Final Results

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 thepast financial year. A clear strategy is in place, which will enhance successin future years. This review will provide shareholders with an appreciation ofthe implications of our present inability to access our deposit at the ReserveBank of Zimbabwe. This implication represents the most significant challenge tothe well being of the Group and our ability to play a greater role in theeconomic future of the country. STRATEGIC INITIATIVES We outline below the status of various strategic initiatives that have beendeveloped to grow the organisation. Mining Following the decision to enter the resources sector, a division, MeiklesResources, has been established to house the Group's mining investments. The Group has obtained a special mining grant within the Midlands area ofZimbabwe. This grant allows the Group to prospect for various minerals,including iron ore and chrome. The Group also has opportunities relating togold and tantalite. We plan to have at least one producing mine in operation in2014. We have signed a memorandum of understanding, which will shortly become a fullshareholders agreement, with a substantial technical partner to pursue theseopportunities, including the provision of necessary capital, skills andexpertise in mining. Anticipated funding for mining operations is expected tobe substantial. The division will raise its own capital and will not bedependent 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 fromthe listing of the Group on both the Zimbabwe and London Stock Exchanges andthe raising of funds from a number of substantial international investors forthe benefit of the Group. These funds were remitted to Zimbabwe and ultimately placed on deposit with theRBZ at the insistence of the then Governor, the predecessor to the presentGovernor, to be used for Balance of Payments support. The Group has beenprovided with a deposit statement by the Reserve Bank in acknowledgement of thefact that the RBZ is indebted to the Group. This statement in common withbanking practice is sent to the Group monthly. This is a US dollar deposit and the Group has been unable to access any of thefunds since 2001. The Group has received promises of repayment from the RBZ,but to date nothing has materialised. These funds are required for Grouppurposes and Government is obliged to make them available. We have without success engaged both the RBZ and the Ministry of Finance in anattempt to negotiate an arrangement whereby access to these funds may befacilitated. In the circumstances, we deem it appropriate to further escalateour efforts to access these funds. Finance The decision revealed to stakeholders to fund projects largely with foreignterm loans at lower rates of interest, together with shareholder funding whererequired, has been achieved. The renovation of Meikles Hotel, The VictoriaFalls Hotel, the expansion of Tanganda and the renovation and expansion of TMSupermarkets 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 ondeposit with the RBZ. The recovery of funds held on deposit at the RBZ willremove the last major impediment to the shareholder value growing to a levelwhich corresponds more closely to the current intrinsic value of the Group.Shareholders will understand from this review the extent of the adverse effectsthat the present inability to recover this deposit is causing the Group. The loss, being additional finance charges caused by the present inability toaccess the deposit from time of dollarisation to 31 March 2013, amounts toUS$26 million. This is in addition to interest that has been credited by theRBZ but which has not been received by the Group. This outflow is the result ofinterest paid to third parties, which need not have been incurred. This sumadded to the balance of the sum on deposit would total US$82 million and ismore than sufficient to eliminate all short term borrowings in the group andleave a useful credit balance for Group investment purposes. It would alsopermit the payment of a dividend to shareholders, and facilitate other measuresto enhance shareholder value. Properties The Group has a very significant property portfolio situated in all the majorcentres of Zimbabwe. Steps are currently underway to leverage this portfolio tounlock value and maximise returns and cash generation. This portfolio iscurrently valued in excess of $60 million and is anticipated to growsubstantially in value. Group results The Group made a profit before taxation of US$7.8 million, compared to a lossof US$8.5 million in the previous year, an improvement of US$16.3 million. Theprofit after taxation was US$6.5 million compared to a loss of US$3.4 millionin the previous year. Key benchmarks of turnover and margin resulted inimproved gross profits, compared to the previous year. Increases in operatingcosts were contained at levels below growth in turnover. We continue to incur substantial interest costs, although these costs did notincrease relative to the previous year. It is calculated that our inability torecover our deposit from the RBZ has resulted in the Group paying excessiveinterest costs of US$7 million during the year under review. It is anticipatedthat interest costs in the forthcoming financial year will be adverselyaffected 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 millionin the previous year. Four stores were completely refurbished. Two of these arebranded Pick n Pay and two remained with the TM brand. They have all performedabove expectations. A number of other stores received upgrades of variousitems of equipment, pending a full refurbishment. As expected, the partialrefurbishments have also resulted in an increase in turnover and an improvementin gross margins. The potential for this company is substantial. Shareholders are to ensure thatadditional funding for store refurbishment and store expansion amounting toUS$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 ofUS$2.2 million in the previous year. The current economic environment dictatesthat priority is given to food, basic necessities and school fees, ahead ofluxuries, as disposable incomes remain very low. There has beenrationalisation, including the closure of nine Home and Beauty shops, whichwere operated by the Group. The deteriorating liquidity in the market hascaused us to curtail credit. Funding limitations caused by our inability toaccess our deposit with the RBZ has caused difficulties in achievingappropriate stock levels. We plan to be more aggressive and provide better shopping environments andchoices for our customers, but we can only do so if we are able to access ourRBZ deposit. If we fail to secure our deposit a further downsizing andcurtailment 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 inthe previous year. The refurbishment of the North Wing at Meikles Hotelcommenced in April 2012 and will be completed in the next few months. Thisproject has taken far longer to complete than anticipated. There have beenvarious reasons for the delay, but shortage of funding at various times, butnow rectified, has probably been the main reason for the delay. Once theredevelopment 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 andpublic areas has already started and is scheduled to be completed in time forthe UNWTO Conference in August 2013. Both projects have involved local contractors. Work on the Hotel in Lusaka has been delayed. This delay emanated from thechanges in the functional currency in Zambia which has moved to the use of theZambian Kwacha, for local transactions. This has impacted on the feasibility ofthe project. However it is expected that the project will commence in the nearfuture. The Group will continue to seek expansion opportunities both in Zimbabwe and inthe region. Meikles Hospitality is attractive to potential investors and has agood and solid future. Tanganda The company achieved an EBITDA of US$1.2 million compared to a loss of US$3.9million in the previous year. Minimal rains were received in the winter of 2012and certain tea areas were affected by frost. The dry spell continued up to theend of the 3rd quarter, but useful rains were received in the final quarter ofthe financial year. The delayed rains affected tea production which amounted to7,500 tons compared to 8,500 tons in the previous year. This short-fall inproduction was mitigated by an increase in global tea prices on the back ofincreasing demand and an improved quality of teas from our estates. Investment in the coming year will focus on the replacement of the existingantiquated tea packaging plant with modern equipment. This new equipment willsignificantly improve the efficiency of production and quality of product.There are opportunities for increasing sales of packeted teas in the region. Water production and distribution increased by 51% to 3 million litres. Themarket will see increased availability of the product, in the coming year. In addition to the existing 2,400 hectares of tea and in line with ourdiversification strategy, it is our intention to continue developing theplantations to 300 hectares of coffee, 425 hectares of avocados and 700hectares of macadamias in the coming financial year. Tanganda continues to attract interest from potential investors and will have agood and solid future. Mentor Africa The Group acquired a direct shareholding in Mentor Africa, following the mergerof the Cape Grace Hotel into Mentor Africa. Mentor Africa's investments were revalued as at 31 March 2013. The Group's prorata share of these investments was valued by the Directors at R241 million,representing an uplift of value, in Rand terms of 12%. Due to the devaluationof the Rand, there was a 6% diminution in the US$ value when compared to theinitial recognition in the Group's financial records. The Group remainsoptimistic about prospects for its investment in Mentor Africa and expects thevalue of this investment to increase. Dnata Catering Services, the Newrest Group and Mentor Africa recently announcedthe formation of a new, jointly-owned inflight catering services group in SouthAfrica. A new company called "dnata Newrest" was formed by Wings InflightServices, which was jointly owned by dnata and Mentor Africa, acquiring theinflight 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 withtheir extensive worldwide experience in the inflight catering arena. dnata is a member of the Emirates Group and has interests in ground handlingand inflight catering business in 38 countries across five continents. Newrest is the only major catering company active in all catering and relatedhospitality segments including airline catering, rail catering, contractcatering, concession retail, buy-on-board, health care, education, and remotesite and support services. The Cape Grace Hotel performed exceptionally well as a result of new operatingstrategies adopted and improved further on all recognised operatingbench-marks. It was also voted the second best luxury/top hotel in the world byTripAdvisors in the 2013 Travellers Choice Awards, a proud achievement by thehotel management and staff. The hotel has won the Best City Hotel in Africa inthe UltraTravel Awards. The hotel has also been voted number one in Africa byCelebrated Living, which is the magazine for American Airlines and was votednumber two in the Travel and Leisure World's best service for Africa and theMiddle East. Mentor Africa is also invested in a leading provider in South Africa of energyefficient lighting solutions and products which continue to work with majormining, industrial and property groups in South Africa, and is expecting toparticipate in major contracts going forward. Meikles Guard Services The company was formed late in the financial year and its management brings toZimbabwe 18 years of security services experience in the international arena.The company will provide security services to companies, embassies andnongovernmental organisations in addition to the security requirements of theGroup. Conclusion The Group has made the positive steps outlined above through the dedicatedefforts and commitment of the board, management and staff across all businessunits. The regulatory authorities are guiding us as we make the foray into newareas to expand our business. The shareholders whose support we always count on, can be assured that with thereturn to profitability of our Group, the future will improve. This coupledwith the new ventures should lead to an increase in shareholder value in thenear term. However, Group fortunes will be affected if the funds held ondeposit 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 2,480operations PROFIT/ (LOSS)FOR THE YEAR 6,535 (3,444) Other comprehensive loss Items that will not be reclassifiedsubsequently 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 FINANCIALPOSITION 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 - 19,644held 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 - 14,228sale 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 EQUITYFOR 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$ 0002013Balance 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 disposalof assets classified asheld 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 2011as 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 accountingpolicy - 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 interestsin a subsidiary without lossof control - - 4,679 1,256 - 5,935 7,065 13,000 Other comprehensiveloss 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 ofnon controlling interest ina subsidiary - - - (168) - (168) 168 - Balance at 31 March 2012restated 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 497capital 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 6,107activities Cash flows from investing activities Payment for property, plant and equipment (18,299) (6,839) Proceeds from disposal of property, plant 188 1,503and 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 - 13,000subsidiary without loss of control Net increase in interest bearing 14,284 6borrowings Proceeds from issue of shares - 1,400 Finance costs (6,994) (8,454) Net cash generated from financing 7,290 5,952activities Net increase in cash and bank balances 3,349 6,207 Cash and bank balances at the beginning 11,284 4,785of the year Net effect of exchange rate changes on (435) 606cash and bank balances Translation of foreign entities - (314) Cash and bank balances at the end of the 14,198 11,284year NOTES TO THE ABRIDGED FINANCIAL STATEMENTS 1. Basis of preparation The abridged financial statements are prepared from statutory records that aremaintained under the historical cost basis except for biological assets andcertain financial instruments which are measured at fair value. Historical costis generally based on the fair value of the consideration given in exchange forassets. 2. Statement of compliance The Group's abridged audited financial results have been extracted fromfinancial statements prepared in accordance with International FinancialReporting Standards and the Companies Act (Chapter 24.03) and relevantstatutory instruments (SI33/99 and SI62/96). These results have been audited byDeloitte & Touche, whose unqualified report is available for inspection at theregistered office of the Company. 3. Accounting policies Accounting policies and methods of computation applied in the preparation ofthese abridged financial statements are consistent, in all material respects,with those used in the prior year with no significant impact arising from newand revised International Financial Reporting Standards (IFRSs) applicable forthe 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 corporateamounts. Corporate also includes other subsidiaries that are not allocated to areportable segment, including Meikles Guard Services (Private) Limited. 5. Disposal of discontinued operations The disposal of the Cape Grace Hotel operations in South Africa was concludedduring the year with an effective date of 1 April 2012. Below is the analysis of assets and liabilities over which control was lost andthe 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 27,657Mentor Africa Limited Gain on disposal 1,173 The gain on disposal is included in the profit for the year from discontinuedoperations. 6. Restatement 6.1 Prior year adjustment - inventory valuation error During the year, the Group identified an error in the valuation of the tradinginventory at TM Supermarkets (Private) Limited , carried forward from 31 March2011 financial year. The error had the effect of overstating inventory,retained earnings, non-controlling interests and deferred tax liability for thefinancial 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 changedfrom retail method to weighted average cost method. Previously, retailmerchandise was valued at selling price less an appropriate percentage toreduce the value to approximate cost, due allowance having been made forredundant, obsolete and spoiled inventories. Under the weighted average cost method, the cost of each item is determinedfrom the weighted average of the cost of similar items at the beginning of theperiod and the cost of similar items purchased during the period. The averageis calculated as each delivery is received. The effect of the restatement and change in accounting policy on the Groupfinancial 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 profitor loss and othercomprehensive 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) 108period from continuingoperations 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 31March 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 4,835equipment Capital commitments authorised by the Directors but 25,613 22,813not contracted Group's share of capital commitments of joint 1,783 3,000venture For further information contact Onias Makamba on [email protected] +263-4-252068/70.