2013
Annual Report
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Contents	
Mission and Vision	 2
General Information	 4
Financial Highlights	 6
B...
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2013
Annual Report
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About Us
MISSION AND VISION
Vision Statement
To create memorable hospitality exp...
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Annual Report
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4
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About Us
GENERAL INFORMATION
COMPANY REGISTRATION NO:
1974/556
BUSINESS:
The Gro...
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6
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About Us
FINANCIAL HIGHLIGHTS
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GROUP RE...
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SEGMENTAL REVENUE BY GATEWAY
Oasis Afr...
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6. Nthebolan, Maria Mmasolo
Non-Executive Chairman
1. Mmualefhe, Batlang
Non-Exe...
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Nthebolan, Maria Mmasolo (6)
Non-Executive Chairman
Maria holds a Master of Arts...
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“ We have managed to achieve a 16%
revenue growth which translated to a 20%
gro...
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About Us
CHAIRPERSON’S STATEMENT
I feel privileged to be the Chairman of Cresta...
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2
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About Us
EXECUTIVE MANAGEMENT
Patrick Chivese
Group Sales and Marketing Manager...
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“ Looking forward we remain confident. Despite
the uncertain economy in some ar...
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About Us
MANAGING DIRECTOR’S STATEMENT
As we move into our 4th year as a listed...
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2013
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& Financial Accounts
About Us
CHAIRMAN’S STATEMENT
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The Board is committed to ensuring that good practice in corporate
governance i...
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“ The Audit Committee is responsible for
reviewing the independence and objecti...
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Audit Committee
CORPORATE GOVERNANCE
The Audit Committee consists of two indepe...
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“ The Group’s Managing Director would normally
be invited to attend meetings of...
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Human Resources Committee
CORPORATE GOVERNANCE
The Human Resources Committee co...
22
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The effectiveness of the operation of internal
control system is reviewed by th...
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The Group holds Annual General Meetings. At these meetings, there
is an opportu...
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About Us
SUSTAINABILITY REPORTING
Our approach to sustainability reporting is o...
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• Remuneration
Management in conjuction with the Human Resources Committee, con...
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“In the quest of the Group’s drive t...
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“ We continue to be sensitive towards monitoring
the interests of the local pop...
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About Us
CORPORATE SOCIAL RESPONSIBILITY
We continue to be sensitive towards mo...
30
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Sustaining the Environment
The Group seeks to minimize its impact on the enviro...
2013
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& Financial Accounts
31CRESTA MARAKANELO LIMITED
Group Annual Financial Statements
For The Year Ended 3...
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“ We have increased our footprint to the
southern part of the country with the ...
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STATEMENT OF DIRECTORS’ RESPONSIBILITY
For The Year Ended 31 December 2013
The ...
34
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INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF
CRESTA MARAKANELO LIMITED
For Th...
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							GROUP				COMPANY		hs
						 2013		 2012		 2013		 2012
		 Notes				 P’000...
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STATEMENT OF FINANCIAL POSITION
As At 31 December 2013
							GROUP				COMPANY	...
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STATEMENT OF CHANGES IN EQUITY
For The Year Ended 31 December 2013
				 Ordinar...
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							GROUP				COMPANY		
						 2013		 2012		 2013		 20112
		 Notes				 P’000	...
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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
For The Year Ended 31 December 2013
...
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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.)
For The Year Ended 31 Decemb...
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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.)
For The Year Ended 31 Decemb...
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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.)
For The Year Ended 31 Decemb...
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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.)
For The Year Ended 31 Decemb...
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1.4 Foreign Currency Translation (cont.)
(c) Group Companies (cont.)
(a)	 Asset...
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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.)
For The Year Ended 31 Decemb...
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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.)
For The Year Ended 31 Decemb...
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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.)
For The Year Ended 31 Decemb...
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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.)
For The Year Ended 31 Decemb...
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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.)
For The Year Ended 31 Decemb...
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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.)
For The Year Ended 31 Decemb...
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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.)
For The Year Ended 31 Decemb...
Cresta annual report 2013
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Cresta Marakanelo Limited's annual report for the year ended 31 December 2013

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  1. 1. 2013 Annual Report & Financial Accounts 1 Contents Mission and Vision 2 General Information 4 Financial Highlights 6 Board Members 8 Details of Directors 9 Chairman’s Statement 11 Executive Management 12 Managing Director’s Statement 15 Corporate Governance 17 Sustainability Reporting 25 Corporate Social Responsibility 29 Statement of Directors’ Responsibility 33 Auditor’s Report 34 Financial Statements 35 Top 20 Shareholders 87 Notice of AGM 88 Proxy Form 89 Cresta Marakanelo is the operating company for the eight Cresta Hotels in Botswana. The company was established in 1987, when Cresta Hospitality was awarded the Management contract for the Marakanelo Hotels in Botswana by the Botswana Development Corporation. From an initial portfolio of less than 100 rooms under management, the group now manages close to 800 rooms in Botswana, with the addition of beautiful properties such as Cresta Lodge (Gaborone) and the Group’s flagship Mowana Safari Lodge in 1993 and 1994 respectively. Cresta Marakanelo is jointly owned by the Botswana Government, through the Botswana Development Company, and TA Botswana. Established in 1970, the Botswana Development Corporation (BDC) is the investment arm of the Botswana Government. BDC’s main aim is to be the country’s main agency for commercial and industrial development. The Government of Botswana owns 100 percent of the issued share capital of the Corporation. BDC has interests in industry, property development and management, agribusiness and services. For more information on BDC visit www.bdc.bw. TA Botswana is ultimately owned by TA Holdings Limited, a company listed on the Zimbabwe Stock Exchange, with an investment portfolio that extends from Zimbabwe to Botswana, South Africa, Uganda and Nigeria. The Group’s portfolio spans the Hospitality, Insurance, Investment Management and Agrochemical sectors. Its hospitality arm, Cresta Hospitality Holdings, is one of Southern Africa’s largest hotel management groups, managing or operating 13 hotels in Zimbabwe, Botswana and Nigeria. For more information on TA Holdings visit www.ta-holdings.com. Cresta started hotel operations as far back as 1958, when it began running the Jameson Hotel in Harare. Cresta Hospitality Holdings is a hotel management company registered in Jersey. 2013 Annual Report & Financial Accounts 1 About Us HISTORY
  2. 2. 2 2013 Annual Report & Financial Accounts About Us MISSION AND VISION Vision Statement To create memorable hospitality experiences. Mission Statement To offer excellent service,filled with African heart and soul Group Values We value: • Our people and believe in their right to • respect, dignity and empowerment. • Our integrity and will always conduct our • business honestly. • Our passion and will consistently create an • enjoyable environment for all our stakeholders. Overall Strategic Intent With the intention to improve our product offering, there is also emphasis to optimise and deliver on employment equity, skills development, in line with good corporate governance practices which all forms part of the Cresta Marakanelo Ltd strategy. The Group’s Overall Strategy To ensure optimum execution of the group strategy, Cresta Marakanelo Ltd is structured and managed in an environment with the necessary financial and administrative capacity, driven by a fully motivated workforce that fits an adaptive culture. The Group maintains a governance structure with specific targets, regularly motivating progress towards achieving these targets. Cresta Marakanelo Ltd stands for: • Great value for money • Opportunity to expand the business • Opportunity for employees to participate in the • business • Diverse service offering in the leisure/tourism • industry • Experienced management team • Return to shareholders • Strategically placed to take advantage of the • growing tourism industry 2 2013 Annual Report & Financial Accounts
  3. 3. 2013 Annual Report & Financial Accounts 3 2013 Annual Report & Financial Accounts 3
  4. 4. 4 2013 Annual Report & Financial Accounts About Us GENERAL INFORMATION COMPANY REGISTRATION NO: 1974/556 BUSINESS: The Group operates hotels in Botswana and Zambia and is engaged in other related businesses. DIRECTORS: M Nthebolan (Chairman) B G Mmualefhe B P Nyajeka J Y Stevens E M Dewah P Molefe G Sainsbury T Makaya SECRETARY: V Mganga TRANSFER SECRETARIES Desert Secretarial Services (Pty) Ltd REGISTERED OFFICE: Fairgrounds Office Park Plot 50676 Phase 2, Unit D Gaborone INDEPENDENT AUDITORS: PricewaterhouseCoopers BANKERS: Barclays Bank of Botswana Limited Barclays Bank Zambia Plc African Banking Corporation of Botswana Limited African Banking Corporation Zambia Limited BancABC (Botswana & Zambia) First National Bank of Botswana Limited STANLIB Investment Management Services (Pty) Ltd Stanbic Bank Botswana Limited CURRENCY: Botswana Pula 4 2013 Annual Report & Financial Accounts
  5. 5. 2013 Annual Report & Financial Accounts 5 2013 Annual Report & Financial Accounts 5
  6. 6. 6 2013 Annual Report & Financial Accounts About Us FINANCIAL HIGHLIGHTS 6 2013 Annual Report & Financial Accounts GROUP REVENUES EBIDTA Year 2010 2011 2012 2013 Year 2010 2011 2012 2013 (BWP P’000) 171,477 290,538 242,289 281,124 (BWP P’000) 36,778 49,206 45,043 53,440
  7. 7. 2013 Annual Report & Financial Accounts 7 2013 Annual Report & Financial Accounts 7 SEGMENTAL REVENUE BY GATEWAY Oasis African Heartbeat African Roots African African Fingerprint Unit Control Year 2010 2011 2012 2013 (BWP P’000) 53,904 95,933 92,719 92,360 Year 2010 2011 2012 2013 (BWP P’000) 52,244 85,906 63,766 64,919 Year 2010 2011 2012 2013 (BWP P’000) 31,228 60,842 47,235 73,339 Year 2010 2011 2012 2013 Revenues 32,999 46,469 37,505 48,470 Year 2010 2011 2012 2013 (BWP P’000) 1,102 1,388 1,064 2,036
  8. 8. 8 2013 Annual Report & Financial Accounts 6. Nthebolan, Maria Mmasolo Non-Executive Chairman 1. Mmualefhe, Batlang Non-Executive Director 2. Makaya, Tawanda Executive Director 3. Sainsbury, Gavin Non-Executive Director 4. Molefe, Pius Komane Non-Executive Director 5. Dewah, Elias Non-Executive Director Nyajeka, Bothwell Patrick Non-Executive Director Stevens, John Yendell Non-Executive Director FROM LEFT TO RIGHT: SEATED IN FRONT: NOT IN PICTURE: 1 2 3 4 6 5
  9. 9. 2013 Annual Report & Financial Accounts 9 Nthebolan, Maria Mmasolo (6) Non-Executive Chairman Maria holds a Master of Arts in Finance and Economics from the University of Botswana and was the Managing Director - Botswana Development Corporation (BDC) until early 2013. She joined BDC in 1995 as the Senior Operations Officer in the Industry Divisions and rose through the ranks to her current position. Prior to joining BDC she was with the Ministry of Finance & Development Planning as an Economist. She holds various directorships with both public and private sector corporates. Sainsbury, Gavin (3) Non-Executive Director Gavin is the Chief Executive Officer of TA Holdings, a company listed on the Zimbabwe Stock Exchange. Before joining TA Holdings, he worked for Deloitte & Touche from 1981 to 1998. He was appointed a Partner at Deloitte & Touche in 1989. When he left Deloitte & Touche, he joined Colcom Holdings as a Finance Director and was appointed the Managing Director in 2000. He is a qualified Chartered Accountant and obtained his qualification in 1981 in Zimbabwe. Makaya, Tawanda (2) Executive Director Tawanda is a Chartered Accountant by profession and holds an MBL from the University of South Africa. He completed his articles of clerkship with Deloitte & Touche Zimbabwe and qualified in 1991. He was a recipient of a bursary from Astra Holdings while at the University of Zimbabwe for being the best accounting student. Tawanda joined Astra Holdings in 192 as Group Internal Auditor in June 1992 after which he joined TA Holdings in 1994 as the Group Finance Executive. In 1996 he was transferred to Cresta as the Group Financial Controller and rose through the ranks to become the Chief Financial Officer(CFO) and eventually Managing Director in 2007. He is an Associate member of the Botswana Institute of Chartered Accountants. Dewah, Elias (5) Non-Executive Director Elias holds a Master of Business Administration from the Research Institute for Management Science at the University of Netherlands. Currently he is a Private Consultant in the field of Management of Business Organization, Public- Private Dialogue, Democracy and Governance. Prior to that Elias has served in the Government of Botswana for 24 years in various capacities in the Ministry of Agriculture and the Ministry of Trade , Commerce and Industry. For 17 years he served as an Executive Director of Botswana Confederation of Commerce, Industry and Manpower (BOCCIM) and prior to that he was the operations Manager of Shell Oil (Botswana). Mmualefhe, Batlang (1) Non-Executive Director Batlang is currently the Manager for Risk Management at BDC and has held this position since 2004. He has also held the positions of Manager for Corporate Communications and Senior Research Officer in the same Institution. Mr Mmualefe previously worked for Bank of Botswana and Ministry of Finance and Development Planning in varying positions. He holds Master of Arts Degree in Economics from Williams College in USA and a Bachelor of Arts Degree in Economics and Statistics from the University of Botswana. He holds various certificates for attending professional programs on a wide scope of business areas including risk management, project management, and international financial management, corporate communication, management development programs, among others. Mr Mmualefe is a member of GARP (Global Association for Risk Professionals). Nyajeka, Bothwell Patrick (NIP) Non-Executive Director Bothwell is an executive director of TA Holdings in charge of finance. He is a Chartered Accountant and holds a Bachelor of Accountancy (Honours) degree from the University of Zimbabwe and a Masters degree in Business Leadership from the University of South Africa. He has extensive financial management and company secretarial experience in the private sector. Before joining TA Holdings, Bothwell worked for the Anglo American Corporation Group in Zimbabwe. Stevens, John Yendell (NIP) Non-Executive Director John qualified as a Chartered Accountant in 1980. He joined Deloitte & Touche in Durban in 1974 and was with the Company for 27 years ,serving as a partner resident in Botswana of Deloitte & Touche for 8 years and being elected to the Board of Deloitte & Touche Southern Africa in 2004. John also headed up Deloitte & Touche insolvency and reorganisation division in Botswana and has completed 50 insolvent estates in the past years. John retired from Deloitte & Touche in 2007 and has taken up the challenge of private consultancy. Over the past 27 years John has gained extensive experience in many spheres of business in Botswana and the many clients that John has served. Molefe, Pius Komane (4) Non-Executive Director Molefe is a Chief Executive Officer of Botswana Building Society. He holds a Post Graduate Diploma in Economics from the University of Sussex in the United Kingdom. Mr Molefe previously worked for Barclays Bank of Botswana and Ministry of Finance among others. At the Ministry of Finance, he was involved in the handling of all development projects. He was further involved in the development of policies regulating the financial services sector. He was involved in the establishment of the Botswana Stock Exchange and also served as a member in the exchange. About Us BOARD MEMBERS | CREDENTIALS
  10. 10. 10 2013 Annual Report & Financial Accounts “ We have managed to achieve a 16% revenue growth which translated to a 20% growth on profit before tax and exceptional items. We continue our long track record of dividend growth for shareholders, with the Board recommending a 14% increase no the final dividend for 2012, taking it to 5 thebe per share.” Maria Nthebolan - Chairperson
  11. 11. 2013 Annual Report & Financial Accounts 11 About Us CHAIRPERSON’S STATEMENT I feel privileged to be the Chairman of Cresta Marakanelo Ltd (CML), a company with an impressive history and successful track record of driving superior returns for shareholders. My fellow Board members and I look forward to guiding CML to even greater achievements as we focus on brand building and the strategic local and regional expansion of the business in the near term and future. I am delighted to share my perspective and impressions of our Company. This is a business with a clear strategy and a consistent track record of implementation throughout its 3½ year history of listing. There is a focus across the whole organisation on creating service culture that is preferred by our guests, and at the heart of this, is our People. I have been particularly impressed by the skills, commitment and energy of all those who have been involved and on behalf of the Board, I would like to thank all our People for their focus, dedication and commitment. Lastly, the integral role that Responsible Business practices play in CML strategy is underpinned by a strong set of values and unique culture seen across the business. Performance CML’s strong performance in 2013 demonstrates the effectiveness of our strategy, despite the challenging economic environment. We have managed to achieve a 16% revenue growth which translated to a 10% growth on profit before tax and exceptional items. We continue our long track record of dividend growth for shareholders, with the Board recommending a 14% increase no the final dividend for 2012, taking it to 5 thebe per share. Financial position and shareholder returns We remain committed to an efficient balance sheet while maintaining appropriate gearing levels. During the year we obtained a loan from Barclays Bank to purchase the business of a hotel in Jwaneng which further boosted our balance sheet. This hotel was opened on 1 June 2013 following the opening of yet another hotel in Mahalapye in February 2013. Governance CML is committed to high standards of corporate governance; we believe good governance is a fundamental part of being a responsible business and underpins everything we do. Directors continue to make effective contributions and retain a strong commitment to their roles under the various committees they serve. Outlook There is no doubt that the global economy will continue to see challenges in the year ahead. CML’s proven strategy, resilient business model, talented People and strong balance sheet give us the confidence that the business will continue to perform well into the future and deliver long-term value to all stakeholders. ____________ Maria Nthebolan Chairperson
  12. 12. 12 2013 Annual Report & Financial Accounts 1 2 3 4 5 6
  13. 13. 2013 Annual Report & Financial Accounts 13 About Us EXECUTIVE MANAGEMENT Patrick Chivese Group Sales and Marketing Manager Segomotso Banda Group HR Manager Tawanda Makaya Managing Director Duncan Mfolwe Group Projects Manager Jonathan Cox Group Operations Manager Valentine Mganga Chief Financial Officer 1 2 3 4 5 6
  14. 14. 14 2013 Annual Report & Financial Accounts “ Looking forward we remain confident. Despite the uncertain economy in some areas where we operate long-term travel trends are positive. The drivers of demand in the hotel industry remain positive and Cresta is well-placed to benefit from these as we continue to deliver against our clearly defined strategy.” Tawanda Makaya - Managing Director
  15. 15. 2013 Annual Report & Financial Accounts 15 About Us MANAGING DIRECTOR’S STATEMENT As we move into our 4th year as a listed company, we can be proud of our record of delivery as we continue to grow, leveraging our scale to grow margins, profits and cashflow. This has enabled us to continue to reinvest in our business whilst simultaneously making returns to shareholders. We will continue to drive the business forward through our brand, talented people and best-in-class delivery systems, all underpinned by our commitment to responsible business. Great brands need to deliver a consistent, branded experience to guests, and talented and passionate people are essential for this. At Cresta Marakanelo Limited we are focused on ensuring our People deliver consistent service. This is a complex task and our success has required significant innovation and effort. Financial Performance The Group achieved a profit after tax of P22.4mn representing an increase of 10% over prior year. Profit before tax of P29.4mn represents a 20% increase on the prior year. Group revenues increased by 16% on 2012, reaching P281.1mn for the year under review. Cresta Golfview in Zambia recorded a loss for the year of P0.51mn despite a 6% increase in revenues. During 2012, this subsidiary contributed P0.55mn to the Group’s profits. Once-off losses incurred through the scrapping and replacement of outdated beds at the hotel contributed P0.47mn to the loss for the year. Whilst conference and banqueting revenues have remained fairly stable, the hotel has experienced a decline in occupancy rates, reflecting the entry of a number of competitors into the market over the past couple of years. It is anticipated that the refreshing of bedding will assist in stemming this trend. The Group’s continuing investment in new hotels and refurbishment of its existing premises contributed to a P4.7mn increase in the carrying value of property, plant and equipment over the financial year. Goodwill arising on the acquisition of the Cezar Hotel in Jwaneng amounted to P5.3mn and is attributed to the trained workforce which was already in situ at the take-over date and also the location of the hotel. The hotel has shown positive trading results for the first nine months that is has operated under the Cresta brand and the annual impairment review of goodwill arising from this acquisition indicated significant headroom before an impairment will be required. The deferred lease liability recognised in accordance with the rental straight lining requirement of IAS17 (Leases) increased by a further P6.2mn (2012: P6.5mn) during the year. This balance is expected to increase (albeit at lower annual increments) for the next two financial years, whereafter it will be released to income over a period of approximately five financial years. With the exception of deferred revenue items of P1.1mn recognised in respect of the Group’s Pride and Select customer loyalty schemes, net operating assets have increased in line with the growth in the number of operating units. Looking forward we remain confident. Despite the uncertain economy in some areas where we operate long-term travel trends are positive. The drivers of demand in the hotel industry remain positive and Cresta is well-placed to benefit from these as we continue to deliver against our clearly defined strategy. _____________ Tawanda Makaya Managing Director Profit after tax (in Pula Million) P22.4m Profit before tax (in Pula Million) P29.4m increase 10% increase 20%
  16. 16. 16 2013 Annual Report & Financial Accounts About Us CHAIRMAN’S STATEMENT
  17. 17. 2013 Annual Report & Financial Accounts 17 The Board is committed to ensuring that good practice in corporate governance is observed throughout the Group, and remains the responsibility of the whole Board. The Board is committed to maintaining high standards of business integrity and professionalism in all its activities, and continues to support the highest standards in corporate governance. Overall control of the Group is exercised by the Board, which has responsibility, among other things, for setting strategy and ensuring adequate resources are available and leadership is provided to achieve the Group’s strategy. The Board meets up four times a year and has a schedule of matters reserved for its attention. All Directors receive board papers prior to the meetings. Executive management is responsible to the Board for the Group’s operational performance including: implementing Group strategy as determined by the Board; maintaining adequate internal control systems and risk management processes; monitoring operational performance against plans and targets and reporting to the Board any significant variances, maintaining an effective management team and succession planning. The Board currently comprises the Chairperson, three independent non executive Directors, three non executive Directors, all of whom are appointees of major shareholders and finally an executive Director, who is the Managing Director of the Group. Each Director is expected to fulfill their duties for the benefit of all shareholders and it is believed that the independent non executive Directors provide strong independent judgement to the deliberations of the Board. The Board has established agreed procedures for managing potential conflicts of interest. All Directors are required to disclose at each meeting their shareholding, additional directorships and any potential conflicts of interest to the Chairperson and the Company Secretary. These procedures are reviewed by the Board at least annually. The Board is satisfied that the procedures for managing potential conflicts remain effective. Board Committees In relation to certain matters, committees have been established with specific delegated authority. The standing committees of the Board are Audit and Human Resources Committees. Both of these committees have terms of references agreed by the Board. The Board CORPORATE GOVERNANCE
  18. 18. 18 2013 Annual Report & Financial Accounts “ The Audit Committee is responsible for reviewing the independence and objectivity of the external auditor and has reported to the Board that it considers that the auditor’s independence and objectivity has been maintained.” John Y Stevens - Chair
  19. 19. 2013 Annual Report & Financial Accounts 19 Audit Committee CORPORATE GOVERNANCE The Audit Committee consists of two independent non-executive Directors and one non-executive Director. Two of the Directors are believed to have the relevant financial experience as required. Mandate of the Committee; • Assist the Board with the evaluation of adequacy and effectiveness of the internal control systems, accounting practices, information systems and auditing processes applied in business. • Ongoing reviews of the Group’s risk management processes. • Introduce such measures that would serve to enhance the credibility and objectivity of the financial statements. • Monitoring and reviewing the effectiveness of the internal audit function. • Agreement of detailed scope of the external audit prior to commencement of their audit; reviewing the scope and results of the audit and its cost effectiveness; and recommendation of the audit fee to the Board. The Audit Committee is responsible for reviewing the independence and objectivity of the external auditor and has reported to the Board that it considers that the auditor’s independence and objectivity has been maintained. Audit independence and objectivity are safeguarded by the Audit Committee monitoring and approving, when appropriate, the nature of any non-audit work and levels of fees paid.
  20. 20. 20 2013 Annual Report & Financial Accounts “ The Group’s Managing Director would normally be invited to attend meetings of the Human Resources Committee, if appropriate, but would not be present when his own remuneration is discussed. The Committee takes independent advice as deemed necessary. Other functions of the Committee include; a review of the performance conditions used for long term incentive plan, review of short term bonus arrangements and targets.” Elias Dewah - Chair
  21. 21. 2013 Annual Report & Financial Accounts 21 Human Resources Committee CORPORATE GOVERNANCE The Human Resources Committee consists of one independent non- executive Director and one non-executive Director. It is responsible for considering and making recommendations to the Board, within agreed terms of reference, on the Group’s remuneration policies, determining the remuneration packages of executive management and the operation of the Group’s employee share trust scheme. The Group’s Managing Director would normally be invited to attend meetings, if appropriate, but would not be present when his own remuneration is discussed. The Committee takes independent advice as deemed necessary. Other functions of the Committee include; a review of the performance conditions used for long term incentive plan, review of short term bonus arrangements and targets. Board and Committee Meetings Figures in the brackets represent the maximum number of Board or Committee meetings held whilst the individual concerned is a Board member or member of the relevant Committee. Board Audit Committee Human Resources Directors Meetings Meetings Committee Meetings Maria Nthebolan 4 (4) - - John Stevens 4 (4) 4 (4) - Elias Dewah 4 (4) - 2 (2) Gavin Sainsbury 2 (4) - - Bothwell Nyajeka 2 (4) 2 (4) - Pius Molefe 4 (4) 3 (4) - Batlang Mmualefe 3 (4) - 2 (2) Tawanda Makaya 4 (4) - - Internal Control Systems The Board is responsible for the Group’s system of internal control, including the Group’s financial reporting process and the Group’s process for preparation of consolidated accounts, and for monitoring its effectiveness. In establishing this system, the Directors have considered the nature of the Group’s business, with regard to the risks to which the business is exposed to, the likelihood of such risks occurring, their potential impact and the costs of protecting against them. However, such a system is designed to manage rather than eliminate the risk of failure to achieve business objectives and can only provide reasonable and not absolute assurance against material misstatement. The Board confirms that there is an ongoing process for identifying, evaluating and managing the significant risks faced by the Group. This process is reviewed by the Audit Committee on behalf of the Board and has been in place for the year under review, and up to the date of the approval of the annual report. Primary responsibility for the operation of the system of internal controls is delegated to executive management.
  22. 22. 22 2013 Annual Report & Financial Accounts The effectiveness of the operation of internal control system is reviewed by the internal audit function and, where appropriate, by the Group’s external auditor, who report to management and to the Audit Committee. In addition, responsibility delegated to executive management to monitor the effectiveness of the systems of control in managing identified risks as established by the Board. The internal audit function reviews the effectiveness of key internal controls as part of its standard work programme, and individual reports are issued to appropriate senior management. These reports are summarised and distributed to the Audit Committee, The Managing Director, senior management of the group. They are subsequently reviewed by the Audit Committee, which ensures that, where necessary, recommendations on appropriate corrective action are drawn to the attention of the full Board.
  23. 23. 2013 Annual Report & Financial Accounts 23 The Group holds Annual General Meetings. At these meetings, there is an opportunity for all shareholders to question the Chairperson and other Directors (including Chairmen of the Audit Committee and Human Resources Committee). The Group prepares separate resolutions on each substantive issue put to shareholders and does not combine resolutions together inappropriately. A schedule of proxy votes cast is made available for inspection at the conclusion of the proceedings and the annual report is laid before the shareholders at the Annual General Meeting. Notice of the annual general meeting and related papers are sent to shareholders at least 21 working days prior to the date of the meeting, and the Group encourages all shareholders to make positive use of the annual general meeting for communication with the Board. Further, the group has made available an investor relations page on the Group’s website; www.crestamarakanelo.com. All information about the group and activities can be found on this page. Comments and questions can be channeled to management through this page. Closed Period The closed period for the trading in the Group’s shares by Directors and employees is from the beginning of the months of both the interim and the year end, up to the date of publication of the interim and final results in the print media. Directors and employees are prohibited from dealing in the Group’s shares during such periods in which they are privy to unpublished price sensitive information. M M Nthebolan T Makaya Chairperson Managing Director Communication with Stakeholders CORPORATE GOVERNANCE
  24. 24. 24 2013 Annual Report & Financial Accounts
  25. 25. 2013 Annual Report & Financial Accounts 25 About Us SUSTAINABILITY REPORTING Our approach to sustainability reporting is one that is in line with the Cresta Marakanelo Ltd values: respect, dignity, intergrity, honesty and passion. The board is accountable for the sustainability of the business and believe that the existence of the business and its continued success is dependent on relationships that prevail with its stakeholders. The Group recognises the importance of balancing its long term business sustainability requirements with short term focus and goals. Strategies and policies that contribute to the sustainable development of the Group to ensure that both the nancial and non nancial aspects of the business are appropriately evaluated and managed, have been adopted. Our stakeholders are represented by our people and customers, suppliers and communities we serve in. People Our people play a critical role in the success of the business and the following are relevant in this regard; • Development of Human Capital Human capital is a key component of Cresta Marakanelo Ltd. The Group values its employees and endeavous to recruit and retain the best skills in the market. The focus for developing human capital is based on training, continuous reviews for compensation and benets. • Staff Welfare and Development In the quest of the Group’s drive to improve productivity for the employees; sports was identied as one of the the elements that play an important part. Participating across the hotels, the Group has various sporting codes being played, soccer, volleyball, netball,etc. The Group also promotes country sporting competitions between the Cresta in Botswana and Cresta in Zimbabwe. The interaction between these groups is believed to impact positively on employee motivation.
  26. 26. 26 2013 Annual Report & Financial Accounts • Remuneration Management in conjuction with the Human Resources Committee, continuously reviews incentive schemes for the employees. The Group has got a Performance Appraisal System that is used to reward employees. The results of the appraisal system are also used as inputs for training the employees on various areas. • Employee engagement General employee engagement at various levels of the organisation has yielded positive results for the Group. This has led to an improved customer focus. Our employees are allowed to associate themselves with a recognised hospitality Union which will negotiate for better living conditions on their behalf. In the Committee of the Union, there are staff representatives sitting in the meetings to participate in the negotiations for the rest of the sta members. Customers The Group has continued to benchmark itself against the leading brands and the standards required to be customer focused, quality conscious, innovative and being responsible for its actions. The Group continues to be the market leader in the hospitality sector in the country. Attention has been paid to the following; • Pricing The hotels’ tariffs are regularly published in the hotels for custmers to see. Further there are different discount levels for our customers. Customers get dierent discount levels after a careful assessment of the customer and the business levels the customer brings to the entity. The Group also has a loyalty programme where cardholders get various discounts depending on the product they want. • Customer Complaints These are normally received at every hotel and the ultimate responsibility to resolve these lies with the General Managers of each hotel. There is an escalation that could be done in the event the customer is not satised with the complaint resolution at the hotel. The complaints are further escalated to the Group’s Operations Manager who is based at the Group’s headquarters in Gaborone. • Customer Information Sharing The Group has various means of sharing information with its stakeholders. One of the mediums is through the frequently updated website where new developments or new products will feature. Further, the Group has got an inhouse magazine called Cresta Calling where information is relayed to the stakeholders. Regulatory Authorities The Group maintains sound working relationships with all the regualtory bodies and ensures compliance with all legislation in order to ensure good governance. This enables the Group to operate in a stable environment, which is conducive for the successful operation of the business. Communities The Group operates in a number of areas and therefore places a lot of importance on contributing to the upliftment of the communites it operates in. The Group executes its Corporate Social Responsibility in these areas depending on the need of the community after a need assessment has been carried out.
  27. 27. 2013 Annual Report & Financial Accounts 27 2013 Annual Report & Financial Accounts 27 “In the quest of the Group’s drive to improve productivity for the employees; sports was identied as one of the the elements that play an important part. ”
  28. 28. 28 2013 Annual Report & Financial Accounts “ We continue to be sensitive towards monitoring the interests of the local population; particularly with regard to safeguarding of their traditions, culture and future development.”
  29. 29. 2013 Annual Report & Financial Accounts 29 About Us CORPORATE SOCIAL RESPONSIBILITY We continue to be sensitive towards monitoring the interests of the local population; particularly with regard to safeguarding of their traditions, culture and future development. We will practise a responsible attitude towards energy conservation in terms of the reduction and recycling of waste; the control of sewage disposal, air-emissions and pollutants; the reduction in use of such unfriendly products as CFCs, pesticides and other toxic substances; and the reduction of noise and visual pollution. We will be sensitive to the conservation of environmentally protected or threatened areas, species and scenic aesthetics. We shall also aim to achieve the enhancement of the landscape, wherever possible, by means of indigenous plant material reinforcement. We must conserve rather than exploit nature. Our Corporate Environmental Consideration The Cresta Group believes that corporate social responsibility (CSR) should not just be about philanthropy and compliance but that it should also offer a more holistic corporate approach towards economic, social, and environmental impacts as a whole. The group also places strong emphasis on measuring its success, not only in terms of financial gain, but also in terms of the degree to which it has contributed towards local economic development, environmental conservation and social justice.
  30. 30. 30 2013 Annual Report & Financial Accounts Sustaining the Environment The Group seeks to minimize its impact on the environment. Our responsible hospitality policies aim to ensure operational compliance with all relevant environmental legislation in all the areas we operate in. We are continually assessing our environmental impact and actively seeking ways to reduce it through improvements in our hotels’ operating infrastructure and modifying working practices aimed at reducing energy consumption, reducing water consumption and reducing the amount of waste produced from our hotels. Management also works with suppliers to minimize the environmental impact of their activities. Environmental performance is also being integrated into the operational objectives of general managers and other managerial staff. Supporting the National Economy The Cresta Group is a significant contributor towards governmental revenue in all the areas in which it operates through payment of taxes. Promoting Good Governance The Cresta Group recognises the need to conduct its business in accordance with generally accepted best corporate practices and in line with the global principles of corporate governance and business ethics. Working with the Local Community Cresta hotels are located in various places in the country. These areas are shared with an extraordinarily diverse range of local cultures and ethnic groups, all of which cherish their own particular cultural traditions and heritage. The Cresta Group is committed both to protecting and sustaining the lifestyle of such groups and showcasing and promoting their individual cultural heritage. Such promotion includes the inclusion of local designs, fabrics, handicrafts, sculptures and artworks within the design concept of the hotel or lodge, promoting local handicrafts in the hotel gift shops, and in showcasing local cultural traditions by means of dance, song, musical and theatrical displays for the hotel guests. Supporting the Local Economy Wherever possible, the Group purchases its raw materials from the local community. This may take the form of fruit and vegetables, meat, dairy products and a wide range of other food stuffs. The Group also works with local suppliers and out-growing schemes so as to enable local growers to meet the exacting quality standards required by the group, as well as to practise economies of scale in supply. Supporting the Local Society The Group is committed to the concept of the creation of optimum economic opportunities for the local communities in which it operates. These can take many forms, such as; employment, supply of raw materials, supply of handicrafts or supply of local dance troupes. Charitable Donations in Cash and in kind Cresta and its staff support a broad range of charitable causes and community initiatives. These take many forms; building houses, cash, supply of foodstuffs or clothing, supply of bed linen,etc. The Group encourages its hotels to reach out to local communities and become involved in community projects. Our staff members devote their time and energy to projects and our hotels donate items and resources in accordance with our corporate social responsibility policy. During the year, staff members in various areas have been involved in a wide range of events and activities linked to projects to benefit children and the needy. Donations Done Between 2013 and 2014 RECIPIENT ITEM DONATED VALUE Sir Seretse Khama Memorial Fund for People Living with Disability Cash 65,000 Destitute in Kalamare House 100,000 Dukwi Refugee Camp Clothing/ bedding 30,000 Lady Khama Charitable Trust Cash 20,000 Women Shelter Linen 25,000 240,000
  31. 31. 2013 Annual Report & Financial Accounts 31CRESTA MARAKANELO LIMITED Group Annual Financial Statements For The Year Ended 31 December 2013 INDEX Page Statement of directors’ responsibility 33 Independent auditors’ report 34 Statement of comprehensive income 35 Statement of financial position 36 Statement of changes in equity 37 Statement of cash flows 38 Summary of significant accounting policies 39 Financial risk management 54 Critical accounting estimates and assumptions 60 Notes to the annual financial statements 62
  32. 32. 32 2013 Annual Report & Financial Accounts “ We have increased our footprint to the southern part of the country with the opening of the new Cresta Jwaneng.” Cresta Jwaneng
  33. 33. 2013 Annual Report & Financial Accounts 33 STATEMENT OF DIRECTORS’ RESPONSIBILITY For The Year Ended 31 December 2013 The Group’s directors are required by the Botswana Companies Act, 2003 to maintain adequate accounting records and to prepare financial statements for each financial year which show a true and fair view of the state of affairs of the Company and Group at the end of the financial year and of the results and cash flows for the period. In preparing the accompanying Company and Group financial statements, International Financial Reporting Standards have been followed, suitable accounting policies have been used and applied consistently, and reasonable and prudent judgements and estimates have been made. Any changes to accounting policies are approved by the Group’s Board of Directors and the effects thereof are fully explained in the financial statements. The financial statements incorporate full and responsible disclosure in line with the significant accounting policies of the Group noted on pages 39 to 53. The directors have reviewed the Company and Group budget and cash flow forecasts for the year to 31 December 2014. On the basis of this review, and in the light of the current financial position and existing borrowing facilities of the Group, the directors are satisfied that Cresta Marakanelo Limited is a going concern and have continued to adopt the going concern basis in preparing the financial statements. The Group’s external auditors, PricewaterhouseCoopers, have audited the financial statements and their unqualified audit report appears on page 34 of the financial statements. The Board recognises and acknowledges its responsibility for the Group’s systems of internal financial control. Cresta Marakanelo Limited has adopted policies on business conduct, which cover ethical behaviour, compliance with legislation and sound accounting practice and which underpin the Group’s internal financial control process. The control systems include written accounting and control policies and procedures, clearly defined lines of accountability and delegation of authority, and comprehensive financial reporting and analysis against approved budgets. The responsibility for operating these systems is delegated to the executive director and management, who have confirmed that they have reviewed the effectiveness thereof. The directors consider that the systems are appropriately designed to provide reasonable assurance, as to the reliability of financial statements and that assets are safeguarded against material loss or unauthorised use and that transactions are properly authorised and recorded. The effectiveness of the internal financial control systems is monitored through management reviews, comprehensive reviews and testing by internal auditors and the external auditors’ review and testing of appropriate aspects of the internal financial control systems during the course of their statutory examinations of the Company and Group. The Company and Group’s directors have considered the results of these reviews, none of which indicate that the systems of internal control were inappropriate or operated unsatisfactorily. Additionally, no breakdowns involving material loss have been reported to the directors in respect of the year under review. The annual financial statements for the year ended 31 December 2013 and which appear on pages 35 to 86 were authorised for issue by the Board of Directors on 18/03/2014 and are signed on its behalf by: Director Director
  34. 34. 34 2013 Annual Report & Financial Accounts INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF CRESTA MARAKANELO LIMITED For The Year Ended 31 December 2013 Report on the financial statements We have audited the accompanying consolidated annual financial statements and separate annual financial statements of Cresta Marakanelo Limited, which comprise the consolidated and separate statements of financial position as at 31 December 2013, and the consolidated and separate statements of comprehensive income, changes in equity and cash flows for the year then ended, and a summary of significant accounting policies and other explanatory notes, as set out on pages 35 to 86. Directors’ Responsibility for the Financial Statements The company’s directors are responsible for the preparation of financial statements that give a true and fair view in accordance with International Financial Reporting Standards, and for such internal control as the directors determine is necessary to enable the preparation of financial statements that are free from material misstatements, whether due to fraud or error. Auditor’s Responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgement, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation of financial statements that give a true and fair view in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the financial statements give a true and fair view of, the consolidated and separate financial position of Cresta Marakanelo Limited, as at 31 December 2013, and its consolidated and separate financial performance and its consolidated and separate cash flows for the year then ended in accordance with International Financial Reporting Standards.
  35. 35. 2013 Annual Report & Financial Accounts 35 GROUP COMPANY hs 2013 2012 2013 2012 Notes P’000 P’000 P’000 P’000 Revenue 1 281,124 242,289 256,565 219,027 Cost of sales 2 (162,831 ) (138,859 ) (151,516 ) (129,584 ) Gross profit 118,293 103,430 105,049 89,443 Other income 647 - - - Other (losses)/gains-net (812 ) 15 (338 ) 15 Sales and distribution expenses 2 (8,314 ) (8,052 ) (7,845 ) (7,185 ) Administration and operating expenses 2 (78,408 ) (68,928 ) (66,164 ) (59,118 ) Operating profit 31,406 26,465 30,702 23,155 Dividend income from subsidiary - - 555 - Finance income 4 811 694 2,255 2,495 Finance expense 4 (2,867 ) (2,720 ) (2,658 ) (2,720 ) Profit before income tax 29,350 24,439 30,854 22,930 Income tax expense 5 (6,865 ) (4,009 ) (6,883 ) (3,744 ) Profit for the year 22,485 20,430 23,971 19,186 Other comprehensive income: Currency translation differences (subject to subsequent recycling through profit or loss) (116 ) 108 - - Other comprehensive income for the year (116 ) 108 - - Total comprehensive income for the year 22,369 20,538 23,971 19,186 Basic and diluted earnings per share (thebe) 6 12.36 11.35 12.98 10.39 STATEMENT OF COMPREHENSIVE INCOME For The Year Ended 31 December 2013
  36. 36. 36 2013 Annual Report & Financial Accounts STATEMENT OF FINANCIAL POSITION As At 31 December 2013 GROUP COMPANY s 2013 2012 2013 2012 Notes P’000 P’000 P’000 P’000 ASSETS Non-Current Assets Property, plant and equipment 10 150,104 145,407 143,679 137,686 Intangible assets 11 Lease rights/Trade marks 229 306 229 306 Goodwill 14,994 9,205 5,274 - Investment in subsidiary 7 - - 7 7 Loan to subsidiary 8 - - 14,896 17,406 Loan receivable-Cresta Employee Staff Plan 9 - - 1,281 1,015 Deferred income tax assets 17 3,640 2,415 3,640 2,397 Total non-current assets 168,967 157,333 169,006 158,817 Currents Assets Inventories 13 2,651 1,808 2,072 1,407 Loan to subsidiary 8 - - 1,858 1,414 Trade and other receivables 14 21,972 15,142 20,704 13,867 Current income tax assets 13 - - - Cash and cash equivalents 15 21,421 9,450 18,337 5,495 Total current assets 46,057 26,400 42,971 22,183 Total assets 215,024 183,733 211,977 181,000 EQUITY Capital and reserves Stated capital 16 18,500 18,500 18,500 18,500 Treasury Shares 12 (5,915 ) (5,915 ) (550 ) (550 ) Foreign currency translation reserve (8 ) 108 - - Retained earnings 117,510 103,002 113,933 98,090 Total equity 130,087 115,695 131,883 116,040 LIABILITIES Non-current liabilities Deferred lease obligation 20 26,588 20,340 25,223 19,672 Borrowings 18 20,711 21,039 20,711 21,039 Total non-current liabilities 47,299 41,379 45,934 40,711 Current liabilities Trade and other payables 19 27,960 19,004 24,488 16,584 Current income tax liabilities 1,223 607 1,217 617 Borrowings 18 8,455 7,048 8,455 7,048 Total current liabilities 37,638 26,659 34,160 24,249 Total liabilities 84,937 68,038 80,094 64,960 Total equity and liabilities 215,024 183,733 211,977 181,000
  37. 37. 2013 Annual Report & Financial Accounts 37 STATEMENT OF CHANGES IN EQUITY For The Year Ended 31 December 2013 Ordinary Treasury Foreign Retained Total shares Shares currency earnings equity transalation reserve P’000 P’000 P’000 P’000 P’000 GROUP Year ended 31 December 2012 Balance at 1 January 2012 18,500 (5,915) - 89,820 102,405 Total comprehensive income for the year - - 108 20,430 20,538 Gross dividends paid - - - (7,248 ) (7,248 ) Balance at 31 December 2012 18,500 (5,915 ) 108 103,002 115,695 Year ended 31 December 2013 Balance at 1 January 2013 18,500 (5,915 ) 108 103,002 115,695 Total comprehensive income for the year - - (116 ) 22,485 22,369 Gross dividends paid - - - (7,977 ) (7,977 ) Balance at 31 December 2013 18,500 (5,915 ) (8 ) 117,510 130,087 COMPANY Year ended 31 December 2012 Balance at 1 January 2012 18,500 (550 ) - 86,220 104,170 Total comprehensive income for the year - - - 19,186 19,186 Gross dividends paid - - - (7,316 ) (7,316 ) Balance at 31 December 2012 18,500 (550 ) - 98,090 116,040 Year ended 31 December 2013 Balance at 1 January 2013 18,500 (550 ) - 98,090 116,040 Total comprehensive income for the year - - - 23,971 23,971 Gross dividends paid - - - (8,128 ) (8,128 ) Balance at 31 December 2013 18,500 (550 ) - 113,933 131,883
  38. 38. 38 2013 Annual Report & Financial Accounts GROUP COMPANY 2013 2012 2013 20112 Notes P’000 P’000 P’000 P’000 Cash flows from operating activities Cash generated from operations 23 67,133 59,240 62,442 53,493 Interest paid 4 (2,867 ) (2,720 ) (2,658 ) (2,720 ) Tax paid (7,499 ) (7,047 ) (7,518 ) (6,753 ) Net cash generated from operating activities 56,767 49,473 52,266 44,020 Cash flows from investing activities Purchase of property, plant and equipment 10 (30,908 ) (42,552 ) (29,243 ) (32,444 ) Proceeds on disposal of plant and equipment 98 63 - 63 Loan repayments received from Employee Share Trust - - 75 68 Loan repayments received from subsidiary - - 2,065 - Interest received (excluding capitalised portion of Employee Share Trust) 195 694 1,674 1,705 Net cash paid to acquire the business of Golfview Zambia - (9,205 ) - - Net cash paid to acquire the business of Cresta Jwaneng (7,500 ) - (7,500 ) - Dividend received from subsidiary - - 555 - Proceeds from investment - - - (7 ) Net cash used in investing activities (38,115 ) (51,000 ) (32,374 ) (30,615 ) Cash flows from financing activities Repayment of borrowings (5,641 ) (4,263 ) (5,641 ) (4,262 ) Borrowing made for acquisition of Jwaneng business 8,000 - 8,000 - Loan to subsidiary - - - (18,820 ) Dividends paid to company’s shareholders 21 (7,977 ) (7,248 ) (8,128 ) (7,316 ) Net cash used in financing activities (5,618 ) (11,511 ) (5,769 ) (30,398 ) Net increase/(decrease) in cash and cash equivalents 13,034 (13,038 ) 14,123 (16,993 ) Cash and cash equivalents at beginning of year 7,060 20,098 3,105 20,098 Exchange gain on cash and cash equivalents 218 - - - Changes in cash and cash equivalents 13,034 (13,038 ) 14,123 (16,993 ) Cash and cash equivalents at end of year 15 20,312 7,060 17,228 3,105 STATEMENT OF CASH FLOWS For The Year Ended 31 December 2013
  39. 39. 2013 Annual Report & Financial Accounts 39 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES For The Year Ended 31 December 2013 General information Cresta Marakanelo Limited is a public limited Group listed on the Botswana Stock Exchange and primarily operates hotels and related services in Botswana. The consolidated Group financial statements and separate Company financial statements for the year ended 31 December 2013 have been approved for issue by the Board of Directors on 17 March 2014. Neither the entity’s Board of Directors nor others have the power to amend financial statements after issue. Summary of significant accounting policies The principal accounting policies applied in the preparation of these Group and Company financial statements are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated. 1.1 Basis of preparation The Group and Company financial statements have been prepared in accordance with the International Financial Reporting Standards (IFRS). The financial statements have been prepared under the historical cost convention. The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It also requires management to exercise its judgment in the process of applying the Group’s accounting policies. These areas involving a higher degree of judgment or complexity, or areas where assumptions and estimates are significant to the Group’s financial statements are disclosed in the “Critical estimates and assumptions” section of the financial statements. Estimates and judgments are continually evaluated based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. a) New and amended standards adopted by the Group and Company: The following standards have been adopted by the group for the first time for the financial year beginning on or after 1 January 2013 and have a material impact on the Group and Company: IFRS 10 – Consolidated financial statements - This standard builds on existing principles by identifying the concept of control as the determining factor in whether an entity should be included within the consolidated financial statements. The standard provides additional guidance to assist in determining control where this is difficult to assess. This new standard might impact the entities that a group consolidates as its subsidiaries. IFRS 12 – Disclosures of interests in other entities - This standard includes the disclosure requirements for all forms of interests in other entities, including joint arrangements, associates, special purpose vehicles and other off balance sheet vehicles. IFRS 13 – Fair value measurement - This standard aims to improve consistency and reduce complexity by providing a precise definition of fair value and a single source of fair value measurement and disclosure requirements for use across IFRSs. The requirements, which are largely aligned between IFRSs and US GAAP, do not extend the use of fair value accounting but provide guidance on how it should be applied where its use is already required or permitted by other standards within IFRSs or US GAAP.
  40. 40. 40 2013 Annual Report & Financial Accounts SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.) For The Year Ended 31 December 2013 1.1 Basis of preparation (cont.) b) Standards, amendments and Interpretations to existing standards but not effective for 31 December 2013 year-end and have not been early adopted by the Group and Company: IFRS 9, ‘Financial instruments’ - addresses the classification, measurement and recognition of financial assets and financial liabilities. IFRS 9 was issued in November 2009 and October 2010. It replaces the parts of IAS 39 that relate to the classification and measurement of financial instruments. IFRS 9 requires financial assets to be classified into two measurement categories: those measured as at fair value and those measured at amortised cost. The determination is made at initial recognition. The classification depends on the entity’s business model for managing its financial instruments and the contractual cash flow characteristics of the instrument. For financial liabilities, the standard retains most of the IAS 39 requirements. The main change is that, in cases where the fair value option is taken for financial liabilities, the part of a fair value change due to an entity’s own credit risk is recorded in other comprehensive income rather than the income statement, unless this creates an accounting mismatch. The group is yet to assess IFRS 9’s full impact. The impact on the consolidated financial statements for the Group cannot be reasonably estimated as at this time. Amendments to IFRS 9 - Financial Instruments (2011) - The IASB has published an amendment to IFRS 9, ‘Financial instruments that delays the effective date to annual periods beginning on or after 1 January 2015. The original effective date was for annual periods beginning on or after from 1 January 2013. This amendment is a result of the board extending its timeline for completing the remaining phases of its project to replace IAS 39 (for example, impairment and hedge accounting) beyond June 2011, as well as the delay in the insurance project. The amendment confirms the importance of allowing entities to apply the requirements of all the phases of the project to replace IAS 39 at the same time. The requirement to restate comparatives and the disclosures required on transition have also been modified. Effective for period beginning on or after 1 January 2015. The impact on the consolidated financial statements for the Group cannot be reasonably estimated as at this time. Amendments to IAS 32 - Financial Instruments: Presentation - The IASB has issued amendments to the application guidance in IAS 32, ‘Financial instruments: Presentation’, that clarify some of the requirements for offsetting financial assets and financial liabilities on the balance sheet. However, the clarified offsetting requirements for amounts presented in the statement of financial position continue to be different from US GAAP. Effective for period beginning on or after 1 January 2014. The impact on the consolidated financial statements for the Group cannot be reasonably estimated as at this time. IFRIC 21, ‘Levies’, sets out the accounting for an obligation to pay a levy that is not income tax. The interpretation addresses what the obligating event is that gives rise to pay a levy and when should a liability be recognised. The Group is not currently subjected to significant levies so the impact on the Group is not material. IAS 19, ‘Employee benefits’ was revised in June 2011. As the group does not operate a defined benefit fund this is not applicable to the group. Amendments to IAS 36, ‘Impairment of assets’ - These amendments address the disclosure of information about the recoverable amount of impaired assets if that amount is based on fair value less cost of disposal. Effective for period beginning on or after 1 January 2014. The impact on the consolidated financial statements for the Group cannot be reasonably estimated as at this time.
  41. 41. 2013 Annual Report & Financial Accounts 41 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.) For The Year Ended 31 December 2013 1.1 Basis of preparation (cont.) b) Standards, amendments and interpretations to existing standards but not effective for 31 December 2013 year-end and have not been early adopted by the Group and Company (cont.) Amendments to IFRS 10, consolidated financial statements’, IFRS 12 and IAS 27 for investment entities - The amendments mean that many funds and similar entities will be exempt from consolidating most of their subsidiaries. Instead they will measure them at fair value through profit or loss. The amendments give an exception to entities that meet an ‘investment entity’ definition and which display particular characteristics. Changes have also been made in IFRS 12 to introduce disclosures that an investment entity needs to make. Effective for period beginning on or after from 1 January 2014. The amendment is not expected to have any impact on the consolidated financial statements of the Group. Amendment to IAS 1, ‘Financial statement presentation’ regarding other comprehensive income. The main change resulting from these amendments is a requirement for entities to group items presented in ‘other comprehensive income’ (OCI) on the basis of whether they are potentially reclassifiable to profit or loss subsequently (reclassification adjustments). Amendment to IFRS 7, ‘Financial instruments: Disclosures’, on asset and liability offseting. This amendment includes new disclosures to facilitate comparison between those entities that prepare IFRS financial statements to those that prepare financial statements in accordance with US GAAP. There are no other IFRSs or IFRIC interpretations that are not yet effective that would be expected to have a material impact on the Group. 1.2 Consolidation a) Subsidiaries Subsidiaries are all entities (including structured entities such as the Cresta Employee Share Trust) over which the Group has control. The group controls an entity when the group is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. Subsidiaries are fully consolidated from the date on which control is transferred to the group. They are deconsolidated from the date that control ceases. The group applies the acquisition method to account for business combinations. The consideration transferred for the acquisition of a subsidiary is the fair values of the assets transferred, the liabilities incurred to the former owners of the acquiree and the equity interests issued by the group. The consideration transferred includes the fair value of any asset or liability resulting from a contingent consideration arrangement. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date. The group recognises any non-controlling interest in the acquire on an acquisition-by-acquisition basis, either at fair value or at the non-controlling interest’s proportionate share of the recognised amounts of acquiree’s identifiable net assets. Acquisition-related costs are expensed as incurred. If the business combination is achieved in stages, the acquisition date carrying value of the acquirer’s previously held equity interest in the acquiree is re-measured to fair value at the acquisition date; any gains or losses arising from such re-measurement are recognised in profit or loss.
  42. 42. 42 2013 Annual Report & Financial Accounts SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.) For The Year Ended 31 December 2013 Any contingent consideration to be transferred by the group is recognised at fair value at the acquisition date. Subsequent changes to the fair value of the contingent consideration that is deemed to be an asset or liability is recognised in accordance with IAS 39 either in profit or loss or as a change to other comprehensive income. Contingent consideration that is classified as equity is not re-measured, and its subsequent settlement is accounted for within equity. 1.2 Consolidation (cont.) a) Subsidiaries (cont.) The excess of the consideration transferred the amount of any non-controlling interest in the acquiree and the acquisition-date fair value of any previous equity interest in the acquiree over the fair value of the identifiable net assets acquired is recorded as goodwill. If the total of consideration transferred, non-controlling interest recognised and previously held interest measured is less than the fair value of the net assets of the subsidiary acquired in the case of a bargain purchase, the difference is recognised directly in the income statement. Inter- company transactions, balances and unrealised gains on transactions between group companies are eliminated. Unrealised losses are also eliminated. When necessary amounts reported by subsidiaries have been adjusted to conform with the group’s accounting policies. (b) Changes in ownership interests in subsidiaries without change of control Transactions with non-controlling interests that do not result in loss of control are accounted for as equity transactions – that is, as transactions with the owners in their capacity as owners. The difference between fair value of any consideration paid and the relevant share acquired of the carrying value of net assets of the subsidiary is recorded in equity. Gains or losses on disposals to non-controlling interests are also recorded in equity. (c) Disposal of subsidiaries When the Group ceases to have control any retained interest in the entity is re-measured to its fair value at the date when control is lost, with the change in carrying amount recognised in profit or loss. The fair value is the initial carrying amount for the purposes of subsequently accounting for the retained interest as an associate, joint venture or financial asset. In addition, any amounts previously recognised in other comprehensive income in respect of that entity are accounted for as if the Group had directly disposed of the related assets or liabilities. This may mean that amounts previously recognised in other comprehensive income are reclassified to profit or loss. 1.3 Business Combinations The Group accounts for business combinations using the acquisition method of accounting. The cost of the business combination is measured as the aggregate of the fair values of assets given, liabilities incurred or assumed and equity instruments issued. Costs directly attributable to the business combination are expensed as incurred, except the costs to issue debt which are amortised as part of the effective interest and costs to issue equity which are included in equity. Contingent consideration is included in the cost of the combination at fair value as at the date of acquisition. Subsequent changes to the assets, liabilities or equity which are arise as a result of the contingent consideration are not effected against goodwill, unless they are valid measurement period adjustments. The acquiree’s identifiable assets, liabilities and contingent liabilities which meet the recognition conditions of IFRS 3 Business Combinations are recognised at their values at acquisition date, except for non-current assets (or disposal group) that are classified as held for sale in accordance with IFRS 5 Non-current held for sale and discontinued operations, which are recognised at fair value less costs to sell. Contingent liabilities are only included in the identifiable assets and liabilities of the acquiree where there is a present obligation at acquisition date.
  43. 43. 2013 Annual Report & Financial Accounts 43 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.) For The Year Ended 31 December 2013 1.3 Business Combinations (cont.) On acquisition, the Group assesses the classification of the acquiree’s assets and liabilities and reclassifies them where the classification is inappropriate for Group purposes. This excludes lease agreements and insurance contracts, whose classification remains as per their inception date. In case where the Group held a non-controlling shareholding in the acquiree prior to obtaining control, that interest is measured at fair value as at acquisition date. The measurement to fair value is included in profit or loss for the year. Where the existing shareholding was classified as an available for sale financial asset, the cumulative fair value adjustments recognised previously in other comprehensive income and accumulated in equity are recognised in profit or loss as a reclassification adjustment. Goodwill is determined as the consideration paid, plus the fair value of any shareholding held prior to obtaining control, plus non- controlling interest and less the fair value of the identifiable assets and liabilities of the acquiree. Goodwill is not amortised but is tested on an annual basis for impairment. If goodwill is assessed to be impaired, that impairment is not subsequently reversed. Goodwill arising on acquisition of foreign entities is considered an asset of the foreign entity. In such cases the goodwill is translated to the functional currency of the Group at the end of each reporting period with the adjustment recognised in equity through other comprehensive income. 1.4 Foreign Currency Translation (a) Functional and presentation currency Items included in the financial statements of the Group are measured using the currency of the primary economic environment in which the entity operates (‘the functional currency’). The consolidated financial statements are presented in Pula, which is the Group’s functional and presentation currency. (b) Transactions and balances Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the profit and loss. Foreign exchange gains and losses that relate to borrowings and cash and cash equivalents are presented in the profit and loss within ‘finance income or cost’. (c) Group Companies The results and financial position of all Group entities (none of which has the currency of a hyper-inflationary economy) that have a functional currency different from the presentation currency are translated into the presentation currency as follows:
  44. 44. 44 2013 Annual Report & Financial Accounts 1.4 Foreign Currency Translation (cont.) (c) Group Companies (cont.) (a) Assets and liabilities for each balance sheet presented are translated at the closing rate at the date of that balance sheet; (b) Income and expenses for each statement of comprehensive income are translated at average exchange rates (unless this average is not a reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case income and expenses are translated at the rate on the dates of the transactions); and (c) All resulting exchange differences are recognized in other comprehensive income. On consolidation, exchange differences arising from the translation of the net investment in foreign operations, and of borrowings and other currency instruments designated as hedges of such investments, are taken to shareholders equity. When a foreign operation is sold, exchange differences that were recorded in equity are recognised in the statement of comprehensive income as part of the gain or loss on sale. Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of the foreign entity and translated at the closing rate. 1.5 Revenue recognition Revenue comprises the fair value for the sale of goods and services, net of value-added tax, rebates and discounts and after eliminated sales within the Group. Revenue comprises the fair value of the consideration received or receivable for the sale of goods and services in the ordinary course of the Group activities. Revenue is recognised to the extent that it is probable that economic benefits will flow to the Group and the revenue can be reliably measured. Revenue comprises the sale of bed space, food and beverages. Revenue is recognised as follows: (a) Provision of services - Accommodation revenue Provision of services is recognised in the accounting period in which the services are rendered, by reference to completion of the specific transaction assessed on the basis of the actual service provided as a proportion of the total services to be provided. The Group sells bed nights at its hotels and lodges to guests and also provides guided safaris to guests. Revenue from these services is recognised when the service is provided to the guest, usually over the period of the guests stay at the hotels and lodges. (b) Sale of goods - Foods, beverages and curios Sales of food, beverages, curios and ancillary goods are usually in cash or by credit card. Revenue is recognised when the significant risks and rewards of ownership of the goods have passed to the buyer. (the recorded revenue includes applicable credit card fees payable for the transaction. Such fees are included in bank charges). (c) Interest income Interest income is recognised on a time-proportion basis using the effective interest method. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.) For The Year Ended 31 December 2013
  45. 45. 2013 Annual Report & Financial Accounts 45 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.) For The Year Ended 31 December 2013 1.5 Revenue recognition (cont.) (d) Dividend income Dividend income is recognised when the right to receive payment is established. (e) Customer loyalty programmes The Group operates a loyalty programme where customers accumulate points for every paid (night) spent in the Cresta hotel. The reward points are recognised as a separately identifiable component of the initial sale transaction, by allocating the fair value of the consideration received between the award points and the other components of the sale such that the reward points are initially recognised as deferred income at their fair value. Revenue from the reward points is recognised when the points are redeemed. 1.6 Leases Leases in which a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases. Payments made under operating leases (net of any incentives received from the lessor) are charged to the profit and loss on a straight-line basis over the period of the lease. When an operating lease is terminated before the lease period has expired, any payments required to be made to the lessor by way of penalty is recognised as an expense in the period in which termination takes place. 1.7 Dividend distribution Dividend distribution to the Group’s shareholders is recognised as a liability in the group’s financial statements in the year in which the dividends are approved by the Group’s shareholders. Withholding tax of 7.5% is payable on the gross value of dividends. The withholding tax is treated as once off tax on the hands of the shareholder. 1.8 Property, plant and equipment Property, plant and equipment are stated at historical cost less depreciation. Historical cost includes expenditure that is directly attributable to the acquisition of the items. Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. The carrying amount of the replaced part is derecognized. All other repairs and maintenance are charged to the profit and loss during the financial year in which they are incurred. Land and buildings comprise mainly hotel properties. Land is not depreciated. Depreciation on other assets is calculated using the straight-line method to allocate their cost to their residual values over their estimated useful lives, as follows: Buildings: lower of lease period and useful lives of 50 years Improvements to leasehold premises: lower of lease period and useful lives of 5 - 10 years Plant and equipment 6 - 7 years Furniture, fixtures and fittings 4 - 7 years Motor vehicles 5 - 7 years Computers 3 years
  46. 46. 46 2013 Annual Report & Financial Accounts SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.) For The Year Ended 31 December 2013 1.8 Property, plant and equipment (cont.) Operating equipment (which includes uniforms, kitchen utensils, crockery, cutlery and linen) is recognised as an expense based on usage. The period of usage depends on the nature of the operating equipment and varies between one to three years. The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at the end of each reporting period. Gains and losses Gains and losses on disposals are determined by comparing proceeds with carrying amount and are recognised within other (losses)/ gains – net, in the profit and loss. Impairment Plant and equipment are reviewed for impairment losses whenever events or changes in circumstances indicate that the carrying amounts may not be recoverable. An impairment loss is recognised for the amount by which the carrying amount of the asset exceeds its recoverable amount, the latter being the higher of fair value less cost to sell of the asset and its value in use. 1.9 Intangible assets (a) Goodwill Goodwill represents the excess of the cost of an acquisition over the fair value of the Group’s share of the net identifiable assets of the acquired business/subsidiary/associate at the date of acquisition. Goodwill on acquisition of business/subsidiaries is included in ‘intangible assets’. Goodwill on acquisitions of associates is included in ‘investments in associates’. Separately recognised goodwill is tested annually for impairment and carried at cost less accumulated impairment losses. Impairment losses on goodwill are not reversed. Gains and losses on the disposal of an entity include the carrying amount of goodwill relating to the entity sold. Goodwill is allocated to cash generating units for the purpose of impairment testing. The allocation is made to those cash generating units or Groups of cash-generating units that are expected to benefit from the business combination in which the goodwill arose. (b) Trademarks and licenses Separately acquired trademarks and licenses are shown at historical cost. Trademarks and licenses acquired in a business combination are recognised at fair value at the acquisition date. Trademarks and licenses have a finite useful life and are carried at cost less accumulated amortisation. Amortisation is calculated using the straight-line method to allocate the cost of trademarks and licenses over their estimated useful lives of 15 to 20 years. (c) Lease rights Lease rights represents rights covered by contract or similar arrangement to occupy, lease out or otherwise utilise property. Separately acquired lease rights are shown at historical costs. Lease rights acquired in a business combination are recognised at fair value at the acquisition date. Where land rights are acquired directly through agreement, the Group records these at nominal amounts at the inception of the underlying lease/rental agreements or when such agreements are renewed.
  47. 47. 2013 Annual Report & Financial Accounts 47 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.) For The Year Ended 31 December 2013 1.9 Intangible assets (cont.) Lease rights have a finite useful life based on the underlying contractual agreement assigning such rights to the consignee and are carried at cost less accumulated amortisation. Amortisation is calculated using the straight line method to allocate the cost of the lease rights over their estimated useful lives based on contractual assignment terms. 1.10 Impairment of non-financial assets Assets that have an indefinite useful life are not subject to amortisation and are tested annually for impairment. Assets that are subject to amortisation are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash-generating units). 1.11 Financial assets The group classifies its financial assets in the following categories: at fair value through profit or loss, loans and receivables, and available- for-sale. The classification depends on the purpose for which the financial assets were acquired. Management determines the classification of its financial assets at initial recognition. (a) Financial assets at fair value through profit or loss Financial assets at fair value through profit or loss are financial assets held for trading. A financial asset is classified in this category if acquired principally for the purpose of selling in the short-term. Assets in this category are classified as current assets if expected to be settled within 12 months, otherwise, they are classified as non-current. During the year the Group did not have assets under this category. (b) Loans and receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They are included in current assets, except for maturities greater than 12 months after the end of the reporting year. These are classified as non-current assets. The Group’s loans and receivables comprise ‘trade and other receivables’ and cash and cash equivalents in the statement of financial position. (c) Available-for-sale financial assets Available-for-sale financial assets are non-derivatives that are either designated in this category or not classified in any of the other categories. They are included in non-current assets unless management intends to dispose of it within 12 months of the end of the reporting period. Recognition and measurement Regular purchases and sales of financial assets are recognised on the trade-date – the date on which the Group commits to purchase or sell the asset. Investments are initially recognised at fair value plus transaction costs for all financial assets not carried at fair value through profit or loss. Financial assets carried at fair value through profit or loss is initially recognised at fair value, and transaction costs are expensed in the profit and loss. Financial assets are derecognised when the rights to receive cash flows from the investments have expired or have been transferred and the Group has transferred substantially all risks and rewards of ownership. Available-for- sale
  48. 48. 48 2013 Annual Report & Financial Accounts SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.) For The Year Ended 31 December 2013 1.11 Financial assets (cont.) Recognition and measurement (cont.) financial assets and financial assets at fair value through profit or loss are subsequently carried at fair value. Loans and receivables are subsequently carried at amortised cost using the effective interest method. Gains or losses arising from changes in the fair value of the ‘financial assets at fair value through profit or loss’ category are presented in the profit and loss within ‘other (losses)/gains – net’ in the period in which they arise. Dividend income from financial assets at fair value through profit or loss is recognised in the profit and loss as part of other income when the Group’s right to receive payments is established. Changes in the fair value of monetary and non-monetary securities classified as available for sale are recognised in other comprehensive income. When securities classified as available for sale are sold or impaired, the accumulated fair value adjustments recognised in other comprehensive income are included in the profit and loss as ‘gains and losses from investment securities’. Interest on available-for- sale securities calculated using the effective interest method is recognised in the profit and loss as part of other income. Dividends on available-for-sale other comprehensive income instruments are recognised in the profit and loss as part of other income when the Group’s right to receive payments is established. Offsetting financial instruments Financial assets and liabilities are offset and the net amount reported in the balance sheet when there is a legally enforceable right to offset the recognised amounts and there is an intention to settle on a net basis or realise the asset and settle the liability simultaneously. Impairment of financial assets (a) Assets carried at amortised cost The Group assesses at the end of each reporting period whether there is objective evidence that a financial asset or group of financial assets is impaired. A financial asset or a group of financial assets is impaired and impairment losses are incurred only if there is objective evidence of impairment as a result of one or more events that occurred after the initial recognition of the asset (a ‘loss event’) and that loss event (or events) has an impact on the estimated future cash flows of the financial asset or group of financial assets that can be reliably estimated. Evidence of impairment may include indications that the debtors or a group of debtors is experiencing significant financial difficulty, default or delinquency in interest or principal payments, the probability that they will enter bankruptcy or other financial reorganisation, and where observable data indicate that there is a measurable decrease in the estimated future cash flows, such as changes in arrears or economic conditions that correlate with defaults. For loans and receivables category, the amount of the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows (excluding future credit losses that have not been incurred) discounted at the financial asset’s original effective interest rate. The carrying amount of the asset is reduced and the amount of the loss is recognised in the consolidated profit and loss. If a loan or held-to-maturity investment has a variable interest rate, the discount rate for measuring any impairment loss is the current effective interest rate determined under the contract. As a practical expedient, the Group may measure impairment on the basis of an instrument’s fair value using an observable market price.
  49. 49. 2013 Annual Report & Financial Accounts 49 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.) For The Year Ended 31 December 2013 1.11 Financial assets (cont.) 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 (such as an improvement in the debtor’s credit rating), the reversal of the previously recognised impairment loss is recognised in the consolidated profit and loss. (b) Assets classified as available for sale The Group assesses at the end of each reporting period whether there is objective evidence that a financial asset or a group of financial assets is impaired. For debt securities, the Group uses the criteria referred to in (a) above. In the case of other comprehensive income investments classified as available for sale, a significant or prolonged decline in the fair value of the security below its cost is also evidence that the assets are impaired. If any such evidence exists for available-for-sale financial assets, the cumulative loss – measured as the difference between the acquisition cost and the current fair value, less any impairment loss on that financial asset previously recognised in profit or loss – is removed from other comprehensive income and recognised in profit or loss. Impairment losses recognised in the consolidated profit and loss on other comprehensive income instruments are not reversed through the consolidated profit and loss. If, in a subsequent period, the fair value of a debt instrument classified as available for sale increases and the increase can be objectively related to an event occurring after the impairment loss was recognised in profit or loss, the impairment loss is reversed through the consolidated profit and loss. 1.12 Financial liabilities The Groups financial liabilities at statement of financial position date include ‘Borrowings’ and ‘Accounts payable and accruals’ (excluding VAT and employee related payables). These financial liabilities are subsequently measured at amortised cost using the effective interest method. Financial liabilities are included in current liabilities unless the group has an unconditional right to defer settlement of the liability for at least 12 months after the statement of financial position date. 1.13 Inventories Inventories are stated at the lower of cost and net realisable value. Cost is determined using the average cost method. Net realisable value is the estimated selling price in the ordinary course of business, less estimated costs necessary to complete the sale. Provision is made for slow moving and obsolete inventories. 1.14 Trade receivables Trade receivables are amounts due from customers for merchandise sold or services performed in the ordinary course of business. If collection is expected in one year or less (or in the normal operating cycle of the business if longer), they are classified as current assets. If not, they are presented as non-current assets. Trade receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method, less provision for impairment. 1.15 Cash and cash equivalents Cash and cash equivalents are carried in the statement of financial position at cost which approximates fair value. Cash and cash equivalents includes cash in hand, deposits held at call with banks, other short-term highly liquid investments with original maturities of three months or less, net of bank overdrafts. Bank overdrafts are shown within borrowings in current liabilities on the consolidated balance sheet.
  50. 50. 50 2013 Annual Report & Financial Accounts SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.) For The Year Ended 31 December 2013 1.16 Stated capital Ordinary shares are classified as equity and stated at the fair value of the consideration received. Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net of tax, from the proceeds. Where any Group company or the company holds equity share capital (treasury shares), the consideration paid, including any directly attributable incremental costs (net of income taxes) is deducted from equity attributable to the Group’s equity holders until the shares are cancelled or reissued. Where such ordinary shares are subsequently reissued, any consideration received, net of any directly attributable incremental transaction costs and the related income tax effects, and is included in equity attributable to the Group’s equity holders. 1.17 Related parties Related parties consist of entities under common ownership and control. Related parties comprise the holding company, subsidiary companies, directors of the company and key management. Transactions with related parties are in the normal course of business. 1.18 Borrowings Borrowings are recognised initially at fair value, net of transaction costs incurred. Borrowings are subsequently stated at amortised cost; any difference between the proceeds (net of transaction costs) and the redemption value is recognised in the profit and loss over the period of the borrowings using the effective interest method. Borrowings are classified as current liabilities unless the Group has an unconditional right to defer settlement of the liability for at least 12 months after the balance sheet date. 1.19 Trade payables Trade payables are obligations to pay for goods or services that have been acquired in the ordinary course of business from suppliers. Accounts payable are classified as current liabilities if payment is due within one year or less (or in the normal operating cycle of the business if longer). If not, they are presented as non-current liabilities. Trade payables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method. 1.20 Cost of sales Cost of sales comprise direct cost incurred in the provision of goods and services and are recognised as incurred. 1.21 Income tax a) Income tax The tax expense for the period comprises current and deferred tax. Tax is recognised in the profit and loss, except to the extent that it relates to items recognised directly in other comprehensive income. In this case the tax is also recognised in other comprehensive income. The current income tax charge is calculated on the basis of the tax laws enacted or substantively enacted at the reporting date where the Group operate and generate taxable income. Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation and establishes provisions where appropriate on the basis of amounts expected to be paid to the tax authorities.
  51. 51. 2013 Annual Report & Financial Accounts 51 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.) For The Year Ended 31 December 2013 1.21 Income tax (cont.) b) Deferred tax Deferred income tax is recognised for in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes. However, deferred tax liabilities are not recognised if they arise from the initial recognition of goodwill; deferred income tax is not accounted for if it arises from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss. Deferred income tax is determined using tax rates (and laws) that have been enacted or substantially enacted by the balance sheet date and are expected to apply when the related deferred income tax asset is realised or the deferred income tax liability is settled. Deferred income tax assets are recognised only to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilised. Deferred income tax is provided on temporary differences arising on investments in subsidiaries, except where the timing of the reversal of the temporary difference is controlled by the Group and it is probable that the temporary difference will not reverse in the foreseeable future. 1.22 Employee benefits a) Pension obligations The Group operates a defined contribution pension scheme. A defined contribution plan is a pension plan under which the group pays fixed contributions into a separate entity. The group has no legal or constructive obligations to pay further contributions if the fund does not hold sufficient assets to pay all employees the benefits relating to employee service in the current and prior periods. The group has no further payment obligations once the contributions have been paid. The contributions are recognised as employee benefit expense when they are due. Prepaid contributions are recognised as an asset to the extent that a cash refund or a reduction in the future payments is available. b) Termination benefits Termination benefits are payable when employment is terminated before the normal retirement date, or whenever an employee accepts voluntary redundancy in exchange for these benefits. The Group recognises termination benefits when it is demonstrably committed to either: terminating the employment of current employees according to a detailed formal plan without possibility of withdrawal; or providing termination benefits as a result of an offer made to encourage voluntary redundancy. Benefits falling due more than 12 months after balance sheet date are discounted to present value. Contract staffs are paid terminal gratuities in accordance with their respective employment contract.

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