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OK Zimbabwe 2012 annual report

OK Zimbabwe 2012 annual report

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  • 1. 2012
  • 2. 2012 annual report Table of Contents CORPORATE INFORMATION 2 DIRECTORATE AND MANAGEMENT 3 BOARD OF DIRECTORS 4 ORGANISATIONAL VISION 5 FINANCIAL HIGHLIGHTS 7 CHAIRMAN’S STATEMENT 8 CHIEF EXECUTIVE’S REPORT 10 GROUP PROFILE 13 REPORT OF THE DIRECTORS 14 CORPORATE GOVERNANCE 15 ACCOUNTING PHILOSOPHY 17 DIRECTORS’ RESPONSIBILITY FOR FINANCIAL REPORTING 18 REPORT OF THE INDEPENDENT AUDITORS 19 GROUP FINANCIAL STATEMENTS 20 COMPANY STATEMENT OF FINANCIAL POSITION 44 SHAREHOLDERS ANALYSIS 45 NOTICE TO MEMBERS 46 SHAREHOLDERS’ CALENDAR 47www.okziminvestor.com 1
  • 3. 2012 annual report 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) 1 Kenilworth Road Newlands P.O. Box 267 Harare Zimbabwe MAIN BANKERS Standard Chartered Bank Zimbabwe Limited Africa Unity Square Branch 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 ZB Centre Corner First Street / Kwame Nkrumah Avenue P.O. Box 2208 Harare Zimbabwe2 www.okziminvestor.com
  • 4. 2012 annual report Directorate and Management BOARD OF DIRECTORS Chairman D.B. Lake Chief Executive Officer V.W. Zireva* Chief Operating Officer A.R. Katsande* Finance Director A.E. Siyavora* W. N. Alexander F.T. Kembo M.T. Rukuni (Mrs) M. Tapera R. van Solt M. C. Jennings (alternate) * Executive Group Secretary H.Nharingo AUDIT COMMITTEE Chairman M.T. Rukuni (Mrs) F.T. Kembo M. Tapera R. van Solt Group Secretary H. Nharingo REMUNERATION COMMITTEE Chairman M. Tapera D.B. Lake W. N. Alexander V.W. Zireva 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. Munodawafawww.okziminvestor.com 3
  • 5. 2012 annual report Board of Directors ZIMBABWE LIMITED Seated from left M. T. Rukuni (Mrs) V. W. Zireva D. B. Lake A. E. Siyavora A. R. Katsande DIRECTOR CHIEF EXECUTIVE OFFICER CHAIRMAN FINANCE DIRECTOR CHIEF OPERATING OFFICER Standing from left F. T. Kembo R. van Solt M. Tapera W. N. Alexander DIRECTOR DIRECTOR DIRECTOR DIRECTOR M. C. Jennings (not in picture) DIRECTOR (Alternate)4 www.okziminvestor.com
  • 6. 2012 annual report Organisational Vision VISION STATEMENT CORE VALUES OK will be the dominant retailer in Zimbabwe. Discipline, honesty and integrity We believe in discipline, honesty and integrity. Our OK will establish presence in the region. actions will, at all times, be ethical and fair. These principles, which are fundamental to everything we do, We aim to achieve real growth in turnover and will be consistently applied and will not be compromised. profitability. Respect for the individual We will benchmark with world-class retailers to set the We believe in and have respect for the individual be they standards for quality retailing. an employee, a customer, a supplier, a shareholder or any other stakeholder. We will be the preferred employer in our industry. Teamwork We will strive to retain and grow our customer base We believe that our goals will be achieved best through through the provision of satisfying shopping teamwork. We will always think “we” and not “I”. experiences. Quality service MISSION STATEMENT We have pride in the quality of our service and are committed to excellence of quality in product and Our business is general retailing, providing quality service. merchandise and service while offering value for money to our customers in all market segments in Zimbabwe. Continuous improvement We believe in the principle of continuous improvement We are committed to the development and welfare of and with this we embrace total quality management, our employees. facility improvement and technological advancement. We encourage ingenuity and innovation and above all we We will achieve an optimum return on investment. promote the development of our staff. We will strive to build long-term relationships with our Good corporate citizenship suppliers and the community. We are fully cognisant of our responsibility to society and, through our contributions, sponsorship, environmental concern and other such practices, will always be a good corporate citizen.www.okziminvestor.com 5
  • 7. 2012 annual report6 6 www.okziminvestor.com
  • 8. 2012 annual report Financial Highlights For the year ended 31 March 2012 2011 US$ US$ Revenue 412 563 027 257 426 323 EBITDA 19 179 858 8 136 170 Profit before tax 14 980 734 5 319 998 Profit for the year 10 306 497 4 285 700 Headline earnings 10 404 944 4 320 665 Total assets 95 495 906 68 345 295 Market capitalisation 109 587 769 76 876 991 Dividend: cents Interim 0.15 - Final 0.35 0.21www.okziminvestor.com 7
  • 9. 2012 annual report Chairman’s Statement CHAIRMANS STATEMENT profitability of the Group. OVERVIEW: CONSOLIDATING GROWTH The Group accessed the $5 million convertible loan from the Investec Africa Frontier Private Equity Fund in line The Zimbabwean economy has continued to respond with the existing agreement and the funds will be applied favourably to the multi- currency regime during the year to the ongoing store refurbishment programme. under review. However, re-capitalisation constraints, liquidity challenges and low capacity utilisation GROUP PERFORMANCE continued to hinder significant recovery. Foreign participation in the local economy was to some extent Revenue generated for the period under review limited by the credit crunch experienced in most increased by 60.3% to US$412.6 million from US$257.4 advanced economies and by the country risk factors as million in 2011. Profit before tax was US$15.0 million perceived by potential investors. Despite these compared to US$5.3 million in 2011, while profit after tax challenges, the 2011 Gross Domestic Product grew by an was US$10.3 million compared to US$4.3 million in prior estimated 9.3%, while annual inflation remained year. Net operating expenses increased by 38.7% from relatively low closing the year at 4.9%. US$19.9 million in 2011 to US$27.6 million during the period under review, but the ratio of total operating Most of the products sold in the stores were imported as expenses to sales decreased to 13.3% against 14.8% in the local manufacturing base has yet to recover previous year. The increase in net operating expenses sufficiently to satisfy demand. Some basic products was largely attributable to the increase in electricity were subjected to quota restrictions but this did not tariffs as well as the cost of running larger generators hinder supply as the requisite import permits were during periods of power cuts. The cost of borrowing secured. Although the Group had to import goods, it increased to US$0.5 million compared to US$0.1 million continued to support the local industry and is an active during the same period in the prior year. Capital participant in the “ Buy Zimbabwe” campaign. All the expenditure during the period was US$11.5 million Groups stores were adequately stocked throughout the compared to US$9.4 million in the previous year and was financial year. Prices were generally stable with minimal mainly in respect of store refurbishments, the opening of movement linked to Rand/US Dollar exchange rate the two stores, replacement of plant and equipment and fluctuation since South Africa remains the major source overhauling the operations and distribution vehicle of imported products. fleet. The Group continued to consolidate on growth reported DIVIDEND on in the previous year. Sales were ahead of budget and profitability improved from the previous year. Two The directors declared a final dividend of 0.35 cents stores were added to the stable, namely Bon Marche bringing the aggregate dividend for the year to 0.5 cents. Westgate in August 2011 and OK Kwame Nkrumah in January 2012. The OKmart operation celebrated its first anniversary on 31 March 2012 achieving widespread market acceptance and support and making a commendable contribution to sales growth and8 www.okziminvestor.com
  • 10. 2012 annual report Chairman’s Statement (cont’d) OUTLOOK The stability experienced in the last financial year is expected to continue with the economy officially forecast to grow by 9.4% in calendar year 2012 and inflation expected to end the year below 5%. Disposable incomes are expected to remain low but improving with the forecast growth in Gross Domestic Product. The importation of products is expected to continue while local manufacturers battle to increase production. The current refurbishment exercise to refresh and modernise the Groups retail outlets continues with OK Marimba, OK Fife Avenue and Bon Marche Avondale set to undergo refurbishment in the first half of the year and an additional four stores are scheduled for renovations before the end of the financial year. These efforts are aimed at making the Groups outlets destinations of choice thereby growing and maintaining our market dominance. The Group will also continue to actively explore growth opportunities through opening new stores in new locations. The Board, management and staff will continue in their endeavours to reward the continued loyalty and support of our shareholders, suppliers and customers. . D. B. LAKE CHAIRMAN 1 June 2012www.okziminvestor.com 9
  • 11. 2012 annual report Chief Executive’s Report Performance Review previous performance which management believe can be sustained through focus and discipline. Having established a solid base by the end the previous financial year, I am pleased to report that the business OPERATIONS grew significantly for the year to 31 March 2012. The selected results, ratios and statistics in the table below The Group closed the financial year with 53 outlets highlight the vital indicators of that growth. comprising 44 OK stores, 7 Bon Marche’ stores and 2 OKmart stores. We opened one Bon Marche’ store in 2012 2011 Westage shopping centre in August 2011 and an OK outlet on Kwame Nkrumah Avenue in January 2012, both located in Harare. Our ambitious store refurbishment Revenue ($ millions) 412.6 257.4 programme is ongoing and saw the number of Operating income ($ millions) 15.4 5.4 refurbished outlets increasing to fifteen (15). Various EBITDA 19.1 8.1 items of equipment were also upgraded and /or replaced Attributable earnings ($ millions) 10.3 4.3 to improve facilities, while the distribution fleet was Gross margin 16.9% 16.8% increased in order to improve movement of product Overheads to sales 13.3% 14.8% from the central warehouse to the branches. Operating profit to sales 3.7% 2.1% Inventory (millions) 42.3 30.9 As in prior year, most of the products sold were imported Stock turn (times) 9.6 10.5 as the tight liquidity in the economy and the under- Current ratio 1.5 1.5 capitalisation of most local companies continued to limit Employee benefits to sales 5.5% 5.7% manufacturers’ capacity to produce at optimum levels. Although some basic products continued to be imported The Group’s stocking levels increased by 35% against on quotas, generally import permits were not difficult to sales growth of 60% showing overall stock management secure and thus importation of goods was not disrupted. efficiencies. The decline in stock turn to 9.6 from 10.5 times is a result of the longer than normal delivery lead Two years ago we reported on the high levels of times for imported products as well as the impact of the shrinkage that were experienced. Controls in this area OKmart operation that requires an average stock cover of have been improved and the shrinkage as a percentage two months for certain product ranges. To achieve the of sales has been brought below industry levels. The growth in sales we maintained the momentum picked up purchase of bigger generators with adequate capacity to in prior year through these initiatives:- run all equipment in the stores also assisted to reduce the level of markdowns of spoiled products. launching the OKmart brand which attracted ? more business from diverse market segments; OKmart division ? that the product offering to our ensuring customers remained adequate and at As reported last year, the Group took over the two sites competitive prices; that Makro Zimbabwe used to operate from in Bulawayo p ro v i d i n g go o d c u sto m e r s e r v i c e to and Harare and started operations on 31st March 2011. consumers; The Makro business format has largely been maintained continuing the major store refurbishment and this facilitates benchmarking with Makro’s programme; and operations in South Africa. This brand targets diverse engaging in focused promotional activities market segments and has had a good response from consumers, particularly in Harare. The operation is Gross profit margins were maintained in the OK & Bon designed to be a higher volume, lower gross profit Marche’ operations but the current year’s overall level margin and lower overhead operation when compared was diluted by the lower margin contribution of the with the supermarket business. This division exceeded OKmart operation. Operating profit improved because its sales and profit targets in the first year of operation of effective controls over shrinkage, mark-downs and and is anticipated to continue the good performance as overheads. we fine tune the offering. The financial results reflect continuing improvement on10 www.okziminvestor.com
  • 12. 2012 annual report Chief Executive’s Report (cont’d) HUMAN RESOURCES activities carried out during the reporting period included the OK Mega Value Expo promotion, the Bon As a consequence of increased business activity linked Marche’ Brilliant Buys, the Bon Marche’ Green Apple to store refurbishments, the new stores and vigorous promotion and the OKmart first anniversary campaign. competition for market share, the Group progressively The Bon Marche’ brand has become associated with increased the staff complement in order to enhance power walks and aerobathons, essentially positioning it service delivery to customers. The headcount as at 31 as a brand for health and lifestyle shopping. Efforts March 2012 was 3 458 compared to 3 063 employees in continue to promote the Shop Easy Card for both Bon the prior year. The Group continued with the Marche’ and OK stores as a means of enhancing service management graduate trainee program as part of its delivery and offering customers added convenience. succession planning strategy. COMMUNITY RESPONSIBILITY The industrial relations climate remained calm and positive during the reporting period despite the various The Group’s corporate social responsibility program challenges faced by employees in the difficult economic continues to focus on senior citizens initiatives, environment. The Group continued with the health and education, HIV/AIDS and children in difficult wellness program for staff members across the Group’s circumstances. In line with the social responsibility branch network focusing on health awareness, peer program, the reporting period saw a number of charities education, support and counseling. and other selected beneficiaries receiving some donations as part of our corporate social responsibility INFORMATION TECHNOLOGY efforts. These include Help Age, Manhinga Village and Jairos Jiri Association. Contributions to the Mayors’ A high level of connectivity is essential to operate the real Christmas cheer funds were made in most cities and time business system. Accordingly, the number of towns. These were mostly in the form of Shop Easy Cards branches on fibre optic links has been increased to forty- to facilitate their grocery shopping and cash to assist with four, with an additional five branches to be connected in administrative costs. The Senior Citizen Discount that the coming financial year. The few of the branches that the Group offered in the past is being resuscitated. Most are not in areas with fibre optic lines have been recently the Group has begun involvement with the re- connected via satellite. To ensure uninterrupted forestation drive in the country and has contributed processing in the branches, uninterrupted power supply towards that cause. (UPS) units have been installed in the stores. I reported last year that work was under way to migrate the CORPORATE GOVERNANCE business from Mach4 to a newer system. There has been a delay in finalizing this but work is in progress to move The Group remains committed to principles of Corporate the business information to the new software and Governance and best practices which endorse a culture platform. of business ethics, openness, transparency, integrity and accountability in its dealings with all its stakeholders. PROMOTIONS The Group’s structures, operations, policies and procedures are continuously assessed and updated for The Group successfully launched the 24th Edition of the compliance with the law and generally accepted OK Grand Challenge Jackpot Promotion on 12th April standards of good corporate governance. Our current 2012 and the promotion has received very positive practices are consistent with the standards of good support from both customers and suppliers. The level of corporate governance and with the standards set by interest from our supplier partners was such that we had regulatory authorities and are covered in detail to limit participating product lines to lead brands and elsewhere in this report. excluded complimentary lines. Other promotionalwww.okziminvestor.com 11
  • 13. 2012 annual report Chief Executive’s Report (cont’d) RISK MANAGEMENT since local manufacturers are yet to increase production capacity to adequate levels. The Group will continue The Group operates a formalized and thorough process with strategies to grow the business and enhance of identifying, monitoring and managing business risks. shareholder value through some of the following: This is aimed at protecting assets and earnings against exceptional financial losses and legal liabilities as well as ? adequate availability of stock and a Ensuring seizing opportunities. The Board reviews all business wide range of products on offer; risks on a quarterly basis and ensures that action plans or Cost containment, improved productivity and ? strategies have been put in place to manage identified efficiency in all areas of operations; risks. The Group constituted a Risk Management Upgrading and expanding store network to ? Committee to spearhead the implementation of the enhance customer convenience and increase Enterprise-wide Risk Management systems and work is brand loyalty. continuing to ensure full implementation of risk-based audits in the Group. I wish to heartily thank all management and staff for their contributions during the financial year just ended. I Operational risks are managed through formalized also wish to express my gratitude to our customers, procedures and controls, well-trained personnel and suppliers, business partners and other stakeholders for Information Technology back-up facilities. Emphasis is their continued support. placed on continuous review and improvement of systems and procedures as well as specific internal and . external audits. Sufficient resources and manpower are made available at all units to continually monitor and report on risk. The installation of enhanced CCTV systems in all outlets is part of the program for the ensuing year as this is seen as a critically important part in risk management. Live TV monitors will be included in the exercise in most units. The environment we are operating in is still harsh and therefore the process of risk management has become a vital component of the management process. OUTLOOK V.W. ZIREVA The prevailing macro-economic stability is expected to CHIEF EXECUTIVE OFFICER hold over the next year although the economy will continue to grow at a sluggish pace. Liquidity challenges are likely to persist while disposable incomes will remain generally low. Product supply will be adequate although the bulk of merchandise will continue to be imported12 www.okziminvestor.com
  • 14. 2012 annual report Group Profile HISTORICAL BACKGROUND developed its own brands through the OK Pot O Gold, OK Value, Bon Marche Premier Choice labels and OK Zimbabwe Limited was first incorporated as Shoppers’ Choice. Springmaster Corporation in 1953. In 1984, the name was changed to Deltrade Limited and this was in turn, MANAGEMENT STRUCTURE subsequently changed to the current name in July 2001. The Company controls numerous subsidiaries that are The Group is controlled by a Board of Directors and dormant. managed by a Management Committee, comprising seven departmental executives (including three The inaugural branch opened at OK First Street (Harare) Executive Directors). The Management Committee in 1942 and the second branch in Bulawayo in 1952. A reports to the Board through the Chief Executive Officer. further five outlets were opened across the country by the end of 1960. HEALTH AND SAFETY In 1977, Delta Corporation acquired the business The Group continues to provide both preventative and operations in Springmaster Corporation (now OK curative health delivery services to its employees. Zimbabwe Limited), which they held until the de-merger Outreach programmes to family members of the sick and in October 2001. bedridden employees revealed a growing need for generic as well as systematic counselling services, which OK Zimbabwe Limited has established itself as a were provided through professionals. customer-oriented organization providing comprehensive access to a broad range of retail products EDUCATION and allied services developed in response to its customers requirements for convenience and value. Staff development is one of our core values. A substantial number of our employees are enrolled on various BUSINESS OPERATIONS education and training programmes at tertiary and professional levels. These programmes provide The Group is a leading supermarket retailer whose succession material for technical and managerial business covers three major categories, comprising positions in the Group. groceries, basic clothing and textiles and house ware products. The groceries category includes dry groceries, TRAINING butchery, delicatessen, takeaway, bakery, provisions and fruit and vegetable sections. The bakeries and fruit and The Retail Management Development Programme vegetable operations are currently outsourced to comprising the Internal Management Trainees and Innscor and Favco, respectively. Another specialist area is Graduate Management Trainees remains the school wear. cornerstone of our management development endeavors. For the general staff our focus has been on OK Zimbabwe Limited trades under three highly the sharpening of skills and competencies. recognized brand names, OK stores, Bon Marche stores, and a new brand OKmart was introduced at the start of CORPORATE SOCIAL RESPONSIBILITY the financial year. The diversified distribution channel allows the Group to target all segments of the desired OK Zimbabwe Limited has shown commitment to the market. In this regard, the Group has specifically profiled community by sponsoring or donating to causes in the its stores in terms of design, product range, services and areas of health, education, students employment, other offerings in a way that effectively caters for the charities, sports and the environment. Childrens Homes, specific requirements in the low, middle and high income Old Peoples Homes, Hospice Centres and Disabled consumer categories. Peoples Associations and re-forestation efforts are amongst the beneficiaries of OK Zimbabwes Social OK Zimbabwe Limited has maintained its position as one Responsibility efforts. Through its network of branches, of the dominant supermarket retailers in the countrys OK Zimbabwe Limited is involved in various local competitive retail sector, despite the effect of liquidity community activities. The branches are proud to be able constraints and low disposable incomes. The Group has to make a positive contribution to the communities inwww.okziminvestor.com 13
  • 15. 2012 annual report Report of the Directors The Directors have pleasure in presenting their Eleventh Annual Report and the Audited Financial Statements of the Group for the year ended 31 March 2012. YEARS RESULTS US$ Profit for the year and earnings attributable to shareholders 10 306 497 FIXED ASSETS Capital expenditure for the year to 31 March 2012 totaled US$11.5 million. SHARE CAPITAL The authorised share capital of the Group was US$200,000 made up of 2,000,000,000 ordinary shares of US$0.0001 each while the issued share capital was US$104,369 made up of 1,043,693,040 ordinary shares of US$0.0001 each. RESERVES The movements in the Reserves of the Group are shown in the Statement of Changes in Equity and in the Notes to the Financial Statements. DIRECTORS Messrs. N.W. Alexander, R. van Solt and M.C. Jennings retire by rotation in accordance with Article 100 of the Articles of Association and, being eligible, offer themselves for re-election. Mr. H. Nkala was appointed to the Board on 8 June 2012 and in terms of section 107 of the Articles of Association, he retires from the Board. Being eligible, he offers himself for re-election. AUDITORS Members will be asked to approve the auditors fees for the past financial year and to appoint auditors of the Group for the ensuing year. ANNUAL GENERAL MEETING The Eleventh Annual General Meeting of the Group will be held at 10:00 on Friday 27 July 2012 in the OKmart Functions Room, First Floor, OKmart 30 Chiremba Road, Hillside, Harare. BY ORDER OF THE BOARD D.B. LAKE V.W. ZIREVA H. NHARINGO Chairman Chief Executive Officer Group Secretary 1 June 201214 www.okziminvestor.com
  • 16. 2012 annual report Corporate Governance INTRODUCTION Any service rendered by Directors and all Directors interests in OK Zimbabwe are required to be conducted The primary objective of any system of corporate on an arms length basis. Full disclosure of any such governance is to ensure that directors, executives and arrangements by all current executive and non-executive managers, to whom stewardship of companies is Directors must be made in accordance with legal entrusted by the shareholders, carry out their requirements. Each year, Directors are required to responsibilities faithfully, effectively and efficiently. submit in writing whether they have any interest in any contract of significance with the Group, which could give The Board is committed to principles of corporate rise to a conflict of interest. governance and best practices which endorse a culture of business ethics, openness, transparency, integrity and AUDIT COMMITTEE accountability in its dealings with all stakeholders. The Groups structures, operations, policies and procedures The Committee consists of four Non-Executive Directors are continuously assessed and updated for compliance with the Chief Executive Officer and with the Finance with the law and generally accepted standards of good Director attending as ex-officio. The internal and corporate governance. external auditors attend the meetings and have unrestricted access to the Chairman of the Committee. BOARD OF DIRECTORS The Committee meets at least twice a year. The function of the Audit Committee is to advise the Board on all The Groups Articles of Association provide for the matters relating to corporate governance and regulatory appointment of independent directors. The Board issues. In particular, it monitors financial controls, currently comprises three Executive Directors and six accounting policies, accounting systems and assesses Non-Executive Directors who were chosen for their wide the processes for identifying, monitoring and managing range of professional and commercial competencies. business risks. It reviews any significant abnormal The Chairman of the Board is a non-executive director. transactions, ensures there are no restrictions on external auditors work and follows up matters reported The Board of Directors is responsible for giving direction or unresolved with the auditors. It reviews the Groups to the Group through the setting of the overall strategy, financial statements and external audit fees before key policies and risk parameters. It is also responsible for submission to the Board for consideration and approval. approving strategic and operational budgets, significant The Audit Committee monitors the Internal Audit acquisitions and disposals and interim and annual Charter, plans, programs, reports and recommends the operating results. The implementation of the overall appointment of external auditors. strategy, policies and the management of risk are monitored using key performance indicators and best REMUNERATION COMMITTEE practice benchmarks. Executive management presents structured reports, to allow the Board to monitor The Committee consists of three Non-Executive performance. The Board has constituted Audit and Directors and the Chief Executive Officer. The Remuneration Committees to assist it in the discharge of Remuneration Committee is responsible for making its responsibilities. recommendations on all major policy issues, including Board appointments and the remuneration policy of In terms of the Groups Articles of Association, Directors Executive Directors and senior management. The are not precluded from entering into or being interested objective of the policy is to ensure that the right caliber of in contracts or arrangements with the Group. However, a management is recruited and retained. The Committee Director who is in any way, whether directly or indirectly, also considers, at Board level, remuneration levels and interested in a contract or proposed contract which has conditions of service of staff to ensure that these are fair, been or is to be entered into by the Group, is required to appropriate and in line with the market and the Groups declare the nature and extent of this interest. A Director remuneration philosophy. is not permitted to vote in respect of any contract or arrangement in which he or she is interested.www.okziminvestor.com 15
  • 17. 2012 annual report Corporate Governance (cont’d) ETHICS Directors and employees are required to observe the highest ethical standards ensuring that business practices are conducted in a manner which, in all reasonable circumstances, is beyond reproach. In this regard, the Group has a detailed code of ethics for all levels of employees. In line with the Zimbabwe Stock Exchange Listing Requirements, the Group observes a closed period prior to the publication of its interim and year-end financial results, during which period Directors, officers and employees may not deal in the shares of the Group. Where appropriate, this restriction is also extended to include other sensitive periods. EQUAL OPPORTUNITY The Group is committed to providing equal opportunities for its employees regardless of race, tribe, place of origin, political opinion, colour, creed or sex. EMPLOYEE PARTICIPATION The Group recognises the need for orderly consultation and discussions through workers committees, works councils, departmental and liaison meetings and other collective bargaining fora. These structures, which are designed in consultation with employee representatives, are intended to achieve good employer/employee relations as well as promoting productivity, safety and loss control. SAFETY, HEALTH AND ENVIRONMENT The Group aims to create wealth and to contribute to development by operating its business with due regard for economic, social, cultural and environmental issues. Safety, health and environmental issues, therefore, receive special attention.16 www.okziminvestor.com
  • 18. 2012 annual report Accounting Philosophy OK Zimbabwe Limited is dedicated to achieving meaningful and responsible reporting through comprehensive disclosure and explanation of its financial results. This is done to assist objective corporate performance measurement, to enable returns on investment to be assessed against the risks inherent in their achievement and to facilitate appraisal of the full potential of the Group. The core determinant of meaningful presentation and disclosure of information is its validity in supporting managements decision making process. While the accounting philosophy encourages the pioneering of new techniques, it endorses the fundamental concepts underlying both the financial and management accounting disciplines as enunciated by the Institute of Chartered Accountants of Zimbabwe, the International Accounting Standards Committee and the International Federation of Accountants. The Group is committed to regular reviews of accounting standards and to the development of new and improved accounting practices. This is done to ensure that the information reported to the management and stakeholders of the Group continues to be internationally comparable, relevant and reliable. This includes, wherever it is considered appropriate, the early adoption of accounting standards.www.okziminvestor.com 17
  • 19. 2012 annual report Directors’ Responsibility for Financial Reporting OK Zimbabwe Limiteds Directors are required by the compliance signed by the Chief Executive Officer and a Companies Act (Chapter 24:03) to maintain adequate comprehensive programme of internal audits. In accounting records and to prepare financial statements addition, the Groups external auditors review on a test for each financial period, which present a true and fair basis aspects of the internal financial control systems view of the state of the affairs of the Group at the end of that they deem relevant during the course of their the reporting period and of the profit and cash flows for statutory examination of the Group. the period. In preparing the accompanying financial statements, generally accepted accounting practices The Audit Committee meets regularly with the Groups have been applied, accounting policies have been used, internal and external auditors and executive and reasonable and prudent judgments and estimates management to review accounting, auditing, internal have been made in compliance with International control and reporting matters. Financial Reporting Standards. The financial statements incorporate full and responsible disclosure in line with The financial statements were reviewed by the Board of the accounting philosophy of the Group. Directors and are approved and signed on their behalf by: The Directors have reviewed the Groups budget and cash flow forecast for the year to 31 March 2013. On the basis of this review, and in the light of the current financial position and existing borrowing facilities, the Directors are satisfied that OK Zimbabwe Limited is a D. LAKE V. W. ZIREVA going concern and has continued to adopt the going Chairman Chief Executive Officer concern basis in preparing the financial statements. The Groups external auditors, Deloitte & Touche, have 1 June 2012 audited the financial statements and their report appears on page 19. The Board recognises and acknowledges its responsibility for the Groups system of internal financial control, policy on business conduct, which covers ethical behaviours, compliances with legislation and sound accounting practice, underpins the Groups internal financial control policies and procedures, clearly defined lines of accountability and delegation of authority, and comprehensive financial reporting and analysis against approved budgets. The responsibility for operating the system is delegated to the Executive Directors and senior management who confirm that they have reviewed its effectiveness. They consider that it is appropriately designed to provide reasonable, but not absolute, assurance that assets are safeguarded against material loss or unauthorized use and the transactions are properly authorized and recorded. The effectiveness of the internal financial control system is monitored through management reviews, representation letters on18 www.okziminvestor.com
  • 20. 2012 annual report Report of the Independent Auditors to the members of OK Zimbabwe Limited We have audited the accompanying consolidated financial statements of OK Zimbabwe Limited and its subsidiary (together “the Group”) as set out on pages 20 to 44, which comprise the consolidated statement of financial position at 31 March 2012, and the consolidated statement of comprehensive income, the consolidated statement of changes in equity and the consolidated statement of cash flows for the year then ended, and the notes to the consolidated financial statements, which include a summary of significant accounting policies and other explanatory notes. DIRECTORS’ RESPONSIBILITY FOR THE CONSOLIDATED FINANCIAL STATEMENTS The Directors are responsible for the preparation and fair presentation of these financial statements in accordance with International Financial Reporting Standards (IFRS) and in the manner required by the Companies Act (Chapter 24:03) and the relevant Statutory Instruments (SI 33/99 and SI 62/96). This responsibility includes: designing, implementing and maintaining internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances. AUDITORS’ RESPONSIBILITY Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. Those Standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance whether the financial statements are free of material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. OPINION In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of OK Zimbabwe Limited at 31 March 2012, and its financial performance and its cash flows for the year then ended in accordance with International Financial Reporting Standards. REPORT ON OTHER LEGAL AND REGULATORY REQUIREMENTS statemen In our opinion, the financial statements have, in all material respects, been properly prepared in compliance with the disclosure requirements of the Companies Act (Chapter 24:03) and the relevant Statutory Instruments (SI 33/99 and SI62/96). DELOITTE & TOUCHE Chartered Accountants Harare, Zimbabwe 1 June 2012www.okziminvestor.com 19
  • 21. 2012 annual report Consolidated Statement of Comprehensive Income For the year ended 31 March 2012 2011 NOTE US$ US$ Revenue 5 412 563 027 257 426 323 Changes in trade inventories (11 099 826) (13 794 294) Merchandise and consumables used (331 301 261) (200 120 241) Employee benefits expense (22 536 574) (14 635 678) Depreciation expense 6.2 (3 760 891) (2 714 625) Share option expense (816 081) (791 153) Net operating expense (27 596 909) (19 948 787) Finance costs (470 751) (101 547) Profit before taxation 6 14 980 734 5 319 998 Taxation 7.1 (4 674 237) (1 034 298) Profit for the year 10 306 497 4 285 700 Other comprehensive income Gains on revaluations of property, plant and equipment 1 934 563 3 059 920 Fair value adjustment on available for sale equity investments (3 804) (2 791) Income tax relating to components of other comprehensive income (498 150) (787 901) Other comprehensive income for the year net of tax 1 432 609 2 269 228 Total comprehensive income for the year 11 739 106 6 554 928 Weighted average number of ordinary shares in issue 1 027 421 409 996 967 989 Share performance : cents : attributable earnings 24 1.00 0.43 : headline earnings basis 24 1.01 0.43 : net asset value 4.62 3.8520 www.okziminvestor.com
  • 22. 2012 annual report Consolidated Statement of Financial Position As at 31 March 2012 2011 US$ US$ NOTE (restated) Assets Non-current assets Property, plant and equipment 9 36 777 506 27 288 949 Goodwill 10 400 000 400 000 Long-term investments 11 230 121 406 141 37 407 627 28 095 090 Current assets Inventories 12 42 321 270 30 890 226 Trade and other receivables 13 3 962 593 2 805 607 Short-term loans 14 80 994 10 093 Cash and cash equivalents 11 723 422 6 544 279 58 088 279 40 250 205 Total assets 95 495 906 68 345 295 Equity and Liabilities Equity Shareholders equity 47 514 911 38 376 228 Non-current liabilities Deferred taxation 15 4 802 031 3 252 906 Long-term borrowings 16 5 000 000 - 9 802 031 3 252 906 Current liabilities Trade and other payables 17 36 910 141 26 049 315 Current tax liabilities 18.4 1 268 823 666 846 38 178 964 26 716 161 Total equity and liabilities 95 495 906 68 345 295 For and on behalf of the Board: D.B. Lake V.W. Zireva Nharingo H. Nharing (Chairman) (Chief Executive Officer) (Group Secretary) 1 June 2012www.okziminvestor.com 21
  • 23. 22 Consolidated Statement of Changes in Equity For the year ended 31 March 2012 NOTE Share Share Share Share based Investment Revaluation Non Retained Total capital premium allotment payment reserve reserve distributable earnings reserve reserve reserve Balance as at 1 April 2010 (as previously reported) 73 210 3 215 127 - 811 373 43 497 856 834 10 469 975 1 040 339 16 510 355 Prior year adjustment 19 - - - - - - (437 235) - (437 235) Balance as at 1 April 2010 (restated) 73 210 3 215 127 - 811 373 43 497 856 834 10 032 740 1 040 339 16 073 120 Profit for the year - - - - - - - 4 285 700 4 285 700 Other comprehensive income for the year net of income tax - - - - (2 791) 2 272 019 - - 2 269 228 Impairment of property, plant and equipment - - - - - (170 858) - (170 858) Recognition of share based payments - - - 791 153 - - - - 791 153 Share capital awaiting allotment - - 586 189 - - - - - 586 189 Rights issue expenses paid - (868 842) - - - - - - (868 842) Share buy-back costs - - - - - - - (182 395) (182 395) Transfer of reserve on shares exercised - - - (636 371) - - - 636 371 - Issue of shares 28 345 15 564 588 - - - - - - 15 592 933 Balance as at 31 March 2011 101 555 17 910 873 586 189 966 155 40 706 3 128 853 9 861 882 5 780 015 38 376 228 Profit for the year - - - - - - - 10 306 497 10 306 497 Other comprehensive income for the year, net of income tax - - - - (3 804) 1 436 413 - - 1 432 609 Dividend paid - - - - - - - (3 665 094) (3 665 094) Recognition of share based payments - - - 816 081 - - - - 816 081 Share capital allotted 519 585 670 (586 189) - - - - - - Transfer of reserve on shares exercised - - - (302 887) - - - 302 887 - Issue of shares 2 295 246 295 - - - - - - 248 590 Balance as at 31 March 2012 104 369 18 742 838 - 1 479 349 36 902 4 565 266 9 861 882 12 724 305 47 514 911www.okziminvestor.com 2012 annual report
  • 24. 2012 annual report Consolidated Statement of Cash Flows For the year ended 31 March 2012 2011 NOTE US$ US$ Cash generated from operating activities Cash generated from trading 18.1 20 094 386 8 943 885 Working capital changes 18.2 (1 798 105) (2 975 952) Cash generated from operations 18 296 281 5 967 933 Net finance costs 18.3 (438 233) (83 538) Taxation paid 18.4 (3 021 285) (920 037) Dividend paid 18.5 (3 665 094) - Net cash generated from operating activities 11 171 669 4 964 358 Cash utilised in investment activities Investment to maintain operations : Replacement of property, plant and equipment (8 418 975) (8 127 334) Proceeds from disposal of property, plant and equipment 82 742 42 259 Decrease in long-term investments 172 216 - (8 164 017) (8 085 075) Investment to expand operations: Additions to property, plant and equipment (3 077 099) (1 139 833) Net cash invested (11 241 116) (9 224 908) Financing activities Decrease in short-term borrowings - (7 122 221) Increase in long-term borrowings 5 000 000 - Proceeds from rights issue - 15 022 509 Rights issue expenses - (868 842) Share buy-back - (182 395) Proceeds from share options exercised 248 590 282 898 Net financing raised 5 248 590 7 131 949 Net increase in cash and cash equivalents 5 179 143 2 871 399 Cash and cash equivalents at the beginning of year 6 544 279 3 672 880 Cash and cash equivalents at the end of year 11 723 422 6 544 279www.okziminvestor.com 23
  • 25. 2012 annual report Notes to the Consolidated Financial Statements For the year ended 31 March 2012 1. General information OK Zimbabwe Limited is a listed Group registered and conducting business in Zimbabwe. The Group is a leading supermarket retailer whose business covers three major categories, comprising groceries, basic clothing and textiles and house-ware products. At the reporting date, the Group was operating from fifty three shops countrywide, had one wholly owned subsidiary and joint ownership of a boat. 2. Application of new and revised International Financial Reporting Standards (IFRSs) 2.1 New and revised IFRSs affecting amounts reported in the current year (and/or prior years) The following new and revised IFRSs have been applied in the current year 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 2.2. New and revised IFRSs affecting presentation and disclosure only Amendments to IAS 1 Presentation of Financial Statements (as part of Improvements to IFRSs issued in 2010) The amendments to IAS 1 clarify that an entity may choose to disclose analysis of other comprehensive income by item in the statement of changes in equity or in the notes to the financial statements. In the current year, for each component of equity, the Group has chosen to present such an analysis by item in the statement of changes in equity. Such amendments have been applied retrospectively. 2.2 New and revised IFRSs applied with no material effect on the consolidated financial statements The following new and revised IFRSs have also been adopted in these consolidated financial statements. The application of these new and revised IFRSs has not had any material impact on the amounts reported for the current and prior years but may affect the accounting for future transactions or arrangements. IAS 24 Related Party Disclosures (as revised in 2009) IAS 24 Related Party Disclosures IAS 24 (as revised in 2009) has been revised on the following two aspects: (a) IAS 24 (as revised in 2009) has changed the definition of a related party and (b) IAS 24 (as Revised in 2009) introduces a partial exemption from the disclosure requirements for government-related entities. The Company and its subsidiaries are not government-related entities. Amendments to IFRS 3 Business Combinations As part of Improvements to IFRSs issued in 2010 IFRS 3 was amended to clarify that the measurement choice regarding non-controlling interests at the date of acquisition is only available in respect of non-controlling interests that are present ownership interests and that entitle their holders to a proportionate share of the entitys net assets in the event of liquidation. All other types of non-controlling interests are measured at their acquisition-date fair value, unless another measurement basis is required by other Standards. In addition, IFRS 3 was amended to provide more guidance regarding the accounting for share-based payment awards held by the acquirees employees. Specifically, the amendments specify that share-based payment transactions of the acquiree that are not replaced should be measured in accordance with IFRS 2 Share-based Payment at the acquisition date (market-based measure).24 www.okziminvestor.com
  • 26. 2012 annual report Notes to the Consolidated Financial Statements For the year ended 31 March 2012 Amendments to IAS 32 Classification of Rights Issues The amendments address the classification of certain rights issues denominated in a foreign currency as either equity instruments or as financial liabilities. Under the amendments, rights, options or warrants issued by an entity for the holders to acquire are classified as equity instruments in the financial statements of the entity provided that the offer is made pro rata to all of its existing owners of the same class of its non-derivative equity instruments. Before the amendments to IAS 32, rights, options or warrants to acquire a fixed number of an entitys equity instruments for a fixed amount in foreign currency were classified as derivatives. The amendments require retrospective application. The application of the amendments has had no effect on the amounts reported in the current and prior years because the Group has not issued instruments of this nature. Amendments to IFRIC 14 Prepayments of a Minimum Funding Requirement IFRIC 14 addresses when refunds or reductions in future contributions should be regarded as available in accordance with paragraph 58 of IAS 19; how minimum funding requirements might affect the availability of reductions in future contributions; and when minimum funding requirements might give rise to a liability. The amendments now allow recognition of an asset in the form of prepaid minimum funding contributions. The application of the amendments has not had material effect on the Groups consolidated financial statements. IFRIC 19 Extinguishing Financial Liabilities with Equity Instruments The Interpretation provides guidance on the accounting for the extinguishment of a financial liability by the issue of equity instruments. Specifically, under IFRIC 19, equity instruments issued under such arrangement will be measured at their fair value, and any difference between the carrying amount of the financial liability extinguished and the consideration paid will be recognised in profit or loss. The application of IFRIC 19 has had no effect on the amounts reported in the current and prior years because the Group has not entered into any transactions of this nature. 2.3 New and revised IFRSs in issue but not yet effective The Group has not applied the following new and revised IRFSs that have been issued but are not yet effective. Amendments to IFRS 7 Disclosure - Transfers of Financial Assets : Effective for annual periods beginning on or after 1 July 2011 IFRS 9 Financial Instruments : Effective for annual periods beginning on or after 1 January 2013 IFRS 10 Consolidated Financial Statements : Effective for annual periods beginning on or after 1 January 2013 IFRS 11 Joint Arrangements : Effective for annual periods beginning on or after 1 January 2013. IFRS 12 Disclosure of Interests in Other Entities : Effective for annual periods beginning on or after 1 January 2013. IFRS 13 Fair Value Measurement : Effective for annual periods beginning on or after 1 January 2013. Amendments to IAS 1 Presentation of Items of Other Comprehensive Income : Effective for annual periods beginning on or after July 2012. Amendments to IAS 12 Deferred Tax - Recovery of Underlying Assets : Effective for annual periods beginning on or after 1 January 2012.www.okziminvestor.com 25
  • 27. 2012 annual report Notes to the Consolidated Financial Statements For the year ended 31 March 2012 IAS 19 (as revised in 2011) Employee Benefits : Effective for annual periods beginning on or after 1 January 2013. IAS 27 (as revised in 2011) Separate Financial Statements: Effective for annual periods beginning on or after 1 January 2013. IAS 28 (as revised in 2011) Investments in Associates and Joint Ventures : Effective for annual periods beginning on or after 1 January 2013. IAS 32 (as revised in 2011) Financial Instruments: Presentation: Effective for annual periods beginning on or after 1 January 2014. IFRIC 20 Stripping costs in the production phase of surface mine: Effective for annual periods beginning on or after 1 January 2013. The Directors have not accessed the impact of these amendments on the consolidated financial statements. 3 Significant accounting policies 3.1 Statement of compliance The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards and the requirements of the Companies Act ( Chapter 24:03) and relevant Statutory Instruments (SI33/99 and SI62/96). 3.2 Basis of preparation The financial statements have been prepared on the historical cost basis except for the fair valuation of certain non-current assets and financial instruments. Historical cost is generally based on the fair value of the consideration given in exchange for assets. The principal accounting policies of the financial statements, set out below, have been consistently followed in all material respects. 3.3 Basis of consolidation The consolidated financial statements incorporate the financial statements of the Company and entities including special purpose entities controlled by the Company (its subsidiaries). Control is achieved where the Group has the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. 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. 3.4 Business combinations Acquisitions of businesses are accounted for using the acquisition method. The consideration for each acquisition is measured at the aggregate of the fair values (at the date of exchange) of assets given, liabilities incurred or assumed, and equity instruments issued by the Group in exchange for control of the acquiree. Acquisition-related costs are recognised in profit or loss as incurred. Where applicable, the consideration for the acquisition includes any asset or liability resulting from a contingent consideration arrangement, measured at its acquisition-date fair value. Subsequent changes in such fair values are adjusted against the cost of acquisition where they qualify as measurement period adjustments (see below). All other subsequent changes in the fair value of contingent consideration classified as an asset or liability are accounted for in accordance with relevant IFRSs. Changes in the fair value of contingent consideration classified as equity are not recognised.26 www.okziminvestor.com
  • 28. 2012 annual report Notes to the Consolidated Financial Statements For the year ended 31 March 2012 Where a business combination is achieved in stages, the Groups previously held interests in the acquired entity are remeasured to fair value at the acquisition date (i.e. the date the Group attains control) and the resulting gain or loss, if any, is recognised in profit or loss. Amounts arising from interests in the acquiree prior to the acquisition date that have previously been recognised in other comprehensive income are reclassified to profit or loss, where such treatment would be appropriate if that interest were disposed of. The acquirees identifiable assets, liabilities and contingent liabilities that meet the conditions for recognition under IFRS 3 (2008) are recognised at their fair value at the acquisition date, except that: ? tax assets or liabilities and liabilities or assets related to employee benefit arrangements are deferred recognised and measured in accordance with IAS 12 Income Taxes and IAS 19 Employee Benefits respectively; ? or equity instruments related to the replacement by the Group of an acquirees share-based liabilities payment awards are measured in accordance with IFRS 2 Share-based Payment; and ? disposal groups) that are classified as held for sale in accordance with IFRS 5 Non-current Assets assets (or Held for Sale and Discontinued Operations are measured in accordance with that Standard. If the initial accounting for a business combination is incomplete by the end of the reporting period in which the combination occurs, the Group reports provisional amounts for the items for which the accounting is incomplete. Those provisional amounts are adjusted during the measurement period (see below), or additional assets or liabilities are recognised, to reflect new information obtained about facts and circumstances that existed as of the acquisition date that, if known, would have affected the amounts recognised as of that date. The measurement period is the period from the date of acquisition to the date the Group obtains complete information about facts and circumstances that existed as of the acquisition date and is subject to a maximum of one year. 3.5 Interest in joint venture 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. When a group entity transacts with a jointly controlled entity of the Group, unrealised profits and losses are eliminated to the extent of the Groups interest in the joint venture. 3.6 Goodwill Goodwill arising on acquisition of assets is initially measured and recognised at cost as determined on the acquisition date less accumulated impairment losses if any. This goodwill is subsequently reviewed for impairment at least on an annual basis and any resulting impairment is recognised immediately in profit or loss.www.okziminvestor.com 27
  • 29. 2012 annual report Notes to the Consolidated Financial Statements For the year ended 31 March 2012 3.7 Foreign currency transactions and balances While the Groups records are maintained in United States Dollars, some of its transactions are conducted in other major foreign currencies. Foreign assets and liabilities are converted to United States Dollars at the rates of exchange ruling at the end of the financial period. Transactions in foreign currencies are translated to United States Dollars 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 profit or loss in the determination of the operating income. 3.8 Borrowing costs Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, which are assets that necessarily take a substantial period of time to get ready for their intended use or sale, are added to the cost of those assets, until such time as the assets are substantially ready for their intended use or sale. All other borrowing costs are recognised in profit or loss in the period in which they are incurred. 3.9 Property, plant and equipment Property, plant and equipment are stated in the statement of financial position at cost or revalued amount less any subsequent accumulated depreciation and impairment. Methods of valuation used are as follows: Industrial land and buildings open market value Residential land and buildings open market value Other property, plant and equipment cost and directors’ valuation Revaluations are performed with sufficient regularity such that the carrying amounts do not differ materially from those that would be determined using fair values at the end of the reporting period. Any revaluation increase arising on the revaluation of such land and buildings is recognised in other comprehensive income, except to the extent that it reverses a revaluation decrease for the same asset previously recognised in profit or loss, in which case the increase is credited to profit or loss to the extent of the decrease previously expensed. A decrease in the carrying amount arising on the revaluation of such land and buildings is recognised in statement of comprehensive income to the extent that it exceeds the balance, if any, held in the properties revaluation reserve relating to a previous revaluation of that asset. Depreciation on revalued buildings is recognised in profit or loss. On the subsequent sale or retirement of a revalued property, the attributable revaluation surplus remaining in the properties revaluation reserve is transferred directly to retained earnings. No transfer is made from the revaluation reserve to retained earnings except when an asset is derecognised. Properties in the course of construction for production, supply or administrative purposes, or for purposes not yet determined, are carried at cost, less any recognised impairment. Cost includes professional fees and, for qualifying assets, borrowing costs capitalised in accordance with the Groups accounting policy. Depreciation of these assets, on the same basis as other property assets, commences when the assets are ready for their intended use. Freehold land is not depreciated. Plant, motor vehicles, fixtures and equipment are stated at cost and directors’ valuation less accumulated depreciation and accumulated impairment. These assets are depreciated over their estimated useful lives, which are as follows: Freehold property 20 years Leasehold improvements lease tenure28 www.okziminvestor.com
  • 30. 2012 annual report Notes to the Consolidated Financial Statements For the year ended 31 March 2012 Plant and equipment 5 to 10 years Motor vehicles 5 years Depreciation is recognised so as to write off the cost or valuation of assets (other than freehold land and properties under construction) less their residual values over their useful lives, using the straight-line method. The estimated useful lives, residual values and depreciation method are reviewed at each year end, with the effect of any changes in estimate accounted for on a prospective basis. 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. 3.10 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 for inventories less all estimated costs necessary to make the sale. 3.11 Financial instruments Financial assets and financial liabilities are recognised where the Group becomes a party to the contractual provisions of the instrument. Financial assets and financial liabilities are initially measured at fair value. Transaction costs that are directly attributable to the acquisition or issue of financial assets and financial liabilities (other than financial assets and financial liabilities at fair value through profit or loss) are added to or deducted from the fair value of the financial assets attributable to the acquisition of financial assets or financial liabilities at fair value through profit or loss are recognised immediately in profit or loss. Financial assets The Groups principal financial assets are trade and other receivables, loans and cash and cash equivalents. Listed shares regarded as available for sale financial assets, for which fair value can be reliably determined with reference to an active market, are initially recognised at fair value and subsequently stated at a fair value with the change in value being credited or debited toprofit or loss. Trade and other receivables and loans are measured at amortised costs 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 change in value. Financial liabilities Financial liabilities are classified according to the substance of the contractual agreement entered into. Significant financial liabilities of the Group are trade payables, short term borrowings and other payables and these are recognised at fair value net of transaction costs and subsequently measured at amortised cost. Where the Group has financial instruments which have a legally enforceable right of offset and the Group intends to settle them on a net basis or to realize the asset and liability simultaneously, the financial asset and liability and related revenues and expenses are offset and the net amount reported in the statement of financial position and statement of comprehensive income, 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 Group are recorded at the amount of proceeds received, net of direct issue costs.www.okziminvestor.com 29
  • 31. 2012 annual report Notes to the Consolidated Financial Statements For the year ended 31 March 2012 3.12 Revenue recognition Revenue comprises sales, rentals, interest and dividend income. Revenue from the sale of goods is recognised at the fair value of the consideration received or receivable when the risk 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. 3.13 Taxation Income tax expense represents the tax currently payable and deferred tax. Current tax The tax currently payable is based on taxable profit for the year. Taxable profit differs from profit as reported in the Statement of Comprehensive Income because of items of income or expense that are taxable or deductible in other years and items that are never taxable or deductible. The Groups liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the end of the reporting period. Deferred tax Deferred tax is recognised on temporary differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit. Deferred tax liabilities are generally recognised for all taxable temporary differences. Deferred tax assets are generally recognised for all deductible temporary differences to the extent that it is probable that taxable profits will be available against which those deductible temporary differences can be utilised. Such deferred tax assets and liabilities are not recognised if the temporary difference arises from assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit. The carrying amount of deferred tax assets is reviewed at the end of each reporting period and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered. Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the period in which the liability is settled or the asset realised, based on tax rates (and tax laws) that have been enacted or substantively enacted by the end of the reporting period. The measurement of deferred tax liabilities and assets reflects the tax consequences that would follow from the manner in which the Group expects, at the end of the reporting period, to recover or settle the carrying amount of its assets and liabilities. Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities and when they relate to income taxes levied by the same taxation authority and the Group intends to settle its current tax assets and liabilities on a net basis. Current and deferred tax for the period Current and deferred tax are recognised as an expense or income in profit or loss, except when they relate to items that are recognised outside profit or loss (whether in other comprehensive income or directly in equity), in which case the tax is also recognised outside profit or loss.30 www.okziminvestor.com
  • 32. 2012 annual report Notes to the Consolidated Financial Statements For the year ended 31 March 2012 3.14 Retirement benefit costs Contributions to defined contribution retirement benefit plans are recognised as an expense when employees have rendered service entitling them to the contributions. Retirement benefits are provided for Group employees through the OK Zimbabwe Pension Fund, which is a defined contribution fund, and through the National Social Security Authority (NSSA) which is also a defined contribution scheme. Contributions to both are charged to the statement of comprehensive income. The NSSA scheme is a defined contribution scheme promulgated under the National Social Security Authority Act (1989). The Groups obligations under the scheme are limited to specific contributions legislated from time to time. 3.15 Provisions Provisions are recognised when the Group has a present legal or constructive obligation as a result of a past event, 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. The amount recognised as a provision is the best estimate of the consideration required to settle the present obligation at the end of the reporting period taking into account the risks and uncertainties surrounding the obligation. Where a provision is measured using cash flows estimated to settle the present obligation, its carrying amount is the present value of those cash flows. The provision for contingent lease payments is recognised when agreed set sales targets with respective lessors are met. Employee entitlements to annual leave are recognised 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 end of the reporting period. 3.16 Operating leases The Group operates in leased premises in some of the locations. 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 statement of comprehensive income in equal installments over the period of the lease, except when an alternative method is more representative of the time pattern from which benefits are derived. Contingent rentals arising under operating leases are recognised as an expense in the period in which they are incurred. 3.17 Share-based payments The Group 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 Groups 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 managements best estimate, for the effects of non-transferability, exercise restrictions and behavioural considerations. 3.18 Impairment of tangible and intangible assets At each statement of financial position date, the Group 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 thewww.okziminvestor.com 31
  • 33. 2012 annual report Notes to the Consolidated Financial Statements For the year ended 31 March 2012 impairment (if any). Where it is not possible to estimate the recoverable amount of an individual asset, the Group estimates the recoverable amount of the cash generating unit to which the asset belongs. Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted. If the recoverable amount of an asset is estimated to be less than its carrying amount, the carrying amount of the asset 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 an impairment subsequently reverses, the carrying amount of the asset 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 in prior years. A reversal of an impairment is recognised as income immediately, unless the relevant 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 The following are the critical judgements and estimations, that the directors have made in the process of applying the Groups accounting policies and that have the most significant effect on the amounts recognised in the financial statements. 4.1 Shrinkage of inventories Actual shrinkage is accounted for after every inventory count. In the past inventory counts were conducted four times in any financial year. This has been changed to monthly counts in order to improve controls over inventory accounting. Shrinkage of US$2.2 million whose sale value translates to 1% of sales has exceeded the Group’s target of 0.8%. 4.2 Assessment of impairment of property, plant and equipment Determining whether property, plant and equipment is impaired requires an estimation of the value in use. The value in use calculation requires the directors to estimate the future cash flows expected and a suitable discount rate in order to calculate present value. The directors believe that the carrying amount of property, plant and equipment at the end of the reporting period was US$36 777 506 and no impairment was recognised. 4.3 Useful lives and residual values of property, plant and equipment The residual values were assessed through comparison of prices of new and aged assets on a sample basis for each asset category to give an indicative recovery rate. The useful lives are set out in note 3.9 and no changes to these useful lives have been considered necessary during the year. 4.4 Valuation of share options Some of the assumptions used in the valuation of the share options, including the inputs into the Black Scholes model, are those that have been carried forward from the hyper inflationary Zimbabwe dollar era and are yet to be fully established and tested in the more stable multi- currency environment. The alternative method of determining the intrinsic value of the shares by using the relationship between the strike price and the share price of the option on grant date, based on similar listed entities in the retail industry in neighboring countries which have a more stable currency, has been assessed as inappropriate since market conditions are different in the respective countries. The amount charged to the statement of comprehensive income is therefore the Group’s best estimate. Refer to note 8.3 for the assumptions applied in the model. 4.5 Future lease commitments The Group has estimated future revenue for branches for which rentals are paid. The projections are based on budgets approved by the Board and are an estimate of lease expense commitments. Refer to note 6.4 for further information.32 www.okziminvestor.com
  • 34. 2012 annual report Notes to the Consolidated Financial Statements For the year ended 31 March 2012 2011 US$ US$ 5 Revenue Sales of merchandise 412 054 600 257 097 988 Lease and sub-lease income 475 909 310 326 Interest income 32 518 18 009 412 563 027 257 426 323 6 Profit before taxation Profit before taxation takes into account the following: 6.1 Other operating expenses Utilities and backup power expenses 4 583 881 2 755 131 Marketing and promotion expenses 3 174 724 2 123 036 Shrinkage 2 170 256 2 160 248 Markdowns 837 766 1 073 314 Foreign currency losses 126 480 209 480 Loss on sale of property, plant and equipment 98 447 34 965 6.2 Depreciation expense Property 688 420 486 930 Plant and equipment 3 072 471 2 227 695 3 760 891 2 714 625 6.3 Auditors remuneration Current year audit fees 90 000 56 000 Other expenses 12 200 - 102 200 56 000 6.4 Net leasing expense :Minimum lease payments 4 824 130 3 429 478 :Contingent lease payments 1 307 614 745 091 6 131 744 4 174 569 Lease and sub-lease income received has been included in note 5. Net future lease commitments Lease payments: Payable within one year 7 941 371 5 270 413 Payable in two to five years 29 147 486 19 847 140 Payable thereafter 22 697 474 14 158 749 59 786 331 39 276 302 The Group leases most of its shops under operating lease. The average lease term entered into is 5 years.33 www.okziminvestor.com
  • 35. 2012 annual report Notes to the Consolidated Financial Statements For the year ended 31 March 2012 2011 US$ US$ 7 Taxation 7.1 Taxation charge Income tax Current : Standard 3 512 468 1 483 461 Aids Levy 105 374 44 504 Withholding tax on interest earned 5 420 3 290 Deferred : Debit/(credit) to statement of comprehensive income 1 050 975 (496 957) Total income tax expense 4 674 237 1 034 298 7.2 Reconciliation of taxation charge % % Standard rate 25.75 25.75 Adjusted for : Depreciation (less than)/in excess of capital allowances (1.81) 2.10 Disallowed expenses and provisions 1.84 3.81 Consumables and prepayments (1.75) (3.04) Interest taxed at special rates (0.02) (0.02) Profit on disposal of property, plant and equipment 0.17 0.17 Non taxable and non deductible expenditure 7.02 (9.33) 5.45 (6.31) Effective rate of tax 31.20 19.44 8 Share capital 8.1 Share capital US$ Authorised: 2 000 000 000 ordinary shares of US$0.0001 each 200 000 Issued and fully paid: 1 043 693 040 ordinary shares of US$0.0001 each 104 369 8.2 Shares under option The number of shares subject to option is approved by the shareholders in Annual General Meetings. The directors in turn are empowered to grant share options to certain employees of the Group. These options are granted for a period between three and six years at a price determined by the middle market price ruling on the Zimbabwe Stock Exchange on the date of grant. Each employee share option converts into one ordinary share of OK Zimbabwe Limited. These shares were under option at year-end:-www.okziminvestor.com 34
  • 36. 2012 annual report Notes to the Consolidated Financial Statements For the year ended 31 March 2012 8.2 Shares under option (continued) Subscription Number of Price Shares 2008 Scheme Granted 14 November 2008 US$0.01 22 924 300 Granted 1 June 2010 US$0.06 14 704 000 37 628 300 2010 Scheme Date of grant (5 Aug 2010) US$0.08 19 640 000 Total at 31 March 2011 57 268 300 Movements for the year under the 2008 scheme :- Balance at 31 March 2011 37 628 300 Options exercised (22 562 800) Options forfeited (248 000) Options not yet exercised (113 500) At 31 March 2012 14 704 000 Movements for the year under the 2010 scheme :- Subscription Number of Price Shares Balance at 31 March 2011 19 640 000 Granted 3 June 2011 US$0.091 17 180 319 36 820 319 Total granted still to vest 51 524 319 All options for the 2010 scheme are yet to be exercised. The vesting period will be satisfied from 5 August 2013 for this scheme. 8.3 Share-based payment computation The options outstanding at 31 March 2012 had a weighted average exercise price of US$0.07 and a weighted average remaining contractual life of eighteen months. The inputs into the Black-Scholes model in respect of the options granted during the current and prior years were as follows: Share price at grant (2008 scheme) US$0.01 Share price at grant (2008 scheme) US$0.06 Share price at grant (2010 scheme) US$0.08 Share price at grant (2010 scheme) US$0.09 Weighted average grant price US$0.07 Expected volatility 60% Expected life 18 months Average risk free rate 0.4% Dividend yield 10% At the time of the grant, on 14 November 2008, after the collapse of the Zimbabwean Dollar, there was no market information with which to determine all the inputs into the model. With limited dividend history post dollarisation the Group applied previous experience in respect of dividend yield, while the risk-free interest rate applicable in the United States of America money markets was used. The expected volatility of the share price was measured for the period from the introduction of multi-currency to the end of the financial year. The resultant expense so determined can therefore only be considered an estimate of the cost of share-based payments to the shareholders.35 www.okziminvestor.com
  • 37. 2012 annual report Notes to the Consolidated Financial Statements For the year ended 31 March 2012 2011 US$ US$ 9 Property, plant and equipment Freehold property Revalued amount 12 083 100 10 541 500 Accumulated depreciation - - 12 083 100 10 541 500 Leasehold improvements Cost 7 004 308 5 023 430 Accumulated depreciation (2 596 480) (2 308 363) 4 407 828 2 715 067 Plant and equipment Cost 35 938 459 28 688 766 Accumulated depreciation (20 625 264) (18 780 021) 15 313 195 9 908 745 Vehicles Cost 3 438 352 1 753 818 Accumulated depreciation (438 483) (51 247) 2 999 869 1 702 571 Work in progress 1 973 514 2 421 066 Total property, plant and equipment 36 777 506 27 288 949 Movement in net book amount for the year: At the beginning of the year 27 288 949 17 800 365 Capital expenditure 11 496 074 9 391 371 Revaluation 1 934 563 3 059 920 Impairment - (170 858) Disposals (181 189) (77 224) Depreciation (3 760 891) (2 714 625) At the end of the year 36 777 506 27 288 949 The revaluation was performed by an independent valuer (CB Richard Ellis) based on market values at the end of the reporting period. If freehold land and buildings were stated at cost less accumulated depreciation the values would have been $7 488 922 (2011: $7 481 579).www.okziminvestor.com 36
  • 38. 2012 annual report Notes to the Consolidated Financial Statements For the year ended 31 March 2012 2011 US$ US$ 9 Property, plant and equipment (continued) Capital expenditure comprised : Freehold property 9 442 337 471 Leasehold property 1 540 809 813 724 Plant and equipment 6 704 410 5 259 293 Motor vehicles 1 725 281 559 817 Work in progress 1 5 16 132 2 421 066 11 496 074 9 391 371 Disposals : Plant and equipment (181 189) (77 224) 10 Goodwill Arising on acquisition of business interests 400 000 400 000 Goodwill arose when the Group acquired the assets of Makro Zimbabwe at a premium. 11 Long-term investments Investment in joint venture 192 798 77 488 Available for sale financial investments 37 323 41 126 Other - 287 527 230 121 406 141 The Group has a joint interest in Winterwest (Private) Limited, a boat owning Company. The Group is responsible for a proportionate share of the operating expenses. There has been no change in the Group’s ownership or voting interests in this joint venture in the current year.37 www.okziminvestor.com
  • 39. 2012 annual report Notes to the Consolidated Financial Statements For the year ended 31 March 2012 2011 US$ US$ (restated) 12 Inventories Consumable stores 1 181 092 849 874 Merchandise 41 140 178 30 040 352 42 321 270 30 890 226 13 Trade and other receivables Trade receivables 39 129 431 349 Other receivables 304 979 1 506 124 344 108 1 937 473 Prepaid expenses and merchandise suppliers 3 618 485 868 134 3 962 593 2 805 607 The average credit period on sales is 30 days. No interest is charged on trade receivables and they are not secured. The Group has not recognised an allowance for doubtful debts because historical experience indicates that all receivables are recoverable. 2012 2011 US$ US$ 14 Short-term loans Unsecured 80 994 10 093 Short-term loans are made up of bridging loans given to staff for general welfare purposes. These are recovered over periods determined by management following the issue of the loan and attract no interest. 2012 2011 15 Deferred taxation US$ US$ Deferred tax movement: At the beginning of year 3 252 906 2 961 962 Debit/(credit) to statement of comprehensive income 1 050 975 (496 957) Revaluation of property, plant and equipment 498 150 787 901 At the end of year 4 802 031 3 252 906 The deferred tax account comprises the effect of temporary differences arising from Property 2 448 931 1 621 520 Prepayments 238 335 182 144 Plant and equipment 2 114 392 1 448 831 Quoted investments 373 411 4 802 031 3 252 906www.okziminvestor.com 38
  • 40. 2012 annual report Notes to the Consolidated Financial Statements For the year ended 31 March 2012 2011 US$ US$ 16 Long-term borrowings Secured loans 5 000 000 - The long-term borrowings at year end are part of Investec Africa Frontier Private Equity Fund (IAFPEF) offshore loan drawdown of 5 years at a fixed effective interest rate of 12.5% per annum. The loan is secured by a negative pledge on assets and is convertible to ordinary shares in OK Zimbabwe Limited on maturity at the option of the lender. 2012 2011 17 Trade and other payables US$ US$ Trade payables 32 144 870 23 559 034 Accruals and other payables 4 765 271 2 490 281 36 910 141 26 049 315 The average credit period on purchases is 30 days. The Group manages its financial risk by ensuring that all payables are paid within pre-agreed credit terms. The Directors believe that the carrying amounts represent the fair value. 2012 2011 US$ US$ 18 Cash flow information 18.1 Cash generated from trading 20 094 386 8 943 885 Profit before tax 14 980 734 5 319 998 Adjusted for: Finance costs 470 751 101 547 Depreciation 3 760 891 2 714 625 Dividend receipt in specie - (394) Share option costs 816 081 791 153 Interest income (32 518) (18 009) Loss on sale of property, plant and equipment 98 447 34 965 18.2 Working capital charges (1 798 105) (2 975 952) Increase in inventories (11 431 044) (13 832 299) Increase in receivables (1 156 986) (1 991 542) (Increase)/decrease in short-term loans (70 901) 59 165 Increase in payables 10 860 826 12 788 724 18.3 Net finance costs (438 233) (83 538) Finance costs (470 751) (101 547) Interest income 32 518 18 009 18.4 Taxation paid (3 021 285) (920 037) Liability at beginning of the year (666 846) (55 602) Current tax for the year (3 623 262) (1 531 281) Liability at end of the year 1 268 823 666 846 18.5 Dividend paid (3 665 094) -39 www.okziminvestor.com
  • 41. 2012 annual report Notes to the Consolidated Financial Statements For the year ended 31 March 2012 2011 US$ US$ 19 Prior year adjustment The prior year adjustment relates to a correction of airtime inventory that was incorrectly valued at currency changeover. The error resulted in the inventory values being overstated and the correction was raised by adjusting the non-distributable reserve. The effect of the adjustment on the results was as follows: 2012 2011 US$ US$ Decrease in inventory and non-distributable reserve - (437 235) 20 Directors 20.1 Directors emoluments For fees as directors 103 620 94 200 For managerial services 702 240 643 456 805 860 737 656 20.2 Directors direct shareholding At 31 March 2012, the directors held the following number of shares in the Group: A E Siyavora 980 605 1 401 061 A R Katsande 665 000 1 761 234 D B Lake 26 572 19 800 M T Rukuni 10 000 10 000 V W Zireva 582 973 1 676 612 2 265 150 4 868 707 21 Related party transactions and balances 21.1 Compensation of key management personnel Short-term benefits 1 843 514 1 642 305 Post-employment benefits 285 677 259 320 Share-based payments 612 745 556 598 2 741 936 2 458 223 21.2 Loan from related party Investec Africa Frontier Private Equity Fund (shareholder) 5 000 000 - Interest on loan 178 946 - 22 Retirement benefit costs OK Zimbabwe Pension Fund - Defined contribution 1 309 698 997 403 -National Social Security Authority Scheme 249 291 214 484 1 558 989 1 211 887www.okziminvestor.com 40
  • 42. 2012 annual report Notes to the Consolidated Financial Statements For the year ended 31 March 2012 2011 US$ US$ 23 Commitments for capital expenditure Authorised and contracted - 282 737 Authorised but not contracted 16 244 771 16 072 360 16 244 771 16 355 097 The capital expenditure is to be financed out of the Groups own resources and existing borrowing facilities. 24 Earnings and headline earnings Earnings attributable to shareholders 10 306 497 4 285 700 Loss on sale of property, plant and equipment 98 447 34 965 10 404 944 4 320 665 Attributable earnings basis The calculations are based on the earnings attributable to ordinary shareholders. Account is taken of the weighted number of shares in issue for the period during which they have participated in the income of the Group and these amount to 1 027 421 409 (2011: 996 967 989) at reporting date. 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. 25 Financial risk management 25.1 Treasury risk management Senior executives of the Group meet on a regular basis to analyse, amongst other matters, interest rate exposures and report positions to the Board. The Group has no significant foreign currency exposures. 25.2 Foreign exchange risk management The Group conducts business predominantly in United States Dollars. Limited exchange risk occurs between the stage of accepting other currencies at the point of sale and the point of conversion of those other currencies to United States Dollars at the bank. This is managed by converting the amounts as soon as they are received to avoid or minimize exchange losses occasioned by movements in exchange rates. The following United States dollar cross rates with major transacting currencies for the Group were applied at 31 March 31 March 2012 2011 USD/ZAR 7.71 6.88 USD/Pula 7.39 6.69 USD/GBP 1.59 1.60 The carrying amount of the Group’s foreign currency denominated monetary assets and monetary liabilities at the end of the reporting period are as follows: Liabilities Assets 31 March 31 March 31 March 31 March 2012 2011 2012 2011 US$ US$ US$ US$ Currency of South Africa (ZAR) 5 290 140 707 687 000 656 442 Currency of Botswana (Pula) - - 53 990 126 154 Currency of United Kingdom (GBP) - - 15 569 17 54541 www.okziminvestor.com
  • 43. 2012 annual report Notes to the Consolidated Financial Statements For the year ended 31 March 2012 25.3 Interest rate risk management Group policy is to adopt a non-speculative approach to managing interest rate risk. Approved funding instruments include Bankers’ acceptances, call loans, overdrafts, commercial paper and long-term loans. Approved investment instruments include term and call deposits, which are placed with reputable financial institutions. 25.4 Liquidity risk management The Group has no significant liquidity risk exposure as it has unutilised banking facilities of US$7 million. The Directors of the Group may, at their discretion, borrow money and secure repayment thereof provided that the aggregate amount owing at any one time shall not exceed twice the total equity reserves. Borrowings in excess of the specified limit require prior sanction of shareholders in a general meeting. The following table details the Group’s remaining contractual maturity for its financial liabilities and financial assets. The table has been compiled based on the undiscounted cash flows of financial liabilities based on the earliest date on which the Group can be required to repay the liability. Weighted average Less than 3 to12 1 to 5 years + 5years Total effective interest 3 months months Rate US$ US$ US$ US$ US$ 2012 Loan from related party 12.5% - - 5 000 000 - 5 000 000 Trade and other payables - 36 910 141 - - - 36 910 141 36 910 141 - 5 000 000 - 41 910 141 Trade and other receivables - 344 108 - - - 344 108 Cash and cash equivalents - 11 723 422 - - - 11 723 422 Short term loans - 80 994 - - - 80 994 12 148 524 - - - 12 148 524 2011 Trade and other payables - 26 049 315 - - - 26 049 315 - - - Trade and other receivables - 1 937 473 - - - 1 937 473 Cash and cash equivalents - 6 544 279 - - - 6 544 279 Short-term loans - 10 093 - - - 10 093 8 491 845 - - - 8 491 845 25.5 Credit risk management Credit risk arises mainly from trade and other receivables. The Group trades on a cash basis hence trade receivables are not significant. 25.6 Capital risk management The Group’s primary objectives in managing capital are: • To guarantee the ability of the entity to continue as a going concern whilst providing an equitable return to the shareholders and benefit to customers and other stakeholders. • To maintain a strong fallback position which is commensurate with the level of risk undertaken by the entity in the normal course of its business. • The entity’s capital consists of equity attributable to the shareholders, comprising the issued share capital, reserves and retained income as disclosed in the Statement of Changes in Shareholders’ Equity. • The entity’s operating target is to maintain operating assets at a level that is higher than the available operating funds at all times in order to restrict recourse on shareholders’ equity for operational funding. The objective was met at all times during the course of the year under review.www.okziminvestor.com 42
  • 44. 2012 annual report Notes to the Consolidated Financial Statements For the year ended 31 March 2012 26 Fair value of financial instruments The estimated net fair values of all financial instruments approximate the carrying amounts shown in the financial statements. 27 Insurance cover The Groups assets are adequately insured at full replacement cost. 28 Segment information IFRS 8 Operating Segments requires operating segments to be identified on the basis of internal reports about components of the Group that are regularly reviewed by the chief operating decision maker in order to allocate resources to the segments and to assess their performance. For the purpose of decision making, allocation of resources and assessment of performance, senior management consider the Group to be a single operating unit. Consequently no segment information is presented. 29 Contingent liabilities 29.1 Employee loans guarantee The Group had guaranteed the repayment of loans advanced to employees by local financial institutions amounting to US$1 790 107 at the reporting date (2011:US$700 917). 29.2 Late fiscalisation penalty Zimbabwe Revenue Authority (ZIMRA) charged the Group a penalty of $561,000 for late fiscalisation of its outlets. The directors believe, based on legal advice, that the action can be successfully defended and therefore no losses will be incurred. 30 Events after the reporting period 30.1 Fire damage On 1 May 2012 the warehouse extension at Graniteside was extensively damaged by fire. A small fire also occurred at the OK Kwekwe store on 24 April 2012, but the branch was back in operation within 48 hours. Insurance claims are in process and the directors expect these to be met in full. 30.2 Final dividend On 1 June 2012 the directors declared a final dividend of 0.35 cents based on the results for the year ended 31 March 2012.www.okziminvestor.com 43
  • 45. 2012 annual report Company Statement of Financial Position For the year ended 31 March 2012 2011 US$ US$ (restated) Assets Non-current assets Property, plant and equipment 34 277 506 24 788 949 Investment in subsidiary 2 500 000 2 500 000 Investment in Joint Venture 192 798 77 488 Goodwill 400 000 400 000 Long term investments 37 323 328 653 37 407 627 28 095 090 Current assets Inventories 42 321 270 30 890 226 Trade and other receivables 3 962 593 2 805 607 Short-term loans 80 994 10 093 Cash and cash equivalents 11 723 422 6 544 279 58 088 279 40 250 205 Total assets 95 495 906 68 345 295 Equity and Liabilities Equity Shareholders’ equity 47 514 911 38 376 228 Non-current liabitilies Deferred taxation 4 802 031 3 252 906 Long-term borrowings 5 000 000 - 9 802 031 3 252 906 Current liabilities Trade and other payables 36 910 141 26 049 315 Current tax liabilities 1 268 823 666 846 38 178 964 26 716 161 Total equity and liabilities 95 495 906 68 345 295 There are no differences between operational results for the Group and the Company hence no separate statement of comprehensive income has been presented for the Company. For and on behalf of the Board: D.B. Lake V.W. Zireva H.Nharingo H.Nharing (Chairman) (Chief Executive Officer) (Company Secretary) 1 June 201244 www.okziminvestor.com
  • 46. 2012 annual report Shareholders Analysis SHAREHOLDER DISTRIBUTION Number of shareholders % Issued shares % 1.-5 000 26,858 95,99 17,676,556 1.73 5 001 – 10 000 336 1.20 2,403,095 0.23 10 001 - 25 000 280 1.00 4,591,142 0.44 25 001 - 50 000 168 0.60 6,112,524 0.59 50 001 - 100 000 116 0.41 8,580,309 0.82 100 001 - 200 000 68 0.24 9,671,932 0.93 200 001 - 500 000 72 0.26 22,575,063 2.16 500 001 - 1 000 000 22 0.08 15,587,640 1.49 Above 1 000 000 60 0.22 956,494,779 91.61 TOTAL 27,980 100.00 1,043,693,040 100.00 SHAREHOLDER BY INDUSTRY Number of Shareholders % Issued Shares % LOCAL COMPANIES 349 1.25 415,291,223 39.81 PENSION FUNDS 185 0.66 266,726,999 25.55 FOREIGN COMPANIES 7 0.03 134,789,650 12.91 FOREIGN NOMINEE 24 0.09 85,000,316 8.14 LOCAL NOMINEE 124 0.44 52,263,298 5.01 LOCAL INDIVIDUAL RES 26,838 95.92 37,516,375 3.59 CHARITABLE AND TRUSTS 75 0.27 32,765,603 3.14 INSURANCE COMPANIES 29 0.10 12,244,090 1.17 FUND MANAGERS 24 0.09 4,392,920 0.42 NEW NON RESIDENTS 154 0.55 1,440,238 0.14 INVESTMENTS 49 0.18 769,622 0.07 DECEASED ESTATES 121 0.42 472,706 0.05 FOREIGN INDIVIDUAL RESIDENT 1 0.00 20,000 0.00 27,980 100.00 1,043,693,040 100.00 TOP TEN SHAREHOLDERS Shareholder Issued Shares % OLD MUTUAL LIFE ASSURANCE COMPANY LTD 159,964,858 15.33 OLD MUTUAL ZIMBABWE LIMITED 105,674,197 10.13 NATIONAL SOCIAL SECURITY AUTHORITY (NSSA NIPS) 105,589.015 10.12 IAFPEF OKZL LIMITED (NNR) 82,896,159 7.94 LASMID INVESTMENTS (PVT) LTD 62,096,181 5.95 NATIONAL SOCIAL SECURITY AUTHORITY 55,736,116 5.34 RACTOR INVESTMENTS (PVT) LIMITED 54,879,291 5.26 BARCLAYS ZIMBABWE NOMINEES P/L (NNR) 48,075,471 4.61 STANDARD CHARTERED NOMINEES (PVT) LTD -NNR 37,325,758 3.58 IAFPEF OKZL MANAGEMENT PARTNERSHIP TRUST(NNR) 27,138,023 2.60 OTHER 304,317,971 29.14 1,043,693,040 100.00www.okziminvestor.com 45
  • 47. 2012 annual report Notice to Members NOTICE TO MEMBERS NOTICE IS HEREBY GIVEN THAT the Eleventh Annual General Meeting of Members of OK Zimbabwe Limited will be held in the OKmart Functions Room, First Floor, OKmart, 30 Chiremba Road, Hillside, Harare on Friday 27 July 2012 at 10:00 hours for the following purposes: Ordinary Business 1. To receive and adopt the Financial Statements for the year ended 31 March 2012, together with the Report of the Directors and Auditors thereon. 2. To appoint Directors: In terms of the Companys Articles of Association Messrs. N.W. Alexander, R. van Solt and M.C. Jennings retire by rotation at the conclusion of the meeting. Being eligible, they offer themselves for re-election. Mr. H. Nkala was appointed to the Board on 8 June 2012 and in terms of section 107 of the Articles of Association, he retires from the Board. Being eligible, he offers himself for re-election. 3. Members will be asked to approve the auditors fees for the past financial year and to appoint auditors for the company for the ensuing year. 4. To approve Directors fees for the past year. 5. To confirm the interim dividend of 0.15 cents per share declared on 30 September 2011 and the final dividend of 0. 35 cents per share declared on 1 June 2012. 6. Share Option Scheme – 2013 To consider, and if deemed fit, pass with or without modification, the following resolution: As an Ordinary Resolution 6.1. THAT the Directors be and they are hereby authorized to establish a share option scheme effective from the 1St of April 2013 to be called “Share Option Scheme – 2013” and to grant options in respect of the rules of the Scheme, such options in aggregate not exceeding 52,184,652 (Fifty two million one hundred and eighty four thousand six hundred and fifty two) ordinary shares, being 5% of the 1,043,693,040 (one billion forty three million six hundred and ninety three thousand and forty) ordinary shares in issue as at 31 May 2012. 6.2. THAT the Share Option Scheme – 2010 be withdrawn with effect from the date of commencement of Share Option Scheme - 2013; 6.3. THAT, with effect from the date of commencement of Share Option Scheme - 2013, no further options shall be granted under the Share Option Scheme – 2010 but without prejudice to the subsisting rights of any participants already granted Options prior to the termination of the 2010 Scheme. 7. Allotment of shares to the OK Employees Share Participation Trust To consider and, if deemed fit, pass, with or without modification, the following resolution: As an Ordinary Resolution THAT the Directors be and they are hereby authorized to allocate 1,128,695 (one million one hundred and twenty eight thousand six hundred and ninety five) ordinary shares to the OK Employees Share Participation Trust through an allotment from the Companys unissued shares held under the control of the Directors in terms46 www.okziminvestor.com
  • 48. 2012 annual report Notice to Members (cont’d) of a Shareholders Resolution dated 23 August 2001. EXPLANATORY NOTES 1. Share Option Scheme - 2012 Article 3 of the Companys Articles of Association stipulates that the allotment or disposal of any unissued shares in the existing capital of the Company and any new shares in any increased capital, or in the terms upon which such shares may be issued or disposed of, shall be decided by the Company in general meeting, provided that the Company in general meeting may empower the Directors to allot or dispose of the same upon such terms and conditions as the Directors in their discretion think fit. At the Annual General Meeting held on 4 August 2010 Shareholders authorized the Directors to establish a share option scheme and to grant options not exceeding 49,120,000 shares in terms of the rules of that scheme. Of these, 700,000 shares had not been granted as at 30 June 2012. The Company has to continue to offer meaningful incentives to both existing and new executives and senior management. Accordingly, the Directors hereby propose that a new Share Option Scheme be established with effect from the 1st of April 2013. Any shares not yet granted to employees in terms of the Share Option Scheme – 2010, will be withdrawn immediately upon the commencement of the proposed new scheme. Allotment of shares to the OK Employees Share Participation Trust In terms of the Deed of the OK Employee Share Participation Trust, 2% of the issued share capital of the Company should be held by the Trust for the benefit of employees of OK Zimbabwe Limited. As at 31 May 2012, the Trust held 19,745,166 ordinary shares, representing 1.89% of the issued share capital of the Company. Accordingly, the Directors hereby propose the allocation of 1,128,695 (one million one hundred and twenty eight thousand six hundred and ninety five) additional ordinary shares in OK Zimbabwe Limited to the Trust. The effect of this additional donation will be to increase the Trusts shareholding in the Company to 20,873,861 ordinary shares, thus enabling it to retain its 2% shareholding. In terms of a resolution of shareholders dated 23 August 2001 the entire authorized but unissued shares in the Share Capital of the Company were placed under the control of the Directors. Subject to approval by shareholders, Directors are therefore authorized to allot unissued shares as proposed in Resolutions 6 and 7. Appointment of Proxy In terms of the Companies Act [Chapter 24:03], a member of the Group is entitled to appoint one or more proxies to attend, vote and speak in his or her stead. A proxy need not be a member of the Group. Proxy forms must be deposited at the registered office of the Group not less than forty-eight (48) hours before the time appointed for holding the meeting. BY ORDER OF THE BOARD H.R. NHARINGO Group Secretary 26 June 201247 www.okziminvestor.com
  • 49. 2012 annual report Shareholders’ Calendar SHAREHOLDERS CALENDAR ELEVENTH ANNUAL GENERAL MEETING 27 July 2012 FINANCIAL YEAR END 31 March 2013 ANTICIPATED DATES INTERIM REPORTS FOR 2013 18 November 2012 6 MONTHS TO 30 SEPTEMBER 2012 18 November 2012 ANNUAL REPORT PUBLISHED FOR 2013 June 2013 TWELFTH ANNUAL GENERAL MEETING July 2013 REGISTERED OFFICE: TRANSFER SECRETARIES OK House Corpserve (Private) Limited 7 Ramon Road 2nd Floor Graniteside ZB Centre P.O. Box 3081 Cnr Kwame Nkrumah Avenue/First Street Harare Harare Zimbabwe Zimbabwe Telephone: 263-4-757311/9 Telephone: 263-4-751559/61 E-mail: hnharingo@okzim.co.zw e-mail: collen@corpserve.co.zw INVITATION TO REGISTER ON OK ZIMBABWE INTERACTIVE INVESTOR WEBSITE We encourage you to register on our website www.okziminvestor.com to enable you to access updates and all information you need to make educated investment decisions and monitor managements efforts to create shareholder value. We value your feedback.www.okziminvestor.com 48
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  • 52. 2012 annual report Shareholder’s Notes51 www.okziminvestor.com