Annual Report 2009 Part 2

P RES S C ORP ORATIO N L IM IT E D A ND ITS S UBS I DiAR IES
C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S
for the year ended 31 December 2009
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P R E S S C O R P O R AT I O N L I M I T E D A N D I T S S U B S I D i A R I E S
directors report
The Directors have pleasure in presenting their report together with the audited Group financial statements of Press Corporation Limited for the year ended 31 December 2009. INCORPORATION AND REGISTERED OFFICE Press Corporation Limited is a company incorporated in Malawi under the Malawi Companies Act, 1984. It was listed on the Malawi Stock Exchange in September 1998 and as a Global Depository Receipt on the London Stock Exchange in July 1998. The address of its registered office is: 7th Floor Chayamba Building P.O. Box 1227 Blantyre PRINCIPAL ACTIVITIES OF THE GROUP AND THE COMPANY Press Corporation Limited is a diversified group with significant interests in the Malawi economy. Its subsidiary companies operate in real property and investments; food and beverages; retail and consumer products; financial services and telecommunication. Press Corporation Limited also has associated companies in brewery and soft drinks and agro-industrial sectors. FINANCIAL PERFORMANCE The results and state of affairs of the Group and the Company are set out in the accompanying consolidated statements of financial position, comprehensive income, changes in equity, cash flows, and notes to the group financial statements. SHAREHOLDING The shareholding structure at year end was as follows: 2009 % Press Trust 44.47 Old Mutual 12.27 Deutsche Bank Trust Company America 19.27 Others 23.99 100.00 DIVIDENDS
2008 % 44.46 12.31 16.98 26.25 100.00
The net profit for the year of MK 3.27 billion (2008: MK3.14 billion) has been added to retained earnings. A dividend of MK295 million (2008: MK473 million) representing MK2.45 per ordinary share (2008: MK4.17) was paid during the year. The directors have proposed a second interim dividend for the year 2009 of MK120.0million (2008:nil) representing K1.00 per share to be paid on 30 April 2010. The directors have further proposed a final dividend of MK240.4 million (2008: MK175 million) representing MK2.00 per share (2008: MK1.46) to be tabled at the forthcoming Annual General Meeting. DIRECTORATE AND COMPANY SECRETARY The names of the Companys directors and secretary as at 31 December 2009 are listed below:Mr. D.C. Lungu - Chairman (throughout the year) Dr. M.A.P. Chikaonda - Director / Group Chief Executive (throughout the year) Mr. S.A. Itaye - Director (throughout the year) Mrs. M.S.T. Kachingwe - Director Mr. J.A. Regout - Director Mr. A.G. Barron - Director Mr. C.S. Chilungulo - Director Mr P.P. Mulipa - Director Mr. C.J. Evans - Company Secretary (throughout the year)
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2009
directors report (continued)

DIRECTORATE AND COMPANY SECRETARY (Continued) As per the requirements of the Articles of Association of the Company, one of the directors is due for retirement at the forthcoming Annual General Meeting, but, being eligible, offers himself for re-election. EMPLOYEE SHARE OPTION SCHEME The Board approved an employee share option scheme in 2000 and, accordingly, 4,404,250 shares were allocated to the scheme. Some employees have so far exercised their option of 134,896 (2008: 134,896 shares). The original share option scheme expired. AUDITORS The company auditors, KPMG Certified Public Accountants and Business Advisors (Malawi), have indicated their willingness to continue in office and a resolution will be proposed at the forthcoming Annual General Meeting to re-appoint them as auditors in respect of the Groups and Companys 31 December 2010 financial statements.
Mr. D.C. Lungu Chairman 26 March 2010
Dr. M.A.P. Chikaonda Group Chief Executive
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ST A TE M ENT O F D IRECTORS RESPONSI B I L ITIES

The Malawi Companies Act, 1984, requires the Directors to prepare financial statements for each financial year which give a true and fair view of the state of affairs of the Group and the Company as at the end of the financial year and of the operating results for that year. The Act also requires the Directors to ensure the Group and the Company keep proper accounting records which disclose with reasonable accuracy at any time the financial position of the Group and Company and enable them to ensure that the financial statements comply with the International Financial Reporting Standards (IFRSs) and provisions of the Malawi Companies Act, 1984. In preparing these financial statements, the Directors accept responsibility for the following: Maintenance of proper accounting records; Selection of suitable accounting policies and applying them consistently; Making judgments and estimates that are reasonable and prudent; Compliance with applicable accounting standards, when preparing financial statements, subject to any material departures being disclosed and explained in the financial statements; and Preparation of financial statements on a going concern basis unless it is inappropriate to presume that the Group and Company will continue in business.
The Directors also accept responsibility for taking such steps as are reasonably open to them to safeguard the assets of the Group and the Company and to maintain adequate systems of internal controls to prevent and detect fraud and other irregularities. Nothing has come to the attention of the Directors to indicate that the Group and Company will not remain a going concern for at least the next twelve months from the date of this statement. The Directors are of the opinion that the financial statements for the year ended 31 December 2009 give a true and fair view of the state of the Groups and Companys financial affairs and of their performance and cash flows. APPROVAL OF FINANCIAL STATEMENTS The financial statements of the Group and Company were approved for issue by the Board of directors on 26 March 2010 and are signed on its behalf by: By order of the Board.
Mr. D.C. Lungu Chairman
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INDEPENDENT AUDITORS REPORT TO THE SHAREHOLDERS OF PRESS CORPORATION LIMITED AND ITS SUBSIDIARIES
K PM G
KPMG Public Accountants and Business Advisors MASM House, Lower Sclater Road P.O. Box 508 Blantyre, Malawi
Telephone: (265) 01 820 744 / 01 820 391 Telefax: (265) 01 820 575 E-mail: kpmg@kpmgmw.com
Report on the Financial Statements We have audited the consolidated and separate financial statements of Press Corporation Limited and its subsidiaries (the Group) which comprise the consolidated statements of financial position as at 31 December 2009, and the statements of 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 as set out on pages 5 to 83. Directors Responsibility for the Financial Statements The Companys directors are responsible for the preparation and fair presentation of these financial statements in accordance with International Financial Reporting Standards and the provisions of the Malawi Companies Act, 1984. This responsibility includes: designing, implementing and maintaining internal control systems relevant to the preparation and fair presentation of financial statements that are free of material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances. 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 whether the financial statements are free of 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 judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, we consider internal control systems relevant to the entitys 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 entitys internal control systems. 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. Opinion In our opinion, these financial statements present fairly, in all material respects, the consolidated and separate financial position of Press Corporation Limited at 31 December 2009, and of 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 provisions of Malawi Companies Act, 1984, so far as concerns members of the company.
2009
Annual Report
KPMG Certified Public Accountants and Business Advisors (Malawi) Blantyre 26 March 2010
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KPMG Malawi is a member firm of KPMG International, a Swiss cooperative. A list of the names of the partners is available for inspection at the office address.
CONSO L I D ATE D STATE M ENTS O F F IN A NCI A L POSITION

for the year ended 31 December 2009 In millions of Kwacha
Group Company Notes 2009 2008 2009 2008 As restated As restated Assets Non-current assets Property, plant and equipment 19 39,520 32,340 152 17 Intangible assets 20 193 218 - Investment properties 21 2,782 1,900 - Investments in subsidiaries 22 - - 42,227 47,191 Investments in associates 23 1,989 1,331 5,920 5,220 Loans and advances to customers 24 12,662 6,571 - Long term loans receivable - Group 25 - - 401 821 Other investments 26 3,298 4,724 38 37 Deferred tax assets 27 770 1,052 - 61,214 48,136 48,738 53,286 Current assets Inventory 28 3,547 3,655 7 Biological assets 29 199 237 - Loans and advances to customers 24 23,076 18,236 - Other investments 26 11,573 12,665 - Trade and other receivables - Group 30 - - 238 124 Trade and other receivables 31 12,971 16,094 111 135 Assets classified as held for sale 32 6 72 - Cash and cash equivalents 33 11,095 6,916 502 301 62,467 57,875 858 560 Total assets 123,681 106,011 49,596 53,846 Equity and liabilities Equity Share capital 34 Share premium 35 Other reserves 36 Retained earnings Total equity attributable to equity holders of the company Non-controlling interest Total equity Non-current liabilities Loans and borrowings 37 Provisions 38 Long term loans payables Group 25 Deferred tax liabilities 27 Current liabilities Bank overdraft 33 Loans and borrowings 37 Provisions 38 Income tax payable Trade and other payables 39 Liabilities due to customers 40 Total liabilities Total equity and liabilities
1 2,097 9,982 12,531 24,611 13,795 38,406
1 2,097 10,025 9,399 21,522 13,131 34,653
1 2,097 35,907 863 38,868 - 38,868
1 2,097 39,249 290 41,637 41,637
5,675 2,217 - 3,477 11,369
4,774 2,023 - 4,411 11,208
1,392 300 328 7,759 9,779
1,788 414 9,191 11,393
These financial statements of the Group and Company were approved for issue by the Board of Directors on 26 March 2010 and were signed on its behalf by:
Mr. D.C. Lungu Chairman
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2,117 1,638 541 1,091 16,433 52,086 73,906 85,275 123,681
730 1,534 534 1,195 11,527 44,630 60,150 71,358 106,011
55 502 117 55 220 - 949 10,728 49,596
53 482 105 55 121 816 12,209 53,846
2009
CONSO L I D A TE D ST A TE M ENTS O F CO M PRE H ENSI V E INCO M E

Group Company Notes 2009 2008 2009 2008 As restated As restated Continuing operations Revenue 9 47,560 43,614 1,658 900 Direct trading expenses 10 (25,427) (23,809) (17) Gross profit 22,133 19,805 1,641 900 Other operating income 11 Distribution expenses` 12 Administrative expenses 13 Other operating expenses 14 Results from operating activities Finance income 15 Finance expenses 15 Net finance costs Share of profit of equity-accounted investees (net of income tax) 16 Profit before income tax Income tax expense 17 Profit from continuing operations Discontinued operations Profit/(loss) from discontinued operations 8 Profit for the year 4,125 (1,099) (16,512) (278) 8,369 166 (615) (449) 4,475 (988) (15,106) (259) 7,927 225 (760) (535) 909 - (1,009) - 1,541 122 (223) (101) 184 (713) 371 152 (423) (271)
658 8,578 (2,941) 5,637 33 5,670
568 7,960 (2,274) 5,686 (23) 5,663
- 1,440 (155) 1,285 - 1,285
100 (71) 29 29
Other comprehensive income: Foreign currency translation differences for foreign operations 6 Revaluation of properties and other investments 51 Release of revaluation surplus on disposal of revalued property, plant and equipment (24) Net effect of assets and liabilities taken over from subsidiary - Transfer to loan loss reserve - Reversal of accumulated depreciation - Income tax on other comprehensive income 95 Other comprehensive income for the year, net of tax 128 Total comprehensive income for the year 5,798 Profit attributable to: Owners of the Company Non-controlling interest Profit for the year Total comprehensive income attributable to: Owners of the Company Non- controlling interests Total comprehensive income for the year Earnings per share Basic earnings per share
(5) 1,980 (29) - 91 12 (594) 1,455 7,118
- (4,774) - (417) - - 1,432 (3,759) (2,474)
30,636 (9,191) 21,445 21,474
3,273 2,397 5,670
3,140 2,523 5,663
1,285 - 1,285
29 29
2009
3,384 2,414 5,798
4,270 2,848 7,118
(2,474) - (2,474)
21,474 21,474
18
27.23 27.23
27.67 26.12
Annual Report
Diluted earnings per share 18 Continuing operations Basic earnings per share 18 Diluted earnings per share 18
26.96 26.96
27.87 26.31
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*Prior year figures have been restated due to reclassification of one of the group companies from an associate to a subsidiary as more fully explained in note 46.2
CONSO L I D A TE D ST A TE M ENTS O F C H A N G ES IN E Q UIT Y

Attributable Other to equity Non Issued Share reserves Retained holders of controlling capital premium (Note 36) earnings company interest GROUP 2009 Balance at 1 January 2009 - as restated 1 2,097 10,025 9,399 21,522 13,131 Total comprehensive income for the year: Profit for the year - - - 3,273 3,273 2,397 Other comprehensive income: Foreign exchange translation differences for foreign operations - - 6 - 6 - Revaluation surplus/(deficit) on properties and other investments - - 109 (9) 100 (49) Transfer to loan loss reserve - - 120 (120) - - Depreciation transfer on land and buildings - - (30) 30 - - Reversal of accumulated depreciation - - (253) 253 - - Assets disposal - - (24) - (24) - Income tax on other comprehensive income - - 29 - 29 66 Total other comprehensive income - - (43) 154 111 17 Total comprehensive income for the year - - (43) 3,427 3,384 2,414 Transactions with owners, recorded directly in equity: Dividends to equity holders Balance at 31 December 2009
Total Equity
34,653 5,670
6 51 (24) 95 128 5,798
- 1
- 2,097
- 9,982
(295) 12,531
(295) 24,611
(1,750) 13,795
(2,045) 38,406
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CONSO L I D A TE D ST A TE M ENTS O F C H A N G ES IN E Q UIT Y ( c o n t i n u e d )

Attributable Other to equity Non Issued Share reserves Retained holders of controlling capital premium (Note 36) earnings company interest GROUP 2008 Balance at 1 January 2008 1 100 6,388 7,057 13,546 9,027 Prior year adjustment (note 46.2) - - 2,515 - 2,515 2,139 Restated opening balance 1 100 8,903 7,057 16,061 11,166 Total comprehensive income for the year: Profit or loss - - - 2,807 2,807 2,856 Other comprehensive income: Revaluation of property, plant and equipment - - 1,581 1 1,582 398 Transfer to loan loss reserve - - 99 (8) 91 - Foreign currency translation differences on foreign operations - - (5) - (5) - Reversal of accumulated depreciation - - - 12 12 - Assets disposal - - (32) 3 (29) - Income tax on other comprehensive income - - (521) - (521) (73) Total other comprehensive income - - 1,122 8 1,130 325 Total comprehensive income for the year - - 1,122 2,815 3,937 3,181 Transactions with owners, recorded directly in equity: Issue of shares - 1,997 - - 1,997 - Dividends to equity holders - - - (473) (473) (1,216) Total transactions with owners - 1,997 - (473) 1,524 (1,216) Balance at 31 December 2008 1 2,097 10,025 9,399 21,522 13,131
Total Equity
22,573 4,654 27,227 5,663 1,980 91 (5) 12 (29) (594) 1,455 7,118
1,997 (1,689) 308 34,653
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2009
CONSO L I D A TE D ST A TE M ENTS O F C H A N G ES IN E Q UIT Y

Other Issued Share reserves Retained capital premium (Note 36) earnings COMPANY 2009 Balance at 1 January 2009 - as restated 1 2,097 39,249 290 Total comprehensive income for the year: Profit for the year - - - 1,285 Other comprehensive income: Net change in fair value of available for sale financial assets - - (4,774) - Income tax on other comprehensive income - - 1,432 - Net effect of assets and liabilities taken over from subsidiary - - - (417) Total other comprehensive income - - (3,342) (417) Total comprehensive income for the year - - (3,342) 868 Transactions with owners, recorded directly in equity: Dividends to equity holders - - - (295) Balance at 31 December 2009 1 2,097 35,907 863 2008 Balance at 1 January 2008 1 100 17,804 734 Total comprehensive income for the year: Profit for the year - - - 29 Other comprehensive income: Net change in fair value of available for sale financial assets - - 30,636 - Prior year adjustment (note 46.1) - - (9,191) - Total other comprehensive income - as restated - - 21,445 - Total comprehensive income for the year - as restated - - 21,445 29 Transactions with owners, recorded directly in equity: Issue of shares Dividends to equity holders Balance at 31 December 2008 - as restated Attributable to equity holders of company
41,637 1,285
(4,774) 1,432 (417) (3,759) (2,474) (295) 38,868
18,639 29
30,636 (9,191) 21,445
21,474
- - - 1
1,997 - 1,997 2,097
- - - 39,249
- (473) (473) 290
1,997 (473) 1,524 41,637
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2009
CONSO L I D A TE D C A S H F L O W ST A TE M ENTS
Group Company Notes 2009 2008 2009 2008 As restated As restated Cashflows from/(to) operating activities Cash receipts from customers Cash paid to suppliers Cash flows from/(to) operating activities Interest paid 15 Income taxes paid Net cash from /(to) operating activities Cash flows from investing activities Proceeds from sale of property, plant and equipment Loans granted to subsidiary companies 25 Loans recovered from subsidiary companies - Interest received 15 Acquisition of shares in subsidiary - Dividends received - Net proceeds from disposal of subsidiary 8 Net proceeds from/(acquisition of) other investments 26 Acquisition of property, plant and equipment 19 Acquisition of investment property 21 Acquisition of intangible assets - software 20 Net cash (to) / from investing activities Cash flows from financing activities Proceeds from issue of share capital 35 Proceeds from long term borrowings external 37 Repayments of long term borrowings external 37 Dividend paid to minority Dividend paid to shareholders 45 Net cash (to)/from financing activities Net increase /(decrease) in cash and cash equivalents Cash and cash equivalents at 1 January Cash and cash equivalents at 31 December 33 ADDITIONAL STATUTORY REQUIREMENT Net movement in working capital 44,346 (26,280) 18,066 (615) (3,602) 13,849 169 - - 166 - - 37 1,656 (11,487) (9) (80) (9,548) - 2,070 (1,534) (1,750) (295) (1,508) 2,792 6,186 8,978 36,735 (23,689) 13,046 (760) (2,815) 9,471 123 - - 225 - - - (2,219) (8,146) (28) (5) (10,050) 1,997 1,063 (1,310) (1,216) (473) 61 (518) 6,704 6,186 2,477 (2,529) (52) (223) (155) (430) 9 (124) 544 122 (510) 1,560 - - (293) - - 1,308 - 194 (578) - (295) (679) 199 248 447 1,080 (1,432) (352) (423) (71) (846) (366) 15 152 900 701 1,997 (587) (473) 937 792 (544) 248
(8,820)
(233)
165
697
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NOTES TO T H E F IN A NCI A L ST A TE M ENTS

1 . R e p o r t i n g e n t i t y
Press Corporation Limited is a company incorporated in Malawi under the Malawi Companies Act, 1984. It was listed on the Malawi Stock Exchange in September 1998 and as a Global Depository Receipt on the London Stock Exchange in July 1998. The consolidated financial statements as at and for the year ended 31 December 2009 comprise the company and its subsidiaries and joint ventures together referred to as the Group and the Groups interest in associates. The address of its registered office and principal place of business are disclosed in the directors report together with principal activities of the company and its subsidiaries.
2 . B a s i s o f p r e pa r at i o n
2.1 Statement of compliance The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (IFRSs) as issued by the International Accounting Standards Board (IASB) and provisions of the Malawi Companies Act, 1984. 2.2 Basis of measurement The consolidated financial statements have been prepared on the historical cost basis except for the following material items in the statement of financial position: Financial instruments at fair value through profit or loss are measured at fair value. Biological assets are measured at fair value less costs to sell. Investment property is measured at fair value. Investments in subsidiaries and associates are measured at fair value in the company financial statements. Liabilities for cash-settled share-based payment arrangements are measured at fair value. Certain categories of property, plant and equipment are measured at fair value. The methods used to measure fair values are discussed further in Note 4. 2.3 Functional and presentation currency These consolidated financial statements are presented in Malawi Kwacha, which is the Groups functional and presentational currency. Except as indicated, all financial information presented in Malawi Kwacha has been rounded to the nearest million. 2.4 Use of estimates and judgments The preparation of consolidated financial statements requires management to make judgments, estimates and assumptions that affect the application of 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 accounting estimates are recognised in the period in which the estimate is revised and in any future periods affected. In particular, information about significant areas of estimation uncertainty and critical judgments in applying accounting policies that have the most significant effect on the amounts recognised in the financial statements are described in the following notes: Note 6 - Valuation of financial instruments Note 17 - Utilisation of tax losses Note 21 - Valuation of investment property Note 22 - Valuation of investments in subsidiaries Note 23 - Valuation of investments in associates Note 29 - Valuation of biological assets Note 38 - Provisions Note 42 - Contingent liabilities.
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2 . B a s i s o f p r e pa r at i o n ( c o n t i n u e d )
2.5 Change in accounting policies (i) Overview Starting as of 1 January 2009, the Group has changed its accounting policies in the following areas: Accounting for business combinations Accounting for acquisitions of non-controlling interests Accounting for borrowing costs Determination and presentation of operating segments Presentation of financial statements. (ii) Accounting for business combinations The Group has adopted early IFRS 3 Business Combinations (2008) and IAS 27 Consolidated and Separate Financial Statements (2008) for all business combinations occurring in the financial year starting 1 January 2009. All business combinations occurring on or after 1 January 2009 are accounted for by applying the acquisition method. The change in accounting policy is applied prospectively and had no material impact on earnings per share. Control is the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. In assessing control, the Group takes into consideration potential voting rights that currently are exercisable. The acquisition date is the date on which control is transferred to the acquirer. Judgement is applied in determining the acquisition date and determining whether control is transferred from one party to another. The Group measures goodwill as the fair value of the consideration transferred including the recognised amount of any non-controlling interest in the acquiree, less the net recognised amount (generally fair value) of the identifiable assets acquired and liabilities assumed, all measured as of the acquisition date. Consideration transferred includes the fair values of the assets transferred, liabilities incurred by the Group to the previous owners of the acquiree, and equity interests issued by the Group. Consideration transferred also includes the fair value of any contingent consideration and share-based payment awards of the acquiree that are replaced mandatorily in the business combination. If a business combination results in the termination of pre-existing relationships between the Group and the acquiree, then the lower of the termination amount, as contained in the agreement, and the value of the off-market element is deducted from the consideration transferred and recognised in other expenses. When share-based payment awards exchanged (replacement awards) for awards held by the acquirees employees (acquirees awards) relate to past services, then a part of the market-based measure of the awards replaced is included in the consideration transferred. If they require future services, then the difference between the amount included in consideration transferred and the market-based measure of the replacement awards is treated as post-combination compensation cost. A contingent liability of the acquiree is assumed in a business combination only if such a liability represents a present obligation and arises from a past event, and its fair value can be measured reliably. The Group measures any non-controlling interest at its proportionate interest in the identifiable net assets of the acquiree. Transaction costs that the Group incurs in connection with a business combination, such as finders fees, legal fees, due diligence fees, and other professional and consulting fees are expensed as incurred. (iii) Accounting for acquisitions of non-controlling interests The Group has adopted early IFRS 3 Business Combinations (2008) and IAS 27 Consolidated and Separate Financial Statements (2008) for acquisitions of non-controlling interests occurring in the financial year starting 1 January 2009. Under the new accounting policy, acquisitions of non-controlling interests are accounted for as transactions with equity holders in their capacity as equity holders and therefore no goodwill is recognised
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as a result of such transactions. Previously, goodwill was recognised arising on the acquisition of a noncontrolling interest in a subsidiary; and that represented the excess of the cost of the additional investment over the carrying amount of the interest in the net assets acquired at the date of exchange. The change in accounting policy was applied prospectively and had no material impact on earnings per share. (iv) Accounting for borrowing costs In respect of borrowing costs relating to qualifying assets for which the commencement date for capitalisation is on or after 1 January 2009, the Group capitalises borrowing costs directly attributable to the acquisition, construction or production of a qualifying asset as part of the cost of that asset. Previously the Group immediately recognised all borrowing costs as an expense. This change in accounting policy was due to the adoption of IAS 23 Borrowing Costs (2007) in accordance with the transitional provisions of such standard; comparative figures have not been restated. The change in accounting policy had no material impact on earnings per share. (v) Determination and presentation of operating segments As of 1 January 2009 the Group determines and presents operating segments based on the information that internally is provided to the CEO, who is the Groups chief operating decision maker. This change in accounting policy is due to the adoption of IFRS 8 Operating Segments. Previously operating segments were determined and presented in accordance with IAS 14 Segment Reporting. Comparative segment information has been re-presented in conformity with the transitional requirements of such standard. Since the change in accounting policy only impacts presentation and disclosure aspects, there is no impact on earnings per share. 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 Groups other components. An operating segments operating results are reviewed regularly by the CEO to make decisions about resources to be allocated to the segment and assess its performance, and for which discrete financial information is available. Segment results that are reported to the CEO include items directly attributable to a segment as well as those that can be allocated on a reasonable basis. Unallocated items comprise mainly corporate assets (primarily the Companys headquarters), head office expenses, and income tax assets and liabilities. Segment capital expenditure is the total cost incurred during the period to acquire property, plant and equipment, and intangible assets other than goodwill. (vi) Presentation of financial statements The Group applies revised IAS 1 Presentation of Financial Statements (2007), which became effective as of 1 January 2009. As a result, the Group presents in the consolidated statement of changes in equity all owner changes in equity, whereas all non-owner changes in equity are presented in the consolidated statement of comprehensive income. Comparative information has been re-presented so that it is also in conformity with the revised standard. Since the change in accounting policy only impacts presentation aspects, there is no impact on earnings per share.
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3 . S i g n i f i c a n t a c c o u n t i n g p o l i c i e s
The accounting policies set out below have been applied consistently to all periods presented in these consolidated financial statements, and have been applied consistently by Group entities, except as explained in note 2.5, which addresses changes in accounting policies. Certain comparative amounts have been reclassified to conform with the current years presentation, more especially comparatives in note 7, 19,22 and 23 3.1 Basis of consolidation i) Subsidiaries The consolidated financial statements include all subsidiaries that are controlled by the Company. Under the Malawi Companies Act, 1984 and International Accounting Standards 27, control is presumed to exist where the Company has power to govern the financial and operating policies of an entity so as to obtain benefits from its activities directly or indirectly; or the Company can appoint, or prevent the appointment, of not less than half of the directors of the subsidiary company. In assessing control, potential voting rights that are presently exercisable or convertible are taken into account. The financial statements of subsidiaries are included in the consolidated financial statements from the date that control commences until the date that control ceases. In the separate financial statements the investments are measured at fair value. These are valued on regular basis by external valuers. ii) Associates The consolidated financial statements include the Groups share of the total recognized gains and losses of associates on an equity accounted basis, from the date that significant influence commences until the date that significant influence ceases. Associated companies are those enterprises in which the Company or a subsidiary has a long-term interest of 20% or more of the voting power of the investee and has significant influence, but not control, over the financial and operating policies. Where associates have different yearends to the Company, management accounts are used after review for compliance with year-end procedures and group accounting policies. The Groups investment includes goodwill identified at acquisition, net of any accumulated impairment losses. The consolidated financial statements include the Groups share of the income and expenses and equity movements of equity accounted investees. When the Groups share of losses exceeds the carrying amount of the associate, the carrying amount is reduced to nil and recognition of further losses is discontinued except to the extent that the Group has incurred obligations or has made payment on behalf of the associates. In the separate financial statements the investments are measured at fair value. These are valued on regular basis by external valuers. iii) Jointly controlled entities Jointly controlled entities are those enterprises over whose activities the Group has joint control, established by contractual agreement and requiring unanimous consent for strategic financial and operating decisions. Investments in jointly controlled entities are accounted for using the proportionate consolidation method, whereby attributable share of assets, liabilities, revenues, expenses and cash flows of the jointly-controlled entities are combined on a line-by-line basis from the date that joint control commences until the date that joint control ceases.
2009
In the separate financial statements the investments are measured at fair value. These are valued on regular basis by external valuers. iv) Transactions eliminated on consolidation Intra-group balances and transactions, and any unrealised income and expenses arising from intra-group transactions, are eliminated in preparing the consolidated financial statements. Unrealised gains arising from transactions with associates and jointly controlled entities are eliminated to the extent of the Groups 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.
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v) Non-controlling interest Non-controlling interests in the net assets of consolidated subsidiaries are identified separately from the Groups equity therein. Non-controlling interests consist of the amount of those interests at the date of the original business combination and the non-controlling interests share of changes in equity since the date of the combination. Losses applicable to the non-controlling interest in excess of the non-controlling interest in the subsidiaries equity are allocated against the interests of the Group except to the extent that the noncontrolling interest has a binding obligation and is able to make an additional investment to cover the losses. If the subsidiary subsequently reports profits, such profits are allocated to the Group until the non-controlling interests share of losses previously absorbed by the Group has been recovered. vi) Business combinations The Group has changed its accounting policy with respect to accounting for business combinations. See note 2.5 for further details. 3.2 Foreign currency i) Foreign currency transactions Transactions in foreign currencies are translated to the respective financial currencies at the exchange rate ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies at the reporting date are translated to Malawi Kwacha at the exchange rate ruling at that date. Foreign exchange differences arising on translation are recognised in the profit or loss except for differences arising from retranslation of non-monetary available-for-sale instruments which are recognised in other comprehensive income. Non-monetary assets and liabilities that are measured in terms of historical cost in a foreign currency are translated using the exchange rate at the date of the transaction. Non-monetary assets and liabilities denominated in foreign currencies that are measured at fair value are translated to Malawi Kwacha at exchange rates ruling at the dates the fair value was determined. ii) Financial statements of foreign operations The assets and liabilities of foreign operations, including goodwill and fair value adjustments arising on acquisition, are translated to Malawi Kwacha at exchange rates ruling at the reporting date. The income and expenses of foreign operations are translated to Malawi Kwacha at average rates. Foreign exchange differences arising on retranslation are recognised in other comprehensive income. 3.3 Property, plant and equipment (i) Recognition and measurements Land, buildings and plant are measured at revalued amounts less accumulated depreciation and impairment losses. Items of motor vehicles, furniture and equipment are measured at cost less accumulated depreciation and impairment losses. Cost includes expenditures that are directly attributable to the acquisition of the asset. The cost of self-constructed assets includes the cost of material and direct labour, any other costs directly attributable to bringing the asset to a working condition for its intended use, and the costs of dismantling and removing the items and restoring the site on which they are located. Purchased software that is integral to the functionality of the related equipment is capitalised as part of that equipment. Interest and foreign exchange losses on loans which are utilized for the purchase of property, plant and equipment are capitalized until the commissioning of the related assets after which they are dealt with in the profit or loss. When 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. Gains and losses on disposal of an item of property, plant and equipment are determined by comparing the proceeds from disposal with the carrying amount of property, plant and equipment, and are recognised net within other operating income in profit or loss. When revalued assets are sold, the amounts included in the revaluation reserve are transferred to retained earnings.
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Annual Report
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3 . S i g n i f i c a n t a c c o u n t i n g p o l i c i e s ( C o n t i n u e d )
3.3 Property, plant and equipment (Continued) ii) Reclassification to investment properties Property that is being constructed for future use as investment property is accounted for as property, plant and equipment until construction or development is complete, at which time it is re-measured to fair value and reclassified as investment property. Any gain arising on re-measurement is recognised in other comprehensive income. When the use of a property changes from owner-occupied to investment property, the property is remeasured to fair value and reclassified as investment property. Any gain arising on re-measurement is recognised in other comprehensive income and presented in the revaluation reserve in equity. Any loss is recognised in other comprehensive income and presented in the revaluation reserve in equity to the extent that an amount had previously been included in the revaluation reserve relating to the specific property, with any remaining loss recognized immediately in the profit or loss. iii) Subsequent costs The cost of replacing a part of an item of property, plant and equipment is recognised in the carrying amount of the item if it is probable that the future economic benefit embodied within the part 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. iv) Revaluation Revaluations of property and plant are carried out by independent valuers with sufficient regularity such that the carrying amount does not differ materially from that which would be determined using fair values at the reporting date as economic conditions dictate. The basis of valuation used is current market value. Surpluses on revaluations are accounted for in the revaluation reserve. On realisation of the asset, the appropriate portion of the reserve is transferred to retained earnings. Revaluation decreases are charged to the profit or loss except to the extent that they relate to revaluation surpluses previously transferred to the revaluation reserve. An amount equivalent to the additional depreciation arising from revaluations is transferred annually, net of deferred tax, from the revaluation reserve to retained earnings. v) Depreciation Depreciation is recognised in profit or loss on a straight- line basis over the estimated useful lives of each part of an item of property, plant and equipment. Leased assets are depreciated over the shorter of the lease term and their useful lives. Land and assets under construction are not depreciated. The current estimated useful lives for the current and comparative periods are as follows: Buildings Plant, furniture and equipment Motor vehicles 40 - 50 years 2- 40 years 3- 5 years
The assets residual values, useful lives and depreciation method are reviewed and adjusted if appropriate, at each balance sheet date. v) Leased assets Leases in terms of which the Group assumes substantially all the risks and rewards of ownership are classified as finance leases. Plant and equipment acquired by way of finance lease are measured at an amount equal to the lower of its fair value and the present value of minimum lease payments at inception of the lease, less accumulated depreciation and impairment losses. Lease payments are accounted for as described in accounting policy 3.15.
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Annual Report

3.4 Intangible assets i) Goodwill Goodwill arising on an acquisition represents the excess of the cost of the acquisition over the net fair value of the identifiable assets, liabilities and contingent liabilities acquired. Goodwill is measured at cost less impairment losses. In respect of associates, the carrying amount of goodwill is included in the carrying amount of the investment in the associate. ii) Negative goodwill Negative goodwill arising on an acquisition represents the excess of the fair value of the net identifiable assets acquired over the cost of acquisition. Negative goodwill is recognised immediately in the profit or loss. iii) Computer software Acquired computer software that has a probable economic life exceeding one year is recognised as an intangible asset and is capitalised on the basis of the costs to acquire and bring to use the specific software. Computer software is amortised over its useful life. The estimated useful life is five years (Current and comparative years). iv) Other intangible assets Other intangible assets that are acquired by the Group are measured at cost less accumulated amortisation and impairment losses. The estimated useful live is five years. (Current and comparative years). v) Subsequent expenditure Subsequent expenditure on capitalised intangible assets is capitalised only when it increases the future economic benefits embodied in the specific asset to which it relates. All other expenditure is expensed as incurred. vi) Amortisation Amortisation is charged to the profit or loss on a straight-line basis over the estimated useful lives of intangible assets other than goodwill, from the date that they are available for use. Amortisation methods, useful lives and residual values are reviewed at each reporting date and adjusted if appropriate. 3.5 Biological assets Biological assets are measured at fair value less costs to sell, with any resultant gain or loss recognised in profit or loss. Costs to sell include all costs that would be necessary to sell the assets. The fair value of fish held for sale is based on the market price of fish of similar age, breed and genetic merit. 3.6 Investment property Investment property is property held either to earn rental income or for capital appreciation or for both. Investment property is measured at fair value with any change therein recognised in profit or loss. When the use of a property changes such that it is reclassified as property, plant and equipment, its fair value at the date of reclassification becomes its cost for subsequent accounting. 3.7 Leases Leases are classified as finance leases when the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee. All other leases are classified as operating leases i) The group as a lessor Amounts due from lessees under finance leases are recognised as receivables at the amount of the Groups net investment in the leases. Finance lease income is allocated to accounting periods so as to reflect a constant periodic rate of return on the companys net investment outstanding in respect of the leases. Rental income from operating leases is recognised on a straight-line basis over the term of the relevant leases. Initial direct costs incurred in negotiating and arranging an operating lease are added to the carrying amount of the leased asset and recognised as an expense on a straight-line basis over the lease term.
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Annual Report

3.7 Leases (continued) ii) The group as a lessee Assets held under finance leases are recognised as assets of the Group at their fair value at the inception of the lease or, if lower, at the present value of the minimum lease payments. The corresponding liability to the lessor is included in the statement of financial position as a finance lease obligation. Lease payments are apportioned between finance charges and reduction of the lease obligation so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are charged to profit or loss. Rentals payable under operating leases are charged to the income statement on a straight-line basis over the term of the relevant lease. Benefits received and receivable as an incentive to enter into an operating lease are also spread on a straight-line basis over the lease term. iii) Leased assets Leased assets are measured at an amount equal to the lower of its fair value and the present value of the minimum lease payments. Subsequent to initial recognition, the asset is accounted for in accordance with the accounting policy applicable to that asset. Other leases are operating leases and except for investment property, the leased assets are not recognised on the Groups statement of financial position. Investment property held under an operating lease is recognised on the Groups statement of financial position at its fair value. 3.8 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, and includes expenditure incurred in acquiring the inventories and bringing them to their existing location and condition. In the case of manufactured inventories and work in progress, cost includes an appropriate share of production overheads based on normal operating capacity. Net realisable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and selling expenses. The cost of items transferred from biological assets is their fair value less costs to sell at the date of transfer. 3.9 Impairment i) Financial assets A financial asset not carried at fair value through profit and loss is assessed at each reporting date to determine whether there is any objective evidence that it is impaired. A financial asset is considered to be impaired if objective evidence indicates that one or more events have had a negative effect on the estimated future cash flows of that asset, that can be estimated reliably. Objective evidence that financial assets (including equity securities) are impaired include default or delinquency by a debtor, restructuring of an amount owed on terms that the Group would not consider otherwise, indications that a debtor or issuer will enter bankruptcy, the disappearance of an active market for a security. In addition, for an investment in an equity security, a significant or prolonged decline in its fair value below its cost is objective evidence of impairment. An impairment loss in respect of a financial asset measured at amortised cost is calculated as the difference between its carrying amount, and the present value of the estimated future cash flows discounted at the original effective interest rate. An impairment loss in respect of an available-for-sale financial asset is calculated by reference to its current fair value. Individually significant financial assets are tested for impairment on an individual basis. The remaining financial assets are assessed collectively in groups that share similar credit characteristics.
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Annual Report
2009

All impairment losses are recognised in profit or loss. Any cumulative loss in respect of an available-for-sale financial asset recognised previously in other comprehensive income and presented in equity is transferred to profit or loss. An impairment loss is reversed if the reversal can be related objectively to an event occurring after the impairment loss was recognised. For financial assets measured at amortised cost and available-for-sale financial assets that are debt securities, the reversal is recognised in profit or loss. For available-for-sale financial assets that are equity securities, the reversal is recognised directly in other comprehensive income. ii) Non-financial assets The carrying amounts of the Groups non-financial assets, other than biological assets, investment property, inventories and deferred tax assets, are reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication exists then the assets recoverable amount is estimated. For goodwill and intangible assets that have indefinite lives or that are not yet available for use, the recoverable amounting is estimated at each reporting date. An impairment loss is recognised if the carrying amount of an asset or its cash generating unit exceeds its recoverable amount. A cash generating unit is the smallest identifiable asset group that generates cash flows that largely are independent from other assets or group of assets. Impairment losses are recognised in profit or loss. Impairment losses recognised in respect of cash generating units are allocated first to reduce the carrying amount of any goodwill allocated to the units and then to reduce the carrying amount of the other assets in the unit (group of units) on a pro rata basis. The recoverable amount of an asset or cash generating unit is the greater of its value in use and its fair value less costs to sell. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value and the risks specific to the asset. An impairment loss in respect of goodwill is not reversed. In respect of other assets, impairment losses recognised in prior periods are assessed at each reporting date for indications that the loss has decreased or no longer exists. An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the assets 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. Goodwill that forms part of the carrying amount of an investment in an associate is not recognized separately and therefore is not tested for impairment. Instead, the entire amount of investment in the associate is tested for impairment as a single asset when there is objective evidence that the investment in an associate may be impaired. 3.10 Non-current assets held for sale and discontinued operations Non-current assets and disposal groups are classified as held for sale if their carrying amount will be recovered through a sale transaction rather than through continuing use. This condition is regarded as being met only when the sale is highly probable and the asset (or disposal group) is available for immediate sale in its present condition. Immediately before classification as held for sale, the measurement of the assets and/or components of a disposal group are brought up-to-date in accordance with applicable IFRSs. Then, they are recognised at the lower of carrying amount and fair value less costs to sell. Impairment losses on assets held for sale are included in profit or loss. The same applies to gains and losses on subsequent remeasurement. A discontinued operation is a component of the Groups business that represents a separate major line of business or geographical area of operations that has been disposed or is held for sale, or is a subsidiary acquired exclusively with a view to resale.
2009
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Annual Report

3.10 Non-current assets held for sale and discontinued operations (continued) Classification as a discontinued operation occurs upon disposal or when the operation meets the criteria to be classified as held for sale, if earlier. When an operation is classified as a discontinued operations, the comparative statement of comprehensive income is represented as if the operations had been discontinued from the start of the comparative period. 3.11 Employee benefits The Group contributes to a number of defined benefit pension schemes on behalf of its employees, the assets of which are kept separate from the Group. Contributions to the Fund are based on a percentage of the payroll and are recognised as an expense in the profit or loss as incurred. Once the contributions have been paid, the group has no further payment obligations. i) Other long term employee benefits The Groups net obligation in respect of long-term employee benefits other than pension plans is the amount of future benefit that employees have earned in return for their service in the current and prior periods; that benefit is discounted to determine its present value, and the fair value of any related assets is deducted. ii) Termination benefits Termination benefits are recognised as an expense when the Group is committed demonstrably, without realistic possibility of withdrawal, to a formal detailed plan to terminate employment before the normal retirement date or to provide termination benefits as a result of an offer made to encourage voluntary redundancy. Termination benefits for voluntary redundancies are recognised if the Group has made an offer encouraging voluntary redundancy, it is probable that the offer will be accepted, and the number of acceptances can be estimated reliably. If benefits are payable more than 12 months after reporting period, they are discounted to their present value. iii) Short-term benefits Short-term employee benefit obligations are measured on an undiscounted basis and are expensed as the related service is provided. iv) Share-based payment transactions The grant date fair value of options granted to employees is recognised as an employee expense, with a corresponding increase in equity, over the period in which the employees become unconditionally entitled to the options. The amount recognised as an expense is adjusted to reflect the actual number of share options that vest. The fair value of the amount payable to employees in respect of share appreciation rights, which are settled in cash, is recognised as an expense, with a corresponding increase in liabilities, over the period in which the employees become unconditionally entitled to payment. The liability is remeasured at each reporting date and at settlement date. Any changes in the fair value of the liability are recognised as personnel expense in profit or loss. 3.12 Provisions A provision is recognised when the Group has a legal or constructive obligation as a result of a past event, and it is probable that an outflow of economic benefits will be required to settle the obligation. If the effect is material, provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and, where appropriate, the risks specific to the liability. The unwinding up of the discount is recognized as a discount. i) Restructuring A provision for restructuring is recognised when the Group has approved a detailed and formal restructuring plan, and the restructuring has either commenced or has been announced publicly. Costs relating to the ongoing activities of the Group are not provided for. Future operating losses are not provided for.
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Annual Report
2009

ii) Onerous contracts A provision for onerous contracts is recognised when the expected benefits to be derived by the Group from a contract are lower than the unavoidable cost of meeting its obligations under the contract. The provision is measured at the present value of the lower of the expected cost of terminating the contract and the expected net cost of continuing with the contract. Before a provision is established, the Group recognises any impairment loss on the assets associated with the contract. iii) Warranties A provision for warranties is recognised when the underlying products or services are sold. The provision is based on historical warranty data and a weighting of all possible outcomes against their associated probabilities. 3.13 Revenue Revenue represents amounts invoiced or sales otherwise made in the normal course of trade of the respective companies after deduction of Value Added Tax (VAT) and credit notes where applicable. Group revenue excludes sales between group companies. Dividends are recognised when the group is entitled thereto. i) Goods sold and services rendered 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 and allowances, trade discounts and volume rebates. Revenue from the sale of goods is recognized in the profit or loss when significant risks and rewards of ownership have been transferred to the buyer, recovery of the consideration is probable, the associated costs and possible return of goods can be estimated reliably, there is no continuing management involvement with the goods and the amount of revenue can be measured reliably. Revenue from services rendered is recognised in the profit or loss in proportion to the stage of completion of the transaction at the reporting date. The stage of completion is assessed by reference to surveys of work performed. No revenue is recognised if there are significant uncertainties regarding recovery of the consideration due, associated costs or the possible return of goods. ii) Services income Fees and commission are generally recognised on an accrual basis when the services have been provided. Fees and commission income, including account servicing fees, investment management fees, sales commission, placement fees and syndication fees, are recognised as the related services are performed. When a loan commitment is not expected to result in the draw-down of a loan, loan commitment fees are recognised on a straight-line basis over the commitment period. iii) Dividend income Dividend income for available-for-sale equities is recognised when the right to receive payment is established this is the ex-dividend date for equity securities. iv) Other revenue Revenue on other sales is recognised on the date all risks and rewards associated with the sale are transferred to the purchaser. Revenue on other services is recognised upon the performance of the contractual obligation.
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Annual Report
2009

3.14 Finance income and expense Finance income comprises interest income on funds invested, gains on the disposal of available-for-sale financial assets, changes in the fair value of financial assets at fair value through profit or loss, foreign currency gains, and gains on hedging instruments that are recognised through profit or loss. Interest income is recognised as it accrues, using the effective interest method. Finance expenses comprise interest expense on borrowings, unwinding of discount on provisions, foreign currency losses, changes in fair value of financial assets at fair value through profit or loss, impairment losses recognised on financial assets, and losses on hedging instruments that are recognised in profit or loss. Borrowing costs that are not directly attributable to the acquisition, construction or production of a qualifying asset are recognised in profit or loss using the effective interest method. 3.15 Share capital and dividends i) Share issue costs Incremental costs directly attributable to the issue of new shares or options or to the acquisition of a business are shown in equity as a deduction, net of tax, from the proceeds. ii) Dividends on ordinary shares Dividends on ordinary shares are recognised in equity in the period in which they are approved by the Companys shareholders. Dividends for the year that are declared after the reporting date are dealt with in note 46. iii) Dividend per share The calculation of dividend per share is based on the ordinary dividends recognised during the period divided by the number of ordinary shareholders on the register of shareholders on the date of payment. iv) Earnings per share The calculation of basic earnings per share is based on the profit or loss attributable to ordinary shareholders for the year and the weighted average number of shares in issue throughout the year. 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 for the effects of all dilutive potential ordinary shares, which comprise convertible notes and share options granted to employees. Where new equity shares have been issued by way of capitalisation or subdivision, the profit is apportioned over the shares in issue after the capitalisation or subdivision and the corresponding figures for all earlier periods are adjusted accordingly. v) Equity instruments Equity instruments issued by the Group are recorded at the proceeds received, net of direct issue costs. 3.16 Income tax Income tax on the profit or loss for the year comprises current and deferred tax. Income tax is recognised in profit or loss except to the extent that it relates to items recognised in other comprehensive income, in which case it is recognized in other comprehensive income. i) Current income tax Current income tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at the reporting date, and any adjustment to tax payable in respect of previous years. ii) Deferred tax Deferred tax recognized in respect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. The following temporary differences are not provided for: goodwill not deductible for tax purposes, the initial recognition of assets or liabilities that affect neither accounting nor taxable profit, and differences relating to investments
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Annual Report

in subsidiaries to the extent that they will probably not reverse in the foreseeable future. The amount of deferred tax is measured based on the expected manner of realisation or settlement of the carrying amount of assets and liabilities, using tax rates enacted or substantively enacted at the reporting date. 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 the same taxable entity, or on different tax entities, but that intend to settle current tax liabilities and assets on a net basis or their tax assets and liabilities will be realized simultaneously. A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which the asset can be utilized. Deferred tax assets are reviewed at each reporting date and reduced to the extent that it is no longer probable that the related tax benefit will be realised. Additional income taxes that arise from the distribution of dividends are recognised at the same time as the liability to pay the related dividend is recognised. 3.17 Government grants Government grants relating to the purchase of property, plant and equipment are included in non-current liabilities as deferred income and credited to the profit or loss on a straight-line basis over the expected lives of the related assets. All other grants of revenue nature are credited to the profit or loss in the year of receipt. 3.18 Financial assets The Group classifies its financial assets in the following categories: financial assets at fair value through profit or loss; loans and receivables; and available-for-sale financial assets. Management determines the classification of its investments at initial recognition. Purchases and sales of financial assets at fair value through profit or loss and available-for-sale are recognised on trade-date which is the date on which the Group commits to purchase or sell the asset. Loans and receivables are recognised when cash is advanced to the borrowers. Financial assets are initially recognised at fair value plus transaction costs for all financial assets not carried at fair value through profit or loss. Financial assets are derecognised when the rights to receive cash flows from the financial assets have expired or where the Group has transferred substantially all risks and rewards of ownership. (i) Financial assets at fair value through profit or loss This category has two sub-categories: financial assets held for trading, and those designated at fair value through profit or loss at inception. A financial asset is classified in this category if acquired principally for the purpose of selling in the short term or if so designated by management. Derivatives are also categorised as held for trading unless they are designated and effective hedging instrument. Financial assets at fair value through profit or loss are measured at fair value with changes in fair value recognised in profit or loss. (ii) Loans and advances to customers Loans and advances to customers are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They arise when the Group provides money, goods or services directly to a debtor with no intention of trading the receivable. Loans and advances to customers are subsequently measured at amortised cost using the effective interest method less any impairment losses.
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Annual Report
2009

3.18 Financial assets (continued) (iii) Available-for-sale Available-for-sale investments are those intended to be held for an indefinite period of time, which may be sold in response to needs for liquidity or changes in interest rates, exchange rates or equity prices and which do not meet the definition of fair value through profit or loss, loans and receivables or held-to-maturity financial assets. Shares in other companies are treated as trade investments and unlisted shares classified as available for sale are independently valued as economic conditions dictated. Listed shares are carried at market value. Gains and losses arising from changes in the fair value of available-for-sale financial assets are recognised in other comprehensive income, until the financial asset is derecognised or impaired at which time the cumulative gain or loss previously recognised in in other comprehensive income should be recognised in the profit or loss for interest bearing available for sale financial assets. However, interest calculated using the effective interest method is recognised in the profit or loss. Dividends on available-for-sale equity instruments are recognised in the profit or loss when the entitys right to receive payment is established. (iv) Trade and other receivables Trade and other receivables are measured at initial recognition at fair value including transaction cost, and are subsequently measured at amortised cost using the effective interest method. Appropriate allowances for estimated irrecoverable amounts (i.e. impairment losses) are recognised in the profit or loss when there is objective evidence that the asset is impaired. The allowance recognised is measured as the difference between the assets carrying amount and the present value of estimated future cash flows discounted at the effective interest rate computed at initial recognition. Trade and other receivables comprise inter-branch accounts, interest receivables, staff advances and other assets and are measured at their amortised cost less impairment losses (refer accounting policy 3.9). (vi) Cash and cash equivalents Cash and cash equivalents include notes and coins on hand, unrestricted balances held with central banks and highly liquid financial assets with original maturities of less than three months, which are subject to insignificant risk of changes in their fair value, and are used by the Bank in the management of its short-term commitments. Cash and cash equivalents are measured at amortised cost. Bank overdrafts that are payable on demand and form an integral part of the Groups cash management are included as a component of cash and cash equivalents for the purpose of the statement of cash flows. 3.19 Offsetting financial instruments Financial assets and liabilities are offset and the net amount reported in the statement of financial position when there is a legally enforceable right to offset the recognised amounts and there is an intention to settle on a net basis, or realise the assets and settle the liability simultaneously. 3.20 Sale and repurchase agreements Securities sold subject to repurchase agreements (repos) are reclassified in the financial statements as pledged assets when the transferee has the right by contract or custom to sell or repledge the collateral; the counterparty liability is included in amounts due to other banks, deposits from banks, other deposits or deposits due to customers, as appropriate. Securities purchased under agreements to resell (reverse repos) are recorded as loans and advances to other banks or customers, as appropriate. The difference between sale and repurchase price is treated as interest and accrued over the life of the agreements using the effective interest rate method. Securities lent to counterparties are also retained in the financial statements.
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Annual Report
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3.21 Derivative financial instruments Derivatives are initially recognised at fair value on the date on which a derivative contract is entered into and are subsequently remeasured at their fair value. Fair values are obtained from quoted market prices in active markets, including recent market transactions, and valuation techniques, including discounted cash flow models and option pricing models, as appropriate. All derivatives are carried as assets when fair value is positive and as liabilities when fair value is negative. Certain derivatives embedded in other financial instruments, such as the conversion option in a convertible bond, are treated as separate derivatives when their economic characteristics and risks are not closely related to those of the host contract and the host contract is not carried at fair value through profit or loss. These embedded derivatives are measure at fair value with changes in fair value recognised in the profit or loss. 3.22 Financial liabilities The accounting policies adopted for specific financial liabilities and equity instruments are set out below: i) Customer deposits and liabilities to other banks Customer deposits and liabilities to other banks are recognised initially at fair value, being their issue proceeds (fair value of consideration received) net of transaction costs incurred. These are subsequently measured at amortised cost; any difference between proceeds net of transaction costs and the redemption value is recognized in the profit or loss as interest over the period of the borrowings using the effective interest method. ii) Other liabilities Other liabilities are initially measured at fair value, and are subsequently measured at amortised cost, using the effective interest method. 3.23 Fiduciary activities The Group commonly acts as trustees and in other fiduciary capacities that result in the holding or placing of assets on behalf of individuals, trusts, retirement benefit plans and other institutions. These assets and income arising thereon are excluded from these financial statements, as they are not assets of the Group. 3.24 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 Groups other components. All operating segments operating results are reviewed regularly by the Groups CEO to make decisions about resources to be allocated to the segment and assess its performance, and for which discrete financial information is available (see note 2.5(v). 3.25 Financial guarantee contracts A financial guarantee contract is a contract that requires the issuer to make specified payments to reimburse the holder for a loss it incurs because a specified debtor fails to make payment when due in accordance with the original or modified terms of a debt instrument. These are initially measured at fair value and subsequently at the higher of the amount initially recognised less amortisation or the amount determined in accordance with IAS 37 Provisions, Contingent Liabilities and Contingent Assets. 3.26 Comparative information Where necessary, comparative figures have been adjusted to conform with changes in presentation in the current year.
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Annual Report

3.27 New standards and interpretations not yet adopted A number of new standards, amendments to standards and interpretations are not yet effective for the year ended 31 December 2009, and have not been applied in preparing these financial statements: Revised IFRS 3 Business Combinations (2008) incorporates the following changes: The definition of a business has been broadened resulting in more acquisitions being treated as business combinations All business combinations are accounted for by applying the acquisition method. The acquirer can elect to measure any non-controlling interest at fair value at the acquisition date, or at its proportionate interest in the fair value of the identifiable assets and liabilities of the acquiree, on a transaction-by-transaction basis. Subsequent recognition of deferred tax assets acquired in a business combination that did not satisfy the criteria for recognition at the acquisition date would be recognised in profit or loss. This standard applies prospectively to acquisitions with a date on or after the beginning of the first annual period beginning on or after 1 July 2009. The company is currently in the process of evaluating the potential effect of this revision.
mended IAS 27 Consolidated and Separate Financial Statements (2008) incorporates the following A changes: Changes in a parents ownership interest in a subsidiary after control is obtained that do not result in a loss of control are accounted for as equity transactions (i.e., transactions with owners in their capacity as owners). Accordingly, acquisitions of additional non-controlling interests are accounted for as equity transactions and disposals of equity interests while retaining control are accounted for as equity transactions; Transactions resulting in a loss of control would cause a gain or loss to be recognised in profit or loss; and Losses applicable to the non-controlling interests, including negative other comprehensive income, are allocated to non-controlling interests even if doing so causes the non-controlling interests to have a negative balance. This standard applies prospectively to acquisitions with a date on or after the beginning of the first annual period beginning on or after 1 July 2009. The company is currently in the process of evaluating the potential effect of this revision.
Revised IFRS 1 First-time Adoption of International Financial Reporting Standards (2008) The IASB issued a revised version of this standard with an improved structure but no changes to technical content. This is effective for period beginning on or after I July 2009. This will have no impact on the financial statements. mended IAS 39 Eligible Hedged Items-Amendments clarify how the principles that determine A whether a hedged risk or portion of cash flows is eligible for designation should be applied in particular situations. This is effective for period beginning on or after I July 2009. This will have no impact on the companys financial statements. FRIC 17 Distributions of Non-cash Assets to Owners provides guidance in respect of distributions of I non-cash assets to owners acting in their capacity as owners. Distributions within the scope of IFRIC 17 are measured at the fair value of the assets to be distributed. Any gain or loss on settlement of the liability for the dividend payable is recognised in profit or loss. The scope of IFRS 5 was expanded to include distributions of non-cash assets to owners. This is effective for period beginning on or after I July 2009 with prospective application.
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The company is currently in the process of evaluating the potential effect of this revision.
Amended IFRS 5 Non-current Assets Held for Sale and Discontinued Operations The amendments specify that: if an entity is committed to a plan to sell a subsidiary, then it would classify all of that subsidiarys assets and liabilities as held for sale when the held for sale criteria in paragraphs 6 to 8 of IFRS 5 are met; this applies regardless of the entity retaining an interest (other than control) in the subsidiary; and disclosures for discontinued operations are required by the parent when a subsidiary meets the definition of a discontinued operation. If an entity applies the IFRS 5 amendments to periods beginning before 1 July 2009, then it also applies amended IAS 27 (2008) at the same time. The amendments apply prospectively from the date the entity first applied IFRS 5, subject to the transition requirements in paragraph 45 of IAS 27 (2008). The company is currently in the process of evaluating the potential effect of this revision. mended IFRS 2 Share-based Payments and Revised IFRS 3 Business Combinations (2008) A clarify that business combinations as defined in IFRS 3 (2008) are outside the scope of IFRS 2, notwithstanding that they may be outside the scope of IFRS 3. Therefore business combinations amongst entities under common control and the contribution of a business upon the formation of a joint venture will not be accounted for under IFRS 2. This is effective for period beginning on or after I July 2009. The company is currently in the process of evaluating the potential effect of this revision.
Amended IAS 38 Intangible Assets clarify that: an intangible asset that is separable only together with a related contract, identifiable asset or liability is recognised separately from goodwill together with the related item; and complementary intangible assets with similar useful lives may be recognised as a single asset. The amendments also describe valuation techniques commonly used by entities when measuring the fair value of intangible assets acquired in a business combination for which no active market exists. These amendments apply prospectively for period beginning on or after I July 2009. Early application is required if IFRS 3 (2008) is adopted early. The company is currently in the process of evaluating the potential effect of this revision. IFRIC 9 Reassessment of Embedded Derivatives incorporates amendment to the scope so that embedded derivatives in contracts acquired in business combinations as defined in IFRS 3 (2008), joint venture formations and common control transactions remain outside the scope of IFRIC 9. The company is currently in the process of evaluating the potential effect of this revision. FRIC 16 Hedges of a Net Investment in a Foreign Operation- The amendments remove the restriction I that prevented a hedging instrument from being held by a foreign operation that itself is being hedged. These amendments apply prospectively for period beginning on or after I July 2009. The company is currently in the process of evaluating the potential effect of this revision. FRS 5 Noncurrent Assets Held for Sale and Discontinued Operations- The amendments clarify I that the required disclosures for non-current assets (or disposal groups) classified as held for sale or discontinued operations are specified in IFRS 5. The amendments apply prospectively for periods beginning on or after 1 January 2010. The company is currently in the process of evaluating the potential effect of this revision.
2009
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3.27 New standards and interpretations not yet adopted (continued) mended IFRS 8 Operating Segment -The amendments clarify that segment information with respect A to total assets is required only if such information is regularly reported to the chief operating decision maker. The amendments apply for periods beginning on or after 1 January 2010. The company is currently in the process of evaluating the potential effect of this revision. mended IAS 1 Presentation of Financial Statements -The amendments clarify that the classification A of the liability component of a convertible instrument as current or non-current is not affected by terms that could, at the option of the holder of the instrument, result in settlement of the liability by the issue of equity instruments. The amendments apply for periods beginning on or after 1 January 2010. The company is currently in the process of evaluating the potential effect of this revision. mended IAS 7 Statement of Cash Flows -The amendments clarify that only expenditures that A result in the recognition of an asset can be classified as a cash flow from investing activities. The amendments apply for periods beginning on or after 1 January 2010. The company is currently in the process of evaluating the potential effect of this revision. mended IAS 17 Leases -The amendments clarify that when a lease includes both the land and A building elements, an entity should determine the classification of each element based on paragraphs 7 13 of IAS 17, taking account of the fact that land normally has an indefinite economic life. The amendments apply for periods beginning on or after 1 January 2010. The company is currently in the process of evaluating the potential effect of this revision. mended IAS 36 Impairment of Assets -The amendments clarify that the largest unit to which A goodwill should be allocated is the operating segment level as defined in IFRS 8 before applying the aggregation criteria of IFRS 8. The amendments apply prospectively for periods beginning on or after 1 January 2010. The company is currently in the process of evaluating the potential effect of this revision.
2009
Amended IAS 39 Financial Instruments: Recognition and Measurement -The amendments: provide additional guidance on determining whether loan prepayment penalties result in an embedded derivative that needs to be separated; clarify that the scope exemption in IAS 39 paragraph 2(g) is restricted to forward contracts, i.e., not options, between an acquirer and a selling shareholder to buy or sell an acquiree that will result in a business combination at a future acquisition date within a reasonable period normally necessary to obtain any required approvals and to complete the transaction; and clarify that the gains or losses on a cash flow hedge should be reclassified from other comprehensive income to profit or loss during the period that the hedged forecast cash flows impact profit or loss. The amendments apply prospectively to all unexpired contracts from the date of adoption. The amendments apply for periods beginning on or after 1 January 2010. The company is currently in the process of evaluating the potential effect of this revision. mended IFRS 1 First-time Adoption of International Financial Reporting Standards Additional A Exemptions for First-time Adopters provide additional optional exemptions for first-time adopters of IFRSs that will:
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permit entities not to reassess the determination of whether an arrangement contains a lease if the same assessment as that required by IFRIC 4 was made under previous GAAP; and allow entities in the oil and gas industry to use their previous GAAP carrying amounts as deemed cost at the date of transition for oil and gas assets. The amendments apply for periods beginning on or after 1 January 2010. The amendment will have no impact on the 2010 groups financial statements. The company is currently in the process of evaluating the potential effect of this revision. mended IFRS 2 Share-based Payment Group Cash-settled Share based Payment Transactions. A The amendment will require an entity receiving goods or services (receiving entity) in either an equity-settled or a cash-settled share-based payment transaction to account for the transaction in its separate or individual financial statements. This principle even applies if another group entity or shareholder settles the transaction (settling entity) and the receiving entity has no obligation to settle the payment. Retrospective application is subject to the transitional requirements in IFRS 2. mended IAS 32 Financial Instruments: Presentation Classification of Rights Issues -The A amendment will allow rights, options or warrants to acquire a fixed number of the entitys own equity instruments for a fixed amount of any currency to be classified as equity instruments provided the entity offers the rights, options or warrants pro rata to all of its existing owners of the same class of its own non-derivative equity instruments. The amendments apply for periods beginning on or after 1 February 2010. The company is currently in the process of evaluating the potential effect of this revision. FRIC 19 Extinguishing Financial Liabilities with Equity Instruments This interpretation provides I guidance on the accounting for debt for equity swaps. The amendments apply for periods beginning on or after 1 July 2010 The company is currently in the process of evaluating the potential effect of this revision. evised IAS 24 Related Party Disclosures (2009) - The revised standard amends the definition of R a related party and modifies certain related party disclosure requirements for government-related entities. The amendments apply for periods beginning on or after 1 July 2011. The company is currently in the process of evaluating the potential effect of this revision. mendments to IFRIC 14 IAS 19 The Limit on a Defined Benefit Assets, Minimum Funding A Requirements and their Interaction. These amendments remove unintended consequences arising from the treatment of prepayments where there is a minimum funding requirement. These amendments result in prepayments of contributions in certain circumstances being recognised as an asset rather than an expense. The amendments apply for periods beginning on or after 1 July 2011. The company is currently in the process of evaluating the potential effect of this revision. FRS 9 Financial Instruments -IFRS 9 replaces IAS 39 and retains but simplifies the mixed I measurement model and establishes two primary measurement categories for financial assets: amortised cost and fair value. The basis of classification depends on the entitys business model and the contractual cash flow characteristics of the financial asset. The guidance in IAS 39 on impairment of financial assets and hedge accounting continues to apply. The amendments apply for periods beginning on or after 1 July 2013.Prior periods need not be restated if an entity adopts the standard for reporting periods beginning before 1 January 2012. The company is currently in the process of evaluating the potential effect of this revision.
2009
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Annual Report

4 . C r i t i c al a c c o u n t i n g j u dg e m e n t s a n d k e y s o u r c e s o f e s t i ma t i o n u n c e r t a i n t y
4.1 Determination of fair values A number of the Groups accounting policies and disclosures require the determination of fair value, for both financial and non-financial assets and liabilities. Fair values have been determined for measurement and / or disclosure purposes based on the following methods. Where applicable, further information about the assumptions made in determining fair values is disclosed in the notes specific to the asset or liability. i) Derivatives The best evidence of the fair value of a derivative at initial recognition is the transaction price (i.e. the fair value of the consideration given or received) unless the fair value of that instrument is evidenced by comparison with other observable current market transactions in the same instrument (i.e. without modification or repacking) or based on a valuation technique whose variables include only data from observable markets. ii) Property, plant and equipment The fair value of property, plant and equipment recognised as a result of a business combination is based on market values. The market value of property is the estimated amount for which a property could be exchanged on the date of valuation between a willing buyer and a willing seller in an arms length transaction after proper marketing wherein the parties had each acted knowledgeably, prudently and without compulsion. The market value of items of plant, equipment, fixtures and fittings is based on the quoted market prices for similar items. iii) Biological assets The fair value of fish older than 9 months, being the age at which it becomes marketable, is based on the market price. The fair value of mother fish is based on the market price of fish of similar age, breed and genetic make-up. The fair value of younger fish is based on the present value of the net cash flows expected to be realised at maturity. iv) Investment property An external, independent valuation company, having appropriate recognised professionals qualifications and recent experience in the location and category of property being valued, values the Group investment property every year. The fair values are based on market values, being the estimated amount for which a property could be exchanged for on the date of the valuation between a willing buyer and a willing seller in an arms length transactions after proper marketing wherein the parties had each acted knowledgeably, prudently and without compulsion. v) Non-derivative financial liabilities Fair value, which is determined for disclosure purposes, is calculated on the present value of future principal and interest cash flows, discounted at the market rate of interest at the reporting date. 4.2 Impairment losses on loans and advances The Group reviews its loan portfolios to assess impairment at least on a quarterly basis. In determining whether an impairment loss should be recorded in the profit or loss, the Group makes judgements as to whether there is any observable data indicating that there is a measurable decrease in the estimated future cash flows from a portfolio of loans before the decrease can be identified with an individual loan in that portfolio. This evidence may include observable data indicating that there has been an adverse change in the payment status of borrowers in a group, or national or local economic conditions that correlate with defaults on assets in the group. Management uses estimates based on historical loss experience for assets with credit risk characteristics and objective evidence of impairment similar to those in the portfolio when scheduling its future cash flows. The methodology and assumptions used for estimating both the amount and timing of future cash flows are reviewed regularly to reduce any differences between loss estimates and actual loss experience.
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Key assumptions used: a) Cash flows arising from repayment agreement are aggregated over yearly intervals of 12 months and assumed to arise at the end of the period; b) Where there is an agreement but no security in place and cash flows in the subsequent years are doubtful total future estimated cash flows are assumed to be nil; c) Unsupported guarantees are assumed to result in nil cash flows; d) No cash flows are assumed to arise where there is no repayment agreement and no security and repayments are erratic or unpredictable; and e) Cash flows arising from security realisation have been assumed to arise at the end of the calendar year in which they are expected. 4.3 Held to maturity investments The Group follows the guidance of IAS 39 on classifying non-derivative financial assets with fixed or determinable payments and fixed maturity as held to maturity. This classification requires significant judgment. In making this judgment, the Group evaluates its intention and ability to hold such investments to maturity. If the Group fails to keep these investments to maturity other than for the specific circumstancesfor example, selling an insignificant amount close to maturity- it will be required to reclassify the entire class as available for sale. 4.4 Income taxes The Group is subject to income taxes in numerous jurisdictions. Significant judgement is required in determining the worldwide provision for income taxes. There are many transactions and calculations for which the ultimate tax determination is uncertain. The Group recognises liabilities for anticipated tax audit issues based on estimates of whether additional taxes will be due. Where the final tax outcome of these matters is different from the amounts that were initially recorded, such differences will impact the current and deferred income tax assets and liabilities in the period in which such determination is made.
5 . S t a t u t o r y r e q u i r e m e n t s
In accordance with Section 27 of the Banking Act, 1989, the Reserve Bank of Malawi has established the following requirements as at the reporting date related to the Groups banking business: 5.1 Liquidity reserve requirement The Groups banking business is required to maintain a liquidity reserve with the Reserve Bank of Malawi equivalent to not less than 15.5% (2008: 15.5%) of total customer deposits. At the end of the year, the liquidity reserve was equivalent to 15.5% (2008: 15.5%) of total customer deposits. (i) Capital adequacy requirement as per Section 15(2) of the Banking Act, 1989 The Banks available capital is required to be a minimum of 10% (2008: 10%) of its risk bearing assets and contingent liabilities. At the end of the year the Banks available capital was 23% (2008: 21%) of its risk bearing assets and contingent liabilities. (ii) Prudential aspects of bank liquidity As a complement to Section 27 of the Banking Act, 1989, the Reserve Bank of Malawi had issued the following guidelines on the management of liquidity as at the reporting date: Liquidity Ratio I - Net liquidity (total liquid asset less suspense accounts in foreign currency) divided by total deposits must be at least 30%. iquidity Ratio II - Net liquidity (total liquid assets less suspense accounts in foreign currency and L cheques in the course of collection) divided by total deposits must be at least 20%.
At the end of the year, the Banks liquidity ratio I was 35% (2008: 54%) and liquidity ratio II was 35% (2008: 54%).
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2009

5 . S t a t u t o r y r e q u i r e m e n t s ( c o n t i n u e d )
5.2 Regulatory capital The Reserve Bank of Malawi sets and monitors capital requirements for the Groups banking business as a whole. Regulatory capital requirement is the minimum amount of capital required by the Reserve Bank of Malawi, which if not maintained will usually permit or require supervisory intervention. In implementing current capital requirements, The Reserve Bank of Malawi requires the Groups banking business to maintain a prescribed ratio of total capital to total risk-weighted assets. The minimum capital ratios are as follows: A core capital (Tier 1) of not less than 6% of total risk-weighted on statement of financial position assets plus risk-weighted off statement of financial position items. A total capital (Tier 2) of not less than 10% of its total risk-weighted on statement of financial position assets plus risk-weighted off statement of financial position items. The Groups regulatory capital is analysed into two tiers: ore capital (Tier 1) which consists of ordinary share capital, share premium, retained profits, 60% C of after-tax profits in the current year (or less 100% of current year loss), less any unconsolidated investment in financial companies. otal capital (Tier 2), which consists of revaluation reserves and general provisions, when such general T provisions have received prior approval of the Reserve Bank of Malawi. Supplementary capital must not exceed core capital i.e. shall be limited to 100% of total core capital.
Banking operations are categorised as either trading book or banking book and risk-weighted assets are determined according to specified requirements that seek to reflect the varying levels of risk attached to assets and off statement of financial position exposures. The Board of Directors is responsible for establishing and maintaining at all times an adequate level of capital. The Groups policy is to maintain a strong capital base so as to maintain investor, creditor and market confidence and to sustain future development of the business. The impact of the level of capital on shareholders return is also recognised and the Group recognises the need to maintain a balance between the higher returns that might be possible with greater gearing and the advantages and security afforded by a second capital position. The Group and individually regulated operations have complied with all externally imposed capital requirements throughout the period. The Group also complied with these requirements in prior years. There have been no material changes in the Groups management of capital during the period.
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The Groups banking business regulatory capital position at 31 December was as follows: Tier 1 capital Ordinary share capital Share premium Retained earnings Loan loss reserve Unconsolidated investments Tier 2 capital Revaluation reserve Total regulatory capital Risk-weighted assets Retail bank, corporate bank and treasury Total risk-weighted assets Capital ratios Total regulatory capital expressed as a percentage of total risk-weighted assets Total tier 1 capital expressed as a percentage of risk-weighted assets 2009 466 563 7,363 375 (19) 8,748 1,654 10,402 2008 457 49 6,077 255 (19) 6,819 1,640 8,459
45,584 45,584
33,498 33,498
22.8%
25.3%
19.2 %
20.4%
6 . F i n a n c i al r i s k ma n ag e m e n t
Overview The Group has exposure to the following risks from its transactions in financial instruments: Credit risk Liquidity risk Market risk. Operational risks
This note presents information about the Groups exposure to each of the above risks, the Groups objectives, policies and processes for identification, measurement, monitoring and controlling risk, and the Groups management of capital. Risk management framework The Groups approach to risk management is based on a well-established governance process and relies both on individual responsibility and collective oversight, supported by comprehensive reporting. This approach balances stringent corporate oversight with independent risk management structures within the business units. The Board of Directors has overall responsibility for the establishment and oversight of the Groups risk management framework. The Board develops the risk appetite and risk tolerance limits appropriate to the Groups strategy and requires that management maintains an appropriate system of internal controls to ensure that these risks are managed within the agreed parameters. The Board delegates risk related responsibilities to three Board Committees, the Credit Committee, the Audit Committee and the Appointments and Remuneration Committee, in addition to Management Committees such as the Asset and Liability (ALCO), Credit and Security Committees, which are all responsible for developing and monitoring Group risk management policies in their specified areas. All Board Committees have non-executive members and report regularly to the Board of Directors on their activities.
2009
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Annual Report

6 . F i n a n c i al r i s k ma n ag e m e n t ( c o n t i n u e d )
The Groups risk management policies are established to identify and analyse the risks faced by the Group, to set appropriate risk limits and controls, and to monitor risks and adherence to limits. Risk management policies and systems are reviewed regularly to reflect changes in market conditions, products and services offered. The Group strives to maintain a disciplined and constructive control environment, in which all employees understand their roles and obligations. The Board Audit Committee is responsible for monitoring compliance with the Groups risk management policies and procedures, and for reviewing the adequacy of the risk management framework in relation to the risks faced by the Group. The Board Audit Committee is assisted in these functions by the Risk and Compliance Division which undertakes both regular and ad-hoc reviews of risk management controls and procedures, the results of which are reported to the Board Audit Committee. 6.1 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 Groups receivables from customers, loans and advances, investment securities and cash and cash equivalents. i) Trade and other receivables The Groups exposure to credit risk is influenced mainly by the individual characteristics of each customer. However, geographically there is no concentration of credit risk. The Group has established a credit policy under which each new customer is analysed individually for creditworthiness before the Groups standard payment and delivery terms and conditions are offered. The Groups review includes external ratings, when available, and in some cases bank references. Purchase limits are established for each customer, which represents the maximum open amount without requiring approval from the credit control department; these limits are reviewed regularly. Customers that fail to meet the Groups benchmark creditworthiness may transact with the Group only on a prepayment or cash basis. Most of the Groups customers have been transacting with the Group for over many years, and losses have occurred infrequently. In monitoring customer credit risk, customers are grouped according to their credit characteristics, including whether they are an individual or legal entity, whether they are a wholesale, retail or end-user customer, industry, aging profile, maturity and existence of previous financial difficulties. Customers that are graded as high risk are placed on a restricted customer list, and future sales are made on a prepayment or cash basis. The Group does not require collateral in respect of credit sales. The Group establishes an allowance for impairment that represents its estimate of incurred losses in respect of trade and other receivables and investments. The main components of this allowance are a specific loss component that relates to individually significant exposures, and a collective loss component established for groups of similar assets in respect of losses that have been incurred but not yet identified. The collective loss allowance is determined based on historical data of payment statistics for similar financial assets. (ii) Investments The Group limits its exposure to credit risk by only investing in liquid securities and only with counterparties that have a good credit rating and ventures into profitable businesses. Given these high credit ratings, a track record of profitable business management does not expect any counterparty to fail to meet its obligations. (iii) Loans and advances Loans and advances are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market and that the Groups banking business does not intend to sell immediately or in the near term.
2009
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Annual Report

When the Groups banking business is the lessor in a lease agreement that transfers substantially all of the risks and rewards incidental to ownership of an asset to the lessee, the arrangement is presented within loans and advances. When the Groups banking business purchases a financial asset and simultaneously enters into an agreement to resell the asset (or a substantially similar asset) at a fixed price on a future date (reverse repo or stock borrowing), the arrangement is accounted for as a loan or advance, and the underlying asset is not recognised in the Banks financial statements. Loans and advances are initially measured at fair value plus incremental direct transaction costs, and subsequently measured at their amortised cost using the effective interest method, except when the Groups banking business chooses to carry the loans and advances at fair value through profit or loss. (iv) Cash and cash equivalents The Groups banking business deposits its cash with the Reserve Bank of Malawi and other highly reputable banks in and outside Malawi. (v) Guarantees The Groups policy is to provide financial guarantees only to wholly-owned subsidiaries. At 31 December 2009 no guarantees were outstanding (2008: none). 6.1(a) Exposure of credit risk Maximum exposure to credit risk without taking into account any collateral or other credit enhancements. The table below shows the maximum exposure to credit risk by class of financial instrument. Financial instruments include financial instruments defined and recognised under IAS 39 Financial Instruments: Recognition and Measurement as well as other financial instruments not recognised. The maximum exposure is shown gross, before the effect of mitigation through the use of master netting and collateral agreements. Gross maximum exposure Long term loans receivable - Group Available-for-sale financial assets Trade and other receivables Loans and advances to customers Cash and cash equivalents Total recognised financial instruments Gurarantees and performance bonds Loan commitments and other credit facilities Total unrecognised financial instruments Total credit exposure Group 2009 - 16,860 12,971 35,738 11,095 76,664 3,461 7,992 11,453 88,117 2008 - 18,792 16,094 24,807 6,916 66,609 2,560 12,213 14,773 81,382 2009 Company 2008 821 41,821 259 301 43,202 43,202
2009
401 48,185 349 - 502 49,437 - - - 49,437
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6.1 Credit risk (continued) 6.1(b) Net exposure to credit risk without taking into account any collateral or other credit In respect of certain financial assets, the Group has legally enforceable rights to offset them with financial liabilities. However, in normal circumstances, there would be no intention of settling net, or of realising the financial assets and settling the financial liabilities simultaneously. Consequently, the financial assets are not offset against the respective financial liabilities for financial reporting purposes. However, the exposure to credit risk relating to the respective financial assets is mitigated as follows: Carrying amount Offset GROUP At 31 December 2009 Available-for-sale financial assets 16,860 - Trade and other receivables 12,971 - Loans and advances to customers 35,738 - Cash and cash equivalents 11,095 - 76,664 - At 31 December 2008 Available-for-sale financial assets Trade and other receivables Loans and advances to customers Cash and cash equivalents COMPANY At 31 December 2009 Long term loans receivable - Group Available-for-sale financial assets Trade and other receivables Cash and cash equivalents At 31 December 2008 Long term loans receivable Group Available-for-sale financial assets Trade and other receivables Cash and cash equivalents Net exposure to credit risk
16,860 12,971 35,738 11,095 76,664
18,792 16,094 24,807 6,916 66,609
- - (1,183) - (1,183)
18,792 16,094 23,624 6,916 65,426
401 48,185 349 502 49,437
- - - - -
401 48,185 349 502 49,437
821 41,821 259 301 43,202
- - - - -
821 41,821 259 301 43,202
2009
The Groups credit risk is primarily attributed to credit sales made to customers, overdraft and other loan facilities extended to its customers. The amounts presented in the statement of financial position are net of provisions for impairment as shown above. The specific provision represents allowances for estimated irrecoverable amounts when there is objective evidence that the asset is impaired. The credit risks on balances with banks, treasury bills and local registered stocks are limited because the counterparties are institutions with high credit ratings
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6.1(c) Credit quality of loans and advances The credit quality of loans and advances is managed by the Group using internal credit rating. The table below shows the credit quality of the loans and advances, based on the Groups credit rating system. GROUP Loans and advances Individually impaired Grade 8: Impaired Grade 9: Impaired Gross amount Allowance for impairment Carrying amount Km 2009 Km 2008
187 385 572 (461) 111
245 285 530 (352) 178
Past due but not impaired Grade 7: Watch list Neither past due nor impaired Grade 1-3 Low risk Grade 4-6 Fair risk Total carrying amount Past due comprises: 30 60 days
1 16,696 18,930 35,738
11 9,877 14,741 24,807
11
Impaired loans and advances Impaired loans and advances are loans and advances for which the Group determines that it is probable that it will be unable to collect all principal and interest due according to the contractual terms of the loan / advances agreement(s). These loans are graded 8 to 9 in the Groups internal credit risk grading system. Past due but not impaired loans These are loans and advances where contractual interest of principal payments are past due but the Group believes that impairment is not appropriate on the basis of the level of security / collateral available and / or the stage of collection of amounts owed to the Group. Allowance for impairment The Group establishes an allowance for impairment losses that represents its estimate of incurred losses in its loan portfolio. The main components of this allowance are a specific loss component that relates to individual significant exposures. Write off policy The Group writes off a loan balance (and any related allowances for impairment losses) when it is determined that the loans are uncollectible. This determination is reached after considering information such as the occurrence of significant changes in the borrower / issuers financial position such that the borrower / issuer can no longer pay the obligation, or that proceeds from collateral will not be sufficient to pay back the entire exposure.
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Annual Report
2009

6.1 Credit risk (continued) 6.1(c) Credit quality of loans and advances (continued) Set out below is an analysis of the gross and net (of allowances for impairment) amounts of individually impaired assets by risk grade.
Loans and advances to customers
Allowance for Gross Impairment GROUP 31 December 2009 Grade 8: Individually impaired 187 (136) Grade 9: Individually impaired 385 (325) Total 31 December 2008 Grade 8: Individually impaired Grade 9: Individually impaired Total 572 (461)
Net
51 60 111
245 285 530
(210) (142) (352)
35 143 178
The Group holds collateral against loans and advances to customers in the form of mortgage interests over property, cash, equities, registered securities over assets, guarantees and other forms of collateral. Estimates of fair value are based on the value of collateral assessed at the time of borrowing, and generally are not updated except when a loan is individually assessed as impaired. Collateral generally is not held over loans and advances to banks, except when securities are held as part of reverse repurchase and securities borrowing activity.
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Annual Report
2009

An estimate of the fair value of collateral and other security enhancements held against financial assets is shown below: GROUP Against individually impaired Motor vehicles Commercial property Residential property Cash Equities Government guarantees Bank guarantees Total
2009
2008
4,975 7,358 3,124 2,861 239 11,463 473 30,493
3,898 4,510 1,915 1,183 106 6,500 266 18,378
Collateral repossessed It is the Groups policy to dispose of repossessed properties in an orderly fashion. The proceeds are used to reduce or repay the outstanding loan balance. In general the Group does not occupy repossessed properties for business use. The Group monitors its banking business concentrations of credit risk by sector. An analysis of concentrations of credit risk at the reporting date is shown below: Concentration by sector Agriculture Finance and Insurance Manufacturing Other Personal Wholesale and Retail Concentration by sector percentage Agriculture Finance and Insurance Manufacturing Other Personal Wholesale and retail Loans and advances to customers 2009 2008 1,603 2,163 4,679 18,545 7,280 1,468 35,738 % 4.4 6.1 13.1 51.9 20.4 4.1 100 2,684 2,980 1,890 8,424 7,007 1,822 24,807 % 10.8 12.0 7.6 33.9 28.2 7.5 100.0
Credit quality of investment securities The risk that counterparties to trading instruments might default on their obligations is monitored on an ongoing basis. In monitoring credit risk exposure, consideration is given to trading instruments with a positive fair value and the volatility of the fair value of trading instruments. Credit quality of other financial assets To manage the level of credit risk, the Group deals with counterparties of good credit standing, enters into master netting agreements wherever possible, and when appropriate, obtains collateral. Master netting agreements provide for the net settlement of contracts with the same counterparty in the event of default.
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2009

6.2 Liquidity risk Liquidity risk is the risk that the Group will encounter difficulty in meeting obligations from its financial liabilities as they fall due. (i) Management of liquidity risk The Groups approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Groups reputation. The daily management of liquidity of the Groups banking business is entrusted with the Treasury Division at Head Office. Treasury Division receives information from other business units regarding the liquidity profile of their financial assets and liabilities and details of other projected cash flows arising from projected future business. Treasury Division then maintains a portfolio of short-term liquid assets, largely made up of shortterm liquid investment securities, loans and advances to banks and other inter-bank facilities, to ensure that sufficient liquidity is maintained within the Group as a whole. The liquidity requirements of business units are funded through deposits from customers. Any short-term fluctuations are funded through treasury activities such as inter-bank facilities, repurchase agreements and others. Treasury Division monitors compliance of all operating units of the Group with local regulatory limits on a daily basis. The daily liquidity position is monitored and regular liquidity stress testing is conducted under a variety of scenarios covering both normal and more severe market conditions. All liquidity policies and procedures are subject to review and approval by Asset and Liability Committee (ALCO). Daily reports cover the liquidity position of both the Group and operating units. A summary report, including any exceptions and remedial action taken, is submitted regularly to ALCO. (ii) Exposure to liquidity risk The key measure used by the Group for managing liquidity risk is the ratio of net liquid assets to deposits from customers. For this purpose net liquid assets are considered as including cash and cash equivalents and investment securities for which there is an active and liquid market less any deposits from banks, other borrowings and commitments maturing within the next month. A similar, but not identical, calculation is used to measure the Groups compliance with the liquidity limit established by the Reserve Bank of Malawi. Details of the reported Group banking business ratio of net liquid assets to deposits and customers at the reporting date and during the reporting period were as follows: At 31 December Average of the period Maximum for the period
2009
2009 34% 41% 53% 34%
2008 54% 54% 67% 43%
Minimum for the period
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Annual Report

The following are the contractual maturities of financial liabilities, including estimated interest payments and excluding the impact of netting agreements: GROUP At 31 December 2009 Bank overdraft Loans and borrowings Liabilities to customers Liabilities to other banks Trade and other payables Total financial liabilities At 31 December 2008 Bank overdraft Loans and borrowings Liabilities to customers Liabilities to other banks Trade and other payables Total financial liabilities COMPANY At 31 December 2009 Bank overdraft Loans and borrowings Trade and other payables Total financial liabilities At 31 December 2008 Bank overdraft Loans and borrowings Trade and other payables Total financial liabilities Less than 1 month
1-3 months
3-12 months
Over Carrying 1 year Total amount
2,117 - 45,621 258 3,551 51,547
- - 6,372 - 537 6,909
- 1,638 93 - 10,871 12,602
- 5,675 - - 1,474 7,149
2,117 7,313 52,086 258 16,433 78,207
2,117 7,313 52,086 258 16,433 78,207
730 - 39,484 1,900 8,352 50,466
- - 5,039 - 1,207 6,246
- 1,534 107 - 1,968 3,609
- 4,774 - - - 4,774
730 6,308 44,630 1,900 11,527 65,095
730 6,308 44,630 1,900 11,527 65,095
55 - 220 275
- - - -
- 502 - 502
- 1,392 - 1,392
55 1,894 220 2,169
55 1,894 220 2,169
53 - 121 174
- - - -
- 482 - 482
- 1,788 - 1,788
53 2,270 121 2,444
53 2,270 121 2,444
6.3 Market risk Market risk is the risk that changes in market prices, such as foreign exchange rates, interest rates and equity and commodity prices will affect the Groups 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 on risk. The Group buys and sells derivatives, and also incurs financial liabilities, in order to manage market risks. All such transactions are carried out within the guidelines set by the Groups Audit Committee.
2009
79
Annual Report

6.3 Market risk (continued) 6.3(a) Currency risk The Group is exposed to currency risk on sales, purchases and borrowings that are denominated in a currency other than the functional currencies of Group entities, primarily U.S. Dollars (USD) and South African Rand. The currencies in which these transactions primarily are denominated are USD and South African Rand. The principal amounts of the Groups USD bank loans, taken out by Group entities, have been fully hedged using forward contracts that mature on the same dates that the loans are due for repayment. Interest on borrowings is denominated in currencies that match the cash flows generated by the underlying operations of the Group, primarily USD. This provides an economic hedge and no derivatives are entered into. In respect of other monetary assets and liabilities denominated in foreign currencies, the Group ensures that its net exposure is kept to an acceptable level by buying or selling foreign currencies at spot rates when necessary to address short-term imbalances. The Groups investments in subsidiaries are not hedged as those currency positions are considered to be long-term in nature. The Group had the following significant foreign currency positions: GROUP At 31 December 2009 Financial assets Available-for-sale financial assets Cash and cash equivalents Loans and advances to customers Trade and other receivables Total financial assets Financial liabilities Bank overdraft Loans and borrowings Liabilities to customers Liabilities to other banks Trade and other payables Total financial liabilities Net balance open position At 31 December 2008 Financial assets Available-for-sale financial assets Cash and cash equivalents Loans and advances to customers Trade and other receivables Total financial assets
2009
MK Km
USD Km
GBP Km
EURO Km
ZAR Km
OTHER Km
TOTAL Km
16,860 8,562 30,744 12,755 68,921
- 1,036 4,994 164 6,194
- 364 - 21 385
- 914 - 13 927
- 130 - 9 139
- 89 - 9 98
16,860 11,095 35,738 12,971 76,664
2,117 - 2,698 2,547 45,525 4,939 201 31 11,840 3,941 62,381 11,458 6,540 (5,264)
- - 331 9 62 402 (17)
- - 912 17 270 1,199 (272)
- 1,492 44 - 136 1,672 (1,533)
- 2,117 576 7,313 335 52,086 - 258 184 16,433 1,095 78,207 (997) (1,543)
80
Annual Report
18,792 5,412 21,887 15,286 61,377
- 798 2,920 782 4,500
- 286 - 16 302
- 420 - - 420
- - - 10 10
- - - - -
18,792 6,916 24,807 16,094 66,609

GROUP Financial liabilities Bank overdraft Loans and borrowings Liabilities to customers Liabilities to other banks Trade and other payables Total financial liabilities Net balance open position COMPANY At 31 December 2009 Financial assets Long term loans receivable - Group Available-for-sale financial assets Cash and cash equivalents Trade and other receivables Total financial assets Financial liabilities Bank overdraft Loans and borrowings Trade and other payables Total financial liabilities Net balance open position At 31 December 2008 Financial assets Long term loans receivable - Group Available-for-sale financial assets Cash and cash equivalents Trade and other receivables Total financial assets Financial liabilities Bank overdraft Loans and borrowings Trade and other payables Total financial liabilities Net balance open position
MK Km
USD Km
GBP Km
EURO Km
ZAR OTHER TOTAL Km Km Km
730 3,882 39,623 456 11,233 55,924 5,453
- 252 3,838 1,208 178 5,476 (976)
- - 340 26 47 413 (111)
- - 709 210 3 922
- 1,600 78 - 46 1,724
- 730 575 6,308 42 44,630 - 1,900 20 11,527 637 65,095 (637) 1,514
(502) (1,714)
401 48,185 502 349 49,437
- - - - -
- - - - -
- - - - -
- - - - -
- 401 - 48,185 - 502 - 349 - 49,437
55 502 220 777 48,660
- - - - -
- - - - -
- - - -
- 1,392 - 1,392
- - - -
55 1,894 220 2,169
- (1,392)
- 47,268
821 41,821 301 259 43,202
- - - - -
- - - - -
- - - - -
- - - - -
- 821 - 41,821 - 301 - 259 - 43,202
53 482 121 656 42,546
- - - - -
- - - - -
- - - -
- 1,788 - 1,788
- - - -
53 2,270 121 2,444
- (1,788)
- 40,758
2009
81
Annual Report

6.3 Market risk (continued) 6.3(b) Interest rate risk The Group adopts a policy of ensuring that between 40 and 60 percent of its exposure to changes in interest rates on borrowings is on a fixed rate basis. This is achieved by entering into interest rate swaps. Exposure of interest rate risk-non-trading portfolio The Group does not bear an interest rate risk on off statement of financial position items. A summary of the Groups maturity profile gap position on non-trading portfolio is as follows: Less Non than 1-3 3-12 Over interest Carrying 1 month months months 1 year sensitive Total amount GROUP At 31 December 2009 Financial assets Available-for-sale financial assets - - - - 16,860 16,860 16,860 Cash and cash equivalents 1,088 4,727 4,095 1,185 - 11,095 11,095 Loans and advances to customers 447 1,174 21,454 12,663 - 35,738 35,738 Trade and other receivables 3,056 537 993 - 8,385 12,971 12,971 Total financial assets 4,591 6,438 26,542 13,848 25,245 76,664 76,664 Financial liabilities Bank overdraft Loans and borrowings Liabilities to customers Liabilities to other banks Trade and other payables Total financial liabilities Interest sensitivity gap At 31 December 2008 Financial assets Available-for-sale financial assets Cash and cash equivalents Loans and advances to customers Trade and other receivables Total financial assets Financial liabilities Bank overdraft Loans and borrowings Liabilities to customers Liabilities to other banks Trade and other payables Total financial liabilities Interest sensitivity gap
2,117 - 43,985 258 - 46,360 (41,769)
- - 6,372 - - 6,372 66
- 1,638 93 - - 1,731 24,811
- 5,675 - - - 5,675 8,173
- - - - 16,433 16,433 8,812
2,117 7,313 50,450 258 16,433 76,571 93
2,117 7,313 50,450 258 16,433 76,571 93
- 2,332 982 - 3,314
- 3,165 1,414 - 4,579
- 1,232 15,861 - 17,093
- 187 6,550 - 6,737
18,792 - - 16,094 34,886
18,792 6,916 24,807 16,094 66,609
18,792 6,916 24,807 16,094 66,609
2009
730 - 38,609 1,900 - 41,239 (37,925)
- - 5,867 - - 5,867 1,288
- 1,534 154 - - 1,688 15,405
- 4,774 - - - 4,774 1,963
- - - - 11,527 11,527 23,359
730 6,308 44,630 1,900 11,527 65,095 4,448
730 6,308 44,630 1,900 11,527 65,095 1,514
82
Annual Report

COMPANY At 31 December 2009 Financial assets Long term loans receivable - Group Available-for-sale financial assets Cash and cash equivalents Trade and other receivables Total financial assets Financial liabilities Bank overdraft Loans and borrowings Trade and other payables Total financial liabilities Interest sensitivity gap At 31 December 2008 Financial assets Long term loans receivable - Group Available-for-sale financial assets Cash and cash equivalents Trade and other receivables Total financial assets Financial liabilities Bank overdraft Loans and borrowings Trade and other payables Total financial liabilities Interest sensitivity gap
Less Non than 1-3 3-12 Over interest Carrying 1 month months months 1 year sensitive Total amount
- - - - -
- - 495 - 495
- - - - -
401 - - - 401
- 48,185 7 349 48,541
401 48,185 502 349 49,437
401 48,185 502 349 49,437
55 - - 55 (55)
- - - - 495
- 502 - 502 (502)
- 1,392 - 1,392 (991)
- - 220 220 48,321
55 1,894 220 2,169 47,268
55 1,894 220 2,169 47,268
- - - - -
- - 293 - 293
- - - - -
821 - - - 821
- 41,821 8 259 42,088
821 41,821 301 259 43,202
821 41,821 301 259 43,202
53 - - 53 (279)
- - - - 293
- 482 - 482 (482)
- 1,788 - 1,788 (967)
- - 121 121 41,862
53 2,270 121 2,444 40,758
53 2,270 121 2,444 40,758
6.3(c) Other market price risk Equity price risk arises from available-for-sale equity securities held for meeting partially the unfunded portion of the Groups defined benefit pension obligations. Management of the Group monitors the mix of debt and 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 Board. The primary goal of the Groups investment strategy is to maximise investment returns in order to meet the Groups partially unfunded defined benefit obligations; management is assisted by external advisors in this regard. In accordance with this strategy certain investments are designated at fair value through profit or loss because their performance is actively monitored and they are managed on a fair value basis. The Group does not enter into commodity contracts other than to meet the Groups expected usage and sale requirements; such contracts are not settled net.
83
Annual Report
2009

6.4 Operational risk Operational risk is the risk of direct or indirect loss arising from a wide variety of causes associated with the Groups processes, personnel, technology and infrastructure, market and liquidity risks such as those arising from legal and regulatory requirements and generally accepted standards of corporate behaviour. Operational risks arise from all of the Groups operations and are faced by all business entities. The Groups objectives is to manage operational risk so as to balance the avoidance of financial losses and damage to the Groups reputation with overall cost effectiveness and avoid control procedures that restrict initiative and creativity. The primary responsibility for the development and implementation of controls to address operational risk is assigned to senior management within each business unit. This responsibility is supported by the Groups Audit Committee by the development of overall Group standards for the management of operational risk in the following areas: equirements for appropriate segregation of duties, including the independent authorisation of r transactions requirements for the reconciliation and monitoring of transactions compliance with regulatory and other legal requirements documentation of controls and procedures requirements for the periodic assessment of operational risks faced, and the adequacy of controls and procedures to address the risks identified requirements for the reporting of operational losses and proposed remedial action prevention of business disruption and system failures and development of contingency plans ethical and business standards risk mitigation, including insurance where this is effective safeguarding assets against loss or damage
Compliance with Group standards is supported by a programme of periodic reviews undertaken by internal audit. The results of Internal Audit reviews are discussed with the management of the business unit to which they relate, with summaries submitted to the Audit Committee and senior management of the Group. 6.5 Compliance risk Compliance is an independent core risk management activity, which also has unrestricted access to the Chief Executive and the Chairman of the Board. The Group is subject to extensive supervisory and regulatory regimes, and the Executive management remains responsible for overseeing the management of the Groups compliance risk. Money laundering control and occupational health and safety (including aspects of environment risk management) are managed within the compliance function and there are increasingly onerous legislative requirements being imposed in both areas. The Group has adopted anti-money laundering policies including Know Your Customer policies and procedures and adheres to the countrys anti-money laundering legislation and Reserve Bank of Malawi regulations and directives.
2009
84
Annual Report

6.6 Financial assets and liabilities Accounting classifications and fair values The table below sets out the Groups classification of each class of financial assets and liabilities, and their fair values (excluding accrued interest) Other Total Loans and Available amortised carrying Note receivables for sale cost amount GROUP At 31 December 2009 Financial assets Cash and cash equivalents 33 11,095 - - 11,095 Trade and other receivables 31 12,971 - - 12,971 Other investments 26 - 16,860 - 16,860 Loans and advances to customers 24 35,738 - - 35,738 59,804 16,860 - 76,664 Financial liabilities Bank overdraft 33 - - 2,117 2,117 Loans and borrowings 37 - - 7,313 7,313 Trade and other payables 39 - - 16,433 16,433 Liabilities due to customers 40 - - 50,708 50,708 - - 76,571 76,571 At 31 December 2008 Financial assets Cash and cash equivalents 33 Trade and other receivables 31 Other investments 26 Loans and advances to customers 24 Financial liabilities Bank overdraft 34 Loans and borrowings 37 Trade and other payables 39 Liabilities to other banks 40 COMPANY At 31 December 2009 Financial assets Cash and cash equivalents 33 Trade and other receivables 31 Long-term receivables - Group 25 Other investments 26 Investments in associates 23 Investments in subsidiaries 22 Financial liabilities Bank overdraft 33 Loans and borrowings 37 Trade and other payables 39 Long term loans payable group 25
Fair value
11,095 12,971 17,559 35,738 76,664 2,117 7,313 16,433 50,708 76,571
6,916 16,094 - 24,807 47,810 - - - - -
- - 18,792 - 18,792 - - - - -
- - - - - 730 6,308 11,527 44,630 63,195
6,916 16,094 18,792 24,807 66,609 730 6,308 11,527 44,630 63,195
6,916 16,094 18,792 24,807 66,609 730 6,308 11,527 44,630 63,195
85
Annual Report
- - - - -
- - - - -
55 1,894 220 328 2,497
55 1,894 220 328 2,497
55 1,894 220 328 2,497
2009
502 349 401 - - - 1,252
- - - 38 5,920 42,227 48,185
- - - - - - -
502 349 401 38 5,920 42,227 49,437
502 349 401 38 5,920 42,227 49,437

6.6 Financial assets and liabilities (Continued) Accounting classifications and fair values Other Loans and Available amortised Note receivables for sale cost COMPANY At 31 December 2008 Financial assets Cash and cash equivalents Trade and other receivables Long-term receivables - Group Other investments Investments in associates Investments in subsidiaries Financial liabilities Bank overdraft Loans and borrowings Trade and other payables Long term loans payable group Total carrying amount
Fair value
33 31 25 26 23 22 1,381 33 37 39 25 -
301 259 821 - - - 41,821 - - - - -
- - - 37 5,220 36,564 - - - - - 2,858
- - - - - - 43,202 53 2,270 121 414 2,858
301 259 821 37 5,220 36,564 43,202 53 2,270 121 414 2,858
301 259 821 37 5,220 36,564
53 2,270 121 414
Fair value hierarchy The table below analyses financial instruments carried at fair value, by valuation method. The different levels have been defined as follows: Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities Level 2: inputs other than quoted prices included within 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). GROUP Note Level 1 Level 2 Level 3 At 31 December 2009 Other investments 26 - 16,860 - At 31 December 2008 Other investments 26 - 18,792 - COMPANY At 31 December 2009 Other investments 26 - 38 - Investments in associates 23 - 5,920 - Investments in subsidiaries 22 - 42,227 - - 48,185 - At 31 December 2008 Other investments 26 - 37 - Investments in associates 23 - 5,220 - Investments in subsidiaries 22 - 36,564 - - 41,821 - Total 16,860
18,792
2009
38 5,920 42,227 48,185 37 5,220 36,564 41,821
86
Annual Report

7 . O p e r a t i n g s e gm e n t s
The Group has 5 reportable segments, as described below, which are the Groups strategic business units. The strategic business units offer different products and services, and are managed separately because they require different technology and marketing strategies. For each of the strategic business units, the Groups CEO reviews internal management reports on at least a quarterly basis. The group recognises among its subsidiary and associated companies five operating industries, based on the type of business. These segments are Food and beverage, Retail and consumer products, Real property and investments, Telecommunication and financial services activities. Inter-segment pricing is determined on an arms length basis. Segment results, assets and liabilities include items directly attributable to a segment as well as those that can be allocated on a reasonable basis. Unallocated items mainly comprise income earning assets and revenue, interest bearing loans, borrowings and expenses, and corporate assets and expenses. Segment capital expenditure is the total cost incurred during the year to acquire segment assets that are expected to be used for more than one year. Information regarding the results of each reportable segment is included below. Performance is measured based on segment profit before income tax, as included in the internal management reports that are reviewed by the Groups CEO. Segment profit is used to measure performance as management believes that such information is the most relevant in evaluating the results of certain segments relative to other entities that operate within these industries. Inter-segment pricing is determined on an arms length basis. The Company monitors the performance of its investments by allocation to five industries as below. The associated companies make up the Investment division. In addition, a number of dormant subsidiaries are maintained for the protection of trade names or other reasons.
87
Annual Report
2009

7 . O p e r a t i n g s e gm e n t s ( C o n t i n u e d )
The following summary describes the operations in each of the Groups reportable segments: Industry Food & Beverage The Foods Company Limited products Maldeco Aquaculture Limited Limbe Leaf Tobacco Company Limited Bottling and Brewing Group Limited Retail & Consumer Products Hardware and General Dealers Limited Ethanol Company Limited Peoples Trading Centre Limited BP Malawi Limited Macsteel Malawi Limited Presscane Limited Financial Services National Bank of Malawi Limited % shareholding 100.0 100.0 42.0 44.0 Nature of business Manufacturer and distributor of food Fish farming Tobacco processors Beverage
100.0 66.0 50.0 50.0 50.0 50.1
Glass glazing Ethanol manufacturer Supermarket chain Fuel & Oil distributor Steel processors Ethanol manufacturer
51.78
Banking activities
Real Property and Investment Press Properties Limited 100.0 Press Bakeries Limited 100.0 Press Foods Limited (Head office) 100.0 Press Corporation Limited - Telecommunications Telecom Holdings Limited 62.63 Telekom Networks Limited 32.27 Discontinued Operations Press Trading (Pty) Limited Press and Shire Clothing Limited PGI Limited Press (Produce) Limited Press Foods Limited (Head office) National Poultry Limited Press Bakeries (a division of The Foods Company Limited) Malawi Pharmacies Limited
2009
Property investment and development and management services provider Property Holding Company Dormant Holding company
Holding company for Malawi Telecommunications Limited (MTL) Mobile Telecommunications Limited
100.0 100.0 100.0 100.0 100.0 50.0 100.0 100.0
Dormant Dormant Dormant Dormant Dormant Dormant Dormant Dormant
88
Annual Report
Some operations were discontinued as part of re-organisation and restructuring, others were discontinued after they became unprofitable. While a few of the dormant companies will be retained for future use as vehicles for new projects, those that are considered surplus to requirements will be deregistered after the necessary legal processes are completed

Jointly Controlled Entities Three companies, Peoples Trading Centre Limited, BP Malawi Limited and Macsteel (Malawi) Limited are 50% owned by the Company and 50% owned by technical partners. These have been proportionally consolidated as Jointly Controlled Entities in accordance with IAS 31- Investments in Joint Ventures. Geographical segment presentation All operations of the group are in Malawi except for Press Trading (Proprietary) Limited, a dormant company incorporated in South Africa, and therefore geographical segment presentation has not been made. Real Food Retail & property & and consumer Financial Telecomm- Dis Investment beverages products services unication continued 2009 Revenue Sales 137 862 46,860 - - - Interest income - - - 7,893 - - Services 171 - - - 15,582 - Total revenues 308 862 46,860 7,893 15,582 - Elimination on consolidation Joint Ventures - - (21,988) - - - Intergroup sales (102) - (1,362) (158) (335) - Revenue from external customers 206 862 23,510 7,735 15,247 - Segment results Operating profits (355) Net finance costs (58) Share of profit of associates group 658 Income tax expense (171) Gain on sale of discontinued operations, net of tax - Profit for the year 74 Other information Capital additions Less: 50% Joint Ventures Total Depreciation and amortisation Less: deductions Statement of financial position Assets Segment assets Investment in associates Less eliminations on consolidation Investments in subsidiary companies Less: 50% Joint Ventures Intergroup receivables Total assets
Total
47,859 7,893 15,753 71,505 (21,988) (1,957) 47,560
50 (23) - (42) - (15)
1,915 (69) - (616) - 1,230
5,693 - - (1,821) - 3,872
1,066 (299) - (291) - 476
- - - - 33 33
8,369 (449) 658 (2,941) 33 5,670
329 - 329 36 - 36
226 - 226 15 - 15
980 (303) 677 269 (96) 173
3,575 - 3,575 716 - 716
6,680 - 6,680 2,659 - 2,659
- - - - - -
11,790 (303) 11,487 3,695 (96) 3,599
43,985 1,989 (35,652) - (870) 9,452
2,101 - - - (419) 1,682
16,442 - - (6,262) (120) 10,060
76,229 - - - (4,921) 71,308
31,413 - - - (363) 31,050
161 -
170,331 1,989
89
Annual Report
2009
- (35,652) - (6,262) (32) (6,725) 129 123,681

7 . O p e r a t i n g s e gm e n t s ( C o n t i n u e d )
2009 Liabilities Segment liabilities Less: 50% Joint Ventures Intergroup creditors Consolidated total liabilities Cash flows Cash flows from operating activities Less: 50% Joint Ventures Consolidated total Cash flows from investing activities Less: 50% Joint Ventures Intergroup transactions Consolidated total Cash flows from financing activities Less: 50% Joint Ventures Intergroup transactions Consolidated total 444 - 444 956 - (1,373) (417) (776) - - (776) 82 - 82 (187) - - (187) (64) - (124) (188) 2,564 (845) 1,719 (669) (170) - (839) (1,686) 523 1,141 (22) 7,200 - 7,200 (1,794) - - (1,794) (3,232) - 1,673 (1,559) 4,379 - 4,379 (6,810) - - (6,810) 915 - 602 1,517 (19) - (19) 45 - - 45 17 - - 17 14,650 (845) 13,805 (8,459) (170) (1,373) (10,002) (4,826) 523 3,292 (1,011) Real Food Retail & property & and consumer Investment beverages products Financial Telecomm- Disservices unication continued
Total
4,657 - (370) 4,287
1,071 - (460) 611
10,440 (4,170) (236) 6,034
64,283 - (5,501) 58,782
14,269 - (185) 14,084
239 - (140) 99
94,959 (4,170) (6,892) 83,897
90
Annual Report
2009

Real Food Retail & property & and consumer Financial Telecomm- Dis Investment beverages products services unication continued 2008 Revenue from external customers Sales 37 788 45,222 - - - Interest income - - - 5,976 - - Services 553 - - 1,896 12,345 - Total revenues 590 788 45,222 7,872 12,345 - Elimination on consolidation 50% Joint Ventures - - (20,913) - - - Intergroup sales (498) (82) (1,452) (90) (167) - Revenue from external customers 92 706 22,857 5,886 12,178 - Segment results Operating profits Net finance costs Share of profit of associates group subsidiaries - Income tax expense Gain on sale of discounted operations, net of tax Less: 50% Joint Ventures Profit for the year Other information Capital additions Less: 50% Joint Ventures Total Depreciation and amortisation Less: deductions Balance sheet Assets Segment assets Investment in associates Less eliminations on consolidation Investments in subsidiary companies Less: 50% Joint Ventures Intergroup debtors Total assets Liabilities Segment liabilities Less: 50% Joint Ventures Intergroup creditors Consolidated total liabilities
Total
46,047 5,975 14,794 66,816 (20,913) (2,289) 43,614
(92) (352)
239 (6)
2,945 (45)
4,572 -
956 (133)
- -
8,620 (536)
568 - (233) - - (109)
- - (86) - - 147
- - (342) - (692) 1,866
- 568 (1,417) - - 3,155
- (196) - - 627
- - (23) - (23)
- (2,274) (23) (692) 5,663
118 - 118 42 - 42
163 - 163 52 - 52
1,119 (297) 822 230 (81) 149
2,368 - 2,368 455 - 455
4,675 - 4,675 1,899 - 1,899
- - - - - -
8,443 (297) 8,146 2,678 (81) 2,597
41,599 2,174 (36,670) - (1,965) 5,138 5,146 - (719) 4,427
2,008 - - - (429) 1,579 1,048 - (389) 659
17,075 - - (6,259) (1,035) 9,781 11,892 (4,582) (2,831) 4,479
62,591 - - - (56) 62,535 52,829 - (3,540) 49,289
27,643 - - - (907) 26,736 11,452 - - 11,452
120 -
151,036 2,174
- (36,670) - (6,259) (32) (4,424) 88 105,857 140 - (122) 18 82,506 (4,582) (7,601) 70,324
91
Annual Report
2009

2008 Cash flows Assets Cash flows from operating activities Less: 50% Joint Ventures Consolidated total Cash flows from investing activities Less: 50% Joint Ventures Intergroup transactions Consolidated total Cash flows from financing activities Less: 50% Joint Ventures Intergroup transactions Consolidated total
Real Food Retail & property & and consumer Investment beverages products
Financial Telecomm- Disservices unication continued
Total
(781) - (781) 532 - (556) (24) 1,085 - - 1,085
292 - 292 (141) - 32 (109) (136) - - (136)
4,282 (1,178) 3,104 (982) 240 (24) (766) (596) 285 555 244
4,835 - 4,835 (4,630) - - (4,630) (2,891) - 835 (2,056)
1,152 - 1,152 (4,299) - (226) (4,525) 1,804 - - 1,804
(11) - (11) 7 - (3) 4 - - - -
9,769 (1,178) 8,591 (9,513) 240 (777) (10,050) (734) 285 1,390 941
8 . D i s c o n t i n u e d o p e r at i o n
On 28 November 2008 the group sold PGI a division of Hardware and General Dealers Limited and was classified as held for sale as at 31 December 2008 and the comprehensive income has been re-presented below to show the discontinued operations separately from continuing operations. Group 2009 2008 Results from discontinued operations Revenue 243 107 Expenses (182) (130) Results from operating activities, net of income tax 61 (23) Loss on sale of discontinued operations (28) Profit/(loss) for the year 33 (23) Basic earnings/(loss) per share Diluted earnings/(loss) per share Cash flows (used in)/from discontinued operations: Net cash to operating activities Net cash from investing activities Net cash from/(used in) discontinued operations Effect of disposal on the financial position of the Group Motor vehicles Inventory Net identifiable assets and liabilities Consideration received, satisfied in cash 52 13 65 37 22 22 74 0.27 0.27 (0.20) (0.18)
(27) 45 18
(14) 7 (7)
92
Annual Report
2009

Group 2009 2008 As restated
Company 2009 2008
9 . R e v e n u e
Sales Interest Services Investment income - dividend 24,509 7,725 15,326 - 47,560 23,599 5,885 14,130 - 43,614 50 - 48 1,560 1,658 900 900
1 0 . D i r e c t t r ad i n g c o s t s
Cost of sales Interest expense Direct service costs 22,605 1,706 1,116 25,427 18,862 819 4,128 23,809 17 - - 17 -
1 1 . O t h e r o p e r a t i n g i n c o m e
Gains and losses from dealing in foreign currencies Recoveries from impaired loans and advances Fair value adjustment of investment property Fair value adjustment of other assets Profit on disposal of property, plant and equipment Bad debts recovered Property rental income Operating lease income Sundry income Share of profits from associates in NBM Ltd 1,808 433 562 (189) 38 280 317 159 540 177 4,125 1,611 519 643 127 3 246 319 146 685 176 4,475 - - - 7 887 - - 15 - 909 184 184
1 2 . D i s t r i b u t i o n c o s t s
Marketing and publication Selling expenses Carriage outwards Ethanol in transit losses 559 270 158 112 1,099 561 190 126 111 988 - - - - - -
93
Annual Report
2009

Group 2009 2008 As restated
Company 2009 2008
1 3 . A dm i n i s t r a t i v e e x p e n s e s
Auditors remuneration - current year fees - prior year fees - other professional services Directors emoluments - fees & expenses - executive directors remuneration Management fees Personnel costs Pension contribution costs Legal and professional fees Stationery and office expenses Security services Motor vehicle expenses Bad debts Repairs and maintenance Depreciation and amortisation Other 107 17 16 38 102 607 6,120 297 173 434 420 718 403 1,204 3,235 2,621 16,512 84 11 1 26 70 651 5,734 289 224 290 401 694 783 1,202 2,509 2,137 15,106 20 11 - 23 - - 425 8 33 60 11 18 161 13 30 197 1,009 17 26 31 14 633 713
1 4 . O t h e r o p e r a t i n g e x p e n s e s
Traveling costs Staff training Other 3 95 180 278 8 100 151 259 - - - - -
1 5 . F i n a n c e i n c o m e a n d e x p e n s e
Interest income Interest income on bank deposits Other Interest expense Bank overdrafts Loans Other Net finance costs 148 18 166 (165) (414) (36) (615) (449) 159 66 225 (127) (515) (118) (760) (535) 122 - 122 (2) (208) (13) (223) (101) 152 152 (75) (294) (54) (423) (271)
1 6 . Sha r e o f r e s u l t s f r o m a s s o c i a t e s
2009
94
Annual Report
Limbe Leaf Tobacco Company Limited Bottling and Brewing Company Limited
231 427 658
97 471 568
- - -

Group 2009 2008
Company 2009 2008
1 7 . I n c o m e t a x e x p e n s e
Current tax expense Current year at 30% (2008:30%) based on taxable profits Adjustments for prior year under-provision Final tax on dividend received from associates, subsidiaries and joint ventures Deferred tax expense Utilisation of tax losses Origination and reversal of temporary differences Income tax expense Reconciliation of effective tax rate The tax on the Groups and Companys profit tax differs from theoretical amount that would arise using the weighted average tax rate applicable to profits of the Group and Company as follows: Profit before income tax Current tax at 30% (2008:30%) based on taxable results for the year Income not subject to tax Non deductible expenses Underprovisions in previous periods Unutilised taxable losses Effects of final tax on dividends from associates and subsidiaries Differences between depreciation and amortisation and capital allowance 8,578 7,960 1,440 100 3,549 89 (140) 3,498 76 (633) (557) 2,941 2,259 (39) (43) 2,177 (47) 144 97 2,274 - - (155) (155) - - - (155) (71) (71) (71)
2,573 (131) 76 89 76 (140) 398 2,941
2,388 (66) 100 (39) (47) (43) (19) 2,274
432 (277) - - - - - 155
30 41 71
The Company is estimated to have tax losses of approximately MK 5.3 billion (2008: MK4.8 billion). Within the subsidiaries the tax losses are approximately MK 85 million (2008: MK2.1 billion). These include capital losses, which can be set off against future capital gains. Where relevant, these tax losses have been set off against deferred tax liabilities, which would arise on the disposal of revalued assets at carrying value. Tax losses are subject to agreement by the Malawi Revenue Authority and are available for utilisation against future taxable income, including capital gains, only in the same company. Under the Malawi Taxation Act it is not possible to transfer tax losses from one subsidiary to another or obtain group relief.
95
Annual Report
2009

Group 2009 2008
1 8 . B a s i c e a r n i n g s p e r s ha r e a n d d i l u t e d e a r n i n g s p e r s ha r e
Calculation of basic earnings per share and diluted earnings per share is based on the profit attributable to ordinary shareholders of MK3,273 million (2008: MK3,140 million) and a weighted average number of ordinary shares outstanding during the year of 120.2 million (2008: 113 million). Profit attributable to owners of the company Weighted average number of ordinary shares Basic earnings per share (MK) Number of shares in issue before rights issue and options Rights issue issued in August 2008 (in millions) Diluted earnings per share (MK) Profit from continuing operations Non-controlling interest Basic earnings per share Diluted earnings per share 3,273 120.2- 27.23 120.2 - 120.2 27.23 5,637 (2,397) 3,240 26.96 26.96 3,140 113.5 27.67 110.2 10.0 120.2 26.12 5,686 (2,523) 3,163 27.87 26.31
96
Annual Report
2009

1 9 P r o p e r t y, p la n t a n d e q u i p m e n t
Group Cost or valuation Balance at 1 January 2009 Additions Disposals Transfers between classes Impairment Transfer to investment properties Surplus /(deficit) revaluation Balance at 31 December 2009 Land and buildings Plant, furniture & Motor equipment vehicles Capital work in progress
Total
6,998 119 (8) 1,995 (641) (217) 188 8,434
26,469 1,237 (94) 4,578 - - (108) 32,082
2,587 1,061 (416) - - - - 3,232
5,027 9,070 - (6,573) (59) - - 7,465
41,081 11,487 (518) (700) (217) 80 51,213
Balance at 1 January 2008 - As previously stated 5,048 - Prior year adjustment (note 46.2) 503 - As restated 5,551 Additions 309 Disposals (58) Transfer from investment properties (Note 21) 17 Transfers between classes 228 Reclassified as held for sale (Note 32) - Surplus revaluation 951 Balance at 31 December 2008 6,998 Accumulated depreciation and impairment losses Balance at 1 January 2009 Depreciation charge for the year Eliminated on revaluation Released on disposal Reclassified as held for sale (Note 32) Impairments losses Balance at 31 December 2009 Balance at 1 January 2008 - As previously stated - Prior year adjustment (note 46.2) - As restated Depreciation charge for the year Eliminated on revaluation Released on disposal Reclassified as held for sale (Note 32) Impairments losses Balance at 31 December 2008 Carrying amounts At 31 December 2009 At 31 December 2008 7,755 6,470
19,333 3,825 23,158 977 (118) - 2,490 (38) - 26,469
1,726 195 1,921 1,057 (263) - - (128) - 2,587
1,728 219 1,947 5,802 - - (2,718) (4) - 5,027
27,835 4,742 32,577 8,145 (439) 17 (170) 951 41,081
528 184 (27) - (2) (4) 679
7,359 2,670 (18) - (66) (65) 9,880
848 589 - (309) - - 1,128
6 - - - - - 6
8,741 3,443 (45) (309) (68) (69) 11,693
22,202 19,110
2,104 1,739
7,459 5,021
39,520 32,340
97
Annual Report
2009
699 55 754 129 (331) (2) - (22) 528
2,536 1,531 4,067 2,095 - (65) - 1,262 7,359
782 63 845 274 - (151) (120) - 848
- - - - - - - 6 6
4,017 1,649 5,666 2,498 (331) (218) (120) 1,246 8,741

1 9 P r o p e r t y, p la n t a n d e q u i p m e n t ( c o n t i n u e d )
Company 2009 Cost or valuation Balance at 1 January 2009 Additions Disposals Balance at 31 December 2009 2008 Balance at 1 January 2008 and 31 December 2008 Balance at 1 January 2008 Surplus on revaluation Balance at 31 December 2008 Land and buildings Plant, furniture & Motor equipment vehicles Capital work in progress
Total
17 - - 17
- 114 (7) 107
- 179 (46) 133
- - - -
17 293 (53) 257
17 16 1 17
- - - -
- - - -
- - - -
17 16 1 17
2009 Accumulated depreciation and impairment losses Balance at 1 January 2009 - Depreciation charge for the year - Released on disposal - Balance at 31 December 2009 - Carrying amounts At 31 December 2009 At 31 December 2008
- 74 (6) 68
- 82 (45) 37
- - - -
156 (51) 105
17 17
39 -
96 -
- -
152 17
Registers of land and buildings giving details required under the Companies Act 1984, Schedule 3, Section 16, are maintained at the respective registered offices of each company within the Group and are open for inspection by members or their duly authorised agents. Certain land and buildings were professionally and independently revalued by Griffin R.P. Baloyi, Bsc (Hon), Bsc MRICS, MSIM, a chartered valuation surveyor with Press Properties and were certified by Don Whayo, Bsc (Est. Man), Dip (Urb Man), BA, MRICS, MSIM a chartered valuation surveyor with Knight Frank (Malawi) Limited at 31 December 2009 on an open market value basis while some land and buildings with carrying value of MK7.2 million (2008: MK4.4 million) relating to banking activities were last revalued at 31 December 2009 by Chris Mullock, ARICS, MSIM, a qualified valuer, on a current market value basis. Land and buildings and civil works in PressCane Limited were valued by Mr. Simeon Banda BSc (Honours), MSIM, ARICS a qualified valuer and factory buildings and civil works were valued by Mr. T.T. Msowoya, DIP QS, FRICS, MSIM and Mr. W.H. Mkandawire, MBA DIP-Real estates, MSIM, qualified valuers of Turner and Townsend as at 31 December 2009. The fair values were determined by the use of depreciated replacement costs. Plant and equipment in PressCane Limited was valued at 31 December 2009 by Mr. C. Chifamba MRICS, TZweIE a qualified valuer of CB Richard Ellis, industrial plant, machinery and equipment specialists based in Botswana to provide the fair values of the plant and equipment. The valuation basis used was the depreciated replacement cost
98
Annual Report
2009

Telecommunications plant in Malawi Telecommunications Limited (MTL) was revalued as at 30 June 2006 by independent professional valuers. Valuations were made on the basis of depreciated replacement cost of the assets. The revaluation surplus net of applicable deferred income tax was credited to revaluation reserve in shareholders equity. Capital work in progress Included in the capital work in progress is work presently being carried out on construction of National Bank of Malawi Limited, head office and renovation of some equipments of Malawi Telecommunications Limited, a subsidiary of Telecom Holdings Limited and filling stations in BP Malawi Limited. Title deeds for properties Included in the group property, plant and equipment of K39.5 billion at 31 December 2009 are properties with a carrying value of K2.3 billion for which Malawi Telecommunications Limited does not hold title deeds. Malawi Telecommunications Limited has engaged the relevant government agencies to bring matters up to date.
2 0 . I n t a n g i bl e a s s e t s
New Billing Planning Prepaid System (ERP) billing (SMLS) 2009 Balance at 1 January 2009 28 35 155 Transfers from PPE (Note 19 28 - - Acquisition during the year - 80 - Amortisation charge for the year 11 (7) (115) Balance at 31 December 2009 45 108 40 As at 31 December 2009 Cost Accumulated depreciation Carrying amount As at 31 December 2009 Cost Accumulated depreciation carrying amount 2008 Balance at 1 January 2008 Acquisition during the year Amortisation charge for the year Balance at 31 December 2008 Total 218 28 80 (133) 193
942 (749) 193
843 (616) 218
28 - - 28
46 5 (16) 35
238 - (83) 155
312 5 (99) 218
99
Annual Report
2009

2 1 . I n v e s t m e n t p r o p e r t i e s
Group Balance at 1 January 2009 Reclassification from PPE Additions during the year Surplus on revaluation Balance at 31 December 2009 Balance at 1 January 2008 Transfer between classes (Note 19) Additions during the year Surplus on revaluation Disposal Balance at 31 December 2008 Freehold land and buildings 937 217 - 156 1,310 554 (17) 3 397 - 937 Leasehold Undeveloped land and Undeveloped leasehold buildings freehold land land 886 - 9 143 1,038 627 - 25 246 (12) 886 76 - - 357 433 76 - - - - 76 1 - - - 1 1 - - - - 1
Total 1,900 217 9 656 2,782 1,258 (17) 28 643 (12) 1,900
The properties were professionally revalued by G.R.P Baloyi, a Chartered Surveyor with Press Properties (a Division of Press Management Services Limited) at 31 December 2009 on an open market value basis. This report was independently reviewed by Knight Frank, professional valuers. Registers of land and buildings giving details required under the Companies Act 1984, Schedule 3, Section 16, are maintained at the respective registered offices of each company within the Group and are open for inspection by members or their duly authorised agents.
100
Annual Report
2009

Company 2009 2008 Restated
2 2 . I n v e s t m e n t s i n s u b s i d i a r i e s
Balance at 1 January 2009 Acquisition of shares in PressCane Limited (Decrease)/increase in fair value Balance at 31 December 2009 47,191 510 (5,474) 42,227 21,012 26,179 47,191
Investments in subsidiaries were independently revalued by Deloitte, Certified Public Accountants on behalf of the directors, as at 31 December 2009 in the company financial statements except for Telecom Holdings Limited which was revalued by the directors themselves. The investments are analysed as follows. National Bank of Malawi Limited Press Properties Limited Manzizi Bay Limited The Foods Company Limited Maldeco Aquaculture Limited Hardware & General Dealers Limited PGI Limited Ethanol Company Limited Peoples Trading Centre Limited BP Malawi Limited Macsteel Limited PressCane Limited Telecom Holdings Limited Telecom Networks Malawi Limited Press Trading (Proprietary) Limited National Poultry Limited
2009 2008 Fair value Dividend Fair Dividend (PCL Share) received value received 13,931 2,203 2 1,720 517 10 12 1,140 3,460 5,000 480 907 6,338 6,480 19 8 42,227 864 - - - - - - 71 75 438 38 - - 74 - - 1,560 15,111 1,633 1 1,700 517 10 12 692 2,100 4,700 445 767 8,136 11,340 19 8 47,191 440 20 235 135 830
101
Annual Report
2009

2 3 . I n v e s t m e n t s i n a s s o c i a t e s
Group Company Shareholding 2009 2008 2009 2008 % Carrying amount Carrying amount Restated a) Investment at the year end Limbe Leaf Tobacco Co. Limited 42% Bottling & Brewing Company Limited 44% b) Movement during the year At beginning of the year Share of profit Increase in fair value At the end of the year
328 1,661 1,989
96 1,235 1,331
2,140 3,780 5,920
1,750 3,470 5,220
1,331 658 - 1,989
763 568 - 1,331
5,220 - 700 5,920
763 4,457 5,220
Investments in associates were independently revalued by Deloitte, Certified Public Accountants on behalf of the directors as at 31 December 2009 in the company financial statements. However, on group level, these were accounted for using equity method. The associates financial statements include the following: Assets Liabilities Revenue Profit
Group and Company 2009 2008 31,071 22,241 35,231 2,765 25,082 18,031 40,874 2,428
102
Annual Report
2009

2 4 . L o a n s a n d adva n c e s t o c u s t o m e r s
Gross loans and advances to customers Allowance for impairment losses Net loans and advances Gross loans and advances are due to mature as follows: - Within three months - Between three months and one year - After one year Net loans are split into: Long term loans Short term loans Movement of allowance for impairment losses At the beginning of the year Charged during the year Written off during the year Recovered during the year Balance at the end of the year Analysis of gross loans and advances by sector: - Wholesale and retail - Others - Personal accounts - Agriculture - Manufacturing - Finance and insurance Interest in suspense Total loans and advances on which interest is suspended Movement of interest in suspense At the beginning of the year Applied against advances Suspended during the year Recovered during the year At the end of the year Group 2009 36,045 (307) 35,738 2008 25,015 (208) 24,807
603 22,779 12,663 36,045
2,596 15,848 6,571 25,015
12,662 23,076 35,738 208 276 (124) (53) 307
6,571 18,236 24,807 298 266 (176) (180) 208
3,172 17,303 7,280 1,602 4,679 2,164 36,200 (155) 36,045 573
2,582 8,139 7,007 2,684 1,767 2,980 25,159 (144) 25,015 538
144 (120) 247 (116) 155
277 (188) 251 (196) 144

2009
103
Annual Report

Analysis of recoveries Specific allowance for impairment loss Interest in suspense Debts previously written off Transferred to profit or loss Analysis of gross loans by currency Malawi Kwacha denominated United States dollar denominated Finance lease receivables Loans and advances to customers include the following finance lease receivables. Gross investment finance lease receivables Unearned future income on finance leases Specific allowance for impairment Net investment in finance leases
Group 2009 2008
52 116 265 433
180 196 143 519
31,051 4,994 36,045
22,095 2,920 25,015
4,414 (858) 3,556 (23) 3,533
3,665 (785) 2,880 (61) 2,819
The base lending rate for Groups banking subsidiary as at 31 December 2009 was 19.5% (2008: 19.5%) and the US Dollar denominated loans were given at an average interest rate of 9.4% (2008: 9.4%). The Groups credit risk is primarily attributed to overdraft and other loan facilities extended to its customers. The amounts presented in the statement of financial position are net of provisions for doubtful debts as shown above. The specific allowance for impairment represents allowances for estimated irrecoverable amounts when there is objective evidence that the asset is impaired.
104
Annual Report
2009

2 5 . L o n g t e r m l o a n s r e c e i vabl e s / p ayabl e s (Group)

Long term loans payable (Group) Maldeco Aquaculture Limited PressCane Limited The Foods Company Limited Summary of Group loans Movement during the year was as follows: Balance at 1 January Loans granted during the year Loans recovered Loans impaired Balance at 31 December The loans are unsecured and payable within five years. Interest is charged at market rates. Long term loans payable (Group) Maldeco Fisheries Limited Press Management Services Limited Press Bakeries Limited The Foods Company Limited National Poultry Limited Press Poultry a division of the Foods Company Limited Telekom Holdings Limited Company 2009 2008 401 - - 401 277 519 25 821
821 124 (544) - 401
520 366 (15) (50) 821
289 - - 7 20 9 3 328
289 58 21 10 21 9 6 414
105
Annual Report
2009

2 6 . O t h e r i n v e s t m e n t s
Total other investments are due to mature as follows: i) Long term investments - Non maturing investments - Between one year and five years ii) Current investments - Between three months and one year - Within three months Total other investments Comprises of the following: Government of Malawi and Reserve Bank of Malawi Bills 26(a) Money market deposits Government of Malawi Local Registered Stock 26(b) Other Total investments held to maturity (a) Government of Malawi and Reserve Bank of Malawi bills Government of Malawi Treasury Bills The bills are due to mature as follows: Within three months Between three months and one year (b) Government of Malawi Local Registered Stocks Government of Malawi Local Registered Stocks The stocks are due to mature as follows: Within three months Between three months and one year Between one and five years 2009 Group 2008 2009 Company 2008
2,114 1,184 3,298 4,095 7,478 11,573 14,871
2,566 2,158 4,724 7,876 4,789 12,665 17,389
38 - 38 - - - 38
37 37 37
8,806 701 1,345 4,019 14,871
10,705 500 1,623 4,561 17,389
- - - 38 38
37 37
Average interest rate 2009 2008 11.7% 10.8%
Group 2009 8,806 2008 10,705
5,223 3,583 8,806
3,983 6,722 10,705
1,345
1,623
663 512 170 1,345
305 117 1,201 1,623
Government of Malawi local registered stocks are denominated in Malawi Kwacha and held to maturity. The stocks earned an average interest rate of 17.2% (2008:20.4%)
2009
106
Annual Report

2 7 . D e f e r r e d t a x a s s e t s / ( l i ab i l i t i e s )
Deferred tax assets and liabilities are attributable to the following: Group Assets Liabilities 2009 2008 2009 2008 Property, plant and equipment Investment properties Provisions Deferred government grants Other items Tax value of loss carried forward Tax assets/(liabilities) Company Investments in subsidiaries 110 - 571 - - 89 770 95 - 550 - - 407 1,052 (1,936) (371) (205) - (889) (76) (3,477) (2,438) (152) (659) (1) (1,161) - (4,411)
Net 2009 (1,826) (371) 366 - (889) 13 (2,707) 2008 (2,343) (152) (109) (1) (1,161) 407 (3,359)
(7,702)
(6,003)
(7,702)
(6,003)
Recognised Recognised in other Opening in profit comprehensive balance and loss income 2009 Group Property, plant and equipment Investment properties Provisions Deferred government grants Other items Tax value or loss carried forward Total assets/(liabilities) Group 2008 Property, plant and equipment Investment properties Provisions Deferred government grants Other items Tax value or loss carried forward Total assets/(liabilities) Company 2009 Investment in subsidiaries and associates 2008 Investment in subsidiaries Unrecognised deferred tax assets (1,531) (152) (1,087) - 49 53 (2,668) (218) - 978 (1) (1,210) 354 (97) (594) - - - - - (594) (2,343) (152) (109) (1) (1,161) 407 (3,359) 422 (219) 475 1 272 (394) 557 95 - - - - - 95
Closing balance
(1,826) (371) 366 (889) 13 (2,707)
(2,343) (152) (109) (1) (1,161) 407 (3,359)
(9,191)
1,432
(7,759)
(9,191)
(9,191)
107
Annual Report
2009

2 7 . D e f e r r e d t a x a s s e t s / ( l i ab i l i t i e s ) (continued)
Deferred tax assets have not been recognised in respect of the following: Tax losses Company 2009 2008 5,300 4,800
Deferred tax assets have not recognised in respect of these tax losses because it is not probable that future taxable profit will be available against which the company can utilise the benefits therefrom. Group 2008 Company 2009 2008
2 8 . I n v e n t o r i e s
Trading stock Raw materials and consumables Work in progress Goods in transit
2009
1,615 690 1,109 133 3,547
1,847 480 284 1,044 3,655
- 7 - - 7 Group 2009
2 9 . B i o l o g i c al a s s e t s
Balance at 1 January Increase due to acquisition Increase due to birth Decrease due to sales Changes in fair value less costs to sell Balance at 31 December
2008
237 - 347 (158) (227) 199
55 11 250 (77) (2) 237
108
Annual Report
2009

Group 2009 2008 2009
Company 2008
3 0 . T r ad e a n d o t h e r r e c e i vabl e s ( G r o u p )
Amounts due from related party companies Press Properties Limited PressCane Limited Manzinzi Bay Limited Telecom Holdings Limited Other - - - - - - - - - - - - 10 209 10 4 5 238 120 4 124
3 1 . T r ad e a n d o t h e r r e c e i vabl e s
Trade receivables Balances due from other banks Cheques in course of collection Letters of credit Other receivables Allowance for impairment losses 2,591 3,488 24 3,801 3,715 13,619 (648) 12,971 5,599 8,684 28 2,188 917 17,416 (1,322) 16,094 - - - - 111 111 - 111 135 135 135
3 2 . A s s e t s h e ld f o r s al e
Inventories Property, plant and equipment (Note 19) 6 - 6 22 50 72 - - - -
109
Annual Report
2009

3 3 . Ca s h a n d c a s h e q u i val e n t s
Reserve Bank of Malawi Bank balances Call deposits Cash on hand Cash and cash equivalents Bank overdrafts Cash and cash equivalents as shown in the statement of cash flows Group 2009 5,455 1,420 1,759 2,461 11,095 (2,117) 2008 1,239 1,414 2,343 1,920 6,916 (730) 2009 - 7 495 - 502 (55) Company 2008 8 293 301 (53)
8,978
6,186
447
248
Balances held at Reserve Bank of Malawi are non interest bearing and are regulated as disclosed in Note 5. The company has banking facilities of MK228 million due for renewal on 29 January 2011. This was secured by Board Resolution and Letter of Agreement to borrow.
3 4 . Sha r e c a p i t al
Authorised ordinary share capital - Number (millions) - Nominal value per share (MK) - Nominal value (MK million) Issued and fully paid At the beginning of the year - Number (millions) At the beginning of the year - Nominal value (MK million) Group and Company 2009 2008 2,500 0.01 25 2,500 0.01 25
1 - 1 1 - 1
1 1 1 1
3 5 . Sha r e p r e m i u m
At the beginning of the year Issue of new share capital At the end of the year 2,097 - 2,097 100 1,997 2,097
110
Annual Report
2009

3 6 . O t h e r r e s e r v e s
Revaluation reserve Group 2009 Balance at the beginning of the year 9,612 Foreign currency translation differences for foreign operations - Revaluation of property, plant and equipment 89 Transfer to loan loss reserve - Depreciation transfer of land and buildings (30) Reversal of accumulated depreciation (253) Income tax on other comprehensive income 29 Asset disposal (4) Balance at 31 December 2009 9,443 2008 Balance at the beginning of the year - As previously stated 6,069 - Prior year adjustment (note 46) 2,515 - As restated 8,584 Fair value gains: Land and buildings and investments in associates 1,581 Income tax on other comprehensive income (521) Foreign currency translation differences for foreign operations - Assets disposals (32) Transfer to loan loss reserve - Balance at 31 December 2008 9,612 Translation reserve Loan loss reserve Other Total
106 6 - - - - - - 112
286 - - 120 - - - - 406
21 - - - - - - - 21
10,025 6 89 120 (30) (253) 29 (4) 9,982
111 - 111 - - (5) - - 106
187 - 187 - - - - 99 286
21 - 21 - - - - - 21
6,388 2,515 8,903 1,581 (521) (5) (32) 99 10,025
111
Annual Report
2009

3 6 . O t h e r r e s e r v e s ( c o n t i n u e d )
Company 2009 Balance at 1 January 2009 Prior year adjustment (note 46) Restated balance at 1 January 2009 Revaluation deficit on investments Deferred tax on revaluation Balance at 31 December 2009 2008 Balance at 1 January 2008 Revaluation surplus on investments Balance at 31 December 2008 Revaluation reserve Translation reserve Loan loss reserve Total
37,535 1,436 38,971 (4,774) 1,432 35,629
110 - 110 - - 110
168 - 168 - - 168
37,813 1,436 39,249 (4,774) 1,432 35,907
17,526 20,009 37,535
110 - 110
168 - 168
17,804 20,009 37,813
Revaluation reserve The revaluation reserve relates to revaluation of property, plant and equipment and investments in subsidiaries and comprises cumulative increase in the fair value at the date of valuation. These reserves are not distributable to shareholders until the relevant revalued assets have been disposed of. Translation reserves The translation reserve comprises all foreign exchange differences arising from the translation of the financial statements of foreign operations that are not integral to the operations of the company, as well as from translation of liabilities that hedge the Companys net investment in a foreign subsidiary. Loan loss reserve This relates to excess of provisions for impairment losses which are above those impairment loss allowed by IAS 39 requirements. Other reserves The other reserves for the group comprise capital redemption reserve and capital profits.
112
Annual Report
2009

3 7 . L o a n s a n d b o r r o w i n g s
Group 2009 More than 5 years Due between 2 and 5 years Due within 1 year or less 2008 More than 5 years Due between 2 and 5 years Due within 1 year or less Company 2009 Leases terms and debt repayment schedules Due between 2 and 5 years Due within 1 year or less 2008 Leases terms and debt repayment schedules Due between 2 and 5 years Due within 1 year or less Secured Unsecured Total
942 3,543 4,485 1,186 5,671
598 592 1,190 452 1,642
1,540 4,135 5,675 1,638 7,313
1,045 1,787 2,832 708 3,540
917 1,025 1,942 826 2,768
1,962 2,812 4,774 1,534 6,308
1,392 502 1,894
- - -
1,392 502 1,894
1,788 482 2,270
- - -
1,788 482 2,270
113
Annual Report
2009
3 7 . L o a n s a n d b o r r o w i n g s ( c o n t i n u e d )
Loans analysis 2009 Interest Repayment Security Lenders name Currency rate terms Agreed date redemption commences Due in 5 years 264 135 147 31 188 1 209 18 10 36 492 13 6 1,540 127 115 149 15 45 252 58 1 148 176 100 - 11 24 15 75 315 - 13 1,638 184 167 216 22 - 1,009 37 2 42 225 158 329 22 136 427 448 630 - 80 4,135 Agreed date redemption Due in finishes 1 year Due within 2 -5 year
Danida Danish Kroner 3.5% Yearly Government 2004 2018 Nordic Development Fund Malawi Kwacha 15% Yearly Government 2003 2018 Kuwait Development Fund Malawi Kwacha 15% Yearly Government 2003 2017 Belgium Government Malawi Kwacha 7.5% Yearly Government 2005 2020 Libyan Government Malawi Kwacha - Dividends offset - - - PTA US Dollar 7.0% Quarterly Debenture 2009 2015 Norsad Us Dollar 7.5% 5 years Debenture 2007 2011 Malawi Government Malawi Kwacha 8.5 yearly - 1999 2014 National Bank of Malawi Limited Malawi Kwacha 19% 8 Months Buildings - - Standard Bank Malawi Limited Malawi Kwacha 5% Quarterly PCL Guarantee 2008 2015 Standard Bank of Malawi Limited Malawi Kwacha 19% Quarterly 2010 2013 NBS Bank Limited Malawi Kwacha 20% 3 years Buildings - - NBS Bank Limited Malawi Kwacha 21% 10 years Buildings 2008 2014 National Bank of Malawi Limited Malawi Kwacha 20% 3 years Buildings 2010 2015 EIB US Dollars 5% 5 years PCL guarantee - - FMB Limited US Dollar 9% 5 years TNM Shares 2010 2015 Development Bank of South Africa South African Rand libor 9 years NBM shares 2008 2015 Tiger Brands Industries South African Rand - - PCL Guarantee - - FMB Limited Malawi Kwacha - 5 years Debenture 2010 2015
114
In millions of Kwacha for the year ended 31 December 2009
Annual Report
2009
In millions of Kwacha
Loans analysis 2008 Agreed date Agreed date Interest Repayment Security redemption redemption Due in Lenders name Currency rate terms commences finishes 1 year Due within 2 -5 year Due in 5 years 311 178 203 37 172 3 301 12 213 1,032 14 1,962 184 167 216 22 - 434 46 - 73 251 508 84 5 62 - 392 - 2,812
Danida Danish Kroner 3.5% Yearly Government 2004 2018 80 Nordic Development Fund Malawi Kwacha 15% Yearly Government 2003 2018 73 Kuwait Development Fund Malawi Kwacha 15% Yearly Government 2003 2017 94 Belgium Government Malawi Kwacha 7.5% Yearly Government 2005 2020 10 Libyan Government Malawi Kwacha - Dividends offset - - - 46 PTA Malawi Kwacha 7.0% Quarterly - 2009 2015 470 Norsad Us Dollars 7.5% 5 years Debenture 2008 2011 153 Malawi Government Malawi Kwacha 8.5 yearly - 1999 2014 1 National Bank of Malawi Limited Malawi Kwacha 19% 8 Months Buildings 2008 2011 Standard Bank Malawi Limited Malawi Kwacha 5% Quarterly PCL Guarantee 2008 2012 58 Standard Bank of Malawi Limited Malawi Kwacha 19% Quarterly Shares 2008 2012 178 NBS Bank Limited Malawi Kwacha 20% 3 years Buildings 2009 2012 NBS Bank Limited Malawi Kwacha 21% 10 years Buildings 2009 2016 10 National Bank of Malawi Limited Malawi Kwacha 20% 3 years Buildings 2009 2012 Norsad Agency US Dollars 5% 5 years PCL guarantee 2007 2009 54 Development Bank of South Africa South African Rand 4% above libor 9 years NBM shares 2008 2015 161 Tiger Brands Industries South African Rand PCL Guarantee - - - 1,534
115
Annual Report
2009

Group Movement in borrowings Danida loan NORDIC Development Fund Kuwait Development Fund Belgium Government FMB MWK Loan FMB USD Loan National Bank of Malawi Malawi Government NBS Bank Standard Bank Total local borrowings Foreign borrowings PTA Bank Libyan Government Development Bank of South Africa Norsad EIB Bank Total foreign borrowings Total borrowings Company NBS Bank Limited Standard Bank Limited Total local borrowings Foreign borrowings Development Bank of South Africa Total foreign borrowings Total borrowings At 1/01/09 K000 Draw- Exchange downs Repayments fluctuations K000 K000 K000 Interest accrual K000 At 30/12/09 K000
639 590 718 83 - - 58 5 679 976 3,748
- - - - 100 537 170 - 41 - 848
(75) - (132) (17) - - - - 43 (562) (743)
- - - - - 23 - - - - 23
20 63 77 5 - - 18 3 - 187 373
584 653 663 71 100 560 246 8 763 601 4,249
668 46 1,694 152 - 2,560 6,308
790 - - - 432 1,222 2,070
(61) - (501) (152) (77) (791) (1,534)
52 - (8) - (10) 34 57
23 - 16 - - 39 412
1,472 46 1,201 345 3,064 7,313
- 576 576
194 - 194
- (77) (77)
- - -
- - -
194 499 693
1,694 1,694 2,270
- - 194
(501) (501) (578)
(8) (8) (8)
16 16 16
1,201 1,201 1,894
116
Annual Report
2009

a) Government of Malawi Guaranteed Loans The Government of Malawi borrowed funds from Denmark, Nordic Development Fund, Kuwait Fund for Arab Economic Development and Belgium Government to finance the development of telecommunications services in terms of bilateral agreements, which were on lent to the Group. The group is responsible for servicing the loans, through the Government of Malawi. These loans are guaranteed by the Government of Malawi. In June 2006, the Group agreed with the Government of Malawi to convert to Malawi Kwacha the loans on lent to the company at the foreign currency exchange rates ruling as at April 2003 and revise some of the interest rates. Security, interest rates and repayment terms applicable to the loans are shown below: Government of Malawi/ The Government of the Kingdom of Denmark made available to the Kingdom of Denmark Government of Malawi a grant of Danish Krones (DKK) 79,000,000 to support the implementation of the preparatory programme to support the Telecommunications sector. Under Article 13 of the Bilateral Agreement, the Government made available to Malawi Telecommunications Limited (then Malawi Posts and Telecommunications Corporation) a loan amounting to DKK53, 200,000.The loan bears interest at 3.5% per annum and is payable half-yearly in arrears. The loan is unsecured, but ranks pari passu with future loan facilities and it is repayable over 20 years from the date of receipt of all equipment. In the addendum signed in June 2006 between the Company and the Government of Malawi, the loan was fixed at MK920, 947,960.94 and interest was maintained at 3.5% per annum. Nordic Development Fund The loan bears interest at 15% per annum and is repayable half-yearly in arrears. The loan is unsecured, but ranks pari passu with future loan facilities and it is repayable over 17 years from the date of receipt of all equipment. It was agreed in the addendum signed in June 2006 between the Company and Government of Malawi to fix the loan at MK627,159,500 and the interest was set at 7.5% per annum. Kuwait Fund for Arab The loan bears interest at 7% per annum and is repayable half-yearly in arrears. Economic Development The loan is unsecured, but ranks pari passu with future loan facilities and is repayable over 16 years including a 4-year grace period. It was agreed in the addendum signed in June 2006 between the Company and Government of Malawi to fix the loan at MK918,457,716.39 and the interest was put at 15% per annum. Government of Belgium The loan bears interest at 7.5% per annum and is repayable half-yearly in arrears starting from 31 March 2005. The loan is unsecured, but ranks pari pasu with future loan facilities and it is repayable over 15 years. It was agreed in the addendum signed in June 2006 between the Company and Government of Malawi to fix the loan at MK88,701,816.63 with interest rate maintained at 7.5% per annum. Mitsui & Company Limited The loan bears interest at 1% above the actual rate of the long-term prime lending rate in Japan. The loan is unsecured, but ranks pari passu with future loan facilities and is repayable in monthly installments of 15 million Japanese Yen. Libyan Government The loan is interest free and unsecured. There are no repayment terms. b) Other loans KBC Bank The loans bear interest of LIBOR plus 0.75% and are secured by deposits held by the Bank. The loan will be repaid from funds being deposited with the Bank. The repayments shall be in two equal installments, the first falling due on 14 May 2007. MalawiNet Limited The loan is interest free and unsecured, and is repayable by set-off against future dividends to be declared by MalawiNet Limited. A formal loan agreement has not been concluded.
117
Annual Report
2009

3 8 . P r o v i s i o n s
GROUP 2009 Balance at the beginning of the year Provision for the year Provision used in the year Balance at the end of the year Legal claim Severance pay Group bonus Other Total
11 - - 11
1,706 466 (202) 1,970
506 590 (504) 592
264 282 (361) 185
2,487 1,338 (1,067) 2,758 2,217 541 2,758
Due between 2 and 5 years Due within 1 year or less Balance as at the end of the year 2008 Balance at the beginning of the year Provision for the year Provision used in the year Balance at the end of the year
1 10 - 11
1,872 348 (444) 1,776
312 614 (420) 506
211 209 (156) 264
2,396 1,181 (1,020) 2,557 2,023 534 2,557
Due between 2 and 5 years Due within 1 year or less Balance as at the end of the year COMPANY 2009 Balance at the beginning of the year Transfer from Press Management Services Paid out during the year Provision made during the year Balance at the end of the year
- - - - -
- 213 (1) 88 300
105 - (90) 102 117
- - - - -
105 213 (91) 190 417 300 117 417
Due between 2 and 5 years Due within 1 year or less Balance at the end of the year 2008 Provision for the year
105
105 105
Due within 1 year or less
118
Annual Report
2009

3 9 . T r ad e a n d o t h e r p ayabl e s
Trade payables Letters of credit Accruals Others Malawi Kwacha US Dollars GBP Euro ZAR Other 2009 7,497 3,389 2,562 2,985 16,433 11,821 3,960 62 270 136 184 16,433 Group 2008 5,790 2,188 1,449 2,100 11,527 7,564 2,622 46 906 166 223 11,527 Company 2009 2008 - - - 220 220 220 - - - - - 220 121 121 121 121
4 0 . L i ab i l i t i e s d u e t o c u s t o m e r s
Current accounts Foreign currency accounts* Savings accounts Deposit accounts Analysed by interest risk type: Interest bearing deposits Non-interest bearing deposits Total liabilities to customers are payable as follows: - Within three months - Between three months and one year Analysis of deposits by sector - Wholesale and retail - Personal accounts - Agriculture - Manufacturing - Finance and insurance - Government accounts - Others * The foreign currency accounts balances as at 31 December were as follows:US Dollar denominated GBP denominated Euro denominated ZAR denominated Other currencies 4,970 340 929 16 - 6,255 3,840 340 709 78 40 5,007
2009
Group 2009 21,288 6,255 8,277 16,266 52,086 51,184 902 52,086 51,692 394 52,086 4,687 30,390 4,424 3,987 1,754 - 6,844 52,086 2008 17,452 5,007 7,149 15,022 44,630 43,732 898 44,630 44,524 106 44,630 5,812 15,859 13,495 2,047 2,174 1,363 3,880 44,630
The interest rate on foreign currency accounts ranged from 0.50% to 4% (2008:0.50% to 4%)
119
Annual Report

4 1 . Em p l o y e e b e n e f i t s
Expense recognised in the profit or loss Contributions to a defined contribution plan The expense is recognised in the operating expense line item in the profit or loss. Liability for defined contribution obligations The principal group pension scheme is the Press Corporation Limited Group Pension and Life Assurance Scheme covering all categories of employees with 2,646 (2008: 2,238) members as at 31 December 2009. The Fund is a defined contribution fund and is independently administered by NICO Life Insurance Company Limited. Under this arrangement employers liability is limited to the pension contributions. Equity compensation benefit An employee share option scheme was approved by shareholders at an extra-ordinary general meeting of shareholders on 13 July 2000. As a result of implementing this scheme, employees have taken up 134,896 share options at a price of K14.54 per share. The option was to be exercised within 5 years. This scheme expired in December 2006 and the Board is currently reviewing the position whether to reinstate it and if so in what mode. Company Shares 2009 2008 Number of shares allocated to employees at beginning of the year Number of shares subject to the scheme Number of shares released and fully paid Options Options granted to employees Options not exercised at year end The fair value of employees exercised share options as at 31 December 2009 is MK28 million (2008: MK28 million). 4,404,250 4,404,250 134,896 4,404,250 4,404,250 134,896 2009 297 2008 294
4,404,250 4,269,354
4,404,250 4,269,354
4 2 . C o n t i n g e n t l i ab i l i t i e s
Foreign guarantees Local guarantees and performance bonds
2009
Group 2009 776 3,764 4,540
2008 792 1,768 2,560
Guarantees and performance bonds represent acceptances, guarantees, indemnities and credits which will crystallise into an asset and a liability only in the event of default on the part of the relevant counterparty.
120
Annual Report

4 3 . Ca p i t al c o mm i t m e n t s
Authorised and contracted for Authorised but not yet contracted for These commitments are to be funded from internal resources and long term loans. Group 2009 6,809 5,370 12,179 2008 4,975 10,897 15,872
4 4 . R e la t e d p a r t i e s
The Group has a related party relationship with its subsidiaries, associates, joint ventures and with its Directors and Executive Officers. There were no material related party transactions with the ultimate controlling entity of the Group, Press Trust, during both periods. Transactions with Directors and Executive Officers Directors of the Company and their immediate relatives control 0.22% of the voting shares of the Company. Executive officers are also eligible to participate in the Groups share option programme (refer note 41). Total remuneration is included in administrative expenses more fully disclosed in note 13. Details of transactions between the Group and other related parties are disclosed below. As at 31 December Loans granted to group companies Sales within group companies Interest income Corporate expenses
870 1,099 437 49
1,460 1,138 665 444
Other related party transactions Associates Associates purchased goods from the Group at an arms length basis and at the reporting date associates did not owe the Group any significant balance (2008: MKnil) Joint ventures Joint ventures purchased goods from the Group at an arms length basis and at the reporting date joint ventures owed the Group MK890 million (2008: MK1,390 million).
121
Annual Report
2009

4 5 . D i v i d e n d p e r s ha r e
Dividend per share is calculated by dividing the total dividends recognised in the year by the weighted average number of ordinary shares in issue during the year. Final dividend (prior) Interim dividend (current) Weighted average number of ordinary shares in issue (million) Dividend per share Group and Company 2009 2008 174 353 121 120 295 473 120.2 2.45 113.5 4.17
The proposed current year second interim dividend is MK120.2 million (2008:MK nil) representing MK1.00 per share and proposed final divided for the year 2009 is MK240.4 million (2008:MK175 million) representing MK2.00 per share (2008:MK1.46)
4 6 . P r i o r y e a r ad j u s t m e n t s
46.1 Deferred tax The prior year adjustment in respect of the company relates to deferred tax on fair value increases of investments in subsidiaries and associates which were not recognised in prior years. Below is the analysis of the effect of the prior year adjustment arising on recognition of deferred tax liabilities on fair value increases on investments in subsidiaries and associates: Company Balance as at 31 December 2008 - As previously stated - Fair value of TNM Limited - Income tax on other comprehensive income - As restated Deferred tax liability Other reserves
- - 9,191 9,191
37,813 10,627 (9,191) 39,249
46.2 Consolidation of the investment in Telecom Networks Malawi Limited The company has an effective shareholding of 32.27% in Telecom Networks Malawi Limited (TNM). Previously, the company has always accounted for this investment as an equity-accounted investee. However, it has been established that the company actually has control over TNM since it has the power to govern the financial and operating policies of TNM through the holding of a majority of the voting rights of the Board of Directors. Consequently, the company is required by IAS27, Consolidated and separate financial statements to consolidate its investment in TNM in its group financial statements. This change has been retrospectively applied in current year.
2009
122
Annual Report

Below is the analysis of the effect of the prior year adjustment arising from the consolidation of Telecom Networks Malawi Limited in the Groups consolidated financial statements: Group Balance as at 1 January 2008 - As previously stated - Elimination of 2007 share of profit from TNM - Elimination of 2007 dividend income from associate - Effect of consolidating the 2007 carried forward equity - As restated Profit for the year - As previously stated in 2008 - Elimination of 2008 share of profit from TNM - Elimination of 2008 dividend income from associate - Effect of consolidating the 2008 profit - As restated Equity attributable to owners of the Company
Noncontrolling interest
Total
13,546 (356) (284) 3,155 16,061
9,027 - - 2,139 11,166
22,573 (356) (284) 5,294 27,227
3,140 (203) (624) 494 2,807
1,820 - - 1,036 2,856
4,960 (203) (624) 1,530 5,663
As required by IAS 1 Presentation of Financial Statements an additional statement of financial position has been presented for the earliest comparative period following the correction of this error in the financial statements on note 47.
123
Annual Report
2009

4 7 . C o n s o l i da t e d s t a t e m e n t o f f i n a n c i al p o s i t i o n a s at t h e b e g i n n i n g o f t h e e a r l i e s t c o m pa r at i v e p e r i o d
Assets 2009 Non-current assets Property, plant and equipment 39,520 Intangible assets 193 Investment properties 2,782 Investments in associates 1,989 Loans and advances to customers 12,662 Other investments 3,298 Deferred tax assets 770 61,214 Current assets Inventory 3,547 Biological assets 199 Loans and advances to customers 23,076 Other investments 11,573 Trade and other receivables 12,971 Assets classified as held for sale 6 Cash and cash equivalents 11,095 62,467 Total assets 123,681 Equity and liabilities Equity Share capital Share premium Other reserves Retained earnings Total equity attributable to equity holders of the company Non-controlling interest Total equity Non-current liabilities Loans and borrowings Provisions Deferred tax liabilities Current liabilities Bank overdraft Loans and borrowings Provisions Income tax payable Trade and other payables Liabilities due to customers Total liabilities Total equity and liabilities 2008 As restated 32,340 218 1,900 1,331 6,571 4,724 1,052 48,136 3,655 237 18,236 12,665 16,094 72 6,916 57,875 106,011 2007 As restated 26,911 307 1,104 763 3,552 3,535 667 36,839 2,962 55 14,500 11,223 11,495 15 7,672 47,922 84,761
1 2,097 9,982 12,531 24,611 13,795 38,406
1 2,097 10,025 9,399 21,522 13,131 34,653
1 100 8,903 7,057 16,061 11,166 27,227
5,675 2,217 3,477 11,369 2,117 1,638 541 1,091 16,433 52,086 73,906 85,275 123,681
4,774 2,023 4,411 11,208 730 1,534 534 1,195 11,527 44,630 60,150 71,358 106,011
4,512 1,915 3,355 9,782 968 1,454 522 1,648 9,409 33,751 47,752 57,534 84,761
124
Annual Report
2009

4 8 . C o m p a r a t i v e i n f o r ma t i o n f o r t h e c o m p a n y
The 2008 figures for the company are not comparable to 2009 figures because effective 1 January 2009, the management service division of Press Management Services Limited was transferred to Press Corporation Limited. The total assets and liabilities transferred as at 1 January 2009 were as follows: Assets Liabilities Net effect 194 (611) (417)
4 9 . I n fla t i o n a n d e x c ha n g e r a t e s
The average of the year-end buying and selling rates of the major foreign currencies affecting the performance of the company and group are stated below, together with the increase in the National Consumers Price Index which represents an official measure of inflation. Exchange rates as at 31 December ; United States Dollar ( USD) Euro British Pound (GBP) South African Rand (ZAR) Inflation rates as at 31 December (%) 2009 MK 143.2 205.2 228.0 19.3 7.6 2008 MK 140.6 211.4 217.1 16.1 9.5
At the time of signing these group financial statements, the exchange rates had moved to:Kwacha/United States Dollar Kwacha/Euro Kwacha/British Pound Kwacha/South Africa Rand
5 0 . S u b s e q u e n t e v e n t s
Subsequent to the balance sheet date, no significant events have occurred necessitating adjustments to or disclosures in these group financial statements.
125
Annual Report
2009
O n t h e malaw i s t o c k e x c ha n g e
Shareholdings
% of total shares in issue
Number Number of Shareholding of shares range shareholders 3 119 605 1082 1,809
% 0.17% 6.58% 33.44% 59.81% 100.00%
Press Trust 44.47% 53,475,249 1,000,000 + Deutsche Bank Trust Company America 19.28% 23,183,220 10,001 - 1,000,000 Old Mutual Life assurance (Malawi) Limited 12.27% 14,749,855 1,001 - 10,000 Others 23.99% 28,847,389 1 - 1,000 Total 120,255,713 Share Market Total number of shares in issue
2009 120,255,713
2,008 120,255,820
2007
2006
2005
110,234,502 110,234,502 110,230,320
Malawi Stock Exchange (MSE) Market statistics Market capitalization at 31 December (MKm) Market capitalization at 31 December (US$) Subscription price at listing MK14.89 Last traded price 31 December (MK per share) Highest (MK per share) Lowest (MK per share) Net asset value (NAV) per share Value of shares traded (MKm) Earnings per share % Dividend yield % 19,602 147.44 24,652 175.34 10,638 161.05 5,512 76.34 5,512 44.51
163.00 205.00 120.00 319.52 475.00 27.23 1.51
205.00 225.00 195.00 305.58 2,067.42 27.67 2.03
96.50 210.00 99 205.21 894.09 7.58 1.56
50.00 96.50 50.00 187.74 588.68 15.15 3.76
50.00 63 19 98.53 567.47 30.08 4.04
126
Annual Report
2009
P R E S S C O R P O R AT I O N L I M I T E D
S H A RE H O L D ERS D I A R Y A N D A D M INISTR A TION
A n n u al G e n e r al M e e t i n g - J u n e
REPORTS
Announcement of result, for half-year to June - September Preliminary announcement of annual results, for the year -March Annual Financial Statements -June In accordance with the company code on ethics, restraints on trading in PCLs shares by employees and directors operate for two-month periods prior to release of interim and preliminary results announcements. DIVIDENDS: Interim Final Declared September June Paid October August
ADMINISTRATION
Company Secretary C J Evans P O Box 1227 Blantyre Tel : +265 1 833 569 Fax: +265 1 824 656 Email : jimmy@presscorp.com companysec@presscorp.com Independent Auditors KPMG Public Accountants & Business Advisors P O Box 508 Blantyre Tel : +265 1 820 744 Fax: +265 1 820 575 Email : kpmg@kpmgmw.com Legal Advisors Savjani & Company P O Box 2790 Blantyre Tel: +265 1 824 555 Fax: +265 1 821 064 Email : savjani&co@malawi.net Bankers National Bank of Malawi Victoria Service Centre P O Box 947 Blantyre Press Corporation Limited website: Press Corporation Limited. Reg. No.2395 Registered Office: Chayamba Building Victoria Avenue P O Box 1227 Blantyre Transfer Secretaries Securities Department National Bank of Malawi P O Box 1438 Blantyre Tel : +265 1 820 900 Fax: +265 1 820 464 Email : nbminvestment@natbankmw.com London Depositary Deutsche Bank Trust Company Americas Winchester House 1 Great Winchester Street London EC2N 2DB Tel : +44 20 7545 3312 Fax + 44 20 7547 6073 Email : jane.taylor@db.com or begonia.roberts@db.com Location of Listing Malawi Stock Exchange and London Stock Exchange as a Global Depositary Receipt
www.presscorp.com
P R E S S C O R P O R AT I O N L I M I T E D C h a i r m a n s S t a t e m e n t
NOTES
128
Annual Report
2009

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P RES S C ORP ORATIO N L IM IT E D A ND ITS S UBS I DiAR IES

2008 % 44.46 12.31 16.98 26.25 100.00

directors report (continued)

Mr. D.C. Lungu Chairman 26 March 2010

Dr. M.A.P. Chikaonda Group Chief Executive

ST A TE M ENT O F D IRECTORS RESPONSI B I L ITIES

Mr. D.C. Lungu Chairman

Dr. M.A.P. Chikaonda Group Chief Executive

CONSO L I D ATE D STATE M ENTS O F F IN A NCI A L POSITION

1 2,097 9,982 12,531 24,611 13,795 38,406

1 2,097 10,025 9,399 21,522 13,131 34,653

1 2,097 35,907 863 38,868 - 38,868

1 2,097 39,249 290 41,637 41,637

5,675 2,217 - 3,477 11,369

4,774 2,023 - 4,411 11,208

1,392 300 328 7,759 9,779

1,788 414 9,191 11,393

Mr. D.C. Lungu Chairman

Dr. M.A.P. Chikaonda Group Chief Executive

2,117 1,638 541 1,091 16,433 52,086 73,906 85,275 123,681

730 1,534 534 1,195 11,527 44,630 60,150 71,358 106,011

55 502 117 55 220 - 949 10,728 49,596

53 482 105 55 121 816 12,209 53,846

CONSO L I D A TE D ST A TE M ENTS O F CO M PRE H ENSI V E INCO M E

658 8,578 (2,941) 5,637 33 5,670

568 7,960 (2,274) 5,686 (23) 5,663

- 1,440 (155) 1,285 - 1,285

(5) 1,980 (29) - 91 12 (594) 1,455 7,118

- (4,774) - (417) - - 1,432 (3,759) (2,474)

30,636 (9,191) 21,445 21,474

3,273 2,397 5,670

3,140 2,523 5,663

3,384 2,414 5,798

4,270 2,848 7,118

CONSO L I D A TE D ST A TE M ENTS O F C H A N G ES IN E Q UIT Y

6 51 (24) 95 128 5,798

CONSO L I D A TE D ST A TE M ENTS O F C H A N G ES IN E Q UIT Y ( c o n t i n u e d )

1,997 (1,689) 308 34,653

CONSO L I D A TE D ST A TE M ENTS O F C H A N G ES IN E Q UIT Y

(4,774) 1,432 (417) (3,759) (2,474) (295) 38,868

30,636 (9,191) 21,445

1,997 - 1,997 2,097

- (473) (473) 290

1,997 (473) 1,524 41,637

NOTES TO T H E F IN A NCI A L ST A TE M ENTS

NOTES TO T H E F IN A NCI A L ST A TE M ENTS

NOTES TO T H E F IN A NCI A L ST A TE M ENTS

NOTES TO T H E F IN A NCI A L ST A TE M ENTS

NOTES TO T H E F IN A NCI A L ST A TE M ENTS

NOTES TO T H E F IN A NCI A L ST A TE M ENTS

NOTES TO T H E F IN A NCI A L ST A TE M ENTS

NOTES TO T H E F IN A NCI A L ST A TE M ENTS

NOTES TO T H E F IN A NCI A L ST A TE M ENTS

NOTES TO T H E F IN A NCI A L ST A TE M ENTS

NOTES TO T H E F IN A NCI A L ST A TE M ENTS

NOTES TO T H E F IN A NCI A L ST A TE M ENTS

NOTES TO T H E F IN A NCI A L ST A TE M ENTS

NOTES TO T H E F IN A NCI A L ST A TE M ENTS

NOTES TO T H E F IN A NCI A L ST A TE M ENTS

NOTES TO T H E F IN A NCI A L ST A TE M ENTS

NOTES TO T H E F IN A NCI A L ST A TE M ENTS

NOTES TO T H E F IN A NCI A L ST A TE M ENTS

NOTES TO T H E F IN A NCI A L ST A TE M ENTS

NOTES TO T H E F IN A NCI A L ST A TE M ENTS