MPICO 2010 Annual Report

Annual Report 2010
MALAWI PROPERTY INVESTMENT COMPANY LIMITED
ANNUAL REPORT 2
2010
CONTENTS
Corporate Governance REPORT OF THE DIRECTORS STATEMENT OF DIRECTORS RESPONSIBILITIES INDEPENDENT Auditors REPORT STATEMENTS OF FINANCIAL POSITION STATEMENTS OF COMPREHENSIVE INCOME STATEMENTS OF CHANGES IN EQUITY STATEMENTS OF CASH FLOWS NOTES TO THE FINANCIAL STATEMENTS
7 9
12 13 14 15 17 18
An overview of the Blantyre CBD, seen from Mpingwe Hill in Limbe
ANNUAL REPORT 3
11
2010
THE Chairmans Statement
THE CHAIRMANS STATEMENT
During 2010, a considerable amount of time was spent on finalising plans and mobilising resources for the construction of The Gateway Shopping Mall. The earthworks contract was awarded in May 2010 and this phase of the works was completed in October 2010. The main
2010
contract was awarded in November 2010 and completion is expected in the second half of next year (2012).
ECONOMY IN GENERAL
ANNUAL REPORT
The economy performed relatively well in the year under review with GDP projected to grow by 6.7% which, although lower than the previous year (2009) when the economy grew by 7.7%, still represents robust growth. Annual inflation reduced from 8.4% in 2009 to 7.4%, following another bumper maize harvest.
THE NATIONAL PROPERTY MARKET

Demand for commercial property in Lilongwe continued to rise during the year under review. Comparatively, the demand in Blantyre was slightly lower, translating in rents rising at a faster pace in Lilongwe than in Blantyre. In response to the growing demand in Lilongwe, there
MPICOs Tikwere House(left) and Gemini House (right) flank landmark Kangombe House in Lilongwes CBD. MPICO initiated many of the developments in the new City Centre
is notable construction activity where two new hotels and a convention centre are under construction in the city centre area as well as the The Gateway Shopping Mall near the corner of Mchinji / Kaunda Roads.
SHARE PRICE
The share price during the year rose from MK2.60 to MK3.10 by the end of the year. The market
The number of shareholders has further reduced from 6,152 in the previous year to 5,884 by the end of the year under review.
GROUP PERFORMANCE
Turnover increased significantly from MK1.95 billion to MK4.2 billion because of a major increase in the fair value of our properties. Total expenditure increased by 20.5% from MK427.7 million to MK515.4 million as management continued to rehabilitate some of the properties.
ANNUAL REPORT 5
is now settling down after the global credit crunch that negatively affected share prices in 2009.
2010
The group profit before fair value adjustment and tax stands at MK817 million. This is an increase of 43% over the previous year which was MK572 million. The overall group profit before tax including fair value adjustment is MK3.7 billion and for 2009 it was MK1.52 billion. This represents an increase of 141%.
HUMAN RESOURCES
2010
The development of staff remains a priority for the Company. Several staff members are engaged in various courses such as Business Administration, Human Resource Management, Information Technology and Estate Management. The Company will continue to support them.
ANNUAL REPORT
PROSPECTS
It is expected that there will be continued real growth in rental income as demand for office space continues to grow.
DYE MAWINDO CHAIRMAN Another view of MPICOs Tikwere House in Lilongwe
CORPORATE GOVERNANCE
MPICO endorses the code of corporate practices and conduct recommended in the King report on Corporate Governance (King II Report), and the directors are committed to the implementation of the practices contained in this report.
The Board of directors is responsible for guiding and monitoring Malawi Property Investment Company Limited on behalf of the shareholders. In terms of the Memorandum and Articles of Association of the company, the Board consisted of five directors as at 31st December, 2010. No director has had any material interest, directly or indirectly, in any contract reviewed or approved by the Board in the year under review. The board is assisted in its duties by the following committees: Audit Committee Appointments and Remuneration Committee
AUDIT COMMITTEE
The committee has defined terms of reference and authority granted to it by the Board. They met four times in 2010 to review quarterly and annual financial statements including accounting policies as well as monitoring the effectiveness of internal controls. They also assessed the risks facing the business and considered reports from auditors to the company. The auditors have unrestricted access to this committee. The members are: Stewart Malata Andrew Barron Osman Karim Chairman Member Member
APPOINTMENTS AND REMUNERATION COMMITTEE

This committee is responsible for making recommendations to the Board on the company framework of remuneration for all staff. The committee also makes recommendations to the board regarding the appointment of senior management. They met twice during the year to consider the current conditions of service and to make appropriate recommendations for change. The members are: Andrew Barron Dye Mawindo Osman Karim Chairman Member Member
ANNUAL REPORT 7
2010
BOARD OF DIRECTORS
Consolidated Financial Statements for the year ended 31 December 2010
REPORT OF THE DIRECTORS

For the year ended 31 December 2010
The directors have pleasure in presenting the consolidated Financial Statements of Malawi Property Investment Company (MPICO) Limited and its subsidiary companies for the year ended 31 December 2010.
INCORPORATION AND REGISTERED OFFICE

MPICO Limited is a company incorporated in Malawi under the Malawi Companies Act, 1984. It is listed on the Malawi Stock Exchange. The address of its registered office is: Old Mutual House Robert Mugabe Crescent P.O. Box 30459 Lilongwe 3
AREAS OF OPERATION
The company has 33 (2009: 35) investment properties in the country mainly in Lilongwe and Blantyre, which it rents out to the Government and the Private Sector.
SHARE CAPITAL
The authorised share capital of the company is MK60 million (2009: MK60 million) divided into 1,200,000 Ordinary Shares of 5 tambala each (2009: 1,200,000,000 ordinary shares of 5 tambala each). The issued capital is MK57.451 million (2009: MK57.451 million) divided into 1,149,023,730 ordinary shares of 5 tambala each (2009: 1,149,023,730 ordinary shares of 5 tambala each), fully paid. The shareholders and their respective shareholding as at year-end were: Old Mutual Limited General Public Lincoln Investments Limited 2010 % 55.0 35.0 10.0 2009 % 55.0 35.0 10.0
PROFITS AND DIVIDENDS

The directors report a net profit for the year of MK2.548 billion (2009 : MK1.086 billion). The annual general meeting held on 24 June 2010 approved a dividend of MK183.8 million for the year 2009 of which an interim was already paid in October 2009 and a final paid in July 2010. An interim dividend for the year 2010 of MK91.9 million was paid in October 2010.
Consolidated Financial Statements for the year ended 9
31 December 2010
REPORT OF THE DIRECTORS (continued)

For the year ended 31 December 2010 31 December 2010 DIRECTORS
The following directors, appointed in terms of the companys Articles of Association, served office during the year: Mr S. Malata Mr O. Karim Mr J.A. Regout Mr A. Barron Mr D. Mawindo Mr G. A. Nthinda All year From 1 January 2010 to 1 December 2010 All year All year All year All Year
Consolidated Financial Statements for the year ended
DIRECTORS INTERESTS
The directors noted below hold the following ordinary shares in the company at the year-end. Mr. D. Mawindo Mr. S. Malata Mr. G. Nthinda Mr. O. Karim : : : : 43,471 shares 85,689 shares 503,300 shares 38,193 shares
ACTIVITIES
MPICO is in the business of development, rental and management of property. It has subsidiary companies as follows: Subsidiaries of MPICO Limited Capital Developments Limited New Capital Properties Limited Capital Investments Limited Frontline Investments Limited Mpico Malls Limited Percentage of Control 100% 100% 50.75% 69.5% 100% Development and rental of property Development and rental of property Development and rental of property Development and rental of property Development and rental of property Nature of operations
AUDITORS
The company auditors, Deloitte, have indicated their willingness to continue in office and a resolution is to be proposed at the forthcoming Annual General Meeting to re-appoint them as auditors in respect of the companys 31 December 2010 financial statements.
BY ORDER OF THE BOARD
COSMAS KATULUKIRA COMPANY SECRETARY
10
STATEMENT OF DIRECTORS RESPONSIBILITIES

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 company and the group as at the end of the financial year and of the operating results for that year. The Act also requires the directors to ensure that the company and the group keep proper accounting records which disclose with reasonable accuracy at any time the financial position of the company and the group and enable them to ensure that the financial statements comply with the Malawi Companies Act, 1984. In preparing the financial statements the directors accept responsibility for the following: Maintenance of proper accounting records; Selection of suitable accounting policies and applying them consistently; Making judgements and estimates that are reasonable and prudent; Compliance with applicable accounting standards, when preparing financial statements; and Preparation of financial statements on a going concern basis unless it is inappropriate to presume that the company and the group 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 company and the group and to maintain adequate systems of internal controls to prevent and detect fraud and other irregularities. The directors are of the opinion that the consolidated financial statements give a true and fair view of the state of the financial affairs of the company and of its operating results.
Director
Director
31 December 2010
INDEPENDENT AUDITORS REPORT TO THE MEMBERS OF MALAWI PROPERTY INVESTMENT COMPANY LIMITED
31 December 2010
P.O Box 30364 Capital City Lilongwe 3 Malawi Public Accountants Deloitte Second Floor Old Mutual House Robert Mugabe Crescent Tel : +265 (0)1 773 699 +265 (0)1 773 069 Fax : +265 (0)1 772 276 Email : lldeloitte@deloitte.co.mw www.deloitte.com
We have audited the consolidated financial statements of Malawi Property Investment Company Limited and its subsidiaries as set out on pages 13 to 47, which comprise the consolidated statement of financial position as at 31 December 2010, and the consolidated statement of comprehensive income, consolidated statement of changes in equity and consolidated statement of cash flows for the year then ended, and a summary of significant accounting policies and other explanatory information.
Managements Responsibility for the Financial Statements

Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with International Financial Reporting Standards, and for such internal control as management determines is necessary to enable preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.
Auditors Responsibility
Our responsibility is to express an opinion on these consolidated 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 consolidated financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditors judgement, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entitys preparation and fair presentation of the consolidated 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. An audit also includes evaluating appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the consolidated 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, the consolidated financial statements give a true and fair view of the financial position of Malawi Property Investment Company Limited and its subsidiaries as at 31 December 2010, and of their financial performance and cash flows for the year then ended in accordance with International Financial Reporting Standards and the Malawi Companies Act, 1984, so far as concerns the members of the company.
Deloitte Public Accountants Lilongwe, Malawi 25 January 2011
Audit Tax Consulting Financial Advisory

Resident Partners: N.T Uka J.S. Melrose L.L. Katandula V.W. Beza C.A. Kapenda
A member firm of Deloitte Touche Tohmatsu
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STATEMENTS OF FINANCIAL POSITION

31 December 2010
Group Company Notes 2010 2009 2010 2009 MK000 MK000 MK000 MK000 ASSETS NON-CURRENT ASSETS Investment properties 5 & 6 8,664,683 7,379,204 4,869,895 3,977,727 Plant and equipment 7 132,869 122,882 66,486 58,678 Capital work in progress 8 1,172,842 59,456 - 58,900 Subsidiary companies 9 - - 73,810 72,810 Secured staff loans 29,657 29,505 29,657 29,505 Total non-current assets 10,000,051 7,591,047 5,039,848 4,197,620 CURRENT ASSETS Nyumba Yanu receivable 10 Receivables 11 Tax recoverable Amounts due from subsidiaries 12 Dividends receivable from subsidiaries Funds at call and on deposit Bank balances and cash Investment properties classified as held for sale 13 Total current assets TOTAL ASSETS EQUITY AND LIABILITIES SHAREHOLDERS EQUITY Share capital Distributable reserves Non-distributable reserves Equity attributable to equity holders of the parent Minority interests Total equity NON-CURRENT LIABILITIES Borrowings Severance pay provision Deferred taxation
7,001 953,183 11,562 - - 31,910 15,745 1,019,401 1,234,080 2,253,481 12,253,532
25,220 98,379 93,935 - - 396,308 7,072 620,914 - 620,914 8,211,961
- 364,873 11,562 1,044,852 42,645 5,296 15,187 1,484,415 107,580 1,591,995 6,631,843
88,307 93,935 9,274 75,892 4,009 271,417 271,417 4,469,037
57,451 1,323,040 5,723,617 7,104,108 953,582 8,057,690
57,451 835,534 4,140,223 5,033,208 714,009 5,747,217
57,451 912,705 3,338,414 4,308,570 - 4,308,570
57,451 535,986 2,600,485 3,193,922 3,193,922
14 15 16
700,000 160,484 2,808,152 3,668,636
- 153,425 1,985,053 2,138,478
700,000 160,484 1,374,425 2,234,909
153,425 1,001,747 1,155,172
Total non-current liabilities CURRENT LIABILITIES Payables 17 Dividend due to Minority Interest Tax payable Bank overdraft Total current liabilities TOTAL EQUITY AND LIABILITIES
349,591 1,755 144,636 31,224 527,206 12,253,532
245,891 - 74,624 5,751 326,266 8,211,961
70,733 - - 17,631 88,364 6,631,843
114,442 5,501 119,943 4,469,037
The financial statements were approved and authorised for issue by the Board of Directors on 25 January 2011 and were signed on its behalf by:
Director
Director
31 December 2010
STATEMENTS OF COMPREHENSIVE INCOME

For the year ended 31 December 2010 31 December 2010
Notes INCOME Rental income Increase in fair value of investment properties 19 2,863,462 133,387 118,830 - 64,034 4,195,949 953,632 - 75,916 - 48,815 1,953,245 1,379,765 133,387 114,030 157,900 74,204 2,323,729 487,818 24,989 161,510 213,892 1,290,516 Profit on disposal of non-current assets 5 1,016,236 874,882 464,443 402,307 Group 2010 2009 Company 2010 2009
MK000 MK000 MK000 MK000
Interest receivable Dividends receivable from subsidiaries Other income Total income EXPENDITURE Property and administration expenses Provision for doubtful receivables 11 Interest payable Total expenditure PROFIT BEFORE TAXATION TAXATION 20 21
497,865 7,924 9,613 515,402 3,680,547 1,132,640 2,547,907
405,445 19,219 2,990 427,654 1,525,591 439,633 1,085,958
421,641 5,616 60,430 487,687 1,836,042 526,060 1,309,982
350,872 14,166 2,832 367,870 922,646 234,636 688,010
PROFIT FOR THE YEAR APPROPRIATION OF PROFIT FOR THE YEAR Distributable reserves Non-distributable reserves 19
415,801 1,850,433 2,266,234 281,673 2,547,907 1.97 0.36 1.61
343,942 589,836 933,778 152,180 1,085,958 0.81 0.30 0.51
305,014 1,004,968 1,309,982 - 1,309,982
349,742 338,268 688,010 688,010
Amounts attributable to members of the parent Amounts attributable to minority interest Basic earnings per share (K) 22
Analysed as: - Distributable (K) - Non-distributable (K)
The group and company had no other comprehensive income in the current or prior period.
14
STATEMENTS OF CHANGES IN EQUITY

Attributable Non- Share Distributable distributable capital reserve reserve to equity holders of Minority the parent interest Total
MK000 MK000 MK000 MK000 MK000 MK000 Group For the year ended 31 December 2009 At the beginning of the year Distributable profit for the year Non-distributable profit for the year Dividends declared Final 2008 Dividends declared Interim 2009 At the end of the year For the year ended 31 December 2010 At the beginning of the year Transfer to distributable reserves on disposal of properties Distributable profit for the year Non-distributable profit for the year Dividends declared Final 2009 Dividends declared Interim 2010 At the end of the year - - - - - 57,451 267,039 415,801 - (103,412) (91,922) 1,323,040 (267,039) - 1,850,433 - - 5,723,617 - 415,801 1,850,433 (103,412) (91,922) 7,104,108 - 87,900 193,773 (17,825) (24,275) 953,582 503,701 2,044,206 (121,237) (116,197) 8,057,690 57,451 835,534 4,140,223 5,033,208 714,009 5,747,217 57,451 - - - - 57,451 652,456 343,942 - (80,432) (80,432) 835,534 3,550,387 - 589,836 - - 4,140,223 4,260,294 343,942 589,836 (80,432) (80,432) 5,033,208 603,319 49,788 102,392 (17,215) (24,275) 714,009 4,863,613 393,730 692,228 (97,647) (104,707) 5,747,217
31 December 2010
STATEMENTS OF CHANGES IN EQUITY

Non Share Distributable capital reserve distributable reserve Total
(continued)
MK000 MK000 MK000 MK000 Company For the year ended 31 December 2008
At the beginning of the year Distributable profit for the year Non-distributable profit for the year Dividends declared Final 2008 Dividends declared Interim 2009 At the end of the year For the year ended 31 December 2010 At the beginning of the year Transfer to distributable profit on disposal of properties Distributable profit for the year Non-distributable profit for the year Dividends declared Final 2009 Dividends declared Interim 2010 At the end of the year
57,451 - - - - 57,451
347,108 349,742 - (80,432) (80,432) 535,986
2,262,217 - 338,268 - - 2,600,485
2,666,776 349,742 338,268 (80,432) (80,432) 3,193,922
57,451 - - - - - 57,451
535,986 267,039 305,014 - (103,412) (91,922) 912,705
2,600,485 (267,039) - 1,004,968 - - 3,338,414
3,193,922 305,014 1,004,968 (103,412) (91,922) 4,308,570
The distributable reserve is available for distribution to shareholders as dividends subject to a 10% withholding tax. The non-distributable reserve relates to unrealised capital profits (net of related deferred tax) on valuation of investment properties and is not available for distribution in terms of the Malawi Companies Act, 1984.
2010
Group 2009 2010
Company 2009 MK000
MK000 MK000 MK000 SHARE CAPITAL Authorised: 1,200,000 Ordinary shares of 5t each (2009: 1,200,000,000 Ordinary Shares of 5t each) Issued and fully paid: 1,149,023,730 Ordinary shares of 5t each (2009: Ordinary Shares of 5t each) Total issued and fully paid share capital 57,451 57,451 57,451 57,451 57,451 57,451 60,000 60,000 60,000
60,000
57,451 57,451
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STATEMENTS CASH FLOWS

Notes 2010 Group 2009 2010 Company 2009
MK000 MK000 MK000 MK000 Cash flows from operating activities Net cash (used in)/generated by operations Returns on investments and servicing of finance Dividends received Interest received Interest paid Dividends paid to outside shareholders Dividends paid to shareholders, including tax Net cash flow from returns on investments and servicing of finance Taxation paid Net cash (used in)/generated by operating activities Cash flows from investing activities Purchase of plant and equipment and additions to investment properties (including property held for sale) (Increase)/decrease in capital work in progress Proceeds on disposal of non-current assets Investments in subsidiaries Movement in Nyumba Yanu receivable Staff long-term loans movement Net cash (used in)/generated by investing activities Cash flows from financing activities Borrowings NET (DECREASE)/INCREASE IN CASH AND CASH EQUIVALENTS CASH AND CASH EQUIVALENTS at the beginning of the year CASH AND CASH EQUIVALENTS at the end of the year 18 16,431 397,629 2,852 74,400 397,629 148,721 74,400 47,963 (381,198) 248,908 (71,548) 26,437 700,000 - 700,000 (118,413) (1,113,386) 561,145 - 18,219 (152) (652,587) (154,799) - - - 23,173 (2,580) (134,206) (71,671) 58,900 561,145 (1,000) - (152) 547,222 (129,250) (2,580) (131,830) (126,462) (157,156) (428,611) (129,428) (261,893) 383,114 (26,479) (71,009) (1,318,770) 27,803 (258,671) 158,267 118,830 (9,613) (40,345) (195,334) - 75,916 (2,990) (41,490) (160,864) 115,255 114,030 (60,430) - (195,334) 166,510 24,989 (2,832) (160,864) 24 (144,993) 774,435 (1,221,282) 389,135
31 December 2010
NOTES TO THE FINANCIAL STATEMENTS

1.
General information
The main business of the Group, which is incorporated in Malawi, comprises the development, rental and management of property. The Groups administrative office and registered office is in Old Mutual House, City Centre, Lilongwe.
2. Adoption of new and revised International Financial Reporting Standards
2.1 Standards and Interpretations affecting amounts reported and/or disclosed in the financial statements
In the current year, the Group has adopted those new and revised Standards and Interpretations issued by the International Accounting Standards Board and the International Financial Reporting Interpretations Committee of the International Accounting Standards Board that are relevant to its operations and are effective for annual reporting periods beginning on 1 January 2010. The adoption of these new and revised Standards and Interpretations did not have a significant impact on the consolidated financial statements.
2.2 Standards and Interpretations in issue, not yet effective

At the date of authorisation of these consolidated financial statements, the following Standards and Interpretations were in issue but not yet effective: 2.2.1 IFRS 3 Business Combinations - Amendments resulting from May 2010 Annual Improvements to IFRSs (effective for annual periods beginning on or after 1 July 2010). 2.2.2 IFRS 7 Financial Instruments: Disclosures - Amendments resulting from May 2010 Annual Improvements to IFRSs (effective for annual periods beginning on or after 1 January 2011). 2.2.3 IFRS 7 Financial Instruments: Disclosures - Amendments enhancing disclosures about transfers of financial assets (effective for annual periods beginning on or after 1 July 2011). 2.2.4 IFRS 9 Financial Instruments - Classification and Measurement (effective for annual periods beginning on or after 1 January 2013). 2.2.5 IAS 1 Presentation of Financial Statements - Amendments resulting from May 2010 Annual Improvements to IFRSs (effective for annual periods beginning on or after 1 January 2011). 2.2.6 IAS 12 Income Taxes Limited scope amendment (recovery of underlying assets). Effective for annual periods beginning on or after 1 January 2012. 2.2.7 IAS 24 Related Party Disclosures - Revised definition of related parties (effective for annual periods beginning on or after 1 January 2011). 2.2.8 IAS 27 Consolidated and Separate Financial Statements - Amendments resulting from May 2010 Annual Improvements to IFRSs (effective for annual periods beginning on or after 1 July 2010).
18
NOTES TO THE FINANCIAL STATEMENTS (continued)

For the year ended 31 December 2010 31 December 2010 Consolidated Financial Statements for the year ended 19
2.2.9 IAS 32 Financial Instruments: Presentation - Amendments relating to classification of rights issues (effective for annual periods beginning on or after 1 February 2010). 2.2.10 IFRIC 13 Customer Loyalty Programmes - Amendments resulting from May 2010 Annual Improvements to IFRSs (effective for annual periods beginning on or after 1 January 2011). 2.2.11 IFRIC 14 IAS19 - The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction - November 2009 Amendments with respect to voluntary prepaid contributions (effective for annual periods beginning on or after 1 January 2011). 2.2.12 IFRIC 19 Extinguishing Financial Liabilities with Equity Instruments (effective for annual periods beginning on or after 1 July 2010). The directors anticipate that these Standards and Interpretations in future periods will have no significant impact on the financial statements of the Group.
3.
Significant accounting policies
The principal accounting policies are set out below.
3.1
Statement of compliance
The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards.
3.2
Basis of preparation
The consolidated financial statements are prepared in terms of the historical cost basis with the exception of investment properties, which are included at valuation. Historical cost is generally based on the fair value of the consideration given in exchange for assets as explained in the accounting policies below.
3.3
Basis of consolidation
The consolidated financial statements incorporate the financial statements of the Malawi Property Investment Company Limited (MPICO) and entities controlled by MPICO. Control is achieved where the Company has the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. Income and expenses of subsidiaries acquired or disposed of during the year are included in the consolidated statement of comprehensive income from the effective date of acquisition and up to the effective date of disposal, as appropriate. Total comprehensive income of subsidiaries is attributed to the owners of the Company and to the non-controlling interests even if this results in the non-controlling interests having a deficit balance. When necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies into line with those used by other members of the Group. All intra-group transactions, balances, income and expenses are eliminated in full on consolidation.

3.
Significant accounting policies (Continued)
3.4
Plant and equipment
Plant and equipment are shown at cost, less related depreciation. Plant and equipment are depreciated on the straight line basis at rates that will reduce book amounts to estimated residual values over the anticipated useful lives of the assets as follows:
Fixtures, equipment and computers Motor vehicles
5 years 4 years
The assets residual values and useful lives are reviewed, and adjusted if appropriate, at every year-end. An item of plant and equipment is derecognised upon disposal or when no future economic benefits are expected to arise from the continued use of the asset.
3.5
Investment properties
Investment property, which is property held to earn rentals and/or for capital appreciation (including property under construction for such purposes), is measured initially at its cost, including transaction costs. Subsequent to initial recognition, investment property is measured at fair value. Gains or losses arising from changes in the fair value of investment property are included in profit or loss for the year in which they arise. The increase in the fair value of investment properties, net of the related deferred tax, is appropriated to a non-distributable reserve in compliance with profit distribution restrictions included in the Malawi Companies Act, 1984. In the event of disposal of the property held at fair value, the related portion of the reserve is transferred to the distributable reserve. The statement of comprehensive income will then report a profit or loss on disposal based on the difference between proceeds and the carrying value. A property is deemed to have been sold when formal Government consent to the sale is received and that investment property is derecognised upon disposal or when the investment property is permanently withdrawn from use and no future economic benefits are expected from the disposal. Properties in the course of construction for supply or administrative purposes are carried at cost, less any recognised impairment loss. Cost includes professional fees and borrowing costs capitalised in accordance with the Groups accounting policy. Such properties are classified to the appropriate categories of property, plant and equipment when completed and are ready for intended use.
3.6
Non-current assets held for sale
Non-current assets and disposal groups are classified as held for sale if their carrying amount will be recovered principally through a sale transaction rather than through continuing use. This condition is regarded as met only when the sale is highly probable and the asset (or disposal group) is available for immediate sale in its present condition. Management must be committed to the sale, which should be expected to qualify for recognition as a completed sale within one year from the date of classification. Non-current assets classified as held for sale are measured at the lower of their previous carrying amount and fair value less costs to sell except where the measurement is specifically covered by another standard.
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3.7
Taxation
Income tax expense represents the sum of the tax currently payable and deferred tax.
Current tax
The tax currently payable is based on taxable profit for the year. Taxable profit differs from net profit as reported in the statement of comprehensive income because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The Groups liability for current tax is calculated using tax rates that have been enacted by the end of the reporting period.
Deferred tax
Deferred tax is recognised on differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of the taxable profit. Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred tax assets are generally recognised for all deductible temporary differences to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. Such deferred tax assets and liabilities are not recognised if the temporary difference arises from goodwill or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit. Deferred tax liabilities are recognised for taxable temporary differences associated with investments in subsidiaries and associates, and interests in joint ventures, except where the Group is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future. Deferred tax assets arising from deductible temporary differences associated with such investments and interests are only recognised to the extent that it is probable that there will be sufficient taxable profits against which to utilise the benefits of the temporary differences and they are expected to reverse in the foreseeable future. The carrying amount of deferred tax assets is reviewed at the end of each reporting period and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered. Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the year in which the liability is settled or the asset realised, based on tax rates (and tax laws) that have been substantively enacted by the end of the reporting period. The measurement of deferred tax liabilities and assets reflects the tax consequences that would follow from the manner in which the company expects, at the reporting date, to recover or settle the carrying amount of its assets and liabilities. Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities and when they relate to income taxes levied by the same taxation authority and the Group intends to settle its current tax assets and liabilities on a net basis.
Current and deferred tax for the year

Current and deferred tax are recognised as an expense or income in profit or loss, except when they relate to items that are recognised outside profit or loss (whether in other comprehensive income or directly in equity), in which case the tax is also recognised outside profit or loss, or where they arise from the initial accounting for a business combination. In the case of a business combination, the tax effect is taken into account in the accounting for the business combination.

3.
3.8
Foreign currencies
(a) Functional and presentation currency

Items included in the financial statements of each of the Groups companies are measured using Malawi Kwacha, the functional currency of the primary economic environment in which the entire Group operates. The consolidated financial statements are presented in Malawi Kwacha, which is the Groups functional and presentation currency.
(b) Transactions and balances

Transactions in currencies other than Malawi Kwacha are recognised at the rates of exchange prevailing at the dates of the transactions. At the end of each reporting period, monetary items denominated in foreign currencies are retranslated at the rates prevailing at that date. Non-monetary items carried at fair value that are denominated in foreign currencies are retranslated at the rates prevailing at the date when the fair value was determined. Non-monetary items that are measured in terms of historical cost in a foreign currency are not retranslated. Exchange differences are recognised in profit or loss in the period in which they arise except for exchange differences on foreign currency borrowings relating to assets under construction for future productive use, which are included in the cost of those assets when they are regarded as an adjustment to interest costs on those foreign currency borrowings.
3.9
Pension fund
MPICO contributes to a defined contribution pension scheme administered by Old Mutual Malawi who are also a shareholder of the company. All payments made to the scheme are charged as an expense as they fall due.
3.10 Borrowing costs

Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, which are assets that necessarily take a substantial period of time to get ready for their intended use or sale, are added to the cost of those assets, until such time as the assets are substantially ready for their intended use or sale. Investment income earned on the temporary investment of specific borrowings pending their expenditure on qualifying assets is deducted from the borrowing costs eligible for capitalisation. All other borrowing costs are recognised in profit or loss in the period in which they are incurred.
3.11 Revenue recognition

Revenue is measured at the fair value of the consideration received or receivable. Revenue is reduced for estimated rebates and other similar allowances. Rental income from investment properties is recognised on a straight-line basis over the term of the relevant lease. Such rental income recognition commences when an occupancy agreement with a tenant is formalised. Dividend revenue from investments is recognised when the shareholders right to receive payment has been established. Interest revenue is accrued on a time basis, by reference to the principal outstanding and at the effective interest rate applicable, which is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset to that assets net carrying amount.
22

3.12 Financial assets

Investments are recognised and derecognised on a trade date where the purchase or sale of an investment is under a contract whose terms require delivery of the investment within the timeframe established by the market concerned, and are initially measured at fair value, net of transaction costs except for those financial assets classified as at fair value through profit or loss, which are initially measured at fair value. Financial assets are classified into the following specified categories: financial assets as at fair value through profit or loss (FVTPL), held-to-maturity investments, available-for-sale (AFS) financial assets and loans and receivables. The classification depends on the nature and purpose of the financial assets and is determined at the time of initial recognition.
Effective interest method

The effective interest method is a method of calculating the amortised cost of a financial asset and of allocating interest income over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset, or, where appropriate, a shorter period. Income is recognised on an effective interest basis for debt instruments other than those financial assets designated as at FVTPL.
Financial assets at FVTPL

Financial assets are classified as at FVTPL where the financial asset is either held for trading or it is designated as at FVTPL. A financial asset is classified as held for trading if: it has been acquired principally for the purpose of selling in the near future; or it is a part of an identified portfolio of financial instruments that the Group manages together and has a recent actual pattern of short-term profit-taking; or it is a derivative that is not designated and effective as a hedging instrument.
A financial asset other than a financial asset held for trading may be designated as at FVTPL upon initial recognition if: such designation eliminates or significantly reduces a measurement or recognition inconsistency that would otherwise arise; or the financial asset forms part of a Group of financial assets or financial liabilities or both, which is managed and its performance is evaluated on a fair value basis, in accordance with the Groups documented risk management or investment strategy, and information about the grouping is provided internally on that basis; or it forms part of a contract containing one or more embedded derivatives, and IAS 39 permits the entire combined contract (asset or liability) to be designated as at FVTPL. Financial assets at FVTPL are stated at fair value, with any resultant gain or loss recognised in profit or loss. The net gain or loss recognised in profit or loss incorporates any dividend or interest earned on the financial asset.

3.
3.12 Financial assets (Continued)

Financial assets at FVTPL (Continued) AFS financial assets
AFS financial assets are non-derivatives that are either designated as AFC or are not classified as (a) loans and receivables, (b) held-to-maturity investments or (c) financial assets at fair value through profit or loss.
Loans and receivables

Trade receivables, loans, and other receivables that have fixed or determinable payments that are not quoted in an active market are classified as loans and receivables. Loans and receivables are measured at amortised cost using the effective interest method less any impairment. Interest income is recognised by applying the effective interest rate, except for shortterm receivables where the recognition of interest would be immaterial.
Impairment of financial assets

Financial assets, other than those at FVTPL, are assessed for indicators of impairment at the end of each reporting period. Financial assets are impaired where there is objective evidence that, as a result of one or more events that occurred after the initial recognition of the financial asset, the estimated future cash flows of the investment have been impacted. For financial assets carried at amortised cost, the amount of the impairment is the difference between the assets carrying amount and the present value of estimated future cash flows, discounted at the original effective interest rate. The carrying amount of the financial asset is reduced by the impairment loss directly for all financial assets with the exception of trade receivables where the carrying amount is reduced through the use of an allowance account. When a trade receivable is uncollectible, it is written off against the allowance account. Subsequent recoveries of amounts previously written off are credited against the allowance account. Changes in the carrying amount of the allowance account are recognised in profit or loss. When an AFS financial asset is considered to be impaired, cumulative gains or losses previously recognised in other comprehensive income are reclassified to profit or loss in the period. With the exception of AFS equity instruments, if, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised, the previously recognised impairment loss is reversed through profit or loss to the extent that the carrying amount of the investment at the date the impairment is reversed does not exceed what the amortised cost would have been had the impairment not been recognised. In respect of AFS equity securities, impairment losses previously recognised in profit or loss are not reversed through profit or loss. Any increase in fair value subsequent to an impairment loss is recognised in other comprehensive income.
Derecognition of financial assets

The group derecognises a financial asset only when the contractual rights to the cash flows from the asset expire, or when it transfers the financial asset and substantially all the risks and rewards of ownership of the asset to another entity.
24

3.13 Financial liabilities and equity instruments issued by the Group

Classification as debt or equity
Debt and equity instruments are classified as either financial liabilities or as equity in accordance with the substance of the contractual arrangement.
Equity instruments
An equity instrument is any contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities. Equity instruments are recorded at the proceeds received, net of direct issue costs.
Dividends on ordinary shares

Dividends on ordinary shares are recognised in equity in the period in which they are approved by the company.
Financial liabilities
Financial liabilities are classified as either financial liabilities at FVTPL or other financial liabilities. Financial liabilities at FVTPL Financial liabilities are classified as at FVTPL where the financial liability is either held for trading or it is designated as at FVTPL. A financial liability is classified as held for trading if: it has been incurred principally for the purpose of repurchasing in the near future; or it is a part of an identified portfolio of financial instruments that the Group manages together and has a recent actual pattern of short-term profit-taking; or it is a derivative that is not designated and effective as a hedging instrument.
A financial liability other than a financial liability held for trading may be designated as at FVTPL upon initial recognition if: such designation eliminates or significantly reduces a measurement or recognition inconsistency that would otherwise arise; or the financial liability forms part of a Group of financial assets or financial liabilities or both, which is managed and its performance is evaluated on a fair value basis, in accordance with the Groups documented risk management or investment strategy, and information about the grouping is provided internally on that basis; or it forms part of a contract containing one or more embedded derivatives, and IAS 39 permits the entire combined contract (asset or liability) to be designated as at FVTPL.
Financial liabilities at FVTPL

Financial liabilities at FVTPL are stated at fair value, with any resultant gain or loss recognised in profit or loss. The net gain or loss recognised in profit or loss incorporates any interest paid on the financial liability.

3.
3.13 Financial liabilities and equity instruments issued by the Group (Continued)
Other financial liabilities
Other financial liabilities, including borrowings, are initially measured at fair value, net of transaction costs. Other financial liabilities are subsequently measured at amortised cost using the effective interest method, with interest expense recognised on an effective yield basis.
The effective interest method is a method of calculating the amortised cost of a financial liability and of allocating interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments through the expected life of the financial liability, or, where appropriate, a shorter period.
Derecognition of financial liabilities

The Group derecognises financial liabilities when, and only when, the Groups obligations are discharged, cancelled or they expire.
3.14 Impairment of non-financial assets

At the end of each reporting period, the Group reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). Where it is not possible to estimate the recoverable amount of an individual asset, the Group estimates the recoverable amount of the cash-generating unit to which the asset belongs. Where a reasonable and consistent basis of allocation can be identified, corporate assets are also allocated to individual cash-generating units, or otherwise they are allocated to the smallest group of cash-generating units for which a reasonable and consistent allocation basis can be identified. Intangible assets with indefinite useful lives and intangible assets not yet available for use are tested for impairment at least annually, and whenever there is an indication that the asset may be impaired. Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risk specific to the asset for which the estimates of future cash flows have not been adjusted. If the recoverable amount of an asset is estimated to be less than its carrying amount, the carrying amount of the asset is reduced to its recoverable amount. Impairment losses are recognised as an expense immediately. If an impairment loss subsequently reverses, the carrying amount of the asset is increased to the revised estimate of its recoverable amount, but only to the extent that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset in prior years. A reversal of an impairment loss is recognised as income immediately.
26

3.15 Provisions
Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable that the company will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation. The amount recognised as a provision is the best estimate of the consideration required to settle the present obligation at the end of the reporting period, taking into account the risks and uncertainties surrounding the obligation. Where a provision is measured using the cash flows estimated to settle the present obligation, its carrying amount is the present value of those cash flows. When some or all of the economic benefits required to settle a provision are expected to be recovered from a third party, the receivable is recognised as an asset if it is virtually certain that reimbursement will be received and the amount of the receivable can be measured reliably.
4. Critical accounting judgements and key sources of estimation uncertainty

The preparation of financial statements, in conformity with IFRS, requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the principal accounting policies of the company. Estimates and judgements are evaluated and based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances.
4.1
Critical judgements in applying the Groups accounting policies
No critical judgements were made by the directors during the current period which would have a material impact on the financial statements.
4.2
Key sources of estimation uncertainty
Valuation of investment properties

Investment properties are carried at fair value in accordance with IAS 40 Investment Property. Fair values have been determined through valuations carried out by Knight Frank, qualified and registered valuers.
Provision for doubtful debts

Provision for doubtful debts is based upon a policy which takes into account past transaction history with debtors and projected collections. Actual collection experience may differ from the current projections.
Provision for severance pay

An estimate of MK160 million (2009: MK153 million) has been made in respect of severance pay based on the current provisions of the Employment Law and based on the assumption that employee terminations will be evenly spread between the immediate future and anticipated retirement dates. Some of these current provisions are being reviewed and amended as detailed in note 15. As such the actual amounts to be paid in future may be different.

5.
Operating segments
5.1
Operating Segments
Operating segments have been identified on the basis of internal reports about components of the Group that are regularly reviewed by the chief operating decision maker in order to allocate resources to the segments and to assess their performance.
5.2 Products and services from which reportable segments derive their revenues
The Group has one principal line of business rental and management of investment property. Information reported to and used by the Managing Director for decision making for the purposes of resource allocation and assessment of segment performance is more specifically focussed on each of the Groups current 33 (2009: 35) investment properties. Though one of the properties contributed MK140 million (2009: MK120 million) representing 15% (2009: 14%) of the total rental revenue in the current year and its value at MK1,256 million (2009: MK947 million) was 15% (2009: 13%) of the total investment property value, no single investment property contributes close to 75% of the total revenue from external customers.
5.3
Geographical information
The Groups investment property is situated principally in the two major cities in Malawi. The following analysis shows the rental income, investment property values and property fair value movements by geographical market. GROUP Rental income Property values 2010 2009 2010 2009 2010 Fair value increase 2009
MK000 MK000 MK000 MK000 MK000 MK000 Blantyre Lilongwe Other markets Total Investment property held for sale 100,561 1,016,236 - 874,882 1,234,080 9,898,763 - 7,379,204 607,265 2,863,462 953,632 167,400 718,558 29,717 915,675 148,837 700,565 25,480 874,882 1,214,786 7,137,497 312,400 8,664,683 1,317,787 5,803,217 258,200 7,379,204 305,924 1,897,031 53,242 2,256,197 133,131 795,981 24,520 953,632
28

COMPANY Rental income Property values 2010 2009 2010 2009 2010 Fair value increase 2009
MK000 MK000 MK000 MK000 MK000 MK000 Blantyre Lilongwe Other markets Total Investment property held for sale - 464,443 - 402,307 107,580 4,997,475 - 3,977,727 9,956 1,379,765 487,818 122,044 314,191 28,208 464,443 110,072 268,083 24,152 402,307 917,186 3,655,509 297,200 4,869,895 1,087,188 2,644,339 246,200 3,977,727 242,749 1,076,165 50,895 1,369,809 114,206 349,768 23,844 487,818
5.4
Information about major customers
Included in total rentals income are rentals amounting to MK698 million (2009: MK572 million) in respect of property rented by the Government of Malawi. At rental value of 69% (2009: 67%), the Government is the single largest tenant with the other rental revenues being evenly spread over several tenants.

2010
Group 2009 2010
Company 2009 MK000
MK000 MK000 MK000
6.
Investment properties
VALUATION
Freehold Leasehold Total investment properties
6,908,184 1,756,499 8,664,683
6,016,985 1,362,219 7,379,204
4,325,095 544,800 4,869,895
3,530,307 447,420 3,977,727
Movements in the valuation of investment properties are set out below. VALUATION Freehold At the beginning of the year Additions Fair value adjustment Disposals Property held for sale (note 13) Realignment At the end of the year Leasehold At the beginning of the year Additions Fair value adjustment Realignment At the end of the year Total valuation 1,362,219 16,956 377,324 - 1,756,499 8,664,683 1,135,225 16,053 225,647 (14,706) 1,362,219 7,379,204 447,420 2,444 94,936 - 544,800 4,869,895 356,660 6,737 46,783 37,240 447,420 3,977,727 6,016,985 60,122 1,888,830 (427,376) (630,377) - 6,908,184 5,201,062 73,232 727,985 - - 14,706 6,016,985 3,530,307 44,468 1,274,873 (427,376) (97,177) - 4,325,095 3,071,735 54,777 441,035 (37,240) 3,530,307
The registers of land and buildings are open for inspection at the registered offices of the company. Investment properties were revalued to fair value as at 31 December 2010 on the basis set out in Note 3.5 to the consolidated financial statements. The valuations were carried out by an independent valuer not related to the Group, Mr. Don Whayo B.Sc., Dip (Urb. Man.) B.A, MSIM, MRICS, Chartered Valuation Surveyor, in accordance with the Appraisal and Valuation Standards laid down by the Royal Institution of Chartered Surveyors and the International Valuation Standards. Included in the investment properties balance as at 31 December 2010 were properties encumbered as follows:
30

Total
1. Lingadzi House valued at MK618 million (2009: MK451 million)

The property is the subject of a charge in favour of First Merchant Bank to secure a sum of MK70 million and a further charge to secure a sum of MK30 million registered on 16 May 2003 and 29 June 2006 respectively.
2. Development House (MK500 million), MDC House (MK352 million) and Centre House Arcade (K1,142 million)
These properties are the subject of a charge in favour of National Bank of Malawi to secure a sum of MK700 million borrowed to finance the construction of a mall in a wholly owned subsidiary, MPICO Malls Limited (notes 8 and 14). The charges were registered on 13 April, 2010.
7.
GROUP
Plant and equipment
Fixture & Motor fittings Generators vehicles
Furniture & equipment
MK000 MK000 MK000 MK000 MK000 COST At 1 January 2009 Additions At 31 December 2009 At 1 January 2010 Additions Disposals At 31 December 2010 ACCUMULATED DEPRECIATION At 1 January 2009 Charge for the year At 31 December 2009 At 1 January 2010 Charge for the year Disposals At 31 December 2010 CARRYING AMOUNT Carrying amount 31 December 2010 Carrying amount 31 December 2009 63,989 42,110 5,657 7,361 4,691 9,384 58,532 64,027 132,869 122,882 11,310 5,785 17,095 17,095 6,942 - 24,037 11,710 1,723 13,433 13,433 1,704 (891) 14,246 4,693 4,693 9,386 9,386 4,693 - 14,079 19,632 10,233 29,865 29,865 11,232 (2,463) 38,634 47,345 22,434 69,779 69,779 24,571 (3,354) 90,996 50,929 8,276 59,205 59,205 28,821 - 88,026 20,794 - 20,794 20,794 - (891) 19,903 18,770 - 18,770 18,770 - - 18,770 84,691 9,201 93,892 93,892 6,119 (2,845) 97,166 175,184 17,477 192,661 192,661 34,940 (3,736) 223,865

7.
Plant and equipment (Continued)
COMPANY Fixture & Motor Fittings Generators vehicles Furniture & equipment Total
MK000 MK000 MK000 MK000 MK000 COST At 1 January 2009 Additions At 31 December 2009 At 1 January 2010 Additions Disposals At 31 December 2010 ACCUMULATED DEPRECIATION At 1 January 2009 Charge for the year At 31 December 2009 At 1 January 2010 Disposals Charge for the year At 31 December 2010 CARRYING AMOUNT Carrying amount 31 December 2010 Carrying amount 31 December 2009 21,760 5,599 4,295 5,731 4,691 9,384 35,740 37,964 66,486 58,678 8,049 1,705 9,754 9,754 - 2,032 11,786 10,937 1,455 12,392 12,392 (891) 1,436 12,937 4,693 4,693 9,386 9,386 - 4,693 14,079 19,296 7,195 26,491 26,491 (2,463) 7,961 31,989 42,975 15,048 58,023 58,023 (3,354) 16,122 70,791 11,830 3,523 15,353 15,353 18,193 - 33,546 18,123 - 18,123 18,123 - (891) 17,232 18,770 - 18,770 18,770 - - 18,770 55,243 9,212 64,455 64,455 6,119 (2,845) 67,729 103,966 12,735 116,701 116,701 24,312 (3,736) 137,277
32

-
8.
Capital work in progress
The capital work in progress relates to the work being carried out on a new shopping mall by a 100% owned subsidiary MPICO Malls Limited. The construction of the mall, called The Gateway, is scheduled to be completed in February 2012. The construction is being financed through internal and external sources. The Group has identified investment properties which will be sold to raise the finances for the project (see note 13). The Group has also borrowed (note 14) from the National Bank of Malawi (NBM) to finance the initial stages of the construction. Additional finance will be sourced from other external sources, both foreign and local. The capital work in progress has been accounted for in line with accounting policy note 3.5 and included in the capital work in progress are borrowing costs amounting to MK50.9 million capitalised in line with this policy.
9.

Subsidiary companies
2010 % 2009 2010 2009
% MK000 MK000
Wholly owned subsidiaries New Capital Properties Limited Capital Developments Limited MPICO Malls Limited Other subsidiaries Frontline Investments Limited Capital Investments Limited 69.50 50.75 1,870 1,401 73,810 1,870 1,401 72,810 100.00 100.00 100.00 100.00 100.00 - 570 68,969 1,000 570 68,969
Total investment in subsidiary companies
The investments in subsidiary companies comprise ordinary shares and are stated at cost. The subsidiaries have no other forms of shares in issue.
10.
Nyumba Yanu receivable
This relates to advances made and direct costs incurred on the houses being constructed under the Nyumba Yanu Project. Nyumba Yanu, a subsidiary of Fargo Ltd, was the proprietor of the absolute title in 34 plots of land comprised in title number NK309 comprising 1.97 hectares of land situated at Maone in Blantyre. Nyumba Yanu obtained planning approval in accordance with the Local Government Act and the Town & Country Planning Act for the construction of 34 houses on the land. The Group, through New Capital Properties Ltd, financed the construction of the houses by Fargo Ltd. No interest is charged by the Group on the amounts advanced but the Group is selling the houses whose construction was completed in 2007. MPICO has a caution on the land.

10.
Nyumba Yanu receivable (continued)
During the year 10 houses (2009: 7 houses) were sold and deposits amounting to MK5.6 million (2009: MK15.98 million) were received towards the purchase of the remaining 2 houses (2009: 12 houses). The houses are let to third parties at commercial rates. This receivable amount was less than the estimated net realisable value on the sale of houses as at year-end taking
into account the rent being received on these houses. The movement on the account in the year is detailed below: Opening balance Recovery on sale of houses Closing balance 2010 2010 25,220 (18,219) 7,001 Group 2009 48,393 (23,173) 25,220 Group 2009 2010 Company 2009 MK000
MK000 MK000
MK000 MK000 MK000
11.
Receivables
737,849 97,174 61,163 60,000 39,168 2,472 (44,643) 953,183 65,985 21,202 28,047 - 32,673 3,077 (52,605) 98,379 228,913 64,498 61,163 - 39,168 1,956 (30,825) 364,873 41,838 19,773 28,047 32,673 2,746 (36,770) 88,307
Rental and service charges Prepaid property expenses Valuation and consultancy receivables Advance payments to contractors Staff receivables Other receivables Provision for doubtful receivables Total receivables
Interest is charged on receivables in respect of outstanding rentals at the prevailing commercial bank lending rate. As at year end the amount outstanding from Government was MK702 million (2009: nil) for the Group {Company MK250 million (2009: nil)}. The total interest charged on overdue Government rentals and other tenants amounted to MK101 million (2009: MK75 million) {Company MK34 million (2009: MK16.3 million)} for the year. The Group has provided fully for all receivables over 90 days, except for rentals receivable from Government, because historical experience is such that receivables that are past due beyond 90 days are generally not recoverable. Movement in provision for doubtful receivables
34

2010
Group 2009 2010
Company 2009 MK000 35,883 (13,279) 14,166 36,770
MK000 MK000 MK000 Balance at beginning of the year Amounts written off during the year Amounts recovered during the year Increase in provision recognised in the statement of comprehensive income Balance at end of the year 7,924 44,643 19,219 52,605 5,616 30,825 52,605 (101) (15,785) 51,763 - (18,377) 36,770 - (11,561)
In determining the recoverability of rentals receivable, the Group considers any change in the credit quality of the receivable from the date credit was initially granted up to the reporting date. Except for the Government which accounts for approximately 69% (2009: 67%) rental income, the concentration of credit risk is limited due to the customer base being large and unrelated. Accordingly, the directors believe that there is no further credit provision required in excess of the provision already made for doubtful receivables.
12.
Related party transactions
At the year-end, the Company had the following balances with subsidiary companies. The Company also had staff loans and advances as disclosed in the statement of financial position and in note 10 to the financial statements. Amounts due from subsidiaries 2010 2009
MK000 MK000 New Capital Properties Limited Capital Developments Limited Frontline Investments Limited Capital Investments Limited MPICO Malls Limited Total balances due from subsidiaries (1,659) 14,719 8,387 14,181 1,009,224 1,044,852 269 9,005 9,274

MPICO Group had the following transactions and balances with Old Mutual, the parent company: 2010 2009
MK000 MK000 Pension contribution costs for the year Rental income and service charges for the year Old Mutual Group internal auditors remuneration (excluding expenses) 20,550 4,903 4,342 16,623 2,368 3,529
Rental income and service charges for the year relates to the rentals charged by MPICO for the office space that Old Mutual occupies in Old Mutual Building in Lilongwe. The service charges relate to Old Mutuals share of utilities paid by MPICO that are then recovered from the tenants, charged based on office space occupied. These transactions are at arms-length. The balances due to MPICO subsidiaries other than MPICO Malls Limited, relate to unsettled management fees, and other amounts in respect of payments made on behalf of the subsidiaries. The amount due from MPICO Malls Limited relates to funding advanced by MPICO towards financing of the construction of a mall by MPICO Malls Limited. The amounts advanced attract interest at base lending rates and payable upon joining of other participants in the construction of the mall at a later stage. During the year, the company entered into the following transactions with its subsidiary companies. 2010 Company 2009 MK000 172,366
MK000 Management fees charged to subsidiaries Compensation of key management personnel 36,656
During the year loans totalling MK18 million (2009: MK16.4 million) were advanced to employees in key positions. At 31 December 2010 the total loans balance outstanding from employees in key positions was MK39.3 million (2009: MK36.3 million). These loans were granted on the same interest and repayment terms as loans to other staff members. Furthermore, emoluments paid to the employees in key positions during the year were as follows: 2010 2009
MK000 MK000 Salary, housing allowance, pension and other benefits 84,552 72,201
Loans and advances to directors as at 31 December 2010 amounted to MK0.362 million (2009: MK1.7 million). These were granted on the same interest and repayment terms as loans to staff members.
36

2010
Group 2009 2010
Company 2009 MK000
MK000 MK000 MK000
13.
Investment properties classified as held for sale
For the year ended 31 December 2010 Valuation Transfer from investment property (note 6) Additions Fair valuem adjustment At the end of the year 630,377 6,394 597,309 1,234,080 - - - - 97,177 447 9,956 107,580 -
These include a property owned by MPICO and another by New Capital Properties Limited approved for sale by the board of directors during the year. Rental income from these properties amounted to MK100.6 million (2009: MK85.7 million) in the year. These properties are located in the capital city, Lilongwe and a search is under way for buyers.
14.
Borrowings
The borrowings relate to an amount borrowed from National Bank of Malawi to finance construction of The Gateway Mall (see note 8). The loan is subject to interest charges at 1.5% below the banks base lending rate per annum and is repayable over a period of 10 years. The loan is secured by investment properties as disclosed in note 6.
15. Provisions
Severance pay 160,484 153,425 160,484 153,425
The provisions for severance pay relate to severance pay allowance provided for in accordance with the Employment Act and the Groups conditions of service. The amount has been determined as detailed in note 4.2 to the consolidated financial statements. The legislation giving rise to the requirements to provide for severance pay, the Employment Act has been amended. The principal change to the Act is the removal of the provision requiring employers to accrue for severance pay relating to future retirement costs. In addition, the amended Act has introduced an obligation on the part of the employer to ensure that employees are covered by registered pension arrangements. The new Act, which at the date of approval of these financial statements had not yet been gazetted, was designed to be introduced in conjunction with new pensions legislation which has been drafted but not yet been passed through Parliament. Both these pieces of legislation, if applied as intended, will give rise to changes in accounting for post retirement benefits for all employers.

2010
Group 2009 2010
Company 2009 MK000
MK000 MK000 MK000
16.
Deferred taxation
1,985,053 823,099 2,808,152 1,722,652 262,401 1,985,053 1,001,747 372,678 1,374,425 858,102 143,645 1,001,747
At the beginning of the year
Charged to statement of comprehensive income At the end of the year
17.
Payables
279,695 35,075 25,163 9,658 349,591 46,509 147,416 39,803 12,163 245,891 32,425 21,526 16,738 44 70,733 41,816 49,401 20,368 2,857 114,442
Accruals Prepaid rentals Other payables Property expenses payables Total payables
Accruals are in respect of various expenses incurred but whose invoices had not yet been received or received but not booked as at year-end. Property expenses payables relate to unpaid but booked invoices for property maintenance and other directly attributable property management costs. No interest is chargeable on these payables and there is no specific allowed credit period from the date of the invoice but the Groups financial risk management policies include ensuring that invoices are paid within 30 days.
18. Cash and cash equivalents as stated in the statement of financial position
Funds at call and on deposit Bank balances and cash Bank overdraft Total cash and cash equivalents 31,910 15,745 (31,224) 16,431 396,308 7,072 (5,751) 397,629 5,296 15,187 (17,631) 2,852 75,892 4,009 (5,501) 74,400
38

2010
Group 2009 2010
Company 2009 MK000
MK000 MK000 MK000
19.
Increase in fair value of investment properties
During the year, a fair value adjustment to investment properties has been credited and the associated tax has been charged to the statement of comprehensive income. To ensure compliance with profit distribution rules under company law in Malawi, the net of tax balance has been transferred to a non-distributable reserve. This is analysed as follows: Fair value adjustment credited to statement of comprehensive income Related deferred tax Minority interest Amount transferred to non-distributable reserves 2,863,462 (819,256) (193,773) 1,850,433 953,632 (261,404) (102,392) 589,836 1,379,765 (374,797) - 1,004,968 487,818 (149,550) 338,268
20.
Profit before taxation
Profit before taxation is arrived at after charging/(crediting): Auditors remuneration Group internal auditors - remuneration - expenses 8,196 4,342 2,705 24,571 133,387 11,102 29,133 7,924 9,745 183,393 7,399 3,529 3,040 22,434 - 9,165 26,276 19,219 7,425 137,160 4,787 4,342 2,705 16,122 133,387 4,706 29,133 5,616 9,745 183,286 4,236 3,529 3,040 15,048 3,459 26,276 14,166 7,425 137,160
Depreciation of plant and equipment Profit on disposal of non-current assets Directors remuneration Pension costs Staff costs 26 staff in 2010 (24 in 2009) - fees for services as directors - for managerial services
Bad debts

2010
Group 2009 2010
Company 2009 MK000
MK000 MK000 MK000
21.
Taxation
298,015 823,099 11,526 1,132,640 160,581 262,401 16,651 439,633 141,856 372,678 11,526 526,060 74,340 143,645 16,651 234,636
Income tax
Deferred tax Divided tax Total taxation charge Reconciliation of effective tax rates to standard tax rate: Effective taxation rates Impact of dividend income not taxed Other permanent differences Standard tax rate
30.8% - (0.8%) 30.0%
28.8% - 1.2% 30.0%
28.7% 2.6% (1.3%) 30.0%
25.4% 5.3% (0.7%) 30.0%
22.
Earnings per share
The earnings and weighted average number of ordinary shares used in the calculation of basic earnings per share are as follows: 2010 2009 MK 343,942,000 589,836,000 933,778,000
MK Distributable profit 415,801,000
Non-distributable profit 1,850,433,000 Profit for the year attributable to equity holders of the parent 2,266,234,000 Weighted average number of ordinary shares for the purposes
of basic earnings per share 1,149,023,730 1,149,023,730
23.
Dividends declared
The annual general meeting held on 24 June 2010 approved a dividend of MK183.8 million for the year 2009 profits and the dividend was paid in October 2009 as interim and final in July 2010. An interim dividend for the year 2010 of MK91.9 million was paid in October 2010.
40

2010
Group 2009 2010
Company 2009 MK000
MK000 MK000 MK000
24. Reconciliation of profit before taxation to net cash inflow from operating activities
Profit before taxation Increase in fair value of investment properties Interest receivable Dividends receivable Interest payable Depreciation (Increase)/decrease in receivables (Decrease)/increase in payables Increase in severance pay provision Profit on disposal of non-current assets Movement on group company balances Net cash (outflow)/inflow from operating activities 3,680,547 (2,863,462) (118,830) - 9,613 24,571 (854,804) 103,700 7,059 (133,387) - (144,993) 1,525,591 (953,632) (75,916) - 2,990 22,434 81,130 133,097 38,741 - - 774,435 1,836,042 (1,379,765) (114,030) (157,900) 60,430 16,122 (276,566) (43,709) 7,059 (133,387) (1,035,578) (1,221,282) 922,646 (487,818) (24,989) (161,510) 2,832 15,048 (4,830) 60,028 38,741 28,987 389,135
25.
Financial risk management
Categorisation of financial instruments The analysis below sets out the groups classification of financial assets and liabilities and their fair values including accrued interest. Financial assets Receivables (gross) Funds at call and on deposit Bank balance and cash Total financial assets Financial liabilities Borrowings Payables Bank overdraft Total financial liabilities 700,000 349,591 31,224 1,080,815 - 245,891 5,751 251,642 700,000 70,733 17,631 788,364 114,442 5,501 119,943 900,184 31,910 15,745 947,839 123,599 396,308 7,072 526,979 1,452,370 5,296 15,187 1,472,853 97,581 75,892 4,009 177,482

25.
Financial risk management (continued)
The Group has exposure to the following risks arising from its transactions in financial instruments: Capital risk Foreign currency risk Interest rate risk Credit risk Liquidity risk This note presents information about the Groups exposure to each of the above risks, the companys objectives, policies and processes for identification, measurement, monitoring and controlling risk, and the companys management of capital. Details of the significant accounting policies and methods adopted, including the criteria for recognition, the basis of measurement and the basis on which income and expenses are recognised, in respect of each class of financial asset, financial liability and equity instrument are disclosed in note 3 to the financial statements. Below is an analysis of how the Group manages the risk associated with the following relevant financial instruments.
(a) Capital risk management

The Group manages its capital to ensure that it will be able to continue as a going concern while maximising the return to stakeholders through the optimisation of the debt and equity balance. The capital structure of the Group consists of mainly equity comprising issued capital, reserves and retained earnings as disclosed in the statement of changes in equity. The Board reviews the capital situation on an annual basis and based on each review, the Company will balance its overall capital structure through the payment of dividends and raising finance through borrowings or repaying any existing borrowings.
(b) Foreign currency risk management

The Group undertakes certain transactions denominated in foreign currencies. Hence, exposures to exchange rate fluctuations arise. The exposure to foreign currency risk has significantly increased in the current year due to the engagement of the contractors and consultants involved in the construction of the Mall. The contractors and consultants invoice the Group in foreign currency and fluctuations in the exchange rate would significantly affect the performance for the year through exchange gains and losses. As at year end, the Group had the following foreign currency exposure.
42

Liabilities 2010 2009
MK000 MK000
South African Rand
4,840
The Board reviews the foreign currency situation regularly to ensure there is adequate foreign currency to make payments to the contractors and consultants involved in the construction of the mall (note 8).
(c) Interest rate risk management

The companys exposure to interest rate risk is minimal as it does not have significant borrowings. All borrowings are at commercial rates based on the bank base lending rate
(d)
Credit risk management
Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the Group. The Group has adopted a policy of only dealing with creditworthy counterparties and ensuring that tenants pay rentals in advance, as a means of mitigating the risk of financial loss from defaults. The Groups exposure and the credit worthiness of its tenants is continuously monitored. Excluding Government rentals, receivables are from a large number of tenants, spread across diverse sectors and geographical areas. Apart from the exposure to Government, the Group does not have any significant credit risk exposure to any single counterparty or any group of counterparties having similar characteristics. The credit risk exposure is managed by proactively engaging Government in good time on amounts due from it. The credit risk on liquid funds is limited because the counterparties are financial institutions in a highly regulated industry. The carrying amount of receivables (note 11) and cash and cash equivalents (note 18) recorded in the financial statements, grossed up for any allowances for losses, represents the Groups maximum exposure to credit risk.
(e) Liquidity risk management

Ultimate responsibility for liquidity risk management rests with the board of directors, which has built an appropriate liquidity risk management framework for the management of the entitys short, medium and long-term funding and liquidity management requirements. The entity manages liquidity risk by maintaining adequate reserves, banking facilities and by continuously monitoring forecast and actual cash flows and matching the maturity profiles of financial assets and liabilities. The following tables detail the Groups and Companys remaining contractual maturity for its non-derivative financial assets and financial liabilities. The tables have been drawn up based on the undiscounted contractual maturities of the financial assets and cash flows of financial liabilities based on the earliest date on which the company can be required to pay.

25. Financial risk management (continued) (e) Liquidity risk management (Continued)
GROUP 2010 Assets Bank balances and cash Funds at call and on deposit Receivables (gross) Total Liabilities Payables Borrowings Bank overdraft Total Net position COMPANY 2010 Assets Bank balances and cash Funds at call and on deposit Receivables (gross) Total Liabilities Payables Borrowings Bank overdraft Total Net position 70,733 - 17,631 88,364 375,265 - - - - 1,009,224 - 700,000 - 700,000 (700,000) 70,733 700,000 17,631 788,364 684,489 15,187 5,296 443,146 463,629 - - 1,009,224 1,009,224 - - - 15,187 5,296 1,452,370 1,472,853 1-3 months 3-12 months Over 12 months Total 349,591 - 31,224 380,815 567,124 - - - - - - 700,000 - 700,000 (700,000) 349,591 700,000 31,224 1,080,815 (132,976) 15,745 31,910 900,184 947,939 - - - - - - - - 15,745 31,910 900,184 947,839 1-3 months 3-12 months Over 12 months Total
MK000 MK000 MK000 MK000
MK000 MK000 MK000 MK000
44

GROUP 2009 Assets Bank balances and cash Funds at call and on deposit Receivables (gross) 396,308 123,599 526,979 396,308 123,599 526,979 7,072 7,072 1-3 months Total MK000 MK000
Total Liabilities Payables Bank overdraft
245,891 5,751 251,642 275,337 1-3 months
245,891 5,751 251,642 275,337
Total Net position 2009 COMPANY Assets Bank balances and cash Funds at call and on deposit Receivables (gross)
Total
MK000 MK000
4,009 75,892 97,581 177,482
4,009 75,892 97,581 177,482
Total Liabilities Payables Bank overdraft
114,442 5,501 119,943 57,539
114,442 5,501 119,943 57,539
Total Net position

26.
Operating lease arrangements
The Group as lessor

Leasing arrangements
Operating leases relate to the investment property owned by the Group with lease terms of between 1 and 10 years, with an option to extend the lease term. All operating lease contracts contain market based rental review clauses in the event that the lessee exercises its option to renew. The lessees do not have options to purchase the property at the expiry of the lease period. The property rental income earned by the Group from its investment property, all of which is leased out under operating leases, amounts to MK1,016 million (financial year 2009: MK874 million).
27.
Contingent liabilities
The Group is currently contesting various civil cases filed by various plaintiffs. On advice from legal counsel, MK4.0 million (2009: MK4.3 million) has been provided for in respect of these claims. 2010 Group 2009 2010 Company 2009 MK000
MK000 MK000 MK000
28.
Capital commitments
4,493,065 797,110 1,061,605 769,500
Authorised
Included in the commitments above, are contracted commitments relating to a shopping mall construction project amounting to MK4.396 billion. The construction is estimated to be completed in February 2012. The project is being implemented in a joint arrangement with other financing partners through MPICO Malls Limited currently wholly owned by MPICO. Capital expenditure commitments are financed from internal resources, existing facilities as well as external sources.
46

29.
Economic factors
Economic factors relevant to the companys performance are set out below. Year-end exchange rate MK/US$ Inflation rate Bank base rate 2010 152.00 6.3% 17.75% 2009 146.0 7.6% 19.5%
At the time of approval of these consolidated financial statements, there had been no significant changes to these statistics.
30.
Holding company
The ultimate intermediate holding company is Old Mutual Life Assurance Company (Malawi) Limited.
31.
Events after the reporting period
There were no significant events after the reporting period.
48 Consolidated Financial Statements for the year ended 31 December 2010 MALAWI PROPERTY INVESTMENT COMPANY LIMITED
NOTES
31 December 2010
49

MPICO 2010 Annual Report

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Annual Report 2010

MALAWI PROPERTY INVESTMENT COMPANY LIMITED

An overview of the Blantyre CBD, seen from Mpingwe Hill in Limbe

THE Chairmans Statement

MALAWI PROPERTY INVESTMENT COMPANY LIMITED

THE CHAIRMANS STATEMENT

THE NATIONAL PROPERTY MARKET

MALAWI PROPERTY INVESTMENT COMPANY LIMITED

MALAWI PROPERTY INVESTMENT COMPANY LIMITED

DYE MAWINDO CHAIRMAN Another view of MPICOs Tikwere House in Lilongwe

MALAWI PROPERTY INVESTMENT COMPANY LIMITED

APPOINTMENTS AND REMUNERATION COMMITTEE

MALAWI PROPERTY INVESTMENT COMPANY LIMITED

Consolidated Financial Statements for the year ended 31 December 2010

MALAWI PROPERTY INVESTMENT COMPANY LIMITED

REPORT OF THE DIRECTORS

INCORPORATION AND REGISTERED OFFICE

PROFITS AND DIVIDENDS

Consolidated Financial Statements for the year ended 9

MALAWI PROPERTY INVESTMENT COMPANY LIMITED

REPORT OF THE DIRECTORS (continued)

Consolidated Financial Statements for the year ended

BY ORDER OF THE BOARD

COSMAS KATULUKIRA COMPANY SECRETARY

MALAWI PROPERTY INVESTMENT COMPANY LIMITED

STATEMENT OF DIRECTORS RESPONSIBILITIES

Consolidated Financial Statements for the year ended 11

MALAWI PROPERTY INVESTMENT COMPANY LIMITED

Consolidated Financial Statements for the year ended

Managements Responsibility for the Financial Statements

Deloitte Public Accountants Lilongwe, Malawi 25 January 2011

Audit Tax Consulting Financial Advisory

A member firm of Deloitte Touche Tohmatsu

MALAWI PROPERTY INVESTMENT COMPANY LIMITED

STATEMENTS OF FINANCIAL POSITION

7,001 953,183 11,562 - - 31,910 15,745 1,019,401 1,234,080 2,253,481 12,253,532

25,220 98,379 93,935 - - 396,308 7,072 620,914 - 620,914 8,211,961

88,307 93,935 9,274 75,892 4,009 271,417 271,417 4,469,037

57,451 1,323,040 5,723,617 7,104,108 953,582 8,057,690

57,451 835,534 4,140,223 5,033,208 714,009 5,747,217

57,451 912,705 3,338,414 4,308,570 - 4,308,570

57,451 535,986 2,600,485 3,193,922 3,193,922

700,000 160,484 2,808,152 3,668,636

- 153,425 1,985,053 2,138,478

700,000 160,484 1,374,425 2,234,909

153,425 1,001,747 1,155,172

349,591 1,755 144,636 31,224 527,206 12,253,532

245,891 - 74,624 5,751 326,266 8,211,961

70,733 - - 17,631 88,364 6,631,843

114,442 5,501 119,943 4,469,037

Consolidated Financial Statements for the year ended 13

MALAWI PROPERTY INVESTMENT COMPANY LIMITED

STATEMENTS OF COMPREHENSIVE INCOME

MK000 MK000 MK000 MK000

Consolidated Financial Statements for the year ended

497,865 7,924 9,613 515,402 3,680,547 1,132,640 2,547,907

405,445 19,219 2,990 427,654 1,525,591 439,633 1,085,958

421,641 5,616 60,430 487,687 1,836,042 526,060 1,309,982

350,872 14,166 2,832 367,870 922,646 234,636 688,010

415,801 1,850,433 2,266,234 281,673 2,547,907 1.97 0.36 1.61

343,942 589,836 933,778 152,180 1,085,958 0.81 0.30 0.51

305,014 1,004,968 1,309,982 - 1,309,982

349,742 338,268 688,010 688,010

Analysed as: - Distributable (K) - Non-distributable (K)

2.2 Standards and Interpretations in issue, not yet effective