OK Zimbabwe 2008 annual report


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OK Zimbabwe 2008 annual report

  2. 2. CORPORATE INFORMATION REGISTERED OFFICE OK House 7 Ramon Road Graniteside P.O. Box 3081 Harare Zimbabwe Telephone: 263 4 757311/9 Telefax: 263 4 757028/39 AUDITORS Deloitte & Touche Chartered Accountants (Zimbabwe) Kenilworth Gardens 1 Kenilworth Road Newlands P.O. Box 267 Harare Zimbabwe BANKERS Standard Chartered Bank Zimbabwe Limited Africa Unity Square Branch2 Corner Nelson Mandela Avenue/Sam Nujoma Street P.O. Box 2472 Harare Zimbabwe LAWYERS Wintertons Beverley Corner Corner Third Street/Selous Avenue P.O. Box 452 Harare Zimbabwe TRANSFER SECRETARIES Corpserve (Private) Limited 2nd Floor Intermarket Centre Corner First Street/Kwame Nkrumah Avenue P.O. Box 2208 Harare Zimbabwe
  3. 3. DIRECTORATE AND MANAGEMENT BOARD OF DIRECTORS Chairman M.E. Kahari Chief Executive Officer V.W. Zireva * Chief Operating Officer A.R. Katsande * Finance Director A.E. Siyavora * F. T. Kembo D.B. Lake M.T. Rukuni (Mrs.) M. Tapera (appointed 1 April 2008) *Executive Company Secretary C. Boriwondo AUDIT COMMITTEE Chairperson M.T. Rukuni (Mrs.) F. T. Kembo M. Tapera (appointed 1 April 2008) V.W. Zireva Secretary C. Boriwondo REMUNERATION COMMITTEE Chairman D.B. Lake M.E. Kahari 3 V.W. Zireva Secretary C. Boriwondo MANAGEMENT COMMITTEE Chief Executive Officer V.W. Zireva Chief Operating Officer A.R. Katsande Finance Director A.E. Siyavora Human Resources Executive M.Z. Chimbghandah Procurement Executive M.R. Chingaira Business Information Executive J. Madondo Operations Executive A. Munodawafa
  4. 4. ORGANISATIONAL VISION CORE VALUES Discipline, honesty and integrity We believe in discipline, honesty and integrity. Our actions will, at all times be ethical and fair. These principles, which are fundamental to everything we do, will be consistently applied and will not be compromised. Respect for the individual We believe in, and have respect for the individual, be he/she an employee, a customer, a supplier, a shareholder or any other stakeholder. Teamwork We believe that our goals will be achieved best through teamwork. We will always think “we” and not “I”. Quality service We have pride in the quality of our service and are committed to excellence of quality in product and service. Continuous improvement We believe in the principle of continuous improvement and with this we embrace total quality management, facility improvement and technological advancement. We encourage ingenuity and innovation and above all we promote the development of our staff. Good corporate citizenship We are fully cognisant of our responsibility to society and, through our contributions, sponsorships, environmental concern and other such practices, will always be a good corporate citizen. VISION STATEMENT OK will be the dominant retailer in Zimbabwe. OK will register presence in the region. We aim to achieve real growth in turnover and profitability. We will benchmark with world class retailers to set the standards for quality retailing.4 We will strive to retain and grow our customer base through the provision of satisfying shopping experiences. MISSION STATEMENT Our business is general retailing, providing quality merchandise and service while offering value for money to our customers in all market segments in Zimbabwe. We are committed to the development and welfare of our employees. We will achieve an optimum return on investment. We will strive to build long-term relationships with our suppliers and the community.
  5. 5. BOARD OF DIRECTORS M.E. Kahari V.W. Zireva Chairman Chief Executive Officer A.R. Katsande A.E. Siyavora Chief Operating Officer Finance Director F.T. Kembo D.B. Lake 5 Director Director M.T. Rukuni (Mrs) Director M. Tapera Director
  6. 6. FINANCIAL HIGHLIGHTS Inflation adjusted Historical 2008 2007 2008 2007 $m $m $m $m SUMMARY Revenue 3,241,392,661 2,536,235,089 211,943,382 219,403 Cash value added 125,807,111 396,349,935 49,255,870 66,115 EBITDA (928,361,540) (83,546,411) 25,511,526 34,506 (Loss)/income before taxation (286,846,609) 171,976,152 27,491,158 41,230 (Loss)/profit for the year (177,868,136) 130,524,275 20,477,192 30,948 Headline (loss)/earnings (88,059,446) 128,865,785 18,469,830 30,576 Total assets 545,617,126 1,022,323,933 506,690,909 227,795 Market capitalisation 398,869,548 1,488,366,349 398,869,548 356 SHARE PERFORMANCE (DOLLARS) Earnings per share - attributable (loss)/earnings basis (251.28) 183.76 28.93 0.04 - headline (loss)/earnings basis (124.41) 181.43 26.09 0.04 Net cash flow per share (158.85) 121.85 28.88 0.04 Dividend per share - 105.11 - 0.02 Net asset value per share 628.48 989.96 573.49 0.21 Cash value added per share 177.73 558.01 69.59 0.09 Market price per share 560.00 100.00 560.00 100.00 RATIOS Return on equity (%) (56.52) 25.30 5.04 20.406
  7. 7. CHAIRMAN’S STATEMENT to be poor due to the excessiveOVERVIEW rains followed by a long dry spell. The country will need to importIntroduction food to supplement localEconomic decline persisted throughout the reporting period. production, thus exacerbating theManufacturers and other suppliers operated below capacity foreign currency shortages.owing to the shortage of foreign currency for the importation However, the First Quarterof raw materials, fuel, maintenance spares, finished goods Monetary Policy Statementand other inputs. Imported products landed at high prices forecasts an improvement in thebecause of the depreciation of the local currency. The low economy, underpinned bycapacity utilisation and the high cost of imports compounded measures to boost production,the already acute inflationary situation and the resultant remove distortions in the pricinghyperinflation eroded consumer disposable incomes even and allocation of foreign currency, among other measures.further. The June 2007 compulsory price cuts resulted in theCompany losing 50% of the value of its stock then. Efforts to manage the company profitably will continueUnfortunately the lost stock could not be replaced using despite the adverse conditions prevailing in all businessborrowings at market rates. However, towards the end of the sectors. Although stringent cost control measures have been3rd Quarter your company benefited from the low cost of put in place, it has been extremely difficult to contain costsfunding from the Reserve Bank of Zimbabwe (BACOSSI) to but these will be reviewed and reinforced from time to time.the value of $3.8 trillion which assisted with restocking. The The Total Quality Management programme will continue todifficulties outlined above had a negative impact on the be at the heart of our operations, augmented by the in-houseperformance of the Company. training programmes and succession planning. Capital expenditure has been reduced to a minimum and the budgetCOMPANY PERFORMANCE has been set at $72.8 trillion for the coming financial year. One new store is scheduled to be opened outside Harare· Inflation adjusted during the year while work on a new world class store inUnder the inflation adjusted accounts, the Company posted Masvingo will start in the new financial year.an operating loss of $957.3 trillion, compared to a loss of$97.6 trillion in the prior year. This outcome reflects the STAFFimpact of hyperinflation on profit margins when inflation The company enjoyed cordial industrial relations throughoutindices are applied to restate the historical cost of trading this difficult reporting period and will continue with efforts tostocks and cost of sales. The Company incurred a loss for the maintain them. In response to the reduced businessyear of $177.9 trillion. volumes, a staff rationalization program was implemented, resulting in a 25.5% reduction when contract employees· Historical cost were not re-engaged. However, there are no plans at thisRevenue generated grew by 96 500% to $211.9 trillion upfrom $219.4 billion achieved in the previous year. Operating stage to retrench workers. 7income grew by 73 964% while the increase in overheads by TRADING UPDATE125 504% was higher than the growth in revenue. Revenue to August 2008 was 27% below forecast. ThisComparatively, financing income improved by only 29 251% performance is a reflection of product supply constraints thatand this contributed to the growth of net income by just 66 the economy is currently facing.064% to $20.5 trillion. DIRECTORATECapital expenditure was $780 billion compared to $5.6 billion I welcome Mr. Michael Tapera who joined the Board as Non-last year. The main areas of expenditure were replacement of Executive Director and Member of the Audit Committee on 1equipment ($302 billion), store refurbishment ($274 billion), April 2008.store expansion ($178 billion) and new equipment ($26billion). Our Masvingo shop was destroyed by fire in early APPRECIATIONOctober 2007 and the Company converted the adjacent I wish to thank our customers for their continued patronagewarehouse into a smaller store at a total cost of $80 billion. and our supplier partners for their valued support. I also wishThis store started operations in December 2007. to thank management and staff for their contribution during the year just ended. My gratitude also goes to my colleaguesDIVIDEND on the Board for their continued support and guidance and toGiven the reduced operational capacity and working capital our shareholders and other stakeholders for their valuedconstraints, the directors have deemed it prudent not to support.declare a final dividend for the year under review.OUTLOOKThe economic difficulties currently obtaining are expected tocontinue for the foreseeable future. Manufacturers and othersuppliers of commodities are expected to continue operatingbelow capacity and this will lead to continued product M. E. KAHARIshortages. CHAIRMAN 5 September 2008The harvest from the current agricultural season is projected
  8. 8. CHIEF EXECUTIVE’S REPORT INTRODUCTION The Company continued to closely The continuing decline in the macro-economic environment manage the risk of stock losses posed serious difficulties for both businesses and through shrinkage. However, in consumers. Manufacturers experienced acute shortages of line with prudence, management foreign currency for the importation of critical production continues to provide as necessary inputs, leading to declining output and productivity. Because in this area. of the shortage of foreign currency businesses could not import adequate product lines to augment the low local supply of goods occasioned by the poor agricultural season HUMAN RESOURCES and low manufacturing output. Faced with high financing The Company registered a costs and the need to protect value, all suppliers reduced reduction in manning levels of credit terms even further. Consumers’ disposable incomes 25.5% as a result of a manpower rationalization exercise in were continually eroded by the incessant increase in the response to the declining business volumes. prices of goods and services. Companies increasingly faced demands for higher wages and salaries as a result of The continued regular communication through monthly pressure from the high cost of transport, health services, liaison and quarterly national works council meetings medicines, accommodation, electricity and rates. promoted industrial calm that sustained harmonious management and employee relations. Weekly and monthly INFLATION ADJUSTED FINANCIAL STATEMENTS business review meetings by units facilitated the process of The Company recognises and endorses the need to comply ensuring that staff were fully aware of the challenges facing with all International Accounting Standards and therefore the business and what strategies were being taken to sustain has presented inflation adjusted financial statements for the organisation. consideration and approval by shareholders. As part of the Companys staff wellness strategy, the HIV & HISTORICAL FINANCIAL RESULTS Aids Programme Officer and the Industrial Nursing Sister Revenue growth of 96 500% year on year was recorded, undertook a comprehensive staff Adherence Counselling while operating profit grew by 73 964%. The 125,504% programme which covered all the 54 branches and Head increase in overheads was ahead of sales growth. Office units. This entailed the counseling of individuals and Attributable and headline earnings per share were $28 groups to ensure that people on treatment for chronic and 929.25 and $26 093.34, up from $43.57 and $43.05 non - chronic health conditions observed and adhered to respectively in the prior year. their respective medication, treatment and diet regimes. This programme has now cascaded to the individual level for Other notable performance statistics for the year were: people with specific serious conditions. 2008 2007 The demand for the Company’s preventive and curative8 Gross margin 29.18% 33.06% health delivery services rose sharply during the period under Overheads to sales 19.19% 17.73% review as more staff members and their families saw it as a Operating profit to sales 12.20% 16.21% viable option to the severely challenged national health Stock turn (times) 9.83 7.99 delivery system. Current ratio 1.17 0.81 Net sales to payroll costs (times) 9.64 8.56 INFORMATION TECHNOLOGY Network connectivity was destabilised by incessant power Apart from the short-term loan obtained from the Reserve cuts, which adversely affected service delivery at the check Bank of Zimbabwe amounting to $3.8 trillion, the Company out points. There was an upsurge in the theft of cables at did not have any borrowing as at the end of the financial year. installations of Telone. Coupled with long delays by the The scope of borrowing has to be limited as the cost thereof service provider in attending to fault reports, this gave rise to cannot be recovered in the price of products. prolonged downtime at affected stores. Prices of spares and labour continued to escalate throughout the reporting OPERATIONS period, thus pushing up the cost of maintenance of our The Company closed the financial year with 54 outlets business information systems. Our core systems remain in comprising 5 Bon Marche and 49 OK stores. No new stores Mach 4. However, we are developing and introducing new were opened during the year. Store refurbishment work and systems in partnership with an overseas based partner. We other capital expenditure projects were scaled down or experienced operational challenges caused by the inflation suspended due to capital constraints. The store that was driven large numbers, which equally affected our suppliers gutted by fire at Masvingo in October 2007 was replaced in and banking partners. Internally, this was partially addressed December 2007 by a temporary, smaller store following the when we successfully removed three zeros from our back conversion of an adjacent warehouse. office system during the year, resulting in improved processing time and savings on the cost of printer heads. The Although own brand sales increased by 20 495% year on airtime business grew when we managed to bring on board year to $1.74 trillion, the contribution of these products to Netone for transacting sales electronically. Staff turnover was total sales dropped from 4% last year to 1%. The limited unacceptably high throughout the year. We lost a number of availability of basic high volume items such as cooking oil, technicians. Although they were replaced, the new ones maize meal, salt, self-raising flour and sugar affected always have to go through a learning curve, which creates performance. some degree of instability.
  9. 9. CHIEF EXECUTIVE’S REPORTPROMOTIONS OUTLOOKThe 19th Edition of the OK Grand Challenge promotion Unless the political impasse prevailing in the country is resolvedwas successfully held in June 2007 amid the great fanfare amicably, the economic decline will continue. Characteristically,and excitement that has become a trademark of the inflation may continue to gallop unabated, fuelled by theevent. Also scheduled for the year were other accelerated depreciation of the local currency on the back of acutepromotional activities such as the Bon Marche French foreign currency shortages. Product shortages on the formalConnection and the Woza Bhora promotion. However, the market may worsen because of viability challenges confrontingprice monitoring and control activities of the NIPC suppliers and manufacturers due to price induced underutilisationresulted in the shortage of many commodities, rendering of local productive capacity. The NIPCs slow response toit impossible to host any further promotions for the year. applications by businesses for viable prices is likely to worsen theInstead the year was spent re-assessing the companys already acute shortage of product on the formal market. This hasmarketing position with a view to developing marketing already contributed to the resurgence of the informal market,and public relations strategies that are more resilient where many of the products in short supply have resurfaced atagainst economic climate changes. unaffordable prices in that market. Disposable incomes for long squeezed by the galloping inflation, are likely to be eroded evenCOMMUNITY RESPONSIBILITY further as the rate of unemployment increases in the wake ofThe Company has been recognized as a consistent factory and company closures.corporate performer in social responsibility. In 2005 and2006 we were ranked as Number 1 in the Unilever social Supply terms have hardened in most cases to cash on delivery andresponsibility category at the Zimbabwe National are expected to continue being tight. However, efforts by yourChamber of Commerce annual awards. Our corporate company to push for softer terms will continue. In light of thesocial responsibility programmes focus on senior citizens product shortages reported above, distribution of scarce productinitiatives, education, sport and community will be biased in favour of the 25 outlets identified for strategicdevelopment. We pioneered the Senior Citizens Discount focus in the difficult environment. This will assist in the realizationprogramme in Zimbabwe, whereby citizens over the age of improved cash flow and profitability.of 65 enjoy discounts of up to 10% on their monthlypurchases. Among other benefits the senior citizens also The Company will continue to look for ways to enhance revenueenjoy a cup of tea on designated Senior Citizens days in generation. A number of cost cutting measures have been put inany OK or Bon Marche outlet. This unique offer has been place and are reviewed continually. The Company will continue torunning for over 20 years in all our outlets and brings apply appropriate pricing to enhance profitability within therelief to the elderly of our country. The Company plays a confines of the law.role in supporting a number of childrens homes andcrèches. I wish to extend my appreciation to all management and staff for their hard work and achievement of satisfactory results in difficultCORPORATE GOVERNANCE times. Their commitment and support is appreciated andOK Zimbabwe Limited has an unwavering commitment to acknowledged. I call on them to be even more focused as we chart 9corporate governance. The practices in this area continue our way forward in a very difficult environment. I also wish toto evolve at a rapid pace and the company constantly thank our customers, business partners and stakeholders for theirreviews, evaluates and modifies its practices to ensure continued, invaluable support.on-going compliance. Our current practices areconsistent with the standards set by regulatoryauthorities and are covered in detail elsewhere in thisreport.RISK MANAGEMENTThe Company operates a formalized and thoroughprocess of identifying, monitoring and managingbusiness risks. This is aimed at protecting assets andearnings against exceptional financial losses and legal V.W. ZIREVAliabilities. The Board reviews all business risks on a CHIEF EXECUTIVE OFFICERquarterly basis and ensures that action plans or 5 September 2008strategies have been put in place to manage identifiedrisks. This includes the Companys insurance policies,which cover a wide range of identified risks.Operational risks are managed through formalizedprocedures and controls, well-trained personnel andInformation Technology back-up facilities. Emphasis isplaced on the continuous review and improvement ofsystems and procedures as well as specific internal andexternal audits. Sufficient resources and manpower areavailable at all units to continually monitor and report onrisk. The environment we operate in is in a constant stateof flux and therefore the process of risk management hasbecome a vital component of the management process.
  10. 10. COMPANY PROFILE HISTORICAL BACKGROUND PROMOTIONS OK Zimbabwe Limited was first incorporated as The company is re-assessing its marketing position with a Springmaster Corporation in 1953. In 1984, the name view to developing marketing and public relations was changed to Deltrade Limited and this was in turn, strategies that are appropriate to the obtaining economic subsequently changed to the current name in July 2001. climate. The prevailing economic environment has dampened promotional activity. The inaugural branch opened at OK First Street (Harare) in 1942 and the second in Bulawayo in 1952. A further CORPORATE SOCIAL RESPONSIBILITY five outlets were opened across the country by the end of OK Zimbabwe Limited has shown commitment to the 1960. community by sponsoring or donating to causes in the areas of health, education, students employment, In 1977, Delta Corporation acquired the business charities, sports and the environment. Childrens Homes, operations of OK Zimbabwe Limited, which they held until Old Peoples Homes, Hospice Centres and Disabled the de-merger in October 2001. Peoples Associations are amongst the beneficiaries of OK Zimbabwes Social Responsibility efforts. OK Zimbabwe Limited has established itself as a customer-oriented organization providing The Company continues to run the Senior Citizens comprehensive access to a broad range of retail products Discount programme which it pioneered in Zimbabwe, with and allied services developed in response to its senior citizens over 65 enjoying a 10% discount once every customers requirements for convenience and value. fortnight. This programme maintains popularity among senior citizens in spite of having been in existence for over BUSINESS OPERATIONS 20 years. The Company is a leading supermarket retailer whose business covers three major categories, which comprise OK Zimbabwe Limited also sponsors a 6-man sky-diving groceries, basic clothing and textiles and house ware team which has participated and received awards at products. The groceries category includes dry groceries, international level. The companys support of the team is in butchery, delicatessen, takeaway, bakery, provisions and keeping with its belief in the unifying power of sport. Such fruit and vegetable sections. The bakeries and fruit and support is extended to the soccer pitch through the Woza vegetable operations are currently outsourced to Innscor Bhora promotion which promotes football at primary and Favco respectively. Another specialist area is school school level in association with the National Association of wear. Primary School Heads. OK Zimbabwe Limited trades under three highly The Company is actively involved with Environment Africa recognized brand names, OK stores, Bon Marche stores and supports the organisation in various projects. and OK Express stores. All operations are carried out10 through a nationwide branch network which currently Through its 54 branches, OK Zimbabwe Limited is involved comprises 39 OK stores, 5 Bon Marche stores and 10 OK in various local community activities which range form Express stores. The diversified distribution channel supporting soup kitchens to sponsoring soccer teams. The allows the company to target all segments of the desired branches are proud to be able to make a positive market. In this regard, the company has specifically contribution to the communities in which they operate. profiled its stores in terms of design, product range, services and other offerings in a way that effectively HEALTH AND SAFETY caters for the specific requirements in the low, middle and The Company continues to provide both preventative and high income consumer categories. curative health delivery services to its employees. Outreach programmes to family members of the sick and OK Zimbabwe Limited has maintained its position as one bed-ridden employees revealed a growing need for generic of the dominant supermarket retailers in the countrys competitive retail sector, despite the effect of increasing unemployment, higher dependence levels, declining consumer disposable incomes, supply side constraints owing to foreign currency shortages, as well as high levels of inflation. The Company has developed its own brands through the OK Pot O Gold, OK Value and the Bon Marche Premier Choice labels. These brands accounted for 1% of sales (4% in 2007). MANAGEMENT STRUCTURE The Company is controlled by a Board of Directors and managed by a Management Committee, comprising seven departmental executives (including three Executive Directors), which reports to the Board. OK Zimbabwe Limited Finance Director, Mr. Alex Siyavora (extreme right) receives Top Companies Award for the Retail Sector on behalf of the Company
  11. 11. COMPANY PROFILE (continued)as well as systematic counseling services, which were community through the Woza Bhora promotion andprovided through professionals. customer loyalty schemes - by donating a percentage of sales to the customers school of choice.EDUCATIONStaff development is one of our core values. A substantial TRAININGnumber of our employees are enrolled on various The Retail Management Development Programmeeducation and training programmes at tertiary and comprising the Internal Management Trainees andprofessional levels. These programmes provide Graduate Management Trainees remains the cornerstonesuccession material for technical and managerial of our management development endeavours. For thepositions in the company. general staff our focus has been on the sharpening of skillsThe Company sponsors educational initiatives for the and competencies. Highlights of award presentation ceremony at OK’s management conference 11
  12. 12. COMPANY PROFILE (continued) Highlights of the OK Grand Challenge Horse Race12
  13. 13. REPORT OF THE DIRECTORSThe Directors have pleasure in presenting their seventh Annual Report and the Audited Financial Statements of theCompany for the year ended 31 March 2008.YEARS RESULTS $mRetained income for the year and earnings attributable to shareholders 20,477,192FIXED ASSETSCapital expenditure for the year to 31 March 2008 totaled $780 billion compared to $5.6 billion in prior year.SHARE CAPITALThe authorised share capital of the company remained at $40,000,000 made up of 800 000 000 ordinary shares of 5 centseach while the issued share capital was increased by $35,581,623. As at 31 March 2008 issued share capital was thus$35,617,237 made up of 712,343,050 ordinary shares of 5 cents each and $35,577,823 capitalised from revenue reserves.RESERVESThe movements in the Reserves of the company are shown in the Income Statement and in the Notes to the FinancialStatements.DIRECTORSMr. M. Tapera joined the Board on 1 April 2008. He retires at the next Annual General in terms of Article 107 of the Articles ofAssociation and being eligible, offers himself for re-election. Mr M. E. Kahari and Mrs M. T. Rukuni retire by rotation inaccordance with Article 100 of the Articles of Association and, being eligible, offer themselves for re-election.AUDITORSMembers will be asked to appoint Messrs. Deloitte & Touche as the auditors to the Company for the ensuing year andapprove their fees for the past financial year. 13ANNUAL GENERAL MEETINGThe Seventh Annual General Meeting of the Company will be held at 1200 hours on Monday, 29 September 2008 atOK House, 7 Ramon Road, Graniteside, Harare.BY ORDER OF THE BOARDM.E. KAHARI V.W. ZIREVA C. BORIWONDOChairman Chief Executive Officer Company Secretary5 September 2008
  14. 14. CORPORATE GOVERNANCE • INTRODUCTION Chairman of the Committee. The Committee meets at least twice a The Board is committed to the principles of corporate year. governance which endorse a culture of business ethics, The function of the Committee is to advise the Board on all matters openness, transparency, integrity and accountability in relating to corporate governance and regulatory issues. In its dealings with all its stakeholders. particular, it monitors financial controls, accounting policies, The primary objective of any system of corporate accounting systems and assesses the processes for identifying, governance is to ensure that directors, executives and monitoring and managing business risks. It reviews any significant managers, to whom the stewardship of large companies abnormal transactions, ensures there are no restrictions on is entrusted by the shareholders, carry out their external auditors and follows up matters reported or unresolved responsibilities faithfully, effectively and efficiently. The with the auditors. It reviews the Companys budget, financial Companys structures, operations, policies and statements and external audit fees before submission to the Board procedures are therefore continuously assessed and for consideration and approval. The Audit Committee monitors the updated for compliance with the law and generally Internal Audit Charter, plan, programs and reports. The accepted corporate governance practices. Committee also recommends the appointment of external auditors. • BOARD OF DIRECTORS • REMUNERATION COMMITTEE The Companys Articles of Association provide for the appointment of independent directors. The Board of This Committee consists of two non-executive directors and the Directors currently consists of three executive and four Chief Executive Officer. The Committee is responsible for making non-executive directors who were chosen for their wide recommendations on all major policy issues, including Board range of professional and commercial competencies. The appointments, investments and disinvestments, and the Chairman of the Board is a non-executive director. The remuneration policy for executive directors and senior Board meets at least four times a year. management. The objective of the policy is to ensure that the right calibre of management is recruited and retained. The Committee The Board is responsible for giving direction to the also considers, at Board level, remuneration levels and conditions Company through the setting of the overall strategy, key of service of staff to ensure that these are fair, appropriate and in policies and risk parameters. It is also responsible for line with the market and the Companys remuneration philosophy. approving strategic and operational budgets, significant acquisitions and disposals, and interim and annual • ETHICS operating results. The implementation of the overall Directors and employees are required to observe the highest strategy, policies and the management of risk are ethical standards ensuring that business practices are conducted monitored using key performance indicators and best in a manner which, in all reasonable circumstances, is beyond practice benchmarks. Executive management presents reproach. In this regard, the Company has a detailed code of structured reports, to allow the Board to monitor ethics for all levels of employees. performance. The Board has constituted Audit and14 Remuneration Committees to assist it in the discharge of In line with the Zimbabwe Stock Exchange Listing Requirements, the Company observes a closed period prior to the publication of its responsibilities. its interim and year-end financial results, during which period In terms of the Companys Articles of Association, directors, officers and employees may not deal in the shares of the Directors are not precluded from entering into or being Company. Where appropriate, this restriction is also extended to interested in contracts or arrangements with the include other sensitive periods. Company. However, a Director who is in any way, • EQUAL OPPORTUNITY whether directly or indirectly, interested in a contract or proposed contract which has been or is to be entered into The Company is committed to providing equal opportunities for its by the Company, is required to declare the nature and employees regardless of race, tribe, place of origin, political extent of this interest. A Director is not permitted to vote opinion, colour, creed or sex. in respect of any contract or arrangement in which he or • EMPLOYEE PARTICIPATION she is interested. The Company recognises the need for orderly consultation and Any service rendered by Directors and all Directors discussions through workers committees, works councils, interests in OK Zimbabwe are required to be conducted departmental and liaison meetings and other collective bargaining on an arms length basis. Full disclosure of any such fora. These structures, which are designed in consultation with arrangements by all current executive and non-executive employee representatives, are intended to achieve good Directors must be made in accordance with legal employer/employee relations as well as promoting productivity, requirements. Each year, Directors are required to safety and loss control. submit in writing whether they have any interest in any contract of significance with the Company, which could • SAFETY, HEALTH AND ENVIRONMENT give rise to a conflict of interest. The Company aims to create wealth and to contribute to • AUDIT COMMITTEE development by operating its business with due regard for economic, social, cultural and environmental issues. Safety, health The Committee consists of two non-executive directors and environmental issues, therefore, receive special attention. and the Chief Executive Officer, with the Finance Director attending ex-officio. The internal and external auditors attend the meetings, and have unrestricted access to the
  15. 15. ACCOUNTING PHILOSOPHYACCOUNTING PHILOSOPHYOK Zimbabwe Limited is dedicated to achieving meaningful and responsible reporting through comprehensive disclosureand explanation of its financial results. This is done to assist objective corporate performance measurement, to enablereturns on investment to be assessed against the risks inherent in their achievement and to facilitate appraisal of the fullpotential of the Company.The core determinant of meaningful presentation and disclosure of information is its validity in supportingmanagements decision making process. While the accounting philosophy encourages the pioneering of newtechniques, it endorses the fundamental concepts underlying both the financial and management accounting disciplinesas enunciated by The Institute Of Chartered Accountants of Zimbabwe, The International Accounting StandardsCommittee and The International Federation of Accountants.The Company is committed to regular reviews of accounting standards and to the development of new and improvedaccounting practices. This is done to ensure that the information reported to the management and stakeholders of theCompany continues to be internationally comparable, relevant and reliable. This includes, wherever it is consideredappropriate, the early adoption of accounting standards.However, where the adoption of accounting standards is seen to be fundamentally inappropriate, the Company is willingto challenge the validity of such adoption. It is in this regard that the company has decided not to provide for deferredtaxation for historical information on all temporary differences between the tax bases of assets and liabilities and theircarrying value in the financial statements as required by the revised International Accounting Standard 12. The companyhas not adopted this standard as such a practice is viewed as being inappropriate in times of high inflation. The Companyintends to comply with the requirements of the standard when inflation in Zimbabwe has been sustained at single-digitfigures for a full year. 15
  16. 16. DIRECTORS RESPONSIBILITY FOR FINANCIAL REPORTING OK Zimbabwe Limiteds directors are required by the financial control. OK Zimbabwe Limiteds policy on business Companies Act to maintain adequate accounting records conduct, which covers ethical behaviours, compliance with and to prepare financial statements for each financial legislation and sound accounting practice, underpins the period, which present a true and fair view of the state of Companys internal financial control process. The control systems the affairs of the Company at the end of the financial include written accounting and control policies and procedures, period and of the profit, and cash flows for the period. In clearly defined lines of accountability and delegation of authority, preparing the accompanying financial statements, and comprehensive financial reporting and analysis against generally accepted accounting practices have been approved budgets. The responsibility for operating the system is followed (except for the adoption of the requirements of delegated to the Executive Directors and senior management who International Accounting Standard 12 on deferred confirm that they have reviewed its effectiveness. They consider taxation), suitable accounting policies have been used, that it is appropriately designed to provide reasonable, but not and applied consistently, and reasonable and prudent absolute, assurance that assets are safeguarded against material judgments and estimates have been made. The financial loss or unauthorized use and the transactions are properly statements incorporate full and responsible disclosure in authorized and recorded. The effectiveness of the internal line with the accounting philosophy of the Company. financial control system is monitored through management reviews, representation letters on compliance signed by the Chief The directors have reviewed the Companys budget and Executive Officer and a comprehensive programme of internal cash flow forecast for the year to 31 March 2008. On the audits. In addition, the Companys external auditors review on a basis of this review, and in the light of the current test basis aspects of the internal financial control systems that financial position and existing borrowing facilities, the they deem relevant during the course of their statutory directors are satisfied that OK Zimbabwe Limited is a examinations of the Company. going concern and has continued to adopt the going concern basis in preparing the financial statements. The The Audit Committee meets regularly with the Company’s internal Companys external auditors, Deloitte & Touche, have and external auditors and executive management to review audited the financial statements and their report appears accounting, auditing, internal control and reporting matters. on page 17. The financial statements for the year ended 31 March 2008, which The Board recognises and acknowledges its appear on pages 18 to 38 were reviewed by the Board of Directors responsibility for the Companys system of internal on 30 May 2008 and are approved and signed on their behalf by:16 M.E.KAHARI V.W. ZIREVA Chairman Chief Executive Officer 5 September 2008
  17. 17. REPORT OF THE INDEPENDENT AUDITORSWe have audited the accompanying inflation adjusted financial statements of OK Zimbabwe Limited set out on pages18 to 38, which comprise the balance sheet as at 31 March 2008 and the income statement, statement of changes inequity and cash flow statement for the year then ended and a summary of significant accounting policies and otherexplanatory notes.Directors’ Responsibility for the Financial StatementsDirectors are responsible for the preparation and fair presentation of these inflation adjusted financial statements inaccordance with International Financial Reporting Standards and the Companies Act (Chapter 24:03). Thisresponsibility includes: designing, implementing and maintaining internal controls relevant to the preparation andfair presentation of financial statements that are free of material misstatement, whether due to fraud or error;selecting and applying appropriate accounting policies; and making estimates that are reasonable in thecircumstances.Auditors’ ResponsibilityOur responsibility is to express an opinion on these inflation adjusted financial statements based on our audit. Weconducted our audit in accordance with International Standards on Auditing. Those standards require that we complywith ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the inflationadjusted financial statements are free of material misstatement.An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the inflationadjusted financial statements. The procedures selected depend on the auditor’s judgment, including the assessmentof the risks of material misstatement of the inflation adjusted financial statements, whether due to fraud or error. Inmaking those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fairpresentation of the inflation adjusted financial statements in order to design audit procedures that are appropriate inthe circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internalcontrol. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness ofaccounting estimates made by management, as well as evaluating the overall presentation of the inflation adjustedfinancial statements.We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our auditopinion.Opinion on the Financial StatementsIn our opinion, the inflation adjusted financial statements are properly drawn up in accordance with the provisions ofthe Companies Act (Chapter 24:03) and in conformity with International Financial Reporting Standards, so as to give,in all material respects, a true and fair view of the financial position of the Company as at 31 March 2008 and of theresults of the operations and its cash flows for the year ended on that date. 17DELOITTE & TOUCHEHarare19 September 2008
  18. 18. FINANCIAL STATEMENTS INCOME STATEMENTS For the year ended 31 March 2008 Inflation adjusted Historical 2008 2007 2008 2007 Notes $m $m $m $m Revenue 5 3,241,392,661 2,536,235,089 211,943,382 219,403 Operating (loss)/income 6 (957,252,710) (97,610,222) 25,492,076 34,419 Net finance income 7 104,043,836 113,658,883 1,999,082 6,811 Monetary gain 566,362,265 155,927,491 - - (Loss)/income before taxation (286,846,609) 171,976,152 27,491,158 41,230 Taxation 8 108,978,473 (41,451,877) (7,013,966) (10,282) (Loss)/profit for the year (177,868,136) 130,524,275 20,477,192 30,948 Weighted average number of ordinary shares in issue (000s) 707,837 710,296 707,837 710,296 Share performance (dollars): : attributable (loss)/earnings (251.28) 183.76 28.93 0.04 : headline (loss)/earnings basis (124.41) 181.43 26.09 0.04 : dividends per share - 105.11 - 0.02 : net asset value per share 628.48 989.96 573.49 0.21 : net cash flow per share (158.85) 121.85 28.88 0.04 : cash value added per share 177.73 558.01 69.59 0.0918
  19. 19. FINANCIAL STATEMENTS (continued)BALANCE SHEETSAs at 31 March 2008 Inflation adjusted Historical 2008 2007 2008 2007 Notes $m $m $m $mAssetsNon current assetsProperty, plant and equipment 10 418,501,314 555,549,805 383,522,489 126,457Investments and loans 11 9,864,105 9,070,471 6,113,669 1,920 428,365,419 564,620,276 389,636,158 128,377Current assetsInventories 12 86,827,015 307,361,258 86,827,015 63,520Trade and other recievables 13 9,952,313 17,427,783 9,755,357 4,094Cash and cash equivalents 20,472,379 132,914,616 20,472,379 31,804 117,251,707 457,703,657 117,054,751 99,418Total assets 545,617,126 1,022,323,933 506,690,909 227,795Equity and LiabilitiesShareholders equity 314,715,948 516,894,357 405,936,446 151,427Deferred taxation 14 130,146,715 186,272,308 - - 444,862,663 703,166,665 405,936,446 151,427LiabilitiesTrade and other payables 15 91,216,426 300,152,310 91,216,426 71,821Short term borrowings 16 3,925,045 - 3,925,045 -Taxation 5,612,992 19,004,958 5,612,992 4,547 100,754,463 319,157,268 100,754,463 76,368Total equity and liabilities 545,617,126 1,022,323,933 506,690,909 227,795 19
  20. 20. FINANCIAL STATEMENTS (continued) STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY For the year ended 31 March 2008 Inflation adjusted Historical 2008 2007 2008 2007 Notes $m $m $m $m Shareholders equity at the beginning of the year 516,894,357 151,902,821 151,427 889 Changes in share capital Arising from share issue 129,022,569 13 36 - Arising from share buyback (16,936,096) - (47,391) - Changes in share premium Arising from share issue (128,969,619) 778,979 (20) 18 Changes in share options Arising from share options 29,471 289,742 28,268 25 Changes in equity reserves Arising from revaluation of property, plant and equipment - 284,483,043 382,635,366 121,191 Fair valuation of equity investments 2,705,615 - 2,705,615 - Changes in distributable reserves Final dividend paid (10,097,620) (34,931,975) (14,032) (363) Interim dividend paid - (16,152,541) - (1,281) Transfer to share capital on share consolidation (64,593) - (15) - (Loss)/profit for the year (177,868,136) 130,524,275 20,477,192 30,948 Shareholders equity at the end of the year 314,715,948 516,894,357 405,936,446 151,427 Comprising : Share capital 9 132,399,405 3,376,836 36 -20 Share premium (6,064,082) 122,905,537 - 20 Equity reserves - share options 2,806,779 2,777,308 28,298 30 Revaluation reserve 284,483,043 284,483,043 382,756,557 121,191 Equity investments fair valuation 2,705,615 - 2,705,615 - Share buy-back 19 (16,936,096) - (47,391) - Retained (loss)/income (84,678,716) 103,351,633 20,493,331 30,186 Total shareholders equity 314,715,948 516,894,357 405,936,446 151,427
  21. 21. FINANCIAL STATEMENTS (continued)CASH FLOW STATEMENTSFor the year ended 31 March 2008 Inflation adjusted Historical 2008 2007 2008 2007 Notes $m $m $m $mCash retained fromoperating activities:-Cash generated from trading 17.1 (38,087,177) 112,157,938 23,532,431 34,159Working capital changes 17.2 22,998,874 14,752,812 (1,445,108) 4,489Cash generated fromoperating activities (15,088,303) 126,910,750 22,087,323 38,648Net finance income 7 104,043,836 113,658,883 1,999,082 6,811Taxation paid 17.3 (41,741,390) (48,150,913) (1,405,521) (5,806)Cash flow from operations 47,214,143 192,418,720 22,680,884 39,653Dividends paid 17.4 (10,097,620) (51,084,516) (14,032) (1,644)Net cash retained 37,116,523 141,334,204 22,666,852 38,009Investments activitiesInvestment to maintainoperations:-Replacement of property,plant and equipment (33,661,176) (32,255,039) (579,376) (3,025)Proceeds on disposal of property,plant and equipment 1,550,606 5,491,418 77,750 689Net cash utilised in investingactivities (32,110,570 (26,763,621) (501,626) (2,336)Investment to expand operations:-Additions to property, plantand equipment (11,671,315) (27,010,401) (200,888) (2,534)Decrease/(increase) ininvestments and loans 1,911,981 (2,708,556) (3,406,132) (1,868) (9,759,334) (29,718,957) (3,607,020) (4,402)Net cash invested (41,869,904) (56,482,578) (4,108,646) (6,738)Financing activities 21Issue of shares - 778,992 - 18Share buy-back 19 (16,947,740) - (47,391) -Net proceeds from disposal ofshort-term investments (90,741,116) 919,807 1,929,760 33Net financing raised (107,688,856) 1,698,799 1,882,369 51Net (decrease)/increase incash and cash equivalents (112,442,237) 86,550,425 20,440,575 31,322Cash and cash equivalents atbeginning of year 132,914,616 46,364,191 31,804 482Cash and cash equivalents at end of year 20,472,379 132,914,616 20,472,379 31,804
  22. 22. FINANCIAL STATEMENTS (continued) CASH VALUE ADDED STATEMENTS For the year ended 31 March 2008 Inflation adjusted Historical 2008 2007 2008 2007 $m $m $m $m Cash generated Cash derived from sales 3,132,085,133 2,441,749,165 211,485,572 214,185 Cash payments to suppliers of materials, facilities and services (3,110,321,858) (2,159,058,113) (164,228,784) (154,881) Net return on funds invested 104,043,836 113,658,883 1,999,082 6,811 Cash value added 125,807,111 396,349,935 49,255,870 66,115 Cash utilised to:- Remunerate employees for their services 246,434,652 191,384,711 21,745,262 24,798 Pay income tax to Government 28,349,425 60,377,137 7,013,966 10,282 Provide shareholders with a reward for the use of their risk capital - 16,152,541 - 1,281 Cash disbursed among stakeholders 274,784,077 267,914,389 28,759,228 36,361 Cash retained in business Depreciation 28,891,170 14,063,811 19,450 87 Further retentions (177,868,136) 114,371,735 20,477,192 29,667 (Required)/available to fund the replace- ment of assets and facilitate further growth (148,976,966) 128,435,546 20,496,642 29,75422
  23. 23. FINANCIAL STATEMENTS (continued)NOTES TO THE FINANCIAL STATEMENTSFor the year ended 31 March 2008 1 Summary of significant accounting policies OK Zimbabwe Limited is a listed company registered and conducting business in Zimbabwe. Its registered office is at No. 7 Ramon Road, Graniteside, Harare, Zimbabwe. The Company is a leading supermarket retailer whose business covers three major categories which comprise groceries, basic clothing and textiles and houseware products. The principal accounting policies of the Company that are set out below conform to International Financial Reporting Standards (IFRS) and are, in all material respects, consistent with those applied in the previous year. The Company is incorporated in Zimbabwe. The financial statements are recorded and presented in the currency of Zimbabwe and are in rounded millions. 2. Adoption of new and revised Standards and Interpretations Standards and interpretations effective in the current year In the current year, the Company has adopted IFRS 7: Financial Instruments: Disclosures, which is effective for annual reporting periods beginning on or after January 1, 2007, and the consequential amendments to IAS 1: Presentation of Financial Statements. The impact of the adoption of IFRS 7 and the changes to IAS 1 has been to expand the disclosures provided in these financial statements regarding the Companys financial instruments and management of capital. Five Interpretations issued by the International Financial Reporting Interpretations Committee are effective for the current period. These are: IFRIC 7: Applying the Restatement Approach under IAS 29, Financial Reporting in Hyperinflationary Economies; IFRIC 8: Scope of IFRS 2; IFRIC 9: Reassessment of Embedded Derivatives; IFRIC 10: Interim Financial Reporting and Impairment and IFRIC 11: IFRS-2: Group and Treasury Share Transactions. The adoption of these Interpretations has not led to any changes in the Companys accounting policies. Standards and interpretations in issue but not yet effective At the date of authorization of these financial statements, the following Standards and Interpretations were in issue but not yet effective: IAS 1 (Revised) Presentation of Financial Statements - Revision requiring a statement of comprehensive income 23 (effective for accounting periods beginning on or after January 1, 2009); IAS 1 (Revised) Presentation of Financial Statements - Amendments relating to disclosure of puttable instruments and obligations arising on liquidation (effective for accounting periods beginning on or after January 1, 2009); IAS 23 (Revised) Borrowing Costs (effective for accounting periods beginning on or after January 1, 2009); IAS 27 (Revised) Consolidated and Separate Financial Statements (effective for accounting periods beginning on or after July 1, 2009); IAS 28 (Revised) Investments in Associates (effective for accounting periods beginning on or after July 1, 2009); IAS 31 (Revised) Interests in Joint Ventures (effective for accounting periods beginning on or after July 1, 2009); IAS 32 (Revised) Financial Instruments: Presentation (effective for accounting periods beginning on or after January 1, 2009); IFRS 2 (Revised) Share-based Payment (effective for accounting periods beginning on or after January 1, 2009); IFRS 3 (Revised) Business Combinations (effective for accounting periods beginning on or after July 1, 2009); IFRS 8 Operating Segments (effective for accounting periods beginning on or after January 1, 2009); IFRIC 12 Service Concession Arrangements (effective for accounting period beginning on or after January 1, 2008); IFRIC 13 Customer Loyalty Programmes (effective for accounting periods beginning on or after July 1, 2008); IFRIC 14 IAS 19 – The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction (effective for accounting period beginning on or after January 1, 2008); IFRIC 15 Agreements for the Construction of Real Estate (effective for accounting periods beginning on or after January 1, 2009); and IFRIC 16 Hedges of Net Investment in a Foreign Operation (effective for accounting periods beginning on or after October 1, 2008). The Directors anticipate that the adoption of these Standards and Interpretations will have no material impact on the financial statements of the Company in the period of initial application.
  24. 24. FINANCIAL STATEMENTS (continued) 3 Significant accounting policies 3.1 Basis of preparation The financial statements of the Company are prepared, for the purposes of fair presentation, in accordance with International Financial Reporting Standards (IFRS). These are based on financial statements prepared under the historical cost convention that have been restated for changes in the general purchasing power of the Zimbabwe Dollar and appropriate adjustments and reclassifications have been made. Accordingly, the inflation adjusted financial statements represent the primary financial statements of the Company. The historical cost financial statements have been provided by way of supplementary information. 3.2 Inflation adjustment IAS 29 requires that financial statements prepared in the currency of a hyperinflationary economy be stated in terms of a measuring unit current at the balance sheet date, and that corresponding figures for previous periods be stated in the same terms to the latest balance sheet date. The restatement has been calculated by means of conversion factors derived from the Consumer Price Index (CPI) prepared by the Zimbabwe Central Statistical Office. The conversion factors used to restate the financial statements at 31 March 2008 are as follows: Conversion Index Factor 31 March 2008 8,395,791,848.80 1.0000 31 March 2007 2,008,932.50 4,179.2312 31 March 2006 87,337.50 96,130.4348 The main procedures applied for the above mentioned restatement are as follows : • Financial statements prepared in the currency of a hyperinflationary economy are stated after applying the measuring unit current at balance sheet date, and corresponding figures for the previous period are restated on the same basis.·Monetary assets and liabilities are not restated because they are already expressed in terms of the monetary unit current at the balance sheet date. Monetary items are money held and items to be recovered or paid in money.24 • Non-monetary assets and liabilities that are not carried at amounts current at the balance sheet date and components of shareholders equity are restated by applying the relevant monthly conversion factors. • Comparative financial statements are restated using general inflation indices in terms of the measuring unit current at the balance sheet date. • All items in the income statements are restated by applying the relevant monthly, yearly average or year-end conversion factors with the exception of items representing the consumption of assets which are restated in line with the underlying amounts. • The effect on the net monetary position of the Company is included in the income statement as a monetary gain or loss. The application of the IAS 29 restatement procedures has the effect of amending certain accounting policies which are used in the preparation of the financial statements under the historical cost convention. The policies affected are: Borrowing costs: capitalisation during construction of qualifying assets is considered to be partial recognition of inflation and is reversed to the income statement and replaced by indexation of cost. Inventories: these are carried at the lower of indexed cost and net realisable value. Property, plant and equipment: are stated at revalued or indexed amounts less accumulated depreciation and impairment losses. Deferred tax: full provision is made based on temporary differences arising from the restatement of assets and liabilities.
  25. 25. FINANCIAL STATEMENTS (continued)NOTES TO THE FINANCIAL STATEMENTS (continued)For the year ended 31 March 20083.3 Foreign currency transactions and balances Foreign assets and liabilities of the Company are converted to Zimbabwe currency at the rates of exchange ruling at the end of the financial year. Transactions in foreign currencies are translated to Zimbabwe currency at rates of exchange ruling at the time of the transactions. Transaction and translation gains or losses arising on conversion or settlement are dealt with in the income statement in the determination of the operating income. 3.4 Capitalisation of financing costs Interest expenses, to the extent that they are considered finance costs and which relate to funds raised specially for the acquisition of properties, plant and equipment and vehicles are capitalised up to the date of commissioning of the asset. 3.5 Property, plant and equipment Property, plant and equipment are stated in the balance sheet at indexed cost or revalued amount less any subsequent accumulated depreciation and impairment losses. Methods of revaluation used areas follows: Industrial land and buildings depreciated replacement cost Residential land and buildings open market value Other property, plant and equipment depreciated inflation-adjusted amounts Revaluations are performed with sufficient regularity such that the carrying amount does not differ materially from that which would be determined using fair values at the balance sheet date. Any surplus arising on revaluation is credited to the revaluation reserve. A decrease in carrying amount arising on revaluation of property, plant and equipment is charged as an expense to the extent that it exceeds the balance held in the revaluation reserve relating to previous revaluation of that asset. On subsequent sale or retirement of revalued property, plant and equipment, the attributable revaluation reserves are transferred to retained earnings. The gain or loss arising on the disposal or retirement of an item of property, plant and equipment is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognised in profit or loss. 25 Depreciation is charged so as to write off the cost or valuation of assets, other than freehold land and work-in- progress, which are not depreciated, using the straight-line method, over their estimated useful lives which are as follows: Freehold property 20 years Leasehold property lease tenure Plant and equipment 5 to 10 years Motor vehicles 5 years Residual values of assets and their useful lives are assessed at each balance sheet date. Assets are assessed for potential impairment at each reporting date. If circumstances exist which suggest that there may be impairment, a more detailed exercise is carried out which compares the carrying values of the assets to recoverable value based on the higher of realisable value and value in use. Value in use is determined using discounted cash flows budgeted for each cash generating unit. Detailed budgets for the ensuing three years are used and, where necessary, these are extrapolated for future years taking into account known structure changes. Discount rates used are the medium term expected pre- tax real rates of return, adjusted, in the case of historical financial information, to take account of inflation. Impairment losses are recognised as an expense in the income statement and the carrying value of the asset and its annual depreciation are adjusted accordingly. In the event that, in a subsequent period, an asset which has been subject to an impairment loss is considered to no longer be impaired, the value is restored and the gain is recognised in the income statement. The restoration is limited to the value which would have been recorded had the impairment adjustment not taken place.
  26. 26. FINANCIAL STATEMENTS (continued) NOTES TO THE FINANCIAL STATEMENTS (continued) For the year ended 31 March 2008 3.6 Inventories Inventories are valued at the lower of cost and net realisable value. Merchandise and consumable stores are valued at the landed cost on a first in first out basis. Net realisable value represents the estimated selling price less all estimated costs to be incurred in marketing, selling and distribution. 3.7 Financial instruments Financial assets The Company’s principal financial assets are trade and other receivables and cash and cash equivalents. Investments regarded as financial assets available for sale and for which fair value can be reliably determined are initially recognised at cost and subsequently stated at fair value with the change in value being credited or debited to distributable reserves. Unquoted investments and financial assets regarded as available for sale, but for which fair value cannot be reliably determined, are shown at cost unless the directors are of the opinion that there has been an impairment in value, in which case provision is made and charged to income. Trade and other receivables and loans are stated at their nominal value as reduced by allowances for estimated irrecoverable amounts. Cash and cash equivalents comprise cash on hand and demand deposits, and other short-term highly liquid investments that are readily convertible to a known amount of cash and are subject to an insignificant risk of changes in value. Financial liabilities Financial liabilities are classified according to the substance of the contractual agreement entered into. Significant financial liabilities of the Company are trade and other payables. Where the Company has financial instruments which have a legally enforceable right of offset and the Company intends to settle them on a net basis or to realise the asset and liability simultaneously, the financial asset and liability and related revenues and expenses are offset and the net amount reported in the balance sheet and26 income statement respectively. Equity instruments An equity instrument is any contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities. Equity instruments issued by the Company are recorded at the amount of proceeds received, net of direct issue costs. 3.8 Revenue recognition Revenue comprises sales, rentals and interest income. Revenue from the sale of goods is recognised at the fair value of the consideration received or receivable when the risks and rewards of ownership have passed to the customer. Interest income is accrued on a time basis, by reference to the principal outstanding and at the effective interest rate applicable. Rental income is recognised on an accrual basis. Dividend income from investments is recognised when the shareholders’ rights to receive payment have been established.
  27. 27. FINANCIAL STATEMENTS (continued)NOTES TO THE FINANCIAL STATEMENTS (continued)For the year ended 31 March 2008 3.9 Taxation Income tax expense represents the tax currently payable in the historic cost accounts and is the sum of tax currently payable and deferred tax in the inflation adjusted accounts. The tax currently payable is based on taxable profit for the year. Taxable profit differs from net profit as reported in the income statement because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are not taxable or deductible. The Company’s liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the balance sheet date. In the inflation adjusted accounts, deferred taxation is provided for the tax consequences of all temporary differences arising between the tax bases of assets and liabilities and their carrying values for financial reporting purposes. Currently enacted tax rates are used to determine deferred taxation. Deferred tax assets relating to the carry forward of unused tax losses and other deductible temporary differences are recognised to the extent of taxable temporary differences and that it is probable that future taxable profit will allow the deferred tax assets to be recovered. The Directors are of the opinion that full provision for deferred tax is inappropriate in historical cost accounts. Accordingly no deferred tax is provided in the historical cost accounts. The amount not provided for is disclosed in note 14. 3.10 Retirement benefit costs Retirement benefits are provided for company employees through the OK Zimbabwe Pension Fund, which is a defined contribution fund, and through the National Social Security Authority (NSSA). Contributions to both are charged to the income statement. The NSSA scheme is a defined benefit scheme promulgated under the National Social Security Authority Act (1989). The Companys obligations under the scheme are limited to specific contributions legislated from time to time. These are presently 3% of pensionable emoluments up to a maximum of $5 000 000 per month for each employee. 3.11 Earnings per share 27 Attributable earnings basis The calculations are based on the earnings attributable to ordinary shareholders. Account is taken of the number of shares in issue for the period during which they have participated in the income of the Company. The divisor is 707,837 (2007:710,296). Fully diluted earnings per share are not disclosed as the extent of dilution is not considered material. Headline earnings basis Headline earnings per share are calculated by dividing the headline earnings by the same divisor used in the attributable earnings basis. 3.12 Provisions Provisions are recognised when the Company has a present legal or constructive obligation as a result of past events, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate of the amount of obligation can be made. Employee entitlements to annual leave are recognized when they accrue to employees. A provision is made for the estimated liability for annual leave as a result of services rendered by employees up to the balance sheet date. 3.13 Operating leases Leases under which the risk and benefits of ownership are effectively retained by the lessor are classified as operating leases. Obligations incurred under operating leases are charged to the income statement in equal instalments over the period of the lease, except when an alternative method is more representative of the time pattern from which benefits are derived.
  28. 28. FINANCIAL STATEMENTS (continued) NOTES TO THE FINANCIAL STATEMENTS (continued) For the year ended 31 March 2008 3.14 Share-based payments The Company issues share options to certain employees. The cost of share options to existing shareholders is measured at fair value at date of grant. The fair value so determined is expensed on a straight- line basis over the vesting period based on the Company’s estimate of shares that will eventually vest. Fair value is measured using the Black-Scholes pricing model. The expected life used in the model has been adjusted, based on management’s best estimate, for the effects of non-transferability, exercise restrictions and behavioural considerations. 3.15 Impairment At each balance sheet date, the Company reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indication that those assets suffered an impairment. If any such indication exists, the recoverable amount of the assets is estimated in order to determine the extent of the impairment (if any). Where it is not possible to estimate the recoverable amount of an individual asset, the Company estimates t h e recoverable amount of the cash generating unit to which the asset belongs. Recoverable amount is the greater of net selling price and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the assets. If the recoverable amount of an asset or cash generating unit is estimated to be less than its carrying amount, the carrying amount of the asset or cash generating unit is reduced to its recoverable amount. An impairment is recognised as an expense immediately, unless the relevant asset is carried at a revalued amount, in which case the impairment is treated as a revaluation decrease. Where on impairment subsequently reverses, the carrying amount of the asset or cash generating unit is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment been recognised for the asset or cash generating unit in prior years. A reversal of an impairment is recognised as income immediately, unless the relevant28 asset is carried at a revalued amount, in which case the reversal of the impairment is treated as a revaluation increase. 4 Key sources of estimation uncertainty In the process of applying the Company’s accounting policies which are described in Note 3, management has made the following judgements that have the most significant effect on the amounts recognised in the financial statements: Shrinkage provision ($1,062 billion) Actual shrinkage is accounted for after each inventory count. The last inventory counts for the year under review were performed in January and February, 2008. The shrinkage provision represents estimated shrinkage for the period from the last stock take to year end and is based on the company standard of 0.8% of cost of sales for the same period. Mark down adjustment ($38,949 billion) Inventory prices in the system are adjusted to latest purchase price on every purchase. As a result a year- end adjustment has to be processed to account for inventories at the lower of cost and net realisable value. The current year’s adjustment was a reversal of all mark ups processed in the last month of the year on the assumption that the bulk of the inventories were thirty days old. Depreciation - motor vehicles In historical terms no depreciation has been charged on motor vehicles as residual values are assessed to be higher than the carrying amounts. Residual values of other asset categories are not considered material in relation to their carrying values.
  29. 29. FINANCIAL STATEMENTS (continued)NOTES TO THE FINANCIAL STATEMENTS (continued)For the year ended 31 March 2008 Inflation adjusted Historical 2008 2007 2008 2007 Note $m $m $m $m5 Revenue Sales proceeds 3,132,079,867 2,419,740,977 209,613,618 212,313 Other: rentals and interest 109,312,794 116,494,112 2,329,764 7,090 3,241,392,661 2,536,235,089 211,943,382 219,4036 Operating (loss) / income Operating (loss)/income is arrived at after charging/ (crediting): - 6.1 Net operating costs Changes in inventories of trade goods 209,962,715 (166,508,351) (83,186,283) (58,935) Merchandise and consumables used 3,225,899,375 2,439,446,228 231,636,611 201,050 Depreciation 6.2 28,891,170 14,063,811 19,450 87 Impairment loss 152,871,632 - - - Staff costs 246,405,182 191,094,969 21,716,994 24,773 Share option costs 29,470 289,742 28,268 25 Other operating expenses 140,733,301 43,458,519 16,244,546 11,545 Profit on sale of property plant and equipment (932,426) (738,679) (77,602) (341) Loss/(profit) on sale of investments 90,741,116 (919,811) (1,929,760) (31) 4,094,601,535 2,520,186,428 184,452,224 178,173 6.2 Depreciation Buildings 25,012,689 1,064,835 7,777 2 Plant, equipment and vehicles 3,878,481 12,998,976 11,673 85 28,891,170 14,063,811 19,450 87 6.3 Auditors remuneration 29 Current year audit fees and expenses 5,408,271 2,557,334 720,000 181 6.4 Net leasing expense Lease payments; :Minimum lease payments 10,334,621 7,201,167 996,885 576 :Contingent lease payments 28,171,866 19,255,110 1,958,884 1,842 Lease and sub-lease income received (152,772) (269,514) (13,000) (20) 38,353,715 26,186,763 2,942,769 2,398
  30. 30. FINANCIAL STATEMENTS (continued) NOTES TO THE FINANCIAL STATEMENTS (continued) For the year ended 31 March 2008 Inflation adjusted Historical 2008 2007 2008 2007 $m $m $m $m 7 Net finance income Interest paid on short-term borrowings 5,116,186 2,530,851 317,682 259 Interest earned on savings (109,160,022) (116,189,734) (2,316,764) (7,070) Net interest receivable (104,043,836) (113,658,883) (1,999,082) (6,811) 8 Taxation 8.1 Taxation charge Income Tax : Current Standard 6,360,658 36,009,999 6,360,658 8,616 Aids Levy 190,820 1,080,298 190,820 258 Deferred : Reversing of temporary differences (137,327,897) (18,925,260) - - Withholding tax on interest earned 21,797,946 23,286,840 462,488 1,408 Total income tax (credit)/expense (108,978,473) 41,451,877 7,013,966 10,282 8.2 Reconciliation of rate of taxation Standard rate 30.9 30.9 Adjusted for : Capital allowances in excess of depreciation (0.3) (1.4) Disallowed expenses and provisions 2.1 0.8 Consumables and prepayments (4.0) (3.2) Interest taxed at special rates (0.9) (1.9) Profit on sale of assets (2.3) (0.3)30 (5.4) (6.0) Effective rate 25.5 24.9 9 Share capital 9.1 Share capital Authorised : 800 000 000 ordinary shares of 5 cents each 40 - 40 - Issued and fully paid 712,267,050 (2007 : 712 268 735) ordinary shares of 5 cents each 36 150 36 - Inflation adjustment 132,399,369 3,376,686 - - 132,399,405 3,376,836 36 -