MEIKLES LIMITED
ABRIDGED AUDITED FINANCIAL RESULTS FOR THE YEAR ENDED 31 MARCH 2013
CHAIRMAN'S REPORT
I am pleased to report that the Group has progressed significantly over the
past financial year. A clear strategy is in place, which will enhance success
in future years. This review will provide shareholders with an appreciation of
the implications of our present inability to access our deposit at the Reserve
Bank of Zimbabwe. This implication represents the most significant challenge to
the well being of the Group and our ability to play a greater role in the
economic future of the country.
STRATEGIC INITIATIVES
We outline below the status of various strategic initiatives that have been
developed to grow the organisation.
Mining
Following the decision to enter the resources sector, a division, Meikles
Resources, has been established to house the Group's mining investments.
The Group has obtained a special mining grant within the Midlands area of
Zimbabwe. This grant allows the Group to prospect for various minerals,
including iron ore and chrome. The Group also has opportunities relating to
gold and tantalite. We plan to have at least one producing mine in operation in
2014.
We have signed a memorandum of understanding, which will shortly become a full
shareholders agreement, with a substantial technical partner to pursue these
opportunities, including the provision of necessary capital, skills and
expertise in mining. Anticipated funding for mining operations is expected to
be substantial. The division will raise its own capital and will not be
dependent on Group financial resources.
Funds held on deposit at the Reserve Bank of Zimbabwe
The funds on deposit with the Reserve Bank of Zimbabwe (RBZ) originated from
the listing of the Group on both the Zimbabwe and London Stock Exchanges and
the raising of funds from a number of substantial international investors for
the benefit of the Group.
These funds were remitted to Zimbabwe and ultimately placed on deposit with the
RBZ at the insistence of the then Governor, the predecessor to the present
Governor, to be used for Balance of Payments support. The Group has been
provided with a deposit statement by the Reserve Bank in acknowledgement of the
fact that the RBZ is indebted to the Group. This statement in common with
banking practice is sent to the Group monthly.
This is a US dollar deposit and the Group has been unable to access any of the
funds since 2001. The Group has received promises of repayment from the RBZ,
but to date nothing has materialised. These funds are required for Group
purposes and Government is obliged to make them available.
We have without success engaged both the RBZ and the Ministry of Finance in an
attempt to negotiate an arrangement whereby access to these funds may be
facilitated. In the circumstances, we deem it appropriate to further escalate
our efforts to access these funds.
Finance
The decision revealed to stakeholders to fund projects largely with foreign
term loans at lower rates of interest, together with shareholder funding where
required, has been achieved. The renovation of Meikles Hotel, The Victoria
Falls Hotel, the expansion of Tanganda and the renovation and expansion of TM
Supermarkets have all been funded or are about to be funded in this manner.
Over the term of the funding, loans will be repaid from relevant operations.
The Group will retire all short term loans upon receipt of the funds held on
deposit with the RBZ. The recovery of funds held on deposit at the RBZ will
remove the last major impediment to the shareholder value growing to a level
which corresponds more closely to the current intrinsic value of the Group.
Shareholders will understand from this review the extent of the adverse effects
that the present inability to recover this deposit is causing the Group.
The loss, being additional finance charges caused by the present inability to
access the deposit from time of dollarisation to 31 March 2013, amounts to
US$26 million. This is in addition to interest that has been credited by the
RBZ but which has not been received by the Group. This outflow is the result of
interest paid to third parties, which need not have been incurred. This sum
added to the balance of the sum on deposit would total US$82 million and is
more than sufficient to eliminate all short term borrowings in the group and
leave a useful credit balance for Group investment purposes. It would also
permit the payment of a dividend to shareholders, and facilitate other measures
to enhance shareholder value.
Properties
The Group has a very significant property portfolio situated in all the major
centres of Zimbabwe. Steps are currently underway to leverage this portfolio to
unlock value and maximise returns and cash generation. This portfolio is
currently valued in excess of $60 million and is anticipated to grow
substantially in value.
Group results
The Group made a profit before taxation of US$7.8 million, compared to a loss
of US$8.5 million in the previous year, an improvement of US$16.3 million. The
profit after taxation was US$6.5 million compared to a loss of US$3.4 million
in the previous year. Key benchmarks of turnover and margin resulted in
improved gross profits, compared to the previous year. Increases in operating
costs were contained at levels below growth in turnover.
We continue to incur substantial interest costs, although these costs did not
increase relative to the previous year. It is calculated that our inability to
recover our deposit from the RBZ has resulted in the Group paying excessive
interest costs of US$7 million during the year under review. It is anticipated
that interest costs in the forthcoming financial year will be adversely
affected by approximately US$8 million should we fail to recover the deposit.
TM Supermarkets
The company recorded an EBITDA of US$11.5 million, compared with US$5.2 million
in the previous year. Four stores were completely refurbished. Two of these are
branded Pick n Pay and two remained with the TM brand. They have all performed
above expectations. A number of other stores received upgrades of various
items of equipment, pending a full refurbishment. As expected, the partial
refurbishments have also resulted in an increase in turnover and an improvement
in gross margins.
The potential for this company is substantial. Shareholders are to ensure that
additional funding for store refurbishment and store expansion amounting to
US$25 million, will be made available to TM Supermarkets.
Thomas Meikle Stores
The company recorded an EBITDA loss of US$1.3 million, compared to a loss of
US$2.2 million in the previous year. The current economic environment dictates
that priority is given to food, basic necessities and school fees, ahead of
luxuries, as disposable incomes remain very low. There has been
rationalisation, including the closure of nine Home and Beauty shops, which
were operated by the Group. The deteriorating liquidity in the market has
caused us to curtail credit. Funding limitations caused by our inability to
access our deposit with the RBZ has caused difficulties in achieving
appropriate stock levels.
We plan to be more aggressive and provide better shopping environments and
choices for our customers, but we can only do so if we are able to access our
RBZ deposit. If we fail to secure our deposit a further downsizing and
curtailment of resources allocated to the stores is anticipated.
Meikles Hospitality
The hotels achieved an EBITDA of US$612,000 compared to a loss of US$900,000 in
the previous year. The refurbishment of the North Wing at Meikles Hotel
commenced in April 2012 and will be completed in the next few months. This
project has taken far longer to complete than anticipated. There have been
various reasons for the delay, but shortage of funding at various times, but
now rectified, has probably been the main reason for the delay. Once the
redevelopment is complete, we shall have a world class product for our guests.
The Victoria Falls Hotel revenues increased relative to the previous year,
mainly due to improved room rates. Work to refashion 44 luxury suites and
public areas has already started and is scheduled to be completed in time for
the UNWTO Conference in August 2013.
Both projects have involved local contractors.
Work on the Hotel in Lusaka has been delayed. This delay emanated from the
changes in the functional currency in Zambia which has moved to the use of the
Zambian Kwacha, for local transactions. This has impacted on the feasibility of
the project. However it is expected that the project will commence in the near
future.
The Group will continue to seek expansion opportunities both in Zimbabwe and in
the region. Meikles Hospitality is attractive to potential investors and has a
good and solid future.
Tanganda
The company achieved an EBITDA of US$1.2 million compared to a loss of US$3.9
million in the previous year. Minimal rains were received in the winter of 2012
and certain tea areas were affected by frost. The dry spell continued up to the
end of the 3rd quarter, but useful rains were received in the final quarter of
the financial year. The delayed rains affected tea production which amounted to
7,500 tons compared to 8,500 tons in the previous year. This short-fall in
production was mitigated by an increase in global tea prices on the back of
increasing demand and an improved quality of teas from our estates.
Investment in the coming year will focus on the replacement of the existing
antiquated tea packaging plant with modern equipment. This new equipment will
significantly improve the efficiency of production and quality of product.
There are opportunities for increasing sales of packeted teas in the region.
Water production and distribution increased by 51% to 3 million litres. The
market will see increased availability of the product, in the coming year.
In addition to the existing 2,400 hectares of tea and in line with our
diversification strategy, it is our intention to continue developing the
plantations to 300 hectares of coffee, 425 hectares of avocados and 700
hectares of macadamias in the coming financial year.
Tanganda continues to attract interest from potential investors and will have a
good and solid future.
Mentor Africa
The Group acquired a direct shareholding in Mentor Africa, following the merger
of the Cape Grace Hotel into Mentor Africa.
Mentor Africa's investments were revalued as at 31 March 2013. The Group's pro
rata share of these investments was valued by the Directors at R241 million,
representing an uplift of value, in Rand terms of 12%. Due to the devaluation
of the Rand, there was a 6% diminution in the US$ value when compared to the
initial recognition in the Group's financial records. The Group remains
optimistic about prospects for its investment in Mentor Africa and expects the
value of this investment to increase.
Dnata Catering Services, the Newrest Group and Mentor Africa recently announced
the formation of a new, jointly-owned inflight catering services group in South
Africa. A new company called "dnata Newrest" was formed by Wings Inflight
Services, which was jointly owned by dnata and Mentor Africa, acquiring the
inflight catering services business of Newrest First Catering in South Africa.
The new entity, dnata Newrest RSA, will be owned and managed equally by dnata,
Newrest and Mentor Africa. The transaction was implemented on 15 March 2013.
Operationally, the new entity will be controlled by dnata and Newrest with
their extensive worldwide experience in the inflight catering arena.
dnata is a member of the Emirates Group and has interests in ground handling
and inflight catering business in 38 countries across five continents.
Newrest is the only major catering company active in all catering and related
hospitality segments including airline catering, rail catering, contract
catering, concession retail, buy-on-board, health care, education, and remote
site and support services.
The Cape Grace Hotel performed exceptionally well as a result of new operating
strategies adopted and improved further on all recognised operating
bench-marks. It was also voted the second best luxury/top hotel in the world by
TripAdvisors in the 2013 Travellers Choice Awards, a proud achievement by the
hotel management and staff. The hotel has won the Best City Hotel in Africa in
the UltraTravel Awards. The hotel has also been voted number one in Africa by
Celebrated Living, which is the magazine for American Airlines and was voted
number two in the Travel and Leisure World's best service for Africa and the
Middle East.
Mentor Africa is also invested in a leading provider in South Africa of energy
efficient lighting solutions and products which continue to work with major
mining, industrial and property groups in South Africa, and is expecting to
participate in major contracts going forward.
Meikles Guard Services
The company was formed late in the financial year and its management brings to
Zimbabwe 18 years of security services experience in the international arena.
The company will provide security services to companies, embassies and
nongovernmental organisations in addition to the security requirements of the
Group.
Conclusion
The Group has made the positive steps outlined above through the dedicated
efforts and commitment of the board, management and staff across all business
units. The regulatory authorities are guiding us as we make the foray into new
areas to expand our business.
The shareholders whose support we always count on, can be assured that with the
return to profitability of our Group, the future will improve. This coupled
with the new ventures should lead to an increase in shareholder value in the
near term. However, Group fortunes will be affected if the funds held on
deposit at the RBZ are not made available.
JRT Moxon
Executive Chairman
3 June 2013
31 March 31 March
2013 2012
US$ 000 US$ 000
CONTINUING OPERATIONS
Revenue 391,328 354,102
Net operating costs (386,262) (362,430)
Operating profit / (loss) 5,066 (8,328)
Investment income 2,244 2,011
Finance costs (6,994) (7,126)
Net exchange ( losses) / gains (340) 1,183
Fair value adjustments 7,828 3,792
Profit / (loss) before tax 7,804 (8,468)
Income tax (expense) / credit (2,442) 2,544
Profit /(loss) for the year from continuing 5,362 (5,924)
operations
DISCONTINUED OPERATIONS
Profit for the period from discontinued 1,173 2,480
operations
PROFIT/ (LOSS)FOR THE YEAR 6,535 (3,444)
Other comprehensive loss
Items that will not be reclassified
subsequently to profit or loss:
Exchange differences on translating foreign - (1,992)
operations
Other comprehensive loss for the year, net of - (1,992)
tax
TOTAL COMPREHENSIVE PROFIT / (LOSS)FOR THE 6,535 (5,436)
YEAR
Profit / (loss) attributable to:
Owners of the parent 3,084 (3,537)
Non-controlling interests 3,451 93
6,535 (3,444)
Total comprehensive profit / (loss)
attributable to:
Owners of the parent 3,084 (5,529)
Non-controlling interests 3,451 93
6,535 (5,436)
Earnings / (loss) per share- cents
Basic 1.21 (1.44)
Continuing operations 0.75 (2.45)
Discontinued operations 0.46 1.01
Diluted 1.15 (1.31)
Continuing operations 0.71 (2.23)
Discontinued operations 0.44 0.92
Headline earnings / (loss) per share- cents 0.86 (1.47)
Continuing operations 0.86 (2.37)
Discontinued operations - 0.90
Diluted headline earnings / (loss) per share- 0.81 (1.34)
cents
Continuing operations 0.81 (2.16)
Discontinued operations - 0.82
CONSOLIDATED STATEMENT OF FINANCIAL
POSITION
AS AT 31 MARCH 2013
31 March 31 March
2013 2012
US$ 000 US$ 000
ASSETS Restated*
Non-current assets
Property, plant and equipment 99,063 86,122
Investment property 254 43
Investment in Mentor Africa Limited 27,657 -
Biological assets 21,521 11,770
Intangible assets 2,204 124
Other financial assets 12,693 18,370
Balances with Reserve Bank of Zimbabwe 40,514 38,627
Deferred tax 1,997 1,888
Total non-current assets 205,903 156,944
Current assets
Inventories 36,708 36,666
Trade and other receivables 17,283 17,642
Other financial assets 1,405 1,085
Cash and bank balances 14,198 8,427
69,594 63,820
Assets held for sale - 37,871
Total current assets 69,594 101,691
Total assets 275,497 258,635
EQUITY AND LIABILITIES
Capital and reserves
Share capital 2,538 2,538
Share premium 1,316 1,316
Non-distributable reserves 12,559 6,233
Retained earnings 121,028 104,626
Capital and reserves relating to assets classified as - 19,644
held for sale
Equity attributable to equity holders of the parent 137,441 134,357
Non-controlling interests 10,990 7,539
Total equity 148,431 141,896
Non-current liabilities
Borrowings 7,417 4,786
Deferred tax 14,534 12,155
Total non-current liabilities 21,951 16,941
Current liabilities
Trade and other payables 46,263 38,371
Borrowings 58,852 47,199
105,115 85,570
Liabilities relating to assets classified as held for - 14,228
sale
Total current liabilities 105,115 99,798
Total liabilities 127,066 116,739
Total equity and liabilities 275,497 258,635
* Refer to note 6 for details of the restatement.
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED 31 MARCH 2013
Disposal
group Attributable
Non- capital to Non
Share Share distributable Retained and owners of controlling
capital premium reserves earnings reserves parent interests Total
US$ 000 US$ 000 US$ 000 US$ 000 US$ 000 US$ 000 US$ 000 US$ 000
2013
Balance at 1 April 2012 2,538 1,316 6,233 104,626 19,644 134,357 7,539 141,896
Profit for the year - - - 3,084 - 3,084 3,451 6,535
Transfer on disposal
of assets classified as
held for sale - - 6,326 13,318 (19,644) - - -
Balance at 31 March 2013 2,538 1,316 12,559 121,028 - 137,441 10,990 148,431
2012 - restated
Balance at 1 April 2011
as previously stated 2,454 - 2,627 111,207 18,083 134,371 764 135,135
Prior year adjustment -
inventory valuation error - - - (1,719) - (1,719) (573) (2,292)
Change in accounting
policy - inventory valuation - - - 67 - 67 22 89
Balance at 1 April 2011 restated 2,454 - 2,627 109,555 18,083 132,719 213 132,932
Loss for the year - - - (6,017) 2,480 (3,537) 93 (3,444)
Change in ownership interests
in a subsidiary without loss
of control - - 4,679 1,256 - 5,935 7,065 13,000
Other comprehensive
loss for the year - - (1,073) - (919) (1,992) - (1,992)
Issue of shares for cash 84 1,316 - - - 1,400 - 1,400
Transfer on disinvestment of
non controlling interest in
a subsidiary - - - (168) - (168) 168 -
Balance at 31 March 2012
restated 2,538 1,316 6,233 104,626 19,644 134,357 7,539 141,896
Refer to note 6 for details of the restatement.
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED 31 MARCH 2013
31 March 31 March
2013 2012
CONTINUING AND DISCONTINUED OPERATIONS US$ 000 US$ 000
Cash flows from operating activities
Profit / (loss) before tax from 7,804 (5,616)
continuing and discontinued operations
Adjustments for:
- Depreciation and impairment 4,901 4,834
- Net interest 4,750 6,371
- Net exchange losses / (gains) 340 (1,342)
- Fair value adjustments (7,828) (3,681)
- Loss / (profit) on disposal of 267 (69)
property, plant and equipment
Operating cash flow before working 10,234 497
capital changes
(Increase) / decrease in inventories (42) 1,196
Increase in trade and other receivables (2,164) (3,252)
Increase in trade and other payables 13,108 7,675
Cash generated fromoperations 21,136 6,116
Income taxes paid (172) (9)
Net cash generated fromoperating 20,964 6,107
activities
Cash flows from investing activities
Payment for property, plant and equipment (18,299) (6,839)
Proceeds from disposal of property, plant 188 1,503
and equipment
Increase in intangible assets (2,080) -
Net movement in service assets (209) (21)
Payment for other investments (82) (250)
Net expenditure on biological assets (1,923) (496)
Net outflow on disposal of subsidiary (2,857) -
Investment income 357 251
Net cash used in investing activities (24,905) (5,852)
Cash flows from financing activities
Change in ownership interests in a - 13,000
subsidiary without loss of control
Net increase in interest bearing 14,284 6
borrowings
Proceeds from issue of shares - 1,400
Finance costs (6,994) (8,454)
Net cash generated from financing 7,290 5,952
activities
Net increase in cash and bank balances 3,349 6,207
Cash and bank balances at the beginning 11,284 4,785
of the year
Net effect of exchange rate changes on (435) 606
cash and bank balances
Translation of foreign entities - (314)
Cash and bank balances at the end of the 14,198 11,284
year
NOTES TO THE ABRIDGED FINANCIAL STATEMENTS
1. Basis of preparation
The abridged financial statements are prepared from statutory records that are
maintained under the historical cost basis except for biological assets and
certain financial instruments which are measured at fair value. Historical cost
is generally based on the fair value of the consideration given in exchange for
assets.
2. Statement of compliance
The Group's abridged audited financial results have been extracted from
financial statements prepared in accordance with International Financial
Reporting Standards and the Companies Act (Chapter 24.03) and relevant
statutory instruments (SI33/99 and SI62/96). These results have been audited by
Deloitte & Touche, whose unqualified report is available for inspection at the
registered office of the Company.
3. Accounting policies
Accounting policies and methods of computation applied in the preparation of
these abridged financial statements are consistent, in all material respects,
with those used in the prior year with no significant impact arising from new
and revised International Financial Reporting Standards (IFRSs) applicable for
the year ended 31 March 2013.
4. Segment information
31 March 31 March
2013 2012
US$ 000 US$ 000
Revenue
Continuing operations
Supermarkets 335,909 296,403
Hotels 14,842 15,397
Agriculture 24,176 19,978
Stores 18,489 24,061
Intra-group sales (2,088) (1,737)
391,328 354,102
Discontinued operations
Cape Grace Hotel group of companies - 16,163
EBITDA
Continuing operations
Supermarkets 11,514 5,155
Hotels 612 (900)
Agriculture 1,217 (3,899)
Stores (1,339) (2,201)
Corporate* (3,059) (3,900)
8,945 (5,745)
The EBITDA figures are before Group management fees.
Segment assets
Continuing operations
Supermarkets 60,943 47,556
Hotels 47,719 29,878
Agriculture 52,852 43,004
Stores 37,408 41,544
Corporate* 76,575 56,373
275,497 218,355
Assets classified as held for sale
Cape Grace Hotel group of companies - 40,280
275,497 258,635
Segment liabilities
Continuing operations
Supermarkets 38,516 32,173
Hotels 16,421 8,720
Agriculture 29,631 19,538
Stores 36,890 52,596
Corporate* 5,608 (16,924)
127,066 96,103
Liabilities classified as held for sale
Cape Grace Hotel group of companies - 20,636
127,066 116,739
*Intercompany transactions and balances have been eliminated from the corporate
amounts. Corporate also includes other subsidiaries that are not allocated to a
reportable segment, including Meikles Guard Services (Private) Limited.
5. Disposal of discontinued operations
The disposal of the Cape Grace Hotel operations in South Africa was concluded
during the year with an effective date of 1 April 2012.
Below is the analysis of assets and liabilities over which control was lost and
the gain on disposal.
31 March 201
2
US$ 000
Current assets 6,839
Non-current assets 33,441
Total assets 40,280
Current liabilities 8,181
Non-current liabilities 12,455
Total liabilities 20,636
Net assets disposed of 19,644
31 March 201
3
US$ 000
Gain on disposal
Net assets disposed of (19,644)
Amounts due from Mentor Africa Limited (6,840)
converted to equity
Non cash consideration received - shares in 27,657
Mentor Africa Limited
Gain on disposal 1,173
The gain on disposal is included in the profit for the year from discontinued
operations.
6. Restatement
6.1 Prior year adjustment - inventory valuation error
During the year, the Group identified an error in the valuation of the trading
inventory at TM Supermarkets (Private) Limited , carried forward from 31 March
2011 financial year. The error had the effect of overstating inventory,
retained earnings, non-controlling interests and deferred tax liability for the
financial periods ended 31 March 2011 and 31 March 2012.
6.2 Change in accounting policy
During the year, the valuation method for retail trading inventory was changed
from retail method to weighted average cost method. Previously, retail
merchandise was valued at selling price less an appropriate percentage to
reduce the value to approximate cost, due allowance having been made for
redundant, obsolete and spoiled inventories.
Under the weighted average cost method, the cost of each item is determined
from the weighted average of the cost of similar items at the beginning of the
period and the cost of similar items purchased during the period. The average
is calculated as each delivery is received.
The effect of the restatement and change in accounting policy on the Group
financial statements is summarised below.
As
previously
stated Change in Restated
31 March Valuation accounting 31 March
2011 error policy 2011
US$ 000 US$ 000 US$ 000 US$ 000
Effect on financial position 40,713 (3,087) 120 37,746
Inventory
Retained earnings 111,207 (1,719) 67 109,555
Non-controlling interests 764 (573) 22 213
Deferred tax liability 15,996 (795) 31 15,232
(3,087) 120
Effect on statement of profit
or loss and other
comprehensive income
Cost of sales (256,124) (3,087) 146 (259,065)
Income tax credit 793 795 (38) 1,550
Decrease in profit for the (2,292) 108
period from continuing
operations
As
previously
stated Valuation Change in Restated
31 March error accounting 31 March
2012 policy 2012
US$ 000 US$ 000 US$ 000 US$ 000
Effect on financial position 39,633 (3,087) 120 36,666
Inventory
Retained earnings 105,750 (1,169) 45 104,626
Non-controlling interests 8,618 (1,123) 44 7,539
Deferred tax liability 12,919 (795) 31 12,155
(3,087) 120
The restatement has no material effect on the result for the years ended 31
March 2012 and 31 March 2013.
7. Other information
31 March 31 March
2013 2012
US$ 000 US$ 000
Continuing operations
Depreciation and impairment - property, plant and 4,901 4,835
equipment
Capital commitments authorised by the Directors but 25,613 22,813
not contracted
Group's share of capital commitments of joint 1,783 3,000
venture
For further information contact Onias Makamba on omakamba@meikleslimited.co.zw
or +263-4-252068/70.