Cambria Africa Regulatory News (CMB)

19 November 2010

LonZim Plc

("LonZim" or "the Company")

Results for the year ended 31 August 2010

LonZim Plc (AIM:LZM), the investment company specifically focused on the recovery of Zimbabwe, is pleased to announce its full year results to 31 August 2010.

A copy of the Company's annual report is available on the Company's website at ww.lonzim.co.uk and will be posted to shareholders shortly.

LonZim was established in December 2007 and has built a strong portfolio of assets and operations that are well positioned to grow as the Zimbabwe economy recovers.

·; As a result of the improving economic stability in Zimbabwe, LonZim has seen tangible progress in its operations during the year.

·; LonZim reported a turnover of £4.9m for the year (2009: £2.6m)

·; Group turnover has grown 90% year on year demonstrating the start of the recovery for the economy.

·; With the growth of the market, the majority of Lonzim's subsidiary companies are not expected to require any further head office support for their operations going forward.

·; Net assets per share of 87.2p compare to a closing market price on 18 November of 28.5p per share.

Enquiries

Chief Executive's Review

LonZim Plc remains an investment company focused on the potential growth opportunities that will arise from economic recovery in Zimbabwe.

Zimbabwe suffered a period of economic collapse from 2003 to 2009 which saw the Zimbabwean economy contract and diminish. Hyperinflation reached a staggering 500 billion percent in 2008 resulting in the economy being forced to become a barter based economy with little real monetary basis. IMF statistics estimate that the economy of Zimbabwe has contracted by over 60% during the last decade.

In February 2009 the US dollarisation of the economy, replacing the hyperinflationary Zimbabwean Dollar, created a stable platform for commerce to be able to trade in a more normalised environment. That same month the Government of National Unity (Global Political Agreement) was formed which brought further stability to the commercial environment.

Since mid-2009 the economy has seen slow but steady progress as it begins to return to normal. As a result of the improving economic stability LonZim has seen tangible progress in its operations for the year to 31 August 2010.

The Zimbabwean economy today is a fraction of its former size but, importantly, is again growing. Historically Zimbabwe was one of the strongest and most successful economies in Africa driven by agriculture, mining and tourism. These industries are now showing the first signs of recovery, led by a rise in hotel occupancies and renewed inward investment by the larger mining companies.

On an international front, Zimbabwe has improved relations with the IMF and it now has the World Bank managing a multi-donor fund focused on recovery. Foreign financial support and private sector foreign direct investment has risen to over US$2 billion (£1.26 billion) and GDP growth forecasts for 2010 vary between 5% from the IMF and 8% by the Minister of Finance. Several forecasts for growth in 2011 are estimating over 10%.

The economy has started the process of recovery. The main questions for investors are if the recovery is sustainable and how quickly the economy can re-grow. One of the advantages that Zimbabwe has is an industrious workforce that still has a high level of education and 97% literacy. This is complemented by a legacy of strong infrastructure and commercial experience that provides a level of confidence that, given there are no political upheavals along the way, the Country can recover rapidly and once again become a leading economy in Africa.

LonZim's portfolio of businesses has been prepared for this impending growth. Some are already seeing the results trickle through and revenue building on a monthly basis. LonZim has successfully kept the businesses alive during the economic turmoil of the past few years and, where appropriate, has invested in equipment and refurbishment to ensure that its companies are well placed to be first back to market and can build market share as the economy grows.

Group turnover has grown 88% year on year demonstrating the start of the recovery for the economy. Costs and margins remain challenging with turnover at such low levels and will only return to a normal balance as turnover expands with the economic recovery. The attributable loss for the year was £5.1m (2009: profit £0.9m).

The requirements for LonZim Plc to provide funding for each of the businesses to survive has diminished during the period to a level that, following the year end, it is envisaged that the majority of its subsidiary companies will not require further head office financial support for their operations going forward.

The Company has built a strong portfolio of assets and operations that are positioned to grow and be first to return to their respective markets. At the Company's year end, the market capitalisation of the Company was 31.1% of the Company's net asset value.

OPERATIONAL REVIEW

Leopard Rock Hotel Company (Pvt) Limited ("Leopard Rock Hotel") (100% holding)

Acquired in April 2009, the Leopard Rock Hotel is one of the iconic hotels in Africa, having attracted the rich and famous to its doors. The property is located in the beautiful Vumba mountains in eastern Zimbabwe and benefits from a superb location, a game reserve and a championship standard golf course. Lonrho Hotels manages the hotel allowing it to access the Lonrho central reservations system.

The hotel has completed a US$1.8m (£1.3m) refurbishment program encompassing not just the rooms and public areas, but also updating the kitchens, laundry and service areas. New state of the art entertainment, IT and communications systems have been installed throughout the hotel and the bar, lounges and restaurants are delivering international quality product.

The Lonrho staff training programme has been implemented to ensure the highest levels of quality service and training of staff at all levels.

The Leopard Rock golf course is re-establishing itself as one of the premier courses in Africa. The course is attracting guests from around the world and it is expected that PGA international competitions will return to the course in 2011.

Occupancy levels following the refurbishment have grown month on month. The hotel is a popular conference venue and is generating strong conference business that often fills the property. The catering at the hotel is outstanding with an increasingly renowned chef attracting epicurean guests for weekends from Harare.

Paynet Limited ("Paynet") (100% holding)

Paynet provides an electronic funds transfer (EFT) system for 21 of the 22 banks in Zimbabwe. The growth in the economy is seeing this market sector start to expand and Paynet has a strong dominant position in the market. Monthly transaction numbers are steadily increasing and the company is cash flow positive. August saw the EFT business and Autopay payroll division reach record numbers of transactions.

Tradanet Limited ("Tradanet") (51% holding)

Tradanet, which provides payroll microfinance services, was one of the first businesses to recover. The loan book has grown to over US$28m (£17.8m) with in excess of 23,000 borrowers. The payroll based microfinance model is working well with less than 1% loan defaults. With the growing volumes, Tradanet has been operating profitably since March 2010.

Celsys Ltd ("Celsys") (60% holding)

Celsys has completed a full restructure to meet the forecast growth in its core service offering. The company now focuses on three core divisions:

·; Printing: From its refurbished print works in Harare the company is a market leader in security and quality commercial printing. New printing presses and finishing equipment have been installed and revenues have grown substantially. Celsys Print has undergone the implementation of the ISO 9001:2008 quality standard and was certified by the Standards Association of Zimbabwe in February 2010.

·; ATM's and Point of Sale (POS) equipment: The company has commenced deploying and installing new ATM's to Kingdom Bank across the Country. Enquiries have been received from other banks. Celsys receive a guaranteed minimum lease rental and revenue per transaction. From a very low initial usage it is encouraging to see the growth in the number of transactions being processed as the economy starts recovering. Demand for both new ATMs and POS equipment is proving strong as banks and retailers see the number of transactions building month on month.

·; Airtime Distribution: Celsys was historically a market leader in airtime distribution and is seeing strong growth in the telecoms sector. Specifically servicing the rural communities, this division is recording significant growth in airtime sales through its expanding sales network.

In each of its divisions Celsys is a strong market leader and the necessary investment in equipment and capacity has already been made to meet demand as each market recovers.

Aldeamento Turistico de Macuti SARL ("ATdM") (80% holding)

The 300,000m2 development site in Beira on the coast of Mozambique historically housed the Don Carlos and Estoril hotels. The site is on the coast with 1.5km of beach front and has significant redevelopment potential. A master plan is under way for building a mixed use development, including hotel, retail and office space. Beira is the nearest seaport to Zimbabwe and strategically the gateway for many imported goods.

The ATdM site remains one of the prime locations in Beira.

Millpal Chemicals ("Millpal") (100% holding)

Millpal distributes volume chemicals for industry and hence is directly correlated to the economic recovery. Volumes have started to increase and Millpal has a solid market share in the importation, blending and distribution of solvents.

Fly540 Zimbabwe (90% holding)

Fly540 is the Lonrho international standard regional airline franchise for Africa that provides quality regional distribution for intercontinental carriers. Fly540 has initiated a plan to commence operations into, and eventually from, Zimbabwe as and when the traffic volumes start to build and the airport at Harare re-establishes volume international traffic. Harare airport remains of long term strategic importance as one of the best infrastructure facilities in Southern Africa.

Panafmed (Pty) Limited (51% holding)

The supply of pharmaceuticals into Zimbabwe in the current environment was not found to be commercial; therefore this division is undertaking a review of its future business options.

ForgetMeNot Africa Limited ("FMNA") (51% holding)

Since the start of commercial operations in January 2009, FMNA, which provides a "message optimiser" application for mobile phones, has made significant progress with four full launches in Southern, East and West Africa, and four more launches planned by the end of 2010. This will give over 50 million subscribers access to FMNA's messaging services. Notable successes have been launches with Safaricom Kenya and Globacom Nigeria. In particular uptake at the latter network has been especially encouraging, largely due to their promotional support of the service. Revenue started flowing in October 2010.

Directors

In September 2009, Colin Orr-Ewing joined the Board as an additional Non-Executive Director.

In October 2009, David Armstrong, the Lonrho Plc Finance Director, joined the Board of LonZim as Finance Director, and Jean Ellis stepped down from being Finance Director to act as a Non-Executive Director of the Company, bringing the number of Non-Executive Directors in LonZim to four.

Funding

In December 2009 Lonzim announced that it had successfully raised £1,170,269 by way of a placing with institutional investors. The funds are being used to provide working capital for the growth of existing businesses.

Results for the year

The loss for the year of £5.1 million (2009: profit £0.9 million) is as expected given the current economic climate in Zimbabwe after charging amortisation of intangible assets of £1.73 million (2009: £1.53 million).

Outlook

The Company continues to undertake detailed due diligence on a range of potential acquisitions where it can identify real opportunities for growth in value in a normalised economic environment.

Geoffrey White

Director & Chief Executive Officer

19 November 2010

Directors

David Lenigas, 49, Chairman

David Lenigas holds a Bachelor of Applied Science in Mining Engineering. He has extensive experience operating in the public company environment and is currently the Executive Chairman of Lonrho Plc and is also Executive Chairman of Leni Gas & Oil Plc, Executive Chairman of Solo Oil Plc, Non Executive Chairman of Lonrho Mining Limited and is a Director of Vatukoula Gold Mines Plc and Reef Resources Ltd.

Geoffrey White, 49, Executive Director

Geoffrey White is a Director and the Chief Executive Officer of Lonrho Plc and holds a BSc in Economics and Management Science. During his 29 year career he has held senior management roles with Thomas Tilling Plc, BTR Plc, Dee Corporation Plc, Asda Plc and latterly worked for five years for a private investment fund based in London.He has been responsible for the planning, financing, development and management of a range of projects in the leisure, industrial and natural resource sectors. These projects include establishing joint ventures with international corporations such as Hilton Hotels International, Ford Motors (PAG), Praton International GmbH and FFS Refiners (Pty) Ltd.

David Armstrong, 45, Finance Director

David Armstrong (FCA) is also Finance Director of Lonrho Plc. David brings with him extensive experience of operating across Africa having been, until October 2004, the Commercial Director of Diageo Africa with combined functional responsibility for finance, information systems, strategy and business development. David contributed to the successful deployment of Diageo's pan-African growth strategy, encompassing over 50 countries. More recently, he has been the COO of McArthurGlen in the UK and Europe.

Emma Priestley, 37, Executive Director

Emma Priestley worked in investment banking for 5 years following a career as a mining engineer. She has a background in mining and financial services having worked with consultants IMC Mackay & Schnellman, investment bank CSFB, advisors VSA resources and, most recently, Ambrian Partners, where she worked as a corporate broker and advisor. Emma is a graduate of Camborne School of Mines, a Chartered Mining Engineer and Chartered Mineral Surveyor. She is currently an Executive Director of Lonrho Plc.

Paul Turner, 63, Non-Executive Director

Paul Turner is a qualified Accountant and past President of the Institute of Chartered Accountants of Zimbabwe. He is a highly respected and knowledgeable member of the Zimbabwean business community. He previously was a partner at Ernst & Young in Harare, Zimbabwe, for over thirty years and brings an unparalleled level of experience in the structure and operation of businesses in Zimbabwe.

Paul Heber, 47, Non-Executive Director

Paul Heber is an investment manager and stockbroker with more than 20 years experience in global stock markets, following 3 years in the oil industry. Formerly with SGHambros, Nat West and WI Carr, he is now with bespoke boutique Savoy Investment Management (with in excess of £1.2 billion of private and institutional funds under management), regulated by both the FSA in London and the FSB in Johannesburg. He has a broad pan-African clientele alongside his domestic UK, European and Bermudian business. Mr Heber is also a Non-Executive Director of Shanta Gold Plc.

Jean Ellis, 41, Non-Executive Director

Jean Ellis is a Chartered Accountant and Chartered Tax Advisor, and holds an Insolvency Practitioner's license. Formerly undertaking the role of Finance Director at Lonzim, she is the senior partner in the regional firm of Chartered Accountants, Duncan Sheard Glass, having been a partner there since 2002. Prior to this, she was Group Financial Controller and Tax Manager with Lonrho Plc and holds a number of directorships for its subsidiary companies. Jean has a Bachelor of Arts Degree in Pure Mathematics from Liverpool University. Jean was formerly Finance Director of Lonrho Plc and is currently a Non-Executive Director of that company.

Colin Orr-Ewing, 68, Non-Executive Director

Colin Orr-Ewing is a graduate of Oxford University in Geography and has been involved in the natural resources sector for 35 years. He began his career as an investment manager for the Shell Pension Fund in London after completing his education as a Certified Accountant. His experience covers both the oil and mining industries and he has been a director of UK and Canadian oil companies and Irish and Canadian mining companies. Currently, Mr Orr-Ewing also advises a fund management company on its natural resources portfolios. Mr Orr-Ewing also has extensive experience in international financial affairs. He was deeply involved in the oil industry from 1971 through to 1987 with numerous companies in the North Sea, Libya, Nigeria and Algeria.

Statement of Directors' Responsibilities in Respect of the Annual Report and the Financial Statements

The Directors are responsible for preparing the Annual Report and the financial statements in accordance with applicable law and regulations.

In addition, the Directors have elected to prepare the Group and Parent Company financial statements in accordance with International Financial Reporting Standards.

The Group and Parent Company financial statements are required by law to give a true and fair view of the state of affairs of the Group and Parent Company at the reporting date and of the profit or loss of the Group for that year.

In preparing these financial statements, the Directors are required to:

n select suitable accounting policies and then apply them consistently;

n make judgements and estimates that are reasonable and prudent;

n state whether they have been prepared in accordance with applicable International Financial Reporting Standards; and

n prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Group and Parent Company will continue in business.

The Directors are responsible for keeping proper accounting records that disclose with reasonable accuracy at any time the financial position of the Parent Company and to allow for the preparation of financial statements. They have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the Group and to prevent and detect fraud and other irregularities.

The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company's website. Legislation governing the preparation and dissemination of financial statements may differ from one jurisdiction to another.

Directors' ReportFor the year ended 31 August 2010

The Directors of Lonzim Plc submit their report, together with the audited financial statements, for the year ended 31 August 2010.

Principal activities

The Group is an investment company with a diverse portfolio of investments in Zimbabwe and the Beira Corridor in Mozambique. The Company's investment objective is to provide shareholders with long term capital opportunities through the investment of its capital in Zimbabwe and the Beira Corridor.

Investment Strategy

The Company's investment objective is to provide Shareholders with long term capital appreciation through the investment of its capital primarily in Zimbabwe and the region of Mozambique known as the Beira corridor which links Zimbabwe to the coast. While the Company will not have a particular sectoral focus, utilising the investment skills of the Directors and their advisors, the Company will seek to identify individual companies in sectors best positioned to benefit should there be radical improvements in Zimbabwe's economy. The Company may make investments in the tourism, accommodation, infrastructure, transport, commercial and residential property, technology, communications, manufacturing, retail, services,

leisure, agricultural and natural resources sectors. The Company may also make investments in businesses outside Zimbabwe that have a significant exposure to assets, businesses or operations within Zimbabwe. The Company will also look into expanding businesses and brands currently owned by Lonrho or in which Lonrho has an interest in Zimbabwe. The Company will only be able to achieve its investment objective in the event the Zimbabwean economy radically improves.

While there will not be any limit on the number or size of investments the Company can make in any sector, the Directors will seek to diversify the Company's investments across various sectors in order to mitigate risk and to avoid concentrating the portfolio in any single sector.

The Company's interest in a proposed investment or acquisition may range from a minority position to full ownership. The Company intends, in any event, to actively manage the operations of the companies it has invested in. To this end, the Company has, through the acquisition of Celsys Limited established a management team in Zimbabwe to provide local day to day management of companies and businesses acquired. Wherever possible the Company will seek to achieve Board control or financial control of its portfolio companies. Indigenisation legislation within Zimbabwe may, however, prevent the Company from acquiring majority control in Zimbabwean businesses.

The Directors believe that through their individual and collective experience of investing and managing acquisitions and disposals in Africa, they have the necessary skills to manage the Company and, with the assistance of Lonrho under the management services agreement detailed in the Company's AIM admission document, to source deal flow. Prior to any investment decisions being taken by the Board of the Company, a thorough due diligence process will be undertaken by the Company's appointed independent specialist financial and legal advisers.

The Company's investment strategy is dependent upon future radical improvement in the Zimbabwean economy, and it is therefore possible that a significant period of time may elapse before an investment by the Company will produce any returns. In order to position itself for maximum gain from improvements in the Zimbabwean economy, the Company may make initial investments in Zimbabwe. However, there is no guarantee that the economy in Zimbabwe will improve. Accordingly, the Company may not be able to make any profits and may incur losses. Furthermore, businesses in which the Company has made an initial investment with a view to investing further once significant economic improvement occurs may deteriorate in the meantime.

The Directors intend to seek the consent of the Shareholders for the investment policy on an annual basis. The Company, Directors and Lonrho will comply as a matter of policy with the OFAC and Regulation (EC) No. 314/2004 regulations.

Results

A consolidated loss of £5,134,000 after minority interests (2009: profit £913,000) has been made by the Group during the year and has been transferred to reserves. This is after charging amortisation of intangible assets of £1,729,000 (2009: £1,529,000) (see note 11).

Share capital

On 4 December 2009 the Company announced that it had raised £1,170,269 by way of a placing of 4,255,525 new ordinary shares of 0.01p each at 27.5p per share resulting in the issued share capital of the Company being increased to 36,331,525 ordinary shares.

Business review and development

The Chief Executive's review of operations contains information on developments during the year and key potential future developments.

The requirements of the enhanced business review in relation to strategy and progress thereon are contained in the Chief Executive's review of operations. The principal risks and uncertainties relate to the revenue generation in the Group's businesses, which being located in Africa are subject to respective government policies, political stability and general economic conditions in the relevant country. Other risks to which the Group is exposed are the lack of suitably experienced management and exposure to foreign currency movements.

The Group monitors cash flow as its primary key performance indicator. Given current global financial conditions, the Directors are carefully monitoring cash resources within the Group and have instigated a number of initiatives to ensure funding will be available for planned projects. If such funding cannot be secured, the projects will be delayed or cancelled to ensure that the Group can manage its cash resources for the foreseeable future and hence the financial statements have been prepared on a going concern basis. The Group also uses a number of other key performance indicators which are measured at different tiers in the operation. At the top level, the Group tracks turnover, gross margin, contribution to overheads, cash generation and performance against budget.

The Directors wish to mitigate risk by proper evaluation of every investment that is made and have therefore developed a risk analysis reporting procedure, which links into the Company's Corporate Governance procedures.

Further information regarding the Group's policies and exposure to financial risk can be found in note 25 to the financial statements.

Post balance sheet events

Details of significant events since the reporting date are contained in note 32 to the financial statements.

Dividends

The Directors do not recommend the payment of a dividend (2009: £Nil).

Corporate governance

Compliance with the UK Corporate Governance Code

The Directors recognise the value of the UK Corporate Governance Code (formerly the Combined Code on Corporate Governance) and, whilst under AIM rules full compliance is not required, the Directors have considered the recommendations and applicability insofar as is practicable and appropriate for a public company of its size.

Board of Directors

The Board of Directors currently comprises four Executive Directors, one of whom is the Chairman, and four Non-Executive Directors. The Directors are of the opinion that the Board comprises a suitable balance to enable the recommendations of the Code to be implemented to an appropriate level. The Board, through the Chairman and Chief Executive Officer in particular, maintains regular contact with its advisers, public relations consultants and institutional investors in order to ensure that the Board develops an understanding of the views of the major shareholders about the Company.

Corporate Governance (continued)

The Board meets quarterly and is responsible for formulating, reviewing and approving the Company's strategy, financial activities and operating performance. Day to day management is devolved to the executive management who are charged with consulting the Board on all significant financial and operational matters. Consequently, decisions are made promptly following consultation amongst the Directors and managers concerned where necessary and appropriate.

All necessary information is supplied to the Directors on a timely basis to enable them to discharge their duties effectively, and all Directors have access to independent professional advice at the Company's expense, as and when required.

The Chairman is available to meet with institutional shareholders to discuss any issues and concerns regarding the Group's governance. The Non-Executive Directors can also attend meetings with major shareholders if requested.

The participation of both private and institutional investors at the Annual General Meeting is welcomed by the Board.

Internal controls

The Directors acknowledge their responsibility for the Company's and the Group's systems of internal control, which are designed to safeguard the assets of the Group and ensure the reliability of financial information for both internal use and external publication. Overall control is ensured by a regular detailed reporting system covering the state of the Group's financial affairs. The Board is developing procedures for identifying, evaluating and managing the significant risks that face the Group.

Any system of internal control can provide only reasonable, and not absolute, assurance that material financial irregularities will be detected or that the risk of failure to achieve business objectives is eliminated.

Committees

The Board has devolved duties to the following committees:

Audit Committee

The role of the Audit Committee is to oversee the nature and scope of the annual audit, management's reporting on internal accounting standards and practices, financial information and accounting systems and procedures and the Company's financial reporting statements. The Audit Committee's primary objectives include assisting the Directors in meeting their responsibilities in respect of the Company's financial continuous disclosure obligations and overseeing the work of the Company's external auditors. The Audit Committee comprises Paul Turner (Chairman), Paul Heber and Jean Ellis.

Remuneration Committee

The Remuneration Committee makes recommendations to the Board on the remuneration policy that applies to Executive Directors and senior employees. The Remuneration Committee comprises Paul Heber (Chairman), Paul Turner and Jean Ellis.

Nomination Committee 

The Nomination Committee is responsible for identifying candidates to fill vacancies on the Board, as and when they arise, and nominate them for approval by the Board. The Nomination Committee comprises Paul Heber (Chairman), Paul Turner and Geoffrey White.

Declared substantial shareholdings

The Directors have been advised of the following shareholdings at 19 November 2010 in 3 per cent. or more of the Company's issued share capital:

Directors

The following Directors have held office during the year: Mr D A Lenigas (appointed 7 November 2007); Mr G T White (appointed 7 November 2007); Ms E K Priestley (appointed 7 November 2007); Mrs J M Ellis (appointed Finance Director 7 November 2007 and became a Non-Executive Director 6 October 2009 upon appointment of Mr D J Armstrong); Mr P D Heber (appointed 7 November 2007); Mr P Turner (appointed 1 July 2008); Mr C Orr-Ewing (appointed 14 September 2009); Mr D J Armstrong (appointed 6 October 2009).

Biographical details of all Directors are set out on pages 4 and 5.

Directors' share interests

The Directors at the year end are set out below. Their interests in the shares of the Company at the beginning and end of the year are as follows:

Share options held by the Directors are detailed in note 19 of the financial statements.

All of the above interests are recorded in the Company's Register of Directors' Share and Debenture Interests. No Director has a beneficial interest in the shares or debentures of any of the Company's subsidiary undertakings.

Mr. C Orr-Ewing held 25,000 shares at the date of his appointment. Mr. D Armstrong did not hold any shares in the Company at the date of his appointment. There have been no other changes in Directors' share interests since 31 August2010.

Insurance

The Company has affected Directors and Officers liability insurance cover for Group Directors.

Share price performance

Between 1 September 2009 and 31 August 2010 the share price varied between a high of 40.5p and a low of 17.5p. At 31 August 2010 the mid-market price of the shares at close of business was 27.5p. At 18 November 2010 the mid-market price of the shares was 28.5p.

Political and charitable donations

No political or charitable donations have been made by the Group during the year.

Payment to suppliers

The Group does not follow any code or standard with regard to the payment of its suppliers. The Group's policy is to agree terms and conditions with suppliers in advance; payment is then made in accordance with the agreement provided the supplier has met the terms and conditions. Amounts due to suppliers at the reporting date are contained in note 23.

Auditors

A resolution to re-appoint KPMG Audit LLC and to authorise the Directors to fix their remuneration will be proposed at the Annual General Meeting.

The Directors who held office at the date of approval of this Directors' Report confirm that, so far as they are each aware, there is no relevant audit information of which the Company's Auditors are unaware; and each Director has taken all the steps that he/she ought to have taken as a Director to make himself/herself aware of any relevant audit information and to establish that the Company's Auditors are aware of that information.

By order of the Board

D. Lenigas

Chairman

19 November 2010

Report of the Independent Auditors, KPMG Audit LLC, to the members of Lonzim Plc

We have audited the Group and Parent Company financial statements (the "financial statements") of LonZim Plc for the year ended 31 August 2010 which comprise the Group Income Statement, the Group and Parent Company Balance Sheets, the Group Cash Flow Statement and the Group Statement of Recognised Income and Expense and the related notes. These financial statements have been prepared under the accounting policies set out therein.

This report is made solely to the Company's members, as a body. Our audit work has been undertaken so that we might state to the Company's members those matters we are required to state to them in an auditor's report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Company's members as a body, for our audit work, for this report, or for the opinions we have formed.

Respective responsibilities of Directors and Auditors

The Directors' responsibilities for preparing the Annual Report and the financial statements in accordance with applicable law and International Financial Reporting Standards are set out in the Statement of Directors' Responsibilities on page 6.

Our responsibility is to audit the financial statements in accordance with relevant legal and regulatory requirements and International Standards on Auditing (UK and Ireland).

We report to you our opinion as to whether the financial statements give a true and fair view. We also report to you if, in our opinion, the Company has not kept proper accounting records, or if we have not received all the information and explanations we require for our audit.

We read the Directors' Report and any other information accompanying the financial statements and consider the implications for our report if we become aware of any apparent misstatements or material inconsistencies with the audited financial statements. Our responsibilities do not extend to any other information.

Basis of opinion

We conducted our audit in accordance with International Standards on Auditing (UK and Ireland) issued by the Auditing Practices Board. An audit includes examination, on a test basis, of evidence relevant to the amounts and disclosures in the financial statements. It also includes an assessment of the significant estimates and judgments made by the Directors in the preparation of the financial statements, and of whether the accounting policies are appropriate to the Group's and Company's circumstances, consistently applied and adequately disclosed.

We planned and performed our audit so as to obtain all the information and explanations which we considered necessary in order to provide us with sufficient evidence to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or other irregularity or error. In forming our opinion we also evaluated the overall adequacy of the presentation of information in the financial statements.

In our opinion the financial statements give a true and fair view, in accordance with International Financial Reporting Standards, of the state of the Group and Parent Company's affairs as at 31 August 2010 and of the Group's loss for the year then ended.

KPMG Audit LLC

Chartered Accountants

Heritage Court

41 Athol Street

Douglas

Isle of Man IM99 1HN

Consolidated comprehensive income statement

For the year ended 31 August 2010

The notes on pages 17 to 51 are an integral part of these consolidated financial statements.

Consolidated statement of recognised income and expense

For the year ended 31 August 2010

Consolidated statement of change in equity

The notes on pages 17 to 51 are an integral part of these consolidated financial statements.

Consolidated and Company statements of financial position

As at 31 August 2010

These financial statements were approved by the Board of Directors and authorised for issue on 19 November 2010. They were signed on its behalf by:

G WhiteDirector & Chief Executive Officer

The notes on pages 17 to 51 are an integral part of these consolidated financial statements.

Consolidated and Company cash flow statement

For the year ended 31 August 2010

The notes on pages 17 to 51 are an integral part of these consolidated financial statements.

Notes to the financial statements

For the year ended 31 August 2010

1. Reporting entity

LonZim Plc (the "Company") is a company incorporated in the Isle of Man. The consolidated financial statements of the Group for the year to 31 August 2010 comprise the Company and its subsidiaries (together referred to as the "Group" and individually as "Group entities").

The financial statements were authorised for issue by the Directors on 19 November 2010.

2. Basis of preparation

Statement of compliance

The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (IFRSs) as adopted by the E.U. On publishing the parent company financial statements here together with the group financial statements, the Company is taking advantage of the exemption whereby under the Isle of Man Companies Act 2006 there is no requirement to present a company income statement in consolidated financial statements.

Functional and presentation currency

The consolidated financial statements are presented in sterling, which is the Company's functional currency. All financial information presented has been rounded to the nearest thousand.

Change in functional currency at subsidiary level

The uncertainties in the adverse Zimbabwean economic environment have resulted in subsidiaries of the Group operating in Zimbabwe changing their functional currency from Zimbabwe dollars to United States dollars.

The rate of increase of inflation in Zimbabwe reached extraordinary levels in the last quarter of 2008. This was exacerbated by the existence of multiple exchange rates, the use of foreign currencies for some transactions and the existence of multiple pricing criteria for similar products based on the mode of settlement. The effect was that the Zimbabwe dollar was no longer a functional currency for financial reporting purposes and resulted in a change in the functional currency for most entities reporting in Zimbabwe. With effect from 1 February 2009, the subsidiaries Celsys, Millpal and Paynet changed their functional currency from the Zimbabwe dollar to the United States dollar as it was evident that the United States dollar represents the currency of the prime economic environment in which the company operates. On 29 January 2009 and on 2 February 2009 the Fiscal and Monetary Authorities gave recognition to the fact that the Zimbabwe dollar was no longer a functional currency and authorised the use of multiple foreign currencies for trading in Zimbabwe.

The basis of preparation and presentation of the financial statements of Celsys, Millpal and Paynet for inclusion in the Lonzim Plc Consolidated accounts follows the guidance issued by the Public Accountants and Auditors Board and the Zimbabwe Accounting Practices Board. This guidance was issued to assist preparers of financial statements in converting their financial statements from Zimbabwe dollars into their new functional currency in a manner that is consistent with the principles of International Financial Reporting Standards, in as far as is practicable, in the Zimbabwean economic environment, at the date of the change of the functional currency. As suggested by the guidance, assets and liabilities carried at fair value were valued at the date of change of the functional currency and carried at the fair values in the new functional currency. Non-monetary assets and liabilities were valued at their deemed costs. Equity was recognised as the residual of the Company's net assets and will be treated as a non-distributable reserve until clarity has been obtained on the legal position with respect to the treatment of share capital. Further clarification of reserves will be pursued after the legal considerations attendant to share capital has been addressed.

The financial performance, as reflected in the income statement, includes only the financial performance of Celsys, Millpal and Paynet after the change in their functional currency at 1 February 2009 however it was considered that any translation of results for the period pre-dollarisation be deemed immaterial in the context of the group accounts. The Directors believe that the balance sheet that has been presented is a fair reflection of the assets and liabilities of the company in accordance with International Financial Standards and, therefore, a fair reflection of the shareholder's equity.

Basis of measurement

The consolidated financial statements have been prepared on the historical cost basis except for the following:

- aircraft measured at fair value

- financial assets held for trading are measures at fair value

- land, buildings and plant and equipment are revalued

At the date of authorisation of the financial statements, the following Standards and Interpretations which have not been applied to these financial statements were in issue but not yet effective:

- Amendments to IFRS 1 and IAS 27 - Cost of an investment in a subsidiary, jointly controlled entity or associate

- Amendments to IFRS 2 - Share based payments

- Amendments to IFRS 8 - Segment reporting

- Amendments to IFRS 32 and IAS 1 - Puttable financial instruments and obligations arising on liquidation

- Amendments to IAS 23 - Borrowing costs

- Amendments to IFRIC 13 - Customer loyalty programmes

The Directors anticipate that the adoption of these Standards and Interpretations in future periods will have no material impact on the financial statements of the Group.

Use of estimates and judgements

The preparation of financial statements in conformity with IFRSs requires management to make judgements, estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making the judgements about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates. The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods.

Judgements made by management in the application of IFRSs that have significant effect on the financial statements and estimates with a significant risk of material adjustment in the next year are discussed in note 3.

Going concern

The Group's business activities and financial performance are set out in the Chief Executive's Review on pages 1 to 3. In addition note 25 to the financial statements includes the group's objectives, policies and processes for managing its capital; its financial risk management objectives; details of its financial instruments and hedging activities; and its exposure to credit and liquidity risk.

The Group has access to sufficient financial resources for its needs. As a consequence, the Directors believe that the Group is well placed to manage its business risks successfully despite the current economic outlook.

After making enquiries, the Directors have a reasonable expectation that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future. Accordingly, they continue to adopt the going concern basis in preparing the annual report and accounts.

3. Significant accounting policies

The accounting policies have been applied consistently by Group entities.

(a) Basis of consolidation

Subsidiaries

The consolidated financial statements incorporate the financial statements of LonZim Plc and entities controlled by LonZim Plc (its subsidiaries). Control is achieved where LonZim Plc (the Company) has the power to govern the financial and operating policies of an investee entity so as to obtain benefits from its activities. The financial statements of subsidiaries are included in the consolidated financial statements from the date that control commenced until the date that control ceases.

The interest of minority shareholders is stated at the minority's proportion of the fair values of the assets and liabilities recognised. Subsequently, losses applicable to the minority are allocated against the interests of the minority.

The results of entities acquired or disposed of during the period are included in the consolidated income statement from the effective date of acquisition or up to the effective date of disposal, as appropriate.

Where necessary, the accounts of the subsidiaries are adjusted to conform to the Group's accounting policies.

All intra-group transactions, balances, income and expenses are eliminated on consolidation.

Business combinations

The acquisition of subsidiaries and businesses is accounted for using the purchase method. The cost of the acquisition is measured at the aggregate of the fair values, at the date of exchange, of assets given, liabilities incurred or assumed, and equity instruments issued by the Group in exchange for control of the acquiree, plus any costs directly attributable to the business combination. The acquiree's identifiable assets, liabilities and contingent liabilities that meet the conditions for recognition under IFRS 3 are recognised at their fair values at the acquisition date, except for non-current assets that are classified as held for sale in accordance with IFRS 5, which are recognised and measured at fair value less costs to sell.

Goodwill arising on acquisition is recognised as an asset and initially measured at cost, being the excess of the cost of the business combination over the Group's interest in the net fair value of the identifiable assets, liabilities and contingent liabilities recognised.

If, after reassessment, the Group's interest in the net fair value of the acquiree's identifiable assets, liabilities and contingent liabilities exceeds the cost of the business combination, the excess is recognised immediately in the income statement. The interest of minority shareholders in the acquiree is initially measured at the minority's proportion of the net fair value of the assets, liabilities and contingent liabilities recognise.Wherever possible, subsidiaries and business combinations are required to change their reporting dates to 31 August.

(b) Intangible assets

Goodwill

Goodwill arising on consolidation is recognised as an asset.

Following initial recognition, goodwill is subject to impairment reviews, at least annually, and measured at cost less accumulated impairment losses. The recoverable amount is estimated at each reporting date. Any impairment loss is recognised immediately in the income statement and is not subsequently reversed when the carrying amount of the asset exceeds its recoverable amount.

Any impairment losses recognised in respect of cash generating units are allocated first to reduce the carrying amount of any goodwill allocated to cash-generating units (groups of units) and then, to reduce the carrying amount of other assets in the unit (groups of units) on a pro rata basis.

On disposal of a subsidiary the attributable amount of goodwill is included in the determination of the gain or loss on disposal.

Other intangible assets

Other intangible assets are measured initially at cost and are amortised on a straight-line basis over their estimated useful lives. The carrying amount is reduced by any provision for impairment where necessary.

On a business combination, as well as recording separable intangible assets already recognised in the balance sheet of the acquired entity at their fair value, identifiable intangible assets that are separable or arise from contractual or other legal rights are also included in the acquisition balance sheet at fair value.

Amortisation of intangible assets is charged over their useful economic life, on the following basis:-

Non-compete agreement 5 ½ years

Licences 5-6 years

Brand name 7 years

(c) Foreign currencies

The individual financial statements of each Group Company are presented in the currency of the primary economic environment in which it operates (its functional currency). For the purpose of the consolidated financial statements, the results and financial position of each Group Company are expressed in pounds sterling, which is the functional currency of the Company, and the presentational currency for the consolidated financial statements.

In preparing the financial statements of the individual companies, transactions denominated in foreign currencies are translated into the respective functional currency of the Group entities using the exchange rates prevailing at the dates of transactions. Non-monetary assets and liabilities are translated at the historic rate. Monetary assets and liabilities denominated in foreign currencies are translated into the functional currency at the rates of exchange ruling at the reporting date. Non-monetary assets and liabilities denominated in foreign currencies that are measured at fair value are retranslated to the functional currency at the exchange rate at the date that the fair value was determined. Exchange differences arising on the settlement of monetary items, and on the retranslation of monetary items, are included in the income statement for the period. Exchange differences arising on the retranslation of non-monetary items earned at fair value are included within the income statement for the period except for differences arising on the retranslation of non-monetary items in respect of which gains and losses are recognised directly in equity. For such non monetary items, any exchange component of that gain or loss is also recognised directly in other comprehensive income.

For the purpose of presenting consolidated financial statements, the assets and liabilities of the Group's foreign operations are translated at exchange rates prevailing at the reporting date. Income and expenses are translated at the average exchange rates for the period, unless exchange rates fluctuate so as to have a material impact on the financial statements during that period, in which case the exchange rates at the date of transactions are used. Exchange differences arising, if any, are recognised in other comprehensive income and are transferred to the Group's foreign currency translation reserve within equity. Such translation is recognised as income or as expenses in the period in which the operation is disposed of.

Hyperinflation

Change in functional currency

With effect from 1 February 2009, all Zimbabwe based subsidiaries changed their functional currency from Zimbabwe dollars to United States dollars. This change occurred on the basis of the evaluation that the United States dollar better represents the currency of the primary economic environment in which these entities operate.

Details of the methodology applied to significant financial statement captions with opening balances are provided below:

Statement of Financial Position

Plant and equipment

The value of plant and equipment was determined by an independent professional valuer, in respect of items with reference to the market evidence of recent transactions after the date of change in functional currency. The Directors are of the view that the values are appropriate for the purposes of determining the opening balances at 1 February 2009.

Capital and reserves

Share capital and share premium were carried and disclosed at a nil balance in line with the draft guidance issued by the Public Accountants and Auditors Board and the Zimbabwe Accounting Practices Board. Reserves are a derived figure after determining the other elements of the balance sheet.

(d) Taxation

The tax expense represents the sum of current tax and deferred tax.

Current taxation

Current tax is based on taxable profit for the period for the Group. Taxable profit differs from net profit as reported in the income statement 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 Group's liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the reporting date.

Deferred taxation

Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit, and is accounted for using the balance sheet liability method. Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. Such 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 tax profit nor the accounting profit. Deferred tax liabilities are recognised for taxable temporary differences arising on the investments in subsidiaries and associates, 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.

The carrying amount of deferred tax assets is reviewed at each balance sheet date 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 is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset is realised. Deferred tax is charged or credited in the income statement, except when it relates to items charged or credited to equity, in which case the deferred tax is also dealt with in equity.

Deferred tax assets and liabilities are off set 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.

(e) Fixed asset investments

Unlisted fixed asset investments are stated at cost less accumulated impairment losses.

(f) Property, plant and equipment

Long leasehold land and buildings, plant and machinery, motor vehicles and fixtures and fittings are stated in the statement of financial position at their revalued amounts, being the fair value at the date of revaluation, less any subsequent accumulated depreciation and subsequent accumulated impairment losses. Revaluations are performed with sufficient regularity such that the carrying amount does not differ materially from that which would be determined using fair values at the reporting date.

Any revaluation increase arising on the revaluation of such assets is credited to the revaluation reserve, except to the extent that it reverses a revaluation decrease for the same asset previously recognised as an expense, in which case the increase is credited to the income statement to the extent of the decrease previously charged. A decrease in carrying amount arising on the revaluation of such asset is charged as an expense to the extent that it exceeds the balance if any, held in the revaluation reserve relating to a previous revaluation of that asset. Depreciation on revalued assets is charged to the income statement. On subsequent sale or retirement of a revalued asset, the attributable revaluation surplus remaining is transferred directly to retained earnings.

All other assets are stated at depreciated historical cost less accumulated depreciation and accumulated impairment losses.

Depreciation is charged so as to write off the cost or valuation of assets, other than land, over their estimated useful lives, on the following basis:

Freehold buildings 2% of cost

Leasehold land and buildings Over the term of the lease

Aircraft 10% of cost

Plant and machinery 10% of cost

Motor cars 15%-25% of cost

Fixtures and fittings 15%-25% of cost

The gain or loss arising on the disposal of an asset is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognised in profit or loss for the period.

Assets held under finance leases are depreciated over their expected useful lives on the same basis as owned assets, or where shorter, over the relevant lease term.

No depreciation is provided on freehold land.

In respect of aircraft, subsequent costs incurred which lend enhancement to future periods such as long term scheduled maintenance and major overhaul of aircraft and engines are capitalised and amortised over the length of the period benefiting from these enhancements. All other costs relating to maintenance are charged to the income statement as incurred.

Property plant and equipment identified for disposal are reclassified as assets held for resale.

(g) Impairment of assets excluding goodwill

At each reporting date, 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 any impairment loss. Where the asset does not generate cash flows that are independent from other assets, the Group estimates the recoverable amount of the cash-generating unit to which the asset belongs. 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 and the risks specific to the asset for which the estimates of future cash flows have not been adjusted.

If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (or cash-generating unit) is reduced to its recoverable amount. Impairment loss is recognised as an expense immediately, unless the relevant asset is carried at a revalued amount in which case the reversal of the impairment loss is treated as a revaluation decrease.

Where an impairment loss subsequently reverses, the carrying amount of the asset (orcash-generating unit) is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset (or cash-generating unit) in prior years. A reversal of an impairment loss is recognised as income immediately, unless the relevant asset is carried at a revalued amount, in which case the reversal of the impairment loss is treated as a revaluation increase.

(h) Financial instruments

Non-derivative financial instruments comprise investments in equity, trade and other receivables, cash and cash equivalents, loans and borrowings and trade and other payables.

Financial assets and financial liabilities are recognised in the Group's statement of financial position when the Group becomes a party to the contractual provisions of the instrument.

Cash and cash equivalents

Cash and cash equivalents comprise cash in hand and demand deposits and other short term highly liquid investments that are readily convertible to a known amount of cash and are subject to an insignificant risk of changes in value. Bank overdrafts that are repayable on demand and form an integral part of the Group's cash management are included as a component of cash and cash equivalents for the purpose of the statement of cash flows.

Trade receivables

Trade receivables are measured at initial recognition at fair value and are subsequently measured at amortised cost using the effective interest rate method. Appropriate allowances for estimated recoverable amounts are recognised in profit or loss when there is objective evidence the asset is impaired.

Trade payables

Trade payables are initially measured at fair value and are subsequently measured at amortised cost using the effective interest rate method.

Financial liabilities

Financial liabilities are classified according to the substance of the contractual arrangements entered into.

Capital management

The Board's 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 Board of Directors monitors the return on capital, which the Group defines as net operating income divided by total shareholders' equity, excluding minority interests.

Bank borrowings

Interest bearing bank loans and overdrafts are recorded at the proceeds received, net of direct issue costs. Finance charges, including premiums payable on settlement or redemption and direct issue costs, are accounted for on an amortised cost basis to the income statement using the effective interest method and are added to the carrying amount of the instrument to the extent that they are not settled in the period in which they arise.

Equity instruments

Equity instruments issued by the Company are recorded at the proceeds received, net of direct issue costs.

(i) Inventories

Inventories are stated at the lower of cost and net realisable value. Cost comprises direct materials and where applicable direct expenditure and attributable overheads that have been incurred in bringing the inventories to their present location and condition. Net realisable value represents the estimated selling price less all estimated costs of completion and costs to be incurred in marketing, selling and distribution.

(j) Share based payments

The Group provides benefits to certain employees (including senior executives) of the Group in the form of share based payments, whereby employees render services in exchange for shares or rights over shares (equity-settled transactions).The cost of these equity-settled transactions with employees is measured by reference to the fair value of the equity instruments at the date at which they are granted. The fair value is determined by using a Black-Scholes model. The dilutive effect, if any, of outstanding options is reflected as additional share dilution in the computation of earnings per share.

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 that the employees become unconditionally entitled to the options.

(k) Interest-bearing borrowings

Interest-bearing borrowings are recognised initially at fair value less attributable transaction costs. Subsequent to initial recognition, interest-bearing borrowings are stated at amortised cost with any difference between cost and redemption value being recognised in the income statement over the period of the borrowings on an effective interest basis.

(l) Dividends

Dividends are recognised as a liability in the period in which they are proposed and declared.

(m) Provisions

A provision is recognised in the statement of financial position when the Group has a present 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.

(n) Revenue recognition

Revenue is derived from the sale of goods and is measured at the fair value of consideration received or receivable, after deducting discounts, volume rebates, value-added tax and other sales taxes. A sale is recognised when the significant risks and rewards of ownership have passed 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. This is when title and insurance risk have passed to the customer and the goods have been delivered to a contractually agreed location.

(o) Leases

Leases are classified according to the substance of the transaction. A lease that transfers substantially all the risks and rewards of ownership to the lessee is classified as a finance lease. All other leases are classified as operating leases.

Finance leases

Finance leases are capitalised at their fair value or, if lower, at the present value of the minimum lease payments, each determined at the inception of the lease. The corresponding liability is shown as a finance lease obligation to the lessor. Leasing repayments comprise of both a capital and finance element. The finance element is written off to the income statement so as to produce an approximately constant periodic rate of charge on the outstanding obligations. Such assets are depreciated over the shorter of their estimated useful lives and the period of the lease.

Operating leases

Operating lease rentals are charged to the income statement on a straight line basis over the period of the lease.

 (p) Borrowing costs

Borrowing costs directly attributable to the acquisition, construction or production of a qualifying asset, 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 the income statement in the period in which they are incurred.

(q) Earnings/(loss) per share

Basic earnings/(loss) per share is calculated based on the weighted average number of ordinary shares outstanding during the period. Diluted earnings/(loss) per share is based upon the weighted average number of shares in issue throughout the year, adjusted for the dilutive effect of potential ordinary shares. The only potential ordinary shares in issue are employee share options.

(r) Segment reporting

A segment is a distinguishable component of the Group that is engaged either in providing products or services (business segment), or in providing products or services within a particular economic environment (geographical segment), which is subject to risks and rewards that are different from those of other segments.

4. Segment reporting

Segment information is presented in respect of the Group's business and geographical segments. The primary format, business segments, is based on the Group's management and internal reporting structure.

Inter-segment pricing is determined on an arm's 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 comprise mainly 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 period to acquire segment assets that are expected to be used for more than one period.

Business segments

For management purposes, the Group is currently organised into four main business segments.

- Aviation

- Hotels

- Support services

- Industrial chemical products

- Security printing products

- Telecoms

- Payroll services

- Pharmaceutical distribution

- Head office

Geographical segments

Support services and hotels operate in various parts of Zimbabwe and the Beira Corridor of Mozambique. Separate geographical analysis has therefore not been presented.

Business segments

All revenues relate to sale of goods.

Unallocated central expenses include the following non-cash items during the year:

5. Group net operating costs

6. Personnel expenses

The aggregate remuneration comprised (including executive directors)

The average number of employees (including Executive Directors) was:-

7. Net finance income

8. Taxation

Income tax recognised in the income statement

Reconciliation of effective tax rate

Deferred tax

Corporation tax is calculated as 28 per cent of the estimated assessable profit for the year. Taxation for other jurisdictions is calculated at the rates prevailing in the respective jurisdictions.

9. Earnings per share

The calculation of the basic and dilutive earnings per share is based on the following data:-

Earnings

Number of shares

In 2009 the calculation of diluted earnings per share would be based on the weighted average number of shares outstanding adjusted by the dilutive share options. The weighted average number of shares outstanding was 36,362,000.

In the current year, the Group made a loss. Because of this, the effect of the share options is anti-dilutive.

10. Property, plant and equipment

Freehold land and buildings

Freehold land and buildings, relating to Leopard Rock Hotel, were revalued in August 2010, by C W Holland, an Independent Valuer, on the basis of market value.

Freehold land and buildings, relating to Medalspot and Paynet were revalued in August 2010, by T.W.R.E Zimbabwe (Pvt) Ltd, a firm of Independent Valuers, on the basis of market value.

The valuations conform to International Valuation standards and were based on recent market transactions of arms length term for similar properties.

On 31 August 2010, had freehold land and buildings been carried at historical cost less accumulated depreciation, their carrying amount would be approximately £9.7 million (2009: £9.2 million). The revaluation surplus is disclosed in note 17.

Directors' valuation:

Long leasehold land and buildings

The value of long leasehold land and buildings is included at the Directors' valuation at the 31 August 2010. The Directors obtained evidence of observable prices in an active market to determine their valuation. The Directors consider the fair value at the balance sheet date is not materially different from the carrying value.

Revaluation

The plant and equipment at Celsys Print has been independently valued by Mr. A West in Zimbabwe, as at 30 June 2008. Other assets were valued by the directors. Fair value was determined by reference to market evidence. The historical cost of plant and machinery which was revalued in the previous period was £nil and the resulting revaluation of £0.232 million has been taken to revaluation reserve.

Assets held for sale

At the year end, LonZim held assets to the value of £3,557k for sale. This is made up of 3 aircraft to a value of £3,490k and fixtures and fitting to a value of £67k. All of these assets are being actively marketed and the Company would hope to find buyers within the next year.

11. Intangible assets

Amortisation

The amortisation charge is recognised in the administration expenses (note 5) in the income statement. The remaining amortisation period at 31 August 2010 is 33 months for the non-compete agreement and 45-103 months for other intangibles.

Goodwill

As at 31 August 2010, the consolidated statement of financial position included goodwill of £4,325k. Goodwill is allocated to the Group's cash-generating units ("CGUs"), or groups of cash-generating units, that are expected to benefit from the synergies of the business combination that gave rise to the goodwill as follows:

Estimates and judgements

The Directors believe that the estimate and judgements used in preparing these financial statements would not have a material impact on the carrying values of the intangible assets disclosed above.

There have been no indications of impairment relating to the CGUs or groups of CGUs to which goodwill has been allocated and, accordingly, the disclosures that follow relate to the impairment test that is required to be conducted on an annual basis:

- The carrying value of goodwill has been assessed with reference to value in use over 15 years reflecting the projected cash flows of each of the CGUs or group of CGUs based on the most recent forecast. A forecast period of 15 years has been used as this is reflective of the board's view of the long term investment potential in these Zimbabwe subsidiaries.

- Growth rates for the period not covered by the forecast are based on a range of growth rates that reflect the products, industries and countries in which the relevant CGU or group of CGUs operate. Growth rates have been calculated based on management's expected forecast volumes and market share increases on normalisation of the Zimbabwe economy.

- The key assumptions on which the cash flow projections for the most recent forecast are based relate to discount rates, growth rates, expected changes in selling prices and direct costs. Key assumptions also include consideration of the period to normalisation of the Zimbabwe economy, where the range was between 1 and 3 years.

- The cash flow projections have been discounted using rates based on the group's pre-tax weighted average cost of capital. The rate used was 12.5%.

- The growth rates applied in the value in use calculations for goodwill allocated to each of the CGUs or groups of CGUs that is significant to the total carrying amount of goodwill were in a range between 0% and 5%.

- Changes in selling price and direct costs are based on past results and expectations of future changes in the market.

- In respect of the value in use calculations, cash-flows have been considered for both the conservative and the full forecast potential of future cash-flows with no impact to the valuation of goodwill.

Impairment loss

The Group tests goodwill annually for impairment, or more frequently if there are indications that goodwill might be impaired.

The Directors believe that the value of the Group's investments are long term and will only be realised on the eventual full recovery of the Zimbabwean economy. The Directors do not believe any impairment to goodwill is necessary.

Other intangible assets

Non compete agreement

The Group tests other intangible assets for impairment if there are indications that they might be impaired.

The agreement covers a period of five and a half years and under its terms, Lonrho can not:

- invest in, carry on or be engaged or in any way be interested in any competing business of LonZim which is carried on in Zimbabwe or the Beira Corridor;

- without the express permission of LonZim Plc, provide any of the services provided to any other organization competing in Zimbabwe or the Beira Corridor;

- induce or assist any other person or company to do any of the things that Lonrho itself is prohibited from.

The non compete agreement was originally recognised as an intangible asset valued at £7.3 million being the value of the shares issued. It was deemed impractical to use any other basis for the valuation.

The amortisation periods for other intangible assets are:-

- Non compete agreement 5 ½ years

- Licenses 5-6 years

- Brand names 7 years

12. Investments in subsidiaries and associates

The Company has investments in the following subsidiaries and associates which principally affected the profits or net assets of the group. To avoid a statement of excessive length, details of investments which are not significant to the Group either in terms of revenues or assets have been omitted.