Half Yearly Report

Total comprehensive loss attributable to:

Earnings per share: 8

MASAWARA PLC

Unaudited interim consolidated statement of financial position

MASAWARA PLC

Unaudited interim consolidated statement of changes in equity

for the six months ended 30 June 2013

MASAWARA PLC

MASAWARA PLC

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED 30 JUNE 2013

1 Corporate information

Masawara Plc ("the Company") is an investment company incorporated and domiciled in Jersey, Channel Islands, whose shares are publicly traded on the London Stock Exchange's AIM. The registered office is located at Queensway House, Hilgrove Street in St Helier, Jersey and it is managed from Unicorn Centre, 18N Frère Felix de Valois Street, Port Louis in Mauritius.

The investment portfolio of the Company includes the Joina City (a multi-purpose property situated in Harare that earns rental income), TA Holdings Limited (a diversified investment company that holds investments in insurance, agro-chemical and hospitality businesses), Zuva Petroleum (Private) Limited (importer and distributor of petroleum products in Zimbabwe), iWayAfrica Zimbabwe (Private) Limited (a broadband internet service company), Telerix Communications (Private) Limited (a company that has a license that allows it to construct, operate and maintain a public data internet access and Voice Over IP network in Zimbabwe) and Minerva Holdings (Private) Limited (a company that has operations in Pensions Consulting and Administration, Insurance Risk Advisory and Reinsurance Broking) which was acquired subsequent to the period under review, refer to Note 21 for more details. 

The Group interim financial statements consolidate those of the Company, its subsidiaries and the Group's interest in associates and joint ventures (together referred to as "the Group").

2 Basis of preparation

The interim consolidated financial statements for the six months ended 30 June 2013 have been prepared in accordance with International Accounting Standard ("IAS") 34 Interim Financial Reporting.

The interim consolidated financial statements do not include all the information and disclosures required in the annual financial statements and should be read in conjunction with the Group's Annual Financial Statements for the year ended 31 December 2012. The interim consolidated financial statements have been drawn up using accounting policies and presentation consistent with those applied in the audited accounts for the year ended 31 December 2012.

Going Concern

Management prepared cash flow forecasts indicating that there is adequate operating cash for the period to September 2014 and short-term facilities will be utilized to fund any operating cash flow deficit that may arise post September 2014. The Directors reviewed the cash flow forecasts prepared by management when assessing the ability of the Group to continue operating as a going concern. Based on the review of the Group's cash flow forecasts, the Directors believe that the Group will have sufficient resources to continue to trade as a going concern for a period of at least 12 months from the date of approval of these financial statements and accordingly, the financial statements have been prepared on the going concern basis. The Directors also assessed the probability of the sale transaction of Masawara Energy (Mauritius) Limited not being concluded within twelve months from the date of approval of these financial statements as unlikely and therefore have a reasonable expectation that the Group will not require any facilities in the foreseeable future. The Directors therefore believe that this transaction will have a positive impact on the Group's cash flows in the short term and the foreseeable future.

3 Dividends

There were no dividends declared or paid during the six months ended 30 June 2013.

4 Significant events

The following significant events that have a material effect on the financial statements of the Group took place during the six- month period ended 30 June 2013.

4.1 Disposal of Masawara Energy (Mauritius) Limited ("MEM")

On 1 February 2013, the Directors made a decision to dispose of the energy segment consisting of the Group's investment in Masawara Energy (Mauritius) Limited and, therefore, classified it as a disposal group held for sale. The Directors considered the joint venture met the criteria to be classified as held for sale at that date for the following reasons:

· MEM is available for immediate sale and can be sold to a potential buyer in its current condition.

· The Board had a plan to sell MEM and has signed a share purchase agreement with a potential buyer.

· The Board expects the sale to be completed within the next 12 months.

For more details on the discontinued operation, refer to Note 14.

4.2 Acquisition of additional interest in TA Holdings Limited

On 31 May 2013, the Group acquired an additional 1.82% interest in TA Holdings Limited when FMI Investments (Private) Limited purchased 3,000,000 shares on the Zimbabwe Stock Exchange for $320,452, including brokers fees. The additional interest in TA Holdings Limited was acquired at less than the fair value of the share of net assets acquired. The difference between the cost of shares acquired and the fair value of the share of net assets acquired resulted in negative goodwill amounting to $103,578 that has been included as income in the determination of the Group's share of TA Holdings Limited's profit for the period.

4.3 Loan facility secured

On 31 May 2013, the Group secured a $350,000 loan from BancABC for the purpose of acquiring the 3,000,000 TA Holdings Limited shares disclosed above. The loan bears interest at a rate of 13% per annum, payable monthly, and the capital portion is repayable on 31 May 2014.

4.4 Overdraft facility secured

On 25 June 2013, the Group secured a $2 million loan facility from Afriasia Bank Limited for the purpose of meeting working capital requirements should the need arise. The loan facility is for a twelve month period from the grant date. The outstanding loan amount will bear interest at a rate of 12% above the 3 Month US$ Libor rate per annum. Interest and capital are repayable on 25 June 2014. As at the date of issue of these interim financial results, the Group had not drawn down on the overdraft facility.

4.5 Conversion of Telerix Communications Private Limited ("Telerix") preference shares into debentures

As highlighted in the financial statements for the year ended 31 December 2012, Telerix requested the Group to roll over its preference shares for an additional two year period from the due date, 4 April 2013. On 4 April 2013 the Group converted its preference shares in Telerix into 2,478 debentures at $1,000 per debenture, pending the approval of the conversion of the preference shares into debentures by the Telerix shareholders. The subscription of the debentures was ratified by the Telerix shareholders at an Annual General Meeting held in August 2013. The debentures are redeemable 731 days from the date of issue at par, bearing a coupon rate of 12% per annum, payable quarterly and they are convertible into ordinary shares at a rate of 10 new ordinary shares per $1,000 of debentures.

4.6 Acquisition of Minerva Holdings (Private) Limited

Subsequent to the period ended 30 June 2013, the Group acquired 69.75% of the issued share capital of Minerva Holdings (Private) Limited. For more details refer to Note 21.

5 Administrative, property and other expenses

Property expenses are mainly made up of day to day expenditure incurred on the investment property e.g. electricity, rates, security costs and repairs and maintenance works on the building. Property expenses did not change significantly from the previous reporting period as the occupancy level, at 72% changed slightly from 73% occupancy reported during the same period last year.

The major components of administrative and other expenses are staff costs, directors' fees, advisory fees and consultancy fees relating to due diligence exercises carried out for potential acquisitions and disposals. The increase in other operating expenses in comparison with the same period in the previous year is mainly due to $490,000 legal fees incurred during the period that related to the disposal of Masawara Energy (Mauritius) Limited.

6 Finance costs

Finance costs decreased significantly from the previous period mainly due to the fact that finance costs for the six month period ended 30 June 2012 included imputed interest on shareholder loans of $272,000 and interest on the Alveir Management Limited loan of $275,000 which were not incurred during the six month period ended 30 June 2013.

7 Income tax expense

There was no income tax expense during the six month period ended 30 June 2013 because the Group did not have any taxable income during the period under review. Income tax expense for the associates and discontinued operations has been taken into account in the Group's share of post tax profit or loss from associates and discontinued operations.

8 Earnings per share

Basic earnings per share amounts are calculated by dividing net profit or loss for the period attributable to ordinary equity holders of the parent by the weighted average number of ordinary shares outstanding during the period.

Diluted earnings per share amounts are calculated by dividing the net profit attributable to ordinary equity holders of the parent by the weighted average number of ordinary shares outstanding during the period plus the weighted average number of ordinary shares that would be issued on conversion of all the dilutive potential ordinary shares into ordinary shares.

The following reflects the income and share data used in the basic and diluted earnings per share computations:

There were no other transactions involving ordinary shares or potential ordinary shares between the reporting date and the date of completion of these financial statements.

9 Financial assets

Financial assets comprise the following:

The decrease in the preference shares balance and the corresponding increase in the debenture investment balance was due to the fact that the Group converted the preference shares held in Telerix Communications (Private) Limited into debentures during the period under review. For more details refer to Note 4.5.

10 Investment property

As detailed in the 31 December 2012 annual report, the Directors adjusted the investment property value determined by independent professional valuers, CB Richard Ellis Zimbabwe (Private) Limited downwards by 9% in light of the state of debtors (tenants are slow paying) and the leasing progress (the building occupancy level only increased by 10% to 73% from the previous year) in order to arrive at the Directors' best estimate of the fair value of the investment property.

Based on fact that the tenants are still slow paying, leasing progress is still slow and also the fact that the Directors assessed the potential changes to the inputs to the valuation and were of the opinion that there has not been a material changes from the previous reporting period, the carrying value of the investment property remained the same as it was at 31 December 2012. There is a risk that the illiquidity of the Zimbabwean capital market may affect the valuation of the Group's investment property in the short to medium term. As detailed in the financial statements for the year ended 31 December 2012, there are no buildings that are comparable to the Group's investment property in Zimbabwe, which poses a greater degree of uncertainty than which exists in a more active market in estimating market values of investment property.

11 Investment in associates

Investment in associates includes investments in TA Holdings Limited ("TA Holdings"), Telerix Communications (Private) Limited ("Telerix") and iWayAfrica (Private) Limited ("iWayAfrica").

11.1 Aggregate group investments in associates

11.2 Summarised financial information in respect of TA Holdings Limited

Share of other comprehensive loss of TA Holdings Limited predominately relates to foreign currency translation reserve movements that arose as a result of the depreciation of the Botswana Pula against the United States Dollar during the period under review.

The investment in TA Holdings Limited is assessed for impairment at each reporting date owing to the decline in the share price of TA Holdings Limited on the Zimbabwe Stock Exchange. As at 30 June 2013, the Directors concluded that the investment was not impaired as the value in use was determined to be $25.2 million, which was above the carrying amount of $22.4 million. Furthermore, the share price alone cannot be used as the only indicator of impairment since the Zimbabwean stock market is not liquid, and small trades can result in big swings in the share price. The significant assumptions used for the impairment computation were the same as those used at 31 December 2012 as the market and economic conditions did not materially change from then.

11.3 Summarised financial information in respect of Telerix Communications (Private) Limited ("Telerix")

As highlighted in the financial statements for the year ended 31 December 2012, Masawara Plc discontinued recognising its share of further losses after the investment in Telerix was nil in accordance with IAS 28 Investment in Associates. The reconciliation below shows the movement of unrecognized share of losses in Telerix Communications (Private) Limited:

11.4 Summarised financial information in respect of iWayAfrica Zimbabwe (Private) Limited

12 Investment in joint venture, Masawara Energy (Mauritius) Limited (MEM)

The carrying amount of the investment in MEM will be recovered through sale following a board decision to dispose of the investment, refer to Note 14 for more details. It is the Group's policy to classify non-current assets and disposal groups as held for sale if their carrying amounts will be recovered principally through a sale transaction rather than through continuing use.

Upon classification of the investment in MEM as non-current asset held for sale, the Group ceased equity accounting of its investment in MEM as required by International Accounting Standard 28 and accounted for it in accordance with International Financial Reporting Standard ("IFRS") 5. Non-current assets and disposal groups classified as held for sale are measured at the lower of their carrying amount and fair value less costs to sell. On 1 February 2013, the date on which the investment in MEM was reclassified to the held for sale category, the carrying amount of investment in joint venture was lower than fair value less cost to sell, consequently no adjustments were effected to the carrying amount of the investment as at 1 February 2013.

13 Other receivables

14 Discontinued operations classified as held for sale

On 1 February 2013, the Directors decided to sell the Group's entire shareholding in Masawara (Energy) Mauritius Limited "MEM" (the investment vehicle that holds the Group's interest in Zuva Petroleum (Private) Limited) to Woble Investments (Private) Limited for $24.9 million. It is expected that all regulatory approvals for the sale of the investment in MEM, which is reported under the energy operating segment, will be obtained within twelve months from the date of approval of these financial statements. Below are summarized financial results of the discontinued operations. The results for 2013 are only for the month of January 2013, prior to the classification as held for sale.

15 Financial liabilities

15.1 Financial liabilities - non current

Non-current financial liabilities consist of a loan from a non-controlling shareholder. The loan is unsecured, does not have fixed repayment terms and the loan began bearing interest in January 2013 at a rate of 2% per annum. Prior to 1 January 2013 the loan was not interest bearing and the interest expense recorded in the previous periods was as a result of imputing of interest at an open market rate of 10%, in line with International Financial Reporting Standards.

15.2 Financial liabilities - current

The $350,000 loan was secured on 31 May 2013 from BancABC. The loan bears interest at a rate of 13% per annum, payable monthly, and the capital portion is repayable on 31 May 2014.

16 Segment information

For management purposes, the Group is organised into business units based on their products and services. The Group has five reportable segments as follows:

· The Investment Property segment leases retail and office space at the Joina City building partly owned by the Group.

· TA Holdings Limited, an associate, is a diversified investment company that holds stakes in insurance, agro-chemical and hospitality businesses across sub-Saharan Africa and is listed on the Zimbabwe Stock Exchange.

· Telerix Communications (Private) Limited, an associate, is a company that is licensed to construct, operate and maintain public data internet access and Voice Over network in Zimbabwe.

· iWayAfrica Zimbabwe (Private) Limited, an associate, is a broadband internet service company in Zimbabwe.

· Energy segment, which incorporates Masawara Energy (Mauritius) Limited with a wholly owned subsidiary, Zuva Petroleum (Private) Limited, a long established importer and distributor of petroleum products in Zimbabwe. Masawara Energy (Mauritius) Limited is a joint venture of the Group. Subsequent to the period end, the Group made a decision to dispose the energy segment and consequently reclassified the entire energy segment from investment in joint venture to non-current asset held for sale category, for more details refer to Note 4.1 and Note 14.

Management monitors the operating results of its business units separately for the purpose of making decisions about resource allocation and performance assessment. Segment performance is evaluated based on segment profit or loss, and is measured consistently with operating profit or loss in the consolidated financial statements.

Segment assets for the Investment Property segment represent the Group's share of the Joina City building ($32,915,728), debenture investment ($1,751,977), tenant receivables ($252,360) and other assets ($34,419).

Geographical information

Investment property

The Joina City building is situated in Harare and therefore all revenues and assets are from Zimbabwe.

Telerix

Telerix Communications (Private) Limited is situated in Harare and only offer services in Zimbabwe, therefore all revenues and assets are from Zimbabwe.

iWayAfrica

iWayAfrica Zimbabwe (Private) Limited is situated in Harare and only offer services in Zimbabwe, therefore all revenues and assets are from Zimbabwe.

Energy

Masawara Energy (Mauritius) Limited's significant assets that generate revenue are located in Zimbabwe through its wholly owned subsidiary, Zuva Petroleum (Private) Limited. Zuva Petroleum (Private) Limited imports and distributes petroleum products across Zimbabwe hence all revenues and assets of the energy segment have been deemed to be from Zimbabwe. During the period under review the Board decided to dispose of the energy segment. As at 30 June 2013, the sale transaction was not completed. For more details, refer to Note 14.

TA Holdings Limited

TA Holdings Limited has operations in Zimbabwe, Botswana, South Africa and Uganda. The Group's share of TA Holdings Limited's revenues and non-current assets is split as follows:

17 Related party disclosures

The financial statements include the financial statements of Masawara Plc, the subsidiaries, joint venture and associates. The related party relations have not changed from the previous reporting period, i.e. as at 31 December 2012.

The following table provides the total amount of transactions that have been entered into with related parties during the six months ended 30 June 2013 and 30 June 2012.

Terms and conditions of transactions with related parties

The sales and purchases from related parties are made at terms equivalent to those that prevail in arm's length transactions. Outstanding balances as at 30 June 2013 are unsecured, interest free and settlement occurs in cash. There are no guarantees received or provided for any related party receivables or payables.

Amounts receivable from related parties also include debentures in Telerix Communications (Private) Limited and these have been included in financial assets on the statement of financial position. For more details refer to Notes 4.5 and Note 9.

As detailed per the 31 December 2012 annual report, credit risk from loans receivable from joint ventures and associates is managed by the Group Treasury Manager.

Directors' loans

There were no changes to the terms and conditions on directors' loans that existed as at the last reporting date.

Directors' remuneration

The amounts disclosed in the table are the amounts recognized as an expense during the reporting period.

Directors' interests in shares

As at 30 June 2013, S Mutasa owned 61,682,130 (2012: 61,682,130) shares in Masawara Plc, F Daniels owned 3,666,667 (June 2012: 3,666,667) shares in Masawara Plc, and J Vezey owned 82,836 shares in Plc (June 2012: nil). The other directors had no interests in the shares of the company (June 2012: nil).

18 Prior year adjustments

Prior year adjustments relates to correction errors identified in the TA Holdings Limited's "TA Holdings" 2012 investment in associates opening balance that had erroneously been understated by $2,925,713 (Masawara Plc share, $1,147,465). The understatement was as a result of overstated TA Holdings' share of profit of associates by $337,287 (Masawara Plc share, $132,470) and understated TA Holdings' share of surplus on revaluation of property plant and equipment of associates by $2,810,222 (Masawara Plc share, $1,102,169) in years 2009 and 2010 and also an understatement of TA Holdings' share of surplus on revaluation of property plant and equipment of associates by $452,778 in 2011 (Masawara Plc share $177,580).

19 Capital commitments

As highlighted in the financial statements for the year ended 31 December 2012, the Telerix Communications (Private) Limited ("Telerix") shareholders provided letters of support pledging that they will, and are in a position to, at the request of Telerix, place sufficient funds up to a specified limit for Telerix to meet its obligations as and when they fall due during the next twelve months. Masawara Plc's share of the pledge to support Telerix was limited to $1.4 million and it was granted on 25 June 2013 for a twelve month period from the grant date. As at the date of signing off of these interim results, the Group had disbursed $582,000 of the pledged amount to Telerix.

20 Legal and compliance matters

On 5 October 2012, two former managers of Zuva Petroleum (Private) Limited ("Zuva"), an employee who is in the process of being retrenched and a former contract employee filed an application in the High Court of Zimbabwe against the Minister of Youth, Indigenisation and Economic Empowerment ("the Minister") and Masawara Zimbabwe (Private) Limited ("Masawara Zimbabwe") seeking a revocation of the approval that the Minister granted in February 2011 for the Masawara group to acquire the former BP and Shell assets.

Both the Minister and Masawara Zimbabwe opposed the application. In his opposing affidavit, the Minister, amongst other things, stated that he had no intention of revoking the approval. The matter was heard towards the end of June 2013 and judgment was reserved. The matter is therefore still pending, and the Directors of the Company believe that the court application has no merit and that it will be dismissed by the Court.

21 Events after the reporting period

Approval of the acquisition of Minerva Holdings (Private) Limited

On 21 August 2013, Masawara (Mauritius) Limited, a wholly owned subsidiary of Masawara Plc, acquired a 100% shareholding in Minerva Holdings (Private) Limited which in turn owns 69.75% of Aon Zimbabwe (Private) Limited's issued share capital. The consideration for the acquisition will be based on the underlying earnings of Aon Zimbabwe (Private) Limited over the next three years, and will be capped to a maximum of $2.8 million. The consideration is payable over 3 years, with the first payment payable on 30 April 2014. The Group intends for Minerva Holdings (Private) Limited to ultimately only own a 45% share of Aon Zimbabwe (Private) Limited. Aon Zimbabwe (Private) Limited has operations in Pensions Consulting and Administration, Insurance Risk Advisory and Reinsurance Broking. Aon Zimbabwe (Private) Limited reported revenues of $4.2 million and a profit after tax of $1.2 million for the period ended 30 June 2013 (unaudited interim results).