Cresta Marakanelo 2010 annual report

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Cresta Marakanelo (Botswana) 2010 annual report

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Cresta Marakanelo 2010 annual report

  1. 1. 2010 Annual Report Cresta Marakanelo Ltd3 Annual Report
  2. 2. 2010 Annual Report CONTENTS Page Corporate Information 2 Board of Directors 3 Details of Directors 4 Executive Management 5 Chairpersons Statement 7-8 Managing Director’s Statement 10-11 Corporate Governance 13-14 Statement of Director’s Responsibility 16 Report of the independent auditors 17 Statement of comprehensive income 18 Statement of financial position 19 Statement of changes in equity 20 Statement of cash flows 21 Summary of significant accounting policies 23-30 Financial risk management 32-37 Critical Accounting Estimates and Assumptions 38 Notes to the Annual Financial Statements 40-56 Top 20 Shareholders 57 Notice of Annual General Meeting 58 Proxy Form 60 Cresta Marakanelo Ltd1 Annual Report
  3. 3. Corporate Information Incorporated in Botswana in 1974. Company number 74/556 REGISTERED OFFICE Plot 50676 Fairgrounds Office Park Block D SECRETARY Valentine Mganga Plot 50676 Fairgrounds Office park,Block D Gaborone,Botswana BANKERS Barclays Bank of Botswana First National Bank of Botswana BUSINESS ADDRESS Private Bag 00272 Gaborone,Botswana Tel: (267) 391 2222 Fax: (267) 390 4329 INDEPENDENT AUDITORS PricewaterhouseCoopers P.O.Box 294 Gaborone,Botswana TRANSFER SECRETARIES DPS Consulting P.O.Box 294 Gaborone,Botswana Cresta Marakanelo Ltd Annual Report 2
  4. 4. Board of Directors Maria M. Nthebolan Elias Dewah Chairperson Bothwell P. Nyajeka John Y. Stevens Osbourne Majuru Batlang Mmualefhe Rosemary D. Mogorosi Cresta Marakanelo Ltd3 Annual Report
  5. 5. Details of DirectorsNthebolan, Maria Mmasolo (44) Development Company, Botswana Insurance Company,Non-Executive Chairman National Development Bank, Avis Botswana, Bank of Botswana and Debswana. John is the past Chairman of the BotswanaMaria holds a Master of Arts in Finance and Economics from Institute Accountants after having served on the Council of thethe University of Botswana and is the Managing Director – Institute for a number of years. In his role as a Council MemberBusiness Development of BDC. She joined BDC in 1995 as the he chaired the Technical, Public Relations and Taxation andSenior Operations Officer in the Industry Division and rose Exchange Control Committee.through the ranks to her current position. Prior to joining BDCshe was with the Ministry of Finance & Development Planning Majuru, Osbourne (43)as an Economist. She holds various directorships with both Non-Executive Directorpublic and private sector corporates. Osbourne is a non executive director of Cresta Hotels. PriorDewah, Elias (69) to that he was the Executive Director of Operations afterNon-Executive Director being the Special Assistant to the Executive Chairman of TA Holdings (Pty) Ltd. He was with Ashanti Goldfields since 1998Elias holds a Master of Business Administration from the until 2002. He held the position of Finance Director and hasResearch Institute for Management Science in the University been involved in the Geita Project in Tanzania , Zimbabwe andof Netherlands. Currently he is a Private Consultant in the the International Treasury Office on the Isle of Man. In 2002field of Management of Business Organization, Public-Private Osbourne was elected as the deputy Chief Executive Officer forDialogue, Democracy and Governance. Prior to that Elias has Beitbridge Bulawayo Railway.served in the Government of Botswana for 24 years in variouscapacities in the Ministry of Agriculture and the Ministry of Mmualefe, Batlang Goganelamang (46)Trade ,Commerce and Industry. For 17 years he served as an Non-Executive DirectorExecutive Director of Botswana Confederation of Commerce,Industry and Manpower but prior to that he was the operations Batlang is currently the Manager for Risk Management atManager of Shell Oil (Botswana). BDC and has held this position since 2004. He has also held the positions of Manager for Corporate Communications andNyajeka, Bothwell Patrick (46) Senior Research Officer in the same institution. Mr MmualefeNon-Executive Director previously worked for Bank of Botswana and Ministry of Finance and Development Planning in varying positions.Bothwell is an executive director of TA Holdings Limited incharge of finance. He is a Chartered Accountant and holds a He holds Master of Arts Degree in Economics from WilliamsBachelor of Accountancy (Honours) degree from the University College in USA and a Bachelor of Arts Degree in Economics andof Zimbabwe and a Masters degree in Business Leadership Statistics from the University of Botswana. Mr Mmualefe is afrom the University of South Africa. . Before joining TA member of GARP (Global Association for Risk Professionals).Holdings, Bothwell worked for the Anglo American CorporationGroup in Zimbabwe. Mogorosi, Rosemary Deborah (52) Non-Executive DirectorStevens, John Yendell (60)Non-Executive Director Rosemary is Certified Chartered Accountant and is the Chief Financial Accountant of BDC. She is responsible for theJohn qualified as a Chartered Accountant in 1980. He joined production of BDC Group financial reports. She joined BDCDeloitte & Touche in Durban in 1974 and has been with the in 1988 as the Senior Accountant for Farms having previouslyCompany for the last 33 years ,serving as a partner resident been with Avis Car Rental as an Accountant. Rosemaryin Botswana of Deloitte & Touche for 8 years and being currently serves as a Council member of the Botswana Instituteelected to the Board of Deloitte & Touche Southern Africa of Accountants (BIA) and Chairperson of BIA SMME Committee.in 2004. John also headed up Deloitte & Touche insolvency Rosemary is currently on the Audit Committee of the Board ofand reorganisation division in Botswana and has completed Cresta.50 insolvent estates in the past years. John retired fromDeloitte & Touche in 2007 and has taken up the challengeof private consultancy. Over the past 27 years John hasgained extensive experience in many spheres of businessin Botswana and the many clients that John has servedinclude Barloworld Botswana, Murray & Roberts, Realestate Cresta Marakanelo Ltd Annual Report 4
  6. 6. Executive Management Tawanda Makaya Valentine Mganga Managing Director Chief Financial Officer Jonathan Cox Group OPS Manager Jonathan Cox Segomotso Banda Matsapa Motswetla Group Operations Manager Group HR Manager Projects Manager Vision, Mission and Corporate Values VISION To create memorable hospitality experiences. MISSION To offer excellent service,filled African hear and soul. CORPORATE VALUES WE VALUE • Our people and believe in their right to respect, dignity and empowerment. • • Our intergrity and will always conduct our business honestly. • • Our passion and will consistently create an enjoyable environment for all our stakeholders. Cresta Marakanelo Ltd5 Annual Report
  7. 7. Lodge - Gaborone Lodge - Gaborone
  8. 8. Chairperson’s Statement “By being associated with this brand, the company attracts a number of guests and it will also assist Cresta Marakanelo Ltd with its expansion plans into the regional market” Maria M. Nthebolan Chairperson Economic Highlights Marakanelo Ltd has provided generators at all its properties to 2009 was filled with a lot of challenges which had a negative avoid disruption of services to our esteemed guests. impact on the tourism industry in Botswana which incidentally had an effect on the results and operations of Cresta Branding Marakanelo Limited. These factors included: Cresta Holdings (Pty) Ltd, the hotel management company, embarked on a comprehensive re-branding exercise. The • the global financial and economic crises in the second new brand was launched in September 2009. Cresta Holdings half of 2009. (Pty) Ltd’s African presence and extensive hotel management • reduced diamond exports in late 2008 and 2009 experience has resulted in the “Cresta” brand being well negatively affected government revenues from the respected and recognized throughout Africa. By being mining sector. This resulted in reduced government associated with this brand, the company attracts a number spending. of guests and it will also assist Cresta Marakanelo Ltd with its • Consequently in 2009 GDP contracted by 6% according to expansion plans into the regional market. the figures released by the Central Statistics Office (CSO). The new brand is therefore expected to strengthen the image of Cresta Marakanelo with the following benefits expected to In 2010 the effects of the global financial and economic crisis accrue to the company; appeared to be waning and the economy is slowly recovering. The recovery of the mining sector will in turn increase • enhanced human resources acquisition and retention government revenues which will in turn stimulate activity in • Increased market share the economy and hospitality industry among other sectors • Improved image and perception going forward. However, economic diamond revenues are • Improved yields not expected to recover from pre-recession levels in real terms until 2012/ 2013. Financial Performance Your Directors are pleased to report the maiden results of Although the current rate of inflation is around 7%,close to the Cresta Marakanelo Limited as a listed company for the year Bank of Botswana’s 3%-6% objective range – it is considered a ended 30 June 2010. The company was officially listed on the great improvement from the past double digit figures. Botswana Stock Exchange on 28 June 2010. The company performed according to expectations especially The power crisis and the increased electricity tariffs continue considering the impact of the world recession whose impact to be a worry to the tourism industry. However Cresta was felt from the second half of 2009 and into 2010. Cresta Marakanelo Ltd7 Annual Report
  9. 9. Chairperson’s Statement (continued) Despite these challenges, the company achieved an Marakanelo Limited and Tasman (Pty) Ltd ceased to exist. The occupancy rate of 64.8% in this financial year compared to amalgamation has been accounted for accordingly. 65.8% in the prior year. Dividend The hotels depended on large corporate, business clientele An interim dividend for the half year to 31 December 2009 of and government business which resulted in revenues P3.7million was proposed and approved for payment to the increasing by 8% from P159.0 million to P172.0 million. then ordinary shareholders of the company. During the current financial year, the company continued with The Directors are pleased to declare a dividend of 2 thebe its refurbishment programme with major refurbishment works per share, payable to shareholders registered at the close of at Cresta Lodge, Gaborone, which included the construction business on 20 October 2010 for payment on 4 November of the new Conference Centre , the gym and the uplifting of 2010. all the 160 rooms, the front office, the restaurant and the new Sports bar. In future, a dividend policy that takes into account the refurbishment programme, investment decisions and In October 2009, the company also acquired the business any prevailing economic conditions at the time will be of Botsalo Hotel (Pty) Ltd and entered into a 10 year lease implemented. agreement renewable for a further 5 years . This resulted in increased revenues to the company for the nine months by Capital Commitments P9.5million. The board also approved an expenditure budget In an effort to keep with the Cresta promise of providing of P5 million to be spent on this hotel in order to bring the quality and comfort, the group has budgeted for a property to the level expected of the Cresta brand. refurbishment of all 28 rooms at Cresta Bosele Hotel at a total cost of P1.5 million during the first half of the 2010/11 financial As a result of the aggregate refurbishment programme which year. was embarked on by the company, the depreciation expense increased from P7.8 million to P11 million. The group has also budgeted P8.4 million for the refurbishment of Cresta Mowana Safari Lodge during the As reported during the roadshows to the Private Placees and second half of the 2010/11 financial year. This refurbishment in the prospectus, included in the operating expenses for the will be financed from internal generated funds. year were once off costs relating to listing of the company and rebranding costs. Prospects The company has positioned itself to take full advantage of the The net result was that the Net Profit Before Tax (NPBT) for the positive developments brought about by the recovery of the year was P23.7 million compared to P31.6million the previous regional and world economies. With its expansion strategy, the year. However, the out turn was NPAT of P18.7million, was 8% company is focused on seeking new business opportunities below the forecast primarily due to the straight lining of the and is currently pursuing some promising leads. leases according to international Financial Reporting Standard, IAS17 which resulted in operating lease costs of P945 000 Conclusion being charged to the income statement. I wish to express my gratitude to the Board of Directors, management and staff for their dedication to the success of The company reported Earnings Per Share of 10 thebe. Cresta Marakanelo Ltd. The company generated P35 million of cash from operations during the year. This was achieved as a result of prudent working capital management. The generated cash was used to finance all the refurbishment projects including the purchase of the Cresta Botsalo operating assets. ________________________ M M Nthebolan During the year, the company performed an amalgamation of Chairman its subsidiary, Tasman (Pty) Ltd via a short form amalgamation 10 September 2010 in accordance with section 225(1) of the Companies Act Gaborone which took effect on 17 February 2010. The effect of the short form amalgamation is that the property, rights, powers and privileges of Tasman (Pty) Ltd continues to be that of Cresta Cresta Marakanelo Ltd Annual Report 8
  10. 10. Feel the spirit of the African Root
  11. 11. Managing Director’s Statement “Also included in the operating expenseswere the once off costs incurred during the year relating to the rebranding of the com- pany and the listing costs, for listing thecompany on the Botswana Stock Exchange” Tawanda Makaya Managing Director I am pleased to share with you some of the highlights that have The company’s profit before tax declined by 25% from made this year exciting. Notwithstanding a decline in earnings, P31.7million to P23.7 million, largely due to the ongoing the year under review can be characterised as one in which the refurbishment of the properties which raised the depreciation company made good progress in furthering its strategic aim amount from P7.8 million to P11 million. Also included in the of becoming a leading provider in the hospitality industry in operating expenses were the once off costs incurred during Botswana. the year relating to the rebranding of the company and the listing costs, for listing the company on the Botswana Stock In this regard, the company rebranded during the year and this Exchange. The combined costs for rebranding and listing were milestone will help the company to attract new customers and P5.5million. In addition earnings were negatively impacted by partners. an additional P945 000 lease charges as a result of straight- lining of leases according to IAS17. On 1st of October 2009, the company also acquired the business of Botsalo (Pty) Ltd as Cresta Botsalo Hotel and A profit after tax of P18.7million was achieved during the entered into a 10 year lease agreement renewable for a further year despite the difficult market conditions due to the world’s 5 years. economic downturn. It further went on to list on the Botswana Stock Exchange on Group hotel occupancies remained steady, at 64.8% compared 28th June 2010. to 65.8% in 2009. Financial Performance Strategic Objectives As indicated above, the dilution of the company’s earnings in • Cresta Marakanelo will pursue the growth of the the short term was principally as a result of activities carried number of rooms under its portfolio. This will be out during the year namely, the rebranding exercise and the achieved by pursuing expansion in Botswana and listing of the company on the Botswana Stock Exchange. This outside the country, mainly in Africa. was a deliberate strategic move to place the company in a • To become an employer of choice. position where it will be able to perform very well and attain the required rates of return in the future. Cresta Marakanelo Ltd Annual Report 10
  12. 12. Managing Director’s Statement (continued) Loyalty Programmes • Provision of beds and linen for SOS villages in Loyalty programmes, notably the Pride Card and the Select Tlokweng and Serowe. Card are active in the Botswana market. During the more frugal times, the company recognised that maintaining Training investments in loyalty programmes could go a long way in One of Cresta Marakanelo Ltd’s corporate values is its people. mitigating the negative effects of low occupancies. This value entails believing in the right to respect, accord Some of the notable benefits are the 20% discount on dignity and empowerement to all employees of the company. accommodation during the weekdays and 50% discounts It is directly linked to the brand value of ‘taking a personal on weekends and public holidays. Food discounts are also interest’ in the livelyhood of the employees. available to the cardholders. In line with the above value, Cresta Marakanelo Ltd has robust In addition to the discounts achieved on accommodation, and structured training programmes across all the levels of the customers would earn one value stamp for each night spent at coporate structure. any of the Cresta hotel, lodge and safari Lodge. For example; One of the key elements of the Cresta Training Department is • 5 value stamps will earn a cardholder a meal voucher. the 24 months on the job graduate development programme • 10 value stamps will earn a cardholder I night which entails extensive exposure to all departments in the complimentary accommodation for 2 or 2 meal hotel. At the end of the programme, the determining factor vouchers. of whether one has successfully completed the programme is through attaining at least 70% of the practical and Aggressive promotions of the Cresta Pride and Select loyalty written examination. This programme is recognised locally cards with the new look brought a good return and expanded and regionally through the accreditation endorsement the membership base. Currently, the company have in excess of Botswana Training Authority(BOTA). It is through this of 4 500 active members in the books. programme that the company continues to create a strong middle management force and a progressive succession Corporate Social Responsibilty planning in career paths. Cresta Marakanelo Ltd has a robust Corporate Social Responsibility (CSR) programme which is in line with some of Cresta Marakanelo Ltd continues to play a vital role in the the 8 United Nations (UN) Millenium Development Goals. development and delivery of the hospitality management Cresta Marakanelo Ltd has adopted the following CSR policies; programmes in the country. The company has partnered with various institutions such as University of Botswana • To conduct our business in a socially responsible and Technical Colleges through attachments and input for manner, protecting the environment and natural continuous upgrading of the curriculum. resources. • Committed to supporting human rights by working Staff across the various levels benefit through the various closely with various Governmental and Non development programmes obtained from institutions such as Governmental Organisations. Cornell University and Disney World. • The company pledges to engage, learn, respect and support the communities and cultures within which Prospects the company oprates. As has already been said by my Chairman, the company forecast growth in revenues which will result in improved NPAT The company’s initiative in this regard included donations as the once off expenses incurred this year will not recur. of cash and non cash assets to the registered charitable organisations whose mission, values and strategies are well defined and implemented. Cresta Marakanelo Ltd’s involvement in the local community ________________________ include; T Makaya • The Masiela Trust Fund which the company has Managing Director supported through donations, since its inception in 2001. • The SOS in Francistown whose annual SOS Christmas parties are hosted by Cresta Marakanelo Ltd. Cresta Marakanelo Ltd11 Annual Report
  13. 13. Bosele Hotel Bosele
  14. 14. Corporate Governance CORPORATE GOVERNANCE Cresta Marakanelo Limited is committed to a long published code of ethics. This affects the company’s operating, financial and behavorial policies in a set of corporate values. The board is committed to an open and disciplined governance process based on intergrity, transparency, independence and accountability. The board recognises that governance is a developing discipline to be followed for the good of shareholders and stakeholders. Compliance is reviewed by the board on an ongoing basis to ensure that sound governance processes and structures are appropriate and in line with best practice. The board recognises its liability to shareholders and stakeholders for company performance and the actions of the company. BOARD OF DIRECTORS The Board of Directors of Cresta Marakanelo Limited comprises of seven non-executive directors. The Board is considered a primary governance organ. One of its key functions is to develop, review and monitor the overall strategy and policies of the company. The board meets at least quarterly to review and monitor the performance of the company with executive management. The board considers and approves company strategy, corporate governance policies and compliance structures, risk management policy, business continuity plans and board composition. All material decisions affecting the company are considered by the board or an appropriate sub-committee thereof. DIRECTOR POSITION M M Nthebolan Chairperson R D Mogorosi Director B Mmualefe Director B P Nyajeka Director O Majuru Director J Y Stevens Director E Dewah Director BOARD COMMITTEES Audit Committee The Audit Committee is made up of three non-executive Directors. The Audit Committee deals with among others, compliance, internal control and risk management. It is governed by an Audit Charter. It is also responsible for financial matters affecting the board. These include responsibility for reviewing the financial statements and accounting policies, maintaining the effectiveness of the systems of management reporting and financial controls. The Committee is further responsible for setting the principles for recommending using of the external audit firm. The external auditors have unfeterred access to the Committee, as well as to the entire Board. DIRECTORS POSITION J Y Stevens Chairperson R D Mogorosi Director B P Nyajeka Director Cresta Marakanelo Ltd13 Annual Report
  15. 15. Corporate Governance (continued) Human Resources Committee The Human Resource Committee is made up of three non-executive Directors. The Committee appraises the performance of executive Directors and determines the remuneration of Directors and senior management. The Committee seeks to ensure that the company is competitive at the highest levels by attracting the best skills available to undertake particular roles in the management of the company. The Committee acts in accordance with the Board’s written terms of reference to review the remuneration of senior management. DIRECTORS POSITION E Dewah Chairperson B Mmualefe Director B P Nyajeka Director Attendance at Board and Sub-Committee meetings Member Board of Directors Audit Committee Human Resources Committee Maximum Attended Maximum Attended Maximum Attended Possible Possible Possible M M Nthebolan (Chairman) 10 10 - - - - R D Mogorosi* 10 9 4 4 - - B Mmualefe” 10 9 - - 3 3 B P Nyajeka 7 6 - - - - O Majuru 5 3 - - - - J Y Stevens* 5 4 4 3 - - E Dewah” 5 4 - - 3 3 * - Audit Committee members. ”- Human Resources Committee members RISK MANAGEMENT AND INTERNAL CONTROL The Board has overall responsibility for ensuring that the company maintains an effective control environment, incorporating risk management, accurate record keeping and a proper system of internal control. Key procedures forming the basis of an effective control environment include; • Employment of the highest caliber of staff, displaying exemplary levels of professionalism and intergrity. • A management framework designed to ensure clear communication and accountability for financial and operational objectives between the Managing Director and management throughout the company. • Timeous preparation and dissemination of financial information. • A commitment to adhere to legislation, codes of best practice and industry standards. Cresta Marakanelo Ltd Annual Report 14
  16. 16. President Hotel President
  17. 17. Statement of Directors’ ResponsibilityFor the year ended 30 June 2010 The company’s directors are required by the Botswana Companies Act, 2003 to maintain adequate accounting records and to prepare financial statements for each financial year which show a true and fair view of the state of affairs of the company at the end of the financial year and of the results and cash flows for the year. In preparing the accompanying financial statements, International Financial Reporting Standards have been followed, suitable accounting policies have been used and applied consistently, and reasonable and prudent judgements and estimates have been made. Any changes to accounting policies are approved by the company’s Board of Directors and the effects thereof are fully explained in the financial statements. The financial statements incorporate full and responsible disclosure in line with the significant accounting policies of the company noted on pages 23 to 30 The directors have reviewed the company budget and cash flow forecasts for the year to 30 June 2011. On the basis of this review, and in the light of the current financial position and existing borrowing facilities of the company, the directors are satisfied that Cresta Marakanelo Limited is a going concern and have continued to adopt the going concern basis in preparing the financial statements. The company’s external auditors, PricewaterhouseCoopers, have audited the financial statements and their unqualified audit report appears on page 16 of the financial statements. The Board recognises and acknowledges its responsibility for the company’s systems of internal financial control. Cresta Marakanelo Limited has adopted policies on business conduct, which cover ethical behavior, compliance with legislation and sound accounting practice and which underpin the company’s internal financial control process. The control systems include written accounting and 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 these systems is delegated to the executive director and management, who have confirmed that they have reviewed the effectiveness thereof. The directors consider that the systems are appropriately designed to provide reasonable assurance, as to the reliability of financial statements and that assets are safeguarded against material loss or unauthorised use and that transactions are properly authorised and recorded. The effectiveness of the internal financial control systems is monitored through management reviews, comprehensive reviews and testing by internal auditors and the external auditors’ review and testing of appropriate aspects of the internal financial control systems during the course of their statutory examinations of the Company and the underlying associates. The company’s directors have considered the results of these reviews, none of which indicate that the systems of internal control were inappropriate or operated unsatisfactorily. Additionally, no breakdowns involving material loss have been reported to the directors in respect of the year under review. The financial statements for the year ended 30 June 2010 and which appear on pages 18 to 56 were authorised for issue by the Board of Directors on 10 September 2010 and are signed on its behalf by: ______________________ ________________________ Director Director Cresta Marakanelo Ltd Annual Report 16
  18. 18. Auditor’s Report Report on the Financial Statements We have audited the accompanying annual financial statements of Cresta Marakanelo Limited, set out on pages 18 to 56, which comprise the statement of financial position as at 30 June 2010, and the statement of comprehensive income, statement of changes in equity and the statement of cash flows for the year then ended, and a summary of significant accounting policies and other explanatory notes. Directors’ Responsibility for the Financial Statements The directors are responsible for the preparation and fair presentation of these financial statements in accordance with International Financial Reporting Standards and in the manner required by the Companies Act of Botswana (Companies Act, 2003). This responsibility includes: designing, implementing and maintaining internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances. Auditor’s Responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. 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 from 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 financial statements present fairly, in all material respects the financial position of Cresta Marakanelo Limited as of 30 June 2010, and of its financial performance and their cash flows for the year then ended in accordance with International Financial Reporting Standards and in the manner required by the Companies Act of Botswana (Companies Act, 2003). ______________________ Certified Public Accountants Gaborone Date: 10 September 2010 Cresta Marakanelo Ltd17 Annual Report
  19. 19. Statement of Comprehensive IncomeFor the year ended 30 June 2010 Notes 2010 2009 Revenue 4.01 171,477 158,874 Direct costs 4.02 (114,945) (100,843) Gross profit 56,532 58,031 Sales and distribution expenses (5,953) (4,225) Administration and operating expenses (24,855) (20,485) Operating profit 4.03 25,724 33,321 Finance income 4.04 222 572 Finance expense 4.04 (2,284) (2,229) Profit before income tax 23,662 31,664 Income tax expense 4.05 (4,922) (6,228) Profit after income tax 18,740 25,436 Other comprehensive income - - Total comprehensive income 18,740 25,436 Earning per share (thebe) 4.06 10.13 13.75 Cresta Marakanelo Ltd Annual Report 18
  20. 20. Statement of Financial Position at 30 June 2010 Notes 2010 2009 ASSETS Non-current assets Property, plant and equipment 4.08 114,065 98,695 Other investments 4.09 103 103 Intangible assets 4.10 498 200 Total non-current assets 114,666 98,998 Currents assets Inventories 4.12 1,107 896 Current income tax 722 - Trade and other receivables 4.13 14,767 10,157 Cash and cash equivalents 4.14 1,482 10,011 Total current assets 18,078 21,064 Total assets 132,744 120,062 EQUITY Capital and reserves Stated capital 4.15 18,500 18,500 Retained earnings 68,948 57,608 Dividend reserve 3,700 6,718 Total equity 91,148 82,826 LIABILITIES Non-current liabilities Deferred income tax liabilities 4.16 4,582 3,976 Deferred income 4.19 945 - Borrowings 4.17 11,451 13,602 16,978 17,578 Current liabilities Borrowings 4.17 5,466 5,842 Trade and other payables 4.18 15,452 13,288 Dividends payable 3,700 - Current Income tax liability - 528 Total current liabilities 24,618 19,658 Total liabilities 41,596 37,236 Total equity and liabilities 132,744 120,062 Cresta Marakanelo Ltd19 Annual Report
  21. 21. Statement of Changes in EquityFor the year ended 30 June 2010 Ordinary Dividend Retained Total Shares reserve Earnings equity Year ended 30 June 2009 Balance at 1 July 2008 18,500 5,461 42,629 66,590 Total comprehensive income - - 25,436 25,436 Gain on transfer of net assets from subsidiary - - 2,261 2,261 (note 4.26) Gross dividends proposed - 6,718 (6,718) - Gross dividends declared and paid - (5,461) (6,000) (11,461) Balance at 30 June 2009 18,500 6,718 57,608 82,826 Year ended 30 June 2010 Balance at 1 July 2009 18,500 6,718 57,608 82,826 Total comprehensive income - - 18,740 18,740 Gross dividends proposed - 3,700 (3,700) - Gross dividends declared and paid - (6,718) (3,700) (10,418) Balance at 30 June 2010 18,500 3,700 68,948 91,148 Cresta Marakanelo Ltd Annual Report 20
  22. 22. Statement of Cash Flows For the year ended 30 June 2010 Notes 2010 2009 P’000 P’000 Operating activities Cash generated from operations 4.22 35,164 41,251 Interest paid 4.04 (2,284) (2,229) Tax paid (5,566) (7,024) Net cash generated from operating activities 27,314 31,998 Investing activities Purchase of property, plant and equipment 4.08 (29,249) (21,175) Proceeds on disposal of plant and equipment 2,794 1,256 Interest received 4.04 222 572 Purchase of lease rights (365) - Net cash used in investing activities (26,598) (19,347) Financing activities Repayment of borrowings (1,881) (1,496) Dividends paid to companys shareholders (6,718) (11,461) (8,599) (12,957) Changes in cash and cash equivalents (7,883) (305) Movement in cash and cash equivalents At beginning of year 5,926 6,232 Changes in cash and cash equivalents (7,883) (305) At end of year 4.14 (1,957) 5,926 Cresta Marakanelo Ltd21 Annual Report
  23. 23. Marang-Gardens Marang-Gardens
  24. 24. Summary of Significant Accounting Policies General information a) New and amended standards adopted by the company Cresta Marakanelo Limited is a public limited company listed The company has adopted the following new and on the Botswana Stock Exchange and primarily operates hotels amended IFRSs during the current financial year: and related services in Botswana. IFRS 3 (Revised), Business Combinations (effective from 1 The financial statements for the year ended 30 June 2010 July 2009). The revised standard continues to apply the have been approved for issue by the Board of Directors on 10 acquisition method to business combinations, with some September 2010. Neither the entity’s Board of Directors nor significant changes. others have the power to amend financial statements after issue. IAS 1 (revised), ‘Presentation of financial statements’ – effective 1 January 2010. The revised standard prohibits Summary of significant accounting policies the presentation of items of income and expenses (that is, ‘non-owner changes in equity’) in the statement of The financial statements for the year ended 30 June 2010 are changes in equity, requiring ‘non owner changes in presented for Cresta Marakanelo Limited, and do not include equity’ to be presented separately from owner changes subsidiary account. This follows the amalgamation of the in equity in a statement of comprehensive income. As a holding company with its subsidiary, which was approved by result, the company presents in the statement of changes the Registrar of Companies in terms of section 227 (1) of the in equity all owner changes in equity, whereas all non- Companies Act, 2003 of Botswana on 17 February 2010. The owner changes in equity are presented in the statement prior year figures reflect both the company and subsidiary of comprehensive income. Comparative information has results. been re-presented so that it is also in conformity with the revised standard. This change in accounting policy only The principal accounting policies applied in the preparation impacts presentation aspects. of the company financial statements are set out below. These policies have been consistently applied to all the years IAS 36, (Amendment), Impairment of assets: Disclosure presented, unless otherwise stated. of estimates used to determine recoverable amount (effective from 1 January 2009). 1.1 Basis of presentation The financial statements of the company have been IAS 23 (Amendment), Borrowing Cost (effective from prepared in accordance with the International Financial 1 January 2009); The amendment is the removal of Reporting Standards (IFRS) and the requirements of the option of immediately recognising as an expense the Companies Act of Botswana, 2003. The financial borrowing costs that relate to assets that take a statements have been prepared under the historical cost substantial period of time to get ready for use or sale. convention as modified by the revaluation of financial assets and financial liabilities at fair value through profit IFRS 7, ‘Financial instruments – Disclosures’ (amendment) or loss. – effective 1 January 2009. The amendment requires enhanced disclosures about fair value measurement The preparation of financial statements in conformity and liquidity risk. In particular, the amendment requires with IFRS requires the use of certain critical accounting disclosure of fair value measurements by level of a fair estimates. It also requires management to exercise its value measurement hierarchy. This amendment has had judgment in the process of applying the company’s no impact on the company’s financial statements during accounting policies. These areas involving a higher the current or preceding period. degree of judgment or complexity, or areas where assumptions and estimates are significant to the company’s financial statements are disclosed in the “Critical estimates and assumptions” section of the financial statements. Estimates and judgments are continually evaluated based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. Cresta Marakanelo Ltd23 Annual Report
  25. 25. Summary of Significant Accounting Policies (continued) IFRS 8, ‘Operating segments’ – effective 1 January IAS 38, (Amendment), Intangible assets: Advertising and 2009. The standard requires an entity to adopt the promotional activities and Units of production method of ‘management approach’ to reporting the financial amortisation (effective from 1 January 2009). performance of its operating segments, and sets out requirements for disclosure of information about an IAS 29 (Amendment), Financial reporting in entity’s operating segments and also about the entity’s hyperinflationary economies: Description of products and services, the geographical areas in which measurement basis in financial statements (effective from it operates, and its major customers. The disclosure 1 January 2009). should enable users of financial statements to evaluate the nature and financial effects of the business activities IAS 31, (Amendment), Interests in joint ventures, Required in which it engages and the economic environments in disclosures when interests in jointly controlled entities are which it operates. The adoption of the standard impacted accounted for at fair value through profit or loss (effective the disclosures made in these financial statements, from 1 January 2009). but had no impact on the reported profits or financial position of the company. IAS 40, (Amendment), Investment property: Property under construction or development for future use as an IFRS 2 (Amendment), Share-based Payment: Vesting investment property (effective from 1 January 2009). conditions and cancellations (effective from 1 January 2009). IAS 20, (Amendment) Accounting for Government Grants and Disclosure of Government Assistance: Government IAS 27 (revised), ‘Consolidated and separate financial loans with a below-market rate of interest (effective from statements’ - effective from 1 July 2009. 1 January 2009). (b) New and amended standards and interpretations effective IAS 41, (Amendment), Agriculture: Discount rate for fair in the current financial year not specifically adopted by the value calculations, Additional biological transformation company (effective from 1 January 2009) The company has evaluated the following new and IAS 16, (Amendment), Property, plant and equipment: amended standards and interpretations which became Recoverable amount and sale of assets held for rental applicable during the current financial year and have (effective from 1 January 2009). concluded that these are currently no applicable to the company: IAS 19, (Amendment) Employee benefits: Curtailments and negative past service cost, plan administration costs IFRIC 15, Agreement for the construction of real estate and Replacement of term ‘fall due’ (effective from 1 (effective from 1 January 2009). January 2009). IFRS 1 (Amendment), First time adoption of International The company will continue to monitor the applicability of Financial Reporting Standards and IAS 27 (Amendment), these new and revised standards and interpretations with Consolidated and separate financial statements: Cost of respect to future transactions and activities. an investments in a subsidiary, jointly controlled entity or associate (effective from 1 January 2009). (c) Standards, amendments and interpretations to existing standards that are not yet effective and have not been early IAS 32 (Amendment), ‘Classification of rights issues’ – adopted by the company: effective 1 February 2010 The following standards and amendments to existing IFRIC 17, ‘Distribution of non-cash assets to owners’ - standards have been published and are mandatory for effective on or after 1 July 2009 the company’s accounting periods beginning on or after 1 January 2010 or later periods, but the company has not IFRIC 18, ‘Transfers of assets from customers’ - effective 1 early adopted them. July 2009 IFRS 1 – First time adoption of IFRS (effective from 1 July IFRS 5, (Amendment) Non current assets held for sale 2010). and discontinued operations: Plan to sell the controlling interest in a subsidiary (effective from 1 January 2009). Cresta Marakanelo Ltd Annual Report 24
  26. 26. Summary of Significant Accounting Policies (continued) IAS 32 – Financial instruments: Presentation – The excess of the cost of acquisition over the fair value of Classification of rights issues (effective from February the group’s share of the identifiable net assets acquired is 2010) recorded as goodwill. If the cost of acquisition is less than the fair value of the net assets of the subsidiary acquired, IFRS 2 (amendment), ‘Group cash-settled and share- the difference is recognised directly in the income based payment transactions’ - effective 1 January 2010 statement. IAS 1 (amendment), ‘Presentation of financial Minority shareholders are treated as equity participants statements’. The amendment is part of the IASB’s annual and, therefore, all acquisitions of minority interests improvements project published in April 2009. or disposals by the group of its minority interests in subsidiary companies where control is maintained IAS 24 (amendment), ‘Related party disclosures’ – subsequent to the transaction are accounted for as effective from 1 January 2011 equity transactions with minorities. IFRIC 19, ‘Extinguishing financial liabilities with equity Consequently, the difference between the purchase instruments’ – effective 1 July 2010 and the book value of a minority interest purchased is recorded in equity. All profits and losses arising as a result These standards, amendments and interpretations of the disposal of interests in subsidiaries to minorities, are being evaluated, but are not currently expected where control is maintained subsequent to the disposal, to impact significantly on the company’s financial are also recorded in equity. statements, other than through enhanced disclosures. Accounting policies of subsidiaries have been changed 1.2 Consolidation where necessary to ensure consistency with the policies adopted by the company. Subsidiaries are all entities over which the group has the power to govern the financial and operating policies The company accounts for investments in subsidiaries at generally accompanying a shareholding of more than cost, which includes transactions costs, less accumulated one half of the voting rights. The existence and effect impairment losses. of potential voting rights that are currently exercisable or convertible are considered when assessing whether Gains and losses on disposal the group controls another entity. Subsidiaries are Gains and losses on disposal of subsidiaries are included fully consolidated from the date on which control is in the income statement as net realised and fair value transferred to the group. gains. All inter-company transactions, balances and unrealised 1.3 Common control transactions gains on transactions between group companies are eliminated on consolidation. Unrealised losses are also Under the pooling of interest method of accounting, the eliminated but are considered an impairment indicator of results of entities or business under common control the asset transferred. are presented as if the business combination had been effected from the date of obtaining control. The The purchase method of accounting is used to account assets and liabilities combined are accounted for based for the acquisition of subsidiaries by the group. The cost on the carrying amounts from the perspective of the of an acquisition is measured as the fair value of the common control shareholder at the date of transfer. On assets given, equity instruments issued and liabilities consolidation, the cost of the business combination is incurred or assumed at the date of exchange, plus costs cancelled with the values of the net assets received. Any directly attributable to the acquisition. Identifiable assets resulting difference is classified as equity. acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date, irrespective of the extent of any minority interest. Cresta Marakanelo Ltd25 Annual Report
  27. 27. Summary of Significant Accounting Policies (continued) 1.4 Foreign currency translation (b) Sales of services Sales of services are recognised in the accounting period (a) Functional and presentation currency in which the services are rendered, by reference to Items included in the financial statements of the completion of the specific transaction assessed on the company are measured using the currency of the primary basis of the actual service provided as a proportion of the economic environment in which the entity operates total services to be provided. (‘the functional currency’). The consolidated financial statements are presented in Pula, which is the company’s (c) Interest income functional and presentation currency. Interest income is recognised on a time-proportion basis using the effective interest method. (b) Transactions and balances Foreign currency transactions are translated into the (d) Dividend income functional currency using the exchange rates prevailing at Dividend income is recognised when the right to receive the dates of the transactions. Foreign exchange gains and payment is established. losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of 1.6 Leases monetary assets and liabilities denominated in foreign currencies are recognised in the income statement. Leases in which a significant portion of the risks and rewards of ownership are retained by the lessor are 1.5 Revenue recognition classified as operating leases. Payments made under operating leases (net of any incentives received from the Revenue comprises the fair value for the sale of goods lessor) are charged to the income statement on a straight- and services, net of value-added tax, rebates and line basis over the period of the lease. When an operating discounts and after eliminated sales within the group. lease is terminated before the lease period has expired, Revenue comprises the sale of bed space, food and any payments required to be made to the lessor by way beverages. Revenue is recognised as follows: of penalty is recognised as an expense in the period in which termination takes place. (a) Sales of goods Revenue comprises fair value of the consideration 1.7 Dividend distribution received or receivable for the sale of goods in the ordinary course of the company activities. Revenue is Dividend distribution to the company’s shareholders recognised to the extent that it is probable that economic is recognised as a liability in the company’s financial benefits will flow to the company and the revenue can be statements in the period in which the dividends are reliably measured. Revenue is shown net of value-added approved by the company’s shareholders. Dividends tax, returns, rebates and discounts and after eliminating proposed not yet approved by shareholders are shown as sales within the Group. a reserve within equity. The company sells bed nights at its camps and lodges Withholding tax of 15% is payable on the gross value of to guests and also provides guided safaris to guests. dividends. This withholding tax is treated as an advance Revenue from these services is recognised when the payment of company tax and is set off against Additional service is provided to the guest, usually over the period of Company Tax in the financial year in which it is paid. the guests stay at the hotels and lodges. Dividends are provided for gross of this withholding tax. Sales of curios, beverages and ancillary goods are usually in cash or by credit card. Revenue is recognised when the significant risks and rewards of ownership of the services/ goods have passed to the buyer. The recorded revenue includes applicable credit card fees payable for the transaction. Such fees are included in bank charges. Cresta Marakanelo Ltd Annual Report 26
  28. 28. Summary of Significant Accounting Policies (continued) 1.8 Property, plant and equipment 1.9 Intangible assets Property, plant and equipment are stated at historical Separately acquired trademarks and licenses are shown cost less depreciation. Historical cost includes at historical cost. Trademarks and licenses acquired in expenditure that is directly attributable to the acquisition a business combination are recognised at fair value at of the items. Subsequent costs are included in the asset’s the acquisition date. Trademarks and licenses have a carrying amount or recognised as a separate asset, finite useful life and are carried at cost less accumulated as appropriate, only when it is probable that future amortisation. Amortisation is calculated using the economic benefits associated with the item will flow to straight-line method to allocate the cost of trademarks the company and the cost of the item can be measured and licenses over their estimated useful lives of 15 to 20 reliably. The carrying amount of the replaced part is years. derecognized. All other repairs and maintenance are charged to the income statement during the financial 1.10 Impairment of non-financial assets period in which they are incurred. Assets that have an indefinite useful life are not subject Land and buildings comprise mainly hotel properties. to amortisation and are tested annually for impairment. Land is not depreciated. Depreciation on other assets is Assets that are subject to amortisation are reviewed calculated using the straight-line method to allocate their for impairment whenever events or changes in cost to their residual values over their estimated useful circumstances indicate that the carrying amount may not lives, as follows: be recoverable. An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds Buildings: lower of lease period and 50 years its recoverable amount. The recoverable amount is the useful lives higher of an asset’s fair value less costs to sell and value in use. For the purposes of assessing impairment, assets Improvements to leasehold premises: 5 - 10 years are grouped at the lowest levels for which there are lower of lease period and useful lives separately identifiable cash flows (cash-generating units). Plant and equipment 6 – 7 years Furniture, fixtures and fittings 4 – 7 years 1.11 Financial assets Motor vehicles 5 – 7 years The company classifies its financial assets in the following Computers 3 years categories: at fair value through profit or loss, loans and receivables, and available-for-sale. The classification Operating equipment (which includes uniforms, casino depends on the purpose for which the financial chips, kitchen utensils, crockery, cutlery and linen) is assets were acquired. Management determines the recognised as an expense based on usage. The period classification of its financial assets at initial recognition. of usage depends on the nature of the operating equipment and varies between one to three years. (a) Financial assets at fair value through profit or loss Gains and losses Financial assets at fair value through profit or loss are Gains and losses on disposals are determined by financial assets held for trading. A financial asset is comparing proceeds with carrying amount and are classified in this category if acquired principally for recognised within other (losses)/gains – net, in the the purpose of selling in the short-term. Assets in this income statement. category are classified as current assets. Impairment Financial assets carried at fair value through profit or loss Plant and equipment are reviewed for impairment losses are initially recognised at fair value, and transaction costs whenever events or changes in circumstances indicate are expensed in the income statement. Financial assets at that the carrying amounts may not be recoverable. An fair value through profit or loss are subsequently carried impairment loss is recognised for the amount by which at fair value. the carrying amount of the asset exceeds its recoverable amount, the latter being the higher of fair value less cost to sell of the asset and its value in use. Cresta Marakanelo Ltd27 Annual Report
  29. 29. Summary of Significant Accounting Policies (continued) (a) Financial assets at fair value through profit or loss differences resulting from changes in amortised cost of (continued) the security and other changes in the carrying amount of the security. The translation differences on monetary Gains or losses arising from changes in the fair value of securities are recognised in profit or loss; translation the ‘financial assets at fair value through profit or loss’ differences on non-monetary securities are recognised category are presented in the income statement within in equity. Changes in the fair value of monetary and ‘other (losses)/gains – net’ in the period in which they non-monetary securities classified as available for sale are arise. recognised in equity. (b) Loans and receivables When securities classified as available-for-sale are sold Loans and receivables are non-derivative financial assets or impaired, the accumulated fair value adjustments with fixed or determinable payments that are not quoted recognised in equity are included in the income in an active market. They are included in current assets, statement as ‘gains and losses from investment securities’. except for maturities greater than 12 months after the end of the reporting period. These are classified as Interest on available-for-sale securities calculated non-current assets. The company’s loans and receivables using the effective interest method is recognised in the comprise ‘trade and other receivables’ and cash and cash income statement as part of other income. Dividends on equivalents in the balance sheet. available-for-sale equity instruments are recognised in the income statement as part of other income when the (c) Available-for-sale financial assets company’s right to receive payments is established. Available-for-sale financial assets are non-derivatives that The company assesses at each balance sheet date are either designated in this category or not classified in whether there is objective evidence that a financial any of the other categories. They are included in non- asset or a group of financial assets is impaired. In the current assets unless management intends to dispose of case of equity securities classified as available–for-sale, it within 12 months of the end of the reporting period. a significant or prolonged decline in the fair value of the security below its cost is considered as an indicator that Investments are initially recognised at fair value plus the securities are impaired. If any such evidence exists transaction costs for all financial assets not carried at fair for available-for-sale financial assets, the cumulative loss value through profit or loss. Financial assets carried at fair – measured as the difference between the acquisition value through profit or loss is initially recognised at fair cost and the current fair value, less any impairment loss value, and transaction costs are expensed in the income on that financial asset previously recognised in profit statement. Financial assets are derecognised when the or loss – is removed from equity and recognised in the rights to receive cash flows from the investments have income statement. Impairment losses recognised in the expired or have been transferred and the company income statement on equity instruments are not reversed has transferred substantially all risks and rewards of through the income statement. Impairment testing of ownership. trade receivables is described in note 1.13. Available-for-sale financial assets and financial assets 1.12 Inventories at fair value through profit or loss are subsequently carried at fair value. Loans and receivables are carried at Inventories are stated at the lower of cost and net amortised cost using the effective interest method realisable value. Cost is determined using the first-in, first- out (FIFO) method. Net realisable value is the estimate of Gains or losses arising from changes in the fair value the selling price, in the ordinary course of business, less of the ‘financial assets at fair value through profit or selling expenses. Provision is made for slow moving and loss’ category are presented in the income statement obsolete inventories. within ‘other (losses)/gains – net’ in the period in which they arise. Dividend income from financial assets at fair 1.13 Trade receivables value through profit or loss is recognised in the income statement as part of other income when the company’s Trade receivables are recognised initially at fair value right to receive payments is established. and subsequently measured at amortised cost using the effective interest method, less provision for impairment. Changes in the fair value of monetary securities A provision for impairment of trade receivables is denominated in a foreign currency and classified as established when there is objective evidence that the available for sale are analysed between translation Cresta Marakanelo Ltd Annual Report 28
  30. 30. Summary of Significant Accounting Policies (continued) company will not be able to collect all amounts due 1.18 Trade payables according to the original terms of receivables. Significant financial difficulties of the debtor, probability that the Trade payables are obligations to pay for goods or debtor will entre bankruptcy or financial reorganization, services that have been acquired in the ordinary course and default or delinquency in payments are considered of business from suppliers. Accounts payable are indicators that the trade receivable is impaired. The classified as current liabilities if payment is due within amount of the provision is the difference between one year or less (or in the normal operating cycle of the the asset’s carrying amount and the present value of business if longer). If not, they are presented as non- estimated future cash flows, discounted at the effective current liabilities. Trade payables are recognised initially interest rate. The amount of the provision is recognised in at fair value and subsequently measured at amortised the income statement. cost using the effective interest method. 1.14 Cash and cash equivalents 1.19 Income tax Cash and cash equivalents are carried in the statement of financial position at cost which approximates fair The tax expense for the period comprises current and value. Cash and cash equivalents includes cash in hand, deferred tax. Tax is recognised in the income statement, deposits held at call with banks, other short-term highly except to the extent that it relates to items recognised liquid investments with original maturities of three directly in equity. In this case the tax is also recognised in months or less, net of bank overdrafts. Bank overdrafts equity. are shown within borrowings in current liabilities on the balance sheet. The current income tax charge is calculated on the basis of the tax laws enacted or substantively enacted at the 1.15 Stated capital balance sheet date in the countries where the company’s subsidiaries and associates operate and generate taxable Ordinary shares are classified as equity and stated at the income. Management periodically evaluates positions fair value of the consideration received. Incremental costs taken in tax returns with respect to situations in which directly attributable to the issue of new shares or options applicable tax regulation is subject to interpretation and are shown in equity as a deduction, net of tax, from the establishes provisions where appropriate on the basis of proceeds. amounts expected to be paid to the tax authorities. 1.16 Borrowings 1.20 Deferred tax Borrowings are recognised initially at fair value, net of Deferred income tax is recognised for in full, using transaction costs incurred. Borrowings are subsequently the liability method, on temporary differences arising stated at amortised cost; any difference between the between the tax bases of assets and liabilities and their proceeds (net of transaction costs) and the redemption carrying amounts for financial reporting purposes. value is recognised in the income statement over the However, if the deferred income tax is not accounted for period of the borrowings using the effective interest if it arises from initial recognition of an asset or liability in method. a transaction other than a business combination that at Borrowings are classified as current liabilities unless the the time of the transaction affects neither accounting nor company has an unconditional right to defer settlement taxable profit or loss. Deferred income tax is determined of the liability for at least 12 months after the balance using tax rates (and laws) that have been enacted or sheet date. substantially enacted by the balance sheet date and are expected to apply when the related deferred income 1.17 Related parties tax asset is realised or the deferred income tax liability is settled. Related parties consist of entities under common ownership and control. Related parties comprise the Deferred income tax assets are recognised only to the holding company, subsidiary company and directors of extent that it is probable that future taxable profit will be the company. Transactions with related parties are in the available against which the temporary differences can be normal course of business. utilised. Cresta Marakanelo Ltd29 Annual Report
  31. 31. Summary of Significant Accounting Policies (continued) Deferred income tax is provided on temporary differences 1.22 Provisions arising on investments in subsidiaries and associates, except where the timing of the reversal of the temporary Provisions for restructuring costs and legal claims are difference is controlled by the company and it is probable recognised when: that the temporary difference will not reverse in the foreseeable future. i) the company has a present legal or constructive obligation as a result of past events; 1.21 Employee benefits ii) it is more likely than not that an outflow of resources will be required to settle the obligation; and a) Pension obligations iii) the amount has been reliably estimated. The company operates a defined contribution pension scheme. Where there are a number of similar obligations, the likelihood that an outflow will be required in settlement The company pays contributions to Glenrand MIB (Pty) is determined by considering the class of obligations as a Ltd, a privately administered pension insurance plan. whole. A provision is recognised even if the likelihood of an The company has no further payment obligations once outflow with respect to any one item included in the same the contributions have been paid. The contributions are class of obligations may be small. recognised as employee benefit expense when they are due. Prepaid contributions are recognised as an asset to Provisions are measured at the present value of the the extent that a cash refund or a reduction in the future expenditures expected to be required to settle the payments is available. obligation using a pre-tax rate that reflects current market assessments of the time value of money and the risks (b) Termination benefits specific to the obligation. The increase in the provision due Termination benefits are payable when employment to passage of time is recognised as interest expense. is terminated before the normal retirement date, or whenever an employee accepts voluntary redundancy in exchange for these benefits. The company recognises 1.23 Earnings per ordinary share termination benefits when it is demonstrably committed to either: terminating the employment of current employees Earnings per ordinary share are calculated using the according to a detailed formal plan without possibility of weighted average number of ordinary shares in issue withdrawal; or providing termination benefits as a result during the period and are based on the net profit of an offer made to encourage voluntary redundancy. attributable to ordinary shareholders. Benefits falling due more than 12 months after balance sheet date are discounted to present value. Contract 1.24 Segmental report staff are paid terminal gratuities in accordance with their respective employment contract. Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating c) Other benefits decision-maker. The chief operating decision-maker, In terms of the Labor Law registration, severance pay is due who is responsible for allocating resources and assessing to employees who are not eligible for gratuities or with performance of the operating segments, has been respect to whom no contributions are made to the pension identified as the executive management that makes scheme and who remain in the company employment for strategic decisions. more than five years. Provision for severance and gratuity benefits are raised in the period in which they accrue. 1.25 Contingent liabilities The company recognises a liability and an expense for bonuses and profit sharing due to management and Contingent liabilities are reflected when the company has a employees where contractually obliged or where there is possible obligation arising from past events, the existence past practice that has created a constructive obligation. of which will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the company, or it is possible but not probable that an outflow of resources will be required to settle an obligation, or the amount of the obligation cannot be measured with sufficient reliability. Cresta Marakanelo Ltd Annual Report 30
  32. 32. Riley’s

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