ANNUAL REPORT 2011
A n n u a l R e p o r t 2 0 1 1                                                                                           ...
A n n u a l R e p o r t 2 0 1 1                                                    CHAIRMANS STATEMENTOPERATING ENVIRONMEN...
A n n u a l R e p o r t 2 0 1 1                                                    CHAIRMANS STATEMENTUS$2.5 million (12 m...
A n n u a l R e p o r t 2 0 1 1                                                     CHAIRMANS STATEMENTTanganda continues ...
A n n u a l R e p o r t 2 0 1 1                                                   CHAIRMANS STATEMENTCHANGE IN FINANCIAL Y...
A n n u a l R e p o r t 2 0 1 1                    DIRECTORATE AND CORPORATE GOVERNANCEDIRECTORATEF. Rwodzi      •*      N...
A n n u a l R e p o r t 2 0 1 1                                                REPORT OF THE DIRECTORSYour Directors have ...
A n n u a l R e p o r t 2 0 1 1                                             REPORT OF THE DIRECTORS*EW Capital Holdings (P...
A n n u a l R e p o r t 2 0 1 1                  DIRECTORS RESPONSIBILITY AND CONCLUSIONThe Directors of the Company are r...
A n n u a l R e p o r t 2 0 1 1                            REPORT OF THE INDEPENDENT AUDITORSTO THE MEMBERS OF MEIKLES LIM...
A n n u a l R e p o r t 2 0 1 1          CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOMEFOR THE PERIOD ENDED 31 MARCH 2011 ...
A n n u a l R e p o r t 2 0 1 1                     CONSOLIDATED STATEMENT OF FINANCIAL POSITIONAS AT 31 MARCH 2011       ...
A n n u a l R e p o r t 2 0 1 1           COMPANY STATEMENT OF FINANCIAL POSITIONAS AT 31 MARCH 2011                      ...
A n n u a l R e p o r t 2 0 1 1                                    STATEMENTS OF CHANGES IN EQUITYFOR THE PERIOD ENDED 31 ...
A n n u a l R e p o r t 2 0 1 1                                    STATEMENTS OF CHANGES IN EQUITY                        ...
A n n u a l R e p o r t 2 0 1 1                           CONSOLIDATED STATEMENT OF CASH FLOWSFOR THE PERIOD ENDED 31 MARC...
A n n u a l R e p o r t 2 0 1 1                             NOTES TO THE FINANCIAL STATEMENTS1.       General information ...
A n n u a l R e p o r t 2 0 1 1                                 NOTES TO THE FINANCIAL STATEMENTSNew and revised IFRSs aff...
A n n u a l R e p o r t 2 0 1 1                              NOTES TO THE FINANCIAL STATEMENTS2.5.2 New and revised IFRSs ...
A n n u a l R e p o r t 2 0 1 1                                NOTES TO THE FINANCIAL STATEMENTSIAS 28 (revised in 2008) I...
A n n u a l R e p o r t 2 0 1 1                              NOTES TO THE FINANCIAL STATEMENTS The Directors cannot quanti...
A n n u a l R e p o r t 2 0 1 1                               NOTES TO THE FINANCIAL STATEMENTS         Goodwill is measur...
A n n u a l R e p o r t 2 0 1 1                              NOTES TO THE FINANCIAL STATEMENTS         investment (includi...
A n n u a l R e p o r t 2 0 1 1                             NOTES TO THE FINANCIAL STATEMENTS3.7      Revenue recognition3...
Meikles Limited 2011 Annual Report
Meikles Limited 2011 Annual Report
Meikles Limited 2011 Annual Report
Meikles Limited 2011 Annual Report
Meikles Limited 2011 Annual Report
Meikles Limited 2011 Annual Report
Meikles Limited 2011 Annual Report
Meikles Limited 2011 Annual Report
Meikles Limited 2011 Annual Report
Meikles Limited 2011 Annual Report
Meikles Limited 2011 Annual Report
Meikles Limited 2011 Annual Report
Meikles Limited 2011 Annual Report
Meikles Limited 2011 Annual Report
Meikles Limited 2011 Annual Report
Meikles Limited 2011 Annual Report
Meikles Limited 2011 Annual Report
Meikles Limited 2011 Annual Report
Meikles Limited 2011 Annual Report
Meikles Limited 2011 Annual Report
Meikles Limited 2011 Annual Report
Meikles Limited 2011 Annual Report
Meikles Limited 2011 Annual Report
Meikles Limited 2011 Annual Report
Meikles Limited 2011 Annual Report
Meikles Limited 2011 Annual Report
Meikles Limited 2011 Annual Report
Meikles Limited 2011 Annual Report
Meikles Limited 2011 Annual Report
Meikles Limited 2011 Annual Report
Meikles Limited 2011 Annual Report
Meikles Limited 2011 Annual Report
Meikles Limited 2011 Annual Report
Meikles Limited 2011 Annual Report
Meikles Limited 2011 Annual Report
Meikles Limited 2011 Annual Report
Meikles Limited 2011 Annual Report
Meikles Limited 2011 Annual Report
Meikles Limited 2011 Annual Report
Meikles Limited 2011 Annual Report
Meikles Limited 2011 Annual Report
Meikles Limited 2011 Annual Report
Meikles Limited 2011 Annual Report
Meikles Limited 2011 Annual Report
Meikles Limited 2011 Annual Report
Meikles Limited 2011 Annual Report
Meikles Limited 2011 Annual Report
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Meikles Limited 2011 Annual Report

  1. 1. ANNUAL REPORT 2011
  2. 2. A n n u a l R e p o r t 2 0 1 1 CONTENTSChairman’s Statement...........................................................................................................................................................2Directorate and Corporate Governance............................................................................................................................6Report of the Directors....................................................................................................................................................... 7Directors’ Responsibility and Conclusion.........................................................................................................................9Report of the Independent Auditors..................................................................................................................................10 Consolidated Statement of Comprehensive Income.....................................................................................................11Consolidated Statement of Financial Position................................................................................................................12Company Statement of Financial Position......................................................................................................................13Consolidated Statement of Changes in Equity.............................................................................................................. 14Company Statement of Changes in Equity.................................................................................................................... 15Consolidated Statement Cash Flows.................................................................................................................................16Notes to the Financial Statements.....................................................................................................................................17Key Performance Measures................................................................................................................................................63Shareholder Information....................................................................................................................................................64Group Structure....................................................................................................................................................................65Tax Issues and Share Prices................................................................................................................................................66Notice of Meeting...............................................................................................................................................................67Form of Proxy......................................................................................................................................................................68Notes to Proxy......................................................................................................................................................................69Corporate Information...................................................................................................................................................... 70 1
  3. 3. A n n u a l R e p o r t 2 0 1 1 CHAIRMANS STATEMENTOPERATING ENVIRONMENTThe economy has continued to stabilise following dollarisation in February 2009, albeit at a slow pace. Annual inflationdeclined to 2.7% in March 2011 from 3.2% in December 2010. The inflation outlook remains positive although negativechanges are to be expected due to volatilities in fuel and electricity prices and movement in exchange rates, particularly theSouth African rand against the US dollar. The liquidity situation has remained dire due to limited foreign directinvestments and multilateral support from the Breton Woods institutions and or the donor community. Borrowings havebecome the most common form of funding due to lack of liquidity and confidence in capital markets. As a result of thelow liquidity and high demand for loans, interest rates remained relatively high during the period January 2010 to 31 March2011 with negative implications on productivity and performance across all sectors of the economy.GROUP REVIEWDuring the past year, we committed to the implementation of measures required to move beyond the substantialchallenges that we experienced in 2008 and 2009.I am happy to report to shareholders that the unpleasant litigation initiated by the previous Board of Directors againstpersons and entities related to the major shareholders in the Company and against Mentor Africa Limited (“Mentor”) hasbeen settled. We have now entered a new era of cooperation with the parties to the litigation.Mentor currently holds funds on behalf of the Cape Grace Group to the equivalent value of US$ 4.5 million. Thesefunds will comprise equity in Mentor which has a thriving business in South Africa. It is anticipated that this investmentwill produce significant returns for the Group.The Board anticipates that the Groups investment in Mentor will produce significant opportunities similar to those thatthe Group achieved from its prior investment in Mvelephanda/Rebhold.The Mvelephanda shares were realised for the Meikles Group at a significant profit. This profit was utilised to dischargeobligations of the Cape Grace entities to the South African Revenue Service and Nedbank when the Cape Gracefinancing structure was unbundled, ensuring the financial survival of the Cape Grace Hotel, which was under risk at thetime.In March 2008, a put and call option agreement for the sale of the Cape Grace Hotel was entered into between MeiklesLimited (“ Company”), Cape Grace Hotel Limited (BVI) and its subsidiaries which own the Cape Grace Hotel on the onehand, and Mentor on the other. In November 2008, a notice to exercise the option for the purchase of the Meikle Groupsinterests in the Cape Grace Group was received from Mentor. This transaction has not yet been consummated as aconsequence of the litigation that was initiated by the previous Board against Mentor, which has now been withdrawn.The Cape Grace Hotel remains an asset for disposal by the Cape Grace Group to Mentor. As a result of the restorationof a positive business relationship between the Company, its major shareholders, and Mentor, it is anticipated that a dealbeneficial to the Group will be consummated with whatever adjustments may be necessary. Proceeds from the sale arealso to be invested in Mentor. This investment will be the foundation of a strong regional growth objective for the Group.In response to the litigation brought against the major shareholder entities by the Company and BVI in late 2008, themajor shareholder entities filed a substantial answering affidavit in which they put up a complete defence. The previousBoard and BVI were unable to file replying affidavits because the major shareholder entities defences were meritorious.As a result, the Company and BVI had no alternative but to withdraw the litigation against the major shareholder entities.As a consequence of the litigation initiated by the previous Board, certain provisions were made in the Group financialstatements for the year ended 31 December 2008. The outcome of the litigation has allowed a recoverable sumdenominated in South African rand to the equivalent of US$11,7 million to be reinstated in the current financials.Now that the issues with the major shareholder entities have been resolved and no further claims will be made againstthem, it is known that the principals of the Companys major shareholders will use their influence and businessconnections productively to procure investment opportunities for the Group that will provide opportunities for growth,as was planned prior to the dispute. Shareholders are once again reminded of the substantial profit arising from theMvelaphanda shareholding, and the same skills are now once again available to the Group.For the fifteen months period to 31 March 2011, the Group recorded a comprehensive income of US$ 8.0 million (12month period ended 31 December 2009: loss of $2.7 million). This outturn includes the loss on the disposal ofKingdom and Cotton Printers to the tune of US$3.8 million. The discontinued operations achieved a profit after tax of 2
  4. 4. A n n u a l R e p o r t 2 0 1 1 CHAIRMANS STATEMENTUS$2.5 million (12 month period ended 31 December 2009: a loss of US$908 000).On comparative twelve month periods, the operating companies achieved a good growth in turnover and gross margin.The Group continues to review systems, structures and processes to optimum levels. Together with the right sizing ofthe operating companies, these efforts will bear fruit in the coming year.The commentary below is based on the results for the comparable twelve month periods ended 31 March 2011 and 31March 2010.TM SUPERMARKETS (“TM”)The Company achieved an EBITDA of US$3.9 million (2010: loss of US$5.9 million). Turnover was up 42% on thecomparative period and gross margin improved by 23%. Some non performing branches were closed while newbranches were opened in more sustainable areas.The much awaited Pick n Pay deal is still to be approved by the regulatory authorities. This has seriously hindered ourability to re-capitalise TM. However, we are progressing with alternative funding which will enable us to revamp storesand will ensure adequate levels of working capital.Potential new sites have been identified for three key stores and details of these will be disclosed at the opportune time.The Kamfinsa branch is currently undergoing major refurbishment.Pick n Pay Clothing will be introduced to TM in the coming months which will enhance the range and value offered.Point of sale tills have been installed in all branches and this is now providing us with the tools to effectively managebranch performance and profitability.This subsidiary will be a major contributor to the Group going forward and both shareholders in TM are committed toensuring that the company has a strong capital base.HOTELSThe Hotels recorded an EBITDA of US$3.2 million (2010: US$2.3 million). Of this amount, US$1.5 million (2010: lossof US$400 000) was from Zimbabwe operations, while EBITDA of US$1.7 million (2010: US$2.7 million) was from theCape Grace Hotel. Occupancy levels in 2011 were 43%, 45% and 66% (2010: 30%, 29%, 57%) for Meikles Hotel, theVictoria Falls Hotel and Cape Grace Hotel respectively. Occupancies to date have shown further growth reflecting thestrong interest in Zimbabwe as both a tourist and business destination.Funding is in place for the first phase of the refurbishment of Meikles Hotel and this will begin in the next two months.Further funding is being sought for the complete refurbishment of the hotel.Scope of work for a refurbishment of the Victoria Falls Hotel has been completed and we are engaged with our partner tofinalise this project and to seek medium term to long term funding for its completion.We are actively exploring new opportunities both in Zimbabwe and in the region. The regional opportunities are beingexplored in conjunction with Mentor.TANGANDA TEA COMPANY LIMITED (“TANGANDA”)Tanganda achieved an EBITDA of US$502 000 (2010: US$1.6 million).Bulk tea production was 8 602 tonnes (2010 : 8 498 tonnes) due to reduced winter rains and late summer rains. Theproduction of bulk tea remains a challenge given high power and labour costs. To counter an inability to irrigatesufficiently due to constant power outages, we have participated in a pre-paid power arrangement with the ZimbabweElectricity Supply Authority and the result has been extremely positive.Our mineral water plant financed by PTA Bank will be commissioned in due course and production levels are expected toincrease. We continue to drive sales of beverage teas and water to the local and regional markets and the benefit of theseefforts will be felt in the coming year. We are increasing our hectarage of macadamias and are embarking on a substantialdevelopment of avocados, and this will also be included in our outgrowers programmes. Increased planting has startedand the benefits of this will be felt in the medium to long term. 3
  5. 5. A n n u a l R e p o r t 2 0 1 1 CHAIRMANS STATEMENTTanganda continues to receive approaches from interested parties, who wish to engage with us in the creation of furthergrowth opportunities. This will result in a more substantial agro industrial company. It is envisaged that the Group willintroduce additional investors in Tanganda which will facilitate substantial growth in this important entity.THOMAS MEIKLE STORESThe department stores achieved an EBITDA loss of US$15 000 (2010: loss of US$3.6 million).Turnover grew fromUS$6 million to US$17 million in 2011.Funding challenges are still prevalent but progress is being made in securing medium term lower cost finance.Non performing stores will be closed, resulting in reduced overheads and reduced finance levels required for stockholdings.We are pursuing franchise relationships with major retailers in the region to enhance our offerings.INDIGENISATIONThe Group has constructively engaged with the Ministry of Youth Development, Indigenisation and Empowerment onthe Groups indigenisation status. A proposed Employee Share Ownership Trust has been submitted to the Ministry andwe are waiting for a favourable response. Shareholders will be asked to approve this proposal at the forthcoming AnnualGeneral Meeting. The Group will as a result possess the required indigenisation status. This status has always been theGroups objective. This was the original concept following the merger with Kingdom Financial Holdings Limited.RE-CAPITALISATIONThe Board is cognisant of the fact that current levels of borrowing are greater than they should be in the medium term.The Group has engaged with numerous interested parties who have indicated a strong interest in participating in mediumto long term debt, at lesser cost, than current borrowings.The resolution of the shareholder issues and approval of our indigenisation plan by the Ministry of Youth Development,Indigenisation and Empowerment will enable us to engage actively with these parties and new more sustainable financingwill be obtained during the coming year.The Group is also to engage with potential investors at subsidiary level for the sale of equity to inject fresh capital into thebusiness and to fund expansion. We shall maintain a controlling interest in all subsidiaries. Interest has been expressed bypotential investors, now that the damage caused during 2008 and 2009 has been put behind us.We are actively engaging the Reserve Bank of Zimbabwe for the recovery of our deposit totalling US$37 million.LIQUIDATION OF COTTON PRINTERS (PRIVATE) LIMITED (“CP”)The final order for the liquidation of CP was issued on 10 May 2010. With it came the liquidation process which, for allintents and purposes, was concluded on 17 May 2011. All approved creditors were paid 100% of their dues from theproceeds of the asset disposals. At the conclusion of the liquidation, plant and equipment remained unsold. Theseassets are still available for sale to prospective investors.DE-MERGER OF KINGDOM FINANCIAL HOLDINGS LIMITED (“KFHL”)The shareholders approved the terms of the de-merger of KFHL from Meikles Limited (“Group”) on 13 October 2010.The terms included conditions precedent such as High Court approval of the reduction of KFHLs share capital byUS$22.5 million and also approval of the de-merger by the Minister of Youth Development, Indigenisation andEmpowerment. The High Court approval for the capital reduction was secured on 14 December 2010 while the approvalby the Minister of Youth Development Indigenisation and Empowerment was obtained on 11 February 2011. The de-merger through the distribution of KFHLs shares to the Companys shareholders was finalised on 18 February 2011. 4
  6. 6. A n n u a l R e p o r t 2 0 1 1 CHAIRMANS STATEMENTCHANGE IN FINANCIAL YEAR ENDAs previously announced, Meikles Limited changed its financial year end from 31 December to 31 March. Accordingly,the Group has published fifteen months results for the period to 31 March 2011.THE WAY FORWARDRecent years have presented our Group with some of the strongest challenges in our history. We are taking the actionsrequired to put Meikles in a good position to operate as a strong, expanding company and an important source of strengthin the Zimbabwean economy.Challenges remain, but we have a strong conviction that we have the right strategies in place to ensure that Meikles willnow be able to deliver superior value to all of our stakeholders on a sustained basis.We have been assured that our brand has a very strong appeal in both Zimbabwe and the region and potentialopportunities are now coming our way.We are proud of the role that our Group has played in our society, and we are determined to take the actions required toensure that Meikles is a consistent source of strength for all our stakeholders and for Zimbabwe. The past three yearshave been destructive in the initial periods and then defensive in the more recent period. We are now in a position to moveforward with real intent.APPRECIATIONThe past year was certainly eventful and challenging particularly the issues to do with the widely reported shareholderdispute. The resolution of these matters could not have been achieved without the support and guidance of theregulatory authorities, shareholders and fellow Board members. Management and staff have worked under extremelydifficult conditions and their efforts to support the Group through a difficult period are much appreciated.Our appreciation is extended to Messrs Meiring and Mills who have resigned from the Board and left the Group. We wishthem well in their future endeavours.Finally, I wish to express our special appreciation to Farai Rwodzi. Farai became a director and Chairman of theCompany at a time when the shareholder dispute was very much present with a daily impact on the Groups affairs. Faraiplayed a substantial role in moving the Group from its then restraints to the present. Farai fought very hard for us all andhis efforts in this regard will always be remembered with gratitude. He is now to focus on his own interests and we wishhim every success in this regard.J. R. T. MOXONEXECUTIVE CHAIRMAN30 June 2011 5
  7. 7. A n n u a l R e p o r t 2 0 1 1 DIRECTORATE AND CORPORATE GOVERNANCEDIRECTORATEF. Rwodzi •* Non-executive Director (resigned 15 June 2011)J.R.T. Moxon Executive - Chairman (appointed 16 June 2011)B. J. Beaumont * Group Chief Executive OfficerO. Makamba Executive Director Finance and Administration (appointed 1 February 2010)R. Chidembo •* Non-executive DirectorB. Chimhini Executive DirectorT.B. Cameron * Executive DirectorR.H. Meiring Executive Director (retired 8 April 2011)A.C. Mills Executive Director (resigned 15 June 2011)K. Ncube Non-executive DirectorM.L. Wood Executive (appointed 5 July 2010)• Member of the Audit Committee* Member of the Remuneration CommitteeThe directorate is referred to in this annual report as the “Board” and as “Directors”. “Company” refers to MeiklesLimited.CORPORATE GOVERNANCEOn page 7 the Directors have acknowledged their responsibility and conclusion on the presentation of the financialstatements.The structure of the Board and its standing committees is as follows: -The BoardAt 31 March 2011, the Board consisted of the Chairman, seven executive and two non-executive Directors, and met atleast quarterly during the period. 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 riskmanagement policies.Members will be asked to confirm the appointment of Messrs M.L. Wood and J.R.T. Moxon to the Board by ordinaryresolution at the next Annual General Meeting.Messrs B.J. Beaumont, K. Ncube and R. Chidembo retire by rotation in terms of the Articles of Association, and beingeligible, offer themselves for re-election.Mr R.H. Meiring retired from the Board effective 8 April 2011. Messrs F Rwodzi and A.C. Mills resigned from the Boardeffective 15 June 2011. Mr F. Rwodzi was chairman of the Board at the time of his resignation.SubsidiariesThe Group operates a decentralised subsidiary. Each significant subsidiary has a formal operating board with a cleardefinition of responsibility, and operates within well-defined policies. There is comprehensive financial reporting withactual results reported monthly against budget and prior year.The Audit CommitteeThe Audit Committee is chaired by Mr R. Chidembo. The Group Chief Executive Officer, the Executive DirectorFinance and Administration, internal and external auditors attend these meetings by invitation. The Audit Committeereviews the Groups interim and annual financial statements before submission to the Board for approval. Its objectivesare to ensure that the Board is advised on all matters relating to corporate governance and the creation and maintenanceof effective financial controls, as well as advising the Board and management on measures which ensure that respect forboth regulatory issues and internal financial control is demonstrated and stimulated. Accordingly, it reviews theeffectiveness of the internal audit function, its programmes and reports, and also reviews all reports from the externalauditors on accounting and internal control matters, and monitors action taken where necessary. The Audit Committeealso recommends the appointment and reviews fees of external auditors.The Remuneration CommitteeThe Remuneration Committee was reconstituted in April 2011. The terms of reference of the Remuneration Committeeare to determine the Groups policy on the remuneration of executive Directors and senior executives. 6
  8. 8. A n n u a l R e p o r t 2 0 1 1 REPORT OF THE DIRECTORSYour Directors have pleasure in presenting their report and the audited financial statements of the Group for the periodended 31 March 2011. Meikles Limited changed its financial year end from 31 December to 31 March. Accordingly, theGroup has published 15 months results for the period to 31 March 2011. The comparatives are for the 12 months ended31 December 2009.Principal activitiesThe main activities of the Group are those of agriculture, hotels and retail trading. Retail trading includes departmentstores, supermarkets and convenience stores.Kingdom Financial Holdings Limited, the banking operations, were demerged from the Group effective 31 October2010. Refer to note 14 for further details.Cotton Printers (Private) Limited, the textile manufacturing subsidiary, was liquidated during the year 2010.Assets held for saleThe Cape Grace Hotel operations in South Africa have been maintained as non-current assets held for sale. Details aredisclosed in note 14.Periods resultsThe results for the 15 months ended 31 March 2011 are set out in the attached financial statements and are commented onunder the Chairmans statement on pages 2 to 4.The Board declared a dividend in specie of two (2) KFHL shares for every share held in Meikles Limited to accomplishthe demerger of KFHL from the Group. Refer to note 31.1.Share capitalThe nominal value of the Companys shares was redenominated at the last Annual General Meeting to US$0.01 per share.Details of the authorised and issued share capital are set out in note 26 to the financial statements.Directors and their interestsThe names of the Directors of the Company during the relevant periods are set out under the Directorate and CorporateGovernance section.As provided by the Companies Act (Chapter 24:03), the Directors are bound to declare at any time during the year, inwriting, whether they have any interest in any contract of significance with the Company or any of its subsidiaries andassociates. The Goup purchased wrapping material worth US$ 1.3 million from Polyfoil Zimbabwe (Private) Limited, acompany in whichMr. B.J. Beaumont has a significant interest. No other Director confirmed having, during or at the end of the period, anymaterial interest in any contract of significance in relation to the Groups businesses. Executive Directors haveemployment contracts with the Company or its subsidiaries.The direct and indirect beneficial interests of the Directors in the shares of the Company are given in note 26 to thefinancial statements.Substantial shareholdingsAccording to information received by the Directors, the following were the only shareholders beneficially holding,directly or indirectly at 31 March 2011, in excess of 5% of the issued share capital of the Company:Shareholder No. of shares %EW Capital Holdings (Private) Limited* 25,899,448 10.56JRTM Investments (Private) Limited 21,337,915 8.70ASH Investments (Private) Limited 21,115,769 8.61FPS 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 16,423,885 6.69L.E.S Nominees (Private) Limited 12,801,157 5.22 7
  9. 9. A n n u a l R e p o r t 2 0 1 1 REPORT OF THE DIRECTORS*EW Capital Holdings (Private) Limited distributed its entire shareholding in the Company as a dividend in specie to EWCapital Holdings (Private) Limited shareholders on 13 May 2011.AuditorsMessrs. Deloitte & Touche offer themselves for re-election as auditors for the year ending 31 March 2012 andshareholders will be asked to reappoint them, and to approve their fees for the period ended 31 March 2011.J.R.T. MoxonExecutive ChairmanHarare, 30 June 2011 8
  10. 10. A n n u a l R e p o r t 2 0 1 1 DIRECTORS RESPONSIBILITY AND CONCLUSIONThe Directors of the Company are responsible for the maintenance of adequate accounting records, and the preparationof financial statements for each financial period, that give a true and fair view of the state of affairs of the Company andthe Group at the end of the financial period, and of the results and cash flows for that period. They are also required toselect appropriate accounting policies, to safeguard the assets of the Company and the Group and to make reasonable andprudent judgements and estimates. Accounting policies, which follow International Financial Reporting Standards(IFRS), have been consistently applied, where practicable. Critical judgmental areas are disclosed in note 4 to the financialstatements.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 bysuitably trained personnel with an appropriate segregation of authority and duties. Nothing has come to the attention ofthe Directors to indicate that any material breakdown in the functioning of these controls, procedures and systems hasoccurred during the period under review.The financial statements have been prepared in accordance with the accounting policies set out in the accounting policynotes.The Directors have reviewed the Groups budgets and cash flow forecasts for the year to 31 March 2012 and, in light ofthis review and the current financial position, they are satisfied that the Group has or has access to adequate resources tocontinue in operational existence for the foreseeable future. However, the Directors believe that under the currenteconomic environment a continuous assessment of the ability of the Group to continue to operate as a going concern willneed to be performed.J.R.T. Moxon B. J. BeaumontExecutive Chairman Group Chief Executive OfficerHarare, 30 June 2011 Harare, 30 June 2011 9
  11. 11. A n n u a l R e p o r t 2 0 1 1 REPORT OF THE INDEPENDENT AUDITORSTO THE MEMBERS OF MEIKLES LIMITEDREPORT ON THE FINANCIAL STATEMENTSWe have audited the accompanying Group and Company financial statements for Meikles Limited, which comprise theconsolidated and separate statements of financial position as at 31 March 2011, the consolidated statement ofcomprehensive income, the consolidated and separate statements of changes in equity and the consolidated statement ofcash flows for the fifteen month period then ended, and a summary of significant accounting policies and otherexplanatory notes set out on pages 10 to 51.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 Companies Act (Chapter 24:03) and relevant statutory instruments(SI 33/99 and SI 62/96). This responsibility includes; designing, implementing and maintaining internal controls relevantto the preparation and fair presentation of financial statements that are free from material misstatement, whether due tofraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that arereasonable 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. Those standards require that we comply with ethical requirementsand plan and perform the audit to obtain reasonable assurance whether the financial statements are free from materialmisstatement.An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financialstatements. The procedures selected depend on the auditors judgement, including the assessment of the risks of materialmisstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditorconsiders internal controls relevant to the entitys preparation and fair presentation of the financial statements in order todesign audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on theeffectiveness of the entitys internal controls. An audit also includes evaluating the appropriateness of accounting policiesused and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentationof the financial statements.We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.OpinionIn our opinion, the financial statements present fairly, in all material respects, the consolidated and separate financialposition of Meikles Limited as at 31 March 2011, and of its consolidated financial performance and its consolidated cashflows for the fifteen month period then ended in accordance with International Financial Reporting Standards.Report on other legal and regulatory requirementsIn our opinion, the financial statements have, in all material respects, been properly prepared in compliance with thedisclosure requirements of the Companies Act (Chapter 24:03) and the relevant statutory instruments (SI 33/99 and SI62/96).Deloitte & ToucheChartered Accountants (Zimbabwe)Harare30 June 2011 10
  12. 12. A n n u a l R e p o r t 2 0 1 1 CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOMEFOR THE PERIOD ENDED 31 MARCH 2011 Restated 15 months to 12 months to 31 March 2011 31 December 2009 Notes US$ US$CONTINUING OPERATIONSRevenue 5 330,437,331 148,838,120Cost of sales (257,658,238) (119,005,212)Gross profit 72,779,093 29,832,908Other trading income 7 4,177,687 2,571,464Employee costs 8 (38,544,663) (16,723,178)Occupancy costs 9 (15,941,464) (9,191,833)Other operating costs 10 (28,518,141) (16,929,922)Operating loss (6,047,488) (10,440,561)Investment revenue 11 3,592,710 695,685Finance costs 12 (7,590,331) (425,048)Net exchange (losses) / gains (228,825) 145,428Fair value adjustments 1,394,398 2,081,234Reinstatement of funds earmarked for investment 21 11,737,013 -Profit / (loss) before tax 2,857,477 (7,943,262)Income tax credit 13 793,382 5,288,669Profit / (loss) for the period from continuing operations 3,650,859 (2,654,593)Discontinued operationsProfit / (loss) for the period from discontinued operations 14 2,474,066 (908,040)PROFIT/ (LOSS) FOR THE PERIOD 6,124,925 (3,562,633)Other comprehensive incomeExchange differences on translating foreign operations 1,888,711 3,376,261Impairment of property - (1,641,125)Movement in other reserves - (903,852)Other comprehensive income for the period, net of tax 1,888,711 831,284TOTAL COMPREHENSIVE PROFIT / (LOSS)FOR THE PERIOD 8,013,636 (2,731,349)Profit / (loss) attributable to: Owners of the parent 6,687,285 (2,856,610) Non-controlling interests (562,360) (706,023) 6,124,925 (3,562,633)Total comprehensive profit / ( loss) attributable to: Owners of the parent 8,575,996 (2,025,326) Non-controlling interests (562,360) (706,023) 8,013,636 (2,731,349)Earnings / (loss) per share in cents Basic earnings / (loss) from continuing and discontinued operations 16 2.73 (1.16) Basic earnings/ (loss) from continuing operations 16 1.72 (0.79)The 2009 figures have been restated for reasons detailed in note 32. 11
  13. 13. A n n u a l R e p o r t 2 0 1 1 CONSOLIDATED STATEMENT OF FINANCIAL POSITIONAS AT 31 MARCH 2011 Unaudited Restated Restated 31 March 2011 31 December 2009 1 January 2009 Notes US$ US$ US$ASSETSNon-current assetsProperty, plant and equipment 17 84,278,008 80,530,695 94,371,296Investment property 18 44,036 72,046 394,000Biological assets 19 7,661,157 6,310,560 4,999,548Investments in associates 20 - - 1,025,929Other financial assets and investments 21 16,600,101 4,554,984 4,449,894Intangible assets - trademarks 124,141 291,363 268,573Balances with Reserve Bank of Zimbabwe 22 36,824,671 12,541,825 35,003,091Deferred tax 13 2,355,680 - -Total non-current assets 147,887,794 104,301,473 140,512,331Current assetsInventories 24 40,712,631 17,115,270 5,063,570Trade and other receivables 25 16,152,929 7,333,889 10,128,432Other financial assets 21 - 24,198 787,605Cash and bank balances 22 3,285,599 2,536,106 16,488,848 60,151,159 27,009,463 32,468,455Assets held for sale or distribution 15 41,440,281 145,438,959 31,574,908Total current assets 101,591,440 172,448,422 64,043,363Total assets 249,479,234 276,749,895 204,555,694EQUITY AND LIABILITIESCapital and reservesShare capital 26 2,453,747 1 1Non-distributable reserves 2,626,681 109,983,720 150,941,736Retained earnings / (accumulated losses) 111,204,769 (21,325,383) (19,221,260)Capital and reserves relating to assets classifiedas held for sale or distribution 15 18,083,232 51,658,125 10,621,312Equity attributable to equity holders of the parent 134,368,429 140,316,463 142,341,789Non-controlling interests 763,422 1,325,782 2,031,805Total equity 135,131,851 141,642,245 144,373,594Non-current liabilitiesBorrowings 27 3,749,569 845,173 212,184Deferred tax 13 15,996,723 15,346,508 24,318,471Total non-current liabilities 19,746,292 16,191,681 24,530,655Current liabilitiesTrade and other payables 28 30,003,922 22,888,135 5,244,016Customer deposits 29 - - 17,029,804Current tax liabilities 13 487,727 414,152 117,890Short term borrowings 27 49,031,109 6,985,213 769,330 79,522,758 30,287,500 23,161,040Liabilities relating to assets classified as heldfor sale or distribution 15 15,078,333 88,628,469 12,490,405Total current liabilities 94,601,091 118,915,969 35,651,445Total liabilities 114,347,383 135,107,650 60,182,100Total equity and liabilities 249,479,234 276,749,895 204,555,694The 2009 figures have been restated for reasons detailed in note 32.J.R.T. Moxon B. J. Beaumont30 June 2011 30 June 2011 12
  14. 14. A n n u a l R e p o r t 2 0 1 1 COMPANY STATEMENT OF FINANCIAL POSITIONAS AT 31 MARCH 2011 Unaudited 31 March 2011 31 December 2009 1 January 2009 Notes US$ US$ US$ASSETSNon-current assetsProperty, plant and equipment 17 201,197 - -Investments in subsidiaries 21 74,129,078 82,125,148 123,974,684Other financial assets 21 373,181 180,391 140,728Balances with Reserve Bank of Zimbabwe 22 36,824,671 - -Total non-current assets 111,528,127 82,305,539 124,115,412Current assetsInventories 24 8,653 - -Other receivables 25 30,431,635 8,185,398 6,365,757Cash and bank balances 22 381,817 - - 30,822,105 8,185,398 6,365,757Assets held for sale or distribution 15 11,814 34,660,464 -Total current assets 30,833,919 42,845,862 6,365,757Total assets 142,362,046 125,151,401 130,481,169EQUITY AND LIABILITIESCapital and reservesShare capital 26 2,453,747 1 1Non-distributable reserves 30,303,613 103,757,359 103,757,359Retained earnings/ (accumulated losses) 98,631,052 (6,007,023) -Total equity 131,388,412 97,750,337 103,757,360Non-current liabilitiesDeferred tax 13 2,796,179 4,106,257 4,106,257Current liabilitiesTrade and other payables 28 1,626,777 23,294,807 22,617,552Short term borrowings 27 6,550,678 - -Total liabilities 8,177,455 23,294,807 22,617,552Total equity and liabilities 142,362,046 125,151,401 130,481,169J.R.T. Moxon B. J. Beaumont30 June 2011 30 June 2011 13
  15. 15. A n n u a l R e p o r t 2 0 1 1 STATEMENTS OF CHANGES IN EQUITYFOR THE PERIOD ENDED 31 MARCH 2011 Group (Accumulated Non- losses) / Disposal Attributable Non Share distributable retained group capital to owners controlling capital reserves earnings and reserves of parent interests Total US$ US$ US$ US$ US$ US$ US$2011Balance atthe beginningof theperiod - restated 1 109,983,720 (21,325,383) 51,658,125 140,316,463 1,325,782 141,642,245Profit for the period - - 4,213,219 2,474,066 6,687,285 (562,360) 6,124,925Transfer withinreserves and ondisposal ofsubsidiaries - (109,850,773) 146,859,490 (37,008,717) - - -Other comprehensiveincome forthe period - 855,472 - 1,033,239 1,888,711 - 1,888,711Share capitalredenomination 2,453,746 (2,453,746) - - - - -Transfer in respectof assetsclassified as heldfor sale - 4,092,008 (4,018,527) (73,481) - - -Dividend inspecie (note 31) - - (14,524,030) - (14,524,030) - (14,524,030)Balance atthe endof the period 2,453,747 2,626,681 111,204,769 18,083,232 134,368,429 763,422 135,131,8512009Balance at thebeginning of theyear as previouslystated - unaudited 1 148,118,994 (19,221,260) 10,621,312 139,519,047 2,031,805 141,550,852Adjustment tonursery stocks - (502,196) - - (502,196) - (502,196)Write down ofother receivables - (152,007) - - (152,007) - (152,007)Restatementof certain plantand equipment - 3,476,945 - - 3,476,945 - 3,476,945As restated 1 150,941,736 (19,221,260) 10,621,312 142,341,789 2,031,805 144,373,594Loss for theyear - restated - - (1,948,570) (908,040) (2,856,610) (706,023) (3,562,633)Other comprehensiveincomefor the year - 773,591 - 57,693 831,284 - 831,284Transfer in respectof assetsclassified as held forsale or distribution - (41,731,607) (155,553) 41,887,160 - - -Balance at the endof the year 1 109,983,720 (21,325,383) 51,658,125 140,316,463 1,325,782 141,642,245The 2009 figures have been restated for reasons detailed in note 32. 14
  16. 16. A n n u a l R e p o r t 2 0 1 1 STATEMENTS OF CHANGES IN EQUITY Company Non distributable (Accumulated losses) / Share capital reserves retained earnings Total US$ US$ US$ US$2011Balance at thebeginning ofthe period 1 103,757,359 (6,007,023) 97,750,337Profit forthe period - - 48,162,106 48,162,106Transfer fromnon-distributablereserves - (71,000,000) 71,000,000 -Share capitalredenomination 2,453,746 (2,453,746) - -Dividend inspecie (note 31) - - (14,524,030) (14,524,030)Balance at theend of the period 2,453,747 30,303,613 98,631,053 131,388,4132009Balance at thebeginningof the year 1 103,757,359 - 103,757,360Loss for the year - - (6,007,023) (6,007,023)Balance at theend of the year 1 103,757,359 (6,007,023) 97,750,337 15
  17. 17. A n n u a l R e p o r t 2 0 1 1 CONSOLIDATED STATEMENT OF CASH FLOWSFOR THE PERIOD ENDED 31 MARCH 2011 Restated 31 March 2011 31 December 2009Continuing and discontinued operations US$ US$Cash flows from operating activitiesProfit/ (loss) before tax from continuing and discontinued operations 6,637,964 (9,511,707)Adjustments for:- Depreciation expense and impairment 5,388,114 4,457,620- Net interest 4,921,007 (1,032,285)- Dividend received (1,470,742) -- Net exchange gains 422,743 (100,972)- Loss on disposal of subsidiaries 3,842,146 -- Fair value adjustments 1,977,980 (3,146,077)- Share of profits of associates (666,038) (1,355,561)- Loss on disposal of property, plant and equipment 787,289 61,612- Reinstatement of funds earmarked for investment (11,737,013) -Operating cash flow before working capital changes 10,103,450 (10,627,370)Increase in inventories (23,641,946) (12,353,587)Increase in trade and other receivables (71,806,512) (43,259,155)Increase in trade and other payables and financial liabilities 56,277,836 72,455,998Cash (used in) / generated from operations (29,067,172) 6,215,886Income taxes paid (2,019,495) (168,610)Net cash (used in) / generated from operating activities (31,086,667) 6,047,276Cash flows from investing activitiesPayment for property, plant and equipment (11,439,443) (5,386,464)Proceeds from disposal of property, plant and equipment 1,788,716 118,247Net movement in service assets (65,325) (51,632)Dividends received 1,470,742 454,768(Payment for) / proceeds from sale of investments (151,620) 378,067Expenditure on biological assets (205,636) (229,973)Net outflow on disposal of subsidiary (16,433,887)- Development expenditure - (22,783)Investment income 249,853 31,496Net cash used in investing activities (24,786,600) (4,708,274)Cash flows from financing activitiesProceeds from interest bearing borrowings 44,017,194 7,767,865Finance costs (7,600,557) (771,776)Net cash generated from financing activities 36,416,637 6,996,089Net (decrease) / increase in cash and bank balances (19,456,630) 8,335,091Cash and bank balances at the beginning of the period 25,508,890 16,556,006Net effect of exchange rate changes on cash and bank balances (436,011) 71,992Translation of foreign entity (831,723) 545,801Cash and bank balances at the end of the period (note 22) 4,784,526 25,508,890The 2009 figures have been restated for reasons detailed in note 32. 16
  18. 18. A n n u a l R e p o r t 2 0 1 1 NOTES TO THE FINANCIAL STATEMENTS1. General information Meikles Limited, formerly Kingdom Meikles Limited (the "Company"), is a limited company incorporated in Zimbabwe and is listed on the Zimbabwe and London Stock Exchanges. The address of the Companys registered office and principal place of business are disclosed on page 59. The principal activities of the Company and its subsidiaries (the Group) are described in note 21.2. The Group changed its year-end from 31 December to 31 March. As a result, these financial statements are for a 15 month period while the comparatives are for a 12 month period. The financial statements are presented in United States of America dollars (US$).2. Basis of preparation The Groups financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS). The financial statements are prepared from statutory records that are maintained under the historical cost convention as modified by the revaluation of property, plant, equipment, biological assets and financial instruments which are measured at fair value in the opening statement of financial position.2.1 Transition to IFRS The Group is resuming presentation of IFRS financial statements after the Group issued financial statements in the prior reporting period ended 31 December 2009 which could not include an explicit and unreserved statement of compliance with IFRS due to the effects of severe hyperinflation. As discussed in note 2.5, the Group has early adopted the amendments to IFRS 1 and is therefore applying that standard in returning to compliance with IFRSs. The Groups functional currency for the period before 1 January 2009, the Zimbabwe dollar (ZW$) was subject to severe hyperinflation because it had both the following characteristics: • a reliable general price index was not available to all entities with transactions and balances in ZW$ because the Zimbabwe Central Statistical office did not release the consumer price indices from 1 August 2008, while the existence of market distortions made measurement of inflation by alternative means unreliable; and • exchangeability between the ZW$ and a relatively stable foreign currency did not exist. The Groups functional currency ceased to be subject to severe hyperinflation from 1 January 2009 when the Group changed its functional currency from ZW$ to US$.2.2 Exemption for fair value as deemed cost The Group elected to measure certain items of property, plant and equipment, biological assets, bank balances and cash, inventories, other financial assets, other financial liabilities and trade and other payables at fair value and to use the fair values as the deemed cost of those assets and liabilities in the opening statement of financial position as at 1 January 2009.2.3 Comparative financial information The financial statements comprise three statements of financial position, and two statements of comprehensive income, two statements of changes in equity and two statements of cash flows as a result of the retrospective application of the amendments to IFRS 1. The comparative statements of comprehensive income, changes in equity and cash flows are for twelve months.2.4 Reconciliation to previous basis of preparation The Groups financial statements for the prior period ended 31 December 2009 claimed compliance with IFRS, except certain of the requirements of IAS 1 Presentation of Financial Statements, IAS 21 The Effects of Changes in Foreign Exchange Rates, and IAS 29 Financial Reporting in Hyperinflationary Economies. Certain prior year errors were identified during the period and a reconciliation of the amounts previously stated in the 31 December 2009 financial statements and the comparative amounts as presented in this report is given in note 32.2.5 Application of new and revised International Financial Reporting Standards (IFRSs)2.5.1 New and revised IFRSs affecting amounts reported in the current period and/or prior years The following new and revised IFRSs have been applied in the current period and have affected the amounts reported in these financial statements. Details of other new and revised IFRSs applied in these financial statements that have had no material effect on the financial statements are set out in section 2.5.2. 17
  19. 19. A n n u a l R e p o r t 2 0 1 1 NOTES TO THE FINANCIAL STATEMENTSNew and revised IFRSs affecting presentation and disclosure onlyAmendments to IFRS 1 First-time Adoption The Group decided to early adopt the Amendments to IFRS1 - Severeof International Financial Reporting Standards - hyperinflation and removal of fixed dates for first time adopters, as well as theAdditional Exemptions for First-time Adopters related consequential amendments to other IFRSs, because the amendment provides an additional exemption within IFRS 1 for the entities which were subject to severe hyperinflation. Refer to note 2.1 where the transition to IFRS is discussed in more detail. The amendments to IFRS 1 provide first time adopters with the same transition provisions as included in the amendments to IFRS 7. The amendment is effective for annual periods beginning on or after 1 July 2010 with early adoption permitted.Amendments to IFRS 5 Non-current Assets The amendments to IFRS 5 clarify that the disclosure requirements inHeld for Sale and Discontinued Operations (as IFRSs other than IFRS 5 do not apply to non-current assets (or disposalpart of Improvements to IFRSs issued in 2009) groups) classified as held for sale or discontinued operations unless those IFRSs require (i) specific disclosures in respect of non-current assets (or disposal groups) classified as held for sale or discontinued operations, or (ii) disclosures about measurement of assets and liabilities within a disposal group that are not within the scope of the measurement requirement of IFRS 5 and the disclosures are not already provided in the consolidated financial statements. Disclosures in these consolidated financial statements reflect the above clarification.Amendments to IAS 7 Statement of Cash The amendments to IAS 7 specify that only expenditures that result in aFlows (as part of Improvements to IFRSs issued recognised asset in the statement of financial position can be classifiedin 2009) as investing activities in the statement of cash flows. The application of the amendments to IAS 7 has resulted in a change in the presentation of cash outflows in respect of development costs that do not meet the criteria in IAS 38 Intangible Assets for capitalisation as part of an internally generated intangible asset. This change has had no impact on current and prior years disclosures.Amendments to IFRS 7 Financial Instruments: The amendments to IFRS 7 clarify the required level of disclosuresDisclosures (as part of Improvements to IFRSs about credit risk and collateral held and provide relief from disclosuresissued in 2010) previously required regarding renegotiated loans. The Group has applied the amendments in advance of their effective date (annual periods beginning on or after 1 January 2011). The amendments have been applied retrospectively.Amendments to IAS 1 Presentation of The amendments to IAS 1 clarify that an entity may choose to presentFinancial Statements (as part of Improvements to the required analysis of items of other comprehensive income either inIFRSs issued in 2010) the statement of changes in equity or in the notes to the financial statements. The Group has applied the amendments in advance of their effective date (annual periods beginning on or after 1 January 2011). The amendments have been applied retrospectively.New and revised IFRSs affecting the reported financial performance and/or financial positionIFRIC 17 Distributions of Non-cash Assets to The Interpretation provides guidance on the appropriate accountingOwners treatment when an entity distributes assets other than cash as dividends to its shareholders. The guidance was applied to the dividend in specie distributed to shareholders on the demerger of Kingdom Financial Holdings Limited. Details are disclosed in note 31. 18
  20. 20. A n n u a l R e p o r t 2 0 1 1 NOTES TO THE FINANCIAL STATEMENTS2.5.2 New and revised IFRSs applied with no material effect on the consolidated financial statementsThe following new and revised IFRSs have also been adopted in these consolidated financial statements. Theapplication of these new and revised IFRSs has not had any material impact on the amounts reported for the currentand prior periods but may affect the accounting for future transactions or arrangements.Amendments to IFRS 2 Share-based Payment The amendments clarify the scope of IFRS 2, as well as the accounting- Group Cash-settled Share-based Payment for group cash-settled share-based payment transactions in the separateTransactions (or individual) financial statements of an entity receiving the goods or services when another group entity or shareholder has the obligation to settle the award.Amendments to IFRS 3 (revised 2008) The amendmentsBusiness Combinations • allow a choice on a transaction-by-transaction basis for the measurement of non-controlling interests at the date of acquisition (previously referred to as minority interests) either at fair value or at the non-controlling interests share of recognised identifiable net assets of the acquiree. • change the recognition and subsequent accounting requirements for contingent consideration. • require the recognition of a settlement gain or loss when the business combination in effect settles a pre-existing relationship between the Group and the acquiree. • require acquisition-related costs to be accounted for separately from the business combination, generally leading to those costs being recognised as an expense in profit or loss as incurred.Amendments to IFRS 5 Non-current Assets The amendments clarify that all the assets and liabilities of a subsidiaryHeld for Sale and Discontinued Operations (as should be classified as held for sale when the Group is committed to apart of Improvements to IFRSs issued in 2008) sale plan involving loss of control of that subsidiary, regardless of whether the Group will retain a non-controlling interest in the subsidiary after the sale.Amendments to IAS 1 Presentation of The amendments to IAS 1 clarify that the potential settlement of aFinancial Statements (as part of Improvements liability by the issue of equity is not relevant to its classification asto IFRSs issued in 2009) current or noncurrent. This amendment has had no effect on the amounts reported because the Group has not issued instruments of this nature.Amendments to IAS 27 (revised 2008) The amendments clarify that changes in ownership interests inConsolidated and Separate Financial Statements subsidiaries that do not result in loss of control should be dealt with in equity, with no impact on goodwill or profit or loss. Where control is lost the Group derecognises all assets, liabilities and non-controlling interests at their carrying amounts and recognises the fair value of the consideration received. Any retained interest in the former subsidiary is recognised at its fair value at the date control is lost and the resultant difference is recognised as a gain or loss in profit or loss. When control of a subsidiary is lost as a result of a transaction, event or other circumstance, the revised Standard requires the Group to derecognise all assets, liabilities and non-controlling interests at their carrying amount and to recognise the fair value of the consideration received. Any retained interest in the former subsidiary is recognised at its fair value at the date control is lost. The resulting difference is recognised as a gain or loss in profit or loss. These changes in accounting policies have been applied prospectively from 1 January 2010 in accordance with the relevant transitional provisions. 19
  21. 21. A n n u a l R e p o r t 2 0 1 1 NOTES TO THE FINANCIAL STATEMENTSIAS 28 (revised in 2008) Investments in The principle adopted under IAS 27 (revised 2008) (see above) that aAssociates loss of control is recognised as a disposal and re-acquisition of any retained interest at fair value is extended by consequential amendments to IAS 28. Therefore, when significant influence over an associate is lost, the investor measures any investment retained in the former associate at fair value, with any consequential gain or loss recognised in profit or loss. As part of Improvements to IFRSs issued in 2010, IAS 28(2008) has been amended to clarify that the amendments to IAS 28 regarding transactions where the investor loses significant influence over an associate should be applied prospectively.Amendments to IAS 39 Financial Instruments: The amendments provide clarification on two aspects of hedgeRecognition and Measurement - Eligible Hedged accounting: identifying inflation as a hedged risk or portion, or hedgingItems with options.IFRIC 18 Transfers of Assets from Customers The Interpretation addresses the accounting by recipients for transfers of property, plant and equipment from customers and concludes that when the item of property, plant and equipment transferred meets the definition of an asset from the perspective of the recipient, the recipient should recognise the asset at its fair value on the date of the transfer, with the credit being recognised as revenue in accordance with IAS 18 Revenue.Improvements to IFRSs issued in 2009 Except for the amendments to IFRS 5, IAS 1 and IAS 7 described earlier in section 2.1, the application of Improvements to IFRSs issued in 2009 has not had any material effect on amounts reported in the consolidated financial statements.2.5.3 New and revised IFRSs in issue but not yet effectiveThe Group has not applied the following new and revised IFRSs that have been issued but are not yet effective:Amendments to IFRS 7 Disclosures - Transfers of Financial Assets - effective for annual periods beginning on or after 1 July 2011.IFRS 9 (as amended in 2010) Effective for annual periods beginning on or after 1 January 2013.Financial InstrumentsIAS 24 Related Party Disclosures (as revised in Effective for annual periods beginning on or after 1 January 2013.2009)Amendments to IAS 32 Classification of Rights Issues - effective for annual periods beginning on or after 1 February 2010.Amendments to IFRIC 14 Prepayments of a Minimum Funding Requirements- effective for annual periods beginning on or after 1 January 2011.IFRIC 19 Extinguishing Financial Liabilities with Equity Instruments- effective for annual periods beginning on or after 1 July 2010.Improvements to IFRSs issued in 2010 Except for the amendments to IFRS 3(2008), IFRS 7, IAS 1 and IAS 28 described earlier in section 2.5 - effective for annual periods beginning on or after 1 July 2010 and 1 January 2011, as appropriate. 20
  22. 22. A n n u a l R e p o r t 2 0 1 1 NOTES TO THE FINANCIAL STATEMENTS The Directors cannot quantify the impact that the adoption of these standards and interpretations in future periods will have on the financial statements of the Group.3. Significant accounting policies3.1 Basis of consolidation The consolidated financial statements incorporate the financial statements of the Company and entities controlled by the Company (its subsidiaries). Control is achieved where the Company has the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. Income and expenses of subsidiaries acquired or disposed of during the year are included in the consolidated statement of comprehensive income from the effective date of acquisition and up to the effective date of disposal, as appropriate. Total comprehensive income of subsidiaries is attributed to the owners of the Company and to the non-controlling interests even if this results in the non-controlling interests having a deficit balance. 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, balances, income and expenses are eliminated in full on consolidation. Changes in the Groups interest in a subsidiary that do not result in a loss of control are accounted for as equity transactions. The carrying amounts of the Groups interests and the non-controlling interests are adjusted to reflect the changes in their relative interests in the subsidiary. Any difference between the amount by which the non-controlling interests are adjusted and the fair value of the consideration paid or received is recognised directly in equity and attributed to owners of the Company. When the Group loses control of a subsidiary, the profit or loss on disposal is calculated as the difference between (i) the aggregate of the fair value of the consideration received and the fair value of any retained interest and (ii) the previous carrying amount of the assets (including goodwill), and liabilities of the subsidiary and any non-controlling interests. When assets of the subsidiary are carried at revalued amounts or fair values and the related cumulative gain or loss has been recognised in other comprehensive income and accumulated in equity, the amounts previously recognised in other comprehensive income and accumulated in equity are accounted for as if the Company had directly disposed of the relevant assets (i.e. reclassified to profit or loss or transferred directly to retained earnings as specified by applicable IFRSs). The fair value of any investment retained in the former subsidiary at the date when control is lost is regarded as the fair value on initial recognition for subsequent accounting under IAS 39 Financial Instruments: Recognition and Measurement or, when applicable, the cost on initial recognition of an investment in an associate or a jointly controlled entity.3.2 Business combinations Acquisitions of businesses are accounted for using the acquisition method. The consideration transferred in a business combination is measured at fair value, which is calculated as the sum of the acquisition-date fair values of the assets transferred by the Group, liabilities incurred by the Group to the former owners of the acquiree and the equity interests issued by the Group in exchange for control of the acquiree. Acquisition-related costs are generally recognised in profit or loss as incurred. At the acquisition date, the identifiable assets acquired and the liabilities assumed are recognised at their fair value at the acquisition date, except that: • deferred tax assets or liabilities and liabilities or assets related to employee benefit arrangements are recognised and measured in accordance with IAS 12 Income Taxes and IAS 19 Employee Benefits respectively; • liabilities or equity instruments related to share-based payment arrangements of the acquiree or share-based payment arrangements of the Group entered into to replace share-based payment arrangements of the acquiree are measured in accordance with IFRS 2 Share-based Payment at the acquisition date; and • 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 are measured in accordance with that Standard. 21
  23. 23. A n n u a l R e p o r t 2 0 1 1 NOTES TO THE FINANCIAL STATEMENTS Goodwill is measured as the excess of the sum of the consideration transferred, the amount of any non- controlling interests in the acquiree, and the fair value of the acquirers previously held equity interest in the acquiree (if any) over the net of the acquisition-date amounts of the identifiable assets acquired and the liabilities assumed. If, after reassessment, the net of the acquisition-date amounts of the identifiable assets acquired and liabilities assumed exceeds the sum of the consideration transferred, the amount of any non- controlling interests in the acquiree and the fair value of the acquirers previously held interest in the acquiree (if any), the excess is recognised immediately in profit or loss as a bargain purchase gain. Non-controlling interests that are present ownership interests and entitle their holders to a proportionate share of the entitys net assets in the event of liquidation may be initially measured either at fair value or at the non- controlling interests proportionate share of the recognised amounts of the acquirees identifiable net assets. The choice of measurement basis is made on a transaction-by-transaction basis. Other types of non- controlling interests are measured at fair value or, when applicable, on the basis specified in another IFRS.3.3 Goodwill Goodwill arising on an acquisition of a business is carried at cost as established at the date of acquisition of the business (see 3.2 above) less accumulated impairment losses, if any. For the purposes of impairment testing, goodwill is allocated to each of the Groups cash-generating units (or groups of cash-generating units) that is expected to benefit from the synergies of the combination. A cash-generating unit to which goodwill has been allocated is tested for impairment annually, or more frequently when there is indication that the unit may be impaired. If the recoverable amount of the cash- generating unit is less than its carrying amount, 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 based on the carrying amount of each asset in the unit. Any impairment loss for goodwill is recognised directly in profit or loss in the consolidated statement of comprehensive income. An impairment loss recognised for goodwill is not reversed in subsequent periods. On disposal of the relevant cash-generating unit, 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 at 3.4 below.3.4 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 and assets and liabilities of associates are incorporated in these consolidated 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 in accordance with IFRS 5 Non-current Assets Held for Sale and Discontinued Operations. Under the equity method, an investment in an associate is initially recognised in the consolidated statement of financial position at cost and adjusted thereafter to recognise the Groups share of the profit or loss and other comprehensive income of the associate. When the Groups share of losses of an associate exceeds 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), the Group discontinues recognising its share of further losses. Additional losses are recognised only to the extent that the Group has incurred legal or constructive obligations or made payments on behalf of the associate. 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 an associate recognised at the date of acquisition is recognised as goodwill, which is included within the carrying amount 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 profit or loss. The requirements of IAS 39 are applied to determine whether it is necessary to recognise any impairment loss with respect to the Groups investment in an associate. When necessary, the entire carrying amount of the 22
  24. 24. A n n u a l R e p o r t 2 0 1 1 NOTES TO THE FINANCIAL STATEMENTS investment (including goodwill) is tested for impairment in accordance with IAS 36 Impairment of Assets as a single asset by comparing its recoverable amount (higher of value in use and fair value less costs to sell) with its carrying amount. Any impairment loss recognised forms part of the carrying amount of the investment. Any reversal of that impairment loss is recognised in accordance with IAS 36 to the extent that the recoverable amount of the investment subsequently increases. When a group entity transacts with its associate, profits and losses resulting from the transactions with the associate are recognised in the Group consolidated financial statements only to the extent of interests in the associate that are not related to the Group.3.5 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 (i.e. when the strategic financial and operating policy decisions relating to the activities of the joint venture require the unanimous consent of the parties sharing control). When a group entity undertakes its activities under joint venture arrangements directly, the Groups share of jointly controlled assets and any liabilities incurred jointly with other venturers are recognised in the financial statements of the relevant entity and classified according to their nature. Liabilities and expenses incurred directly in respect of interests in jointly controlled assets are accounted for on an accrual basis. Income from the sale or use of the Groups share of the output of jointly controlled assets, and its share of joint venture expenses, are recognised when it is probable that the economic benefits associated with the transactions will flow to/from the Group and their amount can be measured reliably. 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 in accordance with 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 is 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 in a business combination (see 3.2 and 3.3 above). When a group entity transacts with its jointly controlled entity, profits and losses resulting from the transactions with the jointly controlled entity are recognised in the Group consolidated financial statements only to the extent of interests in the jointly controlled entity that are not related to the Group.3.6 Non-current assets held for sale or distribution Non-current assets and disposal groups are classified as held for sale if their carrying amount will be recovered principally through a sale or distribution transaction rather than through continuing use. This condition is regarded as met only when the sale is highly probable and the non-current asset (or disposal group) is available for immediate sale in its present condition. Management must be committed to the sale, which should be expected to qualify for recognition as a completed sale within one year from the date of classification. When the Group is committed to a sale plan involving loss of control of a subsidiary, all of the assets and liabilities of that subsidiary are classified as held for sale when the criteria described above are met, regardless of whether the Group will retain a non-controlling interest in its former subsidiary after the sale. Non-current assets (and disposal groups) classified as held for sale are measured at the lower of their previous carrying amount and fair value less costs to sell or distribute. 23
  25. 25. A n n u a l R e p o r t 2 0 1 1 NOTES TO THE FINANCIAL STATEMENTS3.7 Revenue recognition3.7.1 Sale of goods and services provided Revenue is measured at the fair value of the consideration received or receivable. The revenue is reduced for estimated customer returns, rebates and other similar allowances. 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 Group; and • the costs incurred or to be incurred in respect of the transaction can be measured reliably. Specifically, revenue from the sale of goods is recognised when goods are delivered and legal title is passed.3.7.2 Dividend and interest income Dividend from investments is recognised when the shareholders right to receive payment has been established, provided that it is probable that the economic benefits will flow to the Group and the amount of income can be measured reliably. Interest income from a financial asset is recognised when it is probable that the economic benefits will flow to the Group and the amount of income can be measured reliably. Interest income is accrued on a time basis, by reference to the principal outstanding and at the effective interest rate applicable, which is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset to that assets net carrying amount on initial recognition.3.7.3 Rental income The Groups policy for recognition of revenue from operating leases is described in policy note 3.8.1.3.8. Leasing Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee. All other leases are classified as operating leases.3.8.1 The Group as lessor Amounts due from lessees under finance leases are recognised as receivables at the amount of the Groups net investment in the leases. Finance lease income is allocated to accounting periods so as to reflect a constant periodic rate of return on the Groups net investment outstanding in respect of the leases. Rental income from operating leases is recognised on a straight-line basis over the term of the relevant lease. Initial direct costs incurred in negotiating and arranging an operating lease are added to the carrying amount of the leased asset and recognised on a straight-line basis over the lease term.3.8.2 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 statement of financial position as a finance lease obligation. Lease payments are apportioned between finance expenses and reduction of the lease obligation so as to achieve a constant rate of interest on the remaining balance of the liability. Finance expenses are recognised immediately in 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 3.10 below). 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. 24

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