Interim Results

RNS Number : 5845C

Meikles Africa Ld

03 September 2008

Chairman's Statement for Half Year ended 30 June 2008

The six months period to 30 June 2008 continued to be extremely difficult with conditions creating an environment where the prosperity and survival of some local operations were dependant on the overall strength and structure of Kingdom Meikles balance sheet and cash flows. The Group's financial services, foreign assets and operations together with export earnings were key to revenue generation and maintaining real values in uncertain Zimbabwean trading conditions. The terms of the Kingdom Meikles US$31m deposit with the Reserve Bank of Zimbabwe (RBZ) were successfully re-negotiated with effect from 1 January 2008 further strengthening the Group's asset base. We are grateful to the RBZ Governor and his team for the resolution of this substantive matter.

The Group has focused on the preservation of capital being mindful that investment in assets must provide returns to continue future trading cycles. Exports of bulk tea, textile product, foreign exchange trading in the financial services group and the performance of the hotels, from a foreign currency earnings perspective, were all satisfactory, given the local constraints to produce goods and services at the added value level.

The financial services businesses have had to contend with a volatile trading environment, so maintaining a very strong balance sheet structure and profit generation requires a shift to an earnings flow aside from net interest income. This policy has proved successful, but as is the case in all forms of business in Zimbabwe at present, strategies are short term and have to be flexible to contend with the changing environment.

The merger between the former Meikles Africa Limited Group, Kingdom Financial Holdings Limited, Tanganda Tea Company Limited and Cotton Printers (Private) Limited was effective from 31 December 2007. From a statutory financial statements presentation point of view the comparatives in the Group income statement refer to the former Meikles Africa Group. However, for information purposes an indicative segmental income statement has been presented.

Any comment on financial information is based on the inflation adjusted financial statements.

Group subsidiary/divisional reports for 6 months to 30 June 2008

Kingdom Financial Holdings Ltd

Operating profits increased by 367% to $678 quadrillion.
Group cash inflows amounted to $141 quadrillion.
Interest and non-interest income contributed 4% and 96%, respectively.
Net interest margin was 53% compared to the prior year of 46%.
Cost to income ratio came down marginally to 14% from 15%.
A modern Point of Sale system was successfully rolled out within our Kingdom Meikles local till points in retail and hotel subsidiaries and the Kingdom Bank merchant clientele.

Meikles Africa Hotels

Operating profits increased by 8.6% to $29 quadrillion.
Group room occupancy increased by 8% to 42%.
In US dollar terms, revenue per available room was flat for Zimbabwe operations, but increased by 17% at the Cape Grace.
Refashioning budgeted at US$8 million for Cape Grace has progressed and is on target for completion by the start of the fourth quarter busy season.
Maintenance of Zimbabwe operations is at a level to ensure Leading Hotels of the World standards are satisfied and a phased refashioning of the Victoria Falls Hotel has commenced.

Tanganda Tea Company Ltd

Operating profits increased by 514% to $92 quadrillion.
Tea production was 4 089 tonnes, 12% down on prior year. Shortage of labour and irregular weather patterns were the main constraints.
Exports of bulk tea, at 2 962 tonnes were 2% down on prior year.
Approved US$1,6 million foreign loan facilities will ensure the mechanisation project advances with plucking machines being a priority to increase production capacity given the shortage of labour.
World tea prices remain constant.

Retail

Operating loss reduced from $79 quadrillion to $59 quadrillion.
Suppliers are driving harder for cash terms.
Product availability was constrained by low manufacturing output and available cash flows for local and imported goods.
There was focus on optimising retail space with available stock.
Key retail sites have been retained and retail systems were improved.
Frequent electricity outages resulted in increased costs.
Margins are under pressure because of cost of supply.
Introduction of Kingdom Bank Point Of Sale devices has been successful.
One new TM branch has been completed and two are still under construction. Openings are determinant on sufficient stock availability.
Zimbabwe industry capacity utilisation continues to fall and business closures continue to be a reality reducing supplies to our retail units.

Cotton Printers (Pvt) Ltd

Operating profit increased by 69% to $2 quadrillion.
Production of yarn for export has been constrained by erratic lint supply and low plant utilisation.
A maintenance programme is in place. Funding is from offshore facilities and increases in production volumes should occur by the fourth quarter.
The local market for bed linen has been confined to small volumes to the hospitality industry.

Financial Institutions Capitalisation

On 4 July 2008 the RBZ issued a circular requiring that financial institutions increase their capital levels to new prescribed limits. The new capital levels are United States dollar linked and financial institutions are required to re-adjust their capital levels using the prevailing inter-bank exchange rate. The Group banking subsidiaries affected are Kingdom Bank Limited, The Discount Company of Zimbabwe (Private) Limited and Kingdom Asset Management (Private) Limited and the total amount required in order to capitalise the three entities to the statutory level is US$22.5 million. The Group has utilised the United States dollar funds it has on deposit with the RBZ to capitalise the entities concerned, which has resulted in all of them attaining the capital levels required prior to the deadline of 30 August 2008. The fact that the capital levels are actually denominated in United States dollars has the added advantage that the Group will avoid having to inject Zimbabwe dollars every time the inter-bank exchange rate changes.

Directorships

On 1 April 2008 Mr T. Nyambirai resigned as a director of the company in order for him to pursue other business interests. His contribution during his brief tenure on the board is appreciated. Mr D. Mboweni was appointed a Director with effect from 28 August 2008.

Outlook

The merged Group continues to take advantage of synergies and resources across its business entities and the diversity of the Group with its solid asset base provides the strength to manage the current difficult environment. Our operating divisions strive to trade within agreed policy parameters and continue to contribute to operating profit. All our businesses in Zimbabwe are attempting to manage the ravages of chronic hyper-inflation and erosion of capital accentuated by a lack of foreign currency, declining public utilities, the shortage of product at either raw material or manufactured level and pricing that must ensure adequate cash flow, despite imposed pricing controls. Loss of skills in certain operating divisions is also of concern.

Kingdom Meikles continues to examine opportunities aligned to all of its businesses in the region. Alliances established so far are expected to consolidate during the second half of the year, in pursuance of the strategic focus the Group has to leverage off the strength of the balance sheet and potential investor interest. Those at a more advanced stage include a joint regional expansion programme with Pick 'n Pay and utilisation of hospitality assets to expand potential foreign investment opportunities.

The RBZ has agreed to restore the fungibility of Kingdom Meikles shares on the London Stock Exchange. This should facilitate the Group's fund raising efforts for new projects which have been identified in the region and, at the opportune time, in Zimbabwe.

Social Responsibility

The Group continues to be mindful of the plight of the aged and other vulnerable persons in Zimbabwe. Shortages and non-availability of basic commodities and services have compounded the hardships endured by those who have least. In an effort to assist in the welfare of our country's orphans, vulnerable children and senior citizens the Group contributes to homes and institutions across Zimbabwe.

Conclusion

I would like to thank my fellow Directors for their contributions during the period and pay particular tribute to all management and staff who have performed admirably under testing circumstances.

J. R. T. MOXON

CHAIRMAN

UNAUDITED RESULTS FOR THE 6 MONTHS TO 30 JUNE 2008

SALIENT FEATURES

References are to inflation adjusted information

Revenue

$350 quadrillion

Operating profit

$726 quadrillion

Attributable profit

Increased to $2,581 quadrillion

Cash generated and funds available

Funds generated from operations were $788 quadrillion

Funds on hand amount to $2,573 quadrillion

References are to historical information

Revenue

$121 quadrillion

Operating profit

$568 quadrillion

Attributable profit

Increased to $2,991 quadrillion

Cash generated and funds available

Funds generated from operations were $333 quadrillion

Funds on hand amount to $2,573 quadrillion

UNAUDITED CONSOLIDATED INCOME STATEMENT

For the 6 months to 30 June 2008

	INFLATION ADJUSTED		HISTORICAL COST

(all amounts in billions of dollars)	6 months to	6 months to	6 months to	6 months to
	30 June 2008	30 June 2007	30 June 2008	30 June 2007


Revenue and net interest income	350,210,124	443,574,359	120,501,077	1,627
Operating profit / (loss) before monetary adjustment and exchange gains	726,478,236	(66,615,213)	568,024,125	388
Net monetary (loss) gain from operating activities	(290,131,619)	87,886,908	-	-
Exchange gains on net current assets	759,067,759	17,692,109	523,161,889	46
Operating profit	1,195,414,376	38,963,804	1,091,186,014	434
Investment income	60,349,066	13,297,254	10,125,243	34
Finance costs	(6,217,678)	(3,944,101)	(1,003,522)	(11)
Net exchange gains on foreign funds	1,793,290,724	82,375,358	2,339,644,554	2,531
Increase in value of quoted investment	(33)	10,141,973	457	117
Net monetary gain from financing activities	50,871,006	96,236,055	-	-
Biological assets impairment	(11,141,372)	-	-	-
Share of profits / (losses) of associates	272,948	5,070,987	(49,261)	9
Profit before taxation	3,082,839,037	242,141,330	3,439,903,485	3,114

Income tax expense	(502,242,751)	(37,782,227)	(448,198,963)	(372)

Profit for the period	2,580,596,286	204,359,103	2,991,704,522	2,742
Attributable to:
Equity holders of the parent	2,581,109,298	207,176,318	2,991,349,954	2,691
Minority interest	(513,012)	(2,817,215)	354,568	51
	2,580,596,286	204,359,103	2,991,704,522	2,742

Basic earnings per share ($)	10,633,766,540	1,265,919,500	12,323,893,868	16,446
IIMR Headline earnings per share ($)	10,679,667,250	1,265,919,500	12,324,103,773	16,443
Weighted average number of shares	242,727,663	163,656,787	242,727,663	163,656,787

UNAUDITED CONSOLIDATED BALANCE SHEET

At 30 June 2008

	INFLATION ADJUSTED		HISTORICAL COST

(all amounts in billions of dollars)	At	Audited at	At	Audited at
	30 June 2008	31 December 2007	30 June 2008	31 December 2007

ASSETS
Property, plant and equipment
Banking	419,078,606	69,927,302	2,935,415	107,297
Non-banking	588,887,411	458,291,540	424,297,982	13,645
Investment property - banking	14,352,000	10,547,760	14,352,000	3,542
Biological assets	1,571,518	12,572,739	1,571,518	4,222
Investment in associates -banking	72,133,749	63,876,187	10,225,559	6,231
Other financial assets and investments	1,149,772,794	322,620,901	1,148,010,949	108,245
Goodwill	1,749,522,360	1,749,522,602	613,686	613,686
Other intangibles	259,010	259,078	476	87
Current assets - banking
Balances with banks and cash	832,429,666	430,555,279	832,429,666	144,583
Financial assets at fair value through profit and loss	238,138,761	116,349,953	238,138,761	39,071
Advances and other accounts	397,278,664	49,948,498	397,278,664	16,773
Available for sale	214,122,466	21,997,827	212,638,750	6,805
Customers' liability for acceptances	6,467,758	202,498	6,467,758	68
Current assets - non banking	1,955,905,316	689,916,422	1,899,899,462	224,011
Total assets	7,639,920,079	3,996,588,586	5,188,860,646	1,288,266

EQUITY AND LIABILITIES
Attributable to equity holders of the parent	5,637,014,204	3,029,827,708	3,375,634,036	983,295
Minority interest	6,376,913	6,887,908	354,853	285
Deferred tax
Banking	268,303,160	31,134,058	198,210,718	11,480
Non-banking	351,721,579	110,962,913	241,458,270	18,592
Other non-current liabilities	266,824,025	156,897,187	266,824,025	52,687
Current liabilities - banking
Financial liabilities at fair value through profit and loss	11,992,226	61,056,105	11,992,226	20,503
Customer deposits	897,321,001	414,617,500	897,321,001	139,231
Acceptances	6,467,758	202,498	6,467,758	68
Other current liabilities	70,790,206	44,338,114	70,790,206	14,889
Current liabilities - non banking	123,109,007	140,664,595	119,807,553	47,236
Total equity and liabilities	7,639,920,079	3,996,588,586	5,188,860,646	1,288,266

UNAUDITED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

For the 6 months to 30 June 2008


	INFLATION ADJUSTED				HISTORICAL COST

(all amounts in billions of dollars)	6 months to	6 months to			6 months to	6 months to
	30 June 2008	30 June 2007			30 June 2008	30 June 2007
Profit for the period attributable to parent	2,581,109,298		207,176,318		2,991,349,954	2,691
Share premium on issue of shares	3,469,565		-		596,339	-
Share issue expenses	(13,445,941)		-		(853)	-
Translation of foreign entities	(95,677,499)		(3,660,174)		235,777,138	355
Share of reserves of associates	-		225,377		-	2
Fair value adjustment on available for sale securities	131,733,601		-		146,928,674	-
Share based payments	1,703,311		-		1,703,311	-
Dividend - current year interim	(1,703,822)		-		(1,703,822)	-
Dividend - prior year final	-		(5,665,320)		-	(27)
Attributable to equity holders of parent	2,607,188,513			198,076,201	3,374,650,741	3,021
Minorities	(513,012)			(2,817,215)	354,568	51
Shareholders' equity at the beginning of the period	3,036,715,616			132,575,349	983,580	28
Shareholders' equity at the end of the period	5,643,391,117		327,834,335		3,375,988,889	3,100

UNAUDITED CONSOLIDATED CASH FLOW STATEMENT

For the 6 months to 30 June 2008

	INFLATION ADJUSTED		HISTORICAL COST

(all amounts in billions of dollars)	6 months to	6 months to	6 months to	6 months to
	30 June 2008	30 June 2007	30 June 2008	30 June 2007

Cash flows from operating activities
Profit before taxation	3,082,839,037	242,141,330	3,439,903,485	3,114
Adjustments for:
Non-operating cash flow	(54,131,388)	(51,960,578)	(9,121,721)	(110)
Non-cash items	(2,268,934,553)	(77,870,102)	(2,875,681,315)	(2,600)
Operating cash flow before working capital changes	759,773,096	112,310,650	555,100,449	404
Working capital changes	47,292,430	32,886,086	(214,550,964)	52
Cash generated from operations	807,065,526	145,196,736	340,549,485	456
Income taxes paid	(19,093,095)	(43,502,082)	(7,805,507)	(6)
Net cash generated from operating activities	787,972,431	101,694,653	332,743,978	450

Net cash used in investing activities	(870,716,981)	(20,910,473)	(80,252,606)	(29)

Net cash generated from / (used in) financing activities	3,831,941	(64,079,075)	25,381,761	(63)

Net (decrease) / increase in cash and cash equivalents	(78,912,609)	16,705,106	277,873,133	358

Cash and cash equivalents at the beginning of the period	1,010,443,354	883,191,568	339,313	17

Net effect of exchange rate changes on cash and cash equivalents	2,898,282,741	16,632,213	3,320,677,749	1,969

Translation of foreign entity	(1,256,908,166)	60,997,372	(1,025,984,875)	41

Cash and cash equivalents at the end of the period	2,572,905,320	977,526,258	2,572,905,320	2,385

UNAUDITED SEGMENT INFORMATION

	INFLATION ADJUSTED		HISTORICAL COST

(all amounts in billions of dollars)	6 months to	6 months to	6 months to	6 months to
	30 June 2008	30 June 2007	30 June 2008	30 June 2007
Revenue
Banking	29,252,466	-	15,038,196	-
Hotels	115,686,992	79,316,633	32,127,783	232
Retail	101,181,178	364,257,726	17,915,656	1,395
Agriculture	100,683,165	-	54,610,875	-
Textiles	3,406,323	-	808,567	-
	350,210,124	443,574,359	120,501,077	1,627
Operating profit / (loss) before monetary adjustment and exchange gains
Banking	678,330,494	-	511,424,579	-
Hotels	29,146,479	26,827,368	3,798,290	57
Retail	(59,036,296)	(79,598,624)	471,583	352
Agriculture	92,092,175	-	58,698,374	-
Corporate and other	(14,054,616)	(13,843,957)	(6,368,701)	(21)
	726,478,236	(66,615,213)	568,024,125	388
Segment assets
Banking	2,194,001,670	-	1,714,466,573	-
Hotels	725,637,742	99,685,564	655,167,800	1,127
Retail	68,253,393	44,528,700	23,749,198	1,090
Agriculture	150,428,963	-	102,566,548	-
Corporate and other	4,501,598,311	2,580,312,072	2,692,910,527	2,616
	7,639,920,079	2,724,526,336	5,188,860,646	4,833

SUPPLEMENTARY INFORMATION
	INFLATION ADJUSTED			HISTORICAL COST
(all amounts in billions of dollars)	6 months to	6 months to		6 months to	6 months to
		30 June 2008	30 June 2007	30 June 2008		30 June 2007


Capital expenditure	411,669,734	715,087		84,334,141	77
Capital commitments authorised but not yet contracted for	685,147,345	35,271,528		685,147,345	313
Depreciation	19,507,949	10,806,910		2,817,193	16
Commitment to capitalise Kingdom Financial Holdings Limited Group	1,130,512,500	-		1,130,512,500	-
Interest bearing borrowings	94,351,944	16,452,534		94,351,944	146

Below is segment information for the six months ended 30 June 2008 assuming the Group was in existence from 1 January 2007.

INDICATIVE SEGMENT INFORMATION
	INFLATION ADJUSTED	INFLATION ADJUSTED	HISTORICAL COST	HISTORICAL COST
(all amounts in billions of dollars)	6 months to	6 months to	6 months to	6 months to
	30 June 2008	30 June 2007	30 June 2008	30 June 2007
Revenue
Banking	29,252,466	57,321,320	15,038,196	200
Hotels	115,686,992	79,316,633	32,127,783	232
Retail	101,181,178	364,257,726	17,915,656	1,395
Agriculture	100,683,165	51,611,374	54,610,875	183
Textiles	3,406,323	3,487,063	808,567	95
	350,210,124	555,994,116	120,501,077	2,105
Operating profit / (loss) before monetary adjustment and exchange gains
Banking	678,330,494	145,276,889	511,424,579	645
Hotels	29,146,479	26,827,368	3,798,290	57
Retail	(59,036,296)	(79,598,624)	471,583	352
Agriculture	92,092,175	14,987,582	58,698,374	188
Corporate and other	(14,054,616)	(12,458,024)	(6,368,701)	57
	726,478,236	95,035,191	568,024,125	1,299