Meikles Limited: 2008 annual report (Revised)

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THIS ANNUAL REPORT SUPERCEDES THE 2008 ANNUAL REPORT IS SUED FOR THE 30 NOVEMBER 2009 ANNUAL GENERAL MEETING

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Meikles Limited: 2008 annual report (Revised)

  1. 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 MEETING A 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. 2. KINGDOM MEIKLES LIMITED CONTENTS Chairman’s Statement........................................................................................................................................................... 2 Risk Management.................................................................................................................................................................. 5 Directorate and Corporate Governance............................................................................................................................ 7 Report of the Directors....................................................................................................................................................... 8 Directors’ Responsibility and Conclusion.........................................................................................................................10 Independent Auditor’s Report............................................................................................................................................11 Consolidated Income Statements.......................................................................................................................................13 Consolidated Balance Sheets...............................................................................................................................................14 Company Balance Sheets.....................................................................................................................................................15 Statements of Changes in Equity.......................................................................................................................................16 Consolidated Cash Flow Statements.................................................................................................................................17 Significant Accounting Policies..........................................................................................................................................18 Notes to the Financial Statements.....................................................................................................................................31 Key Performance Measures................................................................................................................................................57 Shareholder Information.................................................................................................................................................... 58 Group Structure....................................................................................................................................................................59 Tax Issues and Share Prices................................................................................................................................................60 Notice of Meeting............................................................................................................................................................... 61 Form of Proxy......................................................................................................................................................................62 Corporate Information....................................................................................................................................................... 64 1 A N N U A L R E P O R T 2 0 0 8
  3. 3. KINGDOM MEIKLES LIMITED CHAIRMAN’S S TAT E M E N T Shareholders who attended the Annual General Meeting on 30 November 2009 adopted the financial statements for the year ended 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 referred to 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 trying times externally and internally for the Group in its inaugural year as a merged entity. The business environment in 2008 was characterised by unprecedented socio-economic and political developments in Zimbabwe where most of the Group's subsidiaries are located. The Zimbabwe economy was bedevilled by the use of multi-currencies, world-record hyper-inflation figures, multiple exchange rates and currency debasing, to mention a few. In addition, the world economy experienced an astonishing global melt-down triggered by the US and UK mortgage and banking crises which had a drag on the regional economies 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 figures are not available because of the lack of Consumer Price Indices (CPI) information but, in any case, the validity of such presentations 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, our auditor's opinion on the historical cost financial statements is qualified on the basis that this information does not present a true and fair view of the financial position of the Group. The Institute of Chartered Accountants of Zimbabwe, along with the Zimbabwe Stock Exchange, have provided guidelines to all preparers as to the content of the accounting qualification and these have been incorporated in the final presentation of the financial statements of the Group. With the introduction of FOLIWARS trading (retailing licences to trade in foreign currency) combined with other direct export related Group operations, 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 our accounts enable fair presentation at the appropriate time and US Dollar financial statements have thus been presented as supplementary 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. Operations were affected by the hostile business environment. Corporate There 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, has been reviewed at 31 December 2008. At 31 December 2007 the carrying value was US$131,3 million being the translation from Zimbabwe Dollars at the exchange rate at 31 December 2007. During 2008 the economy became stressed and the view taken at the time of the merger has changed. These factors together with the current uncertainty about the future, makes it necessary to examine the carrying value of this intangible asset. Accordingly, an impairment of US$127,2 million has been made. The remaining balance of US$4,1 million is in respect of the Cape Grace Hotel, which was impaired from US$9,4 million. 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 KML's 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. 4. KINGDOM MEIKLES LIMITED CHAIRMAN’S S TAT E M E N T Meikles 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 issues Shareholders 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 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 3 A N N U A L R E P O R T 2 0 0 8
  5. 5. KINGDOM MEIKLES LIMITED CHAIRMAN’S S TAT E M E N T purchase of the Group's 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. At the balance sheet date material amounts receivable from related parties were the subject of dispute or litigation. Please refer to note 14 to the financial statements. 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. Way forward Objectives set for the Group in 2009 have been implemented only in part due to the adverse situation in which the Group found itself. The Shareholders are already aware that the results for the year ended 31 December 2009 will be disappointing but 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 the conditions precedent to the demerger are still to be fulfilled. Consequently, Meikles Limited remains the sole shareholder in KFHL and will remain so until such time as the de-merger is implemented. Only on implementation of the de-merger will Meikles Limited's 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 and will detail its recovery plan. It should be noted that the lifting of the specifications has effectively cleared the Group of any wrong doing. Future relationships between the Group and its business associates will be conducted in a spirit of mutual respect. Shareholders' attention is alerted to post balance sheet events, the details of which are found on page 7 and note 40 to the financial statements. Conclusion The trading environment has stretched the loyalty and resilience of management and staff to extreme limits. The Board wishes to pay particular tribute to all management and staff who have performed admirably, in spite of the odds which were heavily stacked against them. F. Rwodzi CHAIRMAN Harare, 21 April 2010 4 A N N U A L R E P O R T 2 0 0 8
  6. 6. KINGDOM MEIKLES LIMITED RISK MANAGEMENT Following the merger of Meikles Africa Limited, Kingdom Financial Holdings Limited, Tanganda Tea Company Limited and Cotton Printers (Private) Limited in December 2007, the Group formalised risk management polices in connection with banking requirements. These are in addition to those adopted by Meikles Africa Limited Board which endorsed a formalised risk 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 the Audit 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 of Kingdom Financial Holdings Limited (KFHL). The Group risk department's mandate is to develop a culture of appreciation and 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 KFHL's policy 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 latest methodologies. Statistical models such as Value at Risk (VaR) and sensitivity measures such as durations are widely used and portfolios regularly stress tested. The department back-tests the accuracy of models as recommended by the Basel Committee. 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 the department has service level agreements with all KFHL subsidiaries or units to deliver accurate risk management information timeously. Risk Management issues daily, weekly, monthly, quarterly and annual reports to units, management and the various risk management bodies. Furthermore the department regulates the trading of operating units by setting, implementing and revising 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 through committees such as ALCO, Loans and Investment Committee (LIC), Board Subcommittees and ultimately ends with the Kingdom Financial Holdings Limited Board. There is segregation of duties between front offices, middle offices and back offices functions as part of the Group's risk management policy. Risk categories The 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 risk Internal Audit Each 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 Risk The Group operates a central treasury function, the objective being to provide competitive funding costs and investment income 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 not engage in speculative activity. 5 A N N U A L R E P O R T 2 0 0 8
  7. 7. KINGDOM MEIKLES LIMITED RISK MANAGEMENT Currency Risk The objective is to reduce the risk to short term profits of exchange rate volatility. The Group has significant foreign currency assets, and interest and transactional exposures are covered with foreign currency income. The Group makes use of foreign currency accounts in Zimbabwe. Liquidity and Interest Rate Risk The 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 residual cash reserves, net of all borrowings, of US$49,4 million (Z$1 725 170 quintillion), and unused bank facilities, the Group is able to meet all short-term commitments. The interest rates for both interest receivable and payable locally are mostly flexible, and pegged to the commercial banks' minimum lending rate. Credit Risk The objective is to reduce the risk of loss arising from default by counterparties. The Group's cash resources are invested with the most reputable financial institutions, whilst at the same time, where possible, spreading risk across a number of banks and similar institutions. At the balance sheet date US$35 million (Z$1 225,11 quintillion) was invested with the Reserve Bank of Zimbabwe in accordance with its directive. Market Risk The principal amounts of all monetary financial assets and liabilities are fixed, and not subject to market related value adjustments. 6 A N N U A L R E P O R T 2 0 0 8
  8. 8. KINGDOM MEIKLES LIMITED D I R E C TO R AT E AND C O R P O R AT E GOVERNANCE DIRECTORATE M.A. Masunda * Non-executive - Acting Chairman - resigned 31 December 2009 J.R.T. Moxon "* Non-executive (Specified with effect from 16 January 2009) N.M.K. Chanakira - Group Chief Executive Officer - resigned 15 October 2009 C.B. Thorn - Executive Director Finance and Administration - resigned 30 April 2009 D.W. Mills - Executive Director Retail - retired 31 December 2008 D.E. Stephens * Non-executive - retired 30 November 2009 M.S. Wilson "* Non-executive - resigned 30 November 2008 S.P. Bango * Non-executive - resigned 14 October 2009 C. Jokonya " Non-executive - resigned 15 October 2009 R. Chidembo " Non-executive T. Nyambirai * Non-executive - resigned 31 August 2008 D. Mboweni * Non-executive - appointed 31 August 2008 - resigned 15 October 2009 B. Chimhini - Executive Director - appointed 6 August 2009 R. H. Meiring - Executive Director - appointed 6 August 2009 T. B. Cameron - Executive Director - appointed 6 August 2009 A. C. Mills - Executive Director - appointed 6 August 2009 F. Rwodzi " Non-executive - Chairman - appointed 1 December 2009 B. J. Beaumont - Group Chief Executive Officer - appointed 1 December 2009 K. Ncube - Non-executive - appointed 1 December 2009 O. Makamba - Executive Director Finance and Administration - appointed 1 February 2010 " Member of the Audit Committee * Member of the Remuneration Committee CORPORATE GOVERNANCE On page 10 the Directors have acknowledged their responsibility and conclusion on the presentation of the financial statements. The structure of the Board and its various standing committees is as follows: - The Board At 31 December 2008, the Board consisted of the acting Chairman, three executive and six non-executive Directors, and met at least quarterly during the year. The key matters reserved for the decision of the Board are the Group strategy, acquisition and divestment policy, approval of the Group budget and major capital projects, and general treasury and risk management policies. Subsidiaries and Divisions The Group operates a decentralised subsidiary/divisional structure. Each significant subsidiary or division has a formal operating Board with a clear definition of responsibility, which operates within well-defined policies. There is comprehensive financial reporting with actual results reported monthly against budget and prior year. The Audit Committee The Audit Committee was chaired by Michael Wilson up to the time of his resignation and subsequently by Callisto Jokonya and normally meets four times a year. The Group Chief Executive Officer, the Executive Director Finance and Administration, external audit and risk management attend these meetings by invitation. The Audit Committee reviews the Group's interim and annual financial statements before submission to the Board for approval. Its objectives are to ensure that the Board is advised on all matters relating to corporate governance and the creation and maintenance of effective financial controls, as well as advising the Board and management on measures which ensure that respect for both regulatory issues and for internal financial control is demonstrated and stimulated. Accordingly, it reviews the effectiveness of the internal audit function, its programmes and reports, and also reviews all reports from the external auditors on accounting and internal control matters, and monitors action taken where necessary. The Audit Committee also recommends the appointment and reviews fees of external auditors. The Remuneration Committee The Remuneration Committee was chaired by John Moxon until 16 October 2008 and subsequently by Muchadeyi Masunda and meets as required during the year. The terms of reference of the Remuneration Committee are to determine the Group's policy on the remuneration of executive Directors and senior executives, including individual salaries and other terms of the remuneration packages. 7 A N N U A L R E P O R T 2 0 0 8
  9. 9. KINGDOM MEIKLES LIMITED REPORT OF THE DIRECTORS Principal activities The main activities of the Group are those of agriculture, banking, hotels, retail trading and textile manufacturing. Retail trading includes department stores, supermarkets and convenience stores. The Directors hereby formally withdraw the 2008 financial statements issued for the 30 November 2009 Annual General Meeting. Year's results The results for the year are set out in the attached financial statements and are commented on under the Board statement on pages 2 to 4. An interim dividend of $0.0007 per share with a scrip dividend option was paid on 21 July 2008. 99.97% was taken up as scrip with the remaining 0.03% paid out as cash. The Board has resolved not to declare a final dividend for the year ended 31 December 2008. Limitations of financial reporting in the general environment prevailing The uncertainties in the adverse Zimbabwean economic environment during the year have resulted in limitations in financial reporting. 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 Information For the major part of the year, the functional currency in which transactions were recorded was the Zimbabwe Dollar. With the introduction of FOLIWARS trading (retailing licences to trade in foreign currency) combined with other direct export related group operations, 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 financial information presented in historical cost Zimbabwe Dollars is to meet statutory requirements. Inflation-adjusted figures are not available because of the lack of Consumer Price Indices information, but, in any case, the validity of such presentation in Zimbabwe Dollars and what can be drawn from the financials has no real meaning. The Board has taken the view that the presentation of US Dollar financial statements as supplementary information provides a 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 have been reviewed on a regular basis, depending on market conditions, to determine those which present figures that are as accurate as possible in the circumstances. Exchange rates considered, included the Old Mutual Implied Rate, market cash and cheque rates, Electronic Transaction rates and the United Nations exchange rate. The actual rates used are disclosed in Note 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. 10. KINGDOM MEIKLES LIMITED REPORT OF THE DIRECTORS for the 2009 financial year as the functional currency formally became US Dollars with the economic "Dollarisation" effective from February 2009. 2007 Comparatives 2007 historical cost Zimbabwe Dollar comparatives are not shown as the debasing of the currency by ten zero's on 1 August 2008 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 Limited had been in operation for the whole year. This presentation provides better Group information for comparison purposes. Share capital Details of the authorised and issued share capital are set out in note 20 to the financial statements. Directors and their interests The 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 the Group's businesses. The direct and indirect beneficial interests of the Directors in the shares of the Company are given in note 20 to the financial statements. Substantial shareholdings According to information received by the Directors, the following are the only shareholders beneficially holding, directly or indirectly 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 10.56 JRTM Investments (Private) Limited 21 189 654 8.64 ASH Investments (Private) Limited 21 051 504 8.58 FPS Investments (Private) Limited 20 980 949 8.55 ACM Investments (Private) Limited 20 961 256 8.54 APWM Investments (Private) Limited 20 958 030 8.54 Old Mutual Assurance Company Zimbabwe Limited 16 811 511 6.85 Auditors Messrs. Deloitte & Touche were re-appointed on 30 November 2009 and their fees for the year ended 31 December 2008 were approved. F. Rwodzi CHAIRMAN Harare, 21 April 2010 9 A N N U A L R E P O R T 2 0 0 8
  11. 11. KINGDOM MEIKLES LIMITED DIRECTORS’ RESPONSIBILITY AND CONCLUSION The Directors of the Company are responsible for the maintenance of adequate accounting records, and the preparation of financial statements for each financial year that give a true and fair view of the state of affairs of the Company and the Group at the end of the financial year and of the results and cash flows for that year. They are also required to select appropriate accounting policies, to safeguard the assets of the Company and the Group and to make reasonable and prudent judgements and 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 not absolute, assurance as to the reliability of the financial statements, and to safeguard, verify and maintain accountability of assets, and to prevent and detect material misstatements and losses. The systems are implemented and monitored by suitably trained personnel with an appropriate segregation of authority and duties. Nothing has come to the attention of the Directors to indicate that any material breakdown in the functioning of these controls, procedures and systems has occurred during the year under review. Due to the usage of multi-currencies in our trading, the volatile exchange rates experienced in Zimbabwe and the resultant accounting complexities, the Directors' are unable to confirm that the historical cost Zimbabwe Dollar financial statements present a true and fair view of the financial status of the Group. The auditor’s qualified opinion, outlined on pages 11 and 12 reiterates this point. The impact of these matters is such that the financial statements of the Group have not been prepared in full compliance with all International Financial Reporting Standards. The financial statements have been prepared in accordance with the accounting policies set out in the accounting policy notes and comply with the disclosure of the Companies Act (Chapter 24.03) and the relevant Statutory Instruments. US Dollar financial statements have been presented as supplementary information for the benefit of shareholders but the auditors do not express an opinion on these figures. The Board has taken a view that exchange rates applied to our accounts to the 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 believe that the preparation of these financial statements on a going concern basis is still appropriate. However, the Directors believe that under the current economic environment a continuous assessment of the ability of the Company and the Group to continue to operate as a going concern will need to be performed to determine the continued appropriateness of the going concern assumption that has been applied in the preparation of these financial statements. F. Rwodzi CHAIRMAN Harare, 21 April 2010 10 A N N U A L R E P O R T 2 0 0 8
  12. 12. KINGDOM MEIKLES LIMITED INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF KINGDOM MEIKLES LIMITED REPORT ON THE FINANCIAL STATEMENTS We have audited the accompanying consolidated Zimbabwe dollar financial statements of Kingdom Meikles Limited and its subsidiaries ("the Group") set out on pages 13 to 56, which comprise the consolidated balance sheet as at 31 December 2008 and the consolidated income statement, statement of changes in equity and cash flow statement for the year then ended and a summary of significant accounting policies and other explanatory notes. The US Dollar supplementary information which is also included as part of the financial statements is not covered by this audit report. Directors' Responsibility for the Financial Statements The directors are responsible for the preparation and fair presentation of these financial statements in accordance with International Financial Reporting Standards and the provisions of the Zimbabwe Companies Act (Chapter 24:03). This responsibility includes designing, implementing and maintaining internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances. Auditor's Responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. Because of the matters described in the Basis of Disclaimer of Opinion paragraphs, we were not able to obtain sufficient appropriate audit evidence to provide a basis for an audit opinion. Basis of Disclaimer of Opinion The Zimbabwe economy is recognised as being hyperinflationary for purposes of financial reporting. These financial statements have not been prepared in conformity with International Financial Reporting Standards in that the requirements of IAS 29 "Financial Reporting in Hyperinflationary Economies" have not been complied with. The Standard requires that financial statements that report in the currency of a hyperinflationary economy should be stated in terms of the measuring unit 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 multiple economic factors which are pervasive to the Zimbabwean economic environment; these factors have resulted in the accurate and 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 / or litigation. A provision of Z$623 877 quintillion has been made in respect of the uncertainty of the carrying value of any investment made from funds (see Note 14), that were held by Coolbay Investments (Proprietary) Limited, but confirmation has been received that the funds (of Z$ 154 715 quintillion) held by Mentor Africa Limited (Mentor) are recoverable in a form other than cash, this itself being the subject of litigation between Kingdom Meikles Limited (KML) and Mentor. In November 2008 a notice to exercise an option agreement for the purchase of the Group's 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. 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, by the adverse effects of the country's unstable economic environment which has resulted in a significant downturn in economic activity. The ability of the Group to continue operating as a going concern, in such an environment, is subject to continual assessment. 11 A N N U A L R E P O R T 2 0 0 8
  13. 13. KINGDOM MEIKLES LIMITED INDEPENDENT AUDITOR’S REPORT Disclaimed Opinion Because of the significance of the matters described in the Basis for Disclaimer of Opinion paragraphs, we have not been able to obtain sufficient appropriate audit evidence to provide a basis for an audit opinion. Accordingly, we do not express an opinion on the financial statements. Emphasis of Matter Without further qualifying our opinion, we draw attention to Note 40 “Subsequent events”. Report on legal and regulatory requirements These 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 & Touche Chartered Accountants (Zimbabwe) Harare 21 April 2010 12 A N N U A L R E P O R T 2 0 0 8
  14. 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 77 276 030 Cost of sales (20 364) (26 345 718) (44 105 530) Gross profit 206 650 24 816 865 33 170 500 Net interest income (Banking) 10 363 4 600 281 13 503 819 Total gross profit and net interest 217 013 29 417 146 46 674 319 Dealing profits / (losses) 863 764 1 623 924 (1 452 623) Net fees and commission income 2 026 3 542 483 1 911 621 Other income 2 51 717 6 022 598 3 796 145 Employee 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 20 577 562 Investment revenue 6 11 967 6 591 298 3 331 568 Finance costs 7 (1 318) (1 097 639) (2 134 793) Net exchange gains and translation adjustments 1 183 364 (5 710 682) 5 292 911 Increase in value of quoted investment - 5 778 280 995 Goodwill impairment - (127 178 851) - Provision for funds earmarked for investments (623 877) (17 825 063) - Share of profits of associates 7 896 245 099 10 493 Profit / (loss) before tax 1 560 455 (134 744 407) 27 358 736 Income tax (expense) / credit 8 (284 708) 7 088 231 (12 269 527) Profit / (loss) for the year 1 275 747 (127 656 176) 15 089 209 Attributable to: Equity holders of the parent 1 279 000 (127 484 452) 15 153 603 Minority interest (3 253) (171 724) (64 394) 1 275 747 (127 656 176) 15 089 209 Basic earnings / (loss) per share 9 0,01 (52.28) cents 6.26 cents IIMR 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. 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$ ASSETS Non-current assets Property, plant and equipment 10 1 195 81 482 946 63 112 808 Investment property 11 10 028 286 500 703 615 Biological assets 12 43 506 4 857 050 3 357 438 Investments in associates 13 35 908 1 025 927 91 047 Other financial assets and investments 14 154 729 4 404 946 21 513 062 Goodwill 15 - - 131 270 859 Intangible assets - Trademarks 1 268 579 205 689 Balances with Reserve Bank of Zimbabwe 18 418 609 11 960 252 29 951 676 663 976 104 286 200 250 206 194 Current assets Inventories 16 64 075 5 270 055 3 795 825 Trade and other receivables 17 305 160 9 224 814 7 059 993 Other financial assets 14 26 586 804 585 9 113 160 Customers' liability for acceptances - - 13 452 Cash and bank balances 18 1 340 922 38 371 577 14 984 051 1 736 743 53 671 031 34 966 481 Disposal group Other assets 19 810 649 25 748 996 - Goodwill - 4 092 008 - Total assets 3 211 368 187 798 235 285 172 675 EQUITY AND LIABILITIES Capital and reserves Issued capital 20 - 1 359 065 1 359 065 Share premium - 217 214 999 215 531 786 Other non-distributable reserves 21 219 841 33 432 834 14 582 494 Retained earnings / (accumulated losses) 1 292 327 (128 328 373) 3 244 842 Capital and reserves relating to disposal group 19 217 454 6 384 502 - Equity attributable to equity holders of the parent 1 729 622 130 063 027 234 718 187 Minority interest (3 253) 1 661 070 459 612 Total equity 1 726 369 131 724 097 235 177 799 Non-current liabilities Borrowings 22 7 427 212 183 3 167 950 Deferred tax 23 249 729 20 546 415 16 401 348 Other financial liabilities 24 - - 7 297 824 257 156 20 758 598 26 867 122 Current liabilities Trade and other payables 25 (15 609) (69 765) 6 038 183 Customer deposits 26 609 864 17 424 674 10 217 658 Borrowings 22 26 925 769 331 709 251 Other financial liabilities 24 46 718 1 364 412 6 162 662 667 898 19 488 652 23 127 754 Liabilities relating to disposal group 19 559 945 15 826 888 - Total equity and liabilities 3 211 368 187 798 235 285 172 675 F. Rwodzi B. J. Beaumont Harare, 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. 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$ ASSETS Non-current assets Other financial assets and investments 14 4 830 66 169 375 149 967 734 Current assets Trade and other receivables 17 222 801 6 365 757 5 571 663 Cash and bank balances 18 - - 3 088 575 222 801 6 365 757 8 660 238 Total assets 227 631 72 535 132 158 627 972 EQUITY AND LIABILITIES Capital and reserves Issued capital 20 - 1 359 065 1 359 065 Share premium - 217 214 999 215 531 786 Share based payment reserve - - 896 916 Retained earnings / (accumulated losses) 225 003 (168 656 456) (62 055 768) Total equity 225 003 49 917 608 155 731 999 Non-current liabilities Deferred tax liabilities 23 - - 2 706 941 Current liabilities Trade and other payables 25 2 628 22 617 524 189 032 Total equity and liabilities 227 631 72 535 132 158 627 972 F. Rwodzi B. J. Beaumont Harare, 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. 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 - 781 803 Translation of foreign entity 518 008 (310 147) Property revaluation - 34 666 595 Available for sale fair value adjustment 1 624 (849 884) Other reserves - (19 850) Scrip dividend - 4 494 Less 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) 1 201 458 Shareholders' equity at the beginning of the year - 235 177 799 Shareholders' equity at the end of the year 1 726 369 131 724 097 Comprising: Issued capital - 1 359 065 Share premium - 217 214 999 Other non-distributable reserves 219 841 33 432 834 Retained earnings / (accumulated losses) 1 292 327 (128 328 373) Amounts in equity relating to disposal group (note 19) 217 454 6 384 502 Minority interest (3 253) 1 661 070 Total 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 - 781 803 Scrip dividend - 4 494 Attributable to equity holders 225 003 (105 814 391) Shareholders' equity at the beginning of the year - 155 731 999 Shareholders' equity at the end of the year 225 003 49 917 608 Comprising: Issued capital - 1 359 065 Share premium - 217 214 999 Retained 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. 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 activities Operating cash flow before working capital changes 29 288 860 6 449 872 Increase 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) 8 374 180 Cash generated from operations 81 553 16 827 197 Income taxes paid (4 181) (1 576 040) Net cash generated from operating activities 77 372 15 251 157 Cash flows from investing activities Payment 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) 6 368 Proceeds from disposal of property, plant and equipment 2 959 108 944 Increase in biological assets (163) (268 889) Development expenditure - (62 890) Interest received 4 527 5 166 982 Net cash used in investing activities (300 774) (6 904 805) Cash flows from financing activities Proceeds from borrowings and other financial liabilities 63 539 1 954 612 Repayments of borrowings and other financial liabilities - (3 343 748) Finance costs (1 318) (1 097 639) Proceeds from issue of shares 5 781 803 Dividends 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) 6 641 380 Cash and bank balances at the beginning of the year - 44 935 727 Net effect of exchange rate changes on cash and bank balances 2 942 039 (3 732 970) Translation of foreign entity (1 018 976) 2 554 850 Cash 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. 19. KINGDOM MEIKLES LIMITED SIGNIFICANT ACCOUNTING POLICIES 1. 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. 20. KINGDOM MEIKLES LIMITED SIGNIFICANT ACCOUNTING POLICIES 4. 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 Group's equity therein. Minority interests consist of the amount of those interests at the date of the original business combination and the minority's share of changes in equity since the date of the combination. Losses applicable to the minority in excess of the minority's interest in the subsidiary's 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 Group's 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 acquiree's 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 Group's interest in the net fair value of the identifiable assets, liabilities and contingent liabilities recognised. If, after reassessment, the Group's interest in the net fair value of the acquiree's identifiable assets, liabilities and contingent liabilities exceeds the cost of the business combination, the excess is recognised immediately in profit or loss. The interest of minority shareholders in the acquiree is initially measured at the minority's proportion of the net fair value of the assets, liabilities and contingent liabilities 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 Group's 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 Group's interest in that associate (which includes any long-term interests that, in substance, form part of the Group's 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. 21. KINGDOM MEIKLES LIMITED SIGNIFICANT ACCOUNTING POLICIES 5. Investments in associates (continued) Any excess of the cost of acquisition over the Group's 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 Group's 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 Group's 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 Group's 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 Group's interest in a jointly controlled entity is accounted for in accordance with the Group's 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 Group's 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 Group's 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 Group's 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 Group's 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. 22. KINGDOM MEIKLES LIMITED SIGNIFICANT ACCOUNTING POLICIES 8. Revenue recognition 8.1 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 Group's 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. Leasing 9.1 The Group as lessor 9.1.1 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. 23. KINGDOM MEIKLES LIMITED SIGNIFICANT ACCOUNTING POLICIES 9.1.1 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 Group's 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 entity's 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. 24. KINGDOM MEIKLES LIMITED SIGNIFICANT ACCOUNTING POLICIES 10. Foreign currencies (continued) For the purpose of presenting consolidated financial statements, the assets and liabilities of the Group's 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 Group's 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 Group's 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 Group's 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 Group's 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 acquirer's interest in the net fair value of the acquiree's 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. 25. KINGDOM MEIKLES LIMITED SIGNIFICANT ACCOUNTING POLICIES 12. 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

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