OK Zimbabwe 2010 annual report

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OK Zimbabwe 2010 annual report

  1. 1. ZIMBABWE LIMITEDANNUAL REPORT2010
  2. 2. Table of Contents CORPORATE INFORMATION 2 DIRECTORATE AND MANAGEMENT 3 BOARD OF DIRECTORS 4 ORGANISATIONAL VISION 5 FINANCIAL HIGHLIGHTS 7 CHAIRMAN’S STATEMENT 8 CHIEF EXECUTIVE’S REPORT 10 COMPANY PROFILE 13 REPORT OF THE DIRECTORS 14 CORPORATE GOVERNANCE 15 ACCOUNTING PHILOSOPHY 17 DIRECTORS’ RESPONSIBILITY FOR FINANCIAL REPORTING 18 REPORT OF THE INDEPENDENT AUDITORS 19 CONSOLIDATED FINANCIAL STATEMENTS 21 SHAREHOLDER ANALYSIS 47 NOTICE TO MEMBERS 48 SHAREHOLDER’S CALENDAR 50www.okziminvestor.com 2010 annual report page 1
  3. 3. Corporate Information REGISTERED OFFICE OK HOUSE 7 Ramon Road Graniteside P.O. Box 3081 Harare Zimbabwe Telephone: 263 4 757311/9 Telefax: 263 4 757028/39 AUDITORS Deloitte & Touche Chartered Accountants (Zimbabwe) 1 Kenilworth Road Newlands P.O. Box 267 Harare Zimbabwe BANKERS Standard Chartered Bank Zimbabwe Limited Africa Unity Square Branch Corner Nelson Mandela Avenue / Sam Nujoma Street P.O. Box 2472 Harare Zimbabwe LAWYERS Wintertons Beverley Corner Corner Third Street / Selous Avenue P.O. Box 452 Harare Zimbabwe TRANSFER SECRETARIES Corpserve (Private) Limited 2nd Floor Intermarket Centre Corner First Street / Kwame Nkrumah Avenue P.O. Box 2208 Harare Zimbabwepage 2 2010 annual report www.okziminvestor.com
  4. 4. Directorate and Management BOARD OF DIRECTORS Chairman D.B. Lake Chief Executive Officer V.W. Zireva* Chief Operating Officer A.R. Katsande* Finance Director A.E. Siyavora* W. Alexander (appointed 23 March 2010) F.T. Kembo M. Jennings (alternate) (appointed 23 March 2010) M.T. Rukuni (Mrs) M. Tapera R. van Solt (appointed 23 March 2010) * Executive Group Secretary L. Murinda AUDIT COMMITTEE Chairman M.T. Rukuni (Mrs) F.T. Kembo M. Tapera R. van Solt (appointed 23 March 2010) V.W. Zireva Secretary L. Murinda REMUNERATION COMMITTEE Chairman M. Tapera D.B. Lake W. Alexander (appointed 23 March 2010) V.W. Zireva Secretary L. Murinda MANAGEMENT COMMITTEE Chief Executive Officer V.W. Zireva Chief Operating Officer A.R. Katsande Finance Director A.E. Siyavora Human Resources Executive M.Z. Chimbghandah Procurement Executive M.R. Chingaira Business Information Executive J. Madondo Operations Executive A. Munodawafawww.okziminvestor.com 2010 annual report page 3
  5. 5. Board of Directors D. B. Lake - CHAIRMAN V. W. Zireva - CHIEF EXECUTIVE OFFICER A. R. Katsande - CHIEF OPERATING OFFICER A. E. Siyavora - FINANCE DIRECTOR F. T. Kembo - DIRECTOR M. T. Rukuni (Mrs) - DIRECTOR M. Tapera - DIRECTOR W. Alexander - DIRECTOR M. Jennings - DIRECTOR R. van Solt - DIRECTOR (Alternate)page 4 2010 annual report www.okziminvestor.com
  6. 6. Organisational Vision CORE VALUES VISION STATEMENT Discipline, honesty and integrity OK will be the dominant retailer in Zimbabwe. We believe in discipline, honesty and integrity. Our actions will, at all times, be ethical and fair. These OK will register presence in the region. principles, which are fundamental to everything we do, will be constantly applied and will not be compromised. We aim to achieve real growth in turnover and profitability. Respect for the individual We believe in, and have respect for, the individual be We will benchmark with world-class retailers to set the he/she an employee, a customer, a supplier, a standards for quality retailing. shareholder or any other stakeholder. We will strive to retain and grow our customer base Teamwork through the provision of satisfying shopping We believe that our goals will be achieved best through experiences. teamwork. We will always think “we” and not “I”. MISSION STATEMENT Quality service We have pride in the quality of our service and are Our business is general retailing, providing quality committed to excellence of quality in product and merchandise and service while offering value for money service. to our customers in all market segments in Zimbabwe. Continuous improvement We are committed to the development and welfare of We believe in the principle of continuous improvement our employees. and with this we embrace total quality management, facility improvement and technological advancement. We will achieve an optimum return of investment. We encourage ingenuity and innovation and above all we promote the development of our staff. We will strive to build long-term relationships with our suppliers and the community. Good corporate citizenship We are fully cognisant of our responsibility to society and, through our contributions, sponsorship, environmental concern and other such practices, will always be a good corporate citizen.www.okziminvestor.com 2010 annual report page 5
  7. 7. page 6 2010 annual report www.okziminvestor.com
  8. 8. Financial Highlights Revenue 187,522,642 EBITDA 4,897,923 Profit before tax 1,227,545 Profit for the year 1,225,263 Headline earnings 1,224,364 Total assets 39,759,663 Market capitalisation 46,121,736www.okziminvestor.com 2010 annual report page 7
  9. 9. Chairman’s Statement attributable to a civil servants strike in the first part of 2010 and a general tightening of liquidity in the market which had a negative effect on demand and spending. COMPANY PERFORMANCE Revenue generated during the reporting period was $187.5 million while operating profit amounted to $2.6 million. Overhead expenses amounted to $27.8 million driven in the main by staff costs, maintenance of equipment after lengthy periods of neglect, as well as high utility and distribution expenses. The profitability of the Company was seriously affected by the unprecedented high levels of shrinkage experienced during the year and unusual mark-downs caused by price reductions to match competition as well as fridge failures emanating from frequent power cuts. The cost of finance was $1.3 million. Capital expenditure was $1.5 million, of which $0.67 million was spent on rebuilding the OVERVIEW Masvingo branch which was destroyed by fire in October 2007, $0.46 million on replacement of computer and Introduction other equipment, $0.15 million on a new store in The year 2009 saw the end of a decade of persistent Chipinge and staff housing in Ngezi and $0.22 million on economic decline, with the economy starting to show replacement of motor vehicles. signs of recovery. The advent of the multi-currency environment in February 2009 brought about DIVIDEND macroeconomic stability and resulted in the economy beginning to register positive growth. Business activity At this stage of the Companys recovery, the Directors started at a slow pace due to lack of start-up capital, have decided that it is prudent not to declare a dividend limited liquidity to fund operations and low disposable for the year ended 31 March 2010. incomes. Nevertheless, the company successfully restored operations in its stores during the first quarter OUTLOOK of 2009. The economy is expected to continue growing at a slow The Company was able to build up inventories gradually. pace due to limited liquidity in the market. It is By the second half of the financial year, stocking levels anticipated that the current low disposable incomes had improved significantly in the stores across the entire resulting from low economic activity will increase as the branch network. This was in the main underpinned by economy grows and this will enhance opportunities for credit from third party suppliers as well as our banking business growth. Supply of products will continue to be partners. The bulk of the merchandise continued to be dominated by imports but this situation is expected to imported from South Africa as most local manufacturers change gradually as local manufacturers increase their were and are still working towards increasing their production capacities. The Board and management will production capacity as they face the challenge of little or continue to implement strategies to grow market share no working capital, utility challenges in the cost and while containing costs in order to enhance shareholder shortage of water and power as well as outdated value. Focus in the coming year will be on the equipment. Sales continued to increase month on month refurbishment of existing stores, strategic expansion of for nine months to December, but reduced activity was the branch network, upgrading of the procurement and recorded in the last quarter. The slow-down in sales was distribution function and information technologypage 8 2010 annual report www.okziminvestor.com
  10. 10. Chairman’s Statement (cont’d) enhancement. Management and staff will spare no member of the Board since the Company listed in 2001, effort in the drive to ensure the shrinkage scourge is has since been appointed Chairman of the Board. brought under control. The Company embarked on a successful rights issue and a convertible loan to raise the The Board and Management would like to acknowledge capital required by the business. The sucessfull the appointment of Messrs William Alexander, Ronald conclusion of this transaction has put the Company on a van Solt and Mark Jennings (alternate), representing sound financial footing for future growth. Investec Africa Frontier Private Equity Fund, who joined the Board as non-executive directors of the Company STAFF with effect from 23 March 2010. The Company continued to enjoy cordial industrial APPRECIATION relations with staff although employees were faced with various challenges brought about by the new economic I take this opportunity to thank all our valued customers, dispensation. The Company will continue with efforts to shareholders, suppliers, service providers and other maintain a stable industrial relations climate. With the stakeholders for their continued support. I would like to increase in business activity after the countrys adoption also extend my appreciation to my fellow directors, of the multi-currency system, the Company employed management and staff for their efforts and continued additional staff to enhance service provision. dedication to duty during the past financial year. DIRECTORATE The Directors note with a deep sense of loss and sadness, the death of Mr. Eric Kahari who passed away on 26 D. B. LAKE October 2009. At the time of his death, Eric was the CHAIRMAN Chairman of the Board, a position he assumed in September 2001. Mr. David Lake, who has been a 31 May 2010www.okziminvestor.com 2010 annual report page 9
  11. 11. Chief Executive’s Report The Company had short-term borrowings amounting to $7,122,221 at the end of the financial year. After year- end, the Company raised capital amounting to $20 million through a rights issue and a convertible loan. Part of this money will be used to retire the expensive short- term borrowings. OPERATIONS The Company closed the financial year with 49 outlets comprising 35 OK stores, 5 Bon Marche stores, 3 OK Express stores and 6 Pax Cash & Carry stores. A new store was opened in Chipinge on 23 July 2009 under the Pax Cash & Carry brand. Store refurbishment work and other capital expenditure projects were scaled down or suspended due to capital constraints. Capital INTRODUCTION expenditure during the year was mainly spent on plant and equipment, computers and the rebuilding of the The sound macroeconomic policies introduced after the Masvingo store that was gutted by fire in October 2007. inception of the Government of National Unity (GNU) and the adoption of the multi-currency trading system in After a decade of economic decline characterized by February 2009 resulted in economic stability thereby inordinately high levels of inflation and empty shelves in bringing some relief to businesses and consumers. The the stores towards the end of 2008, the Company was implementation of various positive policy interventions able to resuscitate and restore normal business resulted in the economy beginning to show signs of operations in its stores during the first quarter of 2009. recovery. However, business activity started off at a slow By the beginning of the financial year under review, the pace due to lack of goods, working capital, liquidity Company had gradually built up stocks across its entire constraints and low disposable incomes. As a result, branch network partly using expensive short-term consumer spending remained relatively subdued despite borrowings, which negatively impacted on profitability. the restoration of price stability brought about by the use The bulk of the merchandise was imported from other of stable currencies. The absence of working capital to countries. The entry of numerous players into the retail fund operations resulted in low production capacity trading arena brought about new challenges as the utilization for the bulk of local manufacturers. playing field was no longer even. Consequently, in order Consequently, retailers relied mostly on imports from to draw feet into the outlets and increase sales, pricing other countries for supplies of products. became the main competitive tool resulting in lower gross profit margins. FINANCIAL RESULTS A new store brand, Pax Cash & Carry, was launched in The Company recorded revenue of $187.5 million while 2009 to serve both the wholesale and retail markets. The operating income amounted to $2.6 million. Attributable Company is currently operating 6 stores under this brand and headline earnings per share were $1,225,263 and and sales performance in these stores was satisfactory as $1,224,364, respectively. Other performance statistics the market embraced the new store concept. for the year were: The level of shrinkage expressed as a percentage of sales 2010 was higher than the target for the financial year. The Gross margin 16.13% Company will continue to closely manage the risk of Overheads to sales 14.89% stock losses through shrinkage and is currently in the Operating profit to sales 1.36% process of assessing international and regional shrinkage Stock turn (times) 12.04 standards as a benchmark for the business in the new Current ratio 1.1 multi-currency trading environment. Net sales to payroll costs (times) 6.23page 10 2010 annual report www.okziminvestor.com
  12. 12. Chief Executive’s Report (cont’d) HUMAN RESOURCES PROMOTIONS During the difficult operating environment immediately The 21st Edition of the OK Grand Challenge was a low-key preceding the new economic dispensation, the Company event as the Company was in the process of improving had recorded a reduction in staffing levels in response to product supply and building stocks. Although the declining business volumes. The new economic Company managed to sponsor the OK Grand Challenge environment resulted in increased business activity, Horse Race, the event was marked by the absence of the hence the need to recruit additional staff to man traditional promotional activities usually associated with operations. A number of contract workers were engaged this exciting event. However, localized marketing efforts to increase manpower during the period under review. A were carried out to enhance customer awareness of our cordial industrial climate was maintained during the return to full stocking levels in the stores. Other reporting period despite the challenges faced by promotional activities carried out during the reporting employees in the new operating environment and the period included the Mega Value Expo promotion and the demands for higher wages and salaries. The Company introduction of the Shop Easy Card in OK and Bon Marche will continue with its efforts to improve communication stores to enhance customer loyalty. The Company between management and staff to reduce the risk of procured new shopping trolleys to improve customer industrial unrest. service delivery. As part of the succession planning strategy, the Company COMMUNITY RESPONSIBILITY re-introduced the management graduate trainee programme during the last quarter of the financial year. Our corporate social responsibility programmes focus on The Company continued with its efforts on health and senior citizens initiatives, education, sport and wellness programmes for staff members by focusing on community development. In line with the social peer education support, counseling and awareness responsibility programme, the reporting period saw a campaigns across all the companys branches. number of charity funds and other selected beneficiaries receiving some donations from the Company. These INFORMATION TECHNOLOGY were mostly in the form of hampers for fundraising activities for schools and other community groups. The The incessant power outages experienced in the country Company also continued with its role in supporting a continued to affect network connectivity and this number of childrens homes. However, the Senior impacted on service delivery at check out points. Bigger Citizens Discount traditionally designed to offer generators were installed in some of the branches and discounts to citizens over the age of 65 was temporarily UPSs in the main server room in order to reduce suspended during the reporting period but will be downtime and minimize the disruptions caused by the reintroduced in OK and Bon Marche stores as trading persistent power cuts. The Companys core systems stabilizes. remain in the Mach 4 although work is in progress to migrate to new and improved systems in response to CORPORATE GOVERNANCE shifts in technology. Work is advanced on developing a more user friendly website to ensure presence on the The Company is resolutely committed to principles of electronic market space for marketing purposes and e- Corporate Governance and best practices, which transaction activities. Although skills retention in the endorse a culture of business ethics, openness, field of information technology was a challenge owing to transparency, integrity and accountability in its dealings competition locally and regionally, the Company now has with all its stakeholders. The Companys structures, a full complement following the recruitment of an operations, policies and procedures are continuously analyst programmer and a database administrator. assessed and updated for compliance with the law andwww.okziminvestor.com 2010 annual report page 11
  13. 13. Chief Executive’s Report (cont’d) generally accepted standards of good corporate direct investments and donor funding. Disposable governance. Our current practices are consistent with incomes are likely to improve generally as the economy the standards set by regulatory authorities and are grows and business activity improves and this is covered in detail elsewhere in this report. expected to assist the demand for consumer products. Product supply will continue to improve although the RISK MANAGEMENT bulk of merchandise will continue to be imported while local manufacturers seek to increase production levels. The Company operates a formalized and thorough process of identifying, monitoring and managing The Company will continue to focus on strategies to grow business risks. This is aimed at protecting assets and the business and create more shareholder value earnings against exceptional financial losses and legal including: liabilities. The Board reviews all business risks on a quarterly basis and ensures that action plans or • Ensuring availability of adequate stock and a wide strategies have been put in place to manage identified range of products on offer risks. • Increasing trading capacity in order to regain and grow market share; Operational risks are managed through formalized • Cost containment, improved productivity and procedures and controls, well-trained personnel and efficiency in all areas of operations Information Technology back-up facilities. Emphasis is • Upgrading and expanding store network to enhance placed on continuous review and improvement of customer convenience and increase brand loyalty systems and procedures as well as specific internal and • Upgrading of the procurement and distribution external audits. Sufficient resources and manpower are function made available at all units to continually monitor and report on risk. The installation of CCTV in more trading I wish to extend my appreciation to management and outlets is part of the programme for the ensuing year as staff for their contribution during the difficult year just this is seen as a critically important part in risk gone.. Their commitment and support is appreciated and management. The environment we operate in is in a acknowledged. I urge them to remain focused as we state of flux and therefore the process of risk chart our way forward in this new operating management has become a vital component of the environment. I also wish to thank our customers, management process. business partners and stakeholders for their continued support. FUTURE OUTLOOK Although the prevailing macro-economic stability is expected to remain, the coming year will continue to present challenges as businesses adapt to the new V.W. ZIREVA operating environment. Liquidity constraint is expected CHIEF EXECUTIVE OFFICER to remain a challenge in the market going into the future unless the country is able to attract meaningful foreign 31 May 2010page 12 2010 annual report www.okziminvestor.com
  14. 14. Company Profile HISTORICAL BACKGROUND constraints and low disposable incomes. The Company has developed its own brands through the OK Pot O OK Zimbabwe Limited was first incorporated as Gold, OK Value and Bon Marche Premier Choice labels. Springmaster Corporation in 1953. In 1984, the name was changed to Deltrade Limited and this was in turn, MANAGEMENT STRUCTURE subsequently changed to the current name in July 2001. The Company is controlled by a Board of Directors and The inaugural branch opened at OK First Street (Harare) managed by a Management Committee, comprising in 1942 and the second branch in Bulawayo in 1952. A seven departmental executives (including three further five outlets were opened across the country by Executive Directors), which reports to the Board. the end of 1960. CORPORATE SOCIAL RESPONSIBILITY In 1977, Delta Corporation acquired the business operations in OK Zimbabwe Limited, which they held OK Zimbabwe Limited has shown commitment to the until the de-merger in October 2001. community by sponsoring or donating to causes in the areas of health, education, students employment, OK Zimbabwe Limited has established itself as a charities, sports and the environment. Childrens Homes, customer-oriented organization providing Old Peoples Homes, Hospice Centres and Disabled comprehensive access to a broad range of retail products Peoples Associations are amongst the beneficiaries of and allied services developed in response to its OK Zimbabwes Social Responsibility efforts. Through its customers requirements for convenience and value. 49 branches, OK Zimbabwe Limited is involved in various local community activities. The branches are proud to be BUSINESS OPERATIONS able to make a positive contribution to the communities in which they operate. The Company is a leading supermarket retailer whose business covers three major categories, comprising HEALTH AND SAFETY groceries, basic clothing and textiles and house ware products. The groceries category includes dry groceries, The Company continues to provide both preventative butchery, delicatessen, takeaway, bakery, provisions and and curative health delivery services to its employees. fruit and vegetable sections. The bakeries and fruit and Outreach programmes to family members of the sick and vegetable operations are currently outsourced to bedridden employees revealed a growing need for Innscor and Favco, respectively. Another specialist area is generic as well as systematic counselling services, which school wear. were provided through professionals. OK Zimbabwe Limited trades under four highly EDUCATION recognized brand names, OK stores, Bon Marche stores, OK Express and Pax Cash and Carry stores. All operations Staff development is one of our core values. A substantial are carried out through a nationwide branch network number of our employees are enrolled on various which currently comprises 35 OK stores, 5 Bon Marche education and training programmes at tertiary and stores, 3 OK Express stores and 6 Pax Cash & Carry stores. professional levels. These programmes provide The diversified distribution channel allows the Company succession material for technical and managerial to target all segments of the desired market. In this positions in the Company. regard, the Company has specifically profiled its stores in terms of design, product range, services and other TRAINING offerings in a way that effectively caters for the specific requirements in the low, middle and high income The Retail Management Development Programme consumer categories. comprising the Internal Management Trainees and Graduate Management Trainees remains the OK Zimbabwe Limited has maintained its position as one cornerstone of our management development of the dominant supermarket retailers in the countrys endeavors. For the general staff our focus has been on competitive retail sector, despite the effect of liquidity the sharpening of skills and competencies.www.okziminvestor.com 2010 annual report page 13
  15. 15. Report of the Directors The Directors have pleasure in presenting their ninth Annual Report and the Audited Financial Statements of the Company for the year ended 31 March 2010. YEARS RESULTS US$ Retained income for the year and earnings attributable to shareholders 1,225,263 FIXED ASSETS Capital expenditure for the year to 31 March 2010 totaled $1.5 million. SHARE CAPITAL The authorized share capital of the Company was US$200,000 made up of 2,000,000,000 ordinary shares of US$0.0001 each while the issued share capital was US$73,209.11 made up of 732,091,050 ordinary shares of US$0.0001 each. RESERVES The movements in the Reserves of the Company are shown in the Statement of Comprehensive Income and in the Notes to the Financial Statements. DIRECTORS Messrs W. Alexander, R. van Solt, and M. Jennings (alternate) joined the Board on 23 March 2010, representing Investec Africa Frontier Private Equity Fund. Mr. M. Tapera and Mrs. M.T. Rukuni retire by rotation in accordance with Article 100 of the Articles of Association and, being eligible, offer themselves for re-election. AUDITORS Members will be asked to approve the auditors fees for the past financial year and to appoint auditors of the Company for the ensuing year. ANNUAL GENERAL MEETING The Ninth Annual General Meeting of the Company will be held at 0900 hours on Wednesday, 4 August 2010 at OK House, 7 Ramon Road, Graniteside, Harare. BY ORDER OF THE BOARD D.B. LAKE V.W. ZIREVA L.MURINDA Chairman Chief Executive Officer Company Secretary 31 May 2010page 14 2010 annual report www.okziminvestor.com
  16. 16. Corporate Governance INTRODUCTION Any service rendered by Directors and all Directors interests in OK Zimbabwe are required to be conducted The Board is committed to principles of corporate on an arms length basis. Full disclosure of any such governance and best practices which endorse a culture arrangements by all current executive and non-executive of business ethics, openness, transparency, integrity and Directors must be made in accordance with legal accountability in its dealings with all stakeholders. requirements. Each year, Directors are required to The primary objective of any system of corporate submit in writing whether they have any interest in any governance is to ensure that directors, executives and contract of significance with the Company, which could managers, to whom stewardship of large companies is give rise to a conflict of interest. entrusted by the shareholders, carry out their responsibilities faithfully, effectively and efficiently. The AUDIT COMMITTEE Companys structures, operations, policies and procedures are continuously assessed and updated for The Committee consists of four Non-Executive Directors compliance with the law and generally accepted and the Chief Executive Officer, with the Finance Director standards of good corporate governance. attending as ex-officio. The internal and external auditors attend the meetings and have unrestricted BOARD OF DIRECTORS access to the Chairman of the Committee. The Committee meets at least twice a year. The function of The Companys Articles of Association provide for the the Audit Committee is to advise the Board on all matters appointment of independent directors. The Board relating to corporate governance and regulatory issues. currently comprises three Executive Directors and six In particular, it monitors financial controls, accounting Non-Executive Directors who were chosen for their wide policies, accounting systems and assesses the processes range of professional and commercial competencies. for identifying, monitoring and managing business risks. The Chairman of the Board is a non-executive director. It reviews any significant abnormal transactions, ensures there are no restrictions on external auditors and follows The Board of Directors is responsible for giving direction up matters reported or unresolved with the auditors. It to the Company through the setting of the overall reviews the Companys budget, financial statements and strategy, key policies and risk parameters. It is also external audit fees before submission to the Board for responsible for approving strategic and operational consideration and approval. The Audit Committee budgets, significant acquisitions and disposals and monitors the Internal Audit Charter, plans, programs, i nte r i m a n d a n n u a l o p erat i n g re s u l t s . T h e reports and recommends the appointment of external implementation of the overall strategy, policies and the auditors. management of risk are monitored using key performance indicators and best practice benchmarks. REMUNERATION COMMITTEE Executive management presents structured reports, to allow the Board to monitor performance. The Board has The Committee consists of three Non-Executive constituted Audit and Remuneration Committees to Directors and the Chief Executive Officer. The assist it in the discharge of its responsibilities. Remuneration Committee is responsible for making recommendations on all major policy issues, including In terms of the Companys Articles of Association, Board appointments and the remuneration policy of Directors are not precluded from entering into or being Executive Directors and senior management. The interested in contracts or arrangements with the objective of the policy is to ensure that the right caliber of Company. However, a Director who is in any way, management is recruited and retained. The Committee whether directly or indirectly, interested in a contract or also considers, at Board level, remuneration levels and proposed contract which has been or is to be entered conditions of service of staff to ensure that these are fair, into by the Company, is required to declare the nature appropriate and in line with the market and the and extent of this interest. A Director is not permitted to Companys remuneration philosophy. vote in respect of any contract or arrangement in which he or she is interested.www.okziminvestor.com 2010 annual report page 15
  17. 17. Corporate Governance (cont’d) ETHICS Directors and employees are required to observe the highest ethical standards ensuring that business practices are conducted in a manner which, in all reasonable circumstances, is beyond reproach. In this regard, the Company has a detailed code of ethics for all levels of employees. In line with the Zimbabwe Stock Exchange Listing Requirements, the Company observes a closed period prior to the publication of its interim and year-end financial results, during which period directors, officers and employees may not deal in the shares of the Company. Where appropriate, this restriction is also extended to include other sensitive periods. EQUAL OPPORTUNITY The Company is committed to providing equal opportunities for its employees regardless of race, tribe, place of origin, political opinion, colour, creed or sex. EMPLOYEE PARTICIPATION The Company recognizes the need for orderly consultation and discussions through workers committees, works councils, departmental and liaison meetings and other collective bargaining fora. These structures, which are designed in consultation with employee representatives, are intended to achieve good employer/employee relations as well as promoting productivity, safety and loss control. SAFETY, HEALTH AND ENVIRONMENT The Company aims to create wealth and to contribute to development by operating its business with due regard for economic, social, cultural and environmental issues. Safety, health and environmental issues, therefore, receive special attention.page 16 2010 annual report www.okziminvestor.com
  18. 18. Accounting Philosophy ACCOUNTING PHILOSOPHY accounting disciplines as enunciated by the Institute of Chartered Accountants of Zimbabwe, the International OK Zimbabwe is dedicated to achieving meaningful and Accounting Standards Committee and the International responsible reporting through comprehensive Federation of Accountants. disclosure and explanation of its financial results. This is done to assist objective corporate performance The Company is committed to regular reviews of measurement, to enable returns on investment to be accounting standards and to the development of new assessed against the risks inherent in their achievement and improved accounting practices. This is done to and to facilitate appraisal of the full potential of the ensure that the information reported to the Company. management and stakeholders of the Company continues to be internationally comparable, relevant and The core determinant of meaningful presentation and reliable. This includes, wherever it is considered disclosure of information is its validity in supporting appropriate, the early adoption of accounting standards. managements decision making process. While the However, where the adoption of accounting standards is accounting philosophy encourages the pioneering of seen to be fundamentally inappropriate, the Company is new techniques, it endorses the fundamental concepts willing to challenge the validity of such adoption. underlying both the financial and managementwww.okziminvestor.com 2010 annual report page 17
  19. 19. Directors’ Responsibility for Financial Reporting DIRECTORS RESPONSIBILITY FOR FINANCIAL the internal financial control system is monitored REPORTING through management reviews, representation letters on compliance signed by the Chief Executive Officer and a OK Zimbabwe Limiteds directors are required by the comprehensive programme of internal audits. In Companies Act (Chapter 24:03) to maintain adequate addition, the Groups external auditors review on a test accounting records and to prepare financial statements basis aspects of the internal financial control systems for each financial period, which present a true and fair that they deem relevant during the course of their view of the state of the affairs of the Group at the end of statutory examination of the Group. the reporting period and of the profit or loss, and cash flows for the period. In preparing the accompanying The Audit Committee meets regularly with the Groups financial statements, generally accepted accounting internal and external auditors and executive practices have been applied, accounting policies have management to review accounting, auditing, internal been used, and reasonable and prudent judgments and control and reporting matters. estimates have been made. The financial statements incorporate full and responsible disclosure in line with As fully explained in the Notes 31, 32 and 33 to the the accounting philosophy of the Group. financial statements, these financial statements for the year ended 31 March 2010, which appear on pages 21 to The Directors have reviewed the Groups budget and 46, have not been prepared in conformity with cash flow forecast for year to 31 March 2011. On the International Financial Reporting Standards (IFRS), basis of this review, and in the light of the current promulgated by the International Accounting Standards financial position and existing borrowing facilities, the Board (IASB), which includes standards and Directors are satisfied that OK Zimbabwe Limited is a interpretations approved by the IASB as well as going concern and has continued to adopt the going International Accounting Standards and Standing concern basis in preparing the financial statements. The Interpretations Committee (SIC) interpretations issued Groups external auditors, Deloitte & Touche, have under previous constitutions (IFRSs), due to non audited the financial statements and their report compliance with the following: appears on pages 19 to 20. • IAS 1 – Presentation of Financial Statements; The Board recognises and acknowledges its • IAS 21 – The Effects of Changes in Foreign Exchange responsibility for the Groups system of internal financial Rates; and control, policy on business conduct, which covers ethical • IAS 29 – Financial Reporting in Hyperinflationary behaviours, compliances with legislation and sound Economies. accounting practice, underpins the Groups internal financial control policies and procedures, clearly defined The financial statements were reviewed by the Board of lines of accountability and delegation of authority, and Directors and are approved and signed on their behalf comprehensive financial reporting and analysis against by: approved budgets. The responsibility for operating the system is delegated to the Executive Directors and senior management who confirm that they have reviewed its effectiveness. They consider that it is appropriately designed to provide reasonable, but not absolute, D. LAKE V. W. ZIREVA assurance that assets are safeguarded against material Chairman Chief Executive Officer loss or unauthorized use and the transactions are properly authorized and recorded. The effectiveness of 31 May 2010page 18 2010 annual report www.okziminvestor.com
  20. 20. Report of the Independent Auditors to the members of OK Zimbabwe Limited Report on the financial statements We have audited the accompanying financial statements of OK Zimbabwe Limited as set out on pages 21 to 46, which comprise the consolidated statement of financial position at 31 March 2010, the consolidated statement of comprehensive income, the consolidated statement of changes in equity, the consolidated statement of cash flows 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 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. 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 entitys 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 entitys 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 Public Accountants and Auditors Board, the Zimbabwe Stock Exchange and the Zimbabwe Accounting Practices Board in March 2010 (“The Guidance on Audit Reports”). We believe the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. 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 entity changed its functional currency to United States Dollars with effect from 1 February 2009. All comparative information, the consolidated statement of comprehensive income, the consolidated statement of cash flows and the consolidated statement of changes in equity 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:www.okziminvestor.com 2010 annual report page 19
  21. 21. Report of the Independent Auditors to the members of OK Zimbabwe Limited (cont’d) • 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 31; and • the inability to adjust items that were recorded in Zimbabwe dollar into United States dollars at the date of change of functional currency as more fully explained in note 32. Non-compliance with IAS 1: Presentation of financial statements The Directors have not presented any comparative information for the consolidated statement of comprehensive income, the consolidated statement of changes in equity and the consolidated statement of cash flows as required by IAS 1 because they believe the information will be misleading. Due to the hyperinflationary environment prevailing in the prior financial year, comparatives could not be objectively converted to the new functional and presentation currency due to the existence of a multiplicity of exchange rates and unavailability of inflation indices from August 2008 to January 2009. Comparative information has thus been provided for the statement of financial position only, which was prepared subsequent to the date of change in functional currency. 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 paragraph, the financial statements do not give a true and fair view of the groups financial performance and cash flows for the year ended 31 March 2010 in accordance with International Financial Reporting Standards. Unqualified opinion on the financial position In our opinion, the financial statements, in all material respects, give a true and fair view of the financial position of OK Zimbabwe Limited at 31 March 2010 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 inability to comply with IAS 1 and IAS 21. In our opinion, the Group has complied, in all material respects, with the Financial Reporting Guidance. This guidance was issued jointly by the Public Accountants and Auditors Board, the Zimbabwe Stock Exchange and the Zimbabwe Accounting Practices Board 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 functional currency. Emphasis of matter Without further qualifying our opinion, we draw your attention to the following paragraphs, 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 these financial statements. DELOITTE & TOUCHE Chartered Accountants Harare, Zimbabwe 31 May 2010page 20 2010 annual report www.okziminvestor.com
  22. 22. Consolidated Statement of Comprehensive Income For the year ended 31 March 2010 NOTE US$ Revenue 5 187 522 642 Changes in trade inventories (8 273 357) Merchandise and consumables used (148 997 359) Employee benefits expense (11 037 977) Depreciation expense 6.2 (2 336 762) Share option expense (604 104) Net operating expense (13 711 922) Finance costs (1 333 616) Profit before tax 6 1 227 545 Taxation 7.1 (2 282) Profit for the year 1 225 263 Other comprehensive income Gains on property revaluations 1 153 987 Fair value adjustment on available for sale equity investments 28 849 Income tax relating to components of other comprehensive income (297 587) Other comprehensive income for the year net of tax 885 249 Total comprehensive income for the year 2 110 512 Weighted average number of ordinary shares in issue 723 202 579 Share performance : cents : attributable earnings 24 0.17 : headline earnings basis 24 0.17 : dividends per share - : net asset value per share 2.31 Prior year comparatives have not been disclosed for the reasons given in note 32.www.okziminvestor.com 2010 annual report page 21
  23. 23. Consolidated Statement of Financial Position As at 31 March 2010 MARCH2010 MARCH 2009 US$ US$ NOTE (RESTATED) Assets Non-current assets Property, plant and equipment 9 17 800 365 17 484 949 Long-term investments 10 120 985 92 570 17 921 350 17 577 519 Current assets Inventories 11 17 282 110 8 553 807 Trade and other receivables 12 814 065 164 607 Short-term loans 13 69 258 160 548 Cash and cash equivalents 3 672 880 1 240 994 Current tax assets - 10 565 21 838 313 10 130 521 Total assets 39 759 663 27 708 040 Equity and Liabilities Shareholders equity 16 691 462 14 195 267 Non-current liabilities Deferred taxation 14 2 961 962 3 582 951 Current liabilities Trade and other payables 15 12 928 416 8 636 867 Short-term borrowings 16 7 122 221 1 292 955 Current tax liabilities 55 602 - Total current liabilities 20 106 239 9 929 822 Total equity and liabilities 39 759 663 27 708 040 For and on behalf of the Board: (Chairman) (Chief Executive Officer) (Company Secretary) 31 May 2010page 22 2010 annual report www.okziminvestor.com
  24. 24. Consolidated Statement of Changes in Shareholder’s Equity For the year ended 31 March 2010 NOTE US$ Shareholders equity at the beginning of the period 17 261 766 Prior period errors 18 (3 066 499) Shareholders’ equity at the beginning of the year restated 14 195 267 Changes in share capital Arising from share buy-back (85 203) Arising from rights issue expenses (133 218) Changes in equity reserves Arising from granting of share options 604 104 Changes in distributable reserves Total comprehensive income 2 110 512 Shareholders equity at the end of the year 16 691 462 Prior year comparatives have not been disclosed for the reasons given in note 32.www.okziminvestor.com 2010 annual report page 23
  25. 25. Consolidated Statement of Cash Flows For the year ended 31 March 2010 NOTE US$ Cash flows from operating activities Cash generated from trading 17.1 5 478 585 Movements in working capital 17.2 (4 994 922) Cash generated from operating activities 483 663 Net finance costs 17.3 (1 311 073) Income taxes 17.4 (854 257) Net cash utilized for operating activities (1 681 667) Cash flows from investing activities Replacement of property, plant and equipment (1 146 785) Proceeds on disposal of property, plant and equipment 1 042 Additions to property, plant and equipment (351 549) Net cash used in investing activities (1 497 292) Cash flows from financing activities Increase in short-term borrowings 5 829 266 Rights issue expenses (133 218) Share buy-back (85 203) Net cash generated from financing activities 5 610 845 Net increase in cash and cash equivalents 2 431 886 Cash and cash equivalents at beginning of year 1 240 994 Cash and cash equivalents at end of year 3 672 880 Prior year comparatives have not been disclosed for the reasons given in note 32.page 24 2010 annual report www.okziminvestor.com
  26. 26. Notes to the Consolidated Financial Statements For the year ended 31 March 2010 1. General information OK Zimbabwe Limited is a listed Group registered and conducting business in Zimbabwe. The Group is a leading supermarket retailer whose business covers three major categories, comprising groceries, basic clothing and textiles and house-ware products. At the reporting date, the Group was operating from forty-nine shops countrywide, had one wholly owned subsidiary and joint ownership of a boat. 2. Adoption of new and revised Standards and Interpretations 2.1 Standards affecting presentation and disclosures In the current year, the Group has adopted the following new and revised Standard: IAS 1: (Revised) Presentation of financial statements - which has introduced terminology changes (including revised titles for the financial statements) and changes in the format and content of financial statements. 2.2 Standards and Interpretations adopted with no effect on 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 affect the accounting for future transactions or arrangements. IFRS 8: Operating segments IFRS 8 is a disclosure Standard that requires re-designation of reportable segments based on the segments used by the “Chief Operating Decision Maker” to allocate resources and assess performance. Medium-sized Entities This Standard is available immediately but the adoption has to be decided by the jurisdiction of implementation. Amendments to IFRS 2: Share-based Payment - Vesting Conditions and Cancellations The amendments clarify the definition of vesting conditions for the purposes of IFRS 2, introduce the concept of ‘non-vesting’ conditions, and clarify the accounting treatment for cancellations. 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 capitalize borrowing costs incurred on qualifying assets. Amendments to IAS 32: Financial Instruments: Presentation and IAS 1 : Presentation of Financial Statements – Puttable Financial Instruments and Obligations Arising on Liquidation The revisions to IAS 32 amend the criteria for debt/equity classification by permitting certain puttable financial instruments and instruments (or components of instruments) that impose on an entity an obligation 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. IFRIC 13: Customer Loyalty Programmes The Interpretation provides guidance on how entities should account for customer loyalty programmes by allocating revenue on sale to possible future award attached to the sale. 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 (transfers received on or after July 1, 2009) The Interpretation addresses the accounting by recipients for transfers of property, plant and equipment from ‘customers’ and concludes that when the item of property, plant and equipment transferred meets the definition of an asset from the perspective of the recipient, the recipient should recognise the asset at its fair value on the date of the transfer, with the credit recognised as revenue in accordance with IAS 18: Revenue.www.okziminvestor.com 2010 annual report page 25
  27. 27. Notes to the Consolidated Financial Statements For the year ended 31 March 2010 Improvements to IFRSs (2008) Amendments to IFRS 1, IAS 1, IAS 16, IAS 19, IAS 20, IAS 23, IAS 27, IAS 28, IAS 29, IAS 31, IAS 36, IAS 38, IAS 39, IAS 40 and IAS 41 resulting from the May and October 2008 Annual Improvements to IFRSs majority of which are effective for annual periods beginning on or after January 1, 2009. Amendments to IAS 39 (Revised): Financial Instruments Recognition and Measurement Amendments for embedded derivatives when reclassifying financial instruments. Amendments to IFRS 7: Financial Instruments Disclosures Amendments enhancing disclosures about fair value and liquidity risk. Amendments to IAS 27: Consolidated and Separate Financial Statements Amendments relating to the cost of an investment on first time adoption. IFRIC 15: Agreements for the Construction of Real EstateThe Interpretation standardizes accounting practice across jurisdictions for the recognition of revenue by real estate developers for sales of units, such as apartments or houses, ‘off plan’- that is before construction is complete. 2.3 Standards and interpretations in issue but not yet effective At the date of authorization of these financial statements, the following Standards and Interpretations were in issue but not yet effective: IFRS 1 (Revised) First time Adoption of IFRS - Amendment relating to Cost of an Investment in a Subsidiary, Jointly Controlled Entity or Associate (effective for annual periods beginning on or after July 1, 2009); . IFRS 1 (Revised) First time Adoption of IFRS - Amendment on additional exemptions for first-time adopter (effective for annual periods beginning on or after July 1, 2010); IFRS 1 (Revised) First time Adoption of IFRS – Amendments relating to oil and gas assets and determining whether an arrangement contains a lease (effective for annual periods beginning on or after January 1, 2010) IFRS 2 (Revised) Share-based Payment- Amendment relating to Group cash-settled share based payment (effective for annual periods beginning on or after January 1, 2010); IFRS 3 (Revised) Business Combinations – Comprehensive revision on applying the acquisition method and consequential amendments to IAS 27 (revised) Consolidated and Separate Financial Statements, IAS 28 (revised) Investments in Associates and IAS 31 (revised) Interests in Joint Ventures (effective for annual periods beginning on or after July 1, 2009); IFRS 5 Amendments resulting from May 2008, Annual Improvements to IFRS’s (effective for annual periods beginning on or after July 1, 2009); IFRS 9 Financial Instruments – Classification and Measurement (effective for annual periods beginning on or after January 1, 2013); IAS 24 (Revised) Related Party Disclosures – Amendment on disclosure requirements for entities that are controlled, jointly controlled or significantly influenced by a Government (effective for annual periods beginning on or after January 1, 2011); IAS 32 (Revised) Financial Instruments: Presentation – Amendments relating to classification of Rights Issue (effective for annual periods beginning on or after February 1, 2010); IAS 39 (Revised) Financial Instruments: Recognition and Measurement – Amendments relating to Eligible Hedged Items (such as hedging Inflation risk and Hedging with options) (effective for annual periods beginning on or after July 1, 2009); IFRIC 9 Amendment to IFRIC 9 (revised): Reassessment of Embedded Derivatives relating to assessment of embedded derivatives in case of reclassification of financial assets out of the FVTPL category (effective for annual periods beginning on or after July 1, 2009);page 26 2010 annual report www.okziminvestor.com
  28. 28. Notes to the Consolidated Financial Statements For the year ended 31 March 2010 IFRIC 14 Amendment to IFRIC 14: IAS 19 The limit on a Defined Benefit Asset - Minimum Funding Requirement and their interaction (effective for annual periods beginning on or after January 1, 2011); IFRIC 16 Amendment to IFRIC 16 – Hedges of a Net Investment in a Foreign Operation relating to the restriction on the entity that can hold hedging instruments (effective for annual periods beginning on or after July 1, 2009); IFRIC 17 Distributions of Non-cash Assets to Owners (effective for annual periods beginning on or after July 1, 2009); and IFRIC 19 Extinguishing Financial Liabilities with Equity Instruments (effective for annual periods beginning on or after July 1, 2010). Others Amendments to IFRS 2, IFRS 8, IAS 1, IAS 7, IAS 17, IAS 36, IAS 38 and IAS 39 resulting from April 2009 Annual Improvements to IFRSs (Majority effective for annual periods beginning on or after January 1, 2010). The Directors are yet to assess the impact that the adoption of these Standards and Interpretations will have on the financial statements in the period of initial application. 3 Significant accounting policies 3.1 Statement of compliance The Group’s financial statements have not been prepared in conformity with IFRS, promulgated by the International Accounting Standards Board (IASB), which includes standards and interpretations approved by the IASB as well as International Accounting Standards and Standing Interpretations Committee (SIC) interpretations issued under previous constitutions (IFRSs), due to non compliance with the following: • IAS 1 – Presentation of Financial Statements; • IAS 21 – The Effects of Changes in Foreign Exchange Rates; • IAS 29 – Financial Reporting in Hyperinflationary Economies 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 Notes 31, 32 and 33. 3.2 Basis of preparation The financial statements have been prepared on the historical cost basis except for the fair valuation of certain non-current assets and financial instruments. Historical cost is generally based on the fair value of the consideration given in exchange for assets. The principal accounting policies of the financial statements, set out below, have been consistently followed in all material respects. 3.3 Basis of consolidation The consolidated financial statements incorporate the financial statements of the Group and entities controlled by the Group (its subsidiaries). Control is achieved where the Group has the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. Where necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies into line with those used by other members of the Group. All intra-group transactions, balances, income and expenses are eliminated in full on consolidation.www.okziminvestor.com 2010 annual report page 27

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