Final Results

RNS Number : 9144L

Meikles Limited

14 May 2010

 



KINGDOM MEIKLES LIMITED

AUDITED FINANCIAL RESULTS FOR THE YEAR ENDED 31 DECEMBER 2009

CHAIRMAN'S STATEMENT

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.

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

The auditors will express 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 that are fully described in the annual report that will be issued soon.

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

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEAR ENDED 31 DECEMBER 2009
	31 December
	2009
	US$
Continuing operations
Revenue	148 838 120
Cost of sales	(119 005 212)
Gross profit	29 832 908
Other income	2 571 464
Employee costs	(16 723 178)
Occupancy costs	(4 872 389)
Other operating costs	(20 386 501)
Operating loss	(9 577 696)
Investment revenue	695 685
Finance costs	(425 047)
Net exchange gains	145 428
Fair value adjustments	(35 712)
Loss before tax	(9 197 342)
Income tax	5 449 453
Loss for the year from continuing operations	(3 747 889)
Discontinued operations
Loss for the year from discontinued operations	(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	(1.61)
Basic loss from continuing operations	(1.24)

CONSOLIDATED STATEMENT OF  FINANCIAL POSITION AS AT 31 DECEMBER 2009		Unaudited
	31 December 2009 US$	1 January 2009 US$
ASSETS
Non-current assets
Property, plant and equipment	76 672 807	89 650 542
Investment property	72 046	394 000
Biological assets	4 193 614	4 999 548
Investments in associates	-	1 025 929
Other financial assets and investments	4 554 984	4 449 894
Intangible assets - trademarks	291 363	268 573
Balances with Reserve Bank of Zimbabwe	12 541 825	35 003 091
Total non-current assets	98 326 639	135 791 577
Current assets
Inventories	17 617 464	5 565 764
Trade and other receivables	7 485 896	10 280 439
Other financial assets	24 198	787 605
Cash and bank balances	2 536 106	16 488 848
	27 663 664	33 122 656
Assets classified as held for sale or distribution	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	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	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	845 173	212 184
Deferred tax	13 941 913	23 074 660
Total non-current liabilities	14 787 086	23 286 844
Current liabilities
Trade and other payables	22 888 135	5 244 016
Customer deposits	-	17 029 804
Current tax  liabilities	414 152	117 890
Short term borrowings	6 985 213	769 330
	30 287 500	23 161 040
Liabilities relating to assets classified as held for sale or distribution	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

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 DECEMBER 2009
		Group
	Share capital	Non distributable reserves	Accumulated loss	Disposal group capital and reserves	Attributable to owners of parent	Non controlling interests	Total
	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	-		(3041 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

CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED 31 DECEMBER 2009
	31 December 2009
Continuing and discontinued operations	US$
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 353587)
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 entity	545 801
Cash and bank balances at the end of the year	25 508 890

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

1.     Accounting policies

Accounting policies and methods of computation used are consistent in all material respects with those used in prior year for the United States of America dollar figures, except for International Accounting Standards (IAS) 1, 21 and 29.

IAS 1 requires an entity to disclose comparative information in respect of previous reporting periods. In order to report in the new functional currency, IASs 21 and 29 require that inflation adjusted financial statements be prepared  and converted to the new currency using the closing exchange rates at the date of change to the new functional currency. This was not possible due to the unavailability of Zimbabwe dollar inflation indices post July 2008 and the multiplicity of exchange rates applicable in prior year. Consequently, comparative results have not been presented as they would be misleading.

2.     Change in functional currency

On 1 January 2009, the Group changed its functional and reporting currency from Zimbabwe Dollar (ZWD) to United States of America Dollar (USD) for the reasons outlined below:

·      Sales prices for goods and services within the group were now mainly denominated in USD, as several 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 USD;

·      The presentation of Zimbabwe's national budget in USD by the honourable Acting Minister of Finance on 29 January 2009, thereby making official the use of the USD in settling and recording transactions;

·      Use of the ZWD no-longer gave a fair presentation of the Group's financial position, financial performance and cash flows.

Determination of opening balances

The Directors elected to apply the Financial Reporting Guidance issued by the Public Accountants and Auditors Board (PAAB). This guidance recommended that all assets and liabilities be measured at their fair value in USD on the date of the Company's change in functional currency. The following mechanisms were employed to measure these fair values:

Property, plant and equipment	All major properties were professionally valued at 31 December 2008 and the Directors reassessed these values in line with subsequent market trends and adjustments were made where necessary. Plant and equipment are carried at recoverable amounts.
Biological assets	Recoverable amounts.
Bank balances and cash	All foreign currency accounts' balances were converted to USD using applicable bank cross rates and all Zimbabwe dollars balances were converted to nil balances in USD.
Other financial assets and receivables	Recoverable amounts.
Other liabilities	Settlement amounts agreed with creditors in USD.
Retained earnings	The Group's retained earnings as at 1 January 2009 represents translated retained earnings from foreign subsidiaries. Retained earnings from Zimbabwean subsidiaries could not be accurately ascertained for reasons stated in note 1 above.
Shareholders' equity	Difference between total assets and total liabilities.
Inventories	Inventories were valued at actual cost in USD if the actual cost was known. All other inventories were valued at net realisable value.
Deferred tax	Income tax values were established on the basis of available guidance from the Zimbabwe Revenue Authority. Deferred tax was calculated on the difference between the income tax values and carrying amounts of assets and liabilities.
Trade and other receivables	Settlement amounts agreed with customers in USD.

3.     Loss for the year from discontinued operations

	Group
	31 December 2009
	US$
Revenue	13 856 206
Net interest	6 287 976
Other gains	11 506 765
	31 650 947
Expenses	(33 219 392)
Loss before tax	(1 568 445)
Attributable income tax credit	660 405
Loss for the year from discontinued operations (attributable to owners of the parent)	(908 040)
Other comprehensive income
Exchange difference on translating foreign entities	1 696 818
Losses on property revaluations	(1 641 125)
Movement in other reserves	2 000
	57 693
Cash flows from discontinued operations
Net cash inflows from operating activities	6 301 615
Net cash inflows from investing activities	619 241
Net cash inflows from financing activities	132 296
Net cash inflows	7 053 152

4.     Assets classified as held for sale or distribution

Comprising Assets classified as held for sale:	31 December 2009 US$	Unaudited 1 January    2009 US$
Cape Grace Hotel group of companies	36 847 922	28 037 302
Cotton Printers (Private) Limited Weaving Division property, plant and equipment	-	2 587 606
Cotton Printers (Private) Limited	4 497 374	-
Kingdom Financial Holdings Limited investment property	-	950 000
Assets classified as held for distribution to members:
Kingdom Financial Holdings Limited	104 093 663	-
Total assets classified as held for sale or distribution	145 438 959	31 574 908
Liabilities relating to assets classified as held for sale
Cape Grace Hotel group of companies	16 363 112	12 490 405
Cotton Printers (Private) Limited	1 641 364	-
Liabilities relating to assets classified as held for distribution to members:
Kingdom Financial Holdings Limited	70 623 993	-
Total liabilities relating to assets classified as held for sale or distribution	88 628 469	12 490 405
Net assets classified as held for sale or for distributions	56 810 490	19 084 503
Equity  relating to assets classified as held for sale
Cape Grace Hotel group of companies	14 231 541	10 621 312
Cotton Printers (Private) Limited	2 766 220	-
Equity  relating to assets classified as held for distribution to members
Kingdom Financial Holdings Limited	34 660 364	-
Total equity relating to assets classified as held for sale or distribution	51 658 125	10 621 312

Any disposal decision in respect of foreign assets will be subject to any required regulatory approvals.

5.             Segment information

Continuing operations		31 December 2009 US$
Revenue
Retail		127 635 349
Hotels		8 277 370
Agriculture		12 925 401
		148 838 120
Operating (loss) /profit
Retail		(7 099 580)
Hotels		(959 265)
Agriculture		686 415
Corporate		(2 205 266)
		(9 577 696)
	31 December 2009 US$	Unaudited 1 January   2009 US$
Segment assets
Continuing operations:
Hotels	29 283 147	29 745 874
Retail	48 341 437	35 014 508
Agriculture	31 037 362	27 418 256
Banking	-	58 446 768
Textiles	-	854 800
Corporate	17 328 357	17 434 027
	125 990 303	168 914 233
Assets classified as held for sale or distribution:
Banking - assets classified as held for distribution to owners	104 093 663	950 000
Hotels - assets classified as held for sale (Cape Grace Hotel)	36 847 922	28 037 302
Textiles - assets classified as held for sale	4 497 374	2 587 606
	145 438 959	31 574 908
	271 429 262	200 489 141
Liabilities
Continuing operations:
Hotels	22 304 925	42 310 338
Retail	23 155 734	3 091 946
Agriculture	10 265 874	6 416 440
Banking	-	21 281 356
Textiles	-	146 767
Corporate	(10 651 947)	(26 798 963)
	45 074 586	46 447 884
Classified as held for sale or distribution:
Banking - assets classified as held for distribution to owners	70 623 993	-
Hotels - liabilities classified as held for sale (Cape Grace Hotel)	16 363 112	12 490 405
Textiles - liabilities classified as held for sale	1 641 364	-
	88 628 469	12 490 405
	133 703 055	58 938 289

Intercompany balances and transactions have been eliminated from the Corporate figures.

6.      Supplementary information
	31 December 2009 US$
Capital expenditure for the year	5 386 464
Depreciation and impairment of property, plant and equipment	3 577 775
Borrowings and other financial liabilities including those relating to assets classified as held for sale	21 102 702
Capital commitments authorised but not yet contracted for	25 042 896

For further information contact Brendan Beaumont on [phone]/78 or email [e-mail]

 

END

 

 

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