance team regularly reviews significant unobservable inputs and valuation adjustments. If third party information arises such as broker quotes or pricing services, used to measure fair values, then the finance team assesses the evidence obtained from third parties to support the conclusion that such valuations meet the requirement of IFRS, including the level in the fair value hierarchy in which such valuations should be classified. Significant valuations are reported to the Group Audit Committee. When measuring the fair value of an asset or a liability, the Group uses market observable data as far as possible. Fair values are categorised into different levels in a fair value hierarchy based on the inputs used in the valuation techniques as follows: • Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities. • Level 2: inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices). • Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs). If the inputs used to measure the fair value of an asset or a liability fall into different levels of the fair value hierarchy, then the fair value measurement is categorised in its entirety in the same level of the fair value hierarchy as the lowest level input that is significant to the entire measurement. Further information about the assumptions made in measuring fair values is included in the following notes: • Note 36- financial instruments. • Note 17 - investment property. 38 ZCCM Investments Holdings Plc Notes to the financial statements for the year ended 31 March 2016 In thousands of kwacha 5 Operating segments a) Basis for segmentation The Group has five reportable segments, as described below, which are the Group’s strategic divisions. The strategic divisions offer different products and services, and are managed separately because they require different technology and marketing strategies. The following summary describes the operations of each reportable segment. Reportable segments Total revenue Revenue from Zambia Revenu e from foreign countrie s Total Segment assets Noncurrent assets Curren t assets Operations ZCCM-IH Plc Investment holding company 48,782 48,782 - 369,223 369,223 - Ndola Lime Company Limited Manufacturing of lime, mining 196,582 172,992 23,590 1,152,820 1,117,471 35,349 Nkandabwe Coal Mines Limited Coal mining - - - - - - Misenge Environmental and Technical Services Limited Environmental and technical services 1,611 1,611 - 2,210 2,210 Mawe Exploration and Technical Services Limited Exploration and technical services 468 468 - 5,289 5,289 - Totals 247,443 223,853 23,590 1,529,542 1,494,193 35,349 The Group’s Chief Executive Officer reviews internal management reports of each division at least quarterly. b) Information about reportable segments Information recorded on each reportable segment is set out below. Segment profit before tax, as included in internal management reports reviewed by the Group’s Chief Executive Officer is used to measure performance because management believes that such information is the most relevant in evaluating the results of the respective segments relative to other entities that operate in the same industries. 39 ZCCM Investments Holdings Plc Notes to the financial statements (continued) for the year ended 31 March 2016 in thousands of Kwacha 5 Segment reporting (continued) B) Information about reportable segment (continued) The segment results for the Group were as follows: ZCCM-IH Ndola Lime Company Limited Misenge Exploration and Technical Services Limited Mawe Exploration and Technical Services Limited Nkandabwe Coal Mines Limited Eliminated/ Consolidated Adjustment 2016 2015 2016 2015 2016 2015 2016 2015 2016 2015 2016 2015 2016 2015 Revenue from external customers: Sales - 196,582 195,711 - - - - - - 196,582 195,711 Services - - 1,611 836 468 377 - - - - 2,079 1,213 Dividends 48,782 45,065 - - - - (48,782) - - 45,065 Total revenue from external customers - 45,065 196,582 195,711 1,611 836 468 377 - - - - 198,661 241,989 Inter-segment revenue 48,782 40,558 - - 4,610 5,397 - - - - (53,392) (5,397) - - Total revenue 48,782 45,065 196,582 195,711 6,221 6,233 468 377 - - (53,392) (5,397) 198,661 241,985 Revenue Total Revenue from reportable segments 252,053 247,386 Elimination of intersegment revenue (53,392) (5,397) Consolidated revenue 198,661 241,989 Interest income 103,796 52,190 447 539 - - - - - - (36,355) - 67,888 52,729 Interest expense (893) (640) (4,264) (990) - - - - - - - - (5,157) (1,630) Depreciation and amortisation 2,915 1,985 23,724 17,765 183 325 3 1,193 10 9 - - - 26,835 21,277 Total profit or loss before tax for reported segments (675,110) (1,015,624) (82,275) (4,599) (2,915) (617) (10,900) (13,884) (2,685) (17,491) 119,211 557,288 (654,674) (1,609,503) Income tax credit/(expense) 248,843 375,723 (3,988) (13,146) (9) - - - - - (292,202) (20,725) (47,356) 341,851 Share of profit or (loss) of equity accounted investees - - - - - - - - - - - (2,210,199) 280,535 40 ZCCM Investments Holdings Plc Notes to the financial statements (continued) for the year ended 31 March 2016 in thousands of Kwacha 5 Segment reporting (continued) B) Information about reportable segment (continued) ZCCM-IH Ndola Lime Company Limited Misenge Exploration and Technical Services Limited Mawe Exploration and Technical Services Limited Nkandabwe Coal Mines Limited Consolidation adjustment Consolidated 2016 2015 2016 2015 2016 2015 2016 2015 2016 2015 2016 2015 2016 2015 Segment assets* Opening balance 359,274 480,503 1,107,428 697,521 1,870 619 5,289 2,122 - 10 (123,419) - 1,350,442 1,171,084 Additions 9,949 5,010 45,392 136,813 340 1,662 - 2,449 - - - - 55,681 155,625 Closing balance 369,223 485,513 1,152,820 834,334 2,210 2,281 5,289 4,571 - 10 (123,419) - 1,406,123 1,326,709 Equity accounted investees 3,831,768 3,787,416 - - - - - - - - 3,021,187 2,098,999 6,852,955 5,886,415 Other assets 895,162 1,285,684 72,380 132,801 69 140 106 5,136 - - 572,203 (132,827) 1,539,920 1,290,934 Total assets 5,096,153 5,558,613 1,225,200 967,135 2,279 2,421 5,395 9,707 - 10 3,469,971 (1,966,172) 9,798,998 8,504,058 Segment liabilities 358,246 261,073 86,627 932,084 - 444,873 308,743 Other liabilities 559,085 777,360 542,339 47,996 8,280 5,502 35,878 29,291 36,882 36,096 (155,067) (955,303) 1,027,397 825,356 Total liabilities 917,331 1,038,433 628,966 980,080 8,280 5,502 35,878 29,291 36,882 36,096 (155,067) 955,303 1,472,270 1,134,099 Cashflows from operating activities (157,977) 368,449 23,196 (20,449) 274 999 5,870 (11,307) (2,053) 2,057 528,497 81,322 131,638 547,824 Cashflows from investing activities 167,395 (358,678) (45,392) (136,786) (340) (1,662) - (2,449) - - 462,195 100,597 (75,329) (508,253) Cashflows from financing activities - (250,851) 12,027 161,538 5 474 - 18,034 - - (76,236) (180,818) (64,204) (251,625) * Segment assets exclude financial instruments, deferred tax assets and employee benefit assets Ndola lime Company’s major customers are the mines and these include KCM, Chambishi Metals, Kalumbila Mines and Mopani Copper Mines. Group reconciliation of reported assets and liabilities (i) Other assets consist trade and other receivables, held to maturity investment securities, cash and cash equivalents. (ii) Other liability includes tax liabilities, retirement benefits and liabilities classified as held for sale. (iii) Elimination adjustments relate to intersegment transactions. The adjustment to other liabilities relates to the elimination of shareholder loans and the reclassification of deferred tax liabilities. ZCCM Investments Holdings Plc Notes to the financial statements (continued) for the year ended 31 March 2016 In thousands of kwacha 41 6 Revenue See accounting policies in note 39 (k) Group Company 2016 2015 2016 2015 Dividend income (note 33b(ii)) - 45,065 48,782 45,065 Lime sales 196,582 195,711 - - Services 2,079 1,213 - - 198,661 241,989 48,782 45,065 7 Other income Group Company 2016 2015 2016 2015 Management fee income 7,828 7,942 7,828 7,942 Fair value adjustment- investment property (note 17) 491 3,670 491 3,670 Rental income ( note 17) 110 165 344 398 Profit on disposal of property, plant and equipment - 27 - - Sundry income (i) 1,453 629 1,002 116 9,882 12,433 9,665 12,126 (i) Sundry income Sundry income mainly includes income such as waste paper disposed, storage of materials fees and sale of scrap. 8 Environmental expenses Environmental expenses represent expenditures incurred in respect of meeting environmental remedial obligations arising from the operations of the old ZCCM Limited, before being taken over by the Company, and those of ZCCM-IH’s subsidiary, Ndola Lime Company Limited. Group Company 2016 2015 2016 2015 Provision charge for the year (note 32) 73,282 73,282 Environmental consultancy expenses - 50,233 4,610 49,043 73,282 50,233 77,892 49,043 9 Administration expenses Group Company 2016 2015 2016 2015 Depreciation and amortisation (note 15,16) 26,825 21,277 2,915 1,985 Auditors’ remuneration 1,878 1,314 1,058 755 Personnel expenses (note 10) 72,898 81,428 25,905 22,490 Impairment of investment in subsidiaries (note 18) - - 720,663 - Impairment on investment in associates ( note 19) 630,323 573,806 78,232 - Impairment of receivables (note 22) 1,454 1,509,088 36,877 1,568,303 Other administration expenses 107,386 65,856 66,586 44,732 Reversal of principal amount on borrowing (note 29 iv) (39,743) - (39,743) - 801,021 2,252,769 892,493 1,638,265 Other administrative expenses mainly include legal expenses amounting to K40 million (2015: K34 million), rental expenses amounting to K2.6 million (2015: K2 million) and sundry expenses of K24 million (2015: K13 million). ZCCM Investments Holdings Plc Notes to the financial statements (continued) for the year ended 31 March 2016 In thousands of kwacha 42 10 Personnel expenses Group Company 2016 2015 2016 2015 Salaries and wages 67,842 76,313 23,685 21,095 Retirement benefit costs: Defined benefit scheme (note 31) 1,637 732 1,637 732 Mukuba Pension Scheme 669 809 249 287 African Life Financial Services 512 600 - - National Social Security Funds 2,238 2,974 334 376 72,898 81,428 25,905 22,490 11 Finance income and finance costs See accounting policies in note 39 (l), (j) and (b) Group Company 2016 2015 2016 2015 Fair value adjustment financial asset at fair value through profit or loss (note 20) (177,494) (57,881) (177,494) (57,881) Exchange differences (7,894) (55,174) (3,084) (53,782) Interest expenses (5,157) (1,630) (893) (640) Loss on derivative (38,572) - (38,572) - Interest expense / exchange differences reversal 1,616 1,616 Unwinding of discount on site restoration (392) - - - Finance costs (227,893) (114,685) (218,427) (112,303) Fair value adjustment financial asset at fair value through profit or loss (note 20) 125,512 - 125,512 - Interest income from price participation - 21,872 - 21,872 Interest income from related parties 16,428 87,403 52,783 130,101 Unwinding on price participation fees (note 22) - 23,240 - 23,240 Exchange differences 225,947 372,130 225,947 372,131 Exchange gains on price participation (note 22) - 127,261 - 127,261 Interest income 51,460 52,729 51,013 52,190 Finance income 419,347 684,635 455,255 726,795 Net finance income recognised in profit or loss 189,838 569,950 235,212 614,492 12 Income tax expenses See accounting policies in note 39 (m) Group Company Amounts recognised in profit or loss Current tax expense 2016 2015 2016 2015 Current year (185,725) (53,834) (185,411) (53,372) Deferred tax charge(note 30) 138,369 395,685 434,254 429,095 Income tax credit/(expense) (47,356) 341,851 248,843 375,723 The tax expense excludes the Group’s ZCCM Investments Holdings Plc Notes to the financial statements (continued) for the year ended 31 March 2016 In thousands of kwacha 43 12 Income tax (continued) The tax on the Group’s profit before income tax differs from the theoretical amount that would arise using the statutory income tax rate as follows: Group Company 2016 2015 2016 2015 \ Loss before income tax (2,864,873) (1,328,968) (675,110) (1,015,624) Less: share of post-tax profits from associates 2,210,199 (280,535) - - (654,674) (1,609,503) (675,110) (1,015,624) Tax calculated at rates applicable to profits @ 35% (229,136) (563,326) (236,289) (355,468) Tax effect of: Non-deductible expenses* 290,246 228,339 1,200 (7,234) Income taxed at a lower rate** (7,468) - (7,468) (3,695) Under/(over) recognition in prior years (2,132) 2,617 (2,132) 155 Income not subject to tax (4,154) (9,481) (4,154) (9,481) 47,356 (341,851) (248,843) (375,723) *Non-deductible expenses include: Group 2016 2015 \ Impairment on investee companies 220,613 200,832 Company secretary services 286 492 Donations and gifts 211 61 Other 69,136 26,954 290,246 228,339 ** Income taxes at lower rate rates to rental income and dividends taxed at 10% and 0% respectively. Tax movement in the statement of financial position Group Company 2016 2015 2016 2015 Opening balance 1 April 130,431 87,838 133,911 91,780 Charge for the year 185,725 53,834 185,411 53,372 Tax paid (83,614) (11,241) (83,614) (11,241) Closing balance 31 March 232,542 130,431 235,708 133,911 ZCCM Investments Holdings Plc Notes to the financial statements (continued) for the year ended 31 March 2016 In thousands of kwacha 44 13 Earnings per share See accounting policies in note 39(n) (a) Basic earnings per share The calculation of basic earnings per share has been calculated based on profit or loss attributable to ordinary shareholders and weighted average number of ordinary shares outstanding. i) Profit(loss) attributable to ordinary shareholders (basic) Group 2016 2015 Loss attributable to owners of the Company (2,939,384) (987,117) Loss attributable to ordinary shareholders (2,939,384) (987,117) Company 2016 2015 Loss attributable to owners of the Company (515,319) (639,901) Loss attributable to ordinary shareholders (515,319) (639,901) ii) Weighted average number of shares (basic) 2016 2015 Opening balance at 1 April 160,800 160,800 Weighted number of shares in issue - - Closing balance at 31 March 2016 160,800 160,800 The weighted average number of shares is determined by taking the number of additional shares issued and multiplying by the number of days the new shares were in issue over the reporting period. (b) Diluted earnings per share There were no potentially dilutive shares outstanding at 31 March 2016 (2015: nil). Diluted earnings per share are therefore the same as basic earnings per share. 14 Dividends per share No dividend was declared during the year (2015: K1.56 per share and totalled K251 million). ZCCM Investments Holdings Plc Notes to the financial statements (continued) for the year ended 31 March 2016 In thousands of kwacha 45 15 Property, plant and equipment See accounting policies in note 39(d) Reconciliation of carrying amount Group Land and Buildings Plant and equipment Vertical and rotary kilns Motor vehicles Work in progress Total Cost or revaluation Balance at 1 April 2014 13,822 18,442 62,580 101,130 519,316 715,290 Additions 477 2,691 - 4,133 148,125 155,426 Disposals - - - (275) - (275) Transfers 2,055 148 10,173 9,274 (21,650) - Transfer to intangible assets (note 16) - - - - (296) (296) Revaluation 8,772 - - - - 8,772 Balance at 31 March 2015 25,126 21,281 72,753 114,262 645,495 878,917 Balance at 1 April 2015 25,126 21,281 72,753 114,262 645,495 878,917 Additions 6,383 661 - 3,158 255,220 265,422 Transfers - 203 28,989 238,631 (267,823) - Revaluation 14,565 - - - - 14,565 Balance at 31 March 2016 46,074 22,145 101,742 356,051 632,892 1,158,904 Accumulated depreciation and impairment losses Balance at 1 April 2014 1,561 8,991 19,487 52,081 - 82,120 Charge for the year 744 2,747 5,376 12,098 - 20,965 Disposals - - - (275) - (275) Impairment - 21 - - 987 1,008 Depreciation write-back on revaluation (517) - - - - (517) Balance at 31 March 2015 1,788 11,759 24,863 63,904 987 103,301 Balance at 1 April 2015 1,788 11,759 24,863 63,904 987 103,301 Charge for the year 901 1,501 5,393 18,548 - 26,343 Impairment - 20 - 1,139 - 1,159 Depreciation write-back on revaluation (2,183) - - - - (2,183) Balance at 31 March 2016 506 13,280 30,256 83,591 987 128,620 Carrying amounts Balance at 31 March 2015 23,338 9,522 47,890 50,358 644,508 775,616 Balance at 31 March 2016 45,568 8,865 71,486 272,460 631,905 1,030,284 ZCCM Investments Holdings Plc Notes to the financial statements (continued) for the year ended 31 March 2016 In thousands of kwacha 46 15 Property, plant and equipment (continued) Revaluations Buildings of the subsidiary, Ndola Lime Company Limited were revalued at 31 March 2016, by Sherwood Greene Consultants, an independent registered valuations surveyor on the basis of an open market value. The valuation was in line with the Company’s accounting policy to recognise its leasehold land and buildings at fair value. The fair value measurement for property has been categorised as a Level 3 fair value based on the inputs to the valuation technique used. The current use is the highest and best use of the property. Valuation technique Significant unobservable inputs Inter-relationships between key unobservable inputs and fair value measurement The valuation technique used is the direct comparison method. This valuation method involves comparing the subject property to similar properties that have recently been sold, which are referred to as comparable sales. The comparable sales are adjusted for the physical condition of property, location and other economic conditions associated with the property. Unobservable inputs include the condition of the property and the prices of similar buildings. The estimated fair value would increase or (decrease) if: • Price of property is higher/ (lower) • Condition of property improves/ (worsens) The register showing the details of property, as required by section 193 of the Zambia Companies Act, is available for inspection during business hours at the registered office of the Company. The carrying amounts of property would have been K2.4 million (2015: K2.5 million) had it been measured using the cost model. Leased plant and equipment The Group leases motor vehicles under a number of finance leases. At 31 March 2016, the net carrying amount of the leased assets was K5.5 million (2015: K12.65 million). The underlying assets are held as security for the finance lease obligations. The leases provide the Group with an option to buy the motor vehicles at a beneficial price. Security The assets amounting to K994 million (2015: K741.3 million) of the subsidiary, Ndola Lime Company Limited are held as security for the US$ 27.6 million loan from Standard Bank of South Africa. Borrowing costs The Group is constructing the Ndola Lime vertical kiln (VK – 2). Borrowing costs included in property, plant and equipment during the year amounted to K51 million (2015: K51 million) in respect of the construction works. The capitalisation rate is 4.76%. Work in progress The Group’s subsidiary (Ndola Lime Company Limited) has embarked on construction of a new vertical kiln with a view of enhancing production to meet the increasing demand for both the local and export markets. Work in progress is not depreciated. The new kiln is still undergoing hot commissioning. Fully depreciated assets Included in cost of property, plant and equipment are fully depreciated assets amounting to K40 million (2015: K35.6 million). Impairment loss The Group tested plant, equipment, furniture and vehicles for impairment and recognised an impairment loss of K1.15 million (K1 million). A block making machine plant with an historical cost of K1.13 million and computer equipment with an historical cost of K0.02 million were constantly malfunctioning and therefore impaired. The impairment loss has been recognised in the financial statements for the assets identified as impaired. ZCCM Investments Holdings Plc Notes to the financial statements (continued) for the year ended 31 March 2016 In thousands of kwacha 47 15 Property, plant and equipment (continued) Reconciliation of carrying amount Company Property Equipment, furniture and fittings Motor vehicles Work in progress Total Cost or revaluation Balance at 1 April 2014 5,415 4,941 4,224 3,319 17,899 Additions 477 273 4,133 - 4,883 Transfers 2,036 - - (2,036) - Transfer to intangible assets (note 16) - - - (296) (296) Revaluation 8,772 - - - 8,772 Balance at 31 March 2015 16,700 5,214 8,357 987 31,258 Cost or revaluation Balance at 1 April 2015 16,700 5,214 8,357 987 31,258 Additions 6,383 283 3,158 - 9,824 Balance at 31 March 2016 23,083 5,497 11,515 987 41,082 Accumulated depreciation and impairment losses Balance at 1 April 2014 158 3,466 3,093 - 6,717 Charge for the year 359 559 849 - 1,767 Impairment - - - 987 987 Depreciation write back (517) - - - (517) Balance at 31 March 2015 - 4,025 3,942 987 8,954 Balance at 1 April 2015 - 4,025 3,942 987 8,954 Charge for the year 506 636 1,328 - 2,470 Balance at 31 March 2016 506 4,661 5,270 987 11,424 Carrying amount Balance at 31 March 2015 16,700 1,189 4,415 - 22,304 Balance at 31 March 2016 22,577 836 6,245 - 29,658 Revaluation Buildings were last revalued on 31 March 2015, by the Government Valuation Department Valuations were made on the basis of the Open Market Value. The carrying values of the properties were adjusted to their revalued amounts and the resultant surplus net of deferred income tax was credited to the revaluation surplus in shareholders’ equity. The carrying values of property, plant and equipment approximates to their fair values. Revaluations are done with sufficient regularity to ensure that the carrying amount does not differ materially from the fair value. The register showing the details of property, as required by section 193 of the Zambian Companies Act, is available for inspection during business hours at the registered office of the Company. The carrying amounts of property would have been K1.3 million (2015: K1.4 million had it been measured using the cost model. Leased plant and equipment The Company leased a motor vehicle under a finance lease. As at 31 March 2016, the net carrying amount of the leased motor vehicle was K0.3 million (2015:K 0.6 million). The leased motor vehicles secures the lease obligations. The leases provide the group with the option to buy the motor vehicles at a beneficial price. Fully depreciated assets Included in cost of property, plant and equipment are fully depreciated assets amounting to K6.8 million (2015: K5.8 million). ZCCM Investments Holdings Plc Notes to the financial statements (continued) for the year ended 31 March 2016 In thousands of kwacha 48 16 Intangible assets (computer software) See accounting policies in note 39 (f) Reconciliation of carrying amount Cost Group Company Balance at 1 April 2014 1,501 1,225 Additions 199 127 Transfer from property, plant and equipment (noted 15) 296 296 Balance at 31 March 2015 1,996 1,648 Balance at 1 April 2015 1,996 1,648 Additions 125 125 Balance at 31 March 2016 2,121 1,773 Amortisation Balance at 1 April 2014 654 570 Amortisation (Note9) 312 218 Balance at 31 March 2015 966 788 Balance at 1 April 2015 966 788 Amortisation (Note 9) 482 445 Balance at 31 March 2016 1,448 1,233 Carrying amount Balance at 31 March 2015 1,030 860 Balance at 31 March 2016 673 540 17 Investment property See accounting policies in note 39 (e) (a) Reconciliation of carrying amounts Group and Company 2016 2015 Balance at 1 April 15,000 11,330 Additions 85,287 - Change in fair value (note 7) 491 3,670 Balance at 31 March 100,778 15,000 Leases as lessor The Group leases out its investment properties. Investment property comprises a number of commercial properties that are leased to third parties. No contingent rents are charged. The company did not have any operating leases as a lessee on a non-cancellable period as at 31 March 2016. There was no reclassification from property, plant and equipment during the year (2015: nil). Amount recognised in profit or loss During 2016, investment property rentals of K0.11 million at Group level (2015: K0.165 million) and K0.344 million at Company level (2015: K0.398 million) were included in other income (see note 7). Maintenance expenses incurred during the year were K0.9 million (2015: K0.2 million). ZCCM Investments Holdings Plc Notes to the financial statements (continued) for the year ended 31 March 2016 In thousands of kwacha 49 17 Investment property (continued) (b) Measurement of fair value Fair value hierarchy The fair value of investment property was determined by the Government Valuation Department, who are sufficiently independent property valuers, having appropriate recognised professional qualifications and recent experience in the location and category of the property being valued. The valuers provided the fair value of the Group’s investment property portfolio annually. The fair value measurement for investment property of ZMW 100.8 million has been categorised as a Level 3 fair value based on the inputs to the valuation technique used (see note 39 (e)). Valuation techniques and significant unobservable inputs The following table shows the valuation technique used in measuring the fair value of investment property, as well as the significant unobservable inputs used. Valuation technique Significant unobservable inputs Inter-relationships between Key unobservable inputs and fair value measurement The valuation technique used is the direct comparison method. This valuation method involves comparing the subject property to similar properties that have recently been sold, which are referred to as comparable sales. The comparable sales are adjusted for the physical condition of property, location and other economic conditions associated with the property. (i) Unobservable inputs such as condition of the property, price of similar buildings The estimated fair value would increase or (decrease ) • Price of property is higher/ (lower) • Condition of property improves/ (worsens) ZCCM Investments Holdings Plc Notes to the financial statements (continued) for the year ended 31 March 2016 In thousands of kwacha 50 18 Investment in subsidiaries See accounting policies in note 39(a (iii)) Set out below is a list of subsidiaries, which are unlisted, of the Company. 2016 Country of % Interest incorporation held Cost Addition Change in fair value Carrying amount Ndola Lime Company Limited Zambia 100 157,120 659,187 (720,663) 95,644 Misenge Environmental and Technical Services Zambia 100 - - - - Mawe Exploration and Technical Services Limited (i) Zambia 100 - - - - Nkandabwe Coal Mines Limited (ii) Zambia 100 - - - - 157,120 659,187 (720,663) 95,644 2015 Country of % Interest incorporation held Cost Addition Change in fair value Carrying amount Ndola Lime Company Limited Zambia 100 400,725 - (243,605) 157,120 Misenge Environmental and Technical Services Zambia 100 - 474 (474) - Mawe Exploration and Technical Services Limited (i) Zambia 100 - - - - Nkandabwe Coal Mines Limited (ii) Zambia 100 - - - - 400,960 474 (244,079) 157,120 (i) Mawe Exploration and Technical Services Limited (Mawe) Mawe is a wholly owned subsidiary of ZCCM - IH and was the former technical department of the Company. Mawe’s principal activity is exploration in mineral oil and gas. The Company commenced trading on 13 February 2014, following incorporation on 2 April 2013. On 24th March 2015, the Board resolved to dissolve Mawe as its expenses had grown significantly and ZCCM – IH’s income could not sustain funding of Mawe. (ii) Nkandabwe Coal Mines Limited In February 2015, the Government of the Republic of Zambia (GRZ) requested ZCCM – IH to assume the ownership and operation of the Collum Coal Mine in Southern Province of Zambia, through setting up a new legal vehicle to run the mine. This was done by means of handing over the mining license to ZCCM-IH. ZCCM – IH then completed the legal formalities took taken ownership of the Coal Mine under the name Nkandabwe Coal Mines Limited. Nkandabwe Coal Mines Limited was incorporated on 03 May 2015, as a 100% subsidiary. Its principal activity is the production of coal. (i) Nkandabwe Coal Mines Limited During the period there were no production of coal activities carried out as the Company was under care and maintenance, and therefore not operating. In March 2015, GRZ withdrew the mining licenses from ZCCM-IH and handed them back to Collum Coal Mine. The company is in the process of being wound up. 51 ZCCM Investments Holdings Plc Notes to the financial statements (continued) for the year ended 31 March 2016 In thousands of Kwacha 18 Investment in subsidiaries (continued) See accounting policies in note 39(a (iii)) (a) Reconciliation of carrying amounts Company 2016 2015 Balance at 1 April 157,120 400,725 Conversion of loan to equity/additions 659,187 474 Change in fair value (720,663) (244,079) Balance at 31 March 95,644 157,120 (b) Measurement of fair value Valuation technique and significant unobservable inputs The following table shows the valuation technique used in measuring the fair value of investment in subsidiaries, as well as the significant unobservable inputs used. Subsidiary Valuation technique Significant unobservable inputs and assumptions Inter-relationship between Key unobservable inputs and fair value measurement Ndola Lime Company Limited The company has been categorized as a level 3 fair value based on the inputs to the valuation technique used. Discounted cash flows: It is an income approach to valuation and the most widely used valuation methodology. It computes the value of a business by calculating the present value of anticipated future cash flow generated by the business. The expected net cash flows are discounted using risk adjusted discount rates. • Target capital structure Debt to total capitalisation (2016:48%; 2015:60%). Equity to total capitalisation (2016:52%; 2015:40%) • Cost of debt Cost of debt (2016:4.7%; 2015:5.7%) Effective tax rate (2016:30%; 2015:30%) After tax cost of debt (2016:9.8%; 2015:4%) • Cost of Equity Risk free rate (2016:24.5%; 2015: 20.5%) Market risk premium (2016:9.2%; 2015:1.8%) Levered beta, 2016: 0.8; 2015:2.29. The estimated fair value would increase (decrease) if: • Equity to total capitalisation were higher (lower) • Cost of debt were lower (higher) • The cost of equity were higher (lower). 52 ZCCM Investments Holdings Plc Notes to the financial statements (continued) for the year ended 31 March 2016 In thousands of Kwacha 18 Investment in subsidiaries (continued) (b) Measurement of fair value (continued) Subsidiary Valuation technique Significant unobservable inputs Inter-relationship between Key unobservable inputs and fair value measurement • Cash flow assumptions were as follows: - Life of mine: 26 years - An annual inflation rate of 10% - 37% reduction in labour costs in the first year of forecast cash flows. Earnings before interest, tax, depreciation and amortisation (EBITDA) were forecast at K33 million in the first year of projection with an annual growth rate on cash flow of 5.5%. Nkandabwe Coal Mine Limited Mawe Exploration and Technical Services Misenge Environmental and Technical Services. No fair value has been determined for these entities. As they are loss-making, fair value has been determined to be nil. N/A N/A Equity value and sensitivity analysis for investment in subsidiaries 53 ZCCM Investments Holdings Plc Notes to the financial statements (continued) for the year ended 31 March 2016 In thousands of Kwacha 18 Investment in subsidiaries (continued) (a) Measurement of fair value (continued) Ndola Lime Company Limited A sensitivity analysis table of the equity value, which is based on the discount rate and growth rate over the Life of Mine is provided below: The equity value ranges from K53.5 million to K129 million (2015:K720.6 million) with the calculated equity value being K95.6 million (2015:K157.1 million). Implied EquityValue Terminal Growth Rate Over the Life of Mine 4.50% 5.00% 5.50% 6.00% 6.50% WACC 20.80% 168,173 177,959 188,190 198,890 210,086 22.30% 121,573 129,698 138,177 103,015 156,278 23.80% 81,786 88,572 95,644 103,015 110,701 25.30% 47,785 53,493 59,431 65,612 72,047 26.80% 18,364 38,837 28,208 33,419 38,837 ZCCM Investments Holdings Plc Notes to the financial statements (continued) for the year ended 31 March 2016 In thousands of Kwacha 54 19 Investment in associates See accounting policies in note 39 (a(v)) (a) Reconciliation of carrying amounts Group Company 2016 2015 2016 2015 Balance at 1 April 5,886,415 5,300,536 3,787,416 5,248,535 Share of (loss)/ profit (2,210,199) 321,093 - - Dividend received (48,782) (40,558) - - Additions - 281,461 - 281,461 Impairment of investee company (630,323) (573,806) - - Change in fair value - - 44,352 (1,742,580) Currency translation adjustment 3,855,844 597,689 - - Balance at 31 March 6,852,955 5,886,415 3,831,768 3,787,416 Investments in associates are measured at fair value in the Company’s statement of financial position. In the consolidated financial statements, investments in associates are equity - accounted. The slight increase in the fair value of associates in the 2016 year is largely due to the economic environment in the period, where the Kwacha to the US Dollar exchange rate depreciated significantly compared to that in 2015. The recognised impairment of K630 million relates to a write down of CEC Plc from its equity accounted value to its fair value as per the listed price on the Lusaka Stock Exchange (fair value level 2), due to significant losses made on CEC Plc’s foreign investments. Name Nature of relationship Principal place of business Ownership interest Fair value of ownership interest Functional currency Konkola Copper Mines Plc Strategic way of promoting Zambian participation in the mining sector Zambia 20.6% N/A USD Kansanshi Mining Plc Strategic way of promoting Zambian participation in the mining sector Zambia 20% N/A USD Copperbelt Energy Corporation Plc Strategic way of promoting Zambian participation in the power and energy sector Zambia 20% K234,000 USD CNMC Luanshya Strategic way of promoting Zambian participation in the mining sector Zambia 20% N/A USD Kariba Minerals Strategic way of promoting Zambian participation in the mining sector Zambia 50% N/A ZMK Maamba Collieries Limited Strategic way of promoting Zambian participation in the mining sector Zambia 35% N/A USD Lubambe Copper Mines Limited Strategic way of promoting Zambian participation in the mining sector Zambia 20% N/A USD The following are considered when determining the level of control or influence over the investee companies: - ZCCM-IH’s representation on the Board of the entity - Appointment of key management staff - Number of voting rights Currently ZCCM-IH appoints directors in line with its percentage holding on all the boards of its associates, as such they have significant influence. For Kariba Minerals, despite ZCCM-IH owning 50% of the mine, it only appoints two of the five Directors that sit on the Kariba Minerals board and as these are not charged with the responsibility of setting strategies to achieve objectives, ZCCM-IH is not deemed to have control of the entity. Many of the investee companies have United States Dollars (USD) as their functional currency, due to the nature of the mining industry, although all investee companies are domiciled in Zambia. ZCCM Investments Holdings Plc Notes to the financial statements (continued) for the year ended 31 March 2016 In thousands of Kwacha 55 19 Investment in associates (continued) (b) Investment in associates analysis Group Summary of financial information for material equity accounted investees. Accounting year end Country of incorporation % Interest Assets Liabilities Net asset value Revenues Profit/ (loss) Share of profit/ (loss) Share of profit/(loss) not recognised Current NonCurrent Current Non- current 2016 Konkola Copper Mines Plc 31 March Zambia 20.6 3,860,454 20,830,576 (8,622,016) (11,976,016) 4,092,998 9,607,036 (3,685,743) (759,263) - Kansanshi Mining Plc 31 December Zambia 20 10,746,216 35,022,468 (2,016,872) (14,068,912) 29,682,900 15,669,090 (5,110,904) (1,022,181) - Copperbelt Energy Corporation Plc 31 December Zambia 20 4,624,671 9,965,937 (6,406,434) (3,862,558) 4,321,616 6,392,512 (2,236,269) (447,254) - CNMC Luanshya Copper Mine Plc 31 December Zambia 20 1,984,707 4,137,506 (2,510,122) (4,887,471) (1,275,380) 1,867,687 (1,052,111) - (210,422) Kariba Minerals Limited 30 June Zambia 50 8,142 8,437 (40,655) (31,273) (55,349) 19,306 5,582 - 2,791 Maamba Collieries Limited 31 March Zambia 35 1,300,446 6,567,829 (894,804) (5,793,407) 1,180,064 121,908 52,853 18,499 - Lubambe Copper Mines Limited 30 June Zambia 20 431,168 2,272,726 (782,645) (7,109,697) (5,188,448) 931,044 (3,810,191) - (762,038) (2,210,199) (969,669) 2015 Konkola Copper Mines Plc 31 March Zambia 20.6 3,608,211 15,322,964 (6,266,454) (7,076,275) 5,588,446 7,005,889 (1,243,641) (256,190) - Kansanshi Mining Plc 31 December Zambia 20 8,401,457 23,981,988 (1,071,176) (7,219,224) 24,093,045 10,204,369 4,169,555 833,910 - Copperbelt Energy Corporation Plc 31 December Zambia 20 1,726,532 5,547,046 (2,070,937) (2,750,679) 2,451,962 4,339,887 (1,283,137) (256,627) - CNMC Luanshya Copper Mine Plc 31 December Zambia 20 1,645,747 3,603,771 (2,179,327) (3,096,804) (26,613) 1,741,078 72,238 - 14,448 Kariba Minerals Limited 30 June Zambia 50 6,719 7,119 (28,920) (24,032) (39,114) 11,067 62 - 31 Maamba Collieries Limited 31 March Zambia 35 166,596 2,509,048 (1,849,394) (706,471) 119,779 94,499 (503,036) - (176,063) Lubambe Copper Mines Limited 30 June Zambia 20 412,244 4,558,906 (604,131) (4,275,514) 91,505 1,071,379 (539,228) - (107,846) 321,093 (269,430) Where the equity accounted value is zero, no further losses are recognised by ZCCM-IH as there is no obligation to settle any liabilities. The equity accounted value was zero for CNMC Luanshya Copper Mine Plc, Kariba Minerals Limited and Lubambe Copper Mines Limited as at 31 March 2016. There was no profit or loss from discontinued operations. ZCCM Investments Holdings Plc Notes to the financial statements (continued) for the year ended 31 March 2016 In thousands of Kwacha 56 19 Investment in associates (continued) Company Summary of fair values for equity accounted investees held by the Company: 2016 2015 Copperbelt Energy Corporation Plc b(i) 234,000 204,750 Kansanshi Mining Plc b(ii) 1,128,465 2,642,952 Konkola Copper Mines Plc b(iii) 529,360 577,414 Lubambe Copper Mine Limited b(iv) - 65,115 Maamba Collieries Limited b(v) 1,925,744 255,598 Kariba Minerals Limited b(vi) 14,199 - CNMC Luanshya Copper Mines Plc b(vii) - 41,587 3,831,768 3,787,416 (b) Measurement of fair value Fair value hierarchy The fair value for the Company’s investment in associates was determined by Deloitte Advisory Limited, an external independent valuer, having appropriate recognised professional qualifications. The independent valuers provide the fair value of the Company’s associates annually. The fair value moved from K3.78 billion in 2015 to K3.83 billion in 2016. The fair value measurement for the Company’s investment in associates of K3.6 billion has been categorised as a level 3 fair value based on the inputs to the valuation technique used (see Note 4(b)). For Copperbelt Energy Corporation Plc, K 0.234 billion has been categorised as a level 2 based on the level of activity in the market which is deemed to be insufficient i.e CEC’s shares are not traded sufficiently for it to be classified as a level 1 fair value. Level 2 and 3 fair value The following table shows a reconciliation from the opening balances to the closing balances for level 2 and 3 fair values. 2016 Level 2 Level 3 Total Balance at 1 April 204,750 3,582,666 3,787,416 Change in fair value 29,250 15,102 44,352 Balance at 31 March 234,000 3,597,768 3,831,768 2015 Balance at 1 April 227,500 5,021,035 5,248,535 Conversion of loans to equity (Maamba) - 281,461 281,461 Change in fair value (22,750) (1,719,830) (1,742,580) Balance at 31 March 204,750 3,582,666 3,787,416 ZCCM Investments Holdings Plc Notes to the financial statements (continued) for the year ended 31 March 2016 In thousands of Kwacha 57 19 Investment in associates (continued) (b) Measurement of fair value (continued) Valuation technique and significant unobservable inputs The following table shows the valuation technique used in measuring the fair value of investment in interest in investment in associates as well as the significant unobservable inputs used. Associate Valuation technique Significant unobservable inputs and key assumptions Inter-relationship between Key unobservable inputs and fair value measurement Kansanshi Mining Discounted cash flows: It is an income approach to valuation and the most widely used valuation methodology. It computes the value of a business by calculating the present value of anticipated future cash flow generated by the business. The expected net cash flows are discounted using risk adjusted discount rates. • Target capital structure Debt to total capitalisation (2016:17%, 2015:20.6%). • Equity to total capitalisation (2016:83%, 2015:79.4%) • Cost of debt Cost of debt (2016:2.8%, 2015: 2.6%) Effective tax rate (2016:35.5%, 2015:45%) After tax cost of debt (2016:1.8%, 2015:1.4%) • Cost of equity Risk free debt (2016:11.5%, 2015: 20.5%) Market risk premium (2016:5.2%, 2015:1.8% ) Levered beta (2016: 0.8, 2015: 1.19). • Key assumptions considered were as follows: - Copper price was estimated to US$ 2.4 lb (US$5,290 per tonne) with the realised price for cathode at $2.31 per lb and anode at $2.13 per lb for the first year of forecast. - A budget for a sustaining CAPEX spend of USD 94 million was projected for financial year 2016. - Earnings Before interest Tax and Amortisation (EBITDA) and gross margins are projected to grow from 18% and -2% in FY16P to 22% and 8% in FY20P driven by improved metal prices and sales volumes. - Life of mine was estimated to be 12 years. The estimated fair value would increase (decrease) if: • Equity to total capitalisation were higher (lower) • Cost of debt were lower (higher) • The cost of equity were higher (lower). • If the copper price reduced/ increased the fair value would be lower/higher. ZCCM Investments Holdings Plc Notes to the financial statements (continued) for the year ended 31 March 2016 In thousands of Kwacha 58 19 Investment in associates (continued) (b) Measurement of fair value (continued) Valuation technique and significant unobservable inputs The following table shows the valuation technique used in measuring the fair value of investment in interest in investment in associates as well as the significant unobservable inputs used. Associate Valuation technique Significant unobservable inputs and assumptions Inter-relationship between Key unobservable inputs and fair value measurement Konkola Copper Mines Discounted cash flows: It is an income approach to valuation and the most widely used valuation methodology. It computes the value of a business by calculating the present value of anticipated future cash flow generated by the business. The expected net cash flows are discounted using risk adjusted discount rates. There has been no changes to the valuation technique applied in the prior year. • Target capital structure Debt to total capitalisation (2016:60.4, 2015:60.4%). • Equity to total capitalisation (2016:39.4%, 2015: 39.4%) • Cost of debt Cost of debt (2016:3.3%, 2015: 5.8%) Effective tax rate (2016:36%, 2015: 30%) After tax cost of debt (2016:2.1%, 2015: 4.1%) • Cost of equity Risk free debt (2016:11.5%, 2015: 20.5%) Market risk premium (2016:5.2%, 2015: 1.8%) Levered beta (2016:1.0, 2015: 0.34). • Key assumptions considered were as follows: - London Metal Exchange was at US$4,800 for FY 2018 onwards. - Kwacha exchange rate of K11.5/US$ - Copper production of over 200,000 tonnes beyond 2016. - Life of mine estimated to be 28 years The estimated fair value would increase (decrease) if: • Equity to total capitalisation were higher (lower) • Cost of debt were lower (higher) • The cost of equity were higher (lower). • If copper prices increase/ (decrease) • If exchange rate increase/ (decrease) ZCCM Investments Holdings Plc Notes to the financial statements (continued) for the year ended 31 March 2016 In thousands of Kwacha 59 19 Investment in associates (continued) (b) Measurement of fair value (continued) Valuation technique and significant unobservable inputs The following table shows the valuation technique used in measuring the fair value of investment in interest in investment in associates as well as the significant unobservable inputs used. Associate Valuation technique Significant unobservable inputs Inter-relationship between Key unobservable inputs and fair value measurement CNMC Luanshya The RV Valuation Methodology is based upon how similar companies are currently priced by the market. RV Valuation methods establish the value of a business in comparison to pricing multiples from transactions involving similar businesses or valuation multiples from comparable business that are listed on stock exchanges. • P/Earnings Multiple, 2016: 17; 2015:8.97. Of comparable listed companies. • Earnings after tax The estimated fair value would increase/(decrease) if: • P/E multiple were higher (lower). • Earnings after tax were higher/ (lower) ZCCM Investments Holdings Plc Notes to the financial statements (continued) for the year ended 31 March 2016 In thousands of Kwacha 60 19 Investment in associates (continued) (b) Measurement of fair value (continued) Valuation technique and significant unobservable inputs The following table shows the valuation technique used in measuring the fair value of investment in interest in investment in associates as well as the significant unobservable inputs used. Associate Valuation technique Significant unobservable inputs and assumptions Inter-relationship between Key unobservable inputs and fair value measurement Kariba Minerals Limited Discounted cash flows: It is an income approach to valuation and the most widely used valuation methodology. It computes the value of a business by calculating the present value of anticipated future cash flow generated by the business. The expected net cash flows are discounted using risk adjusted discount rates. There has been no changes to the valuation technique applied in the prior year. • Target capital structure Debt to total capitalisation (2016:60%, 2015:60%) • Equity to total capitalisation (2016: 40%, 2015: 40%) • Cost of debt Cost of debt (2016: 22.6%, 2015: 22.6%) Effective tax rate (2016:35%, 2015:30% ) After tax cost of debt (2016:14.7%, 2015:15.8 %) • Cost of equity Risk free debt (2016: 24.5%, 2015: 20.5% ) Market risk premium (2016: 9.2%, 2015: 1.8%) Levered beta (2016:1.8, 2015:0.43). • The following assumptions were considered: - An annual growth rate of 18% in quantities sold over the first 7 years of the projected period. - Annual production target of 342,000 tonnes . - Costs to increase by 10% year on year - Life of mine is estimated to be 91 years The estimated fair value would increase (decrease) if: • Equity to total capitalisation were higher (lower) • Cost of debt were lower (higher) • The cost of equity were higher (lower). • Annual growth rate increased/ (decreased) • Costs (increase)/ decrease ZCCM Investments Holdings Plc Notes to the financial statements (continued) for the year ended 31 March 2016 In thousands of Kwacha 61 19 Investment in associates (continued) (b) Measurement of fair value (continued) Valuation technique and significant unobservable inputs The following table shows the valuation technique used in measuring the fair value of investment in interest in investment in associates as well as the significant unobservable inputs used. Associate Valuation technique Significant unobservable inputs and assumptions Inter-relationship between Key unobservable inputs and fair value measurement Maamba Collieries Discounted cash flows: It is an income approach to valuation and the most widely used valuation methodology. It computes the value of a business by calculating the present value of anticipated future cash flow generated by the business. The expected net cash flows are discounted using risk adjusted discount rates. There has been no changes to the valuation technique applied in the prior year. • Target capital structure Debt to total capitalisation (2016:72%, 2015:81.4%). • Equity to total capitalisation (2016:28%, 2015: 18.6%) • Cost of debt Cost of debt (2016: 5.8%, 2015: 31.3%) Effective tax rate (2016:35%, 2015: 35%) After tax cost of debt (2016: 3.8%, 2015: 20.4%) • Cost of equity Risk free debt (2016:11.5%, 2015: 20.5%) Market risk premium (2016:5.2%, 2015: 1.8%) Levered beta (2016:1.3, 2015: 2.55). • The assumptions considered were as follow: - The Power Plant will commence operations from 1st August 2016 onwards. - Other details on coal sales price and power tariff are being assumed as per prevailing coal market prices & Purchase Power Agreement with ZESCO in case of power. - CAPEX spend of USD 118 million in FY17P. - Management has projected additional funding of USD 119 million in FY17P. - Management has proposed to pay dividends starting from FY20P. The estimated fair value would increase (decrease) if: • Equity to total capitalisation were higher (lower) • Cost of debt were lower (higher) • The cost of equity were higher (lower). • Coal sales prices (increase)/ decrease. • Capital Expenditure (increase)/decrease ZCCM Investments Holdings Plc Notes to the financial statements (continued) for the year ended 31 March 2016 In thousands of Kwacha 62 19 Investment in associates (continued) (b) Measurement of fair value (continued) Valuation technique and significant unobservable inputs The following table shows the valuation technique used in measuring the fair value of investment in interest in investment in associates as well as the significant unobservable inputs used. Associate Valuation technique Significant unobservable inputs and assumptions Inter-relationship between Key unobservable inputs and fair value measurement Lubambe Copper Mines Discounted cash flows: It is an income approach to valuation and the most widely used valuation methodology. It computes the value of a business by calculating the present value of anticipated future cash flow generated by the business. The expected net cash flows are discounted using risk adjusted discount rates. There has been no changes to the valuation technique applied in the prior year. • Target capital structure Debt to total capitalisation (2016: 75%, 2015:75%). • Equity to total capitalisation (2016:25%, 2015: 25%) • Cost of debt Cost of debt (2016:5%, 2015: 5.4%) Effective tax rate (2016:30%, 2015: 30%) After tax cost of debt (2016: 3.5%, 2015: 3.8%) • Cost of equity Risk free debt (2016:11.5%, 2015: 20.5%) Market risk premium (2016:5.2%, 2015: 1.8%) Levered beta (2016: 1.1, 2015: 2.99). • The assumptions considered were as follows: - Production for the first year of projection on 80,000 tonnes per month - Copper price of US$4,600/tonne - Exchange rate of K10/US$ - Capital expenditure of US$6 million, focus on water infrastructure projects - Earnings before interest tax depreciation and amortization EBITDA negative $0.9M per month - Life of mine: 33 years The estimated fair value would increase (decrease) if: • Equity to total capitalisation were higher (lower) • Cost of debt were lower (higher) • The cost of equity were higher (lower). • Copper price were higher/(lower) • Exchange rate were higher/ (lower) • Capital expenditure (higher)/lower ZCCM Investments Holdings Plc Notes to the financial statements (continued) for the year ended 31 March 2016 In thousands of Kwacha 63 19 Investment in associates (continued) (b) Measurement of fair value (continued) (i) Copperbelt Energy Corporation Plc (CEC) CEC is listed on Lusaka Stock Exchange (LuSE) and consequently the valuation was based on the spot price and has been categorised as level 2 as shown below: 2016 2015 Details Mark to market Spot price per share at 31 March (K) 0.72 0.63 Number of issued shares 325,000,115 325,000,115 Market value (K’000) 234,000 204,750 (b) Measurement of fair value (continued) Equity value and sensitivity analysis for investment in associates The equity values indicated below are that of the Group’s interest in each associate company. (ii) Kansanshi Mining Plc A sensitivity analysis table of the equity value, which is based on the discount rate and growth rate over the life of mine indicating reasonably possible changes at the reporting date to one of the relevant valuation assumptions, holding other assumptions constant, would have affected the value of the investment by the amounts shown below: ZCCM Investments Holdings Plc Notes to the financial statements (continued) for the year ended 31 March 2016 In thousands of Kwacha 64 19 Investment in associates (continued) (b) Measurement of fair value (continued) 2016 Equity Value Sensitivity Analysis Growth Rate Over the Remaining Life of Mine 14.00% 14.50% 15.00% 15.50% 16.00% WACC 10.90% 1,365,427 1,377,522 1,389,835 1,402,370 1,415,130 12.40% 1,231,470 1,242,034 1,252,788 1,263,733 1,274,874 13.90% 1,109,815 1,119,056 1,128,464 1,138,031 1,147,771 15.40% 1,001,152 1,009,268 1,017,527 1,025,930 1,034,480 16.90% 901,709 931,010 916,108 923,495 931,010 Equity value and sensitivity analysis for investment in associates ZCCM Investments Holdings Plc Notes to the financial statements (continued) for the year ended 31 March 2016 In thousands of Kwacha 65 19 Investment in associates (continued) (b) Measurement of fair value (continued) (ii) Kansanshi Mining Plc 2015 Equity Value Sensitivity Analysis Growth Rate Over the Remaining Life of Mine 13.00% 14.00% 15.00% 16.00% 17.00% WACC 8.30% 3,273,447 3,371,538 3,473,900 3,580,710 3,692,149 13.30% 2,842,662 2,918,316 2,997,148 3,079,284 3,164,857 18.30% 2,521,656 2,581,102 2,642,952 2,707,299 2,774,242 23.30% 2,277,679 2,325,194 2,374,555 2,425,834 2,479,106 28.30% 2,088,849 2,127,427 2,167,446 2,208,959 2,252,022 The equity value ranges from K1,009 million (2015: K2,325 million) to K1,264 million (2015: K3,079 million) with the calculated equity value being K1,128 million (2015: K2,643 million). ZCCM Investments Holdings Plc Notes to the financial statements (continued) for the year ended 31 March 2016 In thousands of Kwacha 66 19 Investment in associates (continued) (b) Measurement of fair value (continued) Equity value and sensitivity analysis for investment in associates (continued) (iii) Konkola Copper Mines Plc (KCM) A sensitivity analysis table of the equity value, which is based on the discount rate and growth rate over the life of mine indicating reasonably possible changes at the reporting date to one of the relevant valuation assumptions, holding other assumptions constant, would have affected the value of the investment by the amounts shown below: 2016 Equity Value Sensitivity Analysis Growth Rate Over the Remaining Life of Mine 4.50% 5.00% 5.50% 6.00% 6.50% WACC 5.20% 758,529 811,993 869,672 931,924 999,142 6.70% 590,152 630,671 674,274 721,220 771,789 8.20% 464,498 495,780 529,360 565,426 604,182 9.70% 361,564 385,638 411,411 439,018 468,608 11.20% 283,206 302,072 322,217 343,739 366,748 ZCCM Investments Holdings Plc Notes to the financial statements (continued) for the year ended 31 March 2016 In thousands of Kwacha 67 19 Investment in associates (continued) (b) Measurement of fair value (continued) Equity value and sensitivity analysis for investment in associates (continued) (iii) Konkola Copper Mines Plc (KCM) 2015 Equity Value Sensitivity Analysis Growth Rate Over the Remaining Life of Mine 4.50% 5.00% 5.50% 6.00% 6.50% WACC 8.80% 685,510 751,120 821,279 896,343 977,168 9.80% 572,068 629,357 690,521 755,857 825,683 10.80% 473,623 523,862 577,414 634,526 695,468 11.80% 387,816 432,062 479,148 529,284 582,697 12.80% 312,706 351,836 393,409 437,605 484,614 The equity value ranges from K439 million (2015: K432 million) to K712 million (2015: K755 million) with the calculated equity value being K4,072 million (2015: K577 million). ZCCM Investments Holdings Plc Notes to the financial statements (continued) for the year ended 31 March 2016 In thousands of Kwacha 68 19 Investment in associates (continued) (b) Measurement of fair value (continued) Equity value and sensitivity analysis for Investment in associates (continued) (iv) Lubambe Copper Mine Limited A sensitivity analysis table of the equity value, which is based on the discount rate and growth rate over the life of mine indicating reasonably possible changes at the reporting date to one of the relevant valuation assumptions, holding other assumptions constant, would have affected the value of the investment by the amounts shown below: 2016 Equity Value Sensitivity Analysis Growth Rate for the Remaining Life of Mine 4.50% 5.00% 5.50% 6.00% 6.50% WACC 4.60% 229,249 282,051 339,594 402,349 470,836 6.10% 98,846 139,547 183,750 231,796 284,055 7.60% - 1,118 30,691 65,115 102,402 142,822 9.10% - 78,820 - 53,621 - 26,448 2,881 34,564 10.60% - 140,046 - 119,818 - 98,084 - 74,707 - 49,541 ZCCM Investments Holdings Plc Notes to the financial statements (continued) for the year ended 31 March 2016 In thousands of Kwacha 69 19 Investment in associates (continued) (b) Measurement of fair value (continued) Equity value and sensitivity analysis for Investment in associates (continued) (iv) Lubambe Copper Mine Limited The equity value is K0.00 million (negative equity value is limited to a zero value due to the limited liability nature of the investee company) (2015: K65.1 million). 2015 Equity Value Sensitivity Analysis Growth Rate for the Remaining Life of Mine 4.50% 5.00% 5.50% 6.00% 6.50% WACC 4.60% 229,249 282,051 339,594 402,349 470,836 6.10% 98,846 139,547 183,750 231,796 284,055 7.60% - 1,118 30,691 65,115 102,402 142,822 9.10% - 78,820 - 53,621 - 26,448 2,881 34,564 10.60% - 140,046 - 119,818 - 98,084 - 74,707 - 49,541 ZCCM Investments Holdings Plc Notes to the financial statements (continued) for the year ended 31 March 2016 In thousands of Kwacha 70 19 Investment in associates (continued) (b) Measurement of fair value (continued) Equity value and sensitivity analysis for Investment in associates (continued) (v) Maamba Collieries Limited A sensitivity analysis table of the equity value, which is based on the discount rate over the life of power plant indicating reasonably possible changes at the reporting date to one of the relevant valuation assumptions, holding other assumptions constant, would have affected the value of the investment by the amounts shown below: 2016 Equity Value Sensitivity Analysis Equity value WACC 6.60% 2,688,868 8.10% 2,276,617 9.60% 1,925,744 11.10% 1,630,010 12.60% 1,374,682 Variations in growth rate are not included in the sensitivity analysis as Maamba utilised varying and not constant growth rates for each year over the life of the plant. The valuation was done on the actual projected cash flows over the entire life of the plant. ZCCM Investments Holdings Plc Notes to the financial statements (continued) for the year ended 31 March 2016 In thousands of Kwacha 71 19 Investment in associates (continued) (b) Measurement of fair value (continued) Equity value and sensitivity analysis for Investment in associates (continued) (v) Maamba Collieries Limited 2015 The equity value ranges from K1,630 million (2015: K0.00 million) to K2, 276 million (2015: K922.15 million) with the calculated equity value being K1, 926 million (2015: K255.60 million). Equity Value Sensitivity Analysis Growth Rate Over the Remaining Life of Mine 4.50% 5.00% 5.50% 6.00% 6.50% WACC 11.30% 2,100,321 2,302,026 2,538,750 2,820,476 3,161,383 16.30% 744,129 798,200 857,295 922,147 993,646 21.30% 209,789 231,989 255,598 280,754 307,614 26.30% - 70,099 - 58,974 - 47,312 - 35,075 - 22,217 31.30% - 238,814 - 232,543 - 226,029 - 219,258 - 212,212 ZCCM Investments Holdings Plc Notes to the financial statements (continued) for the year ended 31 March 2016 In thousands of Kwacha 72 19 Investment in associates (continued) (b) Measurement of fair value (continued) (vi) Kariba Minerals Limited A sensitivity analysis table of the equity value, which is based on the discount rate and growth rate over the life of mine indicating reasonably possible changes at the reporting date to one of the relevant valuation assumptions, holding other assumptions constant, would have affected the value of the investment by the amounts shown below: 2016 The equity value ranges from K11.9 million (2015: K0.00 million) to K 16.8 million (2015: K0.00 million) with the calculated equity value being K14.2 million (2015: K0.00 million). EquityValueSensitivityAnalysis Growth Rate for the Remaining Life of Mine 4.0% 4.5% 5.0% 5.5% 6.0% WACC 15.00% 16,175 18,828 19 204 19,600 20,017 16.50% 18,469 16,175 16 479 16,797 17,131 18.00% 13,712 13,950 14,199 14,459 14,731 19.50% 11,709 11,904 16,479 12,319 12,540 21.00% 10,002 10,165 10,333 10,509 10,691 ZCCM Investments Holdings Plc Notes to the financial statements (continued) for the year ended 31 March 2016 In thousands of Kwacha 73 19 Investment in associates (continued) (b) Measurement of fair value (continued) Equity value and sensitivity analysis for Investment in associates (continued) (vii) CNMC Luanshya Copper Mines Plc The equity value is K0.00 million (negative equity value is limited to a zero value due to the limited liability nature of the investee company) (2015: K41.6 million). A sensitivity analysis table of the equity value, which is based on the discount rate and growth rate over the life of mine indicating reasonably possible changes at the reporting date to one of the relevant valuation assumptions, holding other assumptions constant, would have affected the value of the investment by the amounts shown below: 2015 Equity Value Sensitivity Analysis Earnings 1,827 2,827 3,827 4,827 5,827 Earnings Multiple 3.965037 8,782 13,587 18,393 23,199 28,005 6.465037 14,318 22,154 29,990 37,827 45,663 8.965037 19,855 30,721 41,587 52,454 63,320 11.465037 25,392 39,288 53,185 67,081 80,978 13.965037 30,929 47,855 64,782 81,709 98,635 ZCCM Investments Holdings Plc Notes to the financial statements (continued) for the year ended 31 March 2016 In thousands of Kwacha 74 20 Financial assets at fair value through profit or loss See accounting policies in note 39 (c(ii)) (a) Reconciliation of carrying amounts Group and Company 2016 2015 Balance at 1 April 290,229 348,110 Changes in fair value (51,982) (57,881) Balance at 31 March 238,247 290,229 Financial assets at fair value through profit or loss include the following: Group and Company 2016 2015 Unlisted equities – at fair value - Equity securities in Zambia 231,571 283,553 Listed securities – at fair value - Equity securities – Investrust Bank Limited 6,676 6,676 238,247 290,229 2016 2015 Investrust Bank Limited b(i) 6,676 6,676 Mopani Copper Mines Plc b(ii) 52,311 229,805 Chibuluma Mines Plc b(iii) 135,736 24,106 Chambishi Metals Plc b(iv) - - NFC Africa Mines Plc b(v) 43,524 29,642 238,247 290,229 (b) Measurement of fair value Fair value hierarchy The fair value for the Company’s financial investments at fair value through profit or loss was determined by Deloitte Advisory Limited, an external independent valuer, having appropriate recognised professional qualifications and recent experience of the financial investments being valued. The independent valuers provide the fair value of these investments annually. The fair value changed from K290.2 million in 2015 to K238.2 million in 2016. The decline was mainly as a result of low commodity prices particularly copper due to increased supply on the market and reduced demand mainly in high copper consumer countries such as China. The fair value measurement for the Company’s investments of K231.6 million has been categorised as a level 3 fair value based on the inputs to the valuation technique used. K 6.7 million has been categorised as a level 2 fair value based on inputs to the valuation technique used, as indicated below. The volume or level of activity in the markets within which the inputs are observed are not high or frequent. ZCCM Investments Holdings Plc Notes to the financial statements (continued) for the year ended 31 March 2016 In thousands of Kwacha 75 20 Financial asset at fair value through profit or loss (continued) (b) Measurement of fair value (continued) Level 2 and 3 fair value The following table shows a reconciliation from the opening balances to the closing balances for level 2 and 3 fair values. 2016 Level 2 Level 3 Total Balance at 1 April 6,676 283,553 290,229 Change in fair value - (51,982) (51,982) Balance at 31 March 6,676 231,571 238,247 2015 Balance at 1 April 6,676 341,434 348,110 Change in fair value - (57,881) (57,881) Balance at 31 March 6,676 283,553 290,229 Level 2 fair value (i) Investrust Bank Plc Investrust Bank Plc is listed on Lusaka Stock Exchange (LuSE) and consequently valuation was based on the spot price. However it has been categorised as level 2 as the market is not sufficiently active. 2016 2015 Details Spot price per share at 31 March (K) 13.5 13.5 Number of shares held 494,514 494,514 Market value (K 000) 6,676 6,676 Valuation technique and significant unobservable inputs Level 3 fair value The following table shows the valuation technique used in measuring the fair value of investment in fair value through profit or loss, as well as the significant unobservable inputs used. ZCCM Investments Holdings Plc Notes to the financial statements (continued) for the year ended 31 March 2016 In thousands of Kwacha 76 20 Financial assets at fair value through profit or loss (continued) (b) Measurement of fair value (continued) Valuation technique and significant unobservable inputs (continued) Level 3 fair value (continued) Investee name Valuation technique Significant unobservable inputs and assumptions Inter-relationship between Key unobservable inputs and fair value measurement Mopani Copper Mines Plc Discounted cash flows: It is an income approach to valuation and the most widely used valuation methodology. It computes the value of a business by calculating the present value of anticipated future cash flow generated by the business. The expected net cash flows are discounted using risk adjusted discount rates. There has been no changes to the valuation technique applied in the prior year • Target capital structure Debt to total capitalisation (2016: 60%, 2015:60%). Equity to total capitalisation (2016:40%, 2015: 40%) • Cost of debt Cost of debt (2016: 3.5%, 2015: 3.5%) Tax rate (2016:30%, 2015:30%). After tax cost of debt (2016:2.5%, 2015: 2.5%). • Cost of equity Risk free rate (2016: 11.5%, 2015:20.5%) Market risk premium (2016:5.2%, 2015:1.8) Levered beta (2016:1.0, 2015:1.45). • The assumptions considered are as follows: - Copper price projected at US$5,500 per tonne for Financial year 2016 increasing to US$6,930 per tonne in 2025. - Kwacha exchange rate at K9.5/US$ - Steady state production is expected to be realised in 2019. This would be 50% higher production than historical achievements - Life of mine: 18 years The estimated fair value would increase (decrease) if: • Equity to total capitalisation were higher (lower) • Cost of debt were lower (higher) • The cost of equity were higher (lower) • Target capital structure of debt to total capitalisation. • Copper price higher/ (lower) ZCCM Investments Holdings Plc Notes to the financial statements (continued) for the year ended 31 March 2016 In thousands of Kwacha 77 20 Financial assets at fair value through profit or loss (continued) (b) Measurement of fair value (continued) Valuation technique and significant unobservable inputs (continued) Investee name Valuation technique Significant unobservable inputs and assumptions Inter-relationship between Key unobservable inputs and fair value measurement Chibuluma Mines Plc Discounted cash flows: It is an income approach to valuation and the most widely used valuation methodology. It computes the value of a business by calculating the present value of anticipated future cash flow generated by the business. The expected net cash flows are discounted using risk adjusted discount rates. There has been no changes to the valuation technique applied in the prior year • Target capital structure Debt to total capitalisation (2016:38%, 2015: 19.5%). Equity to total capitalisation (2016:62%, 2015: 80%) • Cost of debt Cost of debt (2016:4.1%, 2015: 5.6%) Tax rate (2016:30%, 2015:45%). After tax cost of debt (2016: 2.9%, 2015: 3.0%). • Cost of equity Risk free rate (2016:11.5%, 2015: 20.5%) Market risk premium (2016: 5.2%, 2015: 1.8%) Levered beta (2016: 0.9, 2015:0.95). • The assumptions considered are as follows: - Budgeted for a mineral royalty tax of 6% for the 3 year projected period to FY18P. - Copper price of USD/Tonne 5,000 has been projected for FY16 to increase to USD 5,900 in FY17P and USD 6,200 in FY18P. - Projected production of 9,961 MT in FY16P, 9,027 MT in FY17P and 11,988 MT in FY18P. - Projected increase in production from 9,000 tonnes in the financial year 2017 to 12,000 tonnes in the financial year to 2018 on account of Chifupu project. - The Earnings before Interest Tax Depreciation Amortisation EBITDA in FY18 has been projected to increase to USD40.9 million on account of increased production from the Chifupu project and increased copper prices. - Life of mine: 4 years The estimated fair value would increase (decrease) if: • Equity to total capitalisation were higher (lower) • Cost of debt were lower (higher) • The cost of equity were higher (lower) • Target capital structure of debt to total capitalisation. ZCCM Investments Holdings Plc Notes to the financial statements (continued) for the year ended 31 March 2016 In thousands of Kwacha 78 20 Financial assets at fair value through profit or loss (continued) (b) Measurement of fair value (continued) Valuation technique and significant unobservable inputs (continued) Investee name Valuation technique Significant unobservable inputs and assumptions Inter-relationship between Key unobservable inputs and fair value measurement Chambishi Metals Plc Discounted cash flows: It is an income approach to valuation and the most widely used valuation methodology. It computes the value of a business by calculating the present value of anticipated future cash flow generated by the business. The expected net cash flows are discounted using risk adjusted discount rates. There has been no changes to the valuation technique applied in the prior year • Target capital structure Debt to total capitalisation (2016:46%, 2015:60%). Equity to total capitalisation (2016: 54%, 2015: 40%) • Cost of debt Cost of debt (2016:9.0%, 2015: 2.9%) Tax rate (2016: 30%, 2015: 30%). After tax cost of debt (2016: 5.9%, 2015: 1.5 %). • Cost of equity Risk free rate (2016:11.5%, 2015: 20.5%) Market risk premium (2016: 5.2%, 2015: 1.8%) Levered beta (2016: 1.3, 2015: 1.05). • The assumptions considered were as follows: - Copper prices USD/tonne 4,800 for in 2016 increasing steadily to 6,900 in 2020.? - Product mix has been projected at 39,848 Metric Tonnes for 2016 growing steadily to 48,822 metric tonnes in 2020 - Capital expenditure spend of USD 3million has been budgeted for the projected financial year 2016 to cater for replacement of the 4 off star coolers and the acid plant. - A maintenance capital expenditure of USD 5 million has been projected for each year to 2020. - Earnings before interest tax depreciation amortisation growth projected from USD 994 thousand in 2016 to USD 40 million in 2020. - Projected to use about 20,000 tonnes hydroxide concentrate which will be cheaper at just 50% of LMB. The estimated fair value would increase (decrease) if: • Equity to total capitalisation were higher (lower) • Cost of debt were lower (higher) • The cost of equity were higher (lower) • Target capital structure of debt to total capitalisation. • Copper prices higher/ (lower) • Capital expenditure (higher)/ lower • Copper prices higher/ (lower) ZCCM Investments Holdings Plc Notes to the financial statements (continued) for the year ended 31 March 2016 In thousands of Kwacha 79 20 Financial assets at fair value through profit or loss (continued) (b) Measurement of fair value (continued) Valuation technique and significant unobservable inputs (continued) Investee name Valuation technique Significant unobservable inputs Inter-relationship between Key unobservable inputs and fair value measurement NFC Africa Mines Plc The RV Valuation Methodology is based upon how similar companies are currently priced by the market. RV Valuation methods establish the value of a business in comparison to pricing multiples from transactions involving similar businesses or valuation multiples from comparable business that are listed on stock exchanges There has been no changes to the valuation technique applied in the prior year. • Price/Book Value (P/BV) • P/BV Multiple - 2016: 0.26 (2015:8.97). The estimated fair value would increase/(decrease) if: • P/BV were higher (lower) • P/BV multiple were higher (lower) ZCCM Investments Holdings Plc Notes to the financial statements (continued) for the year ended 31 March 2016 In thousands of Kwacha 80 20 Financial assets at fair value through profit or loss (continued) (b) Measurement of fair value (continued) Equity value and sensitivity analysis for investment in financial investments at fair value through profit or loss The equity values indicated below are that of the Group’s interest in each investee company. (ii) Mopani Copper Mines Plc A sensitivity analysis table of the equity value, which is based on the discount rate and growth rate over the life of mine indicating reasonably possible changes at the reporting date to one of the relevant valuation assumptions, holding other assumptions constant, would have affected the value of the investment by the amounts shown below: 2016 Equity Value Sensitivity Analysis Growth Rate for the Remaining Life of Mine 4.50% 5.00% 5.50% 6.00% 6.50% WACC 5.50% 648,999 677,307 706,252 735,845 766,098 7.00% 648,999 322,085 345,294 369,018 393,268 8.50% 15,194 33,551 52,311 71,474 91,061 10.00% - 229,458 - 214,678 345,294 - 184,146 - 168,393 11.50% - 429,793 - 417,797 - 199,574 - 405,543 - 380,265 ZCCM Investments Holdings Plc Notes to the financial statements (continued) for the year ended 31 March 2016 In thousands of Kwacha 81 20 Financial assets at fair value through profit or loss (continued) (b) Measurement of fair value (continued) Equity value and sensitivity analysis for investment in financial investments at fair value through profit or loss (ii) Mopani Copper Mines Plc 2015 Equity Value Sensitivity Analysis Growth Rate for the Remaining Life of Mine 4.50% 5.00% 5.50% 6.00% 6.50% WACC 7.70% 535,549 557,112 579,552 602,905 627,210 9.20% 352,075 368,598 385,779 403,646 422,226 10.70% 203,834 216,572 229,805 243,556 257,845 12.20% 82,889 92,764 103,016 113,661 124,713 13.70% - 16,724 - 9,024 - 1,036 7,250 15,847 The equity value ranges from K0.00 million (2015: K92.76 million) to K369.02 million (2015: K 403.65 million) with the calculated equity value being K52.31 million (2015: K229.81 million). ZCCM Investments Holdings Plc Notes to the financial statements (continued) for the year ended 31 March 2016 In thousands of Kwacha 82 20 Financial assets at fair value through profit or loss (continued) (b) Measurement of fair value (continued) Equity value and sensitivity analysis for investment in financial investments at fair value through profit or loss (continued) (iii) Chibuluma Mines Plc A sensitivity analysis table of the equity value, which is based on the discount rate and growth rate over the life of mine indicating reasonably possible changes at the reporting date to one of the relevant valuation assumptions, holding other assumptions constant, would have affected the value of the investment by the amounts shown below: 2016 Equity Value Sensitivity Analysis Growth Rate for the Remaining Life of Mine -0.50% -0.50% 0.00% 0.50% 1.00% WACC 15.50% 147,464 147,744 148,012 148,292 148,560 17.00% 141,159 141,416 141,673 141,930 142,187 18.50% 135,244 135,490 135,736 135,982 136,228 20.00% 129,554 129,789 130,023 130,247 130,482 21.50% 124,210 124,433 124,657 124,881 125,104 ZCCM Investments Holdings Plc Notes to the financial statements (continued) for the year ended 31 March 2016 In thousands of Kwacha 83 20 Financial assets at fair value through profit or loss (continued) (b) Measurement of fair value (continued) Equity value and sensitivity analysis for investment in financial investments at fair value through profit or loss (continued) (iii) Chibuluma Mines Plc 2015 Equity Value Sensitivity Analysis Growth Rate for the Remaining Life of Mine -1.00% -0.50% 0.00% 0.50% 1.00% WACC 15.50% 27,026 27,043 27,061 27,078 27,095 17.00% 25,500 25,515 25,532 25,548 25,564 18.50% 24,076 24,091 24,106 24,121 24,135 20.00% 22,747 22,761 22,775 22,788 22,802 21.50% 21,505 21,517 21,531 21,544 21,556 The equity value ranges from K129.79 million (2015: K22.76 million) to K141.93 million (2015: K25.55 million) with the calculated equity value being K135.74 million (2015: K24.11 million). Equity value and sensitivity analysis for investment in financial investments at fair value through profit or loss (continued) (iv) Chambishi Metals Plc The equity value is K0.00 million (negative equity value is limited to a zero value due to the limited liability nature of the investee company) (2015: K0.0 million) ZCCM Investments Holdings Plc Notes to the financial statements (continued) for the year ended 31 March 2016 In thousands of Kwacha 84 20 Financial assets at fair value through profit or loss (continued) (b) Measurement of fair value (continued) Equity value and sensitivity analysis for investment in financial investments at fair value through profit or loss (continued) (v) NFC Africa Mines Plc A sensitivity analysis table of the equity value, which is based on EBITDA and EBITDA multiple is provided below: 2016 Equity Value Sensitivity Analysis Earnings 1,637 2,637 3,637 4,637 5,637 6.47 - 17,653 4,573 26,787 49,002 71,217 8.97 - 28,677 7,424 43,524 79,624 115,735 8.97 - 138,990 35,966 210,933 385,889 560,845 13.97 - 249,292 64,520 378,331 692,143 1,005,965 ZCCM Investments Holdings Plc Notes to the financial statements (continued) for the year ended 31 March 2016 In thousands of Kwacha 85 20 Financial assets at fair value through profit or loss (continued) (b) Measurement of fair value (continued) Equity value and sensitivity analysis for investment in financial investments at fair value through profit or loss (continued) (v) NFC Africa Mines Plc 2015 Equity Value Sensitivity Analysis Earnings 1,637 2,637 3,637 4,637 5,637 Earnings Multiple 3.965037 5,901 9,505 13,110 16,714 20,318 6.465037 9,621 15,499 21,376 27,253 33,130 8.965037 13,342 21,492 29,642 37,791 45,941 8.965037 17,062 27,485 37,908 48,330 58,753 13.965037 20,783 33,478 46,173 58,868 71,563 The equity value ranges from K4.57 million (2015: K15.50 million) to K385.89 million (2015: K48.33 million) with the calculated equity value being K43.52 million (2015: K29.64 million). ZCCM Investments Holdings Plc Notes to the financial statements (continued) for the year ended 31 March 2016 In thousands of Kwacha 86 21 Inventories See accounting policy in note 39 (g) Group 2016 2015 Consumable stores 15,547 14,830 Production stock 8,640 13,761 Stock piles 11,162 24,506 35,349 53,097 The cost of inventories recognised as an expenses and included in ‘cost of sales’ mounted to K99 million (2015: K82 million). There were no inventory write-offs and no inventories placed as security during the year (2015: nil). 22 Trade and other receivables See accounting policy in note 39 (c(ii)) Group 2016 Gross Impairment Net Trade receivables 39,385 (1,618) 37,767 Dividend receivable 78,066 (78,066) - Other receivables * 138,198 (39,947) 98,251 Amounts due from related parties (note 33(iv)) 1,030,631 (716,989) 313,642 Price participation receivable (see note below) 729,575 (729,575) - 2,015,855 (1,566,195) 449,660 2015 Gross Impairment Net Trade receivables 33,042 (1,100) 31,942 Dividend receivable 78,066 (78,066) - Other receivables * 87,293 (40,695) 46,598 Amounts due from related parties (note 33(iv)) 917,285 (716,989) 200,296 Price participation receivable (see note below) 729,575 (729,575) - 1,845,261 (1,566,425) 278,836 Company 2016 Gross Impairment Net Dividend receivable 78,066 (78,066) - Other receivables * 131,601 (39,942) 91,659 Amounts due from related parties (note 33(iv)) 1,129,855 (812,150) 317,705 Price participation receivable (see note below) 729,575 (729,575) - 2,069,097 (1,659,733) 409,364 ZCCM Investments Holdings Plc Notes to the financial statements (continued) for the year ended 31 March 2016 In thousands of Kwacha 87 22 Trade and other receivables (continued) Company 2015 Gross Impairment Net Dividend receivable 78,066 (78,066) - Other receivables * 67,534 (40,690) 26,845 Amounts due from related parties (note 33(iv)) 1,495,122 (776,209) 718,912 Price participation receivable (see note below) 729,575 (729,575) - 2,370,297 (1,624,540) 745,757 Group Company 2016 2015 2016 2015 Current 136,019 78,551 95,722 251,921 Non-current 313,641 200,285 313,642 493,836 449,660 278,836 409,364 745,757 Other receivables analysis Group Company 2016 2015 2016 2015 Government receivables 12,314 8,920 12,314 8,920 Staff receivables 2,405 2,181 2,405 2,181 Sundry debtors 123,479 76,192 116,882 56,433 138,198 87,293 131,601 67,534 *The carrying values approximated their fair values due to the low impact of discounting. Price participation receivable Group and Company 2016 2015 Opening balance 729,575 564,777 Unwinding of discount - 23,240 Payment received - (7,575) Interest on KCM price participation receivables - 21,872 Exchange gains - 127,261 729,575 729,575 The price participation debt of K729 million mainly relates to the KCM outstanding amount of K719 million (2015: K719 million). During the year ended 31 March 2013, the Company and KCM agreed for final settlement of the copper price participation receivable. The total amount due of K748.1million (US$ 119.7 million) was repayable in sixteen instalments effective 31 December 2012 and ending on 30 September 2016. However, the receivable recognised at K719 million (US$94.9 million) was fully impaired in the previous financial year ended 31 March 2015. ZCCM Investments Holdings Plc Notes to the financial statements (continued) for the year ended 31 March 2016 In thousands of Kwacha 88 23 Held to maturity investment securities See accounting policy in note 39 (c(ii)) Held to maturity investment securities relate to fixed deposits placed in various banks and they mature within one (1) year. The movement in held to maturity investment securities is as follows: Group and Company 2016 2015 Balance at 1 April 514,007 108,623 Matured during the year (514,007) (108,623) Additions 355,172 514,007 Balance at 31 March 355,172 514,007 24 Cash and cash equivalents See accounting policy in note 39 (c(ii)) For the purposes of the cash flow statement, cash and cash equivalents comprise the following: Group Company 2016 2015 2016 2015 Cash and bank balances 35,820 43,735 34,978 25,918 Cash in hand 30 47 4 2 Cash and cash equivalents in the statement of financial position 35,850 43,782 34,982 25,920 Bank overdraft (319) - - - Cash and cash equivalents in the statement of cash flows 35,531 43,782 34,982 25,920 25 Trade and other payables See accounting policy in note 39 (c(ii)) Current Group Company 2016 2015 2016 2015 Trade payables 27,362 21,701 - - Statutory liabilities 146,922 117,216 12,081 12,081 Other payables and accrued expenses 82,550 47,382 65,385 25,780 256,834 186,299 77,466 37,861 Non- Current Statutory liabilities 29,437 - - - Total 286,271 186,299 77,466 37,861 The carrying amount of the current payables and accrued expenses approximate their fair values due to the short term nature and low impact of discounting. The non-current payables are statutory liabilities with an agreed repayment plan of more than one (1) year. Statutory obligations relate to penalties on VAT imposed by the Zambia Revenue Authority. Only part of liability was recognised as the remainder was determined to be a contingent liability note 34 (iv). ZCCM Investments Holdings Plc Notes to the financial statements (continued) for the year ended 31 March 2016 In thousands of Kwacha 89 25 Trade and other payables (continued) See accounting policy in note 39 (c(ii)) Other payables and accrued expenses analysis* Group Company 2016 2015 2016 2015 Staff payables 5,699 11,634 3,382 4,881 Forward exchange contracts used for hedging 38,572 - 38,572 - Sundry payables 20,361 18,449 20,361 17,747 Accrued expenses 17,918 17,299 3,070 3,152 82,550 47,382 65,385 25,780 26 Provisions See accounting policy in note 39 (j) Group Company 2016 2015 2016 2015 Provisions for legal cases 130,567 95,144 130,567 95,144 Provisions – others 8,630 3,394 6,021 3,394 139,197 98,538 136,588 98,538 Legal provision Opening balance 95,144 73,250 95,144 73,250 Additional provision during the year 35,423 24,741 35,423 24,741 Amounts used during the year - (2,847) - (2,847) Closing balance 130,567 95,144 130,567 95,144 Provision arises mainly from a number of legal cases involving the Group. These cases relate to various legacy matters of the old ZCCM Limited, largely relating to employee cases. The only individually significant case is one involving Horizon Mining Limited, a contractor claiming a sum of K40 million (£2.5 million) for breach of contract (included under contractors and suppliers below). The amounts become payable as and when each case is concluded. Below is a table indicating nature, counterparties and timing of various cases against ZCCM IH. ZCCM IH legal case against Number of cases/claims Nature of case Counter parties Claim/Oblig ation - ZMW Estimated timing of payment Legacy cases from former ZCCM Ltd 41 Various claims Contractors, suppliers former employees 51,950 Under one year Contractors and suppliers 3 Wrongful termination of contract Contractors and suppliers 42,089 Under one year Former employees 118 Various claims relating to wrongful dismissal and termination of contracts Former employees 36,548 Under one year Totals 162 130,587 27 Share capital See accounting policy in note 39 (c (iii)) Group and Company Class A shares Class B shares Total 2016 2015 2016 2015 2016 2015 Balance at 31 March 969 969 639 639 1,608 1,608 All ordinary shares rank equally with regards to the Company’s residual assets and voting rights. ZCCM Investments Holdings Plc Notes to the financial statements (continued) for the year ended 31 March 2016 In thousands of Kwacha 90 27 Share capital (continued) See accounting policy in note 39 (c (iii)) (i) Ordinary shares Holders of these shares are entitled to dividends as declared from time to time and are entitled to one vote per share. The Group has authorised class A and B shares of 96,976,669 and 63,873,617 respectively of K0.01 each. Both class A and B shareholders have a right to vote, appoint directors, chairperson and receive a dividend. (ii) Share premium Class A shares Class B shares Total 2016 2015 2016 2015 2016 2015 Balance at 31 March 1,259,407 1,259,407 829,936 829,936 2,089,343 2,089,343 (iii) Number of shares In thousands of shares Class A shares Class B shares Total shares 2016 2015 2016 2015 2016 2015 In issue at 31 March – fully paid 96,927 96,927 63,873 63,873 160,800 160,800 Authorised – par value K0.01 120,000 120,000 80,000 80,000 200,000 200,000 28 Reserves (i) Revaluation reserve The revaluation reserve arises from the periodic revaluation of property, plant and equipment, and represents the excess of the revalued amount over the carrying value of the property, plant and equipment at the date of revaluation. Deferred tax arising in respect of the revaluation of property, plant and equipment has been charged directly against revaluation reserves in accordance with IAS 12: Income Taxes. (ii) Translation reserve The translation reserve arises from the translation of the results of the investments in equity accounted investees whose functional and presentation currency is the US dollar. (iii) Fair value reserve Fair value reserve comprises the cumulative net change in the fair value of available for sale financial assets until the assets are derecognised or impaired (see note 39 (c (ii)). ZCCM Investments Holdings Plc Notes to the financial statements (continued) for the year ended 31 March 2016 In thousands of Kwacha 91 29 Borrowings See accounting policy in note 39 (c (i) and (ii)) Group Company Non-current liabilities 2016 2015 2016 2015 Bank borrowings (29 (i)) 219,941 192,385 - - Other borrowings from related parties (note 29 (iii) and 33) - - - - Interest rate swaps (29(ii)) 944 1,076 - - Finance lease liabilities (note 29iv)) 869 5,106 155 384 221,754 198,567 155 384 Current Bank borrowings(29(i)) 62,803 32,049 - Other borrowings from related parties (note 33) 41,359 27,412 41,359 27,412 Reversal of borrowing from related party(29 iv) (41,359) - (41,359) - Interest rate swaps (29(ii)) 1,944 2,424 - - Finance lease liabilities (note 29(v)) 6,143 7,001 237 202 70,890 68,886 237 27,614 292,644 267,453 392 27,998 Group Company 2016 2015 2016 2015 Opening balance 267,453 212,624 27,998 19,535 Additions - 2,900 - - Repayments (64,204) (3,674) - - Exchange differences & interest 130,754 55,603 13,753 8,463 Reversal of borrowing from related party (29 iv) (41,359) - (41,359) - Closing balance 292,644 267,453 392 27,998 The terms of the long term borrowings are as detailed below: (i) Bank borrowings The loan of K282 million (USD 25.4 million) is due to Standard Bank of South Africa by Ndola Lime Company Limited at a carrying interest of 4.76% per annum. It is repayable over 54 months with interest and principal payable quarterly. The loan is secured under all leased assets held as security, ZCCM-IH loan repayment guarantee, Export Credit Insurance Corporation (of South Africa) cover, project accounts charge, mortgage debenture and security assignment. (ii) Interest rate swap The interest rate swaps relate to an agreement that was entered into by Ndola Lime Company Limited and Standard Bank South Africa in December 2011 with the understanding of fixing the interest rate on the Standard Bank South Africa loan facility during the operational and construction phases of the recapitalization project. ZCCM Investments Holdings Plc Notes to the financial statements (continued) for the year ended 31 March 2016 In thousands of Kwacha 92 29 Borrowings (continued) See accounting policy in Note 39(c (i) and (ii)) (iii) Interest rate swap (continued) The movement in the fair value of the interest rate swap are tabulated below. 2016 2015 Balance at 1 April 3,501 6,275 Payments (3,233) (2,775) Valuation movement 2,620 - Balance at year end 2,888 3,500 (iv) Other borrowings In May 2005, the Board of Directors of Chambishi Metals Plc resolved to undertake a rights issue of 25,000,000 new shares at par value of US$1 per share. ZCCM-IH was offered 2,500,000 ordinary shares at a par value of US$1 representing 10% of the shareholding of the new shares to be issued. The ZCCM-IH subscription was converted into a deferred loan for 10 years to be serviced by dividend payments when due from Chambishi Metals Plc. The loan carries interest at LIBOR + 3%. The borrowing was reversed during the year as no obligation to pay existed as at year end. The total reversal of K 41,359 thousand. (v) Finance lease liabilities Finance lease liabilities are payable as follow: Group Future minimum lease payments Interest Present value of minimum lease payments 2016 2015 2016 2015 2016 2015 Less than one year 6,490 7,698 347 697 6,143 7,001 Between one and five years 921 5,352 52 246 869 5,106 7,411 13,050 399 943 7,012 12,107 Company Future minimum lease payments Interest Present value of minimum lease payments 2016 2015 2016 2015 2016 2015 Less than one year 301 272 64 70 237 202 Between one and five years 196 431 41 47 155 384 497 703 105 117 392 586 There was no contingent rent payable, evaluation charges and restrictions imposed by the lease arrangements. ZCCM Investments Holdings Plc Notes to the financial statements (continued) for the year ended 31 March 2016 In thousands of Kwacha 93 30 Deferred tax See accounting policy in note 39 (m) Group Deferred tax assets are recognised for provisions to the extent that the future related tax benefits will be realised. There were no unrecognised deferred tax assets during the period. The deferred tax asset is considered to be recoverable, as it arises largely to the impairment provision on the debt owed to ZCCM by Konkola Copper Mine, which is expected to reverse in future due to the outcome of a court case brought by ZCCM in which a judgement was awarded in ZCCM’s favour. Deferred tax was calculated using the enacted income tax rate of 35% (2015: 35%). Assets Liabilities Net Recognised deferred tax assets and liabilities 2016 2015 2016 2015 2016 2015 Property plant and equipment - - 30,398 18,351 30,398 18,351 Property plant and equipment – revaluation - - 10,027 5,565 10,027 5,565 Short term deposits - - 74,323 146,862 74,323 146,862 Provisions for gratuity and leave pay (797) (681) - - (797) (681) Other provisions (30,911) (20,114) - - (30,911) (20,114) Bad debt provision (548,168) (548,249) - - (548,168) (548,249) Legal provision (45,698) (33,300) - - (45,698) (33,300) Employee provision - - 10,932 9,299 10,932 9,299 Change in investment property - - 2,160 1,988 2,160 1,988 Change on financial assets at fair value through profit or loss - - 83,946 102,140 83,946 102,140 Environmental provision (58,411) (33,837) - - (58,411) (33,837) On losses from derivatives (14,319) (1,250) - - (14,319) (1,250) (698,304) (637,431) 211,786 284,205 (486,518) (353,226) ZCCM Investments Holdings Plc Notes to the financial statements (continued) for the year ended 31 March 2016 In thousands of Kwacha 94 30 Deferred tax (continued) Group Movement in temporary differences during the year Balance at 31 Mar 2014 Recognised in profit or loss Recognised in other comprehensive income Balance at 31 Mar 2015 Recognised in profit or loss Recognised in other comprehensive income Balance at 31 Mar 2016 Property plant and equipment 22,879 (4,528) - 18,351 12,047 - 30,398 Property plant and equipment – revaluation - 1,848 3,717 5,565 - 4,462 10,027 Short term deposits 13,746 133,116 - 146,862 (72,539) - 74,323 Provisions for gratuity and leave pay (567) (114) - (681) (116) - (797) Other provisions (48,473) 28,359 - (20,114) (10,797) - (30,911) Bad debt provisions (23,312) (524,937) (548,249) 81 (548,168) Legal provisions (2,972) (30,328) (33,300) (12,398) (45,698) Employee provision 7,853 1,481 (35) 9,299 1,289 344 10,932 Change in investment property 703 1,285 - 1,988 172 - 2,160 Change on financial assets at fair value through profit or loss 122,398 (20,258) - 102,140 (18,194) - 83,946 Environmental provision (17,316) (16,521) - (33,837) (24,574) - (58,411) On losses from derivatives (4,135) 2,885 (1,250) (13,069) - (14,319) Tax losses (32,027) 32,027 - - - - - 38,777 (395,685) 3,682 (353,226) (138,098) 4,806 (486,518) ZCCM Investments Holdings Plc Notes to the financial statements (continued) for the year ended 31 March 2016 In thousands of Kwacha 95 30 Deferred tax (continued) Company Deferred tax assets are recognised for provisions to the extent that the future related tax benefits will be realised. There were no unrecognised deferred tax assets during the period. Deferred tax assets and liabilities are attributable to the following items: Assets Liabilities Net Recognised deferred tax assets and liabilities 2016 2015 2016 2015 2016 2015 Property, plant and equipment (3,414) (1,607) - - (3,414) (1,607) Property, plant and equipment – Revaluation - - 4,829 5,100 4,829 5,100 Provisions for gratuity and leave pay (830) (714) - - (830) (714) Change on financial assets at fair value through profit or loss - - 83,212 101,406 83,212 101,406 Change on investment property - - 2,160 1,988 2,160 1,988 Fair value change on equity accounted investment and subsidiaries - - 784,813 1,026,112 784,813 1,026,112 Other provisions (874) (1,191) - - (874) (1,191) Bad debt Provision (581,461) (568,589) - - (581,461) (568,589) Legal Provision (45,618) (33,300) - - (45,618) (33,300) Employee provision (1,016) (816) - - (1,016) (816) Environmental provision (58,411) (33,837) - - (58,411) (33,837) On losses from derivatives (13,500) - - - (13,500) - Short term deposits - - 75,629 146,563 75,629 146,563 (705,124) (640,054) 950,643 1,281,169 245,519 641,115 ZCCM Investments Holdings Plc Notes to the financial statements (continued) for the year ended 31 March 2016 In thousands of Kwacha 96 30 Deferred tax (continued) Company (continued) Balance 1 April 2014 Recognised in profit or loss Recognised OCI Balance 31 March 2015 Recognised in profit or loss Recognised OCI Balance 31 March 2016 Movement in temporary differences during the year Property, plant and equipment (1,954) 347 - (1,607) (1,807) - (3,414) Property, plant and equipment – Revaluation 1,849 - 3,251 5,100 (271) - 4,829 Short term deposits 15,381 131,182 - 146,563 (70,934) - 75,629 Provision for gratuity and leave pay (601) (113) - (714) (116) - (830) Change in financial assets at fair value through profit or loss 121,664 (20,258) - 101,406 (18,194) - 83,212 Change in investment property 703 1,285 - 1,988 172 - 2,160 Fair value change on investments in subsidiaries 139,826 - (85,428) 54,398 (252,232) - (197,834) Fair value change on investments in associates 1,581,617 - (609,903) 971,714 (27,381) 38,314 982,647 Other provisions (30,531) 29,340 - (1,191) 317 - (874) Bad debt Provision (22,927) (545,662), - (568,589) (12,872) - (581,461) Legal Provision (2,972) (30,328) (33,300) (12,318) - (45,618) Employee provision (804) 23 (35) (816) (544) 344 (1,016) Environmental provision (17,316) (16,521) - (33,837) (24,574) - (58,411) On losses from derivatives - - - - (13,500) - (13,500) Tax losses (21,610) 21,610 - - - - - 1,762,325 (429,095) (692,115) 641,115 (434,254) 38,658 245,519 97 lZCCM Investments Holdings Plc Notes to the financial statements (continued) for the year ended 31 March 2016 In thousands of Kwacha 31 Retirement benefits The amounts recognised in the statement of financial position are determined as follows: Group Company 2016 2015 2016 2015 Present value of unfunded obligations 44,794 50,330 2,904 2,334 Movement in the defined benefit obligation over the year is as follows: Group Company 2016 2015 2016 2015 Balance at 1 April 50,330 55,153 2,334 2,297 Charge for the period 654 833 654 833 Benefit paid during the period (6,190) (5,656) (84) (796) Balance at 31 March 44,794 50,330 2,904 2,334 Non-current liability 2,904 2,334 2,904 2,334 Current liability* 41,890 47,996 - - 44,794 50,330 2,904 2,334 * Ndola Lime ceased operating the defined benefit plan after all employees were transferred to the defined contribution scheme in April 2012.Upon transfer the benefits crystallised and became payable. Included in profit or loss for the year as follows: Group Company 2016 2015 2016 2015 Current service cost 1,473 389 1,473 389 Past service cost (411) - (411) - Interest cost 575 343 575 343 Total employee benefit expense 1,637 732 1,637 732 Included in OCI for the year as follows: Group Company 2016 2015 2016 2015 Experience adjustment (1,349) 118 (1,349) 118 Demographic assumptions - 27 - 27 Financial assumptions 366 (44) 366 (44) Total (983) 101 (983) 101 The Group contributes to a defined benefit plan that provides pension benefits for employees on retirement. The plan entitles a retired employee to receive three (3) months’ pay for each year of service that the employee provides. The normal retirement age for all employees is 60 years. The defined benefit is unfunded and there are no assets held separately in respect of the plan. Critical assumptions are made by the actuary in determining the present value of retirement benefit obligation including the discount rate. The carrying amount of the provision and the key assumptions made in estimating the provision were as follows: 2016 2015 ? Discount rate 25.44% 21.50% ? Future salary increases 22.94% 17.30% 98 ZCCM Investments Holdings Plc Notes to the financial statements (continued) for the year ended 31 March 2016 In thousands of Kwacha 31 Retirement benefits (continued) The liability and actuarial assumptions are based on the actuarial valuation report as at 31 March 2016. Characteristics and risks of the arrangement The plan provides benefits of a defined benefit nature (i.e. salary and services related). Therefore one of the main risks relating to the benefits under the plan is the rates of salary growth. As the benefits are based on the final salary, any changes in salary that differ from the salary escalation rate assumed will have a direct bearing on the benefits paid under the plan. Effect on company cash flows The arrangement is unfunded and the Company pays benefits from general revenues as and when they arise. The timing of the benefit payments from the plan will be influenced by the age at which employees retire from the Group. Maturity analysis of the liability The average duration of the liability as at 31 March 2016 was approximately 15.01 years (2015:6.5 years). The increase of the average duration of the liability was as a result of the change in retirement age and an increase in the number of pensionable employees. 99 ZCCM Investments Holdings Plc Notes to the financial statements (continued) for the year ended 31 March 2016 In thousands of Kwacha 32 Provisions for environmental rehabilitation See accounting policy in Note 39 (j) Group Company 2016 2015 2016 2015 Balance at 1 April 108,228 59,835 96,676 49,473 Increase in provision due to passage of time 56,264 50,233 55,871 49,043 Additions 39,877 - 17,411 - Exchange movement 62,193 - 51,866 - Amount paid (3,071) (1,840) (3,071) (1,840) Balance at 31 March 263,491 108,228 218,753 96,676 Current liability - 62,430 - 62,430 Non-current liability 263,491 45,798 218,753 34,246 263,491 108,228 218,753 96,676 The year-end provision represents restoration, rehabilitation and environmental provisions for the Company and its subsidiary Ndola Lime Company Limited. The Company’s provision is as a result of inherited environmental obligations from the old ZCCM Limited. At privatisation of ZCCM Limited, the new investors, taking up the relevant mining licenses, were not willing to assume the environmental liabilities. There has been no additional provisions - the increase is solely due to the passage of time, effects of discount rate and exchange rate fluctuations. During the year K17.4 million of the amount recognised as an addition is attributed to the rehabilitation of the Tailings Dump 8 &10 sites had been taken over by Superslag, in order to obtain specific benefits from the waste product remaining in the site. The provision represents the best estimate of the expenditure required to settle the obligations to rehabilitate environmental disturbances caused by mining operations. Ndola Lime is expected to make contributions to the Environmental Protection Fund, controlled by the Department of Mines and Mineral Development. Contributions made towards the fund reduces the environmental provision obligation. No payment has been made into the Environmental Protection Fund for the years ended 31 March 2016 and 31 March 2015 respectively. At the end of useful life of mine, Ndola Lime is obligated to rehabilitate the damage to the environment and all payments made to the Environmental Protection Fund will be reimbursed towards this rehabilitation. The valuation for the environmental restoration provision at 31 March 2016 was performed by the directors using their professional judgment and the assumptions applied by the independent expert in calculating the provision for the year ended 31 March 2016. The increase in the provision is due to assumed additional liability from sites that were earmarked for disposal to third parties in the prior year. This did not materialize and therefore ZCCM-IH reassumed the responsibility. The provision recognized as a liability is the best estimate of the consideration required to settle the obligation at the reporting date, assuming a discount rate of 2.61 % (2015:2.31%) and an inflation rate of 0.9% (2015:-0.10%) being the US Dollar inflation rate. The liability for restoration, rehabilitation and environmental obligations for Group and Company on undiscounted basis before inflation is estimated to be US$26.0 million (approximately K291.1 million) (2015:US$17.1 million (approximately K129.7million) and US$19.9 million(approximately K222.1 million) (2015:US$14.2 million approximately K107.6 million) respectively. Because of the long term nature of the liability the greatest uncertainty in estimating the provision is the cost that will be incurred. In particular, the Group has assumed that the site will be restored using technology and materials available currently. 100 ZCCM Investments Holdings Plc Notes to the financial statements (continued) for the year ended 31 March 2016 In thousands of Kwacha 33 Related party transactions (a) Parent and ultimate controlling party The Group is controlled by the Government of the Republic of Zambia through the Industrial Development Corporation (60.3%) and Ministry of Finance (17.4%) which owns a total of 77.7% of the Company’s shares. There were no transaction with the parent company during the year under review. No material sales or purchases of goods or services occurred with related parties during the year under review. (b) Related party transactions (i) Key management personnel compensation 2016 2015 Salaries and other short-term employment benefits 18,145 21,129 Directors’ fees 5,867 3,456 24,012 24,585 Post-employment benefit 843 760 Key management compensation relates to directors and the management committee. (ii) Dividend income from related parties Relationship 2016 2015 Kansanshi Mines Associate 11,869 22,581 Copperbelt Energy Corporation Associate 36,913 17,977 Total dividends (note 6) 48,782 40,558 8 (iii) Borrowings from related parties Other borrowings (amounts due to associated companies (note 29) 41,359 27,412 41,359 27,412 The terms and conditions of the above loans are disclosed under note 29 (iii). (iv) Amounts due from related parties Group 2016 Relationship Gross Impairme nt Carrying amount Maamba Collieries Limited (i) Associate 313,642 - 313,642 Lubambe Copper Mine Limited (ii) Associate 704,570 (704,570) - Kariba Minerals Limited (iv) Associate 12,419 (12,419) - Sub total 1,030,631 (716,989) 313,642 Price participation receivable(KCM) Associate 729,575 (729,575) - Total amounts due from related party 1,760,206 (1,446,564) 313,642 101 ZCCM Investments Holdings Plc Notes to the financial statements (continued) for the year ended 31 March 2016 In thousands of Kwacha 33 Related party transactions (continued) (iv) Amounts due from related parties (continued) Group 2015 Relationship Gross Impairment Carrying amount Maamba Collieries Limited (i) Associate 200,296 - 200,296 Lubambe Copper Mine Limited (ii) Associate 704,570 (704,570) - Kariba Minerals Limited (iv) Associate 12,419 (12,419) - Sub total 917,285 (716,989) 200,296 Price participation receivable Associate 729,575 (729,575) - Total amounts due from related party 1,646,860 (1,446,564) 200,296 Company 2016 Relationship Gross Impairment Carrying amount Maamba Collieries Limited (i) Associate 313,642 - 313,642 Lubambe Copper Mine Limited (ii) Associate 704,570 (704,570) - Ndola Lime Company Limited (iii) Subsidiary 28,733 (28,733) - Kariba Minerals Limited (iv) Associate 12,419 (12,419) - Nkandabwe Coal Mine (v) Subsidiary 32,907 (32,907) - Misenge Environmental and Technical Services Limited (vi) Subsidiary 4,063 - 4,063 Mawe Exploration and Technical Services Limited (vii) Subsidiary 33,521 (33,521) - Sub total 1,129,855 (812,150) 317,705 Price participation receivable Associate 729,575 (729,575) - Total amounts due from related party 1,859,430 (1,541,725) 317,705 2015 Relationship Gross Impairment Carrying amount Maamba Collieries Limited (i) Associate 200,296 - 200,296 Lubambe Copper Mine Limited (ii) Associate 704,570 (704,570) - Ndola Lime Company Limited (iii) Subsidiary 515,576 - 515,576 Kariba Minerals Limited (iv) Associate 12,419 (12,419) - Nkandabwe Coal Mine (v) Subsidiary 32,127 (32,127) - Misenge Environmental and Technical Services Limited (vi) Subsidiary 3,041 - 3,041 Mawe Exploration and Technical Services Limited (vii) Subsidiary 27,093 (27,093) - Sub total 1,495,122 (776,209) 718,213 Price participation receivable Associate 729,575 (729,575) - Total amounts due from related party 2,224,697 (1,505,784) 718,213 102 ZCCM Investments Holdings Plc Notes to the financial statements (continued) for the year ended 31 March 2016 In thousands of Kwacha 33 Related party transactions (continued) Shareholder loans (i) Maamba Collieries Limited On 17 June 2015, ZCCM –IH entered into an intercompany loan agreement for a cash advance of K263.1 million (US$23.53 million) as part of its contribution towards the implementation of the Integrated Mining Project and the establishment of the 300MW Thermal Power plant project. The loan attracts an interest rate of 6 % per annum. The principal and interest accrued is repayable in 5 annual instalments commencing a year after the Commercial Operations Date which is in November 2016. (ii) Lubambe Copper Mines Limited On 15 September 2012, ZCCM – IH entered into an intercompany loan agreement with Lubambe Copper Mines Limited, for cash call loan amounting to K850 million (US$76 million). The loans attracts an interest rate of Libor plus 5% and is not secured. The loan was to be repaid in twelve equal quarterly instalments, none of which were made. This loan is fully impaired. (iii) Ndola Lime Company Limited The total loans and advances due from Ndola Lime, including interest amounts was K29 million (2015: K516 million) which is fully impaired. During the year, ZCCM-IH resolved to convert a total of K659 million of the outstanding loans to equity. The advances are not secured over any Ndola Lime Company assets and ZCCM-IH has indicated that it will not demand immediate repayment of these advances. (iv) Kariba Minerals Limited On 10 December 2012, ZCCM-IH and Kariba Minerals Limited entered into an intercompany loan agreement for a cash advance of K16.43 (US$1.47) million. Repayment was to commence at the end of the 12 months from the date of disbursement and payable annually. The loan attracts an interest rate of 6 % per annum. As at 31 March 2016, no repayments had commenced. This loan is fully impaired (v) Nkandabwe Coal Mine Limited During the year, ZCCM – IH advanced a loan to Nkandabwe Coal Mine of K32 million. There are no repayment terms and it is interest free and is not secured. This loan is fully impaired (vi) Misenge Environmental and Technical Services Limited The loans totalling K3 million have no repayment terms and are interest free and are not secured. The loan is not impaired. (vii) Mawe Exploration and Technical Services Limited The loans totalling K27 million have no repayment terms and are interest free and are not secured. The loan is fully impaired. (viii) Government Valuation Department Fees of K18,250 (2015:K 20,000) were paid to the Government Valuation Department in respect of the valuation of investment property described at note 17. 103 ZCCM Investments Holdings Plc Notes to the financial statements (continued) for the year ended 31 March 2016 In thousands of Kwacha 34 Contingent liabilities (i) The National Pension Scheme Authority (NAPSA) made an assessment of penalties from the year 2000 to 2008 for underpayment of contributions as a result of an error by Ndola Lime Company in the mode of calculation used to arrive at the contribution. The total claim by NAPSA is K27 million and K17 million has been included as a liability. A remaining amount of K13 million has not been included as a liability because the Ndola Lime Company Limited obtained a legal opinion from its lawyers who advised that it was unlikely that NAPSA would enforce the liability given the facts of the case. NAPSA has not made any subsequent claims of the assessment from 31 March 2014 to the date of the financial statements. (ii) In June 2014, Zambia Revenue Authority (ZRA) carried out a comprehensive tax audit at Ndola Lime Company Limited covering all taxes for transactions which happened between April 2007 and April 2014, Ndola Lime anticipates potential fines and penalties which normally arise from audits of this nature. The final report was not issued as at the date of the financial statements. (iii) A Value Added Tax (VAT) statement from Zambia Revenue Authority (ZRA) with a total K72.5 million including Interest and penalties as at 31st March 2016. Included in this balance are disputed amounts of K11 million and K4 million from March 2006 and October 2013 respectively. Penalties and interests, based on these disputed amounts, of K47 million have not been provided for in the financial statements as the possibility of an outflow is not considered probable. The total amount provided for in the financial statements in relation to this amount is K25.5 million. (iv) Ndola lime Company has applied to ZRA for Penalty waiver for K72 million in interest and penalties for all types of taxes. The response was not received as at the date of the financial statements. 35 Commitments Capital expenditure authorised by the board of directors at the reporting date but not yet contracted for is as follows: 2016 2015 Group Property, plant and equipment 40,501 22,700 Company Property, plant and equipment 3,971 7,831 104 ZCCM Investments Holdings Plc Notes to the financial statements (continued) for the year ended 31 March 2016 In thousands of Kwacha 36 Financial instruments - Fair values and risk management Financial risk management The Group has exposure to the following risks arising from financial instruments: • Market risk (see (ii)) • Credit risk (see (iii)) • Liquidity risk (see (iv)) (i) Risk management framework Risk management is carried out by the investments department under policies approved by the Board of Directors. The Group investment teams identifies, evaluates and manages financial risks in close co-operation with the Group’s operating units. The Board provides written principles for overall risk management, as well as written policies covering specific areas such as foreign exchange risk, interest rate risk, credit risk and non-derivative financial instruments and investing excess liquidity. (ii) Market risk Market risk is the risk that changes in market prices – such as foreign exchange rates, interest rates and equity prices – will affect the Group’s income or the value of its holdings of financial instruments. The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while optimising the return. Currency risk The Group is exposed to foreign exchange risk arising from various currency exposures, primarily with respect to the US dollar. Foreign exchange risk arises from future commercial transactions, recognised assets and liabilities. Management’s policy to manage foreign currency risk is to hold foreign currency fixed deposits with various banks which act as a natural hedge for foreign currency obligations. Hedging techniques such as currency swap are also used to manage currency risk. Exposure to currency risk The summary quantitative data about the Group’s exposure to currency risk as reported to the management of the Group is as follows. 105 ZCCM Investments Holdings Plc Notes to the financial statements (continued) for the year ended 31 March 2016 In thousands of Kwacha 36 Financial instruments- fair values and risk management (continued) (ii) Market risk (continued) Exposure to currency risk (continued) Group 2016 K equivalent of US$ US$ Amounts Financial assets at fair value through profit or loss 231,571 20,713 Investments in associates 6,852,955 612,966 Cash and cash equivalents 22,231 1,988 Trade and other receivables 313,642 28,054 Held to maturity investment securities 229,466 20,525 Borrowings (292,252) (26,141) Trade and other payables (125) (11) Net exposure 7,357,488 658,094 2015 K equivalent of US$ US$ Amounts Financial instruments at fair value through profit or loss 283,553 37,430 Investments in associates 5,886,415 777,033 Cash and cash equivalents 24,093 3,180 Trade and other receivables 12,968 1,712 Held to maturity investment securities 226,507 29,900 Borrowings (266,867) (35,228) Trade and other payables - - Net exposure 6,166,669 814,028 `` Company 2016 K equivalent of US$ US$ Amounts Financial assets at fair value through profit or loss 231,571 20,713 Cash and cash equivalents 22,475 2,010 Available for sale investment in associate 3,817,569 341,464 Trade and other receivables 313,642 28,054 Held to maturity investment securities 229,466 20,525 Net exposure 4,614,723 412,766 106 ZCCM Investments Holdings Plc Notes to the financial statements (continued) for the year ended 31 March 2016 In thousands of Kwacha 36 Financial instruments- fair values and risk management (continued) (ii) Market risk (continued) Currency risk (continued) 2015 K equivalent of US$ US$ Amount Financial instruments at fair value through profit or loss 323,930 42,760 Cash and cash equivalents 20,626 2,723 Available for sale investment, in associates 4,131,819 545,419 Trade and other receivables 12,968 1,712 Held to maturity investment securities 226,507 29,900 Borrowings (19,308) (2,549) Net exposure 4,696,542 619,965 The following significant exchange rates have been applied during the year: Average rate Reporting date spot rate 2016 2015 2016 2015 Kwacha US$ 1 9.8787 6.5044 11.1800 7.5755 Sensitivity analysis A 10 percent strengthening of the Kwacha against the US Dollar at 31 March 2016 would have increased (decreased) equity and profit or loss by the amounts shown below. This analysis assumes that all other variables, in particular interest rates, remain constant and ignores any impact of forecast sales and purchases. The analysis is performed on the same basis for 31 March 2015. Equity and profit or loss Group Company 31 March 2016 K 735,749 461,472 31 March 2015 K 616,667 469,654 A 10 percent weakening of the Kwacha against the US Dollar at 31 March 2016 would have had the equal but opposite effect on the above currencies to the amounts shown above, on the basis that all other variables remain constant. ZCCM Investments Holdings Plc Notes to the financial statements (continued) for the year ended 31 March 2016 In thousands of Kwacha 107 36 Financial instruments- fair values and risk management (continued) (ii) Market risk (continued) Group Exposure to interest rate risk The interest rate profile of the Group’s interest bearing financial instruments as reported by management of the Group is as follows: Interest rate risk The Group’s operations are subject cash flow variability due to the risk of interest rate fluctuations to the extent that interest-earning assets (including investments) and interest-bearing liabilities mature or reprice at different times and/or in differing amounts. In the case of floating rate assets and liabilities the Group is also exposed to basis risk, which is the difference in repricing characteristics of the various floating rate indices. Asset-liability risk management activities are conducted in the context of the Group’s sensitivity to cash flow variability attributable to interest rate changes. 2016 2015 31 March 2015 Total Zero rate instruments Floating rate instruments Total Zero rate instruments Floating rate instruments Assets Financial assets at fair value through profit or loss 238,247 - 238,247 290,229 - 290,229 Cash and cash equivalents 35,850 - 35,850 43,782 - 43,782 Trade and other receivables 449,660 73,817 375,843 278,836 66,471 212,365 Held to maturity investment securities 355,172 - 355,172 514,007 - 514,007 Total assets 1,078,929 73,817 1,005,112 1,126,854 66,471 1,060,383 Liabilities Borrowings (292,644) - (292,644) (267,453) - (267,453) Trade and other payables (286,271) (286,271) - (186,299) (186,299) - Total liabilities (578,915) (286,271) (292,644) (453,752) (186,299) (267,453) Gap 500,014 (212,454) 712,468 673,102 (119,828) 792,930 ZCCM Investments Holdings Plc Notes to the financial statements (continued) for the year ended 31 March 2016 In thousands of Kwacha 108 36 Financial instruments- fair values and risk management (continued) (ii) Market risk (continued) Company Interest rate risk 2016 2015 31 March 2016 Total Zero rate instruments Floating rate instruments Total Zero rate instruments Floating rate instruments Assets Financial assets at fair value through profit or loss 238,247 - 238,247 290,229 - 290,229 Cash and cash equivalents 34,982 - 34,982 25,920 - 25,920 Available for sale investment in associate 3,831,768 - 3,831,768 3,787,416 - 3,787,416 Available for sale investment in subsidiaries - - - 157,120 - 157,120 Trade and other receivables 409,364 73,817 335,547 745,757 426,197 319,560 Held to maturity investment securities 321,966 - 321,966 514,007 - 514,007 Total assets 4,836,327 73,817 4,762,510 5,520,449 426,197 5,094,252 Liabilities Borrowings (392) - (392) (27,998) - (27,998) Trade and other payables (77,466) (77,466) - (37,861) (37,861) - Total liabilities (77,858) (77,466) (392) (65,859) (37,861) (27,998) Gap 4,758,469 (3,649) 4,762,118 5,454,590 388,336 5,066,254 ZCCM Investments Holdings Plc Notes to the financial statements (continued) for the year ended 31 March 2016 In thousands of Kwacha 109 36 Financial instruments- fair values and risk management (continued) (ii) Market risk (continued) Interest rate risk The Group’s interest rate risk arises primarily from the interest received on short term deposits and interest paid on floating rate borrowings. This exposes the Group to cash flow interest risk. Cash flow sensitivity analysis of variable rate instrument A reasonable possible change of 100 basis points in interest rates at the reporting date would have increased /(decreased) equity and profit or loss by the amounts shown below. This analysis assumes that all other variables, in particular foreign currency exchange, remain constant. Group Effect in thousands of Kwacha Profit or loss Increase Decrease 2016 Variable rate instruments (712) 712 2015 Variable rate instruments (793) 793 Company 2016 Variable rate instruments (4,762) 4,762 2015 Variable rate instruments (5,066) 5,066 The Group’s investments in corporate term deposits, all of which are fixed rate and are measured at amortised cost exposes the Group to cash flow interest rate risk. The tenure of the investments is less than 1 year. At 31 March 2016, an increase/decrease of 100 basis points would have resulted in a decrease/increase in the consolidated and company post tax profit and equity of K0.6 million (2015: K0.8 million). ZCCM Investments Holdings Plc Notes to the financial statements (continued) for the year ended 31 March 2016 In thousands of Kwacha 110 36 Financial instruments- fair values and risk management (continued) (ii) Market risk (continued) Price risk The Group is exposed to equity securities price risk because of investments in quoted and unquoted shares classified as financial assets at fair value through profit or loss. To manage its price risk arising from investments in equity and debt securities, the Group diversifies its portfolio, in accordance with limits set by the Group. All quoted shares held by the Group are traded on the Lusaka Stock Exchange. At 31 March 2016, if the LUSE Index had increased/decreased by five percent with all other variables held constant and all the Group’s equity instruments moved according to the historical correlation to the index, consolidated equity and profit or loss would have been K334 thousand (2015:K334 thousand) higher/lower. Other price risk The Group is exposed to equity price risk, which arises from available-for-sale equity securities as well as investments measured at fair value through profit or loss. Management of the Group monitors the proportion of equity securities in its investment portfolio based on market indices. Material investments within the portfolio are managed on an individual basis and all buy and sell decisions are approved by the Investment Committee of the Board. The primary goal of the Group’s investment strategy is to maximise investment returns and to improve its returns in general. Management is assisted by external advisers in this regard. Certain investments are designated as at fair value through profit or loss because their performance is actively monitored and they are managed on a fair value basis. (iii) Credit risk Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet its contractual obligations and arises principally from the Group’s receivables from customers and investments in debt securities. Credit risk is managed on a Group basis. Credit risk arises from cash and cash equivalents, corporate bonds and deposits with banks, as well as trade and other receivables. Neither the Group nor the Company has any significant concentrations of credit risk. ZCCM Investments Holdings Plc Notes to the financial statements (continued) for the year ended 31 March 2016 In thousands of Kwacha 111 36 Financial instruments- fair values and risk management (continued) (iii) Credit risk (continued) The amount that best represents the Group’s and Company’s maximum exposure to credit risk at 31 March 2016 is made up as follows: Group Company 2016 2015 2016 2015 Cash and cash equivalents 35,850 43,782 34,982 25,920 Trade and other receivables 449,660 278,836 409,364 745,757 Held to maturity investment securities 355,172 514,007 355,172 514,007 840,682 836,625 799,518 1,285,684 K93 million of the held to maturity investments securities, collateral is held in the form of treasury bills. All receivables that are neither past due nor impaired have not had the terms of credit renegotiated. Ageing of trade and other receivables at the reporting date. The most significant portion relates to Maamba Collieries (refer to note 22) for whom credit risk is not considered significant due to the nature of their operations in terms of production and sale of electricity. Group 2016 Gross Impairment Net Neither due or impaired 420,573 - 420,573 Past due 30 - 60 days 9,913 - 9,913 Past due 61 – 90 days 9,950 (518) 9,432 Past due 91 - 120 days 2,857 - 2,857 Over 121 days 1,572,562 (1,565,677) 6,885 2,015,855 (1,566,195) 449,660 2015 Gross Impairment Net Neither due or impaired 264,248 - 264,248 Past due 30 - 60 days 14,085 - 14,085 Past due 61 – 90 days 37,675 (37,666) 9 Past due 91 - 120 days 2,676 (2,676) - Over 121 days 1,526,577 (1,526,083) 494 1,845,261 (1,566,425) 278,836 The amounts past due are still considered recoverable. ZCCM Investments Holdings Plc Notes to the financial statements (continued) for the year ended 31 March 2016 In thousands of Kwacha 112 36 Financial instruments- fair values and risk management (continued) (iii) Credit risk (continued) Past due but not impaired 2016 2015 Past due 61 – 90 days 9,432 - Past due 91 - 120 days 2,857 9 Over 121 days 6,885 494 19,174 503 Company 2016 Gross Impairment Net Neither due or impaired 401,289 - 401,289 Past due 30 - 60 days 441 - 441 Past due 61 - 90 days 3,752 - 3,752 Past due 91 - 120 days 2,857 - 2,857 Over 121days 1,660,758 (1,659,733) 1,025 2,069,097 (1,659,733) 409,364 2015 Gross Impairment Net Neither due or impaired 743,763 - 743,763 Past due 30 - 60 days 1,616 - 1,616 Past due 61 - 90 days 37,498 (37,498) - Past due 91 - 120 days 1,744 (1,744) - Over 121 days 1,585,676 (1,585,298) 378 2,370,297 (1,624,540) 745,757 Past due but not impaired 2016 2015 Past 61 - 90 days 3,752 - Past 91 - 120 days 2,857 - Over 121 days 1,025 378 7,634 378 ZCCM Investments Holdings Plc Notes to the financial statements (continued) for the year ended 31 March 2016 In thousands of Kwacha 113 36 Financial risk management (continued) (iii) Credit risk (continued) The Group believes that unimpaired amounts that are past due more than 60 days are still collectable in full, based on historical payment behaviour and extensive analysis of customer’s credit risk. As at year-end total amount past due but not impaired arising from the Company was K8.1 million (2015: K2 million) The impairment allowance account in respect of trade and other receivables is used to record impairment losses unless the Group is satisfied that no recovery of the amount owing is possible, at that point the amount is written off against the financial assets. The movement in the allowance for impairment in respect of trade and other receivables during the year was as follows: Group 2016 2015 Balance at 1 April 1,566,425 66,606 Impairment recognised 1,454 1,509,088 Recovery (100) (9,269) Balance at 31 March 1,567,779 1,566,425 Company 2016 2015 Balance at 1 April 1,624,540 65,506 Impairment recognised 36,877 1,568,303 Recovery (100) (9,269) Balance at 31 March 1,661,317 1,624,540 As at 31 March 2016 an impairment loss of K36.9 million mainly relates to the receivables from Ndola Lime Company and Mawe Exploration and Technical Services Limited of K28.7 million and K6.4 million respectively. These amounts have been impaired as no repayments have been made on the balances in the year and there is objective evidence of impairment. The Group believes that the unimpaired amounts that are past due by more than 30 days are still collectible, based on historical payment behaviour and extensive analysis of customer credit risk. ZCCM Investments Holdings Plc Notes to the financial statements (continued) for the year ended 31 March 2016 In thousands of Kwacha 114 36 Financial instruments- fair values and risk management (continued) (iv) Liquidity risk Liquidity risk is the risk that the Group will encounter difficultly in meeting the obligations associated with its financial liabilities that are settled by delivering cash or another financial asset. The Group’s approach to managing liquidity is to ensure, as far as possible, that it will have sufficient liquidity to meet its liabilities when they are due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Group’s reputation. Management monitors rolling forecasts of the Group’s liquidity reserve on the basis of expected cash flows. The Group maintains the level of its cash flow and cash equivalents and other highly marketable debt investments at an amount in excess of expected cash outflows on financial liabilities through cash flow forecasts. Exposure to liquidity risk The following are the remaining contractual maturities of financial liabilities at the reporting date. The amounts are gross and undiscounted, and include estimated interest payments and exclude the impact of netting agreements. Carrying amount Contractual amount Within 1 year 2 -5 years (a) Group At 31 March 2016: Financial liabilities Borrowings 292,644 326,373 133,847 192,526 Trade and other payables 286,271 286,271 256,834 29,437 Derivative – currency swap 38,572 38,572 38,572 - 658,846 651,216 429,253 221,963 Carrying amount Contractual amount Within 1 year 2 - 5 years At 31 March 2015 Financial liabilities Borrowings 267,453 279,040 80,258 198,782 Trade and other payables 186,299 186,299 186,299 - 453,752 465,339 266,557 198,782 ZCCM Investments Holdings Plc Notes to the financial statements (continued) for the year ended 31 March 2016 In thousands of Kwacha 115 36 Financial instruments- fair values and risk management (continued) (iv) Liquidity risk (continued) Carrying amount Contractual amount Within 1 year 2 - 5 years (b) Company At 31 March 2016: Financial liabilities Borrowings 392 497 301 196 Trade and other payables 38,894 38,894 38,894 - Derivative – currency swap 38,572 38,572 38,572 - 77,858 77,963 77,767 196 Carrying amount Contractual amount Within 1 year 2 - 5 years At 31 March 2015: Financial liabilities Borrowings 27,994 28,115 27,684 431 Trade and other payables 37,861 37,861 37,861 - 65,855 65,976 65,545 431 Capital management The scope of the Group management framework covers the Group’s total equity reported in its financial statements The Group’s and Company objectives when managing capital are to safeguard their ability to continue as a going concern in order to provide returns for shareholders and to maintain an optimal capital structure to reduce the cost of capital. In order to maintain or adjust the capital structure, the Group may adjust the amount of dividends paid to shareholders, issue new capital or sell assets to reduce debt. The Board’s policy is to implement a sound financial strategy that ensures financial independence and maintains adequate capital to sustain the long terms objectives of the Group and to meet its operational and capital budget. The Group monitors capital on the basis of the average gearing ratio for the mining industry in Zambia which currently stands at 49% equity. This ratio is calculated as net debt divided by total capital. Net debt is calculated as total borrowings less cash and cash equivalents. Total capital is calculated as equity plus net debt. The gearing ratios at 31 March 2016 and 2015 were as follows: Group Company 2016 2015 2016 2015 Borrowings 292,644 267,454 392 27,998 Less: cash and cash equivalents (35,850) (43,782) (34,982) (25,920) Net debt 256,794 223,672 (34,590) 2,078 Total equity 8,876,637 7,369,959 4,088,667 4,520,180 Total capital 9,133,431 7,593,631 4,054,077 4,522,258 Gearing ratio 2.81% 2.95% -0.85% 0.05% ZCCM Investments Holdings Plc Notes to the financial statements (continued) for the year ended 31 March 2016 In thousands of Kwacha 116 36 Financial instruments- fair values and risk management (continued) The interest rates used to discount estimated cash flows when applicable are based on the government yield curve at the reporting date plus an appropriate credit spread, and are as follows: 2016 2015 Loans and borrowings 9.8% 7.6% There has been no change in management of capital during the year. Fair value estimation The table below analyses financial instruments measured at fair value at the end of the reporting period, by the level in the fair value hierarchy into which the fair value measurement is categorised: 2016 Level 2 Level 3 Total Assets Financial investments at fair value through profit or loss (note 20) 6,676 231,571 238,247 Available for sale investments in equity accounted investees (note 19) 234,000 3,597,768 3,831,768 Available for sale investments on subsidiaries (note 18) - - - 2015 240,676 3,829,339 4,070,015 Assets Financial investments at fair value through profit or loss (Note 20) 6,676 283,553 290,229 Available for sale investments in equity accounted investees 204,750 3,582,666 3,787,416 Available for sale investments in subsidiaries - 157,120 157,120 211,426 4,023,339 4,234,765 Fair values versus carrying amounts Group The fair values of financial assets and liabilities, together with the carrying amounts shown in the statement of financial position, are as follows: 2016 2015 Carrying amount Fair value Carrying amount Fair value Financial assets Financial assets at fair value through profit or loss 238,247 238,247 290,229 290,229 Cash and cash equivalents 35,850 35,850 43,782 43,782 Trade and other receivables 449,660 423,866 278,836 278,836 Held to maturity investment securities 321,966 321,966 514,007 514,007 1,045,723 1,019,929 1,126,854 1,126,854 Financial liabilities Borrowings (292,644) (292,644) (267,454) (267,454) Trade and other payables (286,271) (286,271) (186,299) (186,299) (578,915) (578,915) (453,753) (453,753) Net position 466,808 441,014 673,101 673,101 ZCCM Investments Holdings Plc Notes to the financial statements (continued) for the year ended 31 March 2016 In thousands of Kwacha 117 36 Financial instruments- fair values and risk management (continued) Company 2016 2015 Carrying amount Fair value Carrying amount Fair value Financial assets Financial investments at fair value through profit or loss 238,247 238,247 290,229 290,229 Cash and cash equivalents 34,982 34,982 25,920 25,920 Available for sale investments in associates 3,831,768 3,831,768 3,787,416 3,787,416 Available for sale investments in subsidiaries - - 157,120 157,120 Trade and other receivables 409,364 383,570 745,757 745,757 Held to maturity investment securities 321,966 321,966 514,007 514,007 4,836,327 4,810,533 5,520,449 5,520,449 Financial liabilities Borrowings (392) (392) (27,998) (27,998) Trade and other payables (77,466) (77,466) (37,861) (37,861) Total (77,858) (77,858) (65,859) (65,859) Net position 4,758,469 4,732,675 5,454,590 5,454,590 The fair value of the financial assets and liabilities carried at amortised cost including cash and cash equivalents, trade and other receivable, held to maturity investment securities, borrowings and trade and other payables are considered to approximate their respective carrying values due to their short term nature and negligible credit losses. The exception is the loan receivable from Maamba Collieries Limited as this is long term and as such the fair value was determined using discounted cash flows method (a level 3 valuation technique). Valuation technique Significant unobservable inputs Inter-relationships between key unobservable inputs and fair value measurement The valuation technique used to determine the fair value of the loan receivable is the discounted cash flow method Unobservable input is the discount rate used to discount the expected cash flows of the loan. -The discount rate used comprised the USD 5 year treasury bill rate of 1.21% as debt is denominated in USD; and -The Zambian country risk rate The estimated fair value would increase or (decrease) if: • The discount rate (higher) or lower The basis for determining fair values is disclosed in the respective accounting policy notes for each financial instrument. The fair value of financial instruments traded in active markets is based on quoted market prices at the reporting date. A market is regarded as active if quoted prices are readily and regularly available from an exchange, dealer, broker, industry group, pricing service, or regulatory agency, and those prices represent actual and regularly occurring market transactions on an arm’s length basis. The quoted market price used for financial assets held by the Group is the current bid price. These instruments are included in level 1. ZCCM Investments Holdings Plc Notes to the financial statements (continued) for the year ended 31 March 2016 In thousands of Kwacha 118 36 Financial instrument by category Group Company Loans and receivables Held to maturity investment securities Financial assets at fair value through profit or loss Other financial liabilities Total Loans and receivables Held to maturity investment securities Financial assets at fair value through profit or loss Available for sale financial asset Other financial liabilities Total 31 March 2016 Assets as per statement of financial position Financial investments at fair value through profit or loss - - 238,247 - 238,247 - - 238,247 - - 238,247 Available for sale investment in associates - - - - - - - - 3,831,768 - 3,831,768 Available for sale investment in subsidiaries - - - - - - - - - - - Trade and other receivables 449,660 - - - 449,660 409,364 - - - - 409,364 Held to maturity investment securities - 355,172 - - 355,172 - 355,172 - - - 355,172 Cash and cash equivalents 35,582 - - - 35,582 34,982 - - - - 34,982 Borrowings - - - (292,644) (292,644) - - - - - (392) (392) Trade and other payables - - - (286,271) (286,271) - - - - (77,466) (77,466) 485,242 355,172 238,247 (578,915) 499,746 444,346 355,172 238,247 3,831,768 (77,858) 4,791,675 2 Group Company Loans and receivables Held to maturity investment securities Financial assets at fair value through profit or loss Other financial liabilities Total Loans and receivables Held to maturity investment securities Financial assets at fair value through profit or loss Available for sale financial asset Other financial liabilities Total 31 March 2015 Assets as per statement of financial position Financial investments at fair value through profit or loss - - 290,229 - 290,229 - - 290,229 - - 290,229 Available for sale investment in associates - - - - - - - - 3,787,416 - 3,787,416 Available for sale investment in subsidiaries - - - - - - - - 157,120 - 157,120 Trade and other receivables 278,836 - - - 278,836 745,757 - - - - 745,757 Held to maturity investment securities - 514,007 - - 514,007 - 514,007 - - - 514,007 Cash and cash equivalents 43,782 - - - 43,782 25,920 - - - - 25,920 Borrowings - - - (267,454) (267,454) - - - - (27,998) (27,998) Trade and other payables (186,299) (186,299) - - - - (37,861) (37,861) 322,618 514,007 290,229 (453,753) 673,101 771,677 514,007 290,229 3,944,536 (65,859) 5,454,590 ZCCM Investments Holdings Plc Notes to the financial statements (continued) for the year ended 31 March 2016 In thousands of Kwacha 119 3 7 37 Subsequent events Investrust Bank Plc In April 2016, ZCCM-IH fully underwrote the Investrust Rights Offer and ended up with 48.6% shareholding in the bank. Subsequently, ZCCM-IH made an application for waiver of a mandatory offer to the SEC and the SEC approved the application on condition that ZCCMIH sold down its shareholding to below 35% within 12 months. The 35% shareholding is the trigger for a mandatory offer. ZCCM-IH has since sold 3.2% of its shares in the bank and is currently at 45.4% shareholding. Maamba Collieries Thermal Power Plant In August 2016, the first 150 MW was commissioned and the next 150 MW was commissioned in November 2016. MCL is currently supplying 270MW to ZESCO. Going forward, Nava Bharat will be responsible for the operation and maintenance of the power plant. Settlement Agreement with KCM On 6th June 2016, ZCCM-IH filed a claim form with the English High Court to recover outstanding sums in excess of K1,118 million (US$100 million) due to it from KCM, pursuant to the terms of the Settlement Agreement of the copper price participation receivable entered into in 2013 (Refer to note 22). On 16 December 2016, ZCCM-IH was successful in its application for default judgment. KCM was ordered to pay all sums owed to ZCCM-IH pursuant to the Settlement Agreement (plus associated contractual interest) within thirty (30) days. The total amount to be paid by KCM amounted to approximately K1,152 million (US$103 million). KCM was also ordered to reimburse ZCCM-IH 80% of the costs it had incurred in pursuing its claim. Further directions were given to determine whether KCM made payments to Vedanta Group Companies in breach of the prohibition on doing so under the Settlement Agreement. If and to the extent it is determined that such payments were made, ZCCM-IH will be entitled to recover additional sums from KCM. Notice of Arbitration against Kansanshi Holdings Limited and Kansanshi Mining Plc Subsequent to year end, ZCCM-IH filed a Notice of Arbitration on 26th October 2016 in London against Kansanshi Holdings Limited and Kansanshi Mining Plc. Further, on 28th October 2016 ZCCM-IH commenced Legal Proceedings in Lusaka against First Quantum Limited, FQM Finance Limited, Philip K.R. Pascal, Arthur Mathias Pascal, Clive Newall, Martin R. Rowley and Kansanshi Mining PLC for various Claims arising from transactions between Kansanshi Mining Plc and FQM Finance Limited. Between 2007 and 2014 Kansanshi Mine Plc transferred substantial sums of money to FQM Finance Ltd .None of the Advances was approved in advance by Board Resolution. To date, the use to which the said monies were put has not been disclosed. This action on the part of Kansanshi and its related parties is contrary to provisions of the Shareholders Agreement, the Amended Shareholders’ Agreement, the Articles of Association and the Management Services Agreement. Consequently, ZCCM-IH commenced derivative actions laying various claims against the Defendants, which claims include damages for breach of the aforementioned documents, dishonest assistance and an account of all monies received by FQM Finance Limited or their related companies, amongst others. Both proceedings are yet to be determined. ZCCM Investments Holdings Plc Notes to the financial statements (continued) for the year ended 31 March 2016 In thousands of Kwacha 120 37 Subsequent events (continued) Demerger of CEC Africa Investments Limited from CEC Plc Subsequent to the year-end, the shareholders of CEC, at the EGM held on 9th December 2016, approved the demerger of CEC Africa Investments Limited (CEC Africa) from CEC Plc by way of a dividend in specie in the ratio of one CEC Africa share for each share held in CEC Plc. The implications of the demerger and pro forma financial effects are as follows: The Demerger: ? would not affect the beneficial shareholding of the CEC Group; ? would result in the de-consolidation of CEC Africa’s financial statements from the CEC Group, and the reporting of CEC Plc financial performance excluding CEC Africa; ? would move ownership of CEC Africa from CEC Plc to CEC Plc Shareholders in proportion to their shareholding in CEC Plc on the Demerger Record Date which was Friday 9th December 2016; ? would not result in a change in economic ownership; ? would entail Qualifying Shareholders receiving 1 CEC Africa Share for every 1 CEC Plc Share held; ? would result in CEC Africa no longer being a wholly owned subsidiary of CEC Plc; ? would result in CEC Africa being registered as a foreign company under the Companies Act; and ? would, subject to the registration of CEC Africa shares with the Securities and Exchange Commission (“SEC”), result in the quotation of CEC Africa on the LuSE. 38 Basis of measurement The consolidated and separate financial statements have been prepared on the historical cost basis except for the following items which are measured on an alternative basis on each reporting date. Items Measurement basis Financial assets at fair value through profit or loss Investments in associates (Company) Retirement benefits property Investment property Investment in subsidiary Fair value Fair value Present value of the defined obligation revaluation Fair value Fair value ZCCM Investments Holdings Plc Notes to the financial statements (continued) for the year ended 31 March 2016 In thousands of Kwacha 121 39 Significant accounting policies The Group has consistently applied the following accounting policies to all policies to all periods presented in these financial statements. Set out below is an index of the significant accounting policies, the details of which are available on the pages that follow: (a) Basis of consolidation (b) Foreign currency (c) Financial instruments (d) Property, plant and equipment (e) Investment property (f) Intangible assets (g) Inventory (h) Impairment (i) Employee benefits (j) Provisions (k) Revenue (l) Finance income and costs (m) Income tax (n) Earnings per share (o) Segment reporting (p) Leases (q) Share capital (a) Basis of consolidation (i) Business combinations The Group accounts for business combinations using the acquisition method when control is transferred to the Group. The consideration transferred in the acquisition is generally measured at fair value, as are the identifiable net assets acquired. Any gain on a bargain purchase is recognised in profit or loss immediately. Transaction costs are expensed as incurred, except if they are related to the issue of debt or equity securities. The consideration transferred does not include amounts related to the settlement of preexisting relationships. Such amounts are generally recognised in profit or loss. Any contingent consideration payable is measured at fair value at the acquisition date. If the contingent consideration is classified as equity, then it is not remeasured and settlement is accounted for within equity. Otherwise, subsequent changes in the fair value of the contingent consideration are recognised in profit or loss. ZCCM Investments Holdings Plc Notes to the financial statements (continued) for the year ended 31 March 2016 In thousands of Kwacha 122 39 Significant accounting policies (continued) (a) Basis of consolidation (continued) (i) Business combinations (continued) If share-based payment awards (replacement awards) are required to be exchanged for awards held by the acquiree’s employees (acquiree’s awards) and relate to past services, then all or a portion of the amount of the acquirer’s replacement awards is included in measuring the consideration transferred in the business combination. This determination is based on the market-based value of the replacement awards compared with the market-based value of the acquiree’s awards and the extent to which the replacement awards relate to pre-combination service. (ii) Subsidiaries Subsidiaries are entities controlled by the Group. The Group controls an entity when it is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. The financial statements of subsidiaries are included in the consolidated financial statements from the date on which control commences until the date when control ceases. In the separate financial statements, investments in subsidiaries are classified as available for sale financial assets. (iii) Loss of control When the Group loses control over a subsidiary, it derecognises the assets and liabilities of the subsidiary, and any related NCI and other components of equity. Any resulting gain or loss is recognised in profit or loss. Any interest retained in the former subsidiary is measured at fair value when control is lost. (iv) Interest in equity accounted investees The Group interest in equity accounted investees comprise interests in associates. Associates are those entities in which the Group has significant influence, but not control over the financial and operating policies. Interests in associates are accounted for using the equity method. They are initially recognised at cost, which includes transaction costs. In the separate financial statements investments in associated is subsequently measured at fair value. These are classified as available for sale financial assets. The consolidated financial statements include the Group’s share of the profit or loss and other comprehensive income, after adjustments to align the accounting policies with those of the Group, from the date that significant influence commences until the date that significant influence ceases. When the Group’s share of losses exceeds its interest in an equity-accounted investee, the carrying amount of the investment, including any long-term interests that form part thereof is reduced to zero, and the recognition of further losses is discontinued except to the extent that the Group has an obligation or has made payments on behalf of the investee. ZCCM Investments Holdings Plc Notes to the financial statements (continued) for the year ended 31 March 2016 In thousands of Kwacha 123 39 Significant accounting policies (continued) (a) Basis of consolidation (continued) (v) Transactions eliminated on consolidation Intra-group balances and transactions, fair value changes recognised in respect of its investment in subsidiaries and associates, and any unrealised income and expenses arising from intra group transactions, are eliminated. Unrealised gains arising from transactions with equity-accounted investees are eliminated against the investment to the extent of the Group’s interest in the investee. Unrealised losses are eliminated in the same way as unrealised gains, but only to the extent that there is no evidence of impairment. (b) Foreign currency Foreign currency transactions Transactions in foreign currencies are translated to the respective functional currencies of Group entities at exchange rates at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies are translated to the functional currency at the exchange rate at the reporting date. Non-monetary assets and liabilities that are measured at fair value in foreign currency are translated to the functional currency at the exchange rate when the fair value was determined. Foreign currency differences are generally recognised in profit or loss. Non-monetary items that are measured based on historical costs in a foreign currency are not translated. However, foreign currency differences arising from the translation of the following items are recognised in other comprehensive income: - Available for sale equity investments. (except on impairment, in which case foreign currency differences that have been recognised in other comprehensive income are reclassified to profit or loss). Foreign currency differences which arise on the translation of investee companies (which have a different functional currency) are recognised in other comprehensive income and accumulated in the foreign currency translation reserve. ZCCM Investments Holdings Plc Notes to the financial statements (continued) for the year ended 31 March 2016 In thousands of Kwacha 124 39 Significant accounting policies (continued) (c ) Financial instruments The Group classifies non-derivative financial assets into the following categories; financial assets at fair value through profit or loss; held to maturity financial assets; loans and receivables; and available for sale financial assets. The Group classifies non-derivative financial liabilities into the other financial liabilities category. (i) Non-derivative financial assets and financial liabilities – recognition and derecognition The Group initially recognises loans and receivables and debt securities issued on the date when they are originated. All other financial and financial liabilities are initially recognised on the trade date. The Group derecognises a financial asset when the contractual rights to the cash flows from the asset expire, or it transfers the rights to receive the contractual cash flows in a transaction in which substantially all the risks and rewards of ownership of the financial asset are transferred, or it neither transfers nor retains substantially all of the risks and rewards of ownership and does not retain control over the transferred asset. Any interest in such derecognised financial assets that is created or retained by the Group is recognised as a separate asset or liability. The Group derecognises a financial liability when its contractual obligations are discharged or cancelled, or expire. Financial assets and liabilities are offset and the net amount presented in the statement of financial position when, and only when, the Group has a legal right to offset the amounts and intends either to settle on a net basis or to realise the asset and settle the liability simultaneously. ZCCM Investments Holdings Plc Notes to the financial statements (continued) for the year ended 31 March 2016 In thousands of Kwacha 125 39 Significant accounting policies (continued) (c ) Financial instruments (continued) (ii) Non-derivative financial assets - measurement Financial assets at fair value through profit or loss A financial asset is classified at fair value through profit or loss if it is designated as such upon initial recognition, where the asset is managed and its performance evaluated on a fair value basis. Directly attributable transaction costs are recognised in profit or loss as incurred. Financial assets at fair value through profit or loss are initially recognised and subsequent measured at fair value, and changes therein, including any interest or dividend income, are recognised in profit or loss. Held-to-maturity financial assets These assets are recognised initially at fair value plus any directly attributable transaction costs. Subsequent to initial recognition held-to-maturity financial assets are measured at amortised cost using the effective interest method. Loans and receivables Loans and receivables are recognised initially at fair value plus any directly attributable transaction costs. Subsequent to initial recognition, loans and receivables are measured at amortised cost using the effective interest method, less any impairment losses. Included in loans and receivables are amounts due from Maamba Collieries Limited of K313.6 million. Cash and cash equivalents In the statement of cash flows cash and cash equivalents includes bank overdrafts that are repayable on demand and form an integral part of the Group’s cash management. Available-for-sale financial assets These assets are initially measured at fair value plus any directly attributable transaction costs. Subsequent to initial recognition, they are measured at fair value and changes therein, other than impairment losses, are recognised in OCI and accumulated in the fair value reserve. When these assets are derecognised, the gain or loss accumulated in equity is reclassified to profit or loss. The Company’s investments in subsidiaries and associates are classified as available for sale financial assets. ZCCM Investments Holdings Plc Notes to the financial statements (continued) for the year ended 31 March 2016 In thousands of Kwacha 126 39 Significant accounting policies (continued) (c ) Financial instruments (continued) (iii) Non-derivative financial liabilities - measurement Non-derivative financial liabilities are initially recognised at fair value less any directly attributable transaction costs. Subsequent to initial recognition, these liabilities are measured at amortised cost using the effective interest method. Included in non-derivative financial liabilities are amounts due to Standard Bank South Africa and Chambishi Metals Plc of K282 million and K41 million respectively. (d) Property, plant and equipment (i) Recognition and measurement Items of property, plant and equipment are measured at cost less accumulated depreciation and accumulated impairment losses. If significant parts of an item of property, plant and equipment have different useful lives, they are accounted for as separate items (major components) of property, plant and equipment. Any gain or loss on disposal of an item of property, plant and equipment is recognised in profit or loss. Cost includes expenditure that is directly attributable to the acquisition of the asset. The cost of self-constructed assets includes the cost of materials and direct labour, any other costs directly attributable to bringing the assets to a working condition for their intended use, the costs of dismantling and removing the items and restoring the site on which they are located and capitalised borrowing costs. Capital work in progress relates to items of property, plant and equipment that are under construction and are yet to be commissioned for use. Work in progress is measured at the costs incurred in relation to the construction up to the reporting date. Capital work in progress is not depreciated. The Group’s policy is to revalue regularly to ensure that the carrying amount does not differ materially from the fair value. The revaluation differences are recognised in other comprehensive income and accumulated in equity "revaluation reserve" unless the revaluation difference represents the reversal of a revaluation decrease previously recognised as an expense, in which case the revaluation difference is recognised in profit or loss. A decrease arising as a result of a revaluation is recognised as an expense to the extent that it exceeds any amount previously credited to the revaluation surplus relating to the same asset. The revaluation surplus included in equity is transferred directly to retain earnings when the asset is used by the Group. The amount of the surplus transferred is the difference between depreciation charges based on the revaluated carrying amount of the assets and the depreciated based on the original cost. The gain or loss on disposal of an item of property, plant and equipment is determined by comparing the proceeds from disposal with the carrying amount of the property, plant and equipment, and is recognised net within other income/other expenses in profit or loss. When revalued assets are sold, any related amount included in the revaluation reserve is transferred to retained earnings. ZCCM Investments Holdings Plc Notes to the financial statements (continued) for the year ended 31 March 2016 In thousands of Kwacha 127 39 Significant accounting policies (continued) (d) Property, plant and equipment (continued) (ii) Subsequent expenditure Subsequent expenditure is capitalised only if it is probable that future economic benefits associated with the expenditure will flow to the Group and its cost can be measured reliably. The costs of the day-to-day servicing of property, plant and equipment are recognised in profit or loss as incurred. (iii) Depreciation Depreciation is calculated to write off the cost of items of property, plant and equipment less their estimated residual values using the straight-line method over their estimated useful lives, and is generally recognised in profit or loss. Leased assets are depreciated over the shorter of the lease term and their useful lives unless it is reasonably certain that the Group will obtain ownership by the end of the lease term. Land is not depreciated. The estimated useful lives for the current and comparative years are as follows: • Property 20 years • Vehicles 4 years • Plant, equipment and furniture 5 years • Vertical kiln 15 years • Rotary kiln 12 years Depreciation methods, useful lives and residual values are reviewed at each reporting date and adjusted if appropriate. (e) Investment property Investment property is property held to earn rental income or capital appreciation or for both, but not for sale in the ordinary course of business, use for the production or supply of goods or services or for administrative purposes. Investment property is initially measured at cost and subsequently at fair value with any change therein recognised in the profit or loss. Any gain or loss on the disposal of investment property (calculated as the difference between the net proceeds and the carrying amount of the item) is recognised in profit or loss. When investment property that was previously classified as property, plant and equipment is sold, any related amount that is included in the revaluation reserve is transferred to retained earnings. ZCCM Investments Holdings Plc Notes to the financial statements (continued) for the year ended 31 March 2016 In thousands of Kwacha 128 39 Significant accounting policies (continued) (f) Intangible assets (i) Recognition and measurement (ii) (iii) Intangible assets that are acquired by the Group and have finite useful lives are measured at cost less accumulated amortisation and any accumulated impairment losses. Subsequent expenditure Subsequent expenditure is capitalised only when it increased the future economic benefits embodied in the specific asset to which it relates. All other expenditure, including expenditure on internally generated goodwill and brands, are recognised in profit or loss as incurred. Amortisation Amortisation is calculated to write off the cost of intangible assets less their estimated residual values using the straight-line method over their estimated useful lives and is recognised in profit or loss. The estimated useful lives of the Group’s computer software is three to five years. Amortisation methods, useful lives and residual values are reviewed at each reporting date and adjusted if appropriate. (g) Inventories Inventories are measured at the lower of cost and net realisable value. The cost of inventories is based on the first-in, first-out principle. In the case of manufactured inventories, cost includes an appropriate share of production overheads based on normal operating capacity. (h) Impairment (i) Non-derivative financial assets Financial asset not carried at fair value through profit or loss including an interest in an equityaccounted investee, are assessed at each reporting date to determine whether there is objective evidence of impairment. Objective evidence that financial assets (including equity securities) are impaired include: • default or delinquency by a debtor; • restructuring of an amount due to the Group on terms that the Group would not consider otherwise; • indications that a debtor or issuer will enter bankruptcy; • adverse changes in the payment status of borrowers or issuers in the Group, economic conditions that correlate with defaults; or • the disappearance of an active market for a security; or • observable data indicating that there is measureable decrease in expected cash flows from a group of financial assets. For an investment in an equity security, objective evidence of impairment includes a significant or prolonged decline in its fair value below its cost. The Group considers a decline of 20% to be significant and a period of nine months to be prolonged. ZCCM Investments Holdings Plc Notes to the financial statements (continued) for the year ended 31 March 2016 In thousands of Kwacha 129 39 Significant accounting policies (continued) (h) Impairment (continued) (i) Non-derivative financial assets (continued) Financial assets measured at amortised cost An impairment loss is calculated as the difference between an asset’s carrying amount and the present value of the estimated future cash flows discounted at the asset’s original effective interest rate. Losses are recognised in profit or loss and reflected in an allowance account. When the Group considers that there are no realistic prospects of recovery of the asset, the relevant amounts are written off. If the amount of impairment loss subsequently decreases and the decrease can be related objectively to an event occurring after the impairment was recognised, then the previously recognised impairment loss is reversed through profit or loss. Available-for-sale financial assets Impairment losses on available-for-sale financial assets are recognised by reclassifying the losses accumulated in the fair value reserve to profit or loss. The amount reclassified is the difference between the acquisition cost (net of any principal repayment and amortisation) and the current fair value, less any impairment loss previously recognised in profit or loss. If the fair value of an impaired available-for-sale debt security subsequently increases and the increase can be related objectively to an event occurring after the impairment loss was recognised, then impairment loss is reversed through profit or loss, otherwise, it is reversed through OCI. (ii) Non-financial assets At each reporting date, the Group reviews the carrying amounts of its non-financial assets (other than, investment property, inventories and deferred tax assets) to determine whether there is any indication of impairment. If any such indication exists, then the asset’s recoverable amount is estimated. For impairment testing, assets are grouped together into the smallest group of assets that generates cash inflows from continuing use that are largely independent of the cash inflows of other assets or CGUs. The recoverable amount of an asset or CGU is the greater of its value in use and its fair value less costs to sell. Value in use is based on the estimated future cash flows, 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 or CGU. ZCCM Investments Holdings Plc Notes to the financial statements (continued) for the year ended 31 March 2016 In thousands of Kwacha 130 39 Significant accounting policies (continued) (h) Impairment (continued) (ii) (i) (ii) (iii) Non-financial assets (continued) An impairment loss is recognised if the carrying amount of an asset or CGU exceeds its recoverable amount. Impairment losses are recognised in profit or loss. They are allocated first to reduce the carrying amount of any goodwill allocated to the CGU, and then to reduce the carrying amounts of the other assets in the CGU on a pro rata basis. An impairment loss in respect of goodwill is not reversed. For other assets, an impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised. Equity-accounted investees An impairment loss in respect of an equity-accounted investee is measured by comparing the recoverable amount of the investment with its carrying amount. An impairment loss is recognised in profit or loss, and is reversed if there has been a favourable change in the estimates used to determine the recoverable amount. Employee benefits Short -term employee benefits Short term-employee benefit are expensed as the related service is provided. A liability is recognised for the amount expected to be paid if the Group has a present legal or constructive obligation to pay this amount as a result of past service provided by the employee, and the obligation can be estimated reliably. Defined contribution plans Obligations for contribution to defined contribution plans are expensed in the profit or loss as the related service is provided. Prepaid contributions are recognised as an asset to the extent that a cash refund or reduction in future payments is available. The Group and all its employees also contribute to the National Pension Scheme Authority, which is a defined contribution scheme. Amounts recognised as an expense during the year were K3.4 million (2015:K 4.4 million) Defined benefit plans The Group provides for retirement benefits (i.e. a defined benefit plan) for all permanent employees in accordance with established pension scheme rules as well as the provisions of Statutory Instrument No. 119 of the Laws of Zambia. A defined benefit plan is a postemployment benefit plan other than a defined contribution plan. The cost of providing the defined benefit plan is determined annually using the Projected Unit Credit Method, with actuarial valuations being carried out at the end of each reporting period. ZCCM Investments Holdings Plc Notes to the financial statements (continued) for the year ended 31 March 2016 In thousands of Kwacha 131 39 Significant accounting policies (continued) (i) (iii) Employee benefits (continued) Defined benefit plans (continued) The discount rate is required to be determined with reference to the corporate bond yield, however, due to the non-availability of an active developed market for corporate bonds the discount rate applicable is the yield at the reporting date on the Government of the Republic of Zambia’s bonds that have maturity dates approximating the terms of the Group's obligations and that are denominated in the same currency in which the benefits are expected to be paid. The defined benefit obligation recognised by the Group, in respect of its defined benefit pension plan, is calculated by estimating the amount of future benefit that employees have earned in return for their service in the current and prior periods and discounting that benefit to determine its present value, then deducting the fair value of any plan assets. When the calculations above result in a benefit to the Group, the recognised asset is limited to the net total of any cumulative unrecognised actuarial losses and past service costs and the present value of any economic benefits available in the form of any refunds from the plan or reductions in future contributions to the plan. An economic benefit is available to the Group if it is realisable during the life of the plan or on settlement of the plan liabilities. Actuarial gains and losses arising from changes in actuarial assumptions are charged or credited to other comprehensive income when they arise. These gains or losses are recognised in full in the year they occur. Past service costs are recognised immediately in the profit or loss, unless the changes to the pension plan are conditional on the employees remaining in service for a specified period (the vesting period). In this case, the past-service costs are amortised on a straight line basis over the vesting period. (iv) Other entitlements Some employees are on fixed term contracts and are entitled to gratuity. These are recognised when they accrue to employees. An estimate is made for the liability for such entitlements as a result of services rendered by employees up to the reporting date. The estimated monetary liability for employees’ accrued annual leave entitlement at the reporting date is recognised as an expense accrual. ZCCM Investments Holdings Plc Notes to the financial statements (continued) for the year ended 31 March 2016 In thousands of Kwacha 132 39 Significant accounting policies (continued) (j) Provisions Provisions are determined by discounting the expected future cash flows at a pre – tax rate that reflects current market assessment of the time value of money and the risks specific to the liability. The unwinding of the discount is recognised as finance cost. Environmental rehabilitation and restoration In accordance with applicable legal requirements, a provision for site restoration in respect of contaminated land, and the related expense, is recognised when the land is contaminated. (k) Revenue Revenue from the sale of goods in the course of ordinary activities is measured at the fair value of the consideration received or receivable, net of returns, trade discounts and volume rebates. Revenue is recognised when persuasive evidence exists, usually in the form of an executed sales agreement, that the significant risks and rewards of ownership have been transferred to the customer, recovery of the consideration is probable, the associated costs and possible return of goods can be estimated reliably, there is no continuing management involvement in the goods, and the amount of revenue can be measured reliably. Revenue is recognised as follows: ? Dividends are recognised as revenue in the period in which the right to receive payment is established, which in the case of quoted securities is usually the ex-dividend date. ? Lime sales are recognised in the period in which the Group has delivered products to the customer, the customer has full discretion over the channel and price to sell the products, and there is no unfulfilled obligations that could affect the customers’ acceptance of the products. Delivery does not occur until the products have been accepted by the customers. ? Revenue from rendering of services is recognised in profit or loss in proportion to the stage of completion of transaction at reporting date. The stage of completion is assessed with reference to surveys of work performed. The Group is involved in provision of environmental consultancy services, analytical services, surveying services and radiation safety. When services under a single arrangement are rendered in different reporting periods, the consideration is allocated on a relative fair value basis between the services. ZCCM Investments Holdings Plc Notes to the financial statements (continued) for the year ended 31 March 2016 In thousands of Kwacha 133 39 Significant accounting policies (continued) (l) Finance income and finance costs The Group’s finance income and finance costs include: • Interest income; • Interest expense; • Gain or loss on financial assets at fair value through profit or loss; • The foreign currency gain or loss on financial assets and financial liabilities; • Unwinding income or expense on price participation fees; • Unwinding expense on environmental provision. • Borrowing costs. Interest income or expense is recognised using the effective interest method. All borrowing costs are recognised in profit or loss using the effective interest method. Borrowing costs attributable to fixed assets during construction are capitalised. (m) Income tax (i) Income tax expense comprises current and deferred tax. It is recognised in profit or loss except to the extent that it relates to items recognised directly in equity or in OCI. Current tax Current tax comprises the expected tax payable or receivable on the taxable income or loss for the year and any adjustment to the tax payable or receivable in respect of previous years. It is measured using tax rates enacted or substantively enacted at the reporting date. Current tax also includes any tax arising from dividends. Current tax assets and liabilities are offset only if certain criteria are met. ZCCM Investments Holdings Plc Notes to the financial statements (continued) for the year ended 31 March 2016 In thousands of Kwacha 134 39 Significant accounting policies (continued) (m) Income tax (continued) (ii) Deferred tax Deferred tax is recognised in respect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax is not recognised for: • temporary differences on the initial recognition of assets or liabilities in a transaction that is not a business combination and that affects neither accounting nor taxable profit or loss; • temporary differences related to investments in subsidiaries and associates to the extent that the Group is able to control the timing of the reversal of the temporary differences and it is probable that they will not reverse in the foreseeable future; and • taxable temporary differences arising on the initial recognition of goodwill. Deferred tax assets are recognised for unused tax losses, unused tax credits and deductible temporary differences to the extent that it is probable that future taxable profits will be available against which they can be used. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realised; such reductions are reversed when probability of future taxable profit improves. Deferred tax is measured at the tax rates that are expected to be applied to temporary differences when they reverse, using tax rates enacted or substantively enacted at the reporting date. The measurement of deferred tax reflects the tax consequences that would follow the manner in which the Company expects, at the reporting date, to recover or settle the carrying amount of its assets and liabilities. For this purpose, the carrying amount of investment property measured at fair value is presumed to be recovered through sale, and the Company has not rebutted this presumption. Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current tax liabilities and assets, and they relate to taxes levied by the same tax authority on the same taxable entity, or on different tax entities, but they intend to settle current tax liabilities and assets on a net basis or their tax assets and liabilities will be realised simultaneously. ZCCM Investments Holdings Plc Notes to the financial statements (continued) for the year ended 31 March 2016 In thousands of Kwacha 135 40 Significant accounting policies (continued) (m) Income tax (continued) (iii) Tax exposures In determining the amount of current and deferred tax, the Company considers the impact of tax exposures, including whether additional taxes and interest may be due. This assessment relies on estimates and assumptions and may involve a series of judgements about future events. New information may become available that causes the Company to change its judgement regarding the adequacy of existing tax liabilities; such changes to tax liabilities would impact tax expense in the period in which such a determination is made. (n) Earnings per share The Group presents basic and diluted earnings per share data for its ordinary shares. Basic earnings per share is calculated by dividing the profit or loss attributable to ordinary shareholders of the Company by the weighted average number of ordinary shares outstanding during the year, adjusted for own shares held. Diluted earnings per share is determined by adjusting the profit or loss attributable to ordinary shareholders and the weighted average number of ordinary shares outstanding, adjusted for own shares held, for the effects of all dilutive potential ordinary shares, which comprise convertible notes and share options (o) Segment reporting An operating segment is a component of the Group that engages in business activities from which it may earn revenues and incur expenses, including revenues and expenses that relate to transactions with any of the Group’s other components and for which discrete financial information is available. All operating segments’ operating results are reviewed regularly by the Group’s Chief Executive Officer to make decisions about resources to be allocated to the segment and to assess its performance, ZCCM Investments Holdings Plc Notes to the financial statements (continued) for the year ended 31 March 2016 In thousands of Kwacha 136 40 Significant accounting policies (continued) (p) (i) (ii) Leases Leased assets Assets held by the Group under leases that transfer to the Group substantially all of the risks and rewards of ownership are classified as finance leases. The leased assets are measured initially at an amount equal to the lower of their fair value and the present value of the minimum lease payments. Subsequent to initial recognition, the assets are accounted for in accordance with the accounting policy applicable to that asset. Assets held under other leases are classified as operating leases and are not recognised in the Group’s statements of financial position. Lease payments Payment made under operating leases are recognised in profit or loss on a straight-line basis over the term of the lease. Lease incentives received are recognised as an integral part of the total lease expense, over the term of the lease. Minimum lease payments made under finance leases are apportioned between the finance expense and the reduction of the outstanding liability. The finance expense is allocated to each period during the lease term so as to produce a constant periodic rate of interest on the remaining balance of the liability. (q) Share capital Ordinary shares Incremental costs directly attributable to the issue of ordinary shares, net of any tax effects, are recognised as a deduction from equity. ZCCM Investments Holdings Plc Notes to the financial statements (continued) for the year ended 31 March 2016 In thousands of Kwacha 137 41 New standards and interpretations issued but not yet effective A number of new standards, amendments to standards and interpretations are effective for annual periods beginning after 1 April 2016, and have not been applied in preparing these consolidated financial statements. Those which may be relevant to the Group are set out below: Effective Standard, amendment or interpretation Summary of requirements 1 January 2016 IAS 32 Financial Instruments: Presentation: Offsetting Financial Assets and Financial Liabilities The amendments clarify when an entity can offset financial assets and financial liabilities. This amendment will result in the Group no longer offsetting two of its master netting arrangements. This amendment is effective for annual periods beginning on or after 1 January 2016 with early adoption permitted. 1 January 2016 IAS 36 Impairment of assets: Recoverable Amount Disclosures for Non- Financial Assets (Amendments to IAS 36) The amendments reverse the unintended requirement in IFRS 13 Fair Value Measurement to disclose the recoverable amount of every cash-generating unit to which significant goodwill or indefinite-lived intangible assets have been allocated. Under the amendments, the recoverable amount is required to be disclosed only when an impairment loss has been recognised or reversed. The amendments apply retrospectively for annual periods beginning on or after 1 January 2016 with early adoption permitted. The impact of the adoption of the standard on the financial statements for the Group has not yet been quantified. I January 2016 2016 IFRIC 21 Levies Levies have become more common in recent years, with governments in a number of jurisdictions introducing levies to raise additional income. Current practice on how to account for these levies is mixed. IFRIC 21 provides guidance on accounting for levies in accordance with IAS 37 Provisions, Contingent Liabilities and Assets. The Interpretation is effective for annual periods commencing on or after 1 January 2016 with retrospective application. The impact of the adoption of the standard on the financial statements for the Group has not yet been quantified. ZCCM Investments Holdings Plc Notes to the financial statements (continued) for the year ended 31 March 2016 In thousands of Kwacha 138 41 New standards and interpretations not yet adopted (continued) Effective Standard, amendment or interpretation Summary of requirements 1 January 2018 IFRS 9 (2015): Financial Instruments On 24 July 2015, the IASB issued the final IFRS 9 Financial Instruments Standard, which replaces earlier versions of IFRS 9 and completes the IASB’s project to replace IAS 39 Financial Instruments: Recognition and Measurement. This standard will have a significant impact on the Group, which will include changes in the measurement bases of the Group’s financial assets to amortised cost, fair value through other comprehensive income or fair value through profit or loss. Even though these measurement categories are similar to IAS 39, the criteria for classification into these categories are significantly different. In addition, the IFRS 9 impairment model has been changed from an “incurred loss” model from IAS 39 to an “expected credit loss” model, which is expected to increase the provision for bad debts recognised in the Group. The standard is effective for annual periods beginning on or after 1 January 2018 with retrospective application, early adoption is permitted. 1 July 2016 IAS 19 Defined Benefit Plan: Employee Contribution The amendment introduce relief that will reduce the complexity and burden of accounting for certain contributions from employees or third parties. Such contributions are eligible for practical expenditure if they are: • Set out in the formal terms of the plan; • Linked to service; and • Independent of the number of years of service. When contributions are eligible for the practical expedient, a company is permitted (but not required) to recognise them as a reduction of the service cost in the period in which the related service is rendered. The Group’s defined benefit plan meets these requirements and consequently the Group intends to apply this amendment and will recognise the contributions as reduction of the service costs in the period in which the related service is rendered. The amendments apply retrospectively for annual periods beginning on or after 1 July 2016 with early adoption permitted. The impact on the financial statements for the Group has not yet been quantified. 139 ZCCM Investments Holdings Plc Notes to the financial statements (continued) for the year ended 31 March 2016 In thousands of Kwacha 41 New standards and interpretations not yet adopted (continued) In or after 1 January 2018 IFRS 15 Revenue from contract with customers The standard should be applied to entity’s IFRS financial statements for annual reporting period beginning on or after 1 January 2017. The new standards IFRS 15 Revenue from contract with customers. IFRS 15 specifies how and when an IFRS reporter will recognise revenue as well as requiring such entities to provide users of financial statements with more information, relevant disclosures. The impact on the financial statements for the Group has not yet been quantified 1 January 2019 IFRS 16 Leases Effective 1 January 2019, early adoption permitted provided for entities that apply IFRS 15 Revenue from Contracts with Customers at or before the date of initial application of IFRS 16. The objective of the standard is to set out the principles for the recognition, measurement, presentation and disclosure of leases. IFRS 16 specifies the basis for lessees and lessors to provide relevant information in a manner that faithfully represents their lease transactions in their financial statements. The impact on the financial statements for the Group has not yet been quantified 140 ZCCM Investments Holdings Plc Annual report for the year ended 31 March 2016 CORPORATE INFORMATION Registered and Corporate Office Mukuba Pension House 5309 Dedan Kimathi Road P O Box 30048 Lusaka 10101, Zambia UK Registrars CAPITA Registrars Limited Bourne House 34 Beckenham Road Beckenham Kent BR3 4TU England Brokers for Lusaka Stock Exchange Listing Stockbrokers Zambia Limited 2nd Floor Design House Dar Es Salaam Place Cairo Road P O Box 38956 Lusaka, Zambia Auditors KPMG Chartered Accountants First Floor, Elunda 2 Addis Ababa Roundabout P O Box 31282 Lusaka, Zambia 141 ZCCM Investments Holdings Plc Annual report (continued) for the year ended 31 March 2016 CORPORATE INFORMATION (continued) Principal Bankers: Barclays Bank (Zambia) Plc Standard Chartered Bank (Zambia) Plc Zambia National Commercial Bank Plc Transfer Secretaries Corpserve Transfer Agents Limited Mwaleshi Road, Olympia Park P O Box 37522 Lusaka 10101, Zambia Phone: + 260 211 256969/70 Fax : +260 211 256975 Email: info@corpservezambia.com.zm Shareholder Contact Chabby Chabala Company Secretary Charles Mjumphi Corporate Officer Joseph Malani Lungu Investor Relations Officer Phone : +260 211 221023/228833 Fax : +260 211 220727 Website: www.zccm-ih.com.zm E-mail : corporate@zccm-ih.com.zm