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Meikles 2008 annual report

Meikles 2008 annual report

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  • 1. KINGDOM MEIKLES LIMITED KINGDOM MEIKLES LIMITED THIS ANNUAL REPOR T SUPERCEDES THE 2008 ANNUAL REPOR T ISSUED FOR THE 30 NOVEMBER 2009 ANNUAL GENERAL MEETINGA N A N N U AN L U RA EL P O R E R T P 2 O0 R 8T 0 R 2 E 0V 0I 8 S E D
  • 2. KINGDOM MEIKLES LIMITED CONTENTSChairman’s Statement........................................................................................................................................................... 2Risk Management.................................................................................................................................................................. 5Directorate and Corporate Governance............................................................................................................................ 7Report of the Directors....................................................................................................................................................... 8Directors’ Responsibility and Conclusion.........................................................................................................................10Independent Auditor’s Report............................................................................................................................................11Consolidated Income Statements.......................................................................................................................................13Consolidated Balance Sheets...............................................................................................................................................14Company Balance Sheets.....................................................................................................................................................15Statements of Changes in Equity.......................................................................................................................................16Consolidated Cash Flow Statements.................................................................................................................................17Significant Accounting Policies..........................................................................................................................................18Notes to the Financial Statements.....................................................................................................................................31Key Performance Measures................................................................................................................................................57Shareholder Information.................................................................................................................................................... 58Group Structure....................................................................................................................................................................59Tax Issues and Share Prices................................................................................................................................................60Notice of Meeting............................................................................................................................................................... 61Form of Proxy......................................................................................................................................................................62Corporate Information....................................................................................................................................................... 64 1 A N N U A L R E P O R T 2 0 0 8
  • 3. KINGDOM MEIKLES LIMITED CHAIRMAN’S S TAT E M E N TShareholders who attended the Annual General Meeting on 30 November 2009 adopted the financial statements for the yearended 31 December 2008 subject to changes to be made to the financial statements to reflect issues in an appropriate manner.This revised report meets this objective. The Company was renamed Meikles Limited on 13 February 2010 but is still referredto in this report by the old name, Kingdom Meikles Limited.The results of Kingdom Meikles Limited (KML) for the year ended 31 December 2008 are presented during extremely tryingtimes externally and internally for the Group in its inaugural year as a merged entity. The business environment in 2008 wascharacterised by unprecedented socio-economic and political developments in Zimbabwe where most of the Groupssubsidiaries are located. The Zimbabwe economy was bedevilled by the use of multi-currencies, world-record hyper-inflationfigures, multiple exchange rates and currency debasing, to mention a few. In addition, the world economy experienced anastonishing global melt-down triggered by the US and UK mortgage and banking crises which had a drag on the regionaleconomies of South Africa, Malawi and Botswana, where KML has subsidiary and associate companies.The financial information is in historical cost and is presented solely to meet statutory requirements. Inflation-adjusted figuresare not available because of the lack of Consumer Price Indices (CPI) information but, in any case, the validity of suchpresentations and what can be drawn from the Zimbabwe Dollar financials has no real meaning. Due to the usage of multi-currencies in our trading, the volatile exchange rates experienced in Zimbabwe and the resultant accounting complexities, ourauditors opinion on the historical cost financial statements is qualified on the basis that this information does not present atrue and fair view of the financial position of the Group. The Institute of Chartered Accountants of Zimbabwe, along withthe Zimbabwe Stock Exchange, have provided guidelines to all preparers as to the content of the accounting qualification andthese have been incorporated in the final presentation of the financial statements of the Group. With the introduction ofFOLIWARS trading (retailing licences to trade in foreign currency) combined with other direct export related Groupoperations, the shift during the latter part of the year was towards the US Dollar as a functional currency for operations,excluding the Kingdom Financial Holdings Limited group. The Board has taken a view that exchange rates applied to ouraccounts enable fair presentation at the appropriate time and US Dollar financial statements have thus been presented assupplementary information for the benefit of shareholders.Key features of operations (any reference to amounts is in respect of US Dollar figures)Operating profit for the Group amounted to US$10,2 million compared with US$20,6 million for the prior year. Operationswere affected by the hostile business environment.CorporateThere is dispute over the status of funds amounting to US$22,2 million (the funds "earmarked for investment").The measurement of goodwill, which originates from the merger last year and the acquisition of the Cape Grace Hotel, hasbeen reviewed at 31 December 2008. At 31 December 2007 the carrying value was US$131,3 million being the translationfrom Zimbabwe Dollars at the exchange rate at 31 December 2007. During 2008 the economy became stressed and the viewtaken at the time of the merger has changed. These factors together with the current uncertainty about the future, makes itnecessary to examine the carrying value of this intangible asset. Accordingly, an impairment of US$127,2 million has beenmade. The remaining balance of US$4,1 million is in respect of the Cape Grace Hotel, which was impaired from US$9,4million.Kingdom Financial Holdings Limited• Operating profit decreased from US$8,2 million in 2007 to US$6,5 million in 2008.• Customer deposits increased by 71% from US$10,2 million in 2007 to US$17,4 million in 2008.• Loans and advances as a percentage of total assets were constant for both years at 8%.• Non-interest income to total income increased from 10% in 2007 to 60% in 2008.• Prior to mid November 2008 the group had achieved organic growth across core businesses.• For November and December 2008 the group did not record any meaningful income from its core business.• The group met the new Reserve Bank of Zimbabwe (RBZ) capitalisation rules with the transfer of US$22,5 million of KMLs funds held with the RBZ.• Kingdom Bank Limited successfully upgraded its Globus Banking system and introduced POS devices in some major retail outlets in Zimbabwe with encouraging results. 2 A N N U A L R E P O R T 2 0 0 8
  • 4. KINGDOM MEIKLES LIMITED CHAIRMAN’S S TAT E M E N TMeikles Africa Hotels• Operating profit was US$5,4 million (2007 - US$7,7 million).• Group occupancy decreased from 43% in 2007 to 41% with the major decrease coming from Victoria Falls Hotel (45% to 38%).• Victoria Falls Hotel was affected by the global economic slowdown, particularly in the USA and travel warnings to Zimbabwe.• Meikles Hotel was slightly up (30% to 31%) on prior year and the Cape Grace Hotel slightly down (74% to 70%).• Presidential and Government elections during the year contributed to Meikles Hotel maintaining prior year occupancies.• The refashioning programme of all rooms and public areas at the Cape Grace was completed at a cost of US$6 million (R60 million). Occupancy was affected adversely during the programme.Tanganda Tea Company Limited• Operating profit was US$4,2 million compared to US$7,2 million for the prior year.• Bulk tea production of 5,124 tonnes was 23% down on the prior year. Poor rains in November and December 2007 affected production at the beginning of the season.• Export sales of bulk tea were 4,233 tonnes for 2008 compared with 4,162 tonnes for 2007.• Domestic beverage volumes were 1,159 tonnes compared to 2,363 tonnes prior year, largely a result of the change in trading terms between suppliers and retailers, as well as erratic supplies of packaging material. Export sales of 209 tonnes were in line with prior year.• The capital expenditure programme totalling US$1,5million for mechanisation of plucking was completed during the year and this is beginning to improve yields.• Both the quality and the prices of tea have improved in 2009.Retail• The division recorded an operating loss of US$5,1 million compared with a loss of US$3,9 million for 2007.• Lack of stock and the inability to source working capital cost-effectively severely constrained cash flows and profitability during the year.• Terms of trade moved more to consignment stock transactions particularly for Department Stores.• Security of tenure in key branches was maintained whilst three leases expired and were not renewed.• Department Stores closed seven marginal Meikles and Clicks branches countrywide and opened a Barbours branch at Borrowdale Village, while two new TM Supermarkets were opened in Bulawayo and Victoria Falls on 13 November 2009 and 10 February 2010 respectively.• The retail division officially commenced trading in forex on 1 December 2008 with meagre forex resources.• Since the introduction of FOLIWARS licences in October 2008, with effect from 1 December 2008 Pick n Pay have supported TM Supermarkets with stock.• TM Supermarkets (Private) Limited was specified by the Minister of State on 16 January 2009 following investigations into the affairs of KML. The specification was lifted on 7 August 2009.• POS services linking with Kingdom Bank have been installed in major branches.• The short term emphasis is on stock holding that will turn quickly.Cotton Printers• Operating profit was US$334 000 compared with a profit of US$1,2 million for the prior year.• Significant viability problems were encountered in 2009 resulting in the company applying for voluntary liquidation in October 2009. The order for provisional liquidation was granted on 3 March 2010.Board, Shareholder and Litigation issuesShareholders will recall that on 22 September 2008, a notice ("the Notice") requesting an Extraordinary General Meeting(EGM) was issued by the "convening Shareholders". In the event, the EGM was not held.In March 2008 a call and put option agreement ("the option agreement") for the sale of the Cape Grace Hotel was entered intobetween KML and Cape Grace Hotel Limited (CGHL), (a wholly owned KML subsidiary incorporated in the British VirginIslands, which in turn wholly owns the South African Cape Grace Group of Companies, including the Cape Grace Hotel) onthe one hand, and Mentor Africa Limited, on the other. In November 2008 a notice to exercise an option agreement for the 3 A N N U A L R E P O R T 2 0 0 8
  • 5. KINGDOM MEIKLES LIMITED CHAIRMAN’S S TAT E M E N Tpurchase of the Groups interest in the Cape Grace Hotel had been received from Mentor Africa Limited. However, certainconditions precedent contained in the option agreement had not been fulfilled by 31 December 2008. Accordingly, KML hasseparately disclosed the carrying value of the Cape Grace Hotel as a disposal group.At the balance sheet date material amounts receivable from related parties were the subject of dispute or litigation. Pleaserefer to note 14 to the financial statements.Following the shareholder dispute, the Company and some of its subsidiaries, Thomas Meikle Centre (Private) Limited andTanganda Tea Company Limited, were specified on 11 September 2009. An executive committee was formed in July 2009,consisting of the four divisional Chief Executives together with certain other Executives. The committee assumedresponsibility for the day to day direction of the Group. The Board is pleased to inform the shareholders that thespecification was lifted on 11 and 12 February 2010. The Company was further suspended from both the Zimbabwe andLondon Stock Exchanges on 15 and 16 September 2009 respectively. The Zimbabwe Stock Exchange suspension was liftedon 22 February 2010. The suspension from the London Stock Exchange is yet to be lifted.Way forwardObjectives set for the Group in 2009 have been implemented only in part due to the adverse situation in which the Groupfound itself. The Shareholders are already aware that the results for the year ended 31 December 2009 will be disappointingbut this is not surprising given the harsh corporate environs in which the Group has been operating.The demerger of Kingdom Financial Holdings Limited (“KFHL”) from the Meikles Group is still to be implemented as theconditions precedent to the demerger are still to be fulfilled. Consequently, Meikles Limited remains the sole shareholder inKFHL and will remain so until such time as the de-merger is implemented. Only on implementation of the de-merger willMeikles Limiteds shareholders receive their KFHL share entitlement by way of a dividend in specie.The Board will disclose in due course those steps it has already taken to reposition the Group on a sound operating basis andwill detail its recovery plan. It should be noted that the lifting of the specifications has effectively cleared the Group of anywrong doing. Future relationships between the Group and its business associates will be conducted in a spirit of mutualrespect.Shareholders attention is alerted to post balance sheet events, the details of which are found on page 7 and note 40 to thefinancial statements.ConclusionThe trading environment has stretched the loyalty and resilience of management and staff to extreme limits. The Boardwishes to pay particular tribute to all management and staff who have performed admirably, in spite of the odds which wereheavily stacked against them.F. RwodziCHAIRMANHarare, 21 April 2010 4 A N N U A L R E P O R T 2 0 0 8
  • 6. KINGDOM MEIKLES LIMITED RISK MANAGEMENTFollowing the merger of Meikles Africa Limited, Kingdom Financial Holdings Limited, Tanganda Tea Company Limited andCotton Printers (Private) Limited in December 2007, the Group formalised risk management polices in connection withbanking requirements. These are in addition to those adopted by Meikles Africa Limited Board which endorsed a formalisedrisk management policy, hinging primarily upon:• Corporate governance.• Development and protection of the people, the assets and the operations of Meikles Africa Limited with a strong focus on physical controls, financial efficiency and internal controls.The risk management function is ultimately the responsibility of the Executive Director Finance and Administration and theAudit Committee. The Group Risk Manager formally reports on a quarterly basis to the Audit Committee.In addition to these, the Kingdom Meikles Limited Group expanded its risk management polices that cover all subsidiaries ofKingdom Financial Holdings Limited (KFHL). The Group risk departments mandate is to develop a culture of appreciationand transparency in risk assessment and management. It works within the frameworks of the Reserve Bank of Zimbabwe(RBZ) guidelines and the Bank for International Settlements (BIS) as published in guidelines or compendiums. It is KFHLspolicy that all securities are traded after all the risks involved have been fully understood and quantified.KFHL endeavours to keep abreast of best practice in the measurement of both market and credit risk by utilising the latestmethodologies. Statistical models such as Value at Risk (VaR) and sensitivity measures such as durations are widely used andportfolios regularly stress tested. The department back-tests the accuracy of models as recommended by the BaselCommittee. Credit risk is handled in the same rigorous manner.Communication and timely delivery of risk information is critical to any efficient risk management process. To this end thedepartment has service level agreements with all KFHL subsidiaries or units to deliver accurate risk management informationtimeously. Risk Management issues daily, weekly, monthly, quarterly and annual reports to units, management and the variousrisk management bodies. Furthermore the department regulates the trading of operating units by setting, implementing andrevising risk and trading limits on a consistent basis through the Asset and Liabilities Committee (ALCO).The risk management framework is built in a hierarchical manner, which begins with line management, goes throughcommittees such as ALCO, Loans and Investment Committee (LIC), Board Subcommittees and ultimately ends with theKingdom Financial Holdings Limited Board. There is segregation of duties between front offices, middle offices and backoffices functions as part of the Groups risk management policy.Risk categoriesThe main categories of risk inherent in the business of the Group are:• Market related risks• Liquidity risk - Interest rate risk - Foreign exchange risk - Credit risk• Operational risk• Reputation riskInternal AuditEach operating unit has an internal audit department, the head of which reports to the Audit Committee of each division.Formal reports are presented to the Audit Committee quarterly.Treasury Management and Financial RiskThe Group operates a central treasury function, the objective being to provide competitive funding costs and investmentincome as well as the monitoring of financial risk. The Group treasury activity is routinely reported to Executive Directors,and is subject to review by the internal and external auditors. In accordance with Group policy, Group treasury does notengage in speculative activity. 5 A N N U A L R E P O R T 2 0 0 8
  • 7. KINGDOM MEIKLES LIMITED RISK MANAGEMENTCurrency RiskThe objective is to reduce the risk to short term profits of exchange rate volatility. The Group has significant foreign currencyassets, and interest and transactional exposures are covered with foreign currency income. The Group makes use of foreigncurrency accounts in Zimbabwe.Liquidity and Interest Rate RiskThe objective is to ensure continuity of funding at low cost and to avoid significant exposure to changes in interest rates.Exposure to liquidity risk is managed through a diversity of funding sources and a spread of debt maturities. With residualcash reserves, net of all borrowings, of US$49,4 million (Z$1 725 170 quintillion), and unused bank facilities, the Group isable to meet all short-term commitments. The interest rates for both interest receivable and payable locally are mostlyflexible, and pegged to the commercial banks minimum lending rate.Credit RiskThe objective is to reduce the risk of loss arising from default by counterparties. The Groups cash resources are investedwith the most reputable financial institutions, whilst at the same time, where possible, spreading risk across a number ofbanks and similar institutions. At the balance sheet date US$35 million (Z$1 225,11 quintillion) was invested with the ReserveBank of Zimbabwe in accordance with its directive.Market RiskThe principal amounts of all monetary financial assets and liabilities are fixed, and not subject to market related valueadjustments. 6 A N N U A L R E P O R T 2 0 0 8
  • 8. KINGDOM MEIKLES LIMITED D I R E C TO R AT E AND C O R P O R AT E GOVERNANCEDIRECTORATEM.A. Masunda * Non-executive - Acting Chairman - resigned 31 December 2009J.R.T. Moxon "* Non-executive (Specified with effect from 16 January 2009)N.M.K. Chanakira - Group Chief Executive Officer - resigned 15 October 2009C.B. Thorn - Executive Director Finance and Administration - resigned 30 April 2009D.W. Mills - Executive Director Retail - retired 31 December 2008D.E. Stephens * Non-executive - retired 30 November 2009M.S. Wilson "* Non-executive - resigned 30 November 2008S.P. Bango * Non-executive - resigned 14 October 2009C. Jokonya " Non-executive - resigned 15 October 2009R. Chidembo " Non-executiveT. Nyambirai * Non-executive - resigned 31 August 2008D. Mboweni * Non-executive - appointed 31 August 2008 - resigned 15 October 2009B. Chimhini - Executive Director - appointed 6 August 2009R. H. Meiring - Executive Director - appointed 6 August 2009T. B. Cameron - Executive Director - appointed 6 August 2009A. C. Mills - Executive Director - appointed 6 August 2009F. Rwodzi " Non-executive - Chairman - appointed 1 December 2009B. J. Beaumont - Group Chief Executive Officer - appointed 1 December 2009K. Ncube - Non-executive - appointed 1 December 2009O. Makamba - Executive Director Finance and Administration - appointed 1 February 2010" Member of the Audit Committee* Member of the Remuneration CommitteeCORPORATE GOVERNANCEOn page 10 the Directors have acknowledged their responsibility and conclusion on the presentation of the financialstatements.The structure of the Board and its various standing committees is as follows: -The BoardAt 31 December 2008, the Board consisted of the acting Chairman, three executive and six non-executive Directors, and metat least quarterly during the year. The key matters reserved for the decision of the Board are the Group strategy, acquisitionand divestment policy, approval of the Group budget and major capital projects, and general treasury and risk managementpolicies.Subsidiaries and DivisionsThe Group operates a decentralised subsidiary/divisional structure. Each significant subsidiary or division has a formaloperating Board with a clear definition of responsibility, which operates within well-defined policies. There is comprehensivefinancial reporting with actual results reported monthly against budget and prior year.The Audit CommitteeThe Audit Committee was chaired by Michael Wilson up to the time of his resignation and subsequently by Callisto Jokonyaand normally meets four times a year. The Group Chief Executive Officer, the Executive Director Finance andAdministration, external audit and risk management attend these meetings by invitation. The Audit Committee reviews theGroups interim and annual financial statements before submission to the Board for approval. Its objectives are to ensure thatthe Board is advised on all matters relating to corporate governance and the creation and maintenance of effective financialcontrols, as well as advising the Board and management on measures which ensure that respect for both regulatory issues andfor internal financial control is demonstrated and stimulated. Accordingly, it reviews the effectiveness of the internal auditfunction, its programmes and reports, and also reviews all reports from the external auditors on accounting and internalcontrol matters, and monitors action taken where necessary. The Audit Committee also recommends the appointment andreviews fees of external auditors.The Remuneration CommitteeThe Remuneration Committee was chaired by John Moxon until 16 October 2008 and subsequently by Muchadeyi Masundaand meets as required during the year. The terms of reference of the Remuneration Committee are to determine the Groupspolicy on the remuneration of executive Directors and senior executives, including individual salaries and other terms of theremuneration packages. 7 A N N U A L R E P O R T 2 0 0 8
  • 9. KINGDOM MEIKLES LIMITED REPORT OF THE DIRECTORSPrincipal activitiesThe main activities of the Group are those of agriculture, banking, hotels, retail trading and textile manufacturing. Retailtrading includes department stores, supermarkets and convenience stores.The Directors hereby formally withdraw the 2008 financial statements issued for the 30 November 2009 Annual GeneralMeeting.Years resultsThe results for the year are set out in the attached financial statements and are commented on under the Board statement onpages 2 to 4. An interim dividend of $0.0007 per share with a scrip dividend option was paid on 21 July 2008. 99.97% wastaken up as scrip with the remaining 0.03% paid out as cash. The Board has resolved not to declare a final dividend for the yearended 31 December 2008.Limitations of financial reporting in the general environment prevailingThe uncertainties in the adverse Zimbabwean economic environment during the year have resulted in limitations in financialreporting. These uncertainties include:• The inflation indices have not been published since July 2008 and the effect of this on the financial statements have been disclosed in note 38.• The measurement of transactions in local currency is dependent on the mode of settlement. As a result, there may be significant variations in the valuations of assets and liabilities. Accordingly, such valuations may be inherently unreliable.The uncertainties have been aggravated by:• multiple exchange rates - there are various rates applicable which vary significantly (for instance the market "cash exchange rate" is less than 1% of the market "cheque exchange rate" or the United Nations exchange rate). If a transaction occurs at more than one rate and is recorded at its nominal value, this may result in distortions in financial reporting;• multiple pricing - there are multiple prices for the same commodity/service, largely dependant on the modes of settling transactions from cheque/transfer, cash, fuel coupons, foreign currency etc. The effect is similar to that of the multiple exchange rates described above and may result in distortions in financial reporting;• "dollarisation" - the introduction of licensed operators in foreign currency in the country and also the "basing" of most other transactions in foreign currency for most of the non-licensed operators, has created challenges for the Company in determining its functional currency (as between the local currency and a foreign currency).Functional Currency Presentation of Financial InformationFor the major part of the year, the functional currency in which transactions were recorded was the Zimbabwe Dollar. Withthe introduction of FOLIWARS trading (retailing licences to trade in foreign currency) combined with other direct exportrelated group operations, the shift during the latter part of the year was towards the US Dollar as a functional currency foroperations excluding the Kingdom Financial Holdings Limited Group. The financial information presented in historicalcost Zimbabwe Dollars is to meet statutory requirements. Inflation-adjusted figures are not available because of the lack ofConsumer Price Indices information, but, in any case, the validity of such presentation in Zimbabwe Dollars and what can bedrawn from the financials has no real meaning.The Board has taken the view that the presentation of US Dollar financial statements as supplementary information providesa better appreciation of the results and state of affairs of the Group.There have been multiple exchange rates during the year and those applied to present US Dollar financial statements havebeen reviewed on a regular basis, depending on market conditions, to determine those which present figures that are asaccurate as possible in the circumstances. Exchange rates considered, included the Old Mutual Implied Rate, market cashand cheque rates, Electronic Transaction rates and the United Nations exchange rate. The actual rates used are disclosed inNote 36.The presentation of a group balance sheet in US Dollars at 31 December 2008 was appropriate to provide opening balances 8 A N N U A L R E P O R T 2 0 0 8
  • 10. KINGDOM MEIKLES LIMITED REPORT OF THE DIRECTORSfor the 2009 financial year as the functional currency formally became US Dollars with the economic "Dollarisation" effectivefrom February 2009.2007 Comparatives2007 historical cost Zimbabwe Dollar comparatives are not shown as the debasing of the currency by ten zeros on 1 August2008 resulted in all the 2007 figures being nil when presented in quintillions.The US Dollar (2007) comparatives present financial information assuming the merged Group of Kingdom Meikles Limitedhad been in operation for the whole year. This presentation provides better Group information for comparison purposes.Share capitalDetails of the authorised and issued share capital are set out in note 20 to the financial statements.Directors and their interestsThe names of the Directors of the Company during the relevant periods are set out on page 7.No Director had, during, or at the end of the period, any material interest in any contract of significance in relation to theGroups businesses. The direct and indirect beneficial interests of the Directors in the shares of the Company are given in note20 to the financial statements.Substantial shareholdingsAccording to information received by the Directors, the following are the only shareholders beneficially holding, directly orindirectly at 31 December 2008 in excess of 5% of the share capital of the Company:Shareholder No. of shares %EW Capital Holdings (Private) Limited 25 899 448 10.56JRTM Investments (Private) Limited 21 189 654 8.64ASH Investments (Private) Limited 21 051 504 8.58FPS Investments (Private) Limited 20 980 949 8.55ACM Investments (Private) Limited 20 961 256 8.54APWM Investments (Private) Limited 20 958 030 8.54Old Mutual Assurance Company Zimbabwe Limited 16 811 511 6.85AuditorsMessrs. Deloitte & Touche were re-appointed on 30 November 2009 and their fees for the year ended 31 December 2008 wereapproved.F. RwodziCHAIRMANHarare, 21 April 2010 9 A N N U A L R E P O R T 2 0 0 8
  • 11. KINGDOM MEIKLES LIMITED DIRECTORS’ RESPONSIBILITY AND CONCLUSIONThe Directors of the Company are responsible for the maintenance of adequate accounting records, and the preparation offinancial statements for each financial year that give a true and fair view of the state of affairs of the Company and the Groupat the end of the financial year and of the results and cash flows for that year. They are also required to select appropriateaccounting policies, to safeguard the assets of the Company and the Group and to make reasonable and prudent judgementsand estimates. Accounting policies, which follow International Financial Reporting Standards, have been consistently applied.The Directors are also responsible for the systems of internal control. These are designed to provide reasonable, but notabsolute, assurance as to the reliability of the financial statements, and to safeguard, verify and maintain accountability ofassets, and to prevent and detect material misstatements and losses. The systems are implemented and monitored by suitablytrained personnel with an appropriate segregation of authority and duties. Nothing has come to the attention of the Directorsto indicate that any material breakdown in the functioning of these controls, procedures and systems has occurred during theyear under review.Due to the usage of multi-currencies in our trading, the volatile exchange rates experienced in Zimbabwe and the resultantaccounting complexities, the Directors are unable to confirm that the historical cost Zimbabwe Dollar financial statementspresent a true and fair view of the financial status of the Group. The auditor’s qualified opinion, outlined on pages 11 and 12reiterates this point.The impact of these matters is such that the financial statements of the Group have not been prepared in full compliance withall International Financial Reporting Standards. The financial statements have been prepared in accordance with theaccounting policies set out in the accounting policy notes and comply with the disclosure of the Companies Act (Chapter24.03) and the relevant Statutory Instruments.US Dollar financial statements have been presented as supplementary information for the benefit of shareholders but theauditors do not express an opinion on these figures. The Board has taken a view that exchange rates applied to our accounts tothe extent possible in the environment, enables fair presentation.The Directors have assessed the ability of the Company and the Group to continue operating as a going concern and believethat the preparation of these financial statements on a going concern basis is still appropriate. However, the Directors believethat under the current economic environment a continuous assessment of the ability of the Company and the Group tocontinue to operate as a going concern will need to be performed to determine the continued appropriateness of the goingconcern assumption that has been applied in the preparation of these financial statements.F. RwodziCHAIRMANHarare, 21 April 2010 10 A N N U A L R E P O R T 2 0 0 8
  • 12. KINGDOM MEIKLES LIMITED INDEPENDENT AUDITOR’S REPORTTO THE MEMBERS OF KINGDOM MEIKLES LIMITEDREPORT ON THE FINANCIAL STATEMENTSWe have audited the accompanying consolidated Zimbabwe dollar financial statements of Kingdom Meikles Limited and itssubsidiaries ("the Group") set out on pages 13 to 56, which comprise the consolidated balance sheet as at 31 December 2008and the consolidated income statement, statement of changes in equity and cash flow statement for the year then ended anda summary of significant accounting policies and other explanatory notes. The US Dollar supplementary information whichis also included as part of the financial statements is not covered by this audit report.Directors Responsibility for the Financial StatementsThe directors are responsible for the preparation and fair presentation of these financial statements in accordance withInternational Financial Reporting Standards and the provisions of the Zimbabwe Companies Act (Chapter 24:03). Thisresponsibility includes designing, implementing and maintaining internal control relevant to the preparation and fairpresentation of financial statements that are free from material misstatement, whether due to fraud or error; selecting andapplying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances.Auditors ResponsibilityOur responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit inaccordance with International Standards on Auditing. Because of the matters described in the Basis of Disclaimer ofOpinion paragraphs, we were not able to obtain sufficient appropriate audit evidence to provide a basis for an audit opinion.Basis of Disclaimer of OpinionThe Zimbabwe economy is recognised as being hyperinflationary for purposes of financial reporting. These financialstatements have not been prepared in conformity with International Financial Reporting Standards in that the requirementsof IAS 29 "Financial Reporting in Hyperinflationary Economies" have not been complied with. The Standard requires thatfinancial statements that report in the currency of a hyperinflationary economy should be stated in terms of the measuringunit current at the balance sheet date.The non-compliance with IAS 29 arises from the inability to reliably measure inflation due to the interaction of multipleeconomic factors which are pervasive to the Zimbabwean economic environment; these factors have resulted in the accurateand reliable measurement of fair value becoming impracticable. Please refer to note 38 for a detailed explanation.At the balance sheet date material amounts receivable from related parties and others were the subject of dispute and / orlitigation. A provision of Z$623 877 quintillion has been made in respect of the uncertainty of the carrying value of anyinvestment made from funds (see Note 14), that were held by Coolbay Investments (Proprietary) Limited, but confirmationhas been received that the funds (of Z$ 154 715 quintillion) held by Mentor Africa Limited (Mentor) are recoverable in aform other than cash, this itself being the subject of litigation between Kingdom Meikles Limited (KML) and Mentor. InNovember 2008 a notice to exercise an option agreement for the purchase of the Groups interest in the Cape Grace Hotelhad been received from Mentor Africa Limited. However, certain conditions precedent contained in the option agreementhad not been fulfilled by 31 December 2008. Accordingly, KML has separately disclosed the carrying value of the CapeGrace Hotel as a disposal group. The Group has continued to consolidate 100% of the assets and liabilities of the CapeGrace Hotel group of companies.Investigations by various authorities have been conducted and the final outcome of these may have an effect on the Group.The operations of the Group, have been significantly affected, and may continue to be affected for the foreseeable future, bythe adverse effects of the countrys unstable economic environment which has resulted in a significant downturn ineconomic activity. The ability of the Group to continue operating as a going concern, in such an environment, is subject tocontinual assessment. 11 A N N U A L R E P O R T 2 0 0 8
  • 13. KINGDOM MEIKLES LIMITED INDEPENDENT AUDITOR’S REPORTDisclaimed OpinionBecause of the significance of the matters described in the Basis for Disclaimer of Opinion paragraphs, we have not been ableto obtain sufficient appropriate audit evidence to provide a basis for an audit opinion. Accordingly, we do not express anopinion on the financial statements.Emphasis of MatterWithout further qualifying our opinion, we draw attention to Note 40 “Subsequent events”.Report on legal and regulatory requirementsThese financial statements have been properly prepared in accordance with the accounting policies set out on pages 18 to 30,and comply with the disclosure requirements of the Companies Act (Chapter 24:03) and the relevant Statutory Instruments(SI 33/99 and SI 62/99).Deloitte & ToucheChartered Accountants (Zimbabwe)Harare21 April 2010 12 A N N U A L R E P O R T 2 0 0 8
  • 14. KINGDOM MEIKLES LIMITED C O N S O L I D AT E D I N C O M E S TAT E M E N T S for the year ended 31 December 2008 31 December 31 December Proforma 2008 2008 31 December 2007 Notes Z$ quint US$ US$Revenue 1 227 014 51 162 583 77 276 030Cost of sales (20 364) (26 345 718) (44 105 530)Gross profit 206 650 24 816 865 33 170 500Net interest income (Banking) 10 363 4 600 281 13 503 819Total gross profit and net interest 217 013 29 417 146 46 674 319Dealing profits / (losses) 863 764 1 623 924 (1 452 623)Net fees and commission income 2 026 3 542 483 1 911 621Other income 2 51 717 6 022 598 3 796 145Employee costs 3 (43 534) (10 323 317) (10 939 044)Occupancy costs 4 (18 660) (3 107 497) (3 561 346)Other operating costs 5 (89 903) (16 949 684) (15 851 510)Operating profit 982 423 10 225 653 20 577 562Investment revenue 6 11 967 6 591 298 3 331 568Finance costs 7 (1 318) (1 097 639) (2 134 793)Net exchange gains and translation adjustments 1 183 364 (5 710 682) 5 292 911Increase in value of quoted investment - 5 778 280 995Goodwill impairment - (127 178 851) -Provision for funds earmarked for investments (623 877) (17 825 063) -Share of profits of associates 7 896 245 099 10 493Profit / (loss) before tax 1 560 455 (134 744 407) 27 358 736Income tax (expense) / credit 8 (284 708) 7 088 231 (12 269 527)Profit / (loss) for the year 1 275 747 (127 656 176) 15 089 209Attributable to:Equity holders of the parent 1 279 000 (127 484 452) 15 153 603Minority interest (3 253) (171 724) (64 394) 1 275 747 (127 656 176) 15 089 209Basic earnings / (loss) per share 9 0,01 (52.28) cents 6.26 centsIIMR Headline earnings per share 9 0,01 7.28 cents 6.25 cents 13 A N N U A L R E P O R T 2 0 0 8
  • 15. KINGDOM MEIKLES LIMITED C O N S O L I D AT E D BALANCE SHEETS as at 31 December 2008 31 December 31 December 31 December 2008 2008 2007 Notes Z$ quint US$ US$ASSETSNon-current assetsProperty, plant and equipment 10 1 195 81 482 946 63 112 808Investment property 11 10 028 286 500 703 615Biological assets 12 43 506 4 857 050 3 357 438Investments in associates 13 35 908 1 025 927 91 047Other financial assets and investments 14 154 729 4 404 946 21 513 062Goodwill 15 - - 131 270 859Intangible assets - Trademarks 1 268 579 205 689Balances with Reserve Bank of Zimbabwe 18 418 609 11 960 252 29 951 676 663 976 104 286 200 250 206 194Current assetsInventories 16 64 075 5 270 055 3 795 825Trade and other receivables 17 305 160 9 224 814 7 059 993Other financial assets 14 26 586 804 585 9 113 160Customers liability for acceptances - - 13 452Cash and bank balances 18 1 340 922 38 371 577 14 984 051 1 736 743 53 671 031 34 966 481Disposal groupOther assets 19 810 649 25 748 996 -Goodwill - 4 092 008 -Total assets 3 211 368 187 798 235 285 172 675EQUITY AND LIABILITIESCapital and reservesIssued capital 20 - 1 359 065 1 359 065Share premium - 217 214 999 215 531 786Other non-distributable reserves 21 219 841 33 432 834 14 582 494Retained earnings / (accumulated losses) 1 292 327 (128 328 373) 3 244 842Capital and reserves relating to disposal group 19 217 454 6 384 502 -Equity attributable to equity holders of the parent 1 729 622 130 063 027 234 718 187Minority interest (3 253) 1 661 070 459 612Total equity 1 726 369 131 724 097 235 177 799Non-current liabilitiesBorrowings 22 7 427 212 183 3 167 950Deferred tax 23 249 729 20 546 415 16 401 348Other financial liabilities 24 - - 7 297 824 257 156 20 758 598 26 867 122Current liabilitiesTrade and other payables 25 (15 609) (69 765) 6 038 183Customer deposits 26 609 864 17 424 674 10 217 658Borrowings 22 26 925 769 331 709 251Other financial liabilities 24 46 718 1 364 412 6 162 662 667 898 19 488 652 23 127 754Liabilities relating to disposal group 19 559 945 15 826 888 -Total equity and liabilities 3 211 368 187 798 235 285 172 675F. Rwodzi B. J. BeaumontHarare, 21 April 2010 Harare, 21 April 2010 14 A N N U A L R E P O R T 2 0 0 8
  • 16. KINGDOM MEIKLES LIMITED C O M PA N Y BALANCE SHEET as at 31 December 2008 31 December 31 December 31 December 2008 2008 2007 Notes Z$ quint US$ US$ASSETSNon-current assetsOther financial assets and investments 14 4 830 66 169 375 149 967 734Current assetsTrade and other receivables 17 222 801 6 365 757 5 571 663Cash and bank balances 18 - - 3 088 575 222 801 6 365 757 8 660 238Total assets 227 631 72 535 132 158 627 972EQUITY AND LIABILITIESCapital and reservesIssued capital 20 - 1 359 065 1 359 065Share premium - 217 214 999 215 531 786Share based payment reserve - - 896 916Retained earnings / (accumulated losses) 225 003 (168 656 456) (62 055 768)Total equity 225 003 49 917 608 155 731 999Non-current liabilitiesDeferred tax liabilities 23 - - 2 706 941Current liabilitiesTrade and other payables 25 2 628 22 617 524 189 032Total equity and liabilities 227 631 72 535 132 158 627 972F. Rwodzi B. J. BeaumontHarare, 21 April 2010 Harare, 21 April 2010 15 A N N U A L R E P O R T 2 0 0 8
  • 17. KINGDOM MEIKLES LIMITED C O N S O L I D AT E D S TAT E M E N T O F C H A N G E S IN EQUITY for the year ended 31 December 2008 31 December 31 December 2008 2008 Z$ quint US$Profit / (loss) for the year 1 279 000 (127 484 452)Share premium on issue of shares to staff share purchase scheme - 781 803Translation of foreign entity 518 008 (310 147)Property revaluation - 34 666 595Available for sale fair value adjustment 1 624 (849 884)Other reserves - (19 850)Scrip dividend - 4 494Less deferred tax effect of equity items (69 010) (11 443 719)Attributable to equity holders of parent 1 729 622 (104 655 160)Minorities (3 253) 1 201 458Shareholders equity at the beginning of the year - 235 177 799Shareholders equity at the end of the year 1 726 369 131 724 097Comprising:Issued capital - 1 359 065Share premium - 217 214 999Other non-distributable reserves 219 841 33 432 834Retained earnings / (accumulated losses) 1 292 327 (128 328 373)Amounts in equity relating to disposal group (note 19) 217 454 6 384 502Minority interest (3 253) 1 661 070Total equity 1 726 369 131 724 097 C O M PA N Y S TAT E M E N T O F C H A N G E S I N E Q U I T Y for the year ended 31 December 2008 31 December 31 December 2008 2008 Z$ quint US$Profit / (loss) for the year 225 003 (106 600 688)Share premium on issue of shares to staff share purchase scheme - 781 803Scrip dividend - 4 494Attributable to equity holders 225 003 (105 814 391)Shareholders equity at the beginning of the year - 155 731 999Shareholders equity at the end of the year 225 003 49 917 608Comprising:Issued capital - 1 359 065Share premium - 217 214 999Retained earnings / (accumulated losses) 225 003 (168 656 456)Total equity 225 003 49 917 608 16 A N N U A L R E P O R T 2 0 0 8
  • 18. KINGDOM MEIKLES LIMITED C O N S O L I D AT E D CASH FLOW S TAT E M E N T S for the year ended 31 December 2008 31 December 31 December 2008 2008 Notes Z$ quint US$Cash flow from operating activitiesOperating cash flow before working capital changes 29 288 860 6 449 872Increase in inventories (75 360) (1 796 640)(Increase)/decrease in trade and other receivables and other financial assets (115 888) 3 799 785(Decrease)/increase in trade and other payables and financial liabilities (16 059) 8 374 180Cash generated from operations 81 553 16 827 197Income taxes paid (4 181) (1 576 040)Net cash generated from operating activities 77 372 15 251 157Cash flows from investing activitiesPayment for property, plant and equipment - replacement (256 128) (11 680 188)Payment for property, plant and equipment - expansion (877) (175 132)Net (outflow) / inflow from other investments (51 092) 6 368Proceeds from disposal of property, plant and equipment 2 959 108 944Increase in biological assets (163) (268 889)Development expenditure - (62 890)Interest received 4 527 5 166 982Net cash used in investing activities (300 774) (6 904 805)Cash flows from financing activitiesProceeds from borrowings and other financial liabilities 63 539 1 954 612Repayments of borrowings and other financial liabilities - (3 343 748)Finance costs (1 318) (1 097 639)Proceeds from issue of shares 5 781 803Dividends paid - Equity holders of the parent (5) -Net cash generated from / (used in) financing activities 62 221 (1 704 972)Net (decrease) / increase in cash and bank balances (161 181) 6 641 380Cash and bank balances at the beginning of the year - 44 935 727Net effect of exchange rate changes on cash and bank balances 2 942 039 (3 732 970)Translation of foreign entity (1 018 976) 2 554 850Cash and bank balances at the end of the year 18 1 761 882 50 398 987 17 A N N U A L R E P O R T 2 0 0 8
  • 19. KINGDOM MEIKLES LIMITED SIGNIFICANT ACCOUNTING POLICIES1. General information Kingdom Meikles Limited (the Company), previously named Kingdom Meikles Africa Limited, is a limited Company incorporated in Zimbabwe. The address of its registered office is disclosed on page 64 of the annual report and the principal activities of the Company and its subsidiaries (the Group) are described in note 14.3. The financial statements are presented in Zimbabwe Dollars rounded off to the nearest quintillion. Supplementary information is in United States dollars.2. Adoption of new and revised standards In the current year, the Group has adopted all of the revised Standards and Interpretations applicable to the Group issued by the International Accounting Standards Board (IASB) and the International Financial Reporting Interpretations Committee (IFRIC) of the IASB that are relevant to its operations and effective for the accounting periods beginning on 1 January 2008. The adoption of these new and revised Standards and Interpretations did not have a material impact on the financial statements of the Group. At the date of the authorisation of these financial statements, the following Standards and Interpretations, which are applicable to the Group, were either issued or revised but not yet effective: • IFRS 2: Share-based Payments (Revised) Effective from 1 January 2009. • IFRS 3: Business Combinations (Revised). Effective from 1 July 2009. • IFRS 5: Non-current Assets Held for Sale and Discontinued Operations (Revised). Effective from 1 July 2009. • IAS 1: Presentation of Financial Statements (Revised). Effective from 1 January 2009. • IAS 16: Property, Plant and Equipment (Revised). Effective from 1 January 2009. • IAS 19: Employee Benefits (Revised). Effective from 1 January 2009. • IAS 20: Government Grants and Disclosure of Government Assistance (Revised). Effective from 1 January 2009. • IAS 23: Borrowing costs (Revised). Effective from 1 January 2009. • IAS 27: Consolidated and Separate Financial Statements (Revised). Effective from 1 July 2009. • IAS 28: Investment in Associates (Revised). Effective from 1 July 2009. • IAS 29: Financial Reporting in Hyperinflationary Economies (Revised). Effective from 1 January 2009. • IAS 31: Interest in Joint Ventures (Revised). Effective from 1 July 2009. • IAS 32: Financial Instruments: Presentation (Revised). Effective from 1 January 2009. • IAS 36: Impairment of Assets (Revised). Effective from 1 January 2009. • IAS 38: Intangible Assets (Revised). Effective from 1 January 2009. • IAS 39: Financial Instruments: Recognition and Measurement (Revised). Effective from 1 July 2009. • IAS 40: Investment Property (Revised). Effective from 1 January 2009. • IAS 41: Agriculture. Effective from 1 January 2009. The Directors anticipate that the adoption of these Standards and Interpretations in future periods will have no material impact on the financial statements of the Group.3. Statement of compliance The financial statements are not presented in accordance with International Financial Reporting Standards for the reason set out below. In 2001 the Group adopted IAS 29, “Financial Reporting in Hyperinflationary Economies”. The effect of adopting this standard is that the primary financial statements of the Group become inflation adjusted figures with the historical cost figures shown as supplementary information. However this standard was not complied with in the current year due to the inability to reliably measure inflation for the reasons set out in note 38.4. Basis of consolidation The Group financial statements incorporate the accounts of the Company and its subsidiaries and joint venture undertakings. Subsidiary undertakings are those companies in which the Group, directly or indirectly, has an interest 18 A N N U A L R E P O R T 2 0 0 8
  • 20. KINGDOM MEIKLES LIMITED SIGNIFICANT ACCOUNTING POLICIES4. Basis of consolidation (continued) of more than one half of the voting rights and is able to exercise control over the operations. Control is achieved where the Company has the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. Joint venture undertakings are those in which the Group has a joint control interest and are consolidated on a proportionate basis. Accounting policies for subsidiaries and joint ventures are consistent, in all material respect with the policies adopted by the Group. Where necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies into line with those used by other members of the Group. All intra-group transactions and balances are eliminated in full on consolidation. Minority interests in the net assets (excluding goodwill) of consolidated subsidiaries are identified separately from the Groups equity therein. Minority interests consist of the amount of those interests at the date of the original business combination and the minoritys share of changes in equity since the date of the combination. Losses applicable to the minority in excess of the minoritys interest in the subsidiarys equity are allocated against the interests of the Group except to the extent that the minority has a binding obligation and is able to make an additional investment to cover the losses. The Group manages and administers assets held in unit trusts and other investment vehicles on behalf of investors. The financial statements of these entities are not included in these consolidated financial statements. Information about the Groups funds management and securitisation activities is set out in note 31. Acquisitions of subsidiaries and businesses are accounted for using the purchase method. The cost of the business combination is measured as the aggregate of the fair values (at the date of exchange) of assets given, liabilities incurred or assumed, and equity instruments issued by the Group in exchange for control of the acquiree, plus any costs directly attributable to the business combination. The acquirees identifiable assets, liabilities and contingent liabilities that meet the conditions for recognition under IFRS 3 Business Combinations are recognised at their fair values at the acquisition date, except for non-current assets (or disposal groups) that are classified as held for sale in accordance with IFRS 5 Non-current Assets Held for Sale and Discontinued Operations, which are recognised and measured at fair value less costs to sell. Goodwill arising on acquisition is recognised as an asset and initially measured at cost, being the excess of the cost of the business combination over the Groups interest in the net fair value of the identifiable assets, liabilities and contingent liabilities recognised. If, after reassessment, the Groups interest in the net fair value of the acquirees identifiable assets, liabilities and contingent liabilities exceeds the cost of the business combination, the excess is recognised immediately in profit or loss. The interest of minority shareholders in the acquiree is initially measured at the minoritys proportion of the net fair value of the assets, liabilities and contingent liabilities recognised.5. Investments in associates An associate is an entity over which the Group has significant influence and that is neither a subsidiary nor an interest in a joint venture. Significant influence is the power to participate in the financial and operating policy decisions of the investee but is not control or joint control over those policies. The results, assets and liabilities of associates are incorporated in these financial statements using the equity method of accounting, except when the investment is classified as held for sale, in which case it is accounted for under IFRS 5 Non-current Assets Held for Sale and Discontinued Operations. Under the equity method, investments in associates are carried in the consolidated balance sheet at cost as adjusted for post-acquisition changes in the Groups share of the net assets of the associate, less any impairment in the value of individual investments. Losses of an associate in excess of the Groups interest in that associate (which includes any long-term interests that, in substance, form part of the Groups net investment in the associate) are recognised only to the extent that the Group has incurred legal or constructive obligations or made payments on behalf of the associate. 19 A N N U A L R E P O R T 2 0 0 8
  • 21. KINGDOM MEIKLES LIMITED SIGNIFICANT ACCOUNTING POLICIES5. Investments in associates (continued) Any excess of the cost of acquisition over the Groups share of the net fair value of the identifiable assets, liabilities and contingent liabilities of the associate recognised at the date of acquisition is recognised as goodwill. The goodwill is included within the carrying amount of the investment and is assessed for impairment as part of the investment. Any excess of the Groups share of the net fair value of the identifiable assets, liabilities and contingent liabilities over the cost of acquisition, after reassessment, is recognised immediately in the income statement. Where a Group entity transacts with an associate of the Group, profits and losses are eliminated to the extent of the Groups interest in the relevant associate.6. Interests in joint ventures A joint venture is a contractual arrangement whereby the Group and other parties undertake an economic activity that is subject to joint control, and when the strategic financial and operating policy decisions relating to the activities require the unanimous consent of the parties sharing control. Joint venture arrangements that involve the establishment of a separate entity in which each venturer has an interest are referred to as jointly controlled entities. The Group reports its interests in jointly controlled entities using proportionate consolidation, except when the investment is classified as held for sale, in which case it is accounted for under IFRS 5 "Non-current Assets Held for Sale and Discontinued Operations". The Groups share of the assets, liabilities, income and expenses of jointly controlled entities are combined with the equivalent items in the consolidated financial statements on a line-by-line basis. Any goodwill arising on the acquisition of the Groups interest in a jointly controlled entity is accounted for in accordance with the Groups accounting policy for goodwill arising on the acquisition of a subsidiary (see below). Where the Group transacts with its jointly controlled entities, unrealised profits and losses are eliminated to the extent of the Groups interest in the joint venture.7. Goodwill Goodwill arising on the acquisition of a subsidiary or a jointly controlled entity represents the excess of the cost of acquisition over the Groups interest in the net fair value of the identifiable assets, liabilities and contingent liabilities of the subsidiary or jointly controlled entity recognised at the date of acquisition. Goodwill is initially recognised as an asset at cost and is subsequently measured at cost less any accumulated impairment losses. Negative goodwill arising on an acquisition represents the excess of the fair value of the net identifiable assets acquired over the cost of the acquisition. Negative goodwill in excess of the fair values of the non-monetary assets acquired is immediately recognised in the income statement. For the purpose of impairment testing, goodwill is allocated to each of the Groups cash-generating units expected to benefit from the synergies of the combination. Cash-generating units to which goodwill has been allocated are tested for impairment annually, or more frequently when there is an indication that the unit may be impaired. If the recoverable amount of the cash-generating unit is less than the carrying amount of the unit, the impairment loss is allocated first to reduce the carrying amount of any goodwill allocated to the unit and then to the other assets of the unit pro-rata on the basis of the carrying amount of each asset in the unit. An impairment loss recognised for goodwill is not reversed in a subsequent period. On disposal of a subsidiary or a jointly controlled entity, the attributable amount of goodwill is included in the determination of the profit or loss on disposal. The Groups policy for goodwill arising on the acquisition of an associate is described under Investments in associates on policy note 5. 20 A N N U A L R E P O R T 2 0 0 8
  • 22. KINGDOM MEIKLES LIMITED SIGNIFICANT ACCOUNTING POLICIES8. Revenue recognition8.1 Sale of goods and services provided Revenue is measured at the fair value of the consideration received or receivable and represents amounts receivable for goods and services provided in the normal course of business, net of discounts, value added tax, returns and rebates. Revenue from the sale of goods is recognised when all the following conditions are satisfied: • The Group has transferred to the buyer the significant risks and rewards of ownership of the goods; • The Group retains neither continuing managerial involvement to the degree usually associated with ownership nor effective control over the goods sold; • The amount of revenue can be measured reliably; • It is probable that the economic benefits associated with the transaction will flow to the entity; and • The costs incurred or to be incurred in respect of the transaction can be measured reliably.8.2 Dividend income Dividend from investments is recognised when the shareholders rights to receive payment have been established.8.3 Rental income The Groups policy for recognition of revenue from operating leases is described in policy note 9.1.2.8.4 Bank operations Revenue derived substantially from the business of banking and related activities comprises net interest income and non-interest revenue.8.4.1 Net interest income Interest income and interest expenses are recognised in the income statement for all interest-bearing instruments on an accrual basis using the effective interest method. The effective interest rate is the rate that exactly discounts the estimated future cash payments and receipts through the expected life of the financial assets or liability to the carrying amount of the financial asset or liability. The effective interest is established on initial recognition of the financial asset and liability and is not revised subsequently. Where financial assets have been impaired, interest income continues to be recognised on the impaired value, based on the original effective interest rate. Net interest income excludes fair value adjustments on interest-bearing financial instruments. Fair value adjustments on financial instruments are reported under other income.8.4.2 Non-interest income Non-interest income includes dividends from investments, commissions and fees which include fees earned from providing advisory services, portfolio management, stock-broking activities and credit facilities, net revenue from foreign exchange and securities trading and net gains on the realisation or revaluation of investment banking assets. All such commissions and fees are included in the income statement on an accruals basis. Dividends are recognised in the period in which the right to receipt is established.9. Leasing9.1 The Group as lessor9.1.1 Instalment finance agreements Leases where the Group transfers substantially all the risks and rewards incidental to ownership of an asset to the lessee are classified as finance leases. The outstanding principal amounts less unearned finance charges, are included in advances and other accounts on the balance sheet. 21 A N N U A L R E P O R T 2 0 0 8
  • 23. KINGDOM MEIKLES LIMITED SIGNIFICANT ACCOUNTING POLICIES9.1.1 Instalment finance agreements (continued) The finance charges earned are computed at the effective interest rates in the contracts and are brought into income in proportion to balances outstanding under each contract. The unearned portion of finance charges is shown as a deduction from advances and other accounts.9.1.2 Operating leases Leases of assets under which all the risks and benefits of ownership are effectively retained by the lessor are classified as operating leases. Rental income from operating leases is recognised on a straight-line basis over the lease term.9.2 The Group as lessee Assets held under finance leases are initially recognised as assets of the Group at their fair value at the inception of the lease or, if lower, at the present value of the minimum lease payments. The corresponding liability to the lessor is included in the balance sheet as a finance lease obligation. Lease payments are apportioned between finance charges and reduction of the lease obligation so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are charged directly to profit or loss, unless they are directly attributable to qualifying assets, in which case they are capitalised in accordance with the Groups general policy on borrowing costs (see policy note 13, Property, plant and equipment). Contingent rentals are recognised as expenses in the periods in which they are incurred. Operating lease payments are recognised as an expense on a straight-line basis over the lease term, except where another systematic basis is more representative of the time pattern in which economic benefits from the leased asset are consumed. Contingent rentals arising under operating leases are recognised as an expense in the period in which they are incurred. In the event that lease incentives are received to enter into operating leases, such incentives are recognised as a liability. The aggregate benefit of incentives is recognised as a reduction of rental expense on a straight-line basis, except where another systematic basis is more representative of the time pattern in which economic benefits from the leased asset are consumed.10. Foreign currencies The individual financial statements of each Group entity are presented in the currency of the primary economic environment in which the entity operates (its functional currency) in terms of IAS 21 "The Effects of Changes in Foreign Exchange Rates". For the purpose of the consolidated financial statements, the results and financial position of each entity are expressed in Zimbabwe Dollars, which is the functional currency of the Company, and the presentation currency for the consolidated financial statements. In preparing the financial statements of the individual entities, transactions in currencies other than the entitys functional currency (foreign currencies) are recorded at the rates of exchange prevailing on the dates of the transactions. At each balance sheet date, monetary items denominated in foreign currencies are retranslated at the rates prevailing on the balance sheet date. Non-monetary items carried at fair value that are denominated in foreign currencies are retranslated at the rates prevailing on the date when the fair value was determined. Non-monetary items that are measured in terms of historical cost in a foreign currency are not retranslated. Exchange differences arising on the settlement of monetary items, and on the retranslation of monetary items, are included in the income statement for the year. Exchange differences arising on the retranslation of non-monetary items carried at fair value are included in the income statement for the year except for differences arising on the retranslation of non-monetary items in respect of which gains and losses are recognised directly in equity. For such non-monetary items, any exchange component of that gain or loss is also recognised directly in equity. 22 A N N U A L R E P O R T 2 0 0 8
  • 24. KINGDOM MEIKLES LIMITED SIGNIFICANT ACCOUNTING POLICIES10. Foreign currencies (continued) For the purpose of presenting consolidated financial statements, the assets and liabilities of the Groups foreign operations (including comparatives) are expressed in Zimbabwe Dollars using exchange rates prevailing on the balance sheet date. Income and expense items (including comparatives) are translated at the average exchange rates for the year, unless exchange rates fluctuated significantly during that year, in which case the exchange rates at the dates of the transactions are used (see note 36). Exchange differences arising, if any, are classified as equity and transferred to the Groups translation reserve. Such translation differences are recognised in profit or loss in the period in which the foreign operation is disposed of.11. Retirement benefits The Group operates a Defined Contribution Plan for all eligible employees. The scheme is funded by payments from employees and by the Group Companies, and the assets are held in various funds under the authority of the Trustees. The Groups contributions are charged in the income statement in the year to which they relate. The Group also participates in the National Social Security Authority Scheme (NSSA). Payments made to NSSA are dealt with as payments to defined contribution plans where the Groups obligations under the plans are equivalent to those arising in a defined contribution retirement benefit plan. Contributions to defined contribution retirement benefit plans are recognised as an expense when employees have rendered service entitling them to the contributions.12. Taxation Income tax expense represents the sum of the tax currently payable and deferred tax. Current tax The tax currently payable is based on taxable profit for the year. Taxable profit differs from profit as reported in the income statement because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The Groups liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the balance sheet date. Deferred tax Deferred tax is recognised on differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit, and is accounted for using the balance sheet liability method. Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. Such assets and liabilities are not recognised if the temporary difference arises from goodwill or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit. The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered. Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the period in which the liability is settled or the asset realised, based on tax rates (and tax laws) that have been enacted or substantively enacted by the balance sheet date. The measurement of deferred tax liabilities and assets reflects the tax consequences that would follow from the manner in which the Group expects, at the reporting date, to recover or settle the carrying amount of its assets and liabilities. Deferred tax is charged or credited to profit or loss, except when it relates to items charged or credited directly to equity, in which case the deferred tax is also dealt with in equity, or where they arise from the initial accounting for a business combination. In the case of a business combination, the tax effect is taken into account in calculating goodwill or in determining the excess of the acquirers interest in the net fair value of the acquirees identifiable assets, liabilities and contingent liabilities over the cost of the business combination. 23 A N N U A L R E P O R T 2 0 0 8
  • 25. KINGDOM MEIKLES LIMITED SIGNIFICANT ACCOUNTING POLICIES12. Taxation (continued) Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities and when they relate to income taxes levied by the same taxation authority and the Group intends to settle its current tax assets and liabilities on a net basis.13. Property, plant and equipment Property, plant and equipment is carried at historical cost, except in the case of US dollar financial information where property is carried at market value determined by independent valuers at 31 December 2008 less depreciation and impairment losses. Where the carrying amount of an asset is greater than its estimated recoverable amount, it is written down to its recoverable amount. Interest costs on borrowings to finance property expenditure during the course of construction are capitalised. Improvements to buildings are recognised whilst repairs and renewals are charged to the income statement when the expenditure is incurred. Gains and losses on the disposal of assets are determined by reference to their carrying amount and are taken into account in determining operating profit. Leased assets under a finance lease are initially measured at an amount equal to the lower of its fair value and the present value of the minimum lease payments. Subsequent to initial recognition, the asset is accounted for in accordance with the accounting policy applicable to the asset. Purchased software that is integral to the functionality of the related equipment is capitalised as part of that equipment. Where parts of an item of property or equipment have different useful lives, they are accounted for as separate items (major components) of property and equipment. Depreciation Depreciation on property, plant and equipment other than land and capital work in progress is calculated on a straight line basis so as to write off the assets over their estimated useful lives to their anticipated residual values. The estimated useful lives, residual values and depreciation method are reviewed at each year end, with the effect of any changes in estimate accounted for on a prospective basis. Assets under finance leases are depreciated over their expected useful lives on the same basis as owned assets or, where shorter, the term of the relevant lease.14. Investment property Investment property is property held to earn rentals and/or for capital appreciation. It is stated at its fair value at the balance sheet date as determined by independent professional valuers. Gains or losses arising from changes in the fair value of investment property are included in profit or loss for the period in which they arise. Where investment properties are still being developed, these are classified as capital work-in-progress and are disclosed under property, plant and equipment.15. Intangible assets Intangible assets acquired in a business combination Intangible assets acquired in a business combination are identified and recognised separately from goodwill where they satisfy the definition of an intangible asset and their fair values can be measured reliably. The cost of such intangible assets is their fair value at the acquisition date. Subsequent to initial recognition, intangible assets acquired in a business combination are reported at cost less accumulated amortisation and accumulated impairment losses. Other intangible assets that are acquired by the Group, which have future useful lives, are measured at cost less accumulated amortisation and impairment losses. 24 A N N U A L R E P O R T 2 0 0 8
  • 26. KINGDOM MEIKLES LIMITED SIGNIFICANT ACCOUNTING POLICIES16. Impairment of tangible and intangible assets excluding goodwill At each balance sheet date, the Group reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). Where it is not possible to estimate the recoverable amount of an individual asset, the Group estimates the recoverable amount of the cash generating unit to which the asset belongs. Where a reasonable and consistent basis of allocation can be identified, corporate assets are also allocated to individual cash-generating units, or otherwise they are allocated to the smallest group of cash-generating units for which a reasonable and consistent allocation basis can be identified. Intangible assets with indefinite useful lives are tested for impairment annually and whenever there is an indication that the asset may be impaired. Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted. If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (cash-generating unit) is reduced to its recoverable amount. An impairment loss is recognised as an expense immediately, unless the relevant asset is carried at a revalued amount, in which case the impairment loss is treated as a revaluation decrease. Where an impairment loss subsequently reverses, the carrying amount of the asset (cash-generating unit) is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset (cash-generating unit) in prior years. A reversal of an impairment loss is recognised as income immediately, unless the relevant asset is carried at a revalued amount, in which case the reversal of the impairment loss is treated as a revaluation increase.17. Biological assets IAS 41 "Agriculture," prescribes the accounting treatment for biological assets and agricultural produce at the point of harvest. Agricultural produce comprises the harvested produce of an enterprises biological assets. The Groups biological assets comprise tea and coffee plantations and livestock, while agricultural produce comprises the harvested produce, being teas and coffees in bulk form. IAS 41 states that biological assets should be valued at fair value less estimated point-of-sale costs, except where market-determined prices or values are not available. In such a case, that biological asset shall be measured at its cost less any accumulated depreciation and any impairment losses. There are regional market-determined prices for the Groups livestock in Zimbabwe but not in the case of tea and coffee plantations. Accordingly, the following policies are applied: • Livestock is valued at fair value less estimated point-of-sale costs. Fair value is the market value of livestock which is assessed at each year end and any change in value is taken to profit or loss in the income statement. • Tea and coffee plantations are valued at cost less accumulated depreciation and any impairment losses. Cost includes the expenditure incurred up until the plantations become productive at which time maintenance costs are charged to the income statement. The carrying values and future productivity of plantations are assessed annually when determining depreciation and impairment losses. Coffee plantations are amortised over eight years and tea plantations over fifty years. 25 A N N U A L R E P O R T 2 0 0 8
  • 27. KINGDOM MEIKLES LIMITED SIGNIFICANT ACCOUNTING POLICIES18. Inventories Inventories are carried at historical cost, calculated as follows: • Retail merchandise is valued at selling price less an appropriate percentage to reduce the value to approximate cost, due allowance having been made for redundant, obsolete and spoiled inventories. The inventories are then assessed for impairment based on the net realisable value. • Consumables are valued at the lower of cost and net realisable value on a first-in-first-out basis. Goods in transit are valued at actual cost. • All teas and coffees in bulk form, being agricultural produce, are valued at the lower of cost and net realisable value on a first-in-first-out basis. Cost includes direct labour and an appropriate proportion of factory overhead expenses. • The cost in relation to manufactured goods for resale includes the cost of teas and coffees (as disclosed above), the cost of packaging materials, direct labour and an appropriate proportion of factory overhead expenses.19. Advance crop expenditure This reflects the policy of deferring certain costs, incurred on subsequent seasonal yields, to the balance sheet for offset against revenues realised in matching periods.20. Financial assets and liabilities- Recognition and measurement20.1 Recognition The Group initially recognises loans and advances, deposits, debt securities issued and subordinated liabilities on the date that they are originated. All other financial assets and liabilities (including assets and liabilities designated at fair value through profit or loss) are initially recognised on the trade date at which the Group becomes a party to the contractual provisions of the instrument.20.2 Derecognition The Group derecognises a financial asset when the contractual rights to the cash flows from the asset expire, or it transfers the rights to receive the contractual cash flows on the financial asset in a transaction in which substantially all the risks and rewards of ownership of the financial asset are transferred. Any interest in transferred financial assets that is created or retained by the Group is recognised as a separate asset or liability. The Group derecognises a financial liability when its contractual obligations are discharged, cancelled or expire.20.3 Offsetting Financial assets and liabilities are set off and the net amount presented in the balance sheet when, and only when, the Group has a legal right to set off the amounts and intends either to settle on a net basis or to realise the asset and settle the liability simultaneously. Income and expenses are presented on a net basis only when permitted by the accounting standards, or for gains and losses arising from a group of similar transactions such as in the Groups trading activity.20.4 Amortised cost measurement The amortised cost of a financial asset or liability is the amount at which the financial asset or liability is measured at initial recognition, minus principal repayments, plus or minus the cumulative amortisation using the effective interest method of any difference between the initial amount recognised and the maturity amount, minus any reduction for impairment.20.5 Fair value measurement The determination of fair values of financial assets and financial liabilities is based on quoted market prices or dealer price quotations for financial instruments traded in active markets. For all other financial instruments, fair value is determined by using valuation techniques. Valuation techniques include net present value techniques, the discounted cash flow method, and comparison to similar instruments for which market observable prices exist. 26 A N N U A L R E P O R T 2 0 0 8
  • 28. KINGDOM MEIKLES LIMITED SIGNIFICANT ACCOUNTING POLICIES20.6 Identification and measurement of impairment At each balance sheet date the Group assesses whether there is objective evidence that financial assets not carried at fair value through profit or loss are impaired. Financial assets are impaired when objective evidence demonstrates that a loss event has occurred after the initial recognition of the asset, and that the loss event has an impact on the future cash flows on the asset that can be estimated reliably. The Group considers evidence of impairment at both a specific asset and collective level. All individually significant financial assets are assessed for specific impairment. All significant assets found not to be specifically impaired are then collectively assessed for any impairment that has been incurred but not yet identified. Assets that are not individually significant are then collectively assessed for impairment by grouping together financial assets (carried at amortised cost) with similar risk characteristics. Financial instruments as reflected on the balance sheet include all financial assets and liabilities, including derivative instruments but exclude investments in subsidiaries, associated companies and joint ventures, employee benefit plans, property, plant and equipment, deferred taxation, and taxation payable. The Group classifies its financial assets and liabilities in the following categories, at fair value through profit and loss, held to maturity, 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 and re-evaluates this designation at every reporting date.20.7 Held-to-maturity debt securities At subsequent reporting dates, debt securities that the Group has the expressed intention and ability to hold to maturity (held-to-maturity debt securities) are measured at amortised cost using the effective interest rate method, less any impairment loss recognised to reflect irrecoverable amounts. An impairment loss is recognised in profit or loss when there is objective evidence that the asset is impaired, and is measured as the difference between the investments carrying amount and the present value of estimated future cash flows discounted at the effective interest rate computed at initial recognition. Impairment losses are reversed in subsequent periods when an increase in the investments recoverable amount can be related objectively to an event occurring after the impairment was recognised, subject to the restriction that the carrying amount of the investment at the date the impairment is reversed shall not exceed what the amortised cost would have been had the impairment not been recognised.20.8 Financial assets and liabilities at fair value through profit and loss or available-for-sale Investments other than held-to-maturity debt securities are classified as either financial assets and liabilities at fair value through profit and loss or as available-for-sale, and are measured at subsequent reporting dates at fair value. Where securities are held for trading purposes, gains and losses arising from changes in fair value are included in profit or loss for the period. For available-for-sale investments, gains and losses arising from changes in fair value are recognised directly in equity, until the security is disposed of or is determined to be impaired, at which time the cumulative gain or loss previously recognised in equity is included in the profit or loss for the period. Impairment losses recognised in profit or loss for equity investments classified as available-for-sale are not subsequently reversed through profit or loss. Impairment losses recognised in profit or loss for debt instruments classified as available-for-sale are subsequently reversed if an increase in the fair value of the instrument can be objectively related to an event occurring after the recognition of the impairment loss.20.9 Advances, loans and receivables Advances, loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market and that the Group does not intend to sell immediately or in the near term. When the Group is the lessor in a lease agreement that transfers substantially all of the risks and rewards incidental to ownership of an asset to the lessee, the arrangement is presented within loans and advances. 27 A N N U A L R E P O R T 2 0 0 8
  • 29. KINGDOM MEIKLES LIMITED SIGNIFICANT ACCOUNTING POLICIES20.9 Advances, loans and receivables (continued) Advances, loans and receivables are initially measured at fair value plus incremental direct transaction costs, and subsequently measured at their amortised cost using the effective interest method, less any impairment. Interest income is recognised by applying the effective interest rate, except for short term receivables when the recognition of interest would be immaterial.21. Impairment losses on advances and loans Impairment losses are held in respect of loans and advances. The level of impairment is determined in accordance with the guidelines set out in IAS 39 "Financial Instruments: Recognition and Measurement." Specific impairment for non-performing loans, covering identified doubtful debts, are based on periodic evaluations of advances and take account of past loss experience, economic conditions and changes in the nature and level of risk exposure. Retail loans and advances are considered non-performing when amounts are due and unpaid for three months. Corporate loans are analysed on a case-by-case basis taking into account breaches of key loan conditions. Specific impairment against loans and advances is based on an appraisal of the loan portfolio, and is made where the repayment of identified loans is in doubt. Portfolio impairment is made in relation to losses which, although not separately identified, are known from experience to exist in any loan portfolio. Impairment losses are applied to write-off advances when all security has been realised and further recoveries are considered to be unlikely. Recoveries of bad debts that would have been written off are shown under charge for bad and doubtful debts in the financial statements and where the bad debts are still part of an impairment loss in the accounts they are shown as a recovery in the balance sheet.22. Repurchase agreements The Group enters into purchase transactions of investments under agreements to re-sell substantially identical investments at a certain date in the future at a fixed price (repurchase agreements). Securities sold subject to a linked repurchase agreement (repos) are recorded in the balance sheet as trading securities and the counter-party liability is included in liabilities. Gains, losses or interest resulting from these transactions are included in interest income.23. Derivative financial instruments Derivative financial instruments (derivatives) are contracts whose value is derived from one or more underlying financial instruments or indices. They include swaps, forward rate agreements, futures, options and combinations of these. The use of derivatives and their sale to customers as risk management products is part of the Groups trading activities. Derivatives are also used to manage the Groups own exposure to fluctuations in exchange and interest rates as part of its asset and liability management activities. Open trading portfolios are marked-to-market and the resultant profits and losses are included in income. Hedging portfolios are accounted for on the same basis as the hedged items. Derivative transactions generate income for the Group from buy-sell spreads and from trading positions. Income from these transactions is taken to dealing profits.24. Acceptances Acceptances comprise undertakings by the Group to pay bills of exchange drawn on customers. The Group expects most acceptances to be settled simultaneously with the reimbursement from customers. Acceptances are accounted for and disclosed as liabilities with corresponding contra-assets. 28 A N N U A L R E P O R T 2 0 0 8
  • 30. KINGDOM MEIKLES LIMITED SIGNIFICANT ACCOUNTING POLICIES25. Financial guarantees Financial guarantees are contracts that require the Group to make specified payments to reimburse the holder for a loss it incurs because a specified debtor fails to make payment when due in accordance with the terms of a debt instrument. Financial guarantee liabilities are initially recognised at their fair value, and the initial fair value is amortised over the life of the financial guarantee. The guarantee liability is subsequently carried at the higher of this amortised amount and the present value of any expected payment (when a payment under the guarantee has become probable). Financial guarantees are reported under customer liabilities for acceptances.26. Cash and bank balances Cash and bank balances are carried in the balance sheet at fair value. For the purpose of the cash flow statement, cash and bank balances comprise cash on hand, deposits held at call with banks, other short-term highly liquid investments that are readily convertible to a known amount of cash and are subject to an insignificant risk of changes in value. Excluded are bank overdrafts. In the balance sheet, bank overdrafts are included in interest bearing borrowings as the Group intends to refinance these on a continuous basis.27. Equity instruments issued by the Group Classification as debt or equity Debt and equity instruments are classified as either financial liabilities or as equity in accordance with the substance of the contractual arrangement. Equity instruments An equity instrument is any contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities. Equity instruments are recorded at the proceeds received, net of direct issue costs.28. Provisions Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable that the Group will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation. The amount recognised as a provision is the best estimate of the consideration required to settle the present obligation at the balance sheet date, taking into account the risks and uncertainties surrounding the obligation. Where a provision is measured using the cash flows estimated to settle the present obligation, its carrying amount is the present value of those cash flows.29. Dividends payable Dividends on ordinary shares are recognised in the statement of changes in equity in the period in which they are declared.30. Critical judgemental areas The preparation of financial statements requires management to make judgements, estimates and assumptions that affect the application of accounting polices and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates. Estimates and underlying assumptions are reviewed on an on-going basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised and in any future periods affected. 29 A N N U A L R E P O R T 2 0 0 8
  • 31. KINGDOM MEIKLES LIMITED SIGNIFICANT ACCOUNTING POLICIES30. Critical judgemental areas (continued) The following are the critical judgements, apart from those involving estimations, that the Directors have made in the process of applying the entitys accounting policies and that have the most significant effect on the amounts recognised in financial statements:30.1. Exchange rates It is the view of the Directors that the translation of the foreign balances and operations to local currency should be based on an exchange rate that is aligned to the market forces and fairly presents the true value of foreign balances and operations when translated to local currency. The determination of the fair rate of exchange is affected by the prevailing economic environment and may therefore be distorted. This may result in significant variations in a fair exchange rate, depending on factors and assumptions used in the determination of the exchange rate. In applying this policy, all foreign balances at year - end are translated at the "United Nations" rate and operational activities for foreign operations and other foreign transactions are translated at various rates at the time of activity during the year depending on the interpretations of market forces (see note 36). 30 A N N U A L R E P O R T 2 0 0 8
  • 32. KINGDOM MEIKLES LIMITED NOTES TO THE FINANCIAL S TAT E M E N T S for the year ended 31 December 20081. Revenue Revenue comprises the invoiced value of sales excluding value added tax and trade discounts in respect of operations, see note 30. GROUP Proforma 31 December 31 December 31 December 2008 2008 2007 Z$ quint US$ US$2. Other income Included in other income are the following: Fair value adjustment on biological assets 43 343 1 238 400 2 277 684 Commission income 682 1 828 114 480 9623. Employee costs Wages and salaries 42 156 9 975 724 10 584 209 Social security costs - 18 211 12 254 Retirement benefits - defined contribution plan 1 378 329 382 342 581 43 534 10 323 317 10 939 044 Included in employee costs is Directors remuneration of: Fees for services as Directors - 797 829 Other services 10 500 333 385 67 780 Pension costs - 3 120 4 144 10 500 337 302 72 7534. Occupancy costs Occupancy costs include operating lease rentals for property of: 17 244 2 601 182 2 806 8025. Other operating costs Other operating costs include: Auditors remuneration - current year fee 4 981 436 075 444 350 - prior year under provision - - 142 Depreciation of property, plant and equipment (note 10) 8 972 3 448 409 1 915 086 Depreciation of biological assets (note 12) - 7 677 201 Loss/(profit) on disposal of property, plant and equipment 9 013 235 364 (9 614)6. Investment revenue Interest on bank deposits 5 357 4 982 731 1 990 397 Interest received from related parties (note 27) 5 596 1 213 562 759 716 Other investment revenue 1 014 395 005 581 455 11 967 6 591 298 3 331 5687. Finance costs Interest payable: Long term borrowings 286 8 168 92 120 Overdrafts & short term borrowings 446 825 465 2 042 673 Other finance costs 586 264 006 - 1 318 1 097 639 2 134 793 31 A N N U A L R E P O R T 2 0 0 8
  • 33. KINGDOM MEIKLES LIMITED NOTES TO THE FINANCIAL S TAT E M E N T S for the year ended 31 December 2008 Group Proforma 31 December 31 December 31 December 2008 2008 2007 Z$ quint US$ US$8. Income tax expense Current income tax 35 488 2 295 304 3 280 433 Tax on dividends and interest received 8 8 165 2 301 207 Deferred income tax 249 212 (9 391 700) 6 785 932 Deferred capital gains tax - - (98 045) 284 708 (7 088 231) 12 269 527 Domestic income tax is calculated at 30.9% (December 2007: 30.9%) of the estimated assessable profit for the year. Tax for other jurisdictions is calculated at the rates prevailing in the relevant jurisdictions. Reconciliation of tax charge % Current rate of tax 30.90 Income not taxable 0.20 Exchange gains non taxable (24.83) Additional tax resulting from other permanent differences 11.98 Effective rate of tax charge 18.25 The Group has tax losses available at 31 December 2008 amounting to Z$9 855 quintillion (December 2007: Z$nil). The tax losses have been utilised to reduce the Groups liability for deferred tax. At the time of approval of this report, there was uncertainty surrounding the availablility of these tax losses in a new functional currency.9. Earnings per share and dividends Basic earnings per share: Basic earnings per share of Z$ 0.01 quintillion, basic loss per share of 52.28 US cents (proforma December 2007 earnings: 6.26 US cents) have been calculated by dividing the net profit / (loss) for the period attributable to equity holders of the parent by the weighted average number of shares in issue of 243 857 762 (December 2007: 242 124 011 assuming the merged Group had been in operation for the whole year). Diluted earnings per share: There are no dilutive potential ordinary shares in issue. IIMR Headline earnings per share: IIMR Headline earnings / (loss) per share have been calculated by dividing the net profit / (loss) for the period attributable to equity holders of the parent adjusted for items of a capital nature, by the weighted average number of shares in issue of 243 857 762 (December 2007: 242 124 011 assuming the merged Group had been in operation for the whole year). Group 31 December 31 December 31 December 2008 2008 2007 Z$ quint US$ US$ Profit / (loss) attributable to equity holders of parent 1 279 000 (127 484 452) 15 153 603 Provision for funds earmarked 623 877 17 825 063 - Impairment of Goodwill - 127 178 851 - Loss/(profit) on disposal of property, plant and equipment 9 013 235 364 (9 614) 1 911 890 17 754 826 15 143 989 Weighted average number of shares in issue 243 857 762 243 857 762 242 124 011 IIMR Headline earnings per share 0.01 0.07 0.06 The Board has resolved not to declare a final dividend for the year ended 31 December 2008. 32 A N N U A L R E P O R T 2 0 0 8
  • 34. KINGDOM MEIKLES LIMITED NOTES TO THE FINANCIAL S TAT E M E N T S for the year ended 31 December 200810. Property, plant and equipment ZIMBABWE DOLLARS Group Land and Furniture and Motor Total Buildings Equipment Vehicles Z$ quint Z$ quint Z$ quint Z$ quint At 31 December 2008 Opening carrying value - - - - Additions 12 251 337 5 656 257 005 Net exchange differences 387 766 36 418 (201) 423 983 Disposals - (10 543) (1 429) (11 972) Property, plant and equipment relating to disposal group (note 19) (386 140) (269 901) (2 808) (658 849) Depreciation expense (1 626) (7 273) (73) (8 972) Closing carrying value 12 38 1 145 1 195 At cost 12 38 1 146 1 196 Accumulated depreciation - - (1) (1) Carrying value at 31 December 2008 12 38 1 145 1 195 UNITED STATES DOLLARS Group Land and Leasehold Furniture and Motor Work in Total Buildings Improvements Equipment Vehicles progress US$ US$ US$ US$ US$ US$ At 31 December 2008 Opening carrying value 48 169 042 986 319 12 888 170 807 830 261 447 63 112 808 Revaluation surplus 36 283 780 - - - - 36 283 780 Additions 31 889 - 9 107 612 1 854 559 861 260 11 855 320 Net exchange differences (4 052 645) - (511 025) (695) - (4 564 365) Disposals - - (301 229) (43 079) - (344 308) Property, plant and equipment relating to disposal group (note 19) (13 620 198) - (7 711 445) (80 237) - (21 411 880) Depreciation expense (1 205 716) (32 703) (1 988 513) (221 477) - (3 448 409) Closing carrying value 65 606 152 953 616 11 483 570 2 316 901 1 122 707 81 482 946 At cost or valuation 72 453 793 1 029 311 14 563 925 2 685 120 1 122 707 91 854 856 Accumulated depreciation (6 847 641) (75 695) (3 080 355) (368 219) - (10 371 910) Carrying value at 31 December 2008 65 606 152 953 616 11 483 570 2 316 901 1 122 707 81 482 946 Land and buildings are disclosed at market value. The market value was arrived at on the basis of a valuation carried out on 31 December 2008 (except Tanganda Tea Company that was carried out on 31 December 2007) by professional valuers not connected to the Group. The valuation was carried out with reference to market evidence on the transaction prices for similar properties. 33 A N N U A L R E P O R T 2 0 0 8
  • 35. KINGDOM MEIKLES LIMITED NOTES TO THE FINANCIAL S TAT E M E N T S for the year ended 31 December 200811. Investment property Group 31 December 31 December 31 December 2008 2008 2007 Z$ quint US$ US$ At fair value Opening carrying value - 703 615 703 615 Fair value adjustments 43 278 532 885 - Investment property relating to disposal group (note 19) (33 250) (950 000) - Closing carrying value 10 028 286 500 703 615 The Group owns investment properties through its banking subsidiaries, Kingdom Bank Limited and Kingdom Asset Management (Private) Limited as detailed below. Investment property in Kingdom Asset Management Kingdom Asset Management (a 100% owned subsidiary of Kingdom Financial Holdings Limited) owns land situated in the district of Ruwa called Stands 22922, 22923 and 22950 Ruwa Township and land situated in the district of Harare called Stand number 1407 Hatfield Estate, Chiremba Park, Hatfield, Harare . The carrying value of the investment property is the fair value of the property as determined at 31 December 2008 by Messrs Knight Frank (Private) Limited, independent valuers not connected with the Group, based on a desktop assessment, by reference to the market evidence of recent transactions for similar properties. The valuation conforms to International Valuation Standards. Investment property in Kingdom Bank Limited The investment property in Kingdom Bank Limited has been disclosed as part of the disposal group in note 19. Group 31 December 31 December 31 December 2008 2008 2007 Z$ quint US$ US$12. Biological assets Opening carrying value - 3 357 438 403 517 Additions 163 268 889 676 438 Fair value adjustments - Livestock 43 343 1 238 400 2 277 684 Depreciation - (7 677) (201) Closing carrying value 43 506 4 857 050 3 357 43813. Investment in associates At 31 December 2008 Opening carrying value - 91 047 - Share of profits 7 896 245 099 - Share of reserves - - 91 047 Translation of associate 28 012 689 781 - Closing carrying value 35 908 1 025 927 91 047 34 A N N U A L R E P O R T 2 0 0 8
  • 36. KINGDOM MEIKLES LIMITED NOTES TO THE FINANCIAL S TAT E M E N T S for the year ended 31 December 200813. Investment in associates (continued) Summarised financial information in respect of the Groups associates is set out below. Group 31 December 31 December 2008 2008 Z$ quint US$ Total assets 1 053 922 30 112 058 Total liabilities (964 509) (27 557 413) Net assets 89 413 2 554 645 Groups share of associates net assets 28 012 689 783 Revenue 42 650 3 233 758 Profit for the period 19 661 610 306 Groups net share of associates profit for the period after tax 7 896 245 099 Holding Business Country of incorporation Details of the Groups associates are as follows: First Discount House Limited 40.16% Banking Malawi Kingdom Bank Africa Limited (associate of Kingdom Bank Limited and Kingdom Financial Holdings Limited) 36.00% Banking Botswana eTranzact Zimbabwe (Private) Limited 27.60% Telecommunications Zimbabwe 35 A N N U A L R E P O R T 2 0 0 8
  • 37. KINGDOM MEIKLES LIMITED NOTES TO THE FINANCIAL S TAT E M E N T S for the year ended 31 December 200814. Other financial assets and investments Group 31 December 31 December 31 December 2008 2008 2007 Z$ quint US$ US$ Opening carrying value - 21 513 062 16 463 777 Exchange difference 788 537 (151 823) 956 105 Interest accrual 7 440 1 576 154 927 117 Additions 77 678 2 150 497 12 791 673 Increase /(decrease) in value of quoted investments 1 048 (60 887) 129 371 Provision for funds earmarked for investments (623 877) (17 825 063) - Disposals - (6 368) (641 821) 250 826 7 195 572 30 626 222 Less: Other financial assets and investments relating to disposal group (note 19) (69 511) (1 986 041) - 181 315 5 209 531 30 626 222 Less: short term portion in current assets (26 586) (804 585) (9 113 160) Non current carrying value 154 729 4 404 946 21 513 062 Comprising: Funds earmarked for future investments 154 715 4 404 492 20 805 240 Financial assets at fair value through profit and loss (note 14.1) 22 333 683 077 9 113 160 Financial assets available for sale (note 14.2) 4 267 121 920 - Other - 42 707 822 Closing carrying value 181 315 5 209 531 30 626 222 Funds earmarked for future investments are held by Mentor Africa Limited. It should be noted that the claim against Mentor Africa Limited is sub judice. Company 31 December 31 December 31 December 2008 2008 2007 Z$ quint US$ US Opening net carrying value - 149 967 734 17 929 890 Additions - 22 500 000 131 891 218 Increase in value of quoted investment - - (5 919) Impairment losses on subsidiaries - (106 262 484) - Interest accrued 51 (35 875) 2 337 Exchange difference 4 779 - 173 724 Disposals - - (23 516) Closing net carrying value 4 830 66 169 375 149 967 734 Group 31 December 31 December 31 December 2008 2008 2007 Z$ quint US$ US14.1 Financial assets at fair value through profit and loss Government and public sector securities (note 14.1.1) 1 412 40 350 4 833 532 Other investments and trading securities (note 14.1.2) 20 921 642 727 4 279 628 22 333 683 077 9 113 160 36 A N N U A L R E P O R T 2 0 0 8
  • 38. KINGDOM MEIKLES LIMITED NOTES TO THE FINANCIAL S TAT E M E N T S for the year ended 31 December 200814.1 Financial assets at fair value through profit and loss (continued) Group 31 December 31 December 31 December 2008 2008 2007 Z$ quint US$ US$14.1.1 Government and public sector securities Category analysis Treasury bills 1 412 40 350 4 833 532 Maturity analysis Over 3 months 1 412 40 350 4 833 53214.1.2 Other investments and trading securities Category analysis Bankers acceptances 665 19 001 - Quoted securities 20 009 616 689 4 162 582 Other investments 247 7 037 117 046 20 921 642 727 4 279 628 Maturity analysis 3 months including repayable on demand 912 51 696 - Securities with no maturity periods 20 009 591 031 4 279 628 20 921 642 727 4 279 62814.2 Financial assets available for sale Category analysis Quoted securities 4 267 121 920 - Maturity analysis With no specific maturity date 4 267 121 920 - Treasury Bills These have been measured at fair value as at 31 December 2008. The fair value is based on dealer price quotations. Quoted securities These have been measured at the closing market prices as at 31 December 2008 which were based on the last trading date of 19 November 2008. In February 2009, the Zimbabwe Stock Exchange started trading in United States Dollars. As at the date of the approval of this report, the value of the quoted securities exceeded the value disclosed above. 37 A N N U A L R E P O R T 2 0 0 8
  • 39. KINGDOM MEIKLES LIMITED NOTES TO THE FINANCIAL S TAT E M E N T S for the year ended 31 December 200814.2.1 Sectoral analysis of utilisation of customer loans - Banking group Group 31 December 31 December 31 December 2008 2008 2008 Z$ quint US$ % Agriculture 18 828 237 953 5 Banking and Finance 105 312 3 049 562 68 Consumer 2 317 48 514 1 Manufacturing and distribution 32 936 839 135 18 Transport and telecommunications 27 15 - Other 2 379 853 8 159 422 4 555 032 10014.2.2 Risk concentrations There are material concentrations of loans and advances to the manufacturing and distribution sector 40% and agriculture sector 23%.14.3 Holdings in material subsidiary companies: Entity Holding Business Country of incorporation Thomas Meikle Centre (Private) Limited 100% Hotels and retail Zimbabwe Kingdom Financial Holdings Limited 100% Banking Zimbabwe Tanganda Tea Company Limited 100% Agriculture Zimbabwe Cotton Printers (Private) Limited 100% Manufacturing Zimbabwe Vestor Properties (Private) Limited 100% Property owning Zimbabwe TM Supermarkets (Private) Limited 75% Supermarkets Zimbabwe Cape Grace Hotel Limited 100% Investments holding British Virgin Islands Cape Grace Investments Limited 100% Investments holding British Virgin Islands Cape Grace Hotel (Proprietary) Limited 100% Hotel South Africa Cape Grace Investments (Proprietary) Limited 100% Property owning South Africa Chapin Hotel and Resorts Limited 100% Hotel Investments Channel Islands Charterprops Holdings 84 (Proprietary) Limited 100% Investments holding South Africa NIB36 Share Block (Proprietary) Limited 100% Property leasing South Africa Thomas Meikle Properties (Private) Limited 100% Property owning Zimbabwe Ninety Speke Avenue (Private) Limited 100% Property owning Zimbabwe14.4 Interest in joint venture: The Victoria Falls Hotel 50% Hotel Zimbabwe Other investments include Old Mutual endowment policies of Z$280 quintillion, US$7 991 (December 2007: US$10 293). The policies are intended to fund the repayment of Cape Grace apartment loans. These policies form part of the disposal group in note 19. 38 A N N U A L R E P O R T 2 0 0 8
  • 40. KINGDOM MEIKLES LIMITED NOTES TO THE FINANCIAL S TAT E M E N T S for the year ended 31 December 200815. Goodwill 31 December 31 December 31 December 2008 2008 2007 Z$ quint US$ US$ Opening carrying value - 131 270 859 9 365 462 Additions - - 121 905 397 Impairment losses - (127 178 851) - Less : Goodwill relating to disposal group (note 19) - (4 092 008) - Closing carrying value - - 131 270 859 Comprising: Acquisition of Cape Grace Hotel - cost - 10 715 565 10 715 565 - amortisation and impairment - (6 623 557) (1 350 103) - relating to disposal group (note 19) - (4 092 008) - Acquisition of Kingdom Financial Holdings Limited - cost - 89 996 594 89 996 594 - impairment - (89 996 594) - Acquisition of Tanganda Tea Company Limited - cost - 30 438 247 30 438 247 - impairment - (30 438 247) - -Acquisition of Cotton Printers (Private) Limited - cost - 1 470 556 1 470 556 - impairment - (1 470 556) - Closing carrying value - - 131 270 85916. Inventories Raw materials and consumables 20 860 3 799 952 1 258 838 Merchandise and manufactured goods 54 500 1 792 511 2 522 707 Work in progress - - 14 280 75 360 5 592 463 3 795 825 Less: inventories relating to disposal group (note 19) (11 285) (322 408) - 64 075 5 270 055 3 795 825 39 A N N U A L R E P O R T 2 0 0 8
  • 41. KINGDOM MEIKLES LIMITED NOTES TO THE FINANCIAL S TAT E M E N T S for the year ended 31 December 2008 Group 31 December 31 December 31 December 2008 2008 2007 Z$ quint US$ US$17. Trade and other receivables Trade receivables 244 725 7 282 658 4 155 482 Less: allowance for doubtful debts (3 605) (103 227) (107 547) 241 120 7 179 431 4 047 935 Advance crop expenditure 180 5 676 12 704 Other receivables and prepayments 99 263 3 051 216 2 999 354 340 563 10 236 323 7 059 993 Less: Trade and other receivables relating to disposal group (note 19) (35 403) (1 011 509) - 305 160 9 224 814 7 059 993 Company 31 December 31 December 31 December 2008 2008 2007 Z$ quint US$ US$ Inter-group balances 222 801 6 365 757 5 571 661 Other receivables - - 2 222 801 6 365 757 5 571 663 The Directors consider that the carrying amount of trade and other receivables approximates their fair value. The intergroup balances comprise amounts due from Cape Grace Hotel (Proprietary) Limited (CGH) and Thomas Meikle Centre (Private) Limited (TMC). The loan with TMC is interest free and has no fixed repayment terms.18. Cash and bank balances Group 31 December 31 December 31 December 2008 2008 2007 Z$ quint US$ US$ Banking: Balances with the Reserve Bank of Zimbabwe: - Statutory deposit 331 23 509 447 - - Current account balances 796 992 271 189 2 856 149 Nostro accounts 335 205 8 577 297 1 592 187 Notes and coins 155 402 4 440 048 294 347 Other bank balances - 5 540 - Non-banking: Cash and other bank balances 473 952 13 595 466 40 193 044 1 761 882 50 398 987 44 935 727 Less: Non-current balances with Reserve Bank of Zimbabwe (418 609) (11 960 252) (29 951 676) 1 343 273 38 438 735 14 984 051 Less: Cash and bank balances relating to disposal group (note 19) (2 351) (67 158) - 1 340 922 38 371 577 14 984 051 40 A N N U A L R E P O R T 2 0 0 8
  • 42. KINGDOM MEIKLES LIMITED NOTES TO THE FINANCIAL S TAT E M E N T S for the year ended 31 December 200818. Cash and bank balances (continued) Access to the Reserve Bank of Zimbabwe (RBZ) funds is dependent on the ability of the RBZ to meet the terms that have been agreed. Company 31 December 31 December 31 December 2008 2008 2007 Z$ quint US$ US$ Cash and bank balances - - 3 088 57519. Disposal group Group 31 December 31 December 31 December 2008 2008 2007 Z$ quint US$ US$ Opening net carrying amount - - - Assets transferred from: Investment property 33 250 950 000 - Property, plant and equipment 658 849 21 411 880 - Financial assets and investments 69 511 1 986 041 - Inventories 11 285 322 408 - Trade and other receivables 35 403 1 011 509 - Cash and bank balances 2 351 67 158 - 810 649 25 748 996 - Goodwill - 4 092 008 - Total assets in disposal group 810 649 29 841 004 - Transfer from equity 217 454 6 384 502 - Liabilities transferred from: Deferred taxation (69 527) (1 986 486) - Borrowings 115 195 3 291 285 - Trade and other payables 283 419 7 275 113 - Other financial liabilities 230 858 7 246 976 - Liabilities in disposal group 559 945 15 826 888 - Comprising: Disposal group assets Cape Grace Hotel 777 399 26 303 398 - Cotton Printers Weaving Division property, plant and equipment - 2 587 606 - Kingdom Financial Holdings investment property 33 250 950 000 - 810 649 29 841 004 - Disposal group equity Cape Grace Hotel 217 454 6 384 502 - Disposal group liabilities Cape Grace Hotel 559 945 15 826 888 - Net carrying amount 33 250 7 629 614 - 41 A N N U A L R E P O R T 2 0 0 8
  • 43. KINGDOM MEIKLES LIMITED NOTES TO THE FINANCIAL S TAT E M E N T S for the year ended 31 December 200819. Disposal group (continued) Kingdom Financial Holdings limited, a wholly owned subsidiary, entered into an agreement with Celsys (Private) Limited, represented by LonZim Holdings (Private) Limited to sell its 100% shareholding in Medalspot (Private) Limited. Medalspot (Private) Limiteds only asset is a piece of land and improvements situated in the district of Harare called stands 12356A and 12358A, Harare township in Southerton. The intention to sell and the consummation of the sale on 13 January 2009 resulted in the Group reclassifying the investment in Medalspot from an investment property to form part of the disposal group. In March 2008 a call and put option agreement ("the option agreement") for the sale of the Cape Grace Hotel was entered into between KML and Cape Grace Hotel Limited (CGHL), (a wholly owned KML subsidiary incorporated in the British Virgin Islands, which in turn wholly owns the South African Cape Grace Group of Companies, including the Cape Grace Hotel) on the one hand, and Mentor Africa Limited, on the other. In November 2008 a notice to exercise an option agreement for the purchase of the Groups interest in the Cape Grace Hotel had been received from Mentor Africa Limited. However, certain conditions precedent contained in the option agreement had not been fulfilled by 31 December 2008. Accordingly, KML has separately disclosed the carrying value of the Cape Grace Hotel as a disposal group. The Group has continued to consolidate 100% of the assets and liabilities of the Cape Grace Hotel group of companies. Cotton Printers (Private) Limited property, plant and equipment relating to the weaving department is presented as a disposal group following a commitment of the companys board of directors to a plan to sell the assets due to viability constraints. Efforts to sell the assets are in progress.20. Issued capital Ordinary shares of 10 cents (Zimbabwe) debased by thirteen zeros each. Group and Company Number Number 31 December 31 December 2008 2007 Opening shares in issue 242 301 554 163 656 787 Scrip dividend 1 419 425 532 629 Issued to share purchase scheme companies 1 191 901 - Issued to IMARA - discharge of share based payment reserve 461 911 - Issued in the business combination - 78 112 138 Closing shares in issue 245 374 791 242 301 554 Unissued 154 625 209 157 698 446 Authorised 400 000 000 400 000 000 At the Companys Extraordinary General Meeting on 11 December 2007, 24 million shares were placed under the control of the Directors for issuing to employee share purchase schemes. This control is to be renewed at each successive Annual General Meeting. Directors beneficial interests At 31 December 2008 the direct beneficial interests of the Directors in the ordinary shares of the Company are shown below: 42 A N N U A L R E P O R T 2 0 0 8
  • 44. KINGDOM MEIKLES LIMITED NOTES TO THE FINANCIAL S TAT E M E N T S for the year ended 31 December 200820. Issued capital (continued) 31 December 31 December 2008 2007 Fully paid ordinary shares: J.R.T. Moxon 60 974 60 674 D.E. Stephens 8 912 16 057 D.W. Mills 6 046 6 017 N.M.K. Chanakira 52 548 704 S.P. Bango 4 626 4 604 C. Jokonya - - M.A. Masunda - 70 753 R. Chidembo - 3 674 D. Mboweni - - C.B. Thorn - - Certain of the Directors have an indirect interest in 32 072 738 shares through their participation in investment companies.21. Other non-distributable reserves Group 31 December 31 December 31 December 2008 2008 2007 Z$ quint US$ US$ Available for sale reserve 2 939 (849 883) - Share based payment reserve - - 896 916 Currency translation reserve 11 971 (3 384 902) (4 699 833) Revaluation reserve 204 931 37 733 372 10 673 835 Other reserves - (65 753) 7 711 576 219 841 33 432 834 14 582 494 The share based payment reserve as at 31 December 2007 related to an amount payable in respect of services provided during the merger of Kingdom Meikles Limited. This represented the fair value of the services provided, plus value added tax, being 461,911 Kingdom Meikles Limited ordinary shares. The share price used to determine the fair value of the services provided was that at the effective date of the merger, 31 December 2007, which was Z$0.00085 revalued. The shares were issued during the current financial year (see note 20). 43 A N N U A L R E P O R T 2 0 0 8
  • 45. KINGDOM MEIKLES LIMITED NOTES TO THE FINANCIAL S TAT E M E N T S for the year ended 31 December 200822. Borrowings Group 31 December 31 December 31 December 2008 2008 2007 Z$ quint US$ US$ Secured: Cape Grace - apartment loans 81 496 2 328 464 3 167 153 - variable rate loan 3 057 87 353 - - hire purchase liability 1 455 41 585 - Unsecured: Acceptance credits, loans and overdrafts 63 539 1 815 397 710 048 149 547 4 272 799 3 877 201 Less borrowings relating to disposal group (note 19) (115 195) (3 291 285) - 34 352 981 514 3 877 201 Less portion repayable in 12 months (26 925) (769 331) (709 251) 7 427 212 183 3 167 950 Due for repayment: On demand within one year 26 925 769 331 709 251 In second year - - 794 In fourth year 7 427 212 183 - After 5 years - - 3 167 156 34 352 981 514 3 877 201 The Cape Grace apartment loans are interest free and are repayable by 2041. The loans are denominated in South African Rand and give the providers of the finance a right to occupation of the apartments for the period of the loan. The apartment loans are secured by cession of endowment polices included under other financial assets in note 14. These loans constitute the borrowings in relation to the disposal group disclosed in note 19.23. Deferred tax ZIMBABWE DOLLARS Group Opening Charged to Non Disposal Closing income distributable Group reserves Group Z$ quint Z$ quint Z$ quint Z$ quint Z$ quint The deferred tax balance is attributable to the following items: Provisions - 820 - (798) 22 Receivables and prepayments - 69 - - 69 Other movements - 248 323 (69 010) 70 325 249 638 Carrying amount end of year - 249 212 (69 010) 69 527 249 729 44 A N N U A L R E P O R T 2 0 0 8
  • 46. KINGDOM MEIKLES LIMITED NOTES TO THE FINANCIAL S TAT E M E N T S for the year ended 31 December 200823. Deferred tax (continued) UNITED STATES DOLLARS Group Opening Charged/ Non Disposal Closing (credited) distributable Group to income reserves US$ US$ US$ US$ US$ The deferred tax balance is attributable to the following items: Assessed losses (3 749) - - - (3 749) Provisions 562 197 043 - (199 777) (2 172) Receivables and prepayments 3 314 856 (1 806 057) - - 1 508 799 Unrealised exchange gains 7 830 423 (7 830 423) 754 184 (754 184) - Property, plant and equipment 3 052 885 106 562 - 2 940 447 6 099 894 Available for sale (644 045) - - - (644 045) Revaluation surplus 734 081 - 10 509 728 - 11 243 809 Other movements 2 116 335 47 737 179 807 - 2 343 879 Carrying amount end of year 16 401 348 (9 285 138) 11 443 719 1 986 486 20 546 415 Company Opening Credited to Closing Income US$ US$ US$ The deferred tax balance is attributable to the following item: Unrealised exchange gains 2 706 941 (2 706 941) - Deferred income taxes are calculated on all temporary differences under the liability method using a principal tax rate of 30.9% (December 2007: 30.9%) for domestic operations. The principal rate for the foreign operation is 28% (December 2007: 29%).24. Other financial liabilities Group 31 December 31 December 31 December 2008 2008 2007 Z$ quint US$ US$ Current Tax 31 314 1 561 767 743 632 Shareholders for dividend - - 4 939 Value added tax (80) 11 271 4 991 Cape Grace Hotel - Nedbank liability - - 2 709 022 Cape Grace Hotel - operating lease liability 230 858 6 595 941 8 220 688 Financial liabilities at fair value through profit and loss 15 484 442 409 1 750 501 Acceptances - - 13 451 Fund reserve - - 13 262 277 576 8 611 388 13 460 486 Less: Other financial liabilities relating to disposal group (note 19) (230 858) (7 246 976) - 46 718 1 364 412 13 460 486 Less: portion payable within 12 months (46 718) (1 364 412) (6 162 662) - - 7 297 824 45 A N N U A L R E P O R T 2 0 0 8
  • 47. KINGDOM MEIKLES LIMITED NOTES TO THE FINANCIAL S TAT E M E N T S for the year ended 31 December 2008 Group 31 December 31 December 31 December 2008 2008 2007 Z$ quint US$ US$24.1 Financial liabilities at fair value through profit and loss Time deposits 15 484 442 409 1 750 501 Maturity analysis 3 months or less including repayable on demand 15 484 442 409 1 750 501 In applying the valuation techniques as indicated in accounting policy note 23, the Group has used industry average market rates.25. Trade and other payables Group 31 December 31 December 31 December 2008 2008 2007 Z$ quint US$ US$ Trade payables 61 547 2 074 300 3 106 738 Accruals and deferred income 85 774 2 450 682 1 828 940 Other 120 489 2 680 366 1 102 505 267 810 7 205 348 6 038 183 Less: Trade and other payables relating to disposal group (note 19) (283 419) (7 275 113) - (15 609) (69 765) 6 038 183 Company 31 December 31 December 31 December 2008 2008 2007 Z$ quint US$ US$ Trade payables - 95 980 152 245 Group balances 754 22 521 544 31 051 Other payables 1 874 - 5 736 2 628 22 617 524 189 032 Trade payables comprise amounts outstanding for trade purchases. The Group has financial risk management policies in place to ensure that all payables are paid within the credit time frame. The Directors consider that the carrying amount of trade payables approximates their fair values. 46 A N N U A L R E P O R T 2 0 0 8
  • 48. KINGDOM MEIKLES LIMITED NOTES TO THE FINANCIAL S TAT E M E N T S for the year ended 31 December 200826. Customer deposits Group 31 December 31 December 31 December 2008 2008 2007 Z$ quint US$ US$ Current accounts 2 531 72 308 2 597 573 Savings accounts 423 12 076 2 062 463 Foreign currency accounts 596 043 17 029 804 1 516 237 Other money market deposits 10 867 310 486 4 041 385 609 864 17 424 674 10 217 658 Maturity analysis 3 months or less including repayable on demand 609 864 17 424 674 10 217 65827. Related party balances and transactions Details of balances and transactions between the Group and other related parties are disclosed below: 31 December 31 December 31 December 2008 2008 2007 Z$ quint US$ US$ Balances with related parties Meikles Consolidated Holdings (Private) Limited - Call Account 272 13 810 50 058 Transactions with related parties Managerial fees Meikles Consolidated Holdings (Private) Limited 108 14 366 3 377 Interest received from related parties Meikles Consolidated Holdings (Private) Limited 34 31 22 248 Funds earmarked for future investment 5 562 1 213 531 737 468 Net interest received 5 596 1 213 562 759 716 The Meikles Consolidated Holdings (Private) Limited call account attracts interest at market rates and is unsecured with no fixed repayment terms. Managerial fees are recovered from the pre-merger holding company - Meikles Consolidated Holdings (Private) Limited. 47 A N N U A L R E P O R T 2 0 0 8
  • 49. KINGDOM MEIKLES LIMITED NOTES TO THE FINANCIAL S TAT E M E N T S for the year ended 31 December 200827. Related party balances and transactions (continued) Interest is charged on intercompany balances at market rates. Funds earmarked for future investments have been fully provided for in the current year to bring the amount held to nil due to the non-existence of satisfactory evidence that the funds exist in tangible forms. For relationships between Group companies, please refer to the Group structure on page 59. Compensation of Directors and key management personnel: 31 December 31 December 31 December 2008 2008 2007 Z$ quint US$ US$ Short-term benefits 17 500 616 670 116 863 Post-employment benefits - 13 049 13 261 Total 17 500 629 719 130 124 Compensation of key management personnel represents remuneration of Directors and other members of key management during the year, which is determined by the Remuneration Committee having regard to the performance of individuals and market trends.28. Interest in joint venture The Group has a 50% interest in a joint venture, which operates The Victoria Falls Hotel. The following amounts are included in the Group financial statements as a result of the proportionate consolidation of The Victoria Falls Hotel. 31 December 31 December 31 December 2008 2008 2007 Z$ quint US$ US$ Non-current assets 825 724 524 589 378 Current assets 84 310 2 607 190 1 011 435 85 135 3 331 714 1 600 813 Current liabilities (11 091) (419 973) (82 630) Net assets 74 044 2 911 741 1 518 183 Revenue 10 306 2 599 713 3 869 229 Operating profit 8 995 1 778 875 2 360 519 Profit for the year 74 044 1 783 906 2 361 387 There are no contingencies relating to the Groups interest in the joint venture. 48 A N N U A L R E P O R T 2 0 0 8
  • 50. KINGDOM MEIKLES LIMITED NOTES TO THE FINANCIAL S TAT E M E N T S for the year ended 31 December 200829. Operating cash flow before working capital changes Group 31 December 31 December 2008 2008 Z$ quint US$ Profit / (loss) before tax 1 560 455 (134 744 407) Adjustments for: - Depreciation expense and goodwill impairment 8 972 130 634 937 - Investment revenue (11 967) (6 591 298) - Finance costs 1 318 1 097 639 - Net exchange (losses) / gains and translation adjustments (1 183 364) 50 054 - Fair value adjustments included in the income statement (87 671) 16 012 682 - Share of profits of associates (7 896) (245 099) - Loss on disposal of property, plant and equipment 9 013 235 364 288 860 6 449 87230. Segment revenue and results Effective from 1 January 2007, the Group has adopted IFRS 8 “Operating Segments.” IFRS 8 requires operating segments to be identified on the basis of internal reports about components of the Group that are regularly reviewed by the operating decision makers in order to allocate resources to the segment and to assess its performance. In contrast, the predecessor Standard (IAS 14 “Segment Reporting”) required an entity to identify two sets of segments (business and geographical), using a risks and rewards approach, with the entitys system of internal financial reporting to key management personnel serving only as the starting point for the identification of such segments. For management purposes, the Group is organised into five operating segments - hotels, retail, banking, agriculture and corporate. These segments are the basis on which the Group used to report its primary segment information. Operating segments - Zimbabwe dollar quintillions 31 December 2008 Hotels Retail Banking Agriculture Corporate* Group Revenue 130 247 67 450 - 28 672 646 227 014 Net interest - - 10 363 - - 10 363 Operating profit/(loss) 21 899 5 583 911 509 65 740 (22 308) 982 423 Investment revenue 49 38 - 1 11 879 11 967 Finance (costs) / income (733) (812) - (588) 815 (1 318) Net exchange gains / (losses) 60 142 (16 607) - (47 732) 1 187 561 1 183 364 Share of profits of associates - 309 7 896 - (309) 7 896 Provision for funds earmarked for investments - - - - (623 877) (623 877) Income tax expense (3 831) (23) (277 607) (3 248) 1 (284 708) Profit / (loss) for the year 77 526 (11 512) 641 798 14 173 553 762 1 275 747 Segment assets 925 094 80 658 1 814 528 85 585 305 503 3 211 368 Segment liabilities excluding deferred tax 689 687 80 149 654 490 71 342 (190 871) 1 304 797 Capital expenditure 256 952 - 48 4 1 257 005 Depreciation and impairment 8 971 - 1 - - 8 972 49 A N N U A L R E P O R T 2 0 0 8
  • 51. KINGDOM MEIKLES LIMITED NOTES TO THE FINANCIAL S TAT E M E N T S for the year ended 31 December 200830.1 Operating segments - United States Dollars 31 December 2008 Hotels Retail Banking Agriculture Corporate* Group Revenue 22 613 299 19 902 305 - 8 014 138 632 841 51 162 583 Net interest - - 4 600 281 - - 4 600 281 Operating profit/(loss) 5 361 645 (5 076 823) 6 539 410 4 159 407 (757 986) 10 225 653 Investment revenue 312 716 16 981 - 91 154 6 170 447 6 591 298 Finance (costs) / income (36 690) (585 177) - (628 723) 152 951 (1 097 639) Impairment of goodwill - - - - (127 178 851) (127 178 851) Provision for funds earmarked for investment - - - - (17 825 063) (17 825 063) Net exchange (losses) / gains (1 981 197) 5 558 523 (3 094 531) (1 845 477) (4 348 000) (5 710 682) Increase in fair value of quoted investments - 5 778 - - - 5 778 Share of profits of associates - - 245 099 - - 245 099 Income tax (expense) / credit (959 205) 113 034 (1 806 620) 1 699 094 8 041 928 7 088 231 Profit / (loss) for the year 2 697 269 32 316 1 883 358 3 475 455 (135 744 574) (127 656 176) Segment assets 61 793 783 12 353 660 56 289 778 18 049 357 39 311 657 187 798 235 Segment liabilities excluding deferred tax 30 854 674 1 887 937 18 699 716 2 053 571 (15 981 689) 37 514 209 Capital expenditure 7 821 136 219 108 3 614 068 175 132 25 876 11 855 320 Depreciation and impairment 1 798 955 718 517 61 040 582 644 127 473 781 130 634 937 Hotels Retail Banking Agriculture Corporate* Group 31 December 2007 Revenue 24 176 891 34 877 191 - 11 234 910 6 987 038 77 276 030 Net interest - - 13 503 819 - - 13 503 819 Operating profit / (loss) 7 736 510 (3 944 465) 8 247 754 7 247 194 1 290 569 20 577 562 Investment revenue 370 475 791 623 - 29 257 2 140 213 3 331 568 Finance costs (163 262) (352 358) - (886 530) (732 643) (2 134 793) Net exchange gains / (losses) 2 331 5 861 137 - - (570 557) 5 292 911 Increase in fair value of quoted investment - 43 505 - - 237 490 280 995 Share of profits of associates - - 10 493 - - 10 493 Income tax expense (882 491) (246 974) (2 730 931) (2 150 491) (6 258 640) (12 269 527) Profit / (loss) for the year 7 063 563 2 152 468 5 527 316 4 239 430 (3 893 568) 15 089 209 Segment assets 53 862 794 5 424 316 20 692 240 15 064 974 190 128 351 285 172 675 Segment liabilities excluding deferred tax 34 374 638 2 824 355 12 548 209 738 585 (15 892 259) 33 593 528 *Corporate includes Group eliminations and other operating segments that are reportable as corporate. Note : Prior year United States Dollar capital expenditure, depreciation and impairment is not determinable at a reasonable cost. 50 A N N U A L R E P O R T 2 0 0 8
  • 52. KINGDOM MEIKLES LIMITED NOTES TO THE FINANCIAL S TAT E M E N T S for the year ended 31 December 200830.2. Geographical segments The Groups geographical segments have been classified into Zimbabwe and Non-Zimbabwean operations. Zimbabwe Non- Zimbabwe Non-Zimbabwe Zimbabwe 31 December 31 December 31 December 31 December 31 December 31 December 2008 2008 2008 2007 2008 2007 Z$ quint Z$ quint US$ US$ US$ US$ Revenue 148 237 78 777 35 554 411 60 429 760 15 608 172 16 846 269 Operating profit 977 813 4 610 7 839 594 16 802 407 2 386 059 3 775 155 Segment assets 1 276 673 1 934 695 121 439 802 205 797 502 66 358 433 79 375 173 Segment liabilities excluding deferred tax 852 415 452 382 19 700 835 20 896 343 17 813 374 12 697 185 Capital expenditure 1 196 255 809 4 546 511 * 7 308 809 * *Prior year information not determinable at a reasonable cost.31. Funds under management Group 31 December 31 December 2008 2008 Z$ quint US$ Funds under management 359 071 10 259 171 Represented by: Money market investments with group companies 3 551 5 976 800 Investment into equities 342 589 3 409 829 Other investments 12 931 872 543 359 071 10 259 17132. Borrowing powers In terms of the Companys Articles of Association, the Directors shall not allow the borrowings of the Company to exceed at any time, twice the value of the funds attributable to the shareholders, without the sanction of the Company in a general meeting.33. Operating lease commitments The Group is lessee for various properties under operating leases, the majority of which have revenue-based rentals. These rentals vary from 1½% to 10% of revenue. In terms of the leases, the Group is required to pay property rates, insurance and maintenance costs. The operating leases are renewable on fixed dates.34. Commitments Group 31 December 31 December 2008 2008 Z$ quint US$ Capital commitments Authorised but not yet contracted for 553 689 15 819 687 Groups share of capital commitments of joint venture 77 875 2 225 000 51 A N N U A L R E P O R T 2 0 0 8
  • 53. KINGDOM MEIKLES LIMITED NOTES TO THE FINANCIAL S TAT E M E N T S for the year ended 31 December 200835. Retirement benefits The Meikle Group Accumulation Scheme All eligible employees in Zimbabwe contribute to an independently administered accumulation scheme. The scheme is based on a defined contribution plan. The Board of Trustees of the scheme has apportioned the scheme among independent asset managers, with a view to improving the returns to members. The Old Mutual Orion Plan All eligible employees of the Cape Grace Hotel (Proprietary) Limited contribute to an independently administered pension fund. The plan is a defined contribution provident fund, and is registered under and governed by The Pension Funds Act 1956, as amended (South Africa). The contribution is 12 % of basic salary. There have been no changes to retirement benefits during the year. Tanganda Tea Company Group Pension Fund All permanent employees are required to participate in the Groups Pension Fund, (the Fund). The Fund provides benefits on a defined contribution basis. Both the Group and members contribute fixed percentages and the Companys portion has been recognised as an expense in the income statement. There is no statutory requirement that the Fund be actuarially valued. However, in view of the prevailing economic environment, the Trustees consider it prudent to undertake an actuarial review on a regular basis. Kingdom Financial Holdings Limited Group Pension Scheme The companys operating subsidiaries subscribe to the Kingdom Financial Holdings Limiteds Group pension scheme. With effect from 1 January 2004, the Group pension scheme was changed from a defined benefit plan to a defined contribution plan, under which the Group pays fixed contributions into a separate entity and has no legal or constructive obligation to pay further contributions should the fund at any time not hold sufficient assets to pay all employees the benefits relating to their service(s) in the current and prior periods. The companys obligations for contributions to this Group scheme are recognised as an expense in the income statement as they are incurred. National Social Security Authority Scheme All eligible employees in Zimbabwe continue to contribute to the National Social Security Scheme. The contribution rate is 3% per employee per annum.36. Foreign currency risk management The Group undertakes certain transactions denominated in foreign currencies. Hence, exposures to exchange fluctuations arise. Exchange rate exposures are managed within approved policy parameters utilising limits set by Group Treasury. Foreign transactions and balances were recorded using a fair rate approved by management. The carrying amounts of the Groups foreign currency denominated assets and liabilities at the reporting date are as follows: Currency unit Assets Liabilities 31 December 31 December 2008 2008 Z$ quint Z$ quint United States Dollar 1 763 379 587 192 South African Rand 964 511 407 322 Botswana Pula 16 402 5 634 British Pound 37 141 9 323 Euro 316 9 219 Other 2 892 - In February 2009, the functional currency of the Group was changed to United States Dollars in line with the Ministry of Finance directive for the use of multiple non-Zimbabwe currencies. 52 A N N U A L R E P O R T 2 0 0 8
  • 54. KINGDOM MEIKLES LIMITED NOTES TO THE FINANCIAL S TAT E M E N T S for the year ended 31 December 200836. Foreign currency risk management (continued) The translation of foreign operations is based on fair rate approved by management. Balance sheet rate 31 December 2008 United States Dollar 35 000 000 000 000 000 South African Rand (ZAR) 3 684 210 526 315 790 Average transaction rate US$ ZAR June 2 - July 31 4 August 322 37 September 81 235 10 132 October 17 173 289 972 1 807 714 734 November 57 689 110 000 000 000 5 994 879 894 736 840 December 22 250 000 000 000 000 2 342 105 263 157 890 Note : The rates from January to May are nil due to the effect of inflation.37. Interest rate re-pricing and gap analysis - Banking group only Management of interest rate risk Interest rate risk is managed principally through monitoring interest rate gaps and by having pre-approved limits for re-pricing bonds. Total position for the Banking group At 31 December 2008 Up to 3 3 months Over Non- interest Total months to 1 year 1 year bearing Z$ quint Z$ quint Z$ quint Z$ quint Z$ quint Assets Balances with banks and cash 1 199 441 - - 88 682 1 288 123 Financial assets at fair value through profit and loss 1 125 952 20 021 22 098 Investment property - - - 4 253 4 253 Available for sale securities - - - 10 028 10 028 Advances and other accounts 154 521 - - 28 650 183 171 Property , plant and equipment - - - 237 697 237 697 Associated companies - - - 35 908 35 908 Non-current asset held for sale - - - 33 250 33 250 1 355 087 952 - 458 489 1 814 528 Liabilities and shareholders funds Share capital and reserves - - - 836 965 836 965 Deferred tax liabilities - - - 323 072 323 072 Deposits 10 867 - - - 10 867 Customer deposits 598 997 - - - 598 997 Other liabilities - - - 16 483 16 483 Provision for taxation - - - 28 144 28 144 609 864 - - 1 204 664 1 814 528 Interest rate re-pricing gap 745 223 952 - (746 175) - Cumulative gap 745 223 746 175 746 175 - - 53 A N N U A L R E P O R T 2 0 0 8
  • 55. KINGDOM MEIKLES LIMITED NOTES TO THE FINANCIAL S TAT E M E N T S for the year ended 31 December 200837. Interest rate re-pricing and gap analysis - Banking group only (continued) Total position for the Banking group At 31 December 2008 Up to 3 3 months Over Non- interest months to 1 year 1 year bearing Total US$ US$ US$ US$ US$ Assets Balances with banks and cash 34 269 751 - - 2 533 771 36 803 522 Financial assets at fair value through profit and loss 32 142 27 200 - 572 029 631 371 Investment property - - - 286 500 286 500 Available for sale securities - - - 121 514 121 514 Advances and other accounts 4 414 849 - - 818 572 5 233 421 Property , plant and equipment - - - 11 237 521 11 237 521 Associated companies - - - 1 025 929 1 025 929 Non-current asset held for sale - - - 950 000 950 000 38 716 742 27 200 - 17 545 837 56 289 778 Liabilities and shareholders funds Share capital and reserves - - - 34 006 195 34 006 195 Deferred tax liabilities - - - 3 583 867 3 583 867 Deposits 310 486 - - - 310 486 Customer deposits 17 114 187 - - - 17 114 187 Other liabilities - - - 470 929 470 929 Provision for taxation - - - 804 114 804 114 17 424 673 - - 38 865 105 56 289 778 Interest rate re-pricing gap 21 292 069 27 200 - (21 319 269) - Cumulative gap 21 292 069 21 319 269 21 319 269 - -38. Hyperinflation The inflation indices have not been published since July 2008. Subsequent estimates by economists are wide ranging and high (over percentages of hundreds of trillions to quadrillions, in some cases). The use of foreign currency and multiple pricing, described below, also distorts the process of measuring inflation. Given the chronic hyperinflation, the time lapse between the balance sheet and reporting dates renders the financial information presented in the financial statements less useful and relevant for making economic decisions. Official inflation indices, when available, are only available at month-end periods. Therefore, the use of assumptions to determine inflation in the intervening periods renders the information presented susceptible to estimation errors. The above mentioned uncertainties have been aggravated by: • The difficulty in determining a representative basket of goods to use for determining the inflation indices; • The unavailability of goods on the local market in Zimbabwe Dollars that can be used in populating the inflation model to determine the inflation index; and • The existence of multiple prices for the same item which then requires subjectivity and judgement in determining the price that will be used to determine the inflation index. 54 A N N U A L R E P O R T 2 0 0 8
  • 56. KINGDOM MEIKLES LIMITED NOTES TO THE FINANCIAL S TAT E M E N T S for the year ended 31 December 200838. Hyperinflation (continued) In these circumstances and the limitations of financial reporting in the general environment prevailing, as described in the Report of the Directors, inflation adjusted financial statements are not prepared as required by IAS 29 "Financial Reporting in Hyperinflationary Economies" as no inflation indices have been available since July 2008. As such these financial statements are considered inherently unreliable.39. Litigation and claims - Banking Group Kingdom Stockbrokers (Private Limited), Kingdom Nominees vs. National Social Security Authority (NSSA) On 5 April 2006 the High court passed judgement in the matter between National Social Security Authority (NSSA) against Kingdom Stockbrokers (Private) Limited and Kingdom Nominees (Private) Limited. The Court ruled in favour of NSSA and the defendants were ordered to pay Z$ nil* together with interest (at an interest rate prescribed by the court) thereon from 1 June 1999 and to deliver 850 000 Econet Wireless Holdings Limited shares (post consolidation) to NSSA. An appeal was filed in the Supreme Court against the judgement. The appeal was heard in the Supreme Court on 20 and 21 November 2007. On 23 July 2009 the Supreme Court ruled in favour of Kingdom Stockbrokers (Private) Limited and Kingdom Nominees (Private) Limited. Kingdom Bank Limited vs. Saturn Trading Investments Limited Kingdom Bank Limited has instituted proceedings against Saturn Trading Investments (Private) Limited for the recovery of US$900 000 owed to Kingdom Bank Limited through various loan structures denominated in the currency of the United States of America. The parties are waiting for a set down date at the Harare High Court. The directors are confident that, on the facts, the claim will succeed. Kingdom Bank Limited vs. MD Enterprises Proceedings have been instituted against Kingdom Bank Limited by MD Enterprises in respect of a transaction worth US$200 000 in which Kingdom Bank Limited was supposed to pay a foreign based company for goods sourced by MD Enterprises on behalf of a locally based third party. The transaction did not materialise after the third party withdrew from the transaction. The matter has been defended and the directors have confidence that the defence will succeed. The directors believe that the case will not have a significant impact on the financial position of Kingdom Bank Limited and the group. Tycoon Trading (Private) Limited vs. Kingdom Bank Limited Proceedings have been instituted against Kingdom Bank Limited by Tycoon Trading (Private) Limited with the latter claiming a sum of US$204 000 from the bank and a third party. Tycoon Trading operated a foreign currency account with Kingdom Bank Limited and requested that a third party be allowed to transact through the account in respect of export transactions. The third party then conducted his own transactions without the knowledge of the directors of Tycoon Trading. Tycoon Trading is claiming that Kingdom Bank Limited, by permitting the third party to transact through its account, prejudiced them of the sum of US$204 000 despite the fact that the company did not, in fact, suffer any prejudice. A set down date for the pre-trial conference is still awaited from the High Court of Zimbabwe in Bulawayo. The directors have confidence that the matter will be successfully defended. 55 A N N U A L R E P O R T 2 0 0 8
  • 57. KINGDOM MEIKLES LIMITED NOTES TO THE FINANCIAL S TAT E M E N T S for the year ended 31 December 200839. Litigation and claims - Banking Group (continued) Kingdom Securities Limited vs. G. Muwidzi Optmack Investments (Private) Limited is a property investment company. The company purchased a piece of property in a low density area and then decided to sell the property. The company entered into an agreement of sale with a party with the strict requirement that payment for the purchase of the property was to be done within a specific timeframe, failing which the agreement between the parties would be treated as null and void. The purchaser of the property failed to make payment on time as per the agreement of sale resulting in the offer to sell the property being made to some other party. The other party accepted the offer and is claiming rights of ownership. The first purchaser claims that the offer had not lapsed at the time they eventually made payment, and is suing Optmack investments for specific performance. The matter was heard in November 2008 and judgement is awaited. Parallel Trading: The State vs. Kingdom Bank Limited The matter between The State vs. Kingdom Bank Limited has been ongoing for the past three years at the criminal courts where it has been constantly postponed. We cannot definitively state when the matter will be completed. * Nil balance due to the effect of rounding.40. Subsequent eventsShareholders are advised of the following significant events:40.1 There has been no other litigations other than the ongoing Coolbay and Mentor litigation and those noted in note 39.40.2 The Board decided in early August to withdraw the litigation between KML and Coolbay and Mentor to allow for appropriate negotiations to take place between the parties, in a spirit of goodwill, rather than confrontation. This process has been embarked upon.40.3 Following the shareholder dispute, the Company and some of its subsidiaries, Thomas Meikle Centre (Private) Limited and Tanganda Tea Company Limited, were specified on 11 September 2009. An executive committee was formed in July 2009, consisting of the four divisional Chief Executives together with certain other Executives. The committee assumed responsibility for the day to day direction of the Group. The Board is pleased to inform the shareholders that the specification was lifted on 11 and 12 February 2010. The Company was further suspended from both the Zimbabwe and London Stock Exchanges on 15 and 16 September 2009 respectively. The Zimbabwe Stock Exchange suspension was lifted on 22 February 2010. The suspension from the London Stock Exchange is yet to be lifted.40.4 The majority shareholders entered into an agreement on 15 October 2009 with the former CEO of the Group, Mr N.M.K. Chanakira, and certain minority shareholders he represents to facilitate the demerger of KFHL from KML which is to be renamed Meikles Limited. Neither KML nor KFHL were party to the agreement but with assistance from the shareholders involved and their advisors the way forward for a settlement of all shareholder issues has been established.40.5 Shareholders are advised that there have been changes to the composition of the Board of Directors since year end. Details are disclosed on page 7.40.6 TM Supermarkets (Private) Limited was specified by the Minister of State on 16 January 2009 following investigations into the affairs of KML. The specification was lifted on 7 August 2009.40.7 Due to viability problems, Cotton Printers applied for voluntary liquidation in October 2009. The order for provisional liquidation was granted on 3 March 2010. 56 A N N U A L R E P O R T 2 0 0 8
  • 58. KINGDOM MEIKLES LIMITED KEY PERFORMANCE MEASURES 31 December 31 December 31 December 2008 2008 2007 Z$ quint US$ US$Gross margin (%) Gross profit 95.59 57.50 60.40 RevenueNet margin (%) Operating profit 432.76 19.99 26.63 RevenueIIMR Headline earnings/ (loss) per share Headline earnings 0.01 (0.52) cents 6.25 cents Weighted average ordinary shares in issueReturn on equity (%) Attributable profit 147.89 (69.90) 8 Average shareholders funds 57 A N N U A L R E P O R T 2 0 0 8
  • 59. KINGDOM MEIKLES LIMITED SHAREHOLDER I N F O R M AT I O N HOLDERS SHARES Number % Number %Analysis of ordinary shareholdings at 31 December 2008Type of holderZimbabwe RegisterIndividuals 5 920 76.08 10 498 212 4.28Non taxable companies 991 12.74 172 559 971 70.33FCDA resident 40 0.51 4 949 452 2.02Pension funds 267 3.43 11 344 148 4.62Nominee companies 80 1.03 18 259 253 7.44Non resident 22 0.28 4 834 950 1.97Insurance companies 23 0.30 18 371 906 7.48Totals for Zimbabwe 7,343 94.37 240 817 892 98.14London RegisterBanks and nominee companies 16 0.21 517 823 0.21Individuals 411 5.28 3 996 886 1.63Other corporate bodies 10 0.13 41 212 0.02Pension funds and investment trusts 1 0.01 978 -Totals for London 438 5.63 4 556 899 1.86Totals for Zimbabwe and London 7 781 100.00 245 374 791 100.00Size of holdings1 - 5 000 7 077 90.95 3 172 205 1.295 001 - 10 000 209 2.69 1 465 914 0.6010 001 - 50 000 301 3.87 6 497 966 2.6550 001 - 100 000 77 0.99 5 387 563 2.20100 001 - 500 000 77 0.99 20 653 089 8.42Exceeding 500 000 40 0.51 208 198 054 84.84Totals 7 781 100.00 245 374 791 100.00Top ten shareholders 31 December 2008 31 December 2007Shareholder No of shares % No of shares %EW Capital Holdings (Private) Limited 25 899 448 10.56 26 327 445 10.87JRTM Investments (Private) Limited 21 189 654 8.64 21 066 765 8.69ASH Investments (Private) Limited 21 051 504 8.58 20 929 416 8.64FPS Investments (Private) Limited 20 980 949 8.55 20 859 270 8.61ACM Investments (Private) Limited 20 961 256 8.54 18 215 506 7.52AWPM Investments (Private) Limited 20 958 030 8.54 20 836 484 8.60Old Mutual Assurance Company Zimbabwe Limited 16 811 511 6.85 17 732 619 7.32Valleyfield Investments (Private) Limited 6 314 983 2.57 6 278 360 2.59Time Cap Investments (Private) Limited 5 168 102 2.11 7 704 541 3.18Fed Nominees (Private) Limited 5 116 176 2.09 5 587 278 2.31 164 451 613 67.03 165 537 684 68.33Other 80 923 178 32.97 76 763 870 31.67Total 245 374 791 100 242 301 554 100.00 58 A N N U A L R E P O R T 2 0 0 8
  • 60. Pick n Pay Kingdom Meikles Limited Holdings Limited 25% 75% 100% 100% 100% 100% TM Supermarkets (Private) Thomas Meikle Centre Cotton Printers Tanganda Tea Kingdom Financial Limited (Private) Limited (Private) Limited Company Limited Holdings Limited See note below 100% 100% 100% Vestor Properties Cape Grace Hotel Limited Tingamira Tea DIVISIONS (Private) Limited Estates (Private) Limited 100% Departmental Stores Meikles Hotel 100% – Retail Division Division (including Coffee & Tea Services 100% 50% partnership in (Private) Limited Kingdom Securities 63% Victoria Falls Holdings Limited Hotel) 37% Chapin Hotel and Resorts Limited 100% 100% Cape Grace 100% 100% 100% Investments Limited 50% 50% Kingdom Kingdom Asset Kingdom KingdomA N N U A L Bank Limited Management Stockbrokers Securities GROUP Cape Grace Hotel 100% Thomas Meikle (Private) Limited (Private) Limited Limited Cape Grace Investments (Proprietary) Limited (Proprietary) Properties (Private) 36% 100% Limited Limited Kingdom Bank MicroKing Africa Limited 59 100% 100% (Private) Limited Chataprops (Proprietry) 100% Limited 100% Ninety Speke 100% 27.6% 40.16% Plumway Investments (Proprietry)Limited (Private) Limited Adventure DCZ Properties eTranzact First Discount LIMITED Forex Bureau Limited Zimbabwe (Private) House LimitedR E P O R T 100% NIB 36 (Proprietary) (Private) Limited 100% Greatermans Stores Limited Limited (1979) (Private) 51% 51% 100% Limited 49% STRUCTURE Tuscarora Investments (Private) Limited The Discount 100% Thomas Meikle Stores Company of2 0 0 8 Meikles Hotel (Private) Limited Zimbabwe Limited (Private) Limited 49% 100% KINGDOM MEIKLES 100% Stripwax Investments Discor Investments (Private) Limited (Private) Limited Note : TM Supermarkets (Private) Limited has the following 100% owned subsidiaries : Are You Looking Investments (Private) Limited, Bushell Investments Services (Private) Limited, Cumbuild Investments (Private) Limited, Kelview Investments (Private) Limited, Ebony Properties (Private) Limited, Mopani Property Development (Private) Limited, Osterland Investments (Private) Limited, Petria Properties (Private) Limited, Proposal Investments Services (Private) Limited, Ringsmoke Investment (Private) Limited and Stove Enterprises (Private) Limited.
  • 61. KINGDOM MEIKLES LIMITED TA X ISSUES AND SHARE PRICESZimbabwe TaxThe following summary addresses the Zimbabwe tax consequences for investors who are not residents of Zimbabwe and whohold shares as capital assets.Dividend withholding taxDividends payable to non-residents are subject to a withholding tax of up to 20%. Lesser rates apply where double taxationagreements exist.Dividends payable to non-corporate residents are subject to a withholding tax of 20%.Dividends payable to corporate residents are not subject to withholding tax.Capital gains taxSales of listed shares on the Zimbabwe Stock Exchange after 17 October 2005 are subject to 20% capital gains tax.As at 31 December 2008, 5 % of the sale proceeds was withheld as an advance payment for the capital gains tax.Share PricesThe middle market prices of our shares during the course of the year were: Z$31 December 2007 0.0008530 June 2008 1219 November 2008 - last trade for 2008 105 000 000 000 000 000 60 A N N U A L R E P O R T 2 0 0 8
  • 62. KINGDOM MEIKLES LIMITED NOTICE OF MEETINGNotice is hereby given that the seventy-second ANNUAL GENERAL MEETING of the shareholders of KingdomMeikles Limited in respect of the year ended 31 December 2008 will be held at the Meikles Hotel, on 30 November 2009 at9.00 am to conduct the following business: 1. To receive and adopt the Group Financial Statements for the year ended 31 December 2008 and the reports of the Directors and Auditors. 2. To consider the re-appointment of the following Director who retires and being eligible offers himself for re- election: Mr Rugare Chidembo 3. To consider the re-appointment of the following Director who retires and being eligible offers himself for re- election: Mr Muchadeyi Ashton Masunda 4. To consider the re-appointment of the following Director who retires and being eligible offers himself for re- election: Mr Dennis Edward Stephens 5. To consider the re-appointment of the following Director who retires and being eligible offers himself for re- election: Mr Timothy Benjamin Cameron 6. To consider the re-appointment of the following Director who retires and being eligible offers himself for re- election: Mr Bissett Chimhini 7. To consider the re-appointment of the following Director who retires and being eligible offers himself for re- election: Mr Roy Hudson Meiring 8. To consider the re-appointment of the following Director who retires and being eligible offers himself for re- election: Mr Andrew Christopher Mills 9. To confirm Directors fees for the year ended 31 December 2008 amounting to US10 841, of which US$797 was paid in 2008 and recorded in the 2008 Annual Report. The balance of US10 044 has been paid during 2009 and will be recorded in the 2009 Annual Report. 10. To appoint Auditors for the year ending 31 December 2009 and to approve the Auditors fees of US$33 480 for the year ended 31 December 2008. Messrs Deloitte & Touche, auditors for the year ended 31 December 2008, have indicated their willingness to continue in office. 11. That 22 808 951 unissued shares of the Company be placed under the control of the Directors who shall have the authority to issue the shares to companies established for the purpose of staff share purchase schemes, on such terms and conditions as they deem fit, provided that the shares shall be issued at a price calculated on the basis of the weighted average price of Kingdom Meikles Limited shares over the thirty (30) days prior to the date of issue.By order of the BoardA P LANE-MITCHELLSECRETARY4 November 2009 61 A N N U A L R E P O R T 2 0 0 8
  • 63. KINGDOM MEIKLES LIMITED FORM OF PROXYI/We .............................................................................................................................................................................................................(Name/s in block letters)of ..................................................................................................................................................................................................................being a member of Kingdom Meikles Limited,and entitled to ..............................................................................................................................................................voteshereby appoint..........................................................................................of ............................................................................................or failing him/her ..................................................................................of ................................................................................................or failing him/her the Chairman of the meeting as my/our proxy to attend and speak for me/us and on my/our behalf at theannual general meeting of the Company to be held in Harare on 30 November 2009 at 9.00 am and at any adjournmentthereof and to vote or abstain from voting.Any member of the Company entitled to attend and vote at the meeting may appoint a proxy or proxies to attend, speak andvote in his stead. A proxy need not be a member of the Company.Every person present and entitled to vote at a general meeting shall, on a show of hands, have one vote only, but in the eventof a poll, every share shall have one vote.Please read the notes appearing on the reverse hereof.Signed at ............................................................................... on .....................................................................................................2009Signature(s) .................................................................................................................................................................................................Assisted by me ............................................................................................................................................................................................Full name(s) of signatory/ies if signing in a representative capacity (see note 2) (please use block letters) 62 A N N U A L R E P O R T 2 0 0 8
  • 64. KINGDOM MEIKLES LIMITED NOTES TO PROXYINSTRUCTIONS FOR SIGNING AND LODGING THIS FORM OF PROXY1. A deletion of any printed matter and the completion of any blank spaces need not be signed or initialled. Any alteration or correction must be initialled by the signatory/ies.2. The Chairman shall be entitled to decline to accept the authority of a person signing the proxy form: (a) under a power of attorney (b) on behalf of a company unless that persons power of attorney or authority is deposited at the offices of the Companys Zimbabwe transfer secretaries or the London transfer secretaries not less than 48 hours before the meeting.3. If two or more proxies attend the meeting then that person attending the meeting whose name appears first on the proxy form and whose name is not deleted, shall be regarded as the validly appointed proxy.4. When there are joint holders of shares, any one holder may sign the form of proxy. In the case of joint holders, the senior who tenders a vote will be accepted to the exclusion of other joint holders. Seniority will be determined by the order in which names stand in the register of members.5. The completion and lodging of this form of proxy will not preclude the member who grants this proxy form from attending the meeting and speaking and voting in person thereat to the exclusion of any proxy appointed in terms hereof should such member wish to do so.6. In order to be effective, completed proxy forms must reach the Companys Zimbabwe and London transfer secretaries not less than 48 hours before the time appointed for the holding of the meeting.7. Please ensure that the name(s) of the member(s) on the form of proxy and the voting form are exactly the same as those on the share register.8. Please be advised that the number of votes a member is entitled is determined by the number is shares recorded in the share register 48 hours before the time appointed for the holding of the meeting. OFFICE OF THE ZIMBABWE OFFICE OF THE LONDON TRANSFER SECRETARIES TRANSFER SECRETARIES ZB Bank Limited Computershare Services PLC First floor ZB Centre, P.O. Box 82, The Pavilions, Corner First Street / Kwame Nkrumah Avenue Bridgwater, Bristol BS99 7NH P.O Box 2540 Telephone 44-870-702 0001 Telephone 263-4 -796842/44 263-4-759660/9 263-4-2912729/20 Harare Zimbabwe 63 A N N U A L R E P O R T 2 0 0 8
  • 65. KINGDOM MEIKLES LIMITED C O R P O R AT E I N F O R M AT I O N Kingdom Meikles Limited (Registration No. 1/37)Business Address and Registered Office London SecretariesP.O. Box 3598, Harare Petershill Secretaries Limited99 Jason Moyo Avenue, Harare 1 Embankment Place, London WC2N 6RHTelephone +263-4-252068-78 Telephone +44-20-7583 5000Telefax +263-4-252067 Telefax +44-20-7822 4652email: alanemitchell@kmal.co.zwZimbabwe Transfer Secretaries London Transfer SecretariesZB Bank Limited Computershare Services PLCFirst Floor ZB Centre P.O. Box 82, The PavilionsCorner First Street / Kwame Nkrumah Ave Bridgwater, Bristol BS99 7NHP.O Box 2540, Harare Telephone +44-870-702 0001Zimbabwe Telefax +44-870-703 0005Telephone 263-4-759660/9 263-4-2912729/20Auditors Legal PractitionersDeloitte & Touche (Chartered Accountants) Scanlen and HoldernessP.O. Box 267, Harare P.O. Box 188, HararePrincipal Bankers Website AddressKingdom Bank Limited www.kmal.co.zw53 Samora Machel Avenue, HarareP.O. Box CY3205 Causeway, Harare Secretary Andrew Lane-MitchellGroup Chief Executive OfficerBrendan Beaumont 64 A N N U A L R E P O R T 2 0 0 8
  • 66. KINGDOM MEIKLES LIMITED