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Meikles Limited 2009 annual report

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The results for Kingdom Meikles Limited ("KML/the Group") for the year ended 31 December 2009 are presented against continued changes in the transformation of the Zimbabwean economy. Shareholders are well aware of these changes and their implications. In addition to these the Group suffered for most of the year from its inability to function normally due to the specifications of the Company and major shareholders, which resulted in the Group being demoralised and largely dysfunctional from an operating point of view. The impact of both national economic factors and the specific Group factors, have caused volumes and margins to be severely eroded, together with a lack of control over the Group's cost base which has further reduced the Group's ability to compete successfully. All this has resulted in a Group operating loss in 2009 of $9.6 million...

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Meikles Limited 2009 annual report

  1. 1. KINGDOM MEIKLES LIMITED A N N U A L R E P O R T 2 0 0 9
  2. 2. KINGDOM MEIKLES LIMITED CONTENTS Chairman’s statement........................................................................................................................................................................ 2 Directorate and corporate governance...........................................................................................................................................4 Report of the directors..................................................................................................................................................................... 5 Directors’ responsibility and conclusion........................................................................................................................................7 Report of the independent auditors............................................................................................................................................... 8 Consolidated statement of comprehensive income....................................................................................................................10 Consolidated statement of financial position..............................................................................................................................11 Company statement of financial position....................................................................................................................................12 Statements of changes in equity.....................................................................................................................................................13 Consolidated statement of cash flows..........................................................................................................................................14 Notes to the financial statements...................................................................................................................................................15 Key performance measures.............................................................................................................................................................51 Shareholder information..................................................................................................................................................................52 Group structure.................................................................................................................................................................................53 Tax issues............................................................................................................................................................................................54 Corporate information.....................................................................................................................................................................55 A N N U A L R E P O R T 2 0 0 9 1
  3. 3. KINGDOM MEIKLES LIMITED C H A I R M A N ’ S S TAT E M E N T The results for Kingdom Meikles Limited ("KML/the Group") for the year ended 31 December 2009 are presented against continued changes in the transformation of the Zimbabwean economy. Shareholders are well aware of these changes and their implications. In addition to these the Group suffered for most of the year from its inability to function normally due to the specifications of the Company and major shareholders, which resulted in the Group being demoralised and largely dysfunctional from an operating point of view. The impact of both national economic factors and the specific Group factors, have caused volumes and margins to be severely eroded, together with a lack of control over the Group's cost base which has further reduced the Group's ability to compete successfully. All this has resulted in a Group operating loss in 2009 of $9.6 million. The Company was renamed Meikles Limited on 16 February 2010. However, it is referred to in this report by its previous name, Kingdom Meikles Limited. Group operations are commented on as follows: Meikles Africa Hotels • Operating profit for the year was $1.6 million net of disposal group adjustments. • Group occupancy decreased from 41% to 34% with a major decrease coming from the Zimbabwe operation. • Occupancy at Zimbabwe hotels was adversely affected by the cholera scare, slow pace in economic recovery and the world recession affecting source markets. • Meikles Hotel occupancy for the year of 27% was 16% below the previous year. In 2008, Meikles Hotel occupancy benefited from both the March and June elections. • At Victoria Falls Hotel occupancy for the year of 23% was 40% below the previous year primarily due to the effect of the world recession on the USA and European economies that are the major source markets. • Cape Grace occupancy also reflects the impact of the world recession affecting South African tourism as well as the opening of new luxury hotels in Cape Town. Occupancy decreased to 58% from 70%. • Both Zimbabwe hotels passed the quality assurance inspection by Leading Hotels of the World, an excellent achievement. • Expenses to sales ratios increased significantly in Zimbabwe as the economy dollarised which negatively affected margins. However the ratios are now starting to reduce as cost structures realign to the region. • Whilst the Zimbabwe operations ended the year in a loss, effective cash flow management contained payments to match receipts. To achieve this Meikles Africa Hotels had to defer expenditure of a capital nature. • The Cape Grace Hotel operation was cash sufficient during the year. • The Group has secured sufficient funding in early 2010 to enable partial refurbishment of Meikles Hotel and partial refurbishment of the Victoria Falls Hotel, provided our Victoria Falls Hotel operating partner makes a proportionate contribution to the funding. • The Cape Grace Hotel group of companies is disclosed as an asset classified as held for sale. Tanganda Tea Company Limited ("Tanganda") • Recorded an operating profit of $686 415. • Margins in the business have been affected by dollarisation's impact on expenses to sales ratios. • Bulk tea production of 7 082 tonnes was 35% up on the previous year. • Export sales of bulk tea were 4 572 tonnes for 2009 compared to 4 233 tonnes the previous year. • Domestic beverage volumes were 1 841 tonnes compared to 1 159 tonnes in the previous year. • The quality and price of tea remained strong throughout the year. • Brand loyalty has been retained in Zimbabwe. Retail • The segment recorded a loss of $7.1 million for the year. • The latter part of the year saw the restocking of stores resulting in good volume growth and consignment stock in stores is being phased out. • Full implementation of the point of sale system as well as the refurbishment of stores was not possible in the year due to financial constraints. • Negotiations to recapitalise TM Supermarkets (Private) Limited ("TM") are ongoing and proceeds from this will be largely used to rebuild the business. • Security of tenure in all branches was maintained in 2009 with the exception of one unit. • Focus is on reducing costs and improving margins through tight control on shrinkage and a better mix of food and non food items in TM. • Regrettably, the segment has been obliged to effect staff retrenchments through voluntary retrenchment and non renewal of contract workers' contracts in 2009. • Credit was reintroduced in Department Stores in February 2010, this has caused volumes to increase. • The focus of the Board of Directors and the retail management team is to restore profitability to the division, and following the de-specification of certain Group entities, to secure adequate finance for the division's activities. Current progress is encouraging. A N N U A L R E P O R T 2 0 0 9 2
  4. 4. KINGDOM MEIKLES LIMITED C H A I R M A N ’ S S TAT E M E N T Cotton Printers (Private) Limited ("Cotton Printers") • Recorded an operating loss of $1.7 million. • Operations ceased in August 2009 due partially to working capital constraints caused by the dysfunctionality in the KML Group as a whole but more particularly due to the new economic conditions in the country which rendered the continuation of operations unviable. • On 3 March 2010 Cotton Printers was placed in provisional liquidation. • Cotton Printers is disclosed as an asset classified as held for sale. Kingdom Financial Holdings Limited ("KFHL") • Recorded an operating loss of $3.8 million. • Dealing profits, mainly driven by foreign currency trading, contributed 20% of total income. • Non-interest income contributed 60% of total income. • Customer deposits were $34.8 million at year end. • In anticipation of the de-merger, the KFHL board was reconstituted to exclude any representation from KML and several key senior management positions were restructured following the departure of key senior management, including the KFHL Chief Executive, the Financial Director and the Chief Executive of Kingdom Bank. • KFHL has met the Reserve Bank of Zimbabwe's 31 March 2010 capital requirements as a result of the financial restructuring implemented by KML in 2008. • KFHL is disclosed as an asset classified as held for distribution to members. De-merger As shareholders are aware, on 22 June 2009 shareholders resolved to de-merge KFHL from the Group and this de-merger was subject to certain conditions precedent. KFHL have not fulfilled these conditions precedent and discussions are in progress to resolve this. Shareholders will be appraised on progress. Way Forward As announced, in late December 2009 and early January 2010 the Board was reconstituted through the appointment of a new Chairman, a new Chief Executive Officer and a new Executive Director of Finance and Administration. Senior management has also recently been strengthened in certain operations. It is anticipated that during the course of the year, new non-executive Directors may be appointed to ensure the correct balance between executives and non-executives on the Board. The Board, together with the strengthened senior management teams are addressing the Group's weaknesses, particularly its cost base, whilst simultaneously focusing on and strengthening the key revenue drivers across Group operations. The Board is shortly embarking on a fund raising exercise to raise capital to recapitalise the business and to fund long overdue and approved capital expenditure, some of which is for expansion and some of which is urgently required to replace existing capital items and increase working capital. Opportunities are also being pursued, but the initial focus for 2010 is on Group consolidation and recovery to ensure a return to profitability, so that the Group again enhances shareholder value. Early indications in 2010 show positive signs that the process is well on its way and the early results are encouraging. There is anticipation that the remaining specifications may be lifted. Shareholders will be notified if and when this event occurs. The Board has actively engaged the London Stock Exchange with a view of facilitating the lifting of the suspension of the Company's shares on the London Stock Exchange. The unproductive events over the past eighteen months have been detrimental to the Group in terms of missed opportunities and financial losses. The Group will now focus on unlocking value for shareholders. Progress has been made in resolving the dispute surrounding the funds earmarked for investment amounting to $22.2 million and shareholders will be appraised on the final conclusion of this matter. Audit Opinion on Statutory Financial Statements On page 8, the auditors have expressed a qualified opinion on the statutory financial statements due to the problems in the accounting environment emanating from 2008 and, in addition, specific issues relating to the Group. Conclusion The Group has faced many challenges in 2009 and in 2010 these challenges are beginning to be resolved and overcome. Overcoming these challenges is also dependent on the Group's successful implementation of its 2010 consolidation and recovery programme. The Board will ensure the successful implementation of this programme. F. Rwodzi CHAIRMAN 14 May 2010 A N N U A L R E P O R T 2 0 0 9 3
  5. 5. KINGDOM MEIKLES LIMITED D I R E C TO R AT E A N D C O R P O R AT E G O V E R N A N C E DIRECTORATE M.A. Masunda Non-executive - acting Chairman to 1 December 2009 - resigned 31 December 2009 N.M.K. Chanakira Group Chief Executive Officer - resigned 15 October 2009 C.B. Thorn Executive Director Finance and Administration - resigned 30 April 2009 D.E. Stephens Non-executive Director - resigned 30 November 2009 S.P. Bango Non-executive Director - resigned 14 October 2009 C. Jokonya Non-executive Director - resigned 15 October 2009 D. Mboweni Non-executive Director - resigned 15 October 2009 R. Chidembo • Non-executive Director B. Chimhini Executive Director - appointed 6 August 2009 T.B. Cameron Executive Director - appointed 6 August 2009 R..H. Meiring Executive Director - appointed 6 August 2009 A.C. Mills Executive Director - appointed 6 August 2009 F. Rwodzi • Non-executive Director - Chairman - appointed 1 December 2009 B. J. Beaumont Group Chief Executive Officer - appointed 1 December 2009 K. Ncube Non-executive Director - appointed 1 December 2009 O. Makamba Executive Director Finance and Administration - appointed 1 February 2010 • Member of the Audit Committee Mr J.R.T. Moxon, a former chairman of the Board, was specified on 16 January 2009 rendering him ineligible to be a Director of the Company. The directorate is referred to in this annual report as the "Board" and as "Directors". "Company" refers to Kingdom Meikles Limited which was renamed Meikles Limited on 16 February 2010. CORPORATE GOVERNANCE On page 7 the Directors have acknowledged their responsibility and conclusion on the presentation of the financial statements. The structure of the Board and its various standing committees is as follows: - The Board At 31 December 2009, the Board consisted of the Chairman, four executive and two non-executive Directors, and met at least quarterly during the year. The key matters reserved for the decision of the Board are the Group strategy, acquisition and divestment policy, approval of the Group budget and major capital projects, and general treasury and risk management policies. Members will be asked to confirm the appointments of Messrs F. Rwodzi, B.J. Beaumont, K. Ncube and O. Makamba to the Board by ordinary resolution at the next Annual General Meeting . Messrs T.B. Cameron and R.H. Meiring retire by rotation in terms of the Articles of Association, and being eligible, offer themselves for re-election. The Board will formally adopt a Code of Corporate Practices and Conduct and the recommendations made in the King III Report during 2010. Subsidiaries and Divisions The Group operates a decentralised subsidiary/divisional structure. Each significant subsidiary or division has a formal operating Board with a clear definition of responsibility, which operates within well-defined policies. There is comprehensive financial reporting with actual results reported monthly against budget and prior year. The Hotels and Stores divisions' Boards were not adequately constituted from June 2009 to year end, and therefore did not meet during this period. The Audit Committee The Audit Committee was chaired by C. Jokonya up to the time of his resignation. Subsequently the committee was not adequately constituted and therefore did not meet. The committee was reconstituted in December 2009 and resumed meetings in February 2010. The Group Chief Executive Officer, the Executive Director Finance and Administration, external auditors and risk management attend these meetings by invitation. The Audit Committee reviews the Group's interim and annual financial statements before submission to the Board for approval. Its objectives are to ensure that the Board is advised on all matters relating to corporate governance and the creation and maintenance of effective financial controls, as well as advising the Board and management on measures which ensure that respect for both regulatory issues and internal financial control is demonstrated and stimulated. Accordingly, it reviews the effectiveness of the internal audit function, its programmes and reports, and also reviews all reports from the external auditors on accounting and internal control matters, and monitors action taken where necessary. The Audit Committee also recommends the appointment and reviews fees of external auditors. The Remuneration Committee The Remuneration Committee was chaired by M. Masunda up to the time of his resignation and met as required during the year. The terms of reference of the Remuneration Committee are to determine the Group's policy on the remuneration of executive Directors and senior executives, including individual salaries and other terms of the remuneration packages. The committee will be reconstituted in 2010. A N N U A L R E P O R T 2 0 0 9 4
  6. 6. KINGDOM MEIKLES LIMITED REPORT OF THE DIRECTORS Your Directors have pleasure in presenting their report and the audited financial statements of the Group for the year ended 31 December 2009. Principal activities The main activities of the Group are those of agriculture, banking, hotels and retail trading. Retail trading includes department stores, supermarkets and convenience stores. The banking and part of the hotel division's activities are classified as assets held for sale. Assets classified as held for sale Procedures to demerge the banking operations of the Group have been embarked upon. Refer to note 14 for further details. The Cape Grace Hotel operations in South Africa have been maintained as non current assets classified as held for sale. Details are disclosed in note 14. Cotton Printers (Private) Limited, the textile manufacturing subsidiary, applied for voluntary liquidation in October 2009 following viability problems. The order for provisional liquidation was granted on 3 March 2010. Financial details for Cotton Printers (Private) Limited are also disclosed in note 14. Year's results The results for the year are set out in the attached financial statements and are commented on under the Chairman's statement on pages 2 to 3. The Board has resolved not to declare a dividend for the year ended 31 December 2009. Change in functional and reporting currency The relevant authorities introduced a multicurrency system in Zimbabwe effective 1 February 2009. Consequently, the Group changed its functional currency for all Zimbabwe operations as well as the Group reporting currency, from Zimbabwe dollars to United States of America dollars (US$) retrospectively from 1 January 2009. By 1 January 2009, the Group operations had shifted, in all material respects, to a US$ functional currency, with the exception of the banking operations. The opening consolidated statement of financial position as at 1 January 2009 was prepared in accordance with the Financial Reporting Guidance provided by the Public Accountants and Auditors Board, the local regulatory authority for accounting standards. This has resultantly been used as the basis for carrying amounts in subsequent financial statements, including the current period. In effecting the change, the Group has been unable to comply with the requirements of IAS 1: Presentation of Financial Statements, IAS 21: The Effects of Changes in Exchange Rates, and IAS 29: Financial Reporting in Hyperinflationary Economies for reasons fully disclosed in note 3.1 to the financial statements. Share capital The nominal value of the Company's shares is still legally denominated in Zimbabwe dollars as the authorities had not made any pronouncement on the conversion of the nominal values to the new functional currency by year end. Share capital will have to be redenominated at a meeting of the members of the Company. Share capital is shown as US$1 in these financial statements. Details of the authorised and issued share capital are set out in note 25 to the financial statements. Comparatives Comparative information relating to financial performance and cash flows for the year ended 31 December 2008, has not been disclosed for the reasons outlined in note 3.1.1 to the financial statements. Directors and their interests The names of the Directors of the Company during the relevant periods are set out on page 4. As provided by the Companies Act (Chapter 24:03), the Directors are bound to declare at any time during the year, in writing, whether they have any interest in any contract of significance with the Company or any of its subsidiaries and associates. No Director confirmed having, during or at the end of the period, any material interest in any contract of significance in relation to the Group's businesses. Executive Directors have employment contracts with the Company's subsidiaries. The direct and indirect beneficial interests of the Directors in the shares of the Company are given in note 25 to the financial statements. A N N U A L R E P O R T 2 0 0 9 5
  7. 7. KINGDOM MEIKLES LIMITED REPORT OF THE DIRECTORS Substantial shareholdings According to information received by the Directors, the following were the only shareholders beneficially holding, directly or indirectly at 31 December 2009 in excess of 5% of the share capital of the Company: Shareholder No. of shares % EW Capital Holdings (Private) Limited* 25 899 448 10.56 JRTM Investments (Private) Limited 21 337 915 8.70 ASH Investments (Private) Limited 21 115 769 8.61 FPS Investments (Private) Limited 20 980 949 8.55 ACM Investments (Private) Limited 20 961 256 8.54 APWM Investments (Private) Limited 20 958 030 8.54 Old Mutual Assurance Company Zimbabwe Limited 16 929 486 6.90 *EW Capital Holdings (Private) Limited entered into a credit share purchase agreement to sell its shareholdings to a consortium chaired by R. Chidembo with an effective date of 1 October 2009. The change had not been updated in the share register of the Company as at 31 December 2009. R. Chidembo is a Non-executive Director of the Company. Auditors Messrs. Deloitte & Touche offer themselves for re-election as auditors for the year ending 31 December 2010 and shareholders will be asked to reappoint them, and to approve their fees for the year ended 31 December 2009. F. Rwodzi Chairman Harare, 14 May 2010 A N N U A L R E P O R T 2 0 0 9 6
  8. 8. KINGDOM MEIKLES LIMITED DIRECTORS’ RESPONSIBILITY AND CONCLUSION The Directors of the Company are responsible for the maintenance of adequate accounting records, and the preparation of financial statements for each financial year, that give a true and fair view of the state of affairs of the Company and the Group at the end of the financial year, and of the results and cash flows for that year. They are also required to select appropriate accounting policies, to safeguard the assets of the Company and the Group and to make reasonable and prudent judgements and estimates. Accounting policies, which follow International Financial Reporting Standards (IFRSs), have been consistently applied, where practicable. Areas of departure are disclosed in accounting policy notes 3.1 and critical judgemental areas in note 4 to the financial statements. The Directors are also responsible for the systems of internal control. These are designed to provide reasonable, but not absolute, assurance as to the reliability of the financial statements, and to safeguard, verify and maintain accountability of assets, and to prevent and detect material misstatements and losses. The systems are implemented and monitored by suitably trained personnel with an appropriate segregation of authority and duties. The audit committees for the Hotels division's Zimbabwe operations and the Retail division were not adequately constituted from June 2009 and meetings will resume in May 2010. Other than this, nothing has come to the attention of the Directors to indicate that any material breakdown in the functioning of these controls, procedures and systems has occurred during the year under review. The financial statements have been prepared in accordance with the accounting policies set out in the accounting policy notes. The financial statements do not comply with the disclosure requirements of the Companies Act (Chapter 24.03) and the relevant Statutory Instruments, as regards presentation of comparative financial information. Non-compliance with certain IFRSs is disclosed in note 3.1 to the financial statements. The Directors have reviewed the Group's budgets and cash flow forecasts for the year to 31 December 2010 and, in light of this review and the current financial position, they are satisfied that the Group has or has access to adequate resources to continue in operational existence for the foreseeable future. However, the Directors believe that under the current economic environment a continuous assessment of the ability of the Group to continue to operate as a going concern will need to be performed. F. Rwodzi B. J. Beaumont Chairman Group Chief Executive Office Harare, 14 May 2010 Harare, 14 May 2010 A N N U A L R E P O R T 2 0 0 9 7
  9. 9. Deloitte & Touche Kenilworth Gardens 1 Kenilworth Road Highlands P O Box 267 HARARE Zimbabwe Tel: +263 (0)4 746248/54 +263 (0)4 746271/5 Fax: +263 (0)4 746255 www.deloitte.co.zw REPORT OF THE INDEPENDENT AUDITORS TO THE MEMBERS OF KINGDOM MEIKLES LIMITED REPORT ON THE FINANCIAL STATEMENTS We have audited the accompanying consolidated financial statements of Kingdom Meikles Limited (which changed its name to Meikles Limited in February 2010) and its subsidiaries ("KML or the Group") set out on pages 10 to 50, which comprise the consolidated and Company statements of financial position as at 31 December 2009 and the consolidated statement of comprehensive income, statement of changes in equity and cash flow statement for the year then ended and the notes to the financial statements, which include a summary of significant accounting policies and other explanatory notes. Directors' responsibility for the financial statements The Company's 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). 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. The Directors have elected to comply with the guidance in the joint media statement on the impact on financial reporting as a consequence of the change in functional currency (“the Financial Reporting Guidance”) issued jointly by the Public Accountants and Auditors Board ("PAAB"), the Zimbabwe Accounting Practices Board ("ZAPB") and the Zimbabwe Stock Exchange ("ZSE") in July 2009 to assist preparers of financial statements in converting their financial statements from Zimbabwe dollars into their new functional currency in a manner that is consistent with the principles of IFRS, in as far as is practicable, in the Zimbabwean economic environment, at the date of the change of their functional currency. 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 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 auditors' judgement, 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. Our audit report has been modified in the manner in which we report on the compliance of these financial statements with provisions of the Companies Act (Chapter 24:03) and the relevant Statutory Instruments (SI 33/99 and SI 62/96), as set out in the guidance and recommendations on audit reports issued jointly by the PAAB, the ZSE and the ZAPB in March 2010 ("the Guidance on Audit Reports"). We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our adverse opinion on all comparative information; and the financial performance and cash flows of the Group as reflected in the financial statements. However we have not gained sufficient appropriate evidence to offer an opinion on the financial position as described more fully in the Basis for Disclaimer of Opinion paragraph below. Basis for adverse opinion on financial performance and cash flows Non-compliance with International Accounting Standard ('IAS') 29 (Financial Reporting in Hyperinflationary Economies) and International Accounting Standard ('IAS') 21 (The Effects of Changes in Foreign Exchange Rates) The Group operated under a hyperinflationary economy in the prior year. The Group changed its functional currency to United States dollars with effect from 1 January 2009. All comparative information, the statement of comprehensive income, the statement of changes in equity, and the statement of cash flows have not been prepared in conformity with International Financial Reporting Standards in that the requirements of IAS 29 and IAS 21 have not been complied with in converting the financial information during the period of hyperinflation into an applicable measurement base at the date of reporting for the following reasons: • the inability to reliably measure inflation because of the interaction of multiple economic factors which were pervasive to the Zimbabwean economic environment as explained in note 3.1.2 to the financial statements; and • the inability to adjust items that were recorded in Zimbabwe dollars into United States dollars in the manner required by IAS 21 at the date of change of functional currency as more fully explained in note 3.1.3 to the financial statements. These factors also caused us to issue a disclaimed audit opinion on the financial statements relating to the prior year. A N N U A L R E P O R T 2 0 0 9 8
  10. 10. Deloitte & Touche Kenilworth Gardens 1 Kenilworth Road Highlands P O Box 267 HARARE Zimbabwe Tel: +263 (0)4 746248/54 +263 (0)4 746271/5 Fax: +263 (0)4 746255 www.deloitte.co.zw REPORT OF THE INDEPENDENT AUDITORS Basis for adverse opinion on financial performance and cash flow (continued) Non-compliance with IAS 1 (Presentation of financial statements) The Directors have not presented comparative information for transactions as required by IAS 1 because they believe the information would be misleading for reasons stated in note 3.1.1 to the financial statements. Adverse opinion on financial performance and cash flows In our opinion, because of the significance of the matters described in the Basis for Adverse Opinion paragraphs, the financial statements do not give a true and fair view of the results of the Group's financial performance and cash flows for the year ended 31 December 2009 in accordance with International Financial Reporting Standards. Basis for disclaimer of opinion on the financial position We were unable to obtain sufficient appropriate audit evidence to verify whether material amounts held by a related party, Coolbay Investments (Proprietary) Limited ("Coolbay"), and by Mentor Africa Limited ("Mentor") were recoverable or not. At 31 December 2009 the Group was engaged in litigation against these parties. At 31 December 2009 a provision of approximately US$ 18 million existed in respect of the uncertainty of the carrying value of any investment made from funds (see note 20 to the financial statements) that were held by Coolbay. We have not received sufficient appropriate audit evidence to enable us to form an opinion as to whether or not this provision is excessive and is appropriately disclosed. Funds amounting to US$ 4.5 million, for which the terms and form of repayment are yet to be finalised, are held by Mentor at 31 December 2009 (see note 20 to the financial statements). We have not received sufficient appropriate audit evidence to enable us to form an opinion on the validity and presentation of these funds at 31 December 2009. In November 2008 a notice to exercise an option agreement for the purchase of the Group's interest in the Cape Grace Hotel had been received from Mentor. However, certain conditions precedent contained in the option agreement appear not to have been fulfilled by 31 December 2009. Accordingly, KML has continued to disclose separately the carrying value of the Cape Grace Hotel group of companies as a disposal group. The Group has continued to consolidate 100% of the assets and liabilities of the Cape Grace Hotel group of companies. We have not received sufficient appropriate audit evidence to enable us to form an opinion on whether or not the Group had ownership of the Cape Grace Hotel group of companies at 31 December 2009. NIB 36 (Proprietary) Limited and Chataprops (Proprietary) Limited, both wholly owned subsidiaries of the Cape Grace Hotel (Proprietary) Limited, have not been consolidated and we have not received sufficient and appropriate audit evidence to determine whether these companies' net assets and results are material to the Group or not. Disclaimed opinion on the financial position Because of the significance of the matters described in the Basis for Disclaimer of Opinion paragraph, we have not been able to obtain sufficient appropriate audit evidence to provide a basis for an audit opinion. Accordingly, we do not express an opinion on the financial position of the Group in accordance with International Financial Reporting Standards. Report on other legal and regulatory requirements In our opinion, the financial statements have not been properly prepared in compliance with the disclosure requirements of the Companies Act (Chapter 24:03) and Statutory Instruments (SI 33/99 and SI 62/96) due to the absence of comparative information. In our opinion, the Group has complied, in all material respects, with the Financial Reporting Guidance. Emphases of matter Economic environment Without further qualifying our opinion, we draw your attention to note 3.1 to the financial statements, which along with other matters indicates that the Group is operating in an uncertain economic environment. Fair value determination for transactions, assets and liabilities The determination of fair values presented in the financial statements is affected by the prevailing economic environment and may therefore be distorted. This may result in significant variations in fair values, depending on factors and assumptions used in the determination of the fair values. The significant assumptions and the estimation uncertainties have been disclosed in note 4 to the financial statements. Conditions precedent for the disposal groups Without further qualifying our opinion, we draw your attention to note 13 to the financial statements, which along with other matters indicates that there remain several conditions precedent which require fulfilment before the completion of the sale / distribution of the disposal groups. Investigations into the Group Investigations into the Group by various authorities have been conducted and the final outcome of these may have an effect on the Group. Deloitte & Touche Chartered Accountants (Zimbabwe) Harare 14 May 2010 A N N U A L R E P O R T 2 0 0 9 9
  11. 11. KINGDOM MEIKLES LIMITED C O N S O L I D AT E D S TAT E M E N T O F C O M P R E H E N S I V E I N C O M E for the year ended 31 December 2009 31 December 2009 Notes US$ Continuing operations Revenue 5 148 838 120 Cost of sales (119 005 212) Gross profit 29 832 908 Other income 6 2 571 464 Employee costs 7 (16 723 178) Occupancy costs 8 (4 872 389) Other operating costs 9 (20 386 501) Operating loss (9 577 696) Investment revenue 10 695 685 Finance costs 11 (425 047) Net exchange gains 145 428 Fair value adjustments (35 712) Loss before tax (9 197 342) Income tax 12 5 449 453 Loss for the year from continuing operations (3 747 889) Discontinued operations Loss for the year from discontinued operations 13 (908 040) LOSS FOR THE YEAR (4 655 929) Other comprehensive income Exchange differences on translating foreign operations 3 376 261 Impairment of property (1 641 125) Movement in other reserves (903 852) Other comprehensive income for the year, net of tax 831 284 TOTAL COMPREHENSIVE LOSS FOR THE YEAR (3 824 645) Loss attributable to: Owners of the parent (3 949 906) Non-controlling interests (706 023) (4 655 929) Total comprehensive loss attributable to: Owners of the parent (3 118 622) Non-controlling interests (706 023) (3 824 645) Loss per share Basic loss from continuing and discontinued operations 15 (1.61) Basic loss from continuing operations 15 (1.24) A N N U A L R E P O R T 2 0 0 9 10
  12. 12. KINGDOM MEIKLES LIMITED C O N S O L I D AT E D S TAT E M E N T O F F I N A N C I A L P O S I T I O N as at 31 December 2009 Unaudited 31 December 1 January 2009 2009 Notes US$ US$ ASSETS Non-current assets Property, plant and equipment 16 76 672 807 89 650 542 Investment property 17 72 046 394 000 Biological assets 18 4 193 614 4 999 548 Investments in associates 19 - 1 025 929 Other financial assets and investments 20 4 554 984 4 449 894 Intangible assets - trademarks 291 363 268 573 Balances with Reserve Bank of Zimbabwe 22 12 541 825 35 003 091 Total non-current assets 98 326 639 135 791 577 Current assets Inventories 23 17 617 464 5 565 764 Trade and other receivables 24 7 485 896 10 280 439 Other financial assets 20 24 198 787 605 Cash and bank balances 22 2 536 106 16 488 848 27 663 664 33 122 656 Assets classified as held for sale or distribution 14 145 438 959 31 574 908 Total current assets 173 102 623 64 697 564 Total assets 271 429 262 200 489 141 EQUITY AND LIABILITIES Capital and reserves Share capital 25 1 1 Non-distributable reserves 107 160 978 148 118 994 Accumulated loss (22 418 679) (19 221 260) Capital and reserves relating to assets classified as held for sale or distribution 14 51 658 125 10 621 312 Equity attributable to equity holders of the parent 136 400 425 139 519 047 Non-controlling interests 1 325 782 2 031 805 Total equity 137 726 207 141 550 852 Non-current liabilities Borrowings 26 845 173 212 184 Deferred tax 12 13 941 913 23 074 660 Total non-current liabilities 14 787 086 23 286 844 Current liabilities Trade and other payables 27 22 888 135 5 244 016 Customer deposits 28 - 17 029 804 Current tax liabilities 12 414 152 117 890 Short term borrowings 26 6 985 213 769 330 30 287 500 23 161 040 Liabilities relating to assets classified as held for sale or distribution 14 88 628 469 12 490 405 Total current liabilities 118 915 969 35 651 445 Total liabilities 133 703 055 58 938 289 Total equity and liabilities 271 429 262 200 489 141 F. Rwodzi B. J. Beaumont 14 May 2010 14 May 2010 A N N U A L R E P O R T 2 0 0 9 11
  13. 13. KINGDOM MEIKLES LIMITED C O M PA N Y S TAT E M E N T O F F I N A N C I A L P O S I T I O N as at 31 December 2009 Unaudited 31 December 1 January 2009 2009 Notes US$ US$ ASSETS Non-current assets Investments in subsidiaries 82 125 148 123 974 684 Other financial assets 180 391 140 728 Total non-current assets 20 82 305 539 124 115 412 Current assets Other receivables 24 8 185 398 6 365 757 Assets classified as held for sale or distribution 14 34 660 464 - Total current assets 42 845 862 6 365 757 Total assets 125 151 401 130 481 169 EQUITY AND LIABILITIES Capital and reserves Share capital 25 1 1 Non-distributable reserves 103 757 359 103 757 359 Accumulated losses (6 007 023) - Total equity 97 750 337 103 757 360 Non current liabilities Deferred taxation 12 4 106 257 4 106 257 Current liabilities Trade and other payables 27 23 294 807 22 617 552 Total liabilities 27 401 064 26 723 809 Total equity and liabilities 125 151 401 130 481 169 F. Rwodzi B. J. Beaumont 14 May 2010 14 May 2010 A N N U A L R E P O R T 2 0 0 9 12
  14. 14. KINGDOM MEIKLES LIMITED C O N S O L I D AT E D S TAT E M E N T O F C H A N G E S I N E Q U I T Y for the year ended 31 December 2009 Disposal Attributable Non group to owners Share distributable Accumulated capital and of parent Non capital reserves loss reserves interests controlling Total US$ US$ US$ US$ US$ US$ US$ Balance at the beginning of the year 1 148 118 994 (19 221 260) 10 621 312 139 519 047 2 031 805 141 550 852 Loss for the year - (3 041 866) (908 040) (3 949 906) (706 023) (4 655 929) Other comprehensive income for the year - 773 591 - 57 693 831 284 - 831 284 Transferred to assets classified as held for sale - (41 731 607) (155 553) 41 887 160 - - - Balance at the end of the year 1 107 160 978 (22 418 679) 51 658 125 136 400 425 1 325 782 137 726 207 C O M PA N Y S TAT E M E N T O F C H A N G E S I N E Q U I T Y for the year ended 31 December 2009 Share Non distributable Accumulated capital reserves loss Total US$ US$ US$ US$ Balance at the beginning of the year 1 107 863 616 - 107 863 617 Loss for the year - - (6 007 023) (6 007 023) Balance at the end of the year 1 107 863 616 (6 007 023) 101 856 594 A N N U A L R E P O R T 2 0 0 9 13
  15. 15. KINGDOM MEIKLES LIMITED C O N S O L I D AT E D S TAT E M E N T O F C A S H F L O W S for the year ended 31 December 2009 31 December 2009 Note US$ Continuing and discontinued operations Cash flow from operating activities Loss before tax from continuing and discontinued operations (10 765 787) Adjustments for: - Depreciation expense and impairment 3 594 754 - Investment revenue (1 032 285) - Net exchange gains and translation adjustments (100 972) - Fair value adjustments (1 029 131) - Share of profits of associates (1 355 561) - Loss on disposal of property, plant and equipment 61 612 Operating cash flow before working capital changes (10 627 370) Increase in inventories (12 353 587) Increase in trade and other receivables (43 259 155) Increase in trade and other payables and financial liabilities 72 455 998 Cash generated from operations 6 215 886 Income taxes paid (168 610) Net cash generated from operating activities 6 047 276 Cash flows from investing activities Payment for property, plant and equipment - expansion (3 752 842) Payment for property, plant and equipment - replacement (1 633 622) Proceeds from disposal of property, plant and equipment 118 247 Net movement in service assets (51 632) Dividends received 454 768 Proceeds from sale of investments 378 067 Expenditure on biological assets (229 973) Development expenditure (22 783) Investment income 31 496 Net cash used in investing activities (4 708 274) Cash flows from financing activities Proceeds from interest bearing borrowings 10 532 544 Repayments of interest bearing borrowings (2 764 679) Finance costs (771 776) Net cash generated from financing activities 6 996 089 Net increase in cash and bank balances 8 335 091 Cash and bank balances at the beginning of the year 16 556 006 Net effect of exchange rate changes on cash and bank balances 71 992 Translation of foreign entities 545 801 Cash and bank balances at the end of the year 22 25 508 890 A N N U A L R E P O R T 2 0 0 9 14
  16. 16. KINGDOM MEIKLES LIMITED N O T E S TO T H E F I N A N C I A L S TAT E M E N T S 1. General information Meikles Limited, formerly Kingdom Meikles Limited (the Company), is a limited Company incorporated in Zimbabwe and is listed on the Zimbabwe and London Stock Exchanges. The address of its registered office is disclosed on page 58 of the annual report and the principal activities of the Company and its subsidiaries (the Group) are described in note 20.2. The financial statements are presented in United States of America dollars (US$). 2. Adoption of new and revised International Financial Reporting Standards (IFRS) In the current year, the Group has adopted all of the revised standards and interpretations applicable to the Group issued by the International Accounting Standards Board (IASB) and the International Financial Reporting Interpretations Committee (IFRIC) of the IASB that are relevant to its operations and effective for the accounting periods beginning on 1 January 2009. The impact on the financial statements of the Group of the adoption of these new and revised standards and interpretations is indicated below. The following International Financial Reporting Standards (IFRSs) that became effective on or after 1 January 2009, were adopted by the Group: Standards affecting presentation and disclosure Standard Impact IAS 1 (as revised in 2007) Presentation of IAS 1(2007) has introduced terminology changes (including revised Financial Statements titles for the financial statements) and changes in the format and content of the financial statements. Amendments to IAS 7 Statement of Cash The amendments (part of Improvements to IFRSs (2009)) specify Flows (adopted in advance of effective date that only expenditures that result in a recognised asset in the of 1 January 2010) statement of financial position can be classified as investing activities in the statement of cash flows. Amendments to IAS 34 Interim Financial Earnings per share disclosures become mandatory in interim financial Reporting (adopted in advance of its reports. These disclosures were made in the 2009 interim financial effective date of 1 July 2010) reports. Amendments to IFRS 5 Non-current Assets Disclosures in these financial statements have been modified to Held for Sale and Discontinued Operations reflect the IASB's clarification (as part of Improvements to IFRSs (adopted in advance of effective date of 1 (2009)) that the disclosure requirements in standards other than IFRS January 2010) 5 do not generally apply to non-current assets classified as held for sale and discontinued operations. See note 14. Improving Disclosures about Financial The amendments to IFRS 7 expand the disclosures required in Instruments (Amendments to IFRS 7 respect of fair value measurements and liquidity risk. The Group has Financial Instruments: Disclosures) elected not to provide comparative information for these expanded disclosures in the current year in accordance with the transitional relief offered in these amendments. IFRS 8 Operating Segments IFRS 8 is a disclosure standard was early adopted for the year ended 31 December 2007. See note 30. Amendments to IFRS 8 Operating Segments The amendments (part of Improvements to IFRSs (2009)) clarified (adopted in advance of effective date of 1 that an entity shall report a measure of total assets for each reportable January 2010) segment if such amounts are regularly provided to the chief operating decision maker. IFRIC 17 Distributions of Non-cash Assets to The Interpretation provides guidance on the appropriate accounting Owners (adopted in advance of effective treatment when an entity distributes assets other than cash as date of 1 July 2009) dividends to its shareholders. The Group has adopted the amendments in the presentation of Kingdom Financial Holdings Limited. A N N U A L R E P O R T 2 0 0 9 15
  17. 17. KINGDOM MEIKLES LIMITED N O T E S TO T H E F I N A N C I A L S TAT E M E N T S 2. Adoption of new and revised International Financial Reporting Standards (IFRS) (continued) Standards and interpretations adopted with no effect to the financial statements The following new and revised standards and interpretations have also been adopted in these financial statements. Their adoption has not had any significant impact on the amounts reported in these financial statements but may impact the accounting for future transactions or arrangements. Amendments to IFRS 1 First-time Adoption of The amendments deal with the measurement of the cost of International Financial Reporting Standards and IAS 27 investments in subsidiaries, jointly controlled entities and associates Consolidated and Separate Financial Statements - Cost when adopting IFRSs for the first time and with the recognition of of an Investment in a Subsidiary, Jointly Controlled dividend income from subsidiaries in a parent's separate financial Entity or Associate statements Amendments to IFRS 2 Share-based Payment - Vesting The amendments clarify the definition of vesting conditions for the Conditions and Cancellations purposes of IFRS 2, introduce the concept of 'non-vesting' conditions, and clarify the accounting treatment for cancellations. Amendments to IFRS 3 (as revised in 2008) IFRS 3(2008) has been adopted in the current year in advance of its Business Combinations effective date (business combinations for which the acquisition date is on or after the beginning of the first annual period beginning on or after 1 July 2009). Its adoption has not affected the accounting for business combinations in the current period. Amendments to IAS 10 Events after the Reporting Period Amendments dealing with dividends declared after the end of the reporting period. The Company has not declared a dividend at the end of the current reporting period. Amendments to IAS 17 Leases Amendments to clarify the classification of a lease of land and buildings and to eliminate accounting alternatives for initial direct costs in the financial statements of lessors. Amendments to IAS 18 Revenue Cost of originating a loan. This change had no impact to the Group results as there were no such loans originated that were affected by changes to this standard. Amendments to IAS 19 Employee Benefits Curtailments of negative past service cost, plan administration costs, replacement of term "fall due", and guidance on contingent liabilities. Amendments to IAS 20 Accounting for Government Grants As part of Improvements to IFRSs (2008), IAS 20 has been amended to and Disclosure of Government Assistance require that the benefit of a government loan at a below-market rate of interest be treated as a government grant. This accounting treatment was not permitted prior to these amendments. Amendments to IAS 23 (as revised in 2007) Borrowing Costs The principal change to the standard was to eliminate the option to expense all borrowing costs when incurred. This change has had no impact on these financial statements because it has always been the Group's accounting policy to capitalise borrowing costs incurred on qualifying assets. IAS 27 (as revised in 2008) Consolidated and Separate IAS 27(2008) has been adopted in advance of its effective date (annual Financial Statements periods beginning on or after 1 July 2009). The revisions to IAS 27 principally affect the accounting for transactions or events that result in a change in the Group's interests in its subsidiaries. Amendments to IAS 28 (as revised in 2008) Investments IAS 28(2008) has been adopted in advance of its effective date (annual in Associates periods beginning on or after 1 July 2009). The principle adopted under IAS 27(2008) (see above) that a loss of control is recognised as a disposal and re-acquisition of any retained interest at fair value is extended by consequential amendment to IAS 28; therefore, when significant influence is lost, the investor measures any investment retained in the former associate at fair value, with any consequential gain or loss recognised in profit or loss. Amendments to IAS 29 Financial Reporting in Description of measurement basis in financial statements and Hyperinflationary Economies consistency of terminology with other IFRSs. Amendments to IAS 31 Interests in Joint Ventures Specifies required disclosures when interests in jointly controlled entities are accounted for at fair value through profit or loss. The Group has no interests in jointly controlled entities that are accounted for at fair value through profit or loss. Amendments to IAS 32 Financial Instruments: The revisions to IAS 32 amend the criteria for debt/equity classification Presentation and IAS 1 Presentation of Financial by permitting certain puttable financial instruments and instruments Statements - Puttable Financial Instruments and (or components of instruments) that impose on an entity an obligation Obligations Arising on Liquidation to deliver to another party a pro-rata share of the net assets of the entity only on liquidation, to be classified as equity, subject to specified criteria being met. Amendments to IAS 36 Impairment of Assets Disclosure of estimates used to determine recoverable amount. A N N U A L R E P O R T 2 0 0 9 16
  18. 18. KINGDOM MEIKLES LIMITED N O T E S TO T H E F I N A N C I A L S TAT E M E N T S 2. Adoption of new and revised International Financial Reporting Standards (IFRS) (continued) Standards and interpretations adopted with no effect to the financial statements (continued) Amendments to IAS 38 Intangible Assets As part of Improvements to IFRSs (2008), IAS 38 has been amended to state that an entity is permitted to recognise a prepayment asset for advertising or promotional expenditure only up to the point at which the entity has the right to access the goods purchased or up to the point of receipt of services. Amendments to IAS 39 Financial Instruments: The amendments provide clarification on two aspects of hedge Recognition and Measurement - Eligible Hedged Items accounting: identifying inflation as a hedged risk or option, and hedging with options. Amendments to IAS 39 Financial Instruments: The amendments to IAS 39 permit an entity to reclassify non-derivative Recognition and Measurement and IFRS 7 Financial financial assets out of the 'fair value through profit or loss' (FVTPL) Instruments: Disclosures regarding reclassifications of and 'available-for-sale' (AFS) categories in very limited circumstances. financial assets Such reclassifications are permitted from 1 July 2008. Reclassifications of financial assets made in periods beginning on or after 1 November 2008 take effect only from the date when the reclassification is made. Amendments to IAS 40 Investment Property As part of Improvements to IFRSs (2008), IAS 40 has been amended to include within its scope investment property in the course of construction. Investment property under construction should be measured at fair value (where that fair value is reliably determinable), with changes in fair value recognised in profit or loss. The Group has no property in the course of construction. Embedded Derivatives (Amendments to IFRIC 9 and IAS 39) The amendments clarify the accounting for embedded derivatives in the case of a reclassification of a financial asset out of the 'fair value through profit or loss' category as permitted by the October 2008 amendments to IAS 39 Financial Instruments: Recognition and Measurement (see above). IFRIC 15 Agreements for the Construction of Real Estate The interpretation addresses how entities should determine whether an agreement for the construction of real estate is within the scope of IAS 11 Construction Contracts or IAS 18 Revenue and when revenue from the construction of real estate should be recognised. IFRIC 16 Hedges of a Net Investment in a Foreign Operation The interpretation provides guidance on the detailed requirements for net investment hedging for certain hedge accounting designations. IFRIC 18 Transfers of Assets from Customers The interpretation addresses the accounting by recipients for transfers (adopted in advance of effective date of transfers of assets of property, plant and equipment from 'customers' and concludes that from customers received on or after 1 July 2009) when the item of property, plant and equipment transferred meets the definition of an asset from the perspective of the recipient, the recipient should recognise the asset at its fair value on the date of the transfer, with the credit recognised as revenue in accordance with IAS 18 Revenue. Standards in issue but not yet effective Standard Details of amendment and impact Effective date IAS 36 Impairment of Assets Unit of accounting for goodwill Annual periods beginning on or after 1 impairment test. January 2010. IAS 24 Related Party Disclosures Simplification of the disclosure Annual periods beginning on or after 1 requirements for government-related January 2011. entities and clarification of the definition of a related party. IFRS 9: Financial Instruments New standard that forms the first part of Annual periods beginning on or after 1 a three-part project to replace IAS 39 January 2013 Financial Instruments: Recognition and Measurement. The Directors cannot quantify the impact that the adoption of these standards and interpretations in future periods will have on the financial statements of the Group. A N N U A L R E P O R T 2 0 0 9 17
  19. 19. KINGDOM MEIKLES LIMITED N O T E S TO T H E F I N A N C I A L S TAT E M E N T S 3. Significant accounting policies 3.1 Statement of compliance The financial statements are not presented in accordance with International Financial Reporting Standards (IFRSs), in that some provisions of IAS 1: Presentation of Financial Statements; IAS 29: Financial Reporting in Hyperinflationary Economies; and IAS 21: The Effects of Changes in Foreign Exchange Rates, have not been complied with. These departures have been explained in greater detail in points 3.1.1, 3.1.2 and 3.1.3 below. The effects of these departures have not been quantified but, having regard to their nature, are considered to be material and pervasive to the financial statements. The exceptions arise from the circumstances which have given rise to a change in the Group’s functional currency from the Zimbabwe dollar to the United States dollar, as more fully explained in note 3.2. As a result of the inability of most entities reporting in Zimbabwe to report fully in terms of IFRS, the PAAB1, the ZAPB2 and the ZSE3 issued recommendations that assisted preparers of financial statements in converting their financial statements from Zimbabwe dollars into their new functional currency in a manner that is consistent with the principles of International Financial Reporting Standards, in as far as is practicable, in the Zimbabwean economic environment, at the date of the change of the functional currency. These recommendations were also made in order to achieve a fair measure of market comparability and consistency for regulatory oversight and in the interest of various stakeholders, such as investors who have an interest in high quality financial information. The PAAB, the ZAPB and the ZSE recommended that all entities reporting in Zimbabwe adopt this Financial Reporting Guidance for converting their financial statements into the entity's new functional currency at the date of change over. Although it is not a legal requirement to apply the Financial Reporting Guidance, the Directors, in line with their fiduciary responsibilities to prepare financial statements that fairly present the state of affairs and performance of the Group have adopted these recommendations as it is the best possible manner in which they can present financial statements that are as fair as is practical under the circumstances prevailing. 1 The Public Accountants and Auditors Board ("PAAB") is a body established by statute under the Public Accountants and Auditors Act [Chapter 27:12], as a regulatory body for the accountancy profession in Zimbabwe. 2 The Zimbabwe Accounting Practices Board ("ZAPB") is a technical sub-committee of the PAAB. The body enjoys statutory recognition as the national accounting standards setting advisory authority. It includes representatives of users preparers and auditors of financial statements. 3 The Zimbabwe Stock Exchange ("ZSE") is a licensed securities exchange under the Securities Act. 3.1.1 Departure from IAS 1: Presentation of Financial Statements IAS 1: Presentation of Financial Statements, requires an entity to disclose comparative information in respect of the previous period for all amounts reported in the current period's financial statements. Comparative information relating to financial performance and cash flows for the year ended 31 December 2008, has not been disclosed for the reasons outlined below: • The Group was operating in a hyperinflationary economy during the year ended 31 December 2008. The financial statements for the year ended 31 December 2008 were not presented in accordance with the provisions of IAS 29: Financial Reporting in Hyperinflationary Economies, for reasons explained in 3.2 below. • The functional and reporting currency of the Group changed from Zimbabwe dollars (ZW$) to United States of America dollars (US$) on 1 January 2009, and therefore the financial statements for the year to 31 December 2008 would be required to be translated to the new functional currency using the provisions of IAS 21: The Effects of Changes in Foreign Exchange Rates. This standard could not be complied with when translating the results into US$ due to severe limitations which are described in detail in note 3.1.3 below. The Directors have not presented comparative information because they believe that it would be misleading. Due to the prevailing economic environment in the previous year as described above, it is not possible to convert financial statements into US$ in a manner consistent with IAS 21 and IAS 29 as described in notes 3.1.2 and 3.1.3. However, an opening consolidated statement of financial position as at 1 January 2009 has been disclosed as supplementary information, together with any relevant and applicable notes. This statement of financial position has been prepared in accordance with the Financial Reporting Guidance provided by the Zimbabwe Public Accountants and Auditors Board, the local regulatory body for accounting standards. 3.1.2 Departure from IAS 29: Financial Reporting in Hyperinflationary Economies IAS 29: Financial Reporting in Hyperinflationary Economies states that when an economy ceases to be hyperinflationary, and an entity discontinues the preparation and presentation of financial statements prepared in accordance with this standard, it shall treat the amounts expressed in the measuring unit current at the end of the previous reporting period as the basis for the carrying amounts in its subsequent financial statements. A N N U A L R E P O R T 2 0 0 9 18
  20. 20. KINGDOM MEIKLES LIMITED N O T E S TO T H E F I N A N C I A L S TAT E M E N T S 3. Significant accounting policies (continued) 3.1.2 Departure from IAS 29: Financial Reporting in Hyperinflationary Economies (continued) In February 2009, the Zimbabwean economy ceased to be hyperinflationary upon the legalisation of the use of the United States dollars and various other foreign currencies in settling and recording transactions. This necessitated the Group changing its functional and reporting currency from the ZW$ to the US$ for reasons explained in note 4 below, with effect from 1 January 2009. However, the Group financial statements for the year ended 31 December 2008 were not expressed in the measuring unit current at that date, and hence they could not be used as the basis for determining the carrying amounts in subsequent financial periods and for conversion from ZW$ to US$. The reasons for the departure are as follows: • This standard requires the use of a general price index that reflects changes in general purchasing power. The standard also prefers the use of this general price index by all entities that report in the currency of the same economy. The requirement to use a general price index in Zimbabwe was met by the use of the Consumer Price Index (CPI), produced by the Government Central Statistical Office. The Zimbabwe dollar CPI was last published in July 2008, and hence could not be used to meet the requirements of this standard at 31 December 2008. • Subsequent estimates of the CPI by economists were wide ranging and high (over percentages of hundreds of trillions to quadrillions in some cases). • The use of the movement in the exchange rate between the functional currency and a relatively stable foreign currency was not practical due to use of multiple exchange rates. The financial statements for the financial year to 31 December 2008 were then prepared according to the historical cost basis, and these could not be used for conversion from ZW$ to US$. The opening consolidated statement of financial position as at 1 January 2009 was prepared in accordance with the Financial Reporting Guidance provided by the Public Accountants and Auditors Board, the local regulatory authority for accounting standards. This has resultantly been used as the basis for carrying amounts in subsequent financial statements, including the current period. 3.1.3 Departure from IAS 21: The Effects of Changes in Foreign Exchange Rates IAS 21: The Effects of Changes in Foreign Exchange Rates, states that when an entity's functional currency is the currency of a hyperinflationary economy, the entity shall restate its financial statements in accordance with IAS 29 before translating all amounts (i.e. assets, liabilities, equity items, income and expenses) at the closing spot exchange rate at the date of the most recent statement of financial position. The entity's functional currency in the financial year ended 31 December 2008 (the comparative year to the current year financial statements), was the ZW$, which was the currency of a hyperinflationary economy. It was not practicable to meet this requirement due to the absence of the general price indices necessary for the restatement to current cost required by IAS 29 as explained in 3.1.2 above. Consequently, the comparative information relating to financial performance and cash flows (in the financial statements for the period ended 31 December 2009) has not been disclosed in these financial statements. The Group disclosed the opening consolidated statement of financial position as at 1 January 2009 as supplementary information, together with relevant and applicable notes. As a result of these uncertainties and inherent limitations, the Directors advise caution on the use of all comparative information, the statement of comprehensive income, and the statement of cash flows for decision making purposes. The Directors, however, believe that the statement of financial position fairly presents the assets and liabilities of the Company and the Group and therefore fairly presents the shareholder's equity. 3.2 Change in functional and reporting currency On 1 January 2009, the Group changed its functional and reporting currency from ZW$ to US$ due to the reasons outlined below: • Sales prices for goods and services within the Group were by then mainly denominated in US$, as numerous retail outlets had received licenses to sell in foreign currency, and the majority of the local hotels' revenues were in foreign currency; • Remuneration levels and other significant expenditures within the Group were now benchmarked to the US$; • The presentation of Zimbabwe's national budget in US$ by the honourable Acting Minister of Finance on 29 January 2009, thereby making official the use of the US$ in settling and recording transactions; and • Use of the ZW$ no longer achieved fair presentation of the Group's financial position, financial performance and cash flows. A N N U A L R E P O R T 2 0 0 9 19

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