Half Yearly Report

RNS Number : 7184R

Meikles Limited

26 August 2010

 



MEIKLES LIMITED

UNAUDITED FINANCIAL RESULTS FOR THE HALF YEAR ENDED 30 JUNE 2010

CHAIRMAN'S STATEMENT

Operating environment

The trading environment has remained depressed owing to a myriad of factors amongst them the low disposable incomes and low liquidity in the market. The economic activity across all sectors continues to improve albeit at a very slow pace. The IMF has revised its projected growth for Zimbabwe in 2010 to 2.2% from 6%. The Minister of Finance has projected the growth to be about 5.4% from the initial target of 7%.  Inflation which was at 5.3% as at 30 June 2010 is expected to end the year at around 6%.

The South African economy is expected to recover gradually and post a growth of 2.4% in 2010 helped by the recovery of global demand and boosted by the FIFA World Cup held in June/July 2010. The South African inflation rate is projected to end the year 2010 at around 5.8%.

Group results

After a very difficult second half of 2009 where a loss of $5.2 million was incurred, the group moved forward in the first half of 2010 and registered a marginal profit after tax of $150,738.  The group made a profit after tax of $580,190 for the 6 months ended 30 June 2009, the period in which dollarisation was effected. The economy started stabilising in the second half of 2009, with stock levels improving whilst the pricing regime which was distorted in the first half of 2009 also realigned and has continued to do so in 2010.

The group has seen growth in revenues across all business lines in the first half of 2010. This was driven by improved product availability in retail, increased production on the tea estates, increased occupancies in the hotels and increase in fees and commissions from the financial services. On the other hand the pressure on costs continued and the realignment that started in the second half of 2009 continued in 2010. The cost of funding was also high due to the tight liquidity situation that prevailed in the first half of the year. However, cost containment strategies have been put in place and benefits will be realized in future periods.

The group balance sheet shows an increase in total assets of approximately 17% when compared to the position as at 31 December 2009. Growth was witnessed in inventories and bank assets.  The Group capital expenditure was $2.6 million during the first half of 2010. The working capital and capital expenditure were funded from borrowings which increased to $27.9 million (31 December 2009: $7.8 million). 

TM Supermarkets

The company made a loss before tax of $841,000 (30 June 2009:  loss of $86,000). A significant growth in turnover was recorded due to improved stocking within the branch network. Local manufacturers have also increased their output, making it easier for local retailers to maintain healthy levels of stock. TM operated fifty (50) outlets as at 30 June 2010 (31 December 2009: 52). In a bid to reposition the brand, three outlets namely; Chitungwiza, Nkhulumane and Rezende were closed whilst a new branch was opened in The Victoria Falls. Other sites are being explored to expand the branch network.  The exercise to equip the branches with Point of Sale (POS), refurbishment of refrigeration and bakery equipment has started and should be completed by the end of the year. The discussions to recapitalize the supermarkets are still in progress and the board expects these to be concluded by the end of the third quarter of this year.

Meikles Africa Hotels

The hotels division made a profit before tax of $578,000 (30 June 2009: $465,000).  The Zimbabwean  hotels had a loss before tax of $442,000 (30 June 2009: loss of $508,000.), while the South African operation disclosed as part of the "disposal group", made a profit before tax of $1.020 million (30 June 2009: $973,000).  There was a general increase in occupancy levels during the period ended 30 June 2010 compared to the same period last year.  The occupancy levels were 32% (30 June 2009: 23%) for the Meikles Hotel, 39% (30 June 2009: 18%) for The Victoria Falls Hotel and 61% (30 June 2009: 62%) for the Cape Grace Hotel.  The Minister of Finance in his Mid Term Fiscal Review stated that the Zimbabwe tourism sector is expected to grow by 3.5% in the year 2010. The sector showed a 0.7% growth in tourist arrivals in the first quarter of 2010 compared to the same period last year. Meikles Africa Hotels are well positioned to benefit from an upsurge in business and the second six month period is generally stronger for all three hotels. The first phase of the Meikles Hotel refurbishment will commence before the end of the year 2010 as long term finance for this purpose has been secured. The Cape Grace Hotel which benefited from the World Cup, is expected to continue doing well despite the entrance of new players in that segment of the market.

Tanganda Tea Company

The company made a loss before tax of $450,000 (30 June 2009: profit of $1.2 million). Turnover of $9.5 million was realized (30 June 2009: $5.5 million). Exports accounted for 43% of the turnover. Approximately 5,300 tonnes of tea was produced compared to 3,400 tonnes in the same period last year.  Tea prices on the export market were 17% better than those achieved in the same period last year. 

The cost of production per tonne was 38% higher than for the period ended 30 June 2009.  The labour costs being dictated by the NEC for the Agro-Industry have increased beyond comparison and if not addressed will become a hindrance to the growth of the agro-industry. In addition, the continued power outages resulted in the company resorting to alternative power sources which turned out to be more costly.

The quality of tea continues to improve and in part accounts for the increased tea prices.  Should the rainy season be normal, the company intends to increase the tea production to over 9,600 tonnes by 31 December 2010 (2009: 7,100 tonnes).

Thomas Meikle Stores

The division made an operating loss before tax of $2.1 million (30 June 2009: loss of $802,000). Increased stocking of merchandise saw turnover increasing to $5 million compared to $1.1 million for the same period last year. However, high funding and operating costs negated the improvement in turnover and margins.

Credit facilities were launched in February 2010 and the terms will be continuously reviewed in line with changes in the market liquidity situation. The division is also expanding its hardware offering which has proved very popular with clients.  The product range is also being improved to meet customer needs. Cost containment measures, including shared resources with the supermarket operations, have been considered and are being implemented.

Kingdom Financial Holdings Limited (Kingdom)

The financial services group achieved a profit before tax of US$1.7 million for the six months ended 30 June 2010 (30 June 2009: $500,000). The lack of liquidity in the market constrained the capacity to create credit assets in the Zimbabwe operations. The overall performance was driven by strong growth in the Malawi operations.

Update on Cotton Printers liquidation

The liquidation which was approved by the Courts on 28 April 2010 is progressing. The liquidator is in the process of evaluating bids for the company's assets in order to settle liabilities of approximately $1.4 million excluding the liquidator and Master's fees. It is our expectation that the company's assets will yield sufficient cash flows to reasonably settle all liabilities.

Disposal of Kingdom

Discussions are underway to resolve this matter.

Indigenisation

The company complied with the request to submit its status with regard to the indigenisation to the Minister of Indigenisation.  The company has also outlined measures to ensure continued compliance with the regulations and there is dialogue with the relevant Minister on this matter.

Specifications

All persons and companies that were specified with regard to the shareholder dispute have since been de-specified following completion of investigations by the regulatory authorities.

Outlook

The group continues to recover from the negative events of the past two years and is optimistic with regard to trading for the remainder of the year 2010. The firm base set out in the first half of the year will be optimised to ensure that all companies and divisions return to profitability by the end of the year.

Appreciation

The progress made in the first half of the year could not have been achieved without the support of clients, regulatory authorities, shareholders and staff. The board fully appreciates the relationship the group has with these stakeholders and values them dearly.

F Rwodzi

Chairman

6 August 2010

UNAUDITED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
FOR THE HALF YEAR ENDED 30 JUNE 2010
		30 June 2010 US$	30 June 2009 US$
	Note		Restated
Continuing operations
Revenue		114 265 338	40 067 572
Cost of sales		(89 952 115)	(28 993 507)
Gross profit		24 313 223	11 074 065
Other income		2 590 351	1 505 648
Employee costs		(14 966 194)	(5 085 125)
Occupancy costs		(2 875 032)	(1 102 672)
Other operating costs		(10 301 654)	(7 112 698)
Operating loss		(1 239 306)	(720 782)
Finance income		342 681	650 089
Finance costs		(1 818 916)	(95 467)
Net exchange loss		(17 026)	(212 148)
Fair value adjustments		(146 795)	(35 264)
Loss before tax		(2 879 362)	(413 572)
Income tax		963 336	(18 651)
Loss for the period from continuing operations		(1 916 026)	(432 223)
Disposal group
Profit for the period from disposal group	2	2 240 798	1 012 413
PROFIT FOR THE PERIOD		324 772	580 190
Other comprehensive income
Exchange differences on translating foreign operations		(658 994))	2 895 404
Impairment of property		-	(2 248 645)
Movement in other reserves		(656 042)	303 896
Available for sale financial assets		-	1 168 827
Other comprehensive (loss) income for the period, net of tax		(1 315 036)	2 119 482
TOTAL COMPREHENSIVE (LOSS) INCOME FOR THE PERIOD		(990 264)	2 699 672
Profit (loss) attributable to:
Owners of the parent		574969	658 616
Non-controlling interests		(250 197)	(78 426)
		324 722	580 190
Total comprehensive (loss) income attributable to:
Owners of the parent		(740 067)	2 778 098
Non-controlling interests		(250 197)	(78 426)
		(990 264)	2 699 672
Basic  earnings (loss) per share
Basic earnings from continuing and discontinued operations		0.23	0.27
Basic (loss) earnings from continuing operations		(0.68)	(0.14)

The 30 June 2009 figures have been restated to reflect Kingdom Financial Holdings and Cape Grace group of companies as a 'disposal group' in line with the disclosures adopted at 31 December 2009.

UNAUDITED CONSOLIDATED STATEMENT OF  FINANCIAL POSITION AS AT 30 JUNE 2010
	Notes	30 June 2010 US$	Audited 31 December 2009 US$
ASSETS
Non-current assets
Property, plant and equipment		80 715 469	76 672 807
Investment property		71 434	72 046
Biological assets		4 322 780	4 193 614
Other financial assets and investments		4 553 468	4 554 984
Intangible assets - trademarks		309 157	291 363
Balances with Reserve Bank of Zimbabwe		12 861 885	12 541 825
Deferred tax		796 329	-
Total non-current assets		103 630 522	98 326 639
Current assets
Inventories		26 856 910	17 617 464
Trade and other receivables		8 775 124	7 485 896
Other financial assets		770 755	24 198
Cash and bank balances		5 618 099	2 536 106
		42 020 888	27 663 664
Assets classified as held for sale or distribution to owners	3	171 557 722	145 438 959
Total current assets		213 578 610	173 102 623
Total assets		317 209 132	271 429 262
EQUITY AND LIABILITIES
Capital and reserves
Share capital		1	1
Non-distributable reserves		106 315 270	107 160 978
Accumulated loss		(21 993 037)	(22 418 679)
Capital and reserves relating to assets classified as held for sale or distribution to owners	3	51 338 124	51 658 125
Equity attributable to equity holders of the parent		135 660 358	136 400 425
Non-controlling interests		1 075 585	1 325 782
Total  equity		136 735 943	137 726 207
Non-current liabilities
Borrowings		845 173	845 173
Deferred tax		13 769 769	13 941 913
Total non-current liabilities		14 614 942	14 787 086
Current liabilities
Trade and other payables		22 603 323	22 888 135
Other financial liabilities		432 171	414 152
Short term borrowings		27 021 302	6 985 213
		50 056 796	30 287 500
Liabilities relating to assets classified as held for sale or distribution to owners	3	115 801 451	88 628 469
Total current liabilities		165 858 247	118 915 969
Total liabilities		180 473 189	133 703 055
Total equity and liabilities		317 209 132	271 429 262

UNAUDITED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE HALF YEAR ENDED 30 JUNE 2010
	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 period-audited	1	107 160 978	(22 418 679)	51 658 125	136 400 425	1 325 782	137 726 207
Loss for the period	-	-	(1 665 829)	2 240 798	574 969	(250 197)	324 772
Other comprehensive income for the period	-	(845 708)	-	(469 328)	(1 315 036)	-	(1 315 036)
Transfers in respect of assets classified as held for sale or distribution	-	-	2 091 471	(2 091 471))	-	-	-
Balance at the end of the period	1	106 315 270	(21 993 037)	51 338 124	135 660 358	1 075 585	136 735 943

UNAUDITED CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE HALF YEAR ENDED 30 JUNE 2010
	30 June 2010 US$	30 June 2009 US$
Continuing and discontinued operations
Cash flow from operating activities
Profit (loss) before tax from continuing and discontinued operations	(138 174)	701 821
Adjustments for:
- Depreciation expense and impairment	1 282 305	5 337 940
- Net interest	652 923	(494 146)
- Net exchange gains and translation adjustments	4 375	189 151
- Fair value adjustments	(251 862)	1 600 311
- Share of profits of associates	(201 913)	(359 351)
- Loss on disposal of property, plant and equipment	863	(9 292)
Operating cash flow before working capital changes	1 624 865	6 966 434
Increase in inventories	(9 281 083)	(10 900 578)
Increase in trade and other receivables	(25 226 782)	(25 128 799)
Increase in trade and other payables and financial liabilities	27 569 519	26 922 750
Cash used in operations	(5 313 481)	(2 140 193)
Income taxes paid	(8 754)	(61 462)
Net cash used in operating activities	(5 332 235)	(2 201 655)
Cash flows from investing activities
Payment for property, plant and equipment - expansion	(2 036 276)	-
Payment for property, plant and equipment - replacement	(606 782)	(1 476 935)
Proceeds from disposal of property, plant and equipment	15 601	17 826
Net movement in service assets	16 457	(700)
Proceeds from sale of investments	-	950 000
Expenditure on biological assets	(164 946)	(88 499)
Purchase of intangible assets	(17 795)	(4 563)
Interest received	375 414	306 411
Net cash used in investing activities	(2 418 327)	(296 460)
Cash flows from financing activities
Proceeds from interest bearing borrowings	20 140 554	6 085 313
Repayments of interest bearing borrowings	(83 055)	(833 883)
Interest paid	(1 857 885)	(169 418)
Net cash generated from financing activities	18 199 614	5 082 012
Net increase in cash and bank balances	10 459 052	2 583 897
Cash and bank balances at the beginning of the period	25 508 890	51 633 324
Net effect of exchange rate changes on cash and bank balances	3 344	(369 771)
Translation of foreign entities	(1 346 939)	(2 974 914)
Cash and bank balances at the end of the period	34 624 347	50 872 536

 

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, except for the exclusion from the operating segment results of non-controllable management fees by head office.

2.     Profit for the period from disposal group

Demerger of Kingdom Financial Holdings Limited (KFHL) from the Group

Discussions are underway to resolve this issue. KFHL was disclosed as an asset held for distribution to owners at 31 December 2009. This disclosure has been maintained.

Liquidation of Cotton Printers (Private) Limited

Cotton Printers (Private) Limited encountered significant viability problems in 2009 and is currently in liquidation. As a result Cotton Printers (Private) Limited did not trade during the period to 30 June 2010 as it is now a discontinued operation.

Cape Grace Hotel operations in South Africa

These operations were disclosed as a disposal group at 31 December 2009 following receipt of a notice from Mentor Africa Limited in November 2008 to exercise an option agreement for the purchase of the Group's interest in the Cape Grace Hotel in line with an option agreement that had been entered into in March 2008. However, certain conditions precedent contained in the option agreement had not been fulfilled by 30 June 2010. The conditions precedent include any necessary Reserve Bank of Zimbabwe and Zimbabwe Stock Exchange approvals. These operations have been maintained as a non current asset classified as held for sale.

	30 June 2010 US$	30 June 2009 US$
Revenue	11 007 843	7 702 6930
Net interest	(49 953)	60 476
Other gains	368 885	5 739 137
	11 326 775	13 441 830
Expenses	(8 309 239)	(12 265 953)
Profit before tax	3 017 536	1 115 401
Attributable income tax expense	(776 738)	(102 988)
Profit for the year from disposal group	2 240 798	1 012 413
Other comprehensive income
Exchange difference on translating foreign entities	(454 778)	1 655 234
Losses on property revaluations	-	(2 248 645)
Available for sale	-	1 168 827
Other comprehensive income for the period net of tax	(454 778)	575 416
Total comprehensive income	1 786 020	1 587 829
Cash flows from discontinued operations
Net cash flows from operating activities	8 133 439	(303 522)
Net cash flows from investing activities	(784 734)	275 518
Net cash flows from financing activities	(38 969)	(765 402)
Net cash flows for the period	7 309 736	(793 406)

3.     Assets classified as held for sale or distribution to owners

Comprising:	30 June 2010 US$	Audited 31 December 2009 US$
Assets classified as held for sale:
Cape Grace Hotel group of companies	34 337 528	36 847 922
Cotton Printers (Private) Limited	4 497 374	4 497 374
Assets classified as held for distribution to owners:
Kingdom Financial Holdings Limited	132 722 820	104 093 663
Total assets classified as held for sale or distribution	171 557 722	145 438 959
Liabilities relating to assets classified as held for sale:
Cape Grace Hotel group of companies	15 206 603	16 363 112
Cotton Printers (Private) Limited	1 641 364	1 641 364
Liabilities relating to assets classified as held for distribution to owners:
Kingdom Financial Holdings Limited	98 953 484	70 623 993
Total liabilities relating to assets classified as held for sale or distribution to owners	115 801 451	88 628 469
Net assets classified as held for sale or for distribution	55 756 271	56 810 490
Equity  relating to assets classified as held for sale:
Cape Grace Hotel group of companies	13 067 647	14 231 541
Cotton Printers (Private) Limited	2 766 220	2 766 220
Equity  relating to assets classified as held for distribution to owners:
Kingdom Financial Holdings Limited	35 504 257	34 660 364
Total equity relating to assets classified as held for sale or distribution to owners	51 338 124	51 658 125

Kingdom Financial Holdings Limited assets include the $22,5 million held at the Reserve Bank of Zimbabwe.

4.     Segment information

	30 June 2010	30 June 2009
	US$	US$
		Restated
Revenue Continuing operations:
Supermarkets	94 377 601	30 082 595
Agriculture	9 541 230	5 526 698
Hotels	5 298 427	3 340 183
Stores	5 048 080	1 118 096
	114 265 338	40 067 572
Disposal group and discontinued operation:
Banking	2 983 854	833 963
Hotels	8 023 989	6 658 529
Textiles	-	210 201
	11 007 843	7 702 693
(Loss) profit before tax Continued operations:
Supermarkets	(840 666)	(85 861)
Agriculture	(449 938)	1 174 265
Hotels	(442 491)	(507 610)
Stores	(2 138 720)	(802 414)
Corporate	992 453	(191 952)
	(2 879 362)	(413 572)
Disposal group and discontinued operation:
Banking	1 997 393	451 372
Hotels	1 020 143	973 215
Textiles	-	(309 187)
	3 017 536	1 012 413

4.       Segment information (continued)

	30 June 2010 US$	Audited 31 December  2009 US$
Segment assets
Continuing operations:
Supermarkets	32 648 999	23 034 173
Agriculture	31 480 193	31 037 362
Hotels	28 427 329	29 283 147
Stores	29 773 536	25 307 264
Corporate	23 321 353	17 328 357
	145 651 410	125 990 303
Assets classified as held for sale or distribution:
Banking - assets classified as held for distribution to owners	132 722 820	104 093 663
Hotels - assets classified as held for sale (Cape Grace Hotel)	34 337 528	36 847 922
Textiles - assets classified as held for sale	4 497 374	4 497 374
	171 557 722	145 438 959
	317 209 132	271 429 262
Liabilities
Continuing operations:
Supermarkets	28 346 660	17 731 046
Agriculture	12 291 585	10 265 874
Hotels	15 293 743	22 304 925
Stores	12 060 069	5 424 688
Corporate	(3 320 319)	(10 651 947)
	64 671 738	45 074 586
Classified as held for sale or distribution:
Banking - liabilities classified as held for distribution to owners	98 953 484	70 623 993
Hotels - liabilities classified as held for sale (Cape Grace Hotel)	15 206 603	16 363 112
Textiles - liabilities classified as held for sale	1 641 364	1 641 364
	115 801 451	88 628 469
	180 473 189	133 703 055

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

5.     Supplementary information

		Audited
	30 June 2010 US$	31December 2009 US$
Capital expenditure for the year	2 645 658	5 386 464
Depreciation and impairment	1 282 305	3 577 775
Borrowings excluding those relating to assets classified as held for sale or distribution to owners	27 866 475	11 706 264
Capital commitments authorised but not yet contracted for	22 397 238	25 042 896

6.     Exchange rates

	30 June 2010 US$	31December 2009 US$	30 June 2009 US$
Balance sheet rate
South African Rand	7.5900	7.3967	7.8302
British Pound	1.5049	1.6076	1.6523
Malawi Kwacha	150.8005	140.00	140.996

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

 

END

 

 

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