Annual Report 2010 by mike simaye

SEFALANA HOLDING COMPANY LIMITED Annual Report 2010

Contents Corporate Information

Group Structure

Five Year Highlights

Board of Directors

Financial Highlights

Value Added Statement

Analysis of Shareholders

Stock Market Information

Shareholders’ Calendar

Chairman’s Report

Group Managing Director’s Report

Group Finance Director’s Report

Financial Record History

Sustainability Report

Report on Corporate Governance

Company Profiles

2010 Annual Financial Statements

Notice of Annual General Meeting

141

Form of Proxy

143

Notes to Form of Proxy

144

SEFALANA HOLDING COMPANY LIMITED Annual Report 2010

Five Year Highlights

Revenue (P’000)

2 000 000 1 800 000 1 600 000 1 400 000 1 200 000 1 000 000 800 000 600 000 400 000 200 000

2006

2007

2008

2009

2010

Net asset value (P’000)

300 000 250 000 200 000 150 000 100 000

2006

2007

2008

2009

2010

Earnings per share (thebe) 35.00 30.00 25.00 20.00 15.00 10.00 5.00 2006

2007

2008

2009

2010

2009

2010

Total comprehensive income (thebe)

40.00 35.00 30.00 25.00 20.00 15.00 10.00 5.00 -

2006

2007

2008

SEFALANA HOLDING COMPANY LIMITED Annual Report 2010

Analysis of Shareholders: 30 April 2010 2010

2009

Shareholders with a determinable interest in Sefalana Holding Company Limited.

Botswana Public Officers Pension Fund Motor Vehicle Accident Fund Chandra Chauhan Debswana Pension Fund

Number of shares

58 093 419 18 535 956 9 054 199 8 156 306

35.07 11.19 5.47 4.92

58 309 101 18 535 956 7 304 199 5 950 050

35.20 11.19 4.41 3.59

Summary: Insurance companies, pension funds and nominee companies Individuals and others Total Shares held by citizens (individuals and institutions)

84.94 15.06 100.00

159 654 875

96.38

84.48 15.52 100.00

148 034 458

89.37

Stock Market Information Number of shares traded (000) Value of shares traded (P’000) Share price for the period (thebe) : Lowest Highest Closing Market capitalisation at year end (P’000)

2010

2009

11 355 33 878

26 798 81 300

250 400 375 644 380

270 430 270 447 255

Shareholders’ calendar Financial year end Announcement of 2010 audited results 2010 Annual General Meeting Announcement of half year results

30 April 31 August 2010 17 November 2010 January 2011

SEFALANA HOLDING COMPANY LIMITED Annual Report 2010

Chairman’s Report Dear Fellow Stakeholders, Just over seven months ago, I assumed the role of Chairman of Sefalana Holding Company Limited; I welcome this opportunity and look forward to being involved with a Group that has continually shown growth over the years and that is proactively and progressively diversifying its portfolio across multiple sectors of the economy. In my interactions with the Board and management I have been genuinely impressed by their collective dynamism and passion for the business. Although I am a relatively new member of the Sefalana family I can assure you that I share a similar passion and commitment to furthering the fortunes of the Group. Economic Outlook Over the last year and a half, the economy in which we operate has experienced an unprecedented period of turmoil due to the recession – creating for us both opportunities and threats. Botswana’s economy and spending power, which are heavily reliant on the diamond trade, was negatively impacted by the recession. However, we are encouraged by the phenomenal recovery in diamond prices over the last six months. While still some way off the pre – 2008 prices, there is an encouraging indication that the economy is well on the road to recovery. Gross Domestic Product (GDP) is forecast to grow at 4.1%, which is another positive indication of gradual economic recovery. Given these encouraging developments, I hope there will be a general increase in spending power in the coming year, and I know our Group is well positioned to meet this. Highlights and Prospects Despite the impact that the recession has had in squeezing our margins, Sefalana has managed to keep sales volumes at impressive levels. This gives us cause to look forward to the future with optimism and confidence.

Despite the impact that the recession has had in squeezing our margins, Sefalana has managed to keep sales volumes at impressive levels.

SEFALANA HOLDING COMPANY LIMITED Annual Report 2010

Daniel Neo Moroka Chairman

SEFALANA HOLDING COMPANY LIMITED Annual Report 2010

Human Resources The most important asset in the makeup of a successful company is its people; not just ordinary people, but people who deliver. It is essential that development of our human resources is at the top of our agenda. In this regard, the Board has recently agreed to develop a Group HR policy so that there are standardised HR policies within all our subsidiaries and we continue with our intensive training campaigns, most of which are accredited by the Botswana Training Authority, allowing the Group to reap the benefits of the Government Training Scheme. Expansion During this financial period we have seen the launch of the Shoppers retail brand and the consolidation and uplifting of the standard of our motor dealership premises; our foray into Zambia through our property acquisition and the commencement of the distribution operation is very exciting. We expect that, leveraging off this business, Sefalana wholesale and retail outlets will soon follow. While Zambia is an ideal country in which to begin our regional expansion, we envisage a scenario where Sefalana benefits from a presence in the entire SADC region. Sefalana is now positioned to become a regional player in the FMCG sector and to enjoy the benefits of regional trade agreements such as the SADC trade protocols and SACU. Sefalana in the Community As we continue to operate within communities all over the country, it is our view that there is a real need to give back to these communities. Corporate Social Responsibility is not only about handing out donations but making a significant contribution to improving the lives of the people with whom we interact. We need to move away from giving out monetary donations and move more towards assisting in the development of our communities in our charitable efforts. The Delisting of Sefalana Cash & Carry (Sefcash) A strategic decision was taken by the Board to delist Sefcash from the BSE. Shares held by the general public in Sefcash were exchanged for shares in the holding company (Sefalana Holding Company Limited). Sefcash will continue to operate as normal. This decision was made in order to enhance the operational and financial efficiency of the Group.

SEFALANA HOLDING COMPANY LIMITED Annual Report 2010

so far and a further three to be opened in the next two to three months, this will see a considerable addition to Sefcash’s existing staff complement. Sefalana firmly believes that what makes us largely different to other companies is the calibre of our people. Our insistence in nurturing our own leaders and inculcating the Sefalana philosophy as second nature to our employees is most evident in the recently established Management Training Programme implemented last year by our Cash & Carry operation. Through this programme, we look to place 30 university graduates in our various businesses throughout the country. The programme has seen a very good success rate and bodes well for the future, as we intend these trainees to be the leaders who will take the Sefalana Group forward in breaching further frontiers and building on its great legacy. The extraordinary change in Sefalana’s fortune in the last six years can be mostly attributed to a change in the Board’s as well as management’s mindset. Prior to that, the Board was larger and perhaps took longer in decisionmaking aspects, which was restrictive on our efforts in seeking new opportunities.

Management was reorganised and the Board restructured to make it smaller and more focused. The move further enabled bigger changes that were necessary within the Group; these were instantly felt as we saw the rapid turnaround of decisions and quick acquisitions thereafter. The Group has since witnessed exceptional growth as a result of the cooperation between the Board and management. In January, our then chairman, Mr. Lekalake retired after a very long and exceptionally well-served time on the board and our new chairman, Mr. Moroka, was appointed. Mr Lekalake’s long service was recognised at a luncheon with business leaders in Botswana and with a fitting gift of a prize stud bull in appreciation. We were saddened in July by the passing of the Honourable Baledzi Goalathe; Minister Goalathe served as chairman on our board for four years from 1996 to 2000. We were grateful to the stewardship given to us by the late Minister, may his soul rest in peace.

Our employee count has grown from 250 to more than1600 today.

SEFALANA HOLDING COMPANY LIMITED Annual Report 2010

Operating Review Sefcash has had a difficult year as a result of the recession and the results reflect the squeeze on consumer spending due to the lack of increments in public sector salaries, as well as the increase in VAT. Spending has been more concentrated on the necessary “loss leader” consumer goods such as mealie meal, cooking oil and sugar and we have seen that, although volumes haven’t dropped substantially, margins have been significantly affected. However, despite the hardships encountered with reduced consumer spending, the company has performed exceptionally well. Although we have observed a drop in turnover, we have held profitability through various costsaving initiatives. The company has also borne the cost of establishing the Shoppers supermarkets - which it has managed out of its own internal resources - and we expect the planned future supermarkets to be funded in the same manner. Foods Botswana has seen yet another successful year, one of our best in recent memory. The company always contributes positively when producing for Government throughout the year. Sometimes, as evidenced in certain years, Government contracts end during the course of the financial year. This usually translates to several months of non-production, which impacts on profitability simply because the company is not producing at full capacity. This was not the case in the last financial year as the company was constantly producing one or two products almost exclusively for Government, and our own branded sales were also at maximum capacity. Foods Botswana operated at almost 100% capacity, which meant that returns were very good. We embarked on a trend of intelligent grain and commodity purchases which proved to be very important, as Foods Botswana’s profitability depends very much on the input costs (normally involving about four or five factors) that determine how much profit is realised.

Grain purchases were mainly on sorghum and soya bean. We were very lucky last year to obtain sorghum at very good prices which we made sure to lock up into contracts. Soya bean pricing has come down globally as a result of overproduction in the previous year. We were able to secure large shipments of soya beans from Zambia which further enabled us to see through our contracts. It should be noted that being a part of the Sefalana Group, enables Foods Botswana to leverage off the Group’s cash flow ability in order to buy large quantities upfront at beneficial prices. Foods Botswana always prioritises and supports local farmers where possible. This means that we buy locally when the price is in line with international commodity pricing. We support millers in all the various towns in which we are present and this is important to keep the “small-time” miller going. We also believe in selling a product that the people want. In the smaller towns, a local product that originates from a certain area - such as sorghum - will be preferred as compared to a “national brand” for example. People attach a high loyalty to products from their area and where we can buy local grain, we do so, in addition to ensuring we tie up contracts for the next planting season so that we are guaranteed a certain yield. In our previous financial year, Commercial Motors had a very successful year due to a significant amount of Government tendering and as a result, we had a much greater growth than anticipated. This year, Commercial Motors has worked on developing its infrastructure to meet the good years to come. We have moved to a state-of-the-art, up-market premises. We have spent a considerable amount upgrading our facilities to accommodate both trucks and buses and enhancing our service capabilities. As expected, sales have begun to pick up with the new service centres for the MAN and Honda vehicles anticipated to improve service levels and visibility of our product. We expect the business to grow from strength to strength.

SEFALANA HOLDING COMPANY LIMITED Annual Report 2010

The last year was largely spent on planning the delivery of troop and service vehicles in fulfillment of the tender awarded by the Botswana Defence Force, and we are very excited to announce that they are currently en route with deliveries expected throughout 2011 to 2012. We experienced a decline in Government spending in the construction and agricultural sectors as well as a general slowdown in the construction industry and this impacted on Mechanised Farmingâ&#x20AC;&#x2122;s growth with significantly reduced trading. With current initiatives that Government is implementing, such as the development of the Pandamatenga region into a large scale agricultural area, as well as the planned redevelopment of our offices and showrooms we are confident that trading will improve in this company; Mechanised Farming continues to offer a broad range of top quality construction and farming equipment and implements. We have always been fairly successful in our Properties division. During the year we disposed of one non-performing asset in the north and some residential properties. We also developed the new Commercial Motors site. Over the last two years, we have made some substantial investments in property. We acquired a property in Zambia at the cost of US$2.85 million and after having waited a year to find the right blue chip tenants to move in, the property is now valued at US$5 million. Our return is excellent and this property is a very positive contributor to our property portfolio profits and our overall development in Zambia. We have also invested in a large piece of land on the Phakalane road at the Phakalane junction and have recently commenced a new operation there by the name of â&#x20AC;&#x153;Bots Gearbox and Diff Centreâ&#x20AC;? which business supports our motor division as well as other similar local operations. This is an extensive property which we are considering developing it to best utilise value.

SEFALANA HOLDING COMPANY LIMITED Annual Report 2010

The development of the property on the airport road has been hampered by the continuation of legal matters concerning the sellerâ&#x20AC;&#x2122;s title; we continue to hold discussions regarding this property and are quietly confident that we shall be able to acquire the land in due course and thereafter develop it to the potential we see for it. Corporate properties continue to perform well for us. New Ventures Horizon Distributors, Zambia Our latest significant venture has been the expansion into the Zambian market in a joint venture with CIC Holdings, an entity listed on the JSE. Their core business is the distribution of FMCG products within the region and they have existing operations in Namibia, Mozambique, Botswana, Swaziland and Uganda. The venture into the Zambian market with an experienced partner is proving wise; Zambia is at a very exciting point in its commercial and financial development and so it makes good financial sense to launch our first foray outside of Botswana there. The business commenced in February of this year and we see a lot of potential. The manufacturers (the principals of which are big brands), mostly based in South Africa, are forthcoming in offering us their agencies. We are, in fact, at a stage where we have the luxury of choosing the better agencies we want to represent in Zambia. Bots Gearbox & Diff Centre Through our dealings over the years with the Central Transport Organisation (CTO) - who manage the entire Government fleet - and the BDF, we have noted that there has been a real need for a local facility for repairing and overhauling of gearboxes and differentials for all types of vehicles, but more especially trucks. Previously, all vehicles were sent to South Africa, a costly exercise both in terms of money and time stoppages. We have consequently entered into a joint venture with a top Gearbox and Differential centre in South Africa to open a business in Botswana. This operation has recently obtained

SEFALANA HOLDING COMPANY LIMITED Annual Report 2010

accreditation by the CTO as well as ZF, the industry standard in gearbox and differential parts and placements. This accreditation will carry a one year warranty for the vehicle owner. The Bots Gearbox & Diff Centre is a very exciting development for us, as it adds to our diversification endeavours and it is also synergistic to the existing businesses. Delisting of Sefcash The successful delisting of Sefcash, following our acquisition of the 20,65% minority shareholders, has removed the duplication of the market capitalisation in the BSE profile. It was always our intention to delist once we took full control of Sefcash from our previous partners (Metro Cash & Carry South Africa). We anticipate cost and management efficiencies to flow from this initiative. Social Investments Sefalanaâ&#x20AC;&#x2122;s role in the community is an especially charitable one. Our stance has always been that of supporting and giving back to the communities that support us. Foods Botswana has a scheme that supports both the SOS Villages in Serowe and Gaborone as well as a home run by the Catholic Church that houses about 70 destitute children, also in Gaborone. In all three organisations we provide one hot nutritious meal per day, per child, throughout the year. Through Kgalagadi Soap Industries we also provide several organisations with their bath soap tablet requirements on a monthly basis. In the Cash & Carry arena we work with our banner members in the collection of funds and commodities which we then match and the total collected is distributed to various charitable organisations nominated by the banner members. We also supply numerous charities on a regular basis with donations of consumables and foodstuffs.

Looking Frontward and Beyond Sefalana has set its sights on continuously looking for investments that add to our current portfolio. Although our core business remains the FMCG sector, it is due to our diversification that we have been able to continue to prosper in the exceptional manner that we have. We keep our options open and consider all possible opportunities that come our way in the hope of expanding and growing our business and investing in the right products within the market. These developments are in line with our long-term approach of enhancing shareholder value by way of major acquisitions. The Group is therefore constantly alert to other business opportunities that will fit into our overall make up. Sefalana is the only company on the Botswana Stock Exchange that is a 100% free-float company and hence our shares are widely held by numerous investors. They naturally want to see a good yearly return in terms of dividend and increases in share price and it is our constant endeavour to try and achieve that; profitability is most definitely key to us. It is my personal dream to have Sefalana achieve a BWP 100 million profit on a yearly basis; something I would like to see happen in the next two years. I did announce, at the Annual Results Presentation last year that the Group was looking to achieve a BWP 2 billion turnover within the same time frame. We are, indeed, well on our way to achieving that. Thank You I want to express, with the deepest and most sincere appreciation and gratitude, my thanks to our many loyal employees, customers, suppliers and distributors throughout the country for their support in the last yearand indeed the last three decades - who have helped build the Sefalana Group into what it is today.

Chandra Chauhan Group Managing Director

SEFALANA HOLDING COMPANY LIMITED Annual Report 2010

Group Finance Director’s Report On the back of a most impressive year, as reported in the 2009 Annual Report, the Group experienced a slight downturn in its turnover and gross margins in the current reporting period.

rollout of “Shoppers” supermarkets. Consumer purchase patterns have shifted to cost-conscious consumerism; this movement is pivotal to the business case for Shoppers, our major growth unit.

However, I am happy to point out that even though profit before tax from continuing operations came down to P 93.30 million from P 100.49 million recorded in 2009, the total comprehensive income of P 78.98 million in

The results posted by Foods Botswana are excellent. Full operational capacity was realised throughout the year, and sales were up in both wholesale and retail markets of our branded products and supply of Tsabana, Tsabotlhe

2010, which includes revaluation surpluses on certain properties, is 9% higher than year 2009 figures. The Group’s net asset value is also up by 14.24% and we maintained our earnings per share at over 34 thebe.

and Samp to the Government of Botswana. Restrictions on importation of grain have been re-introduced by the Government; this will have an upward influence on the cost of sorghum grain. It is anticipated that 2011 results for Foods Botswana will show a temperate, sustainable profitability.

The biggest knock on our revenue was a 44% downturn in the business segment ‘Trading – other’, which includes sales and services of vehicles and construction and agricultural equipment. Capital expenditure incurred in moving our Honda and MAN dealerships to the new purpose-built, up-market workshop and service centre has geared Commercial Motors for improved service delivery and sales generation. The contribution from this company to the Group bottomline earnings over the year has been dampened by reduced Government spending, but is satisfactory in motor sales; there has been contraction in turnover from Mechanised Farming product lines, which include railroad equipment, construction and agricultural equipment and implements. We are satisfied with the positive contribution made by Vintage Travel and Tours to the Group’s profile and profits. Focus on the businesses in the MF group is important; we believe that revitalising and reshaping MF group shall unlock a sleeping giant, and add significant value to shareholders. Fast Moving Consumer Goods sales dropped marginally from P 1.57 billion in 2009 to P 1.50 billion in 2010. As explained in the Group Managing Director’s report, this business was adversely affected as a result of reduced consumer spending, but was still able to carry the costs associated with our continued expansion including

The introduction of new and rebranded products and various other strategies considered by the Board of KSI Holdings should assist in increasing the sales of our range of laundry and bath soaps. A major fall in our crossborder sales has borne a set of unsatisfactory results from Kgalagadi Soap Industries in this year. Properties have performed as expected, in line with budget. The Group revalued its properties towards the end of the year under review in order to reflect the property portfolio at its fair value in the Statement of Financial Position. Our Zambian property is expected to add additional revenue and profitability in the years to come. Our financial history, provided on page 23, will give you an insight into the growth path followed by the Group over the last 5 years. Whilst the economic climate has not been encouraging during the year under review, we are committed to delivering continually improved value for our shareholders. We always endeavour to identify and act on the need for development of products, services, strategies and corporate assets across our business units. We anticipate a genuinely robust improvement in returns on investments as a result of our development of resources and methodologies.

SEFALANA HOLDING COMPANY LIMITED Annual Report 2010

We remain focused in our quest to achieve the common goal of P 100 million profitability and will continue to work towards that.

We look forward to the performances of our new distributorship venture in Zambia and the Bots Gearbox and Diff Centre in Gaborone, both of which started operating during the financial period 2010/11. We also look forward to reduced Group costs through synergies resulting from the delisting of Sefcash, the amalgamation of shareholder consideration and the sharing of risk mitigation and operational resources. We remain focused in our quest to achieve the common goal of P 100 million profitability and will continue to work towards that.

Venkit Iyer Group Finance Director

SEFALANA HOLDING COMPANY LIMITED Annual Report 2010

Financial Record History 2010 P’000

2009 P’000

2008 P’000

2007 P’000

2006 P’000

Comprehensive Income Revenue Gross profit Investment revenue Other gains Administration expenses Finance costs (Loss) / profit from associates Income tax (expense) / credit Other comprehensive income Minority interest Total comprehensive income for the year attributable to equity holders of the parent Earnings per share (thebe) - (**) Total comprehensive income per share (thebe) - (**) Dividends per share (thebe) - (**)

1 709 950 145 996 6 067 22 069 (69 167 ) (11 199 ) (3 836 ) (21 064 ) 10 116 (15 193 )

1 875 500 172 384 7 317 695 (66 604 ) (13 295 ) ( 2 669 ) (25 253 )

1 402 745 98 832 5 474 11 490 (57 923 ) (10 082 ) (10 054 )

1 019 844 66 199 7 772 7 184 (41 728 ) (8 119 ) 98 ( 4 709 )

70 565 44 060 5 049 1 186 (19 028 ) (9 ) 1 997 516

(15 688 )

(7 573 )

(3 989 )

63 789

56 887

30 164

22 708

33 771

34.39 38.51

34.34 34.34 20.00

18.35 18.35 15.00

13.92 13.92 10.00

21.11 21.11 20.00

137 962 26 117 30 931 1 220 197 8 900

97 073 19 810 24 880 1 320

11 900 77 397

324 373 (266 782 ) (42 625 ) (33 728 ) 186 565

295 976 (221 261 ) (39 193 ) (29 326 ) 150 846

Financial position Property, plant and equipment Investment property Intangible assets Property development loan Deferred rental Deferred tax assets Investment in associate Current assets Current liabilities Non-current liabilities Minority interest Equity attributable to equity holders of the parent

180 921 57 829 28 681 972 1 400 12 402 3 089 473 747 (389 545 ) (57 251 ) (54 162 ) 258 083

161 701 39 968 28 290 1 105 916 11 770 7 510 427 484 (351 517 ) (53 895 ) (46 445 ) 226 887

(**) The earnings, comprehensive income and dividends per share have been restated to take into account the share split in 2007.

4 977 1 567 34 625 41 442 (8 653 ) (15 495 ) 146 193

SEFALANA HOLDING COMPANY LIMITED Annual Report 2010

Sustainability Report Our Commitment Equity to us is more than a financial term; it is the core of our promise to trade fairly and honestly, in good faith and best business practice. Our relationships and sustainability are dependent on our ability to enthuse our stakeholders with our spirit of sustainable development. We strive to retain and grow our businesses through increasingly equitable, green, friendly and efficient practices. Our focus areas in being a key driver in the development of our economic communities and achievement of national development goals are: •

Responsible Trade and Investment;

•

Ethical Supply Chain Management, Compliance and Corporate Governance;

•

Sustainable Social Investment;

•

Human Capital Development;

•

Conservation and Eco-friendliness;

The Group’s view of monitoring its triple bottom line (People, Planet and Profit) is central to daily decision-making. We are Sefalana Holding Company Limited, the “bountiful granary” with the same spirit of Botswana’s first listed company, our founding corporation, Sefalana sa Botswana. “Motho ke motho ka batho.” This Setswana proverb loosely translated means humanity is earned by humanitarianism. As a corporate citizen, we manage our relationships with humility, humanity and fairness at heart. Our Strategy In our active involvement in society, we aid social development and the protection of quality of life. Participation in the fights against HIV/AIDS, crime and corruption are continued critical areas in our strategy. The Group belief is that goodwill and philanthropy may be a non-core function in business but is central to our social licence to do business. That is how we have come to donate over P200 000 to charity. To us, a picture in the paper is not a benefit. Real value in real peoples’ lives is. Management of our supply chain is worked to the best efficiencies for the Group, including shared services, thereby reducing energy used, wastages and emissions. Compliance in trade and taxpaying also adds to our contribution to national development.

SEFALANA HOLDING COMPANY LIMITED Annual Report 2010

â&#x20AC;&#x153;Motho ke motho ka batho.â&#x20AC;? This Setswana proverb loosely translated means humanity is earned by humanitarianism. As a corporate citizen, we manage our relationships with humility, humanity and fairness at heart.

SEFALANA HOLDING COMPANY LIMITED Annual Report 2010

Our Citizenship In the year to 30 April 2010, the Group paid over 20 million Pula in taxes and levies, helping government deploy services and developments for Batswana. Timely payment and strict compliance is ensured throughout the Group. In the tough economic times faced globally, continuity of social upliftment remains critical to our vision for the country. Throughout the Group, employees are supported with formal and informal training, some of which is conducted at top universities in the region. Sefcash is exemplary in its training. With a dedicated in-house training centre, BOTA accredited curriculum and committed support to skill growth, Sefcash employees find great opportunity to be the best they can be. Our approach to Continued Professional Development runs through from the Board of Directors to the employee on the shop floor, in the factory, in the workshop and everywhere we are. Promoting wellness is important to the health of our employees and the health of our Group. By facilitating learning and sharing opportunities, Group employees are advantaged to work in a compassionate and caring environment. We believe happy people work better and it is through taking heed of our workforce needs that the over 1600 strong workforce generate the esteemed business and brands, rapport and reputation of our Group. Equitable employment is central to the Group and an open-door policy, fair employment practice and legal compliance gives us confidence in how we manage our relationships with employees. Clear, coordinated management of employee rights and responsibilities assure the Group risk profile is mitigated and that continuity is ensured. Crime and corruption mitigation measures include a whistle-blowing hotline, internal audit procedures and cooperation with the Police, Kgotlas and other community

committees. Business considerations cannot exclude social interaction and we acknowledge that through empowering the community, we stimulate a growing nation of current and future stakeholders. Corporate Social Investment Beneficiaries in the Group CSI programme include SOS villages, Divine Mercy Ministries, Baylor Children’s Clinic, Masiela Trust, Thamaga Orphanage, Serowe North Development Trust and Mosu Village Development Trust. Whilst we focus on registered disability and children’s charities, we have also donated to non-profit organizations promoting sport, health, animal welfare and conservation. The adoption of Thamaga Orphanage, in our pledge to provide monthly food baskets and other necessities, affirms our commitment to social welfare. Lephoi centre is a community based project situated in Monarch, administered by the Botswana synod of the United Congregation Church of Southern Africa (UCCSA); it currently has 52 children. It was opened in 1985 and was initially designed to accommodate 8 visually impaired boys and girls from ages six to eighteen years. Every month the Sefcash banner stores contribute a small amount which Sefcash matches and donates to charity. “I remember hearing that you guys donated to Masiela Trust fund and other many organisations that depend on donor funding…. In line with the pillars of the nation’s Vision 2016.” Wynter Mmolotsi, Member of Parliament, Francistown. Trading Responsibly Our products and services are our pride, and we trust in their quality because we test them to the highest standards. Foods and edibles are lab tested, goods are quality inspected and preferentially selected for meeting Bureau of Standards requirements, and services are renewed by continued training and evaluation.

SEFALANA HOLDING COMPANY LIMITED Annual Report 2010

Within our Group, we view customer service as a way of thinking and working to support the customer with superior and friendly service in trusted product and enthused service delivery not only from our sales points, but our back-office and technical staff too. Our governance and compliance initiatives cover the protection of stakeholder interests in the Group. The management of the business and its relationships, ensures we address conflicts of interest, protection of assets, accountability, confidentiality of corporate information and business ethics. A report on our Corporate Governance is presented on page 28.

Biju of Foods Botswana with SOS Serowe children.

The focus of Commercial Motorsâ&#x20AC;&#x2122; Corporate Social Investment is in the development of skills among the youth through providing in-house on the job training to undergraduates who need experience to access employment opportunities. In partnership with the University of Botswana, the company has introduced two annual internships in the field of Marketing / Communications and Market Research for senior students in the Media Studies faculty of Human Sciences.

Moagi of Sefcash presenting a cheque to the Lephoi Centre.

Our products and services are our pride, and we trust in their quality Student interns of the University of Botswana Media Studies Faculty at work for Commercial Motors, conducting market research at a local Mall.

SEFALANA HOLDING COMPANY LIMITED Annual Report 2010

REPORT ON CORPORATE GOVERNANCE

The Board of Sefalana Holding Company Limited strives to achieve the utmost level of responsible conduct and best practice, as guided by the Botswana Stock Exchange Code of Best Practice on Corporate Governance. Accordingly, the Board is guided in its conduct through its approved charter and the terms of references of its sub-Committees. The Board reviews the charter and terms of reference for subCommittees annually. The Directors believe that trust in its people and products is a prerequisite for success in a highly competitive environment, and are committed to ensuring that this challenge is embraced in all the daily activities of the Groupâ&#x20AC;&#x2122;s business. Through incorporating this ethos of responsible, transparent and effective management, the Group continues to grow its reputation and operational efficiencies.

SEFALANA HOLDING COMPANY LIMITED Annual Report 2010

Board of Directors Sefalana Holding Company Limited ensures that the Board has a prudent balance of executive and non-executive Directors (including independent non-executives). The Board includes non-executive Directors of sufficient calibre and number for their views to carry significant weight in the Board’s decisions. Non-executive Directors comprise not less than two thirds of the Board, with independent Directors making up the majority of non-executive Directors. Terms of office for non-executive Directors are for initial periods of two years, with renewal for further periods not exceeding two years each after approval by the shareholders in the Annual General Meeting. The executive Directors have formal employment contracts based on the Company’s policies. At the reporting date, the Board of Sefalana Holding Company Limited comprised: Independent non-executive Directors (4): Neo Moroka (Chairman) Elias Dewah Jenny Marinelli Reginald Motswaiso Non-executive Director (1): Andrew Pegge Executive Directors (2): Chandra Chauhan (Group Managing) Venkit Iyer (Group Finance) A synopsis of the Directors’ credentials is set out on page 5 of the annual report. In the year under review, the Board welcomed Mr Daniel Neo Moroka in his appointment as Board Chairman, and nonexecutive Director. The appointment was necessitated by the retirement of Mr Lawrence Lekalake from the Board after a remarkable and significant 20 year contribution to the Group. There were no other appointments or resignations during the current reporting period. The nomination of Directors is led by the Nominations Committee, which is responsible for the vetting of suitable candidates, and managing the process of appointment recommendations, continuance of office and leadership induction. Following recommendation by the Nominations Committee, appointments to the Board are approved by the Board and subsequently presented to the shareholders in the Annual General Meeting.

SEFALANA HOLDING COMPANY LIMITED Annual Report 2010

Executive Directors are rewarded reasonably according to the Group performance and achievement of individual stretch targets. Senior management is subject to review by the Remuneration Committee at least annually. Non-executive Directors are remunerated according to best practice as ascertained through independent research in the Southern Africa region. The total remuneration of the executive and non-executive Directors is disclosed in note 12 to the financial statements. The remuneration includes bonus payments and value of all benefits. Directors’ interests At 30 April 2010 the following Directors had an interest in the stated capital of the Company: Chandra controlled 9 054 199 (2009: 7 304 199) ordinary shares, Venkit controlled 5 057 ordinary shares (2009: 5 057) and Andrew controlled 1 000 000 (2009: 9 074 529) ordinary shares. At every Board meeting, all Directors are required to declare their holdings in the Company’s shares and all interests with external establishments. Nomination Committee The Nomination Committee comprises of three nonexecutive Directors. Members of this Committee at the reporting date are Elias Dewah, Jenny Marinelli and Andrew Pegge. There are formal and transparent procedures for the appointment of new Directors to the Board. The nomination Committee makes its recommendations to the Board on all new Board appointments. The Nomination Committee annually assesses the Board’s composition to ascertain whether the combined knowledge and experience of the Board matches the strategic demands facing the Company and the Group. The findings of such assessments are taken into account when new Board appointments are considered and when incumbent Directors come up for re-election. The Nomination Committee met once during the year ended 30 April 2010.

SEFALANA HOLDING COMPANY LIMITED Annual Report 2010

Investment Committee The Investment Committee comprises four non-executive Directors. Members of this Committee are Elias Dewah, Reginald Motswaiso, Jenny Marinelli and Andrew Pegge. The Group Managing Director also attends the meetings of this Committee by invitation. The Committee is tasked with co-ordinating the investment portfolio of the Group and accordingly meets when investment and divestment proposals are to be put before the Board for consideration. While the Investment Committee may make recommendations to the Board, the Board retains ultimate decision making powers with respect to investment activities. All the Board members met during the reporting year for reviewing the capital structure of the Group and on several occasions thereafter to deliberate on the proposed acquisition of the minority shareholders’ stake in Sefalana Cash and Carry Limited by way of ‘Scheme of Arrangement’. This Scheme of Arrangement was completed in early September 2010. Remuneration Committee The Remuneration Committee comprises of three non-executive Directors, namely Andrew Pegge, Neo Moroka and Jenny Marinelli. The role of the Remuneration Committee is to ensure that the Group adopts and implements appropriate policies and procedures that provide the framework for remunerating its employees on a competitive and equitable basis and to set the Group’s grading and remuneration levels each year. The Remuneration Committee reports to the Board on its activities after every meeting held. The Remuneration Committee is required to meet at least once annually and it has met once during the year under review. The Group has established a formal and transparent procedure for developing policies on executive remuneration and for fixing the remuneration packages of individual Directors. No executive Director is involved in deciding his own remuneration. The Remuneration Committee consists exclusively of non-executive Directors who are independent of management and free from any business or other relationship which could materially interfere with the exercise of their independent judgment. Audit Committee The Audit Committee, which is chaired by Reginald Motswaiso, comprises three independent non-executive Directors. Other members of the Audit Committee at the financial year end were Elias Dewah and Jenny Marinelli. The Group Finance Director attends and reports at all meetings of the Audit Committee and the Group Managing Director and external auditors attend meetings by invitation. In executing its duties, the Audit Committee has unrestricted access to the Group’s financial and other records. The Audit Committee is required to meet at least thrice annually and it has met four times during the year under review. The Audit Committee has the following distinct responsibilities: • •

to direct internal assurance planning and programme execution, to deliver risk identification, monitoring and mitigation; to oversee that management has established effective systems of internal controls;

SEFALANA HOLDING COMPANY LIMITED Annual Report 2010

• • • • •

to report to the Board on the decisions taken, including approval of the annual financial statements; to make recommendations to the Board regarding the nomination of external auditors to be appointed by the shareholders; to discuss audit procedures, including the proposed scope and the results and findings of procedures performed by the external auditors; to ensure that the external auditors findings are adequately addressed; and to oversee the quality of the external audit.

The Audit Committee ensures that the independence of external auditors is maintained and that any consultancy or any work contracted with the auditing firm will not have a material impact on the auditors’ independence. The Audit Committee sets principles for recommending to the Board rotation and remuneration of auditors. Risk Management Committee The Risk Management Committee comprises three independent non-executive Directors and one executive Director. All the members of the Audit Committee are also members of the Risk Committee. The Group Managing Director is also a member of this Committee. The Board has overall responsibility for determining the strategic direction of the organisation and for creating the environment and the structures for risk management to operate effectively. The Risk Committee is tasked with managing these objectives. Sound corporate governance practice requires that the Company and Group adopt a methodical approach to risk management which: • • •

protects the interests of stakeholders; ensures that the Board of Directors discharges its duties to direct strategy, build value and monitor performance of the organisation; and ensures that management controls are in place and are performing adequately.

In the discharge of these responsibilities, the Risk Management Committee oversees management’s risk identification, mitigation and management processes. Internal Control The Company and Group maintain sound systems of internal control to safeguard the shareholders’ investment and the Company and Group’s assets. The Directors, as a Board and through its Committees, review the effectiveness of the Company and Group’s systems of internal control, which cover all controls including financial, operational and compliance controls and risk management, on a regular basis. The largest subsidiary of the Group, Sefalana Cash and Carry Limited, has established a strong internal audit function, with related whistle blowing hotlines and activities. In all other areas of the Group reliance is placed on head office review and control of subsidiary operations. During the financial year, the Board has reviewed the need for expansion of Sefcash functions to all areas within the Group, and concluded that the organic growth of the Group has required the establishment of a specialised internal audit function which can serve all business units throughout the Group. The establishment of this function will be monitored by the Audit and Risk Committees during the ensuing financial year. Nonetheless, the Board remains of the view that sufficient attention was brought to bear on the systems and controls of the Company and Group over the year to 30 April 2010.

SEFALANA HOLDING COMPANY LIMITED Annual Report 2010

Organisational Integrity The Group endeavours at all times to exercise best practice in all its dealings. Senior management constantly monitor the ethical behaviour and integrity in all of the operations of the Group. In turn, senior management are subject to the scrutiny of the Board and the high standards required of them by their professional governing bodies. Senior management has an open-door policy with employees. Regular meetings with worker representatives are held without resident management present, providing opportunities for employees to report perceived lapses in integrity. With the exception of some insignificant instances of fraud and theft perpetrated by staff below management level at some cash and carry outlets, no instances of unethical behaviour were pursued during the financial period under review. The internal whistle blowing function which operated only at Sefalana Cash and Carry Limited during earlier periods has now been extended to all subsidiary companies, and is expected to further contribute to the high level of ethics and integrity in the Group’s business conduct. Dealings and Securities The Group has closed periods whereby Directors, senior management and their families and other relevant related parties may not trade in the Company’s shares. Formally, these periods comprise the period commencing from the week before the end of a half or full financial year, and ends when the relevant period’s results are publicly announced. Additionally, when the Board members believe that they or senior management are privy to information that is price sensitive regarding current activities of the Company, they are precluded from dealing in the Company’s securities. Company Secretary The Company Secretary is knowledgeable in matters that should be addressed by the members of the Board so as to discharge their duties appropriately. The Company Secretary advises members of the Board in this regard. The Company Secretary is also a member of the Board but seeks guidance where necessary from the Chairman of the Audit Committee regarding his duties.

SEFALANA HOLDING COMPANY LIMITED Annual Report 2010

Moagi Buzwani Operations Director, Sefcash When asked when I started working for the Sefalana Group, my answer almost always is that my career with Sefalana started before I was an actual employee of the Company. As a student enrolled in the B Com Management degree at the University of Botswana I had chosen to do my final year project on Sefalana. As would be expected, I was required to visit the Company premises, talk to the relevant parties and obtain a thorough top-down understanding of its core processes, its philosophy as well as its proud business tradition. Once I graduated it was simply natural progression that steered my path back to Sefalanaâ&#x20AC;&#x2122;s doors with my CV in hand. I was fortunate to be appointed as a Trainee Manager with the Cash & Carry in tandem with my enrollment in their Management Training Programme. Although my B. Com degree background had taught me a lot about the theory of business, the Management Training Programme opened my eyes to â&#x20AC;&#x153;real world managementâ&#x20AC;?, showing me the practical side of things. The Programme augmented my knowledge in the practicalities and skills needed to manage a business. It starts the trainee off at the most basic functions of the business ensuring that our managers understand and appreciate all aspects of the operations, both big and small. You start at the bottom and make your way up through all the relevant departments; a process based on our belief that nobody should be instructing someone to do something that they have not done themselves. This stage thus involved me in all the processes of receiving and then buying, onto branch administration, point of sale and finally into full-time management. I was appointed Assistant Manager in Francistown then moved to Maun the same year. My first appointment as full branch manager was in Jwaneng 1998. I therefore moved to other branches in the country which consequently resulted in senior management appointments as Regional Manager & General Manager during which time I attended Sefalana sponsored training in the BOTA-accredited Senior Development Management Programme at the University of Stellenbosch. This lead me to my present position as Operations Director, a post I acceded to in 2009.

SEFALANA HOLDING COMPANY LIMITED Annual Report 2010

The post of Operations Director offers a fairly challenging set of responsibilities, made no easier by the fact that I stepped into the post at a time when the national economy was suffering from the effects of the global economic slowdown. I oversee a total complement of over 700 staff in 24 stores across the country â&#x20AC;&#x201C; providing strategic direction and assisting them in their operations and training of store managers in becoming more efficient in what they do, as well as ensuring that all stores adhere to pre-set systems and procedures. I interact with the Regional General Managers, Branch Managers and Assistant Managers on a daily basis. When visiting stores, I set up separate meeting sessions with Branch Managers and Assistant Manager as well as the Team Leaders. This gives me a more case-specific method of dealing with their performance and concerns. I am also in daily contact with the Retail and Development Executive for updates on all marketing and retail functions of the Company. A huge element of the job is spent on the ground and in the stores observing operations and in the development of each store and its people. I spend more time on the ground than I do in the office, simply because I believe that the interaction with the managers, staff and more importantly, our customers is what makes an ordinary business a successful one. You have to know the customer and never lose touch with them; indeed, we encourage every one of our workers to know their customers - a successful business is ultimately driven by its customers. Challenges The recession was a significant challenge; there is no doubt that the slowdown in the economy has adversely affected consumer demand. We have seen a shift in consumption with the average man and woman in the street buying more basic foodstuffs as opposed to luxury items which has put strain on margins; with all of this we are very proud that we have been able to report trading held on a par to that of the exceptional previous year. It is with regret that we had to close our Ghanzi branch during the year. This followed long and protracted discussions over many years, with the Ghanzi District Council regarding anomalies in our trading licence and the land zoning.

Moagi Buzwani Operations Director, Sefcash

SEFALANA HOLDING COMPANY LIMITED Annual Report 2010

We were unable to achieve a resolution to the dispute and the cost of converting the branch into a vehicle that suited the District Council was uneconomical. I believe the decision is regrettable but unavoidable on our behalf and has resulted in residents of Ghanzi not only short of a shopping option, but actually now having to travel far afield (as far as Maun and Charles Hill) for the goods that were readily available to them on their doorstep before the store closed. It is interesting to note that our Charles Hill store is indeed receiving increased business from travelling Ghanzi residents. Successes This industry is a highly competitive one and operating within it and still being able to produce profitable results is a significant success in itself. Following extensive research, our Mahalapye branch, a traditional cash and carry was converted, to the Hyper store model. The conversion was smooth and the decision is being rewarded with steady growth from this shop, an enhanced shopping environment and generally improved performance. Encouraged by the success of the Mahalapye branch, we have also began to apply this model to our Serowe branch, converting it to a hybrid of both the traditional cash and carry and the Hyper models, with more emphasis on general merchandise.

We are engaged in numerous charitable causes with various organizations across the country. We provide the Thamaga Orphanage with monthly food rations, as we do the Serowe Development Trust. In Gaborone, we assist the Baylor Childrenâ&#x20AC;&#x2122;s Clinic with regular financial donations. This is a hard-working non-governmental rehabilitation clinic that caters solely for the care of children. Also, in a combined effort with our Banner members, we make a substantial cash donation to a charity nominated by our Banner members every year. Last year, a good fortune to the tune of P80, 000 in total befell The Lephoi Centre in Francistown. For many years we have supported the Masiela Trust, with the ultimate goal of bringing the trust into a position whereby it was self sustainable; sufficiently established and able to source its own funding. I am very pleased to announce that this vision has been realised and the Trust is performing well. Prospects I strongly believe that the re-engineering of our wholesale business model is imperative to satisfying our customer needs and sustaining our market share in the long-term. This is especially important considering that the wholesale industry as a whole has little room for expansion in this country and has to face new legislation that places restrictions on our trading terms and conditions.

Our wholesaling model is a dynamic one and is constantly under review. We are very alert to industry developments throughout the region and the world and are continually absorbing the best proven practices and business strategies. In this regard, we expect to see some of our bigger wholesalers adapt in the next 18 months to suit the demands of the customer.

New legislation now determines that the minimum size of a wholesale business to 1500m2; a size we consider to be unnecessarily large for the smaller destinations around the country and which is unlikely to be cost effective. In light of this, the Sefalana Group has focused its continued support of these smaller communities with the shift of our Cash & Carry outlets towards our Hyper model, as well as the development of our retail Shoppers chain.

Community Involvement I have always believed that no act of kindness, no matter how small, is ever wasted. This is one of the countless reasons I am so proud to be a part of the Sefalana Group; assisting the needy and less disadvantaged of the community has always been an integral element of this Companyâ&#x20AC;&#x2122;s great tradition and history.

It is this resolve of the company to continually put the man and woman in the street first and its business objectives second. I have never regretted a single moment of my entire working career here at Sefalana. I have enjoyed the experience immensely and look forward to the challenges to come.

SEFALANA HOLDING COMPANY LIMITED Annual Report 2010

Godfrey Ndwapi Risk Management Director, Sefcash While listening to Godfrey Ndwapi speak about his almost 20 year journey through the Sefalana Cash and Carry (Sefcash) internal structures, it is almost impossible not to be captivated by his obvious passion and enthusiasm for both the company and his role. He reflects proudly on his steady rise through the ranks in the company’s Audit and Loss Control department which he joined as Internal Auditor. Godfrey is living testament to the Sefalana Group’s commitment of identifying, grooming and nurturing employees and giving them the opportunity to realise their potential. As the Sefcash Risk Director, Godfrey is tasked with overseeing the Internal Audit and Loss Control departments at Sefcash. He is ably assisted by three Internal Auditors and two Loss Control Managers based at the Sefcash Head Office as well as a further two Loss Control Managers based at the Francistown and Gaborone Hyperstores. Godfrey and his team are responsible for ensuring minimal losses occur in the company’s various operations, investigating all cases of suspected and alleged corruption, fraud and misappropriations as well as ensuring that any necessary disciplinary or legal action taken is carried out in an even-handed manner. He also ensures that good Corporate Governance is adhered to at all times and is responsible for the preparation of exception reports for the Board as well as the company’s external auditors. Godfrey also sits on the Sefcash Audit and Risk Committees in the capacity of Committee Secretary which places him at the forefront of some of the company’s core Corporate Governance functions. Sefcash’s philosophy is to place its customers and staff at the forefront, safeguarding against all forms of corruption or loss that may occur. This has seen the formation of Shrinkage Committees in all Sefcash stores - these committees act as the custodians of the systems and procedures in the stores. The Shrinkage Committees hold monthly meetings and minutes from these meetings are then forwarded to Godfrey. In addition to these committees a 24 hour tip-off Hotline has been set up to allow the company’s staff and the general public to anonymously report any suspicious activity or corrupt practice. Godfrey is quick to point out that all tip-offs are investigated thoroughly because there is a need to substantiate all allegations and to ensure that individuals are not being unduly maligned.

Godfrey Ndwapi Risk Management Director, Sefcash

SEFALANA HOLDING COMPANY LIMITED Annual Report 2010

Sefcash is a highly computerized organization and it is important that his department is equipped with the necessary technologies required to respond to the demands and challenges expected of effective corporate governance. In order to address this a decision was recently taken to purchase and develop Computer Assisted Auditing Techniques (CAATs) software to enhance the company’s ability to test for and identify specific risk. CAATs will also assist in helping to identify anomalies when large volumes of data are being processed. Sefcash’s involvement in the various local communities in which it operates is something Godfrey holds very close to his heart. He recounts a few occasions in the past where tip-offs from the community have led to the prevention of significant stock losses to the company. Several of the branch managers are actively engaged in community Crime Prevention Committees, attending monthly meetings and Kgotla gatherings, sharing their expertise and sensitising the public on how best to combat petty crime. A few of the managers are so involved in these committees that they have been appointed as secretaries and in some cases, actually Chair their committees. Godfrey speaks of his department’s commitment to maintaining the very highest standards in Corporate Governance and assurance with unwavering passion. He uses his own steady progression through the Sefcash ranks as motivation for his staff to continually develop themselves through the various training opportunities afforded to them by the company. He sees his role as key in maintaining the sustainability of the company’s performance and ensuring that shareholders enjoy the best return possible on their investment.

SEFALANA HOLDING COMPANY LIMITED Annual Report 2010

Oteng Yezo HR Director, Sefcash It goes without saying that an organisation’s staff plays a major role in its success - or lack thereof. At Sefcash and indeed, across the entire Sefalana Group we are extremely conscious of this and make every effort possible to ensure that our human resources are adequately trained, developed, motivated and rewarded. At the helm of Sefcash’s Human Resources (HR) department is Oteng Yezo, HR Director, and he personifies the organization’s attitude towards human resources. In his role as the HR Director, Oteng is responsible for the company’s human resources development, industrial relations, compensation as well as the pension scheme in his capacity as the principal officer of the scheme. OT, as he is affectionately called by his colleagues, sees his biggest role as that of ensuring that the general welfare of the company’s employees is taken care of. OT emphasizes that the dedication of the Sefcash Senior Management to training and human resources development is second to none and that training and human resources development is a priority throughout the organization. The training and development of Sefcash’s employees is extremely broad and extensive. OT considers this to be the core function of his department’s commitment to obtaining the HR targets that have been set as part of Sefcash’s six year Operational Strategy (2009 – 2015). The institution of the Sefcash internship program is in response to the Government’s call for companies operating in the private sector to assist them in preparing school leavers and graduates for the job market. The internship program is an intensive two year program involving theoretical as well as practical training. Sefcash has always prided itself with producing first class managers and OT is passionate about maintaining this reputation. In an attempt to continuously improve the quality of management across the Sefcash operations two Management Development Programmes have been developed for managers in conjunction with the University of Stellenbosch in South Africa. The first programme offered is a management development for Branch Managers and middle management and the second is a Senior Management Development programme.

Oteng Yezo HR Director, Sefcash

SEFALANA HOLDING COMPANY LIMITED Annual Report 2010

Currently, three managers are enrolled in the Management Development programme, with two of the company’s senior managers commencing the Senior Management Development in August this year. To date, four of the company’s managers have successfully completed the Management Development programme. Sefcash managers, who grew through the ranks and do not possess tertiary qualifications, are enrolled in a Certificate in Management Development, conducted by Maccauvlei Learning Academy in South Africa. This management development programme is based on four study school sittings spread over a period of a year. All our Branch Trainers undergo Facilitation Skills Training, also through Maccauvlei Learning Academy in South Africa. There is a strong emphasis on on-the-job training at Sefcash and the Branch Trainers play an important role in ensuring that good quality instruction is given to staff that are training on the job. Competence Certificates are issued to employees that prove to be proficient in the various areas of their jobs once they have gained the necessary on-the-job experience. Health and safety training is also a key area for OT and his department and they oversee a First Aid training programme. Two individuals in each of the stores in the Sefcash operation are selected to undergo this programme, which is conducted by Rescue One. In addition to the first aid training, the two individuals selected also undergo basic fire fighting skills training. It is important to note that all training and development programmes are duly accredited with BOTA and relevant institutions outside Botswana. Industrial Relations - Sefcash is a unionised organisation; the union represents the interests of the employees and is active in the negotiation of salaries and conditions of service. OT is very proud of the harmonious working relationship that exists between Sefcash’s management and the union and he credits the various agreements and structures that have been set in place with fostering this environment.

Out of Sefcash’s 1227 employees, only 14 are noncitizens and OT points out that this is largely due to Sefcash’s successful training and localisation program. This programme has been approved by the Labour Commissioner in the Department of Labour and Social Security and is continuously under review. Succession Planning is a key focus area of the localization and training development strategy and as such each of the positions within the company that are currently held by non-citizens are understudied by two citizens that have demonstrated high potential in their role within the Sefcash operation. From a social point of view, OT and his department have implemented a staff wellness programme. The focus of the wellness programme is to educate staff on various health and wellness issues that affect them in their day-to-day lives. OT’s department is responsible for the content of the wellness messages and it puts out a biweekly message to all staff. The wellness program is now in its second year and OT has enlisted the help of a local General Practitioner to assist him and his team with new and relevant health messages. In his capacity as the principal officer of the company’s pension scheme OT recently embarked on a nationwide educational campaign, alongside the company’s pension administrator to educate the company’s staff on matters pertaining to their pensions. The reason for the campaign was to further explain the strategic decision that has been taken to amalgamate the Sefcash employee’s pension fund with that of the Holding Company. OT and his colleagues in the HR Department are extremely passionate about the various roles they have been entrusted in the company. Judging from the number of smiling faces and the amount of passion for the company that can be witnessed wherever you look within the Sefcash family, OT is well on his way to achieving this.

SEFALANA HOLDING COMPANY LIMITED Annual Report 2010

One of our major goals is to create a distinct customer environment that is identical across the entire operation. In order to achieve this, we have created a standard Shoppers look and feel for all our stores. A significant capital outlay has been invested in the upgrade and establishment of first class premises, fully equipped with the latest in fixtures and fittings. Each store will have two state of the art service departments– the bakery and home meal replacement departments; these two departments have proven themselves to be just what the customer wants and we are very proud of our quality and value of our products. Shoppers have undertaken an extensive staff training program to bring our staff up to speed on the business systems and processes. Key to the training of new staff has been an introduction to the company’s organizational culture, based on the Sefcash model. We are extremely confident, and proud, of our training program and the quality of the store manager that it produces. All Shoppers managers are put through a Botswana Training Authority (BOTA) accredited training program and are required to pass a series of competency tests before they are confirmed as Store Managers. Managers at Shoppers are trained to take ownership of their stock and they are empowered to ensure that they are able to meet their customers’ needs. All across the Sefalana Group, we strive to place the welfare of our customers at the forefront of the business and the Shoppers operation is not any different. Wherever possible, we look to make our offering as affordable as we can for the consumer. This year we have attempted to pass on the savings we have made to our customers. One of the most endearing examples of Shoppers’ determination to make shopping more affordable was the rousing reception we received upon the opening of our Tsabong store. The local community could hardly contain their excitement upon discovering that a loaf of bread that they had previously purchased for P 11.95 is now available at Shoppers for P 4.95. In addition to continually striving to provide the utmost value for their customers, Shoppers has taken an active interest in the communities in which we are involved.

SEFALANA HOLDING COMPANY LIMITED Annual Report 2010

Shoppers stores have adopted underprivileged individuals in each of the areas that they operate in and assist these individuals with regular hampers. Shoppers are also involved with numerous other charitable causes. It goes without saying that the establishment of the Shoppers operation has been the subject of massive capital expenditure; the acquisition of and development of new premises, hiring and training of new staff as well as the setting up of the necessary operational systems and infrastructure all represent significant investment. We believe that we are now in a strong position to begin reaping the rewards of the development of our retail operations and look forward to the future with extreme optimism. Shoppers is there to provide real value for real people.

We strive to place the welfare of our customers at the forefront of the business and the Shoppers operation is not any different.

SEFALANA HOLDING COMPANY LIMITED Annual Report 2010

COMMERCIAL MOTORS As the official franchised representation for MAN, HONDA and TATA in Botswana, Commercial Motors is an integral and important component of the Sefalana Group.

SEFALANA HOLDING COMPANY LIMITED Annual Report 2010

As the official franchised representation for MAN, HONDA and TATA in Botswana, Commercial Motors (CML) is an integral and important component of the Sefalana Group. This automotive division came into the Sefalana Group in 2006 and has successfully evolved from a family-owned business to a dynamic corporate entity, contributing to the Groupâ&#x20AC;&#x2122;s growth and well-being through the sales of trucks, buses, automobiles and motorcycles, after-sales service maintenance and spare parts for the brands it represents on a national scale to government, private sector and the public. In the face of the global recession, this financial year has seen the company consolidate its position. Trading for the year was down on 2009, a pattern that is prevalent across the industry, largely as a result of significantly reduced Government business. It has also been a period of essential re-structuring to meet international standards demanded by principal licensors as well as to enable continued progress for CML in its commitment to the Botswana market; to consistently offer the highest levels of service and superior products. The HONDA and MAN operations have moved to new, state-ofthe-art facilities in Broadhurst. The multi-million Pula complex houses dedicated workshops, showrooms and a sizeable Parts warehouse where some P 5 million worth of spares are stored to support sales and offer customers prompt and efficient service. TATAâ&#x20AC;&#x2122;s imminent move to fully refurbished premises in Broadhurst is also expected to boost this operation and bodes well for growth and expansion for this brand. The most significant milestone in the history of Commercial Motors, following from the massive infrastructure development described is the supply of a fleet of 208 MAN Military vehicles to the Botswana Defence Force commencing September 2010. The automotive sector is complex and highly competitive, hard hit by the global recession but the platforms that have been secured for CML serve to secure stability for the immediate period. Moderate growth is projected for the 2010/11 financial year. In the medium to long-term, the group looks forward to a robust performance.

SEFALANA HOLDING COMPANY LIMITED Annual Report 2010

Strong opportunities for market development exist in Botswana for Honda motorcycles in diverse sectors of the economy – some yet unexplored but firmly placed in our future plans. The heightened awareness of both environmental conservation principles and business (triple) bottom line deliverables are now linked to stated business and commercial objectives. Among other fuel emissions controls on the one hand and economic aspects in terms of budgetary restraints accorded by the recent recession on the other hand are both well supported by the fuel efficiency and mobility of our bikes. In the restructuring programme we have given priority to skilling-up programmes for the staff, alongside selective acquisition of skills. With this in mind, the company has also invested in the latest equipment for the new HONDA motorbike workshop. We anticipate growth for the motorcycle industry in both the mining and agricultural sectors and perceive this to clearly provide opportunities we intend to take full advantage of. The Honda automobile is a favorite in Botswana – a household name. Honda is renowned the world over for perfecting the ultimate “driver’s car”. The brand holds sacred engineering principles that provide the highest levels of driver and passenger safety, durability, reliability and economy. The range caters for every need, every age, and every possible passenger car application in terms of lifestyle requirements and spans across from the compact Jazz, the funky Civic and elegant Accord to the rugged CRV. Comfort, spaciousness, excellent interior specification and equipment coupled to world class performance from engines that have stood the test of time are fundamental characteristics that set HONDA vehicles apart from the rest. The broad appeal for Honda in Botswana pays testimony to this.

SEFALANA HOLDING COMPANY LIMITED Annual Report 2010

Currently, Honda’s highest selling vehicle is the CRV. Originally niched for the executive market, the SUV is proving increasingly popular with young families looking for a safe, comfortable and reliable vehicle. With Honda there is no compromise, at the entry level, the interior space and levels of comfort in the very popular and spritely 1.5lt Jazz are legendary and it is backed by a highly competitive warranty and service plan. This vehicle is an intelligent option for the individual buyer and a great asset in the company fleet; representing good opportunities for growth in sales in the near future. The advent of the world’s first sports hybrid is the most recent world accolade for Honda. The new CR-Z hybrid has already captured the heart of the people and for very good reasons. The CR-Z represents innovation at its best, a fantastic vehicle with a futuristic design and pioneering cutting edge technology that will leave its competitor standing on both performance and good looks. This year, Honda has chocked-up two very important accolades, winning Best Sedan category with the Honda Civic in the Women’s Car of the Year (WOW) competition. The Best Green Car prize was awarded to the new Honda CR –Z. There is a famous time-tested quality to Honda vehicles all over the world that every proud owner knows …this is the ultimate family car; nobody sells on a Honda, you pass it down the family, because these cars just keep going. With our new world class Honda service facility in Gaborone, staffed by highly trained specialized technicians, it is very much a tradition we intend to nurture.

SEFALANA HOLDING COMPANY LIMITED Annual Report 2010

TATA is an interesting vehicle range. Its ability and capacity is on par or superior to competitor models that cost more than double in price. The brand continues to make good in-roads in the market place. For example; the TATA LTP1518 â&#x20AC;&#x201C; 8 ton truck is the biggest seller in the Heavy Commercial Vehicle category in the SACU region. In a recent study done here it was found that the LTP1518 offers the best return on investment in its segment based on significantly lower operating costs including price, fuel consumption, and cost of repairs among other important factors. The findings clearly ratify the number one seller position making TATA vehicles a sound business investment option when it comes to the company fleet or indeed your own personal vehicle. Going forward, TATA Botswana anticipates huge opportunities for growth in the pick-up to extra heavy duty truck range. The top end 20 tonner TATA NOVUS (made in Korea) in particular is growing in popularity here in Botswana and has proven itself as the flagship TATA heavy duty vehicle. The NOVUS is a very strong competitor to the much-more-expensive Japanese, Scandinavian and other German competitor models of varying capacities. TATA is still in its fledgling stage in Botswana. The move to upgraded new premises is poised to spearhead exciting growth for this brand.

SEFALANA HOLDING COMPANY LIMITED Annual Report 2010

This year the company has achieved a pleasing, albeit reduced, result; last year’s results were exceptional with the award of a significant element of Government’s initiative in the re-mechanising of the agricultural sector. Government cost cutting measures have allowed us fewer opportunities to repeat the successes of the previous reporting period. That said we have seen the revival of our spares and service relationship with Botswana Railways, largely due to their decision not to purchase new locomotives but instead to rebuild their existing fleet. Their decision to rebuild instead of purchasing new rolling stock, coupled with the pending renewal of our General Motors distributor’s license puts Mechanised Farming in pole position for the Botswana Railways’ spares and service business. The reduction in Government spending has indeed had a negative impact on our business but we have used the reduction in business to take a good look at ourselves, our products and our internal systems. We have always prided ourselves on representing leading brands and, whilst this has worked well for us from a sales perspective, we have come under increasing pressure from inferior brands sold at lower prices by our competitors largely due to increased short term price sensitivity amongst some buyers. Plans are in place to review our overall product offering to ensure that we continue to have the correct basket to best service our market.

SEFALANA HOLDING COMPANY LIMITED Annual Report 2010

As part of the ongoing introspective process, we have realised a need to extend our market presence beyond the confines of our current trading location in Gaborone. To this end we are considering appointing sub-dealers to represent us throughout Botswana The relocation of the TATA Motors showroom to the former Commercial Motors showroom has freed up additional space and we are planning a total refurbishment and remodeling of our showroom premises. This coupled with our considered determination to boost our marketing efforts is intended to revitalise the company. Finally, we would like to introduce Kumardew Bijayant Kumar, affectionately known to us as “Budjix”, who is the new Managing Director of Mechanised Farming. He joined us in March 2010 and has been tasked with taking the reengineering of our business processes to our Board. We look forward to the year ahead with the confidence that Mechanised Farming is well on its way to reclaim its rightful place as the engine that drives our nation’s development.

SEFALANA HOLDING COMPANY LIMITED Annual Report 2010

the feel of a small company; an intended approach that ensures the client receives the best and most personalised service possible. It is a stark testament to our hard work and success in ensuring client satisfaction that we can proudly state that, we have not lost any of our original nor current clients to our competitors. Our clients have grown with us; we know them personally and we are as much a part of their lives as they are a part of ours. The client feels at home here, and that is an achievement that speaks volumes about Vintageâ&#x20AC;&#x2122;s reliability, trustworthiness and quality service capabilities. Vintage reported slightly lower profits this year. Many of the airlines with which we deal have reduced their fares and we have been able to pass these savings onto our clients; as our earnings are based on total revenues the reduction of fares naturally reduces our income. Vintage does, however, continue to be a good earner of revenue.

Vintage believes in giving back to the community of which it is so indelibly a part. Through our network, we facilitate many charitable donations. Our managing director, Anand, serves on the Board of the Cheshire Foundation and, using his knowledge and contacts within the business community, is very active in procuring preferential deals for the Foundation and securing the employment of the physically handicapped in various companies around the country. Our standing with IATA remains exceptionally good and our accomplishments are regularly complimented with awards from international and flagship carriers, the most recent being the #1 Travel Consultancy in Africa in Sales and Services for both Etihad and Emirates; these are repeat awards that we are very proud of, but, as glamorous and symbolic as the numerous awards may be, they will always be a bonus to the mission we hold closer to our heart - that of getting our client to and from their destination in the only way we know best. Safely, soundly and swiftly.

SEFALANA HOLDING COMPANY LIMITED Annual Report 2010

Reformulating the Recipe for Success The year under review has been an extremely challenging one. The ingredients that constituted Kgalagadi Soap Industries successful performance last year changed significantly and this, coupled with our considered determination to reformulate and improve our products, has contributed to KSI reporting a loss. The principle contributor to the deterioration in KSIâ&#x20AC;&#x2122;s financial performance is the loss of our market for laundry soap in Zimbabwe. Up to the middle of last year, KSI was selling large quantities of laundry soap into the Zimbabwe market but this market has disappeared with the improvement and dollarisation of the Zimbabwe economy. The Zimbabwe market is currently supplied with a number of established Zimbabwean and South African competitor products that enjoy greater brand loyalty and, due to their locality and volumes, are able to reach the market at extremely low prices that we cannot meet.

SEFALANA HOLDING COMPANY LIMITED Annual Report 2010

2010 Annual Financial Statements

SEFALANA HOLDING COMPANY LIMITED Annual Report 2010

2010 Annual Financial Statements Contents Statement of Directors’ Responsibility

Independent Auditor’s Report

Statement of Comprehensive Income

Statement of Financial Position

Statement of Changes in Equity

Statement of Cashflows

Notes to the Financial Statements

SEFALANA HOLDING COMPANY LIMITED Annual Report 2010

Independent Auditors Report to the Members of Sefalana Holding Company Limited Report on the Financial Statements We have audited the group annual financial statements and annual financial statements of Sefalana Holding Company Limited, which comprise the consolidated and separate statement of financial position as at 30 April 2010, the consolidated and separate statements of comprehensive income, changes in equity and cash flows for the year then ended, and a summary of significant accounting policies and other explanatory notes as set out on pages 85 to 139. Directors’ Responsibility for the Financial Statements The company’s directors are responsible for the preparation and fair presentation of these financial statements in accordance with International Financial Reporting Standards and in compliance with the Botswana Companies Act, 2003. This responsibility includes: designing, implementing and maintaining internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances. Auditor’s Responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal controls relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion the financial statements present fairly, in all material respects, the consolidated and separate financial position of Sefalana Holding Company Limited as at 30 April 2010, and its consolidated and separate financial performance and its consolidated and separate cash flows for the year then ended in accordance with International Financial Reporting Standards.

Certified Public Accountants

Gaborone 31 August 2010

SEFALANA HOLDING COMPANY LIMITED Annual Report 2010

Statement of Comprehensive Income for the year ended 30 April 2010 GROUP Notes

CONTINUING OPERATIONS Revenue Cost of sales Gross profit Investment revenue Other gains Administration expenses Finance costs Profit before share of loss from associate Share of loss from associate Profit before tax Income tax expense Profit for the year from continuing operations DISCONTINUED OPERATION Share of loss from discontinued operations Profit for the year

7 8 9 17 10 11

OTHER COMPREHENSIVE INCOME Currency translation difference Net gain on property revaluation surplus Taxation related to net gain on property revaluation surplus Other comprehensive income for the year TOTAL COMPREHENSIVE INCOME PROFIT AFTER TAX ATTRIBUTABLE TO: Equity holders of the parent Minority interest

TOTAL COMPREHENSIVE INCOME ATTRIBUTABLE TO: Equity holders of the parent Minority interest

2010 P’000

COMPANY 2009 P’000

TOTAL COMPREHENSIVE INCOME PER SHARE (THEBE)

2009 P’000

34 502 311 (1 698) (5 338) 27 777

22 039 472 (1 303 ) (8 676 ) 12 532

27 777 (2 313) 25 464

12 532 (2 436 ) 10 096

1 709 950 (1 563 954 ) 145 996 6 067 22 069 (69 167 ) (11 199 ) 93 766 (464 ) 93 302 (21 064 ) 72 238

1 875 500 (1 703 116 ) 172 384 7 317 695 (66 604 ) (13 295 ) 100 497 (274 ) 100 223 (25 253 ) 74 970

(3 372 ) 68 866

(2 395 ) 72 575

25 464

10 096

17 13 466 (3 367 ) 10 116 78 982

72 575

25 464

10 096

56 968 11 898 68 866

56 887 15 688 72 575

25 464

10 096

25 464

10 096

63 789 15 193 78 982

56 887 15 688 72 575

25 464

10 096

25 464

10 096

Earnings per share from continuing and discontinued operations attributable to the equity holders of the Company during the year: BASIC EARNINGS PER SHARE (THEBE) From continuing operations From discontinued operations

2010 P’000

36.01 (1.62 ) 34.39 38.51

35.49 (1.15 ) 34.34 34.34

SEFALANA HOLDING COMPANY LIMITED Annual Report 2010

Statement of Financial Position 30 April 2010

ASSETS NON-CURRENT ASSETS Property, plant and equipment Investment property Intangible assets Investment in associates Property development loan Deferred lease assets Deferred tax assets Investment in subsidiaries Amounts due from related parties Total non-current assets CURRENT ASSETS Inventories Trade and other receivables Amounts due from related parties Current tax assets Cash and cash equivalents Assets of disposal group classified as held for sale Total current assets

GROUP Notes

2010 P’000

2009 P’000

2010 P’000

14 15 16 17 18 19 10 20 23

180 921 57 829 28 681 3 089 972 1 400 12 402

161 701 39 968 28 290 7 510 1 105 916 11 770

285 294

251 260

199 123 121 896

190 560 92 077

2 998 146 399 470 416 3 331 473 747

21 22 23 10 24 25

TOTAL ASSETS EQUITY AND LIABILITIES EQUITY Stated capital Reserves Retained earnings Equity attributable to equity holders of the parent Minority interest Total equity

26 26

NON-CURRENT LIABILITIES Finance lease obligations Deferred lease obligations Long term borrowings Deferred tax liabilities Total non-current liabilities

27 28 29 10

CURRENT LIABILITIES Trade and other payables Amounts due to related parties Finance lease obligations Current portion of long term borrowings Current tax liabilities Bank overdrafts Provisions Total current liabilities

30 23 27 29 10 33 34

Total liabilities TOTAL EQUITY AND LIABILITIES

COMPANY 2009 P’000

893 66 117 17 008 84 047

368 66 116 2 050 68 534

1 548 143 299 427 484

138 23 687 1 248 23 25 096

232 77 565 823 189 78 809

427 484

25 096

78 809

759 041

678 744

109 143

147 343

14 612 30 571 212 900 258 083 54 162 312 245

14 612 24 454 187 821 226 887 46 445 273 332

14 612

45 239 59 851

52 905 67 517

59 851

67 517

15 230 853 13 565 27 603 57 251

19 394 342 14 353 19 806 53 895

13 565

296 448

243 298

4 367 1 507 6 771 66 840 13 612 389 545

2 939 1 025 13 414 71 002 19 839 351 517

446 796 759 041

405 412 678 744

13 565

944 8 276

1 354 6 703

1 507 767 24 233

767 71 002

35 727

79 826

49 292 109 143

79 826 147 343

SEFALANA HOLDING COMPANY LIMITED Annual Report 2010

Statement of Changes in Equity For the year ended 30 April 2010

Notes Group At 1 May 2008 Profit for the year Transactions with owners: Dividends paid - 2008 final Acquisition of subsidiary At 30 April 2009 Profit for the year Other comprehensive income for the year: Revaluation of land and buildings Currency translation differences Other movements Transactions with owners: Dividends paid - 2009 final Acquisition of minority share At 30 April 2010

Company At 1 May 2008 Profit for the year Transactions with owners: Dividends paid - 2008 final At 30 April 2009 Profit for the year Transactions with owners: Dividends paid - 2009 final At 30 April 2010

Stated capital P’000

Reserves P’000

14 612

24 454

13 14 612

24 454

6 807 14 (704 ) 13

Retained earnings P’000

Attributable to equity holders of the parent P’000

Minority interest P’000

Total P’000

147 499 56 887

186 565 56 887

33 728 15 688

220 293 72 575

(16 565 )

(16 565)

187 821 56 968

226 887 56 968

(2 993 ) 22 46 445 11 898

(19 558 ) 22 273 332 68 866

3 292 3

828

6 807 14 124

10 099 17 124

(6 716 ) (760 ) 54 162

(39 846 ) (347 ) 312 245

(33 130 ) 413 212 900

14 612

30 571

Stated capital P’000

Retained earnings P’000

Total P’000

14 612

59 374 10 096

73 986 10 096

(16 565 ) 52 905 25 464

(16 565 ) 67 517 25 464

(33 130 ) 45 239

(33 130 ) 59 851

14 612

(33 130) 413 258 083

SEFALANA HOLDING COMPANY LIMITED Annual Report 2010

Statement of Cashflows for the year ended 30 April 2010

GROUP Notes

CASH FLOWS IN OPERATING ACTIVITIES Profit for the year Income tax expense Finance costs Investment revenue Surplus on disposal of investment property Change in fair value of investment property Net effect on straight line adjustment Currency translation difference Impairment of property, plant and equipment Gain on disposal of property, plant and equipment Amortisation of intangible assets Depreciation of property, plant and equipment Operating profit / (loss) before working capital changes Movements in working capital: trade and other receivables inventories provisions, trade and other payables balances with related parties Cash generated from operations Interest on loans and finance leases paid Income taxes paid Net cash generated / (utilised) by operating activities

10 9 7 8 8

8 16 14

COMPANY

2010 P’000

2009 P’000

2010 P’000

2009 P’000

68 866 21 064 11 199 (6 067 ) (1 250 ) (13 520 ) 27 17 1 674 (185 ) 2 904 14 426 99 155

72 575 25 253 13 295 (7 317 )

25 464 2 313 5 338 (34 502 )

10 096 2 436 8 676 (22 039 )

(344 ) 2 861 12 208 118 146

(1 387 )

(831 )

(28 925 ) (8 563 ) 46 922

1 060 (20 250 ) 49 290

108 589 (11 199 ) (24 231 ) 73 159

148 246 (13 295 ) (18 915 ) 116 036

732 (1 117 )

(173 )

(410 ) 40 493 38 790 (5 338 ) (3 263 ) 30 189

359 (24 363 ) (25 008 ) (8 676 ) (2 658 ) (36 342 )

4 425 30 077

8 035 14 004

CASH FLOWS IN INVESTING ACTIVITIES Interest received Dividends received from subsidiaries Purchase of computer software rights and goodwill Purchase of property, plant and equipment Additions to investment property Proceeds from disposal of property, plant and equipment Proceeds from disposal of investment property Receipts from loans advanced Additional investment in subsidiaries Net movement in investment in associates Net cash flows (utilised) / generated by investing activities

14 15

6 067

7 317

(4 298 ) (28 826 ) (65 ) 637 2 600 133 (347 ) 1 090 (23 009 )

(220 ) (36 254 ) (15 248 ) 1 316 115 22 (7 510 ) (50 462 )

(1 ) (29 ) 34 472

( 3 042 )

13 418

15 072

(33 130 ) (6 716 ) ( 42 888 )

(16 565 ) (2 993 ) (6 140 )

(33 130 )

(16 565 )

(18 058 )

(16 565 )

7 262 72 297 79 559

59 434 12 863 72 297

46 603 (70 813 ) (24 210 )

(30 991 ) (39 822 ) (70 813 )

(66 840 ) 146 399 79 559

(71 002 ) 143 299 72 297

(24 233 ) 23 (24 210 )

(71 002) 189 (70 813 )

(123 ) 21 916

CASH FLOWS IN FINANCING ACTIVITIES Movement in long term borrowings Cash dividends paid: to equity holders of the parent to minority interests Net cash flows in financing activities Net movement in cash and cash equivalents Cash and cash equivalents at beginning of year Cash and cash equivalents at end of year Represented by: Bank overdrafts Cash and cash equivalents

SEFALANA HOLDING COMPANY LIMITED Annual Report 2010

Notes to the Financial Statements for the year ended 30 April 2010 1

GENERAL INFORMATION Sefalana Holding Company Limited is a Company incorporated in the Republic of Botswana and listed on the Botswana Stock Exchange. The addresses of its registered office and principal places of business are disclosed in the introduction to the annual report. The principal activities of the Company and its subsidiaries (the Group) are described in the Company profiles. The consolidated Group’s and separate Company’s financial statements for the year ended 30 April 2010 were authorised for issue by the Board of Directors on 27 August 2010.

BASIS OF PREPARATION The financial statements are prepared in accordance with International Financial Reporting Standards (IFRS) and the Botswana Companies Act 2003. The financial statements are prepared under the historical cost convention except for the revaluation of certain non-current assets being land and buildings and investment property which are carried at fair value. The principal accounting policies applied in the preparation of these Group and Company financial statements are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated. The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the Group’s accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the consolidated and separate financial statements are disclosed in note 4. (a) Standards, amendments to published standards and interpretations effective on or after 1 May 2009 Standard/ Interpretation

Content

IAS 23

Borrowing costs

IAS 39

Amendments to IAS 39 and IFRS 7 – Reclassification of financial assets

IAS 40

Investment property (and consequential amendments to IAS 16)

Applicable for financial years beginning on/after 1 January 2009 1 July 2008 1 January 2009

IFRS 8

Operating segments

1 January 2009

IFRS 7

Improving disclosures about financial instruments

1 January 2009

IAS 1

Presentation of financial statements

1 January 2009

IFRIC 16

Hedges of a net investment in a foreign operation

1 October 2008

•

IAS 23 (amendment), ‘Borrowing costs’, requires an entity to capitalise borrowing costs directly attributable to the acquisition, construction or production of a qualifying asset (one that takes a substantial period of time to get ready for use or sale) as part of the cost of that asset. The option of immediately expensing those borrowing costs has been removed. IAS 23 (amendment) does not have an impact on the Group and Company financial statements in the current year, as there were no qualifying assets for the periods reported on.

•

IAS 39 and IFRS 7, ‘Reclassification of financial assets’ (amendment) permits an entity to reclassify non- derivative financial assets (other than those designated at fair value through income by the entity upon initial recognition) out of the fair value through income category in particular circumstances. The amendment also permits an entity to transfer from the available-for-sale category to the loans and receivables category a financial asset that would have met the definition of loans and receivables (if the financial asset had not been designated as available for sale), if the entity has the intention and ability to hold that financial asset for the foreseeable future. The amendment has no impact to the Group and Company financial statement reported on.

SEFALANA HOLDING COMPANY LIMITED Annual Report 2010

Notes to the Financial Statements for the year ended 30 April 2010 •

IAS 40 (amendment), ‘Investment property’ (and consequential amendments to IAS 16). The amendment is part of the IASB’s annual improvement project published in May 2008. Property that is under construction or development for future use as investment property is within the scope of IAS 40. Where the fair value model is applied, such property is measured at fair value. However, where fair value of investment property under construction is not reliably measurable, the property is measured at cost until the earlier of the date construction is completed or the date at which fair value becomes reliably measurable. There has been no impact on the Group and Company’s financial statements in the current year, as there were no properties under construction at the time of adoption of this amendment.

•

IFRS 8, ‘Operating segments’. IFRS 8 replaces IAS 14, ‘Segment reporting’, with its requirement to determine primary and secondary reporting segments. Under the requirements of the new standard, the Group’s external segment reporting will be based on the internal reporting to the Group Executive Board (in its function as the chief operating decision-maker), which makes decisions on the allocation of resources and assess the performance of the reportable segments. The Group adopted the requirements of IFRS 8 and modified disclosures in this regard.

•

IFRS 7, ‘Financial instruments – Disclosures’ (amendment), requires enhanced disclosures about fair value measurement and liquidity risk. The Group and Company adopted the amendment to IFRS 7 with effect from 1 January 2009. This requires disclosure of fair value measurements by level of the following fair value measurement hierarchy:

• •

•

Quoted prices (unadjusted) in active markets for identical assets or liabilities (Level 1); Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (that is, as prices) or indirectly (that is, derived from prices) (Level 2).; Inputs for the asset or liability that are not based on observable market data (that is, unobservable inputs) (Level 3).

The adoption of the amendment has no impact on the Group and Company. •

IAS 1 (revised), ‘Presentation of financial statements’, effective 1 January 2009. The revised standard prohibits the presentation of items of income and expenses (that is, ‘non-owner changes in equity’) in the statement of changes in equity, requiring ‘non-owner changes in equity’ to be presented separately from owner changes in equity in a statement of comprehensive income. As a result, the Group presents in the statement of changes in equity all owner changes in equity, whereas all non-owner changes in equity are presented in the statement of comprehensive income. Comparative information has been re-presented so that it also conforms with the revised standard. As the change in accounting policy only impacts presentation aspects, there is no impact on earnings per share.

SEFALANA HOLDING COMPANY LIMITED Annual Report 2010

Notes to the Financial Statements for the year ended 30 April 2010 (b) Standards, amendments to published standards and interpretations early adopted by the Group and Company In 2010, the Group and Company did not early adopt any new, revised or amended standards. (c) Standards and interpretations effective in 2010 but not relevant to the Group and Company’s operations Standard/ Interpretation

Content

Applicable for financial years beginning on/after

IAS 16

Property, plant and equipment (and consequential amendment to IAS 7)

1 January 2009

IAS 20

Accounting for government grants and disclosure of government assistance (amendment)

1 January 2009

IAS 29

Financial reporting in hyperinflationary economies

1 January 2009

IAS 31

Interests in joint ventures (and consequential amendments to IAS 32 and IFRS 7)

1 January 2009

IAS 32 and IAS 1

Puttable financial instruments and obligations arising on liquidation

1 January 2009

IAS 41

Agriculture

1 January 2009

IFRIC 13

Customer loyalty programmes

IFRIC 15

Agreements for the construction of real estate

1 July 2008 1 January 2009

(d) Standards, amendments and interpretations to existing standards that are not yet effective and have not been early adopted by the Group and Company The following standards and amendments to existing standards have been published and are mandatory for the Group’s accounting periods beginning on or after 1 May 2009 or later periods, but the Group and Company has not early adopted them. Standard/ Interpretation

Content

IAS 1

Presentation of financial statements (amendment)

IAS 24

Related party disclosures (amendment)

IAS 38

Intangible assets (amendment)

IAS 32

Classification of rights issues (amendment)

IFRS 5

Measurement of non-current assets (or disposal Groups) classified as held for sale (amendment)

IFRS 9

Financial instruments

IFRIC 17

Distribution of non-cash assets to owners

Applicable for financial years beginning on/after 1 July 2009 1 January 2011 1 July 2009 1 February 2010 1 July 2009 1 January 2013 1 July 2009

•

IAS 1 (amendment), ‘Presentation of financial statements’. The amendment is part of the IASB’s annual improvements project published in April 2009. The amendment provides clarification that the potential settlement of a liability by the issue of equity is not relevant to its classification as current or noncurrent. By amending the definition of current liability, the amendment permits a liability to be classified as non-current (provided that the entity has an unconditional right to defer settlement by transfer of cash or other assets for at least 12 months after the accounting period) notwithstanding the fact that the entity could be required by the counterparty to settle in shares at any time. The Group will apply IAS 1 (amendment) from 1 January 2010. It is not expected to have a material impact on the Group and Company’s financial statements.

•

IAS 24 (amendment) ‘Related party disclosures’. The amendment relaxes the disclosures of transactions between government related entities and clarifies related-party definition. The amendment is not expected to have an impact on the Group or Company’s financial statements.

SEFALANA HOLDING COMPANY LIMITED Annual Report 2010

Notes to the Financial Statements for the year ended 30 April 2010 •

IAS 38 (amendment), ‘Intangible assets’. The amendment is part of the IASB’s annual improvements project published in April 2009. The Group will apply IAS 38 (amendment) from the date IFRS 3 (revised) is adopted. The amendment clarifies guidance in measuring the fair value of an intangible asset acquired in a business combination and it permits the grouping of intangible assets as a single asset if each asset has similar useful economic lives. The amendment will not result in a material impact on the Group and Company’s financial statements.

•

IAS 32 (amendment), ‘Classification of rights issues’. The amended standard allows rights issues to be classified as equity when the price is denominated in a currency other than the entity’s functional currency. The amendment is effective for annual periods beginning on or after 1 February 2010 and should be applied retrospectively. The amendment is not expected to have an impact on the Group and Company’s financial statements.

•

IFRS 5 (amendment), ‘Measurement of non-current assets (or disposal groups) classified as held for sale’. The amendment is part of the IASB’s annual improvements project published in April 2009. The amendment provides clarification that IFRS 5, ‘Non-current assets held for sale and discontinued operations’, specifies the disclosures required in respect of non-current assets (or disposal groups) classified as held for sale or discontinued operations. It also clarifies that the general requirements of IAS 1 still apply, particularly IAS 1 paragraph 15 (to achieve a fair presentation) and paragraph 125 (sources of estimation uncertainty). The Group and Company will apply IFRS 5 (amendment) from 1 January 2010. It is not expected to have a material impact on the Group and Company’s financial statements.

•

IFRS 9, ‘Financial instruments’. IFRS 9 addresses classification and measurement of financial assets and is available for early adoption immediately. IFRS 9 replaces the multiple classification and measurement models in IAS 39 with a single model that has only two classification categories: amortised cost and fair value. IFRS 9 represents the first milestone in the IASB’s planned replacement of IAS 39. IFRS 9 is not expected to have a significant impact on the Group and Company’s financial statements.

•

(e)

IFRIC 17, ‘Distribution of non-cash assets to owners‘. The interpretation is part of the IASB’s annual improvements project published in April 2009. It provides guidance on accounting for arrangements whereby an entity distributes non-cash assets to shareholders either as a distribution of reserves or as dividends. IFRS 5 has also been amended to require that assets are classified as held for distribution only when they are available for distribution in their present condition and the distribution is highly probable. The Group will apply IFRIC 17 from 1 January 2010. It is not expected to have a material impact on the Group and Company’s financial statements.

Standards, amendments and interpretations to existing standards that are not yet effective and are not relevant to the Group and Company The following standards and amendments to existing standards have been published and are mandatory for the Group’s accounting periods beginning on or after 1 May 2009 or later periods, but not relevant to the Group and Company: Standard/ Interpretation

Content

IAS 39

Financial instruments: Recognition and measurement – Eligible hedged items

IFRIC 18

Transfers of assets from customers

IFRS 2

Share based payments – Group cash settled transactions

Applicable for financial years beginning on/after 1 July 2009 1 July 2009 1 January 2010

SEFALANA HOLDING COMPANY LIMITED Annual Report 2010

Notes to the Financial Statements for the year ended 30 April 2010 3

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Consolidation Subsidiaries Subsidiaries are all entities over which the Group has the power to govern financial and operating policies, generally accompanying shareholding of more than one half of the voting rights. The existence and effect of potential voting rights that are currently exercisable or currently convertible are considered when assessing whether the Group has the power to control another entity. In assessing investment relationships, management has applied its judgement in the assessment of whether the commercial and economic relationship is tantamount to de-facto control. Based on the fact patterns and management’s judgement, if such control exists, the relationship of control has been recognised in terms of IAS 27 (revised) – Consolidated and separate financial statements. Subsidiaries are fully consolidated from the date on which control is transferred to the Group and are de-consolidated from the date that control ceases. All inter-company transactions, balances and unrealised gains on transactions between Group companies are eliminated on consolidation. Unrealised losses are also eliminated and are considered an impairment indicator of the asset transferred. The purchase method of accounting is used to account for the acquisition of subsidiaries by the Group. The cost of an acquisition is measured as the fair value of the assets given, equity instruments issued and liabilities incurred or assumed at the date of acquisition plus costs directly attributable to the acquisition. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date, irrespective of the extent of any minority interest. The excess of the cost of acquisition over the fair value of the Group’s share of the identifiable net assets of the subsidiary acquired is recorded as goodwill. If the cost of acquisition is less than the fair value of the net assets of the subsidiary acquired, the difference is recognised directly in the statement of comprehensive income. Minority shareholders are treated as equity participants and, therefore, all acquisitions of minority interests or disposals by the Group of its minority interests in subsidiary companies where control is maintained subsequent to the disposal are accounted for as equity transactions with minorities. Consequently, the difference between the purchase price and the book value of a minority interest purchased is recorded in equity. All profits and losses arising as a result of the disposal of interests in subsidiaries to minorities, where control is maintained subsequent to the disposal, are also recorded in equity. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Group. Investment in subsidiaries The Group accounts for its investment in subsidiaries at cost, which includes transaction costs, less provision for impairment. Investments in subsidiaries are assessed for impairment when indicators of impairment are identified. Such impairment indicators include, but are not limited to, for example: •

Sustained deterioration in financial results of operations and / or financial position of the subsidiary;

•

Changes in the operating environment of an subsidiary, including regulatory and economic changes, market entry by new competitors, etc.; and

•

Inability of a subsidiary to obtain finance required to sustain or expand operations.

Where impairment indicators are identified, the recoverable value of the subsidiary is measured at the lower of realisable value through sale less costs to sell, and value in use. Value in use is the present value of future cash flows expected to be derived from the subsidiary. Once an impairment loss has been recognised, the Group assesses at each year-end date whether there is an indication that the impairment loss previously recognised no longer exists or has decreased. If this is the case, the recoverable value of the subsidiary is re-measured and the impairment loss reversed or partially reversed as may be the case.

SEFALANA HOLDING COMPANY LIMITED Annual Report 2010

Notes to the Financial Statements for the year ended 30 April 2010 Where the recoverable value of a subsidiary is below the carrying amount, the carrying amount is reduced to the recoverable value through an impairment loss charged to the statement of comprehensive income. The Group’s financial statements include the financial statements of Sefalana Holding Company Limited and its subsidiaries as disclosed in note 20, whose financial year ends are all 30 April 2010. Associates Associates are all entities over which the Group has significant influence but not control, generally accompanying a shareholding of between 20% and 50% of the voting rights. Investments in associates are accounted for using the equity method of accounting and are initially recognised at cost. Under this method, the Group’s share of post-acquisition accumulated profits or losses of associated companies, which are generally determined from their latest audited financial statements, is included in the carrying value of the investments, and the annual profit attributable to the Group is recognised in the statement of comprehensive income. The Group’s share of post-acquisition movement in reserves is recognised in other reserves. The cumulative post-acquisition movements are adjusted against the carrying amount of the investment. The carrying amount of such interests is reduced to recognise any potential impairment, other than a temporary decline, in the value of individual investments. The Group’s investment in associates includes goodwill (net of accumulated impairment loss) identified on acquisition. When the Group’s share of losses in an associate equals or exceeds its interest in the associate, the Group does not recognise further losses unless the Group has incurred obligations, issued guarantees or made payments on behalf of the associate. Where another Group entity transacts with an associate of the Group, unrealised profits and losses are eliminated to the extent of the Group’s interest in the relevant associate, except where unrealised losses provide evidence of an impairment of the asset transferred. Accounting policies of associates have been changed where necessary to ensure consistency with the policies of the Group. The Group accounts for investments in associates at cost, which includes transaction costs, less accumulated impairment losses. Investments in associates are assessed for impairment when indicators of impairment are identified. Such impairment indicators include, but are not limited to: •

Sustained deterioration in financial results of operations and / or financial position of an associate;

•

Changes in the operating environment of an associate, including regulatory and economic changes, market entry by new competitors, etc; and

•

Inability of an associate to obtain finance required to sustain or expand operations.

Where impairment indicators are identified, the recoverable value of the associate is measured at the lower of realisable value through sale less costs to sell, and value in use. Value in use is the present value of future cash flows expected to be derived from the associate. Where the recoverable value of an associate is below the carrying amount, the carrying amount is reduced to the recoverable value through an impairment loss charged to the statement of comprehensive income. Once an impairment loss has been recognised, the Group assesses at each year-end date whether there is an indication that the impairment loss previously recognised no longer exists or has decreased. If this is the case, the recoverable value of the associate is re-measured and the impairment loss reversed or partially reversed as may be the case. The Group’s shareholding in associates is as disclosed in note 17.

SEFALANA HOLDING COMPANY LIMITED Annual Report 2010

Notes to the Financial Statements for the year ended 30 April 2010 Business combinations The Group accounts for business combinations using the acquisition method of accounting. The cost of the business combination is measured as the aggregate of the fair values of assets given, liabilities incurred or assumed and equity instruments issued. Costs directly attributable to the business combination are expensed as incurred, except the costs to issue debt which are amortised as part of the effective interest and costs to issue equity which are included in equity. Contingent consideration is included in the cost of the combination at fair value as at the date of acquisition. Subsequent changes to the assets, liabilities or equity which arise as a result of the contingent consideration are not effected against goodwill, unless they are valid measurement period adjustments. The acquireeâ&#x20AC;&#x2122;s identifiable assets, liabilities and contingent liabilities which meet the recognition conditions of IFRS 3 Business Combinations are recognised at their fair values at acquisition date, except for non-current assets (or disposal group) that are classified as held for sale in accordance with IFRS 5 Noncurrent assets held for sale and discontinued operations, which are recognised at fair value less costs to sell. Contingent liabilities are only included in the identifiable assets and liabilities of the acquiree where there is a present obligation at acquisition date. On acquisition, the Group assesses the classification of the acquireeâ&#x20AC;&#x2122;s assets and liabilities and reclassifies them where the classification is inappropriate for Group purposes. This excludes lease agreements and insurance contracts, whose classification remains as per their inception date. Non controlling interest arising from a business combination is measured either at their share of the fair value of the assets and liabilities of the acquiree or at fair value. The treatment is not an accounting policy choice but is selected for each individual business combination, and disclosed in note 36. In cases where the Group held a non controlling shareholding in the acquiree prior to obtaining control, that interest is measured to fair value as at acquisition date. The measurement to fair value is included in profit or loss for the year. Where the existing shareholding was classified as an available for sale financial asset, the cumulative fair value adjustments recognised previously to other comprehensive income and accumulated in equity are recognised in profit or loss as a reclassification adjustment. Goodwill is determined as the consideration paid, plus the fair value of any shareholding held prior to obtaining control, plus non controlling interest and less the fair value of the identifiable assets and liabilities of the acquiree. Goodwill is not amortised but is tested on an annual basis for impairment. If goodwill is assessed to be impaired, that impairment is not subsequently reversed. Goodwill arising on acquisition of foreign entities is considered an asset of the foreign entity. In such cases the goodwill is translated to the functional currency of the Group at the end of each reporting period with the adjustment recognised in equity through to other comprehensive income. Interests in Joint Ventures A joint venture is a contractual agreement whereby the Group and other parties undertake an economic activity that is subject to joint control, that is when the strategic financial and operating policy decisions relating to the activities of the joint venture require the unanimous consent of the parties sharing control. Jointly controlled entities Investments in jointly controlled entities are proportionately consolidated from the date on which the Group has the power to exercise joint control, up to the date on which the power to exercise joint control ceases. This excludes cases where the investment is classified as held for sale in accordance with IFRS 5 Non-current assets held for sale and discontinued operations.

SEFALANA HOLDING COMPANY LIMITED Annual Report 2010

Notes to the Financial Statements for the year ended 30 April 2010 The Group’s share of assets, liabilities, income, expenses and cash flows of jointly controlled entities are combined on a line by line basis with similar items in the consolidated annual financial statements. The Group’s proportionate share of inter Company balances and transactions, and resulting profits or losses between the Group and jointly controlled entities are eliminated on consolidation. An interest in a jointly controlled entity is accounted for using the equity method, except when the investment is classified as held for sale in accordance with IFRS 5 Non-current assets held for sale and discontinued operations. Under the equity method, interests in jointly controlled entities are carried in the consolidated statement of financial position at cost adjusted for post acquisition changes in the Group’s share of net assets of the jointly controlled entity, less any impairment losses. Profits or losses on transactions between the Group and a joint venture are eliminated to the extent of the Group’s interest therein. When the Group loses joint control, the Group proportionately reclassifies the related items which were previously accumulated in equity through other comprehensive income to profit or loss as a reclassification adjustment. In such cases, if an investment remains, that investment is measured to fair value, with the fair value adjustment being recognised in profit or loss as part of the gain or loss on disposal. Jointly controlled operations In respect of its interests in jointly controlled operations, the Group recognises in its annual financial statements: • the assets that it controls and the liabilities that it incurs; and • the expenses that it incurs and its share of the income that it earns from the sale of goods or services by the joint venture. Jointly controlled assets In respect of its interest in jointly controlled assets, the Company recognises in its annual financial statements: • its share of the jointly controlled assets, classified according to the nature of the assets; • any liabilities that it has incurred; • its share of any liabilities incurred jointly with the other ventures’ in relation to the joint venture; • any income from the sale or use of its share of the output of the joint venture, together with its share of any expenses incurred by the joint venture; and • any expenses that it has incurred in respect of its interest in the joint venture. Foreign Currency Translation Functional and presentation currency Items included in the financial statements of each of the Group’s entities are measured using the currency of the primary economic environment in which the entity operates (‘the functional currency’). The consolidated financial statements are presented in Botswana Pula, which is the Company’s functional and Group’s presentation currency. Transactions and balances Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the statement of comprehensive income. Foreign exchange gains and losses that relate to borrowings and cash and cash equivalents are presented in the statement of comprehensive income within ‘finance income or cost’. All other foreign exchange gains and losses are presented in the statement of comprehensive income within ‘net foreign exchange gains’.

SEFALANA HOLDING COMPANY LIMITED Annual Report 2010

Notes to the Financial Statements for the year ended 30 April 2010 Group companies The results and financial position of all the Group entities (none of which has the currency of a hyperinflationary economy) that have a functional currency different from the presentation currency are translated into the presentation currency as follows: (i) (ii)

assets and liabilities for each balance sheet presented are translated at the closing rate at the date of that balance sheet; income and expenses for each statement of comprehensive income are translated at average exchange rates, unless this average is not a reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case income and expenses are translated at the dates of the transactions; and (iii) all resulting exchange differences are recognised as a separate component of equity. On consolidation, exchange differences arising from the translation of the net investment in foreign operations, and of borrowings and other currency instruments designated as hedges of such investments, are taken to shareholders’ equity. When a foreign operation is sold, exchange differences that were recorded in equity are recognised in the statement of comprehensive income as part of the gain or loss on sale. Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of the foreign entity and translated at the closing rate. Property, Plant and Equipment Land and buildings comprise mainly wholesale and retail outlets, offices and residential buildings. Land and buildings are shown at fair value, based on periodic, but at least triennial, valuations by external independent valuers, less subsequent depreciation for buildings. Any accumulated depreciation at the date of revaluation is eliminated against the gross carrying amount of the asset, and the net amount is restated to the revalued amount of the asset. All other property, plant and equipment is stated at historical cost less depreciation. Historical cost includes expenditure that is directly attributable to the acquisition of the items. Buildings capitalised under finance leases comprise retail outlets which were designed and developed specifically for the Group’s use and are leased by the Group under long-term lease agreements. These buildings are accounted for at cost (being the present value of the minimum committed lease payments at inception of the respective lease contracts) less accumulated depreciation and accumulated impairment adjustments. Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be reliably measured. The carrying amount of the replaced part is derecognised. All other repairs and maintenance are charged to the statement of comprehensive income during the financial period in which they are incurred. Increases in the carrying amount arising on revaluation of land and buildings are credited to other reserves in shareholders’ equity. Decreases that offset previous increases of the same asset are charged against other reserves directly in equity; all other decreases are charged to the statement of comprehensive income. Properties in the course of construction for production or supply of goods or services, or for administrative purposes, or for purposes not yet determined, are carried at cost less any recognised impairment loss. Cost includes professional fees and, for qualifying assets, borrowing costs capitalised in terms of the Group’s accounting policy. Depreciation of these assets, on the same basis as other property assets, commences when the assets are ready for their intended use.

SEFALANA HOLDING COMPANY LIMITED Annual Report 2010

Notes to the Financial Statements for the year ended 30 April 2010 Land is not depreciated. Depreciation on other assets is calculated using the straight-line method to allocate their cost or revalued amounts to their residual values over their estimated useful lives, as follows: Freehold buildings

50 years

Leasehold buildings

remaining period of lease

Buildings capitalised under finance leases

15 years, being initial lease period

Plant, machinery

4 to 20 years

Vehicles

4 to 6 years

Furniture, fittings and equipment

4 to 10 years

The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at each balance sheet date. An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its estimated recoverable amount. Gains and losses on disposals are determined by comparing the proceeds with the carrying amount and are recognised within ‘other gains or losses’ in the statement of comprehensive income. When revalued assets are sold, the amounts included in other reserves are transferred to retained earnings. Investment Property Property that is held for long-term rental yields or for capital appreciation or both, and that is not occupied by the Group, is classified as investment property. Investment property is measured initially at its cost, including related transaction costs and borrowing costs. Borrowing costs are incurred for the purpose of acquiring, constructing or producing a qualifying investment property are capitalised as part of its cost. Borrowing costs are capitalised while acquisition or construction is actively underway and cease once the asset is substantially complete, or suspended if the development of the asset is suspended. After initial recognition, investment property is carried at fair value. Fair value is based on active market prices, adjusted, if necessary, for any difference in the nature, location or condition of the specific asset. If this information is not available, the Group uses alternative valuation methods, such as recent prices on less active markets or discounted cash flow projections. Valuations are performed as of the financial position date by professional valuers who hold recognised and relevant professional qualifications and have recent experience in the location and category of the investment property being valued. These valuations form the basis for the carrying amounts in the financial statements. Investment property that is being redeveloped for continuing use as investment property or for which the market has become less active continues to be measured at fair value. Fair value measurement on property under construction is only applied if the fair value is considered to be reliably measurable. It may sometimes be difficult to determine reliably the fair value of the investment property under construction. In order to evaluate whether the fair value of an investment property under construction can be reliably determined, management considers the following factors, among others: • • • • • • •

The provisions of the construction contract. The stage of completion. Whether the project/property is standard (typical for the market) or non-standard. The level of reliability of cash inflows after completion. The development risk specific to the property. Past experience with similar constructions. Status of construction permits.

SEFALANA HOLDING COMPANY LIMITED Annual Report 2010

Notes to the Financial Statements for the year ended 30 April 2010 The fair value of investment property reflects, among other things, rental income from current leases and assumptions about rental income from future leases in the light of current market conditions. The fair value also reflects, on a similar basis, any cash outflows that could be expected in respect of the property. Subsequent expenditure is capitalised to the asset’s carrying amount only when it is probable that future economic benefits associated with the expenditure will flow to the Group and the cost of the item can be measured reliably. All other repairs and maintenance costs are expensed when incurred. When part of an investment property is replaced, the carrying amount of the replaced part is derecognised. The fair value of investment property does not reflect future capital expenditure that will improve or enhance the property and does not reflect the related future benefits from this future expenditure other than those a rational market participant would take into account when determining the value of the property. Changes in fair values are recognised in the statement of comprehensive income. Investment properties are derecognised either when they have been disposed of or when the investment property is permanently withdrawn from use and no future economic benefit is expected from its disposal. Where the Group disposes of a property at fair value in an arm’s length transaction, the carrying value immediately prior to the sale is adjusted to the transaction price, and the adjustment is recorded in the statement of comprehensive income within net gain from fair value adjustment on investment property. If an investment property becomes owner-occupied, it is reclassified as property, plant and equipment. Its fair value at the date of reclassification becomes its cost for subsequent accounting purposes. If an item of owner-occupied property becomes an investment property because its use has changed, any difference resulting between the carrying amount and the fair value of this item at the date of transfer is treated in the same way as a revaluation under IAS 16. Any resulting increase in the carrying amount of the property is recognised in the profit or loss to the extent that it reverses a previous impairment loss, with any remaining increase recognised in other comprehensive income and increases directly to revaluation surplus within equity. Any resulting decrease in the carrying amount of the property is initially charged in other comprehensive income against any previously recognised revaluation surplus, with any remaining decrease charged to statement of comprehensive income. Where an investment property undergoes a change in use, evidenced by commencement of development with a view to sale, the property is transferred to inventories. A property’s deemed cost for subsequent accounting as inventories is its fair value at the date of change in use. Intangible Assets Goodwill Goodwill represents the excess of the cost of an acquisition over the fair value of the Group’s share of the net identifiable assets of the acquired subsidiary/ associate at the date of acquisition. Goodwill on acquisitions of subsidiaries is included in ‘intangible assets’. Goodwill on acquisitions of associates is included in ‘investments in associates’. Separately recognised goodwill is tested annually for impairment and carried at cost less accumulated impairment losses. Impairment losses on goodwill are not reversed. Gains and losses on the disposal of an entity include the carrying amount of goodwill relating to the entity sold. Goodwill is allocated to cash-generating units for the purpose of impairment testing. The allocation is made to those cash-generating units or Groups of cash-generating units that are expected to benefit from the business combination in which the goodwill arose. Software Acquired computer software licences are capitalised on the basis of the costs incurred to acquire and bring to use the specific software. These costs are amortised over their useful lives (three to five years) on a straight-line basis. Costs associated with developing or maintaining computer software programmes are recognised as an expense as incurred. Costs that are directly associated with the development of identifiable and unique software products controlled by the Group, and that will probably generate economic benefits exceeding costs beyond one year, are recognised as intangible assets. Costs include the employee costs incurred as a result of developing software and an appropriate portion of relevant overheads.

100

SEFALANA HOLDING COMPANY LIMITED Annual Report 2010

Notes to the Financial Statements for the year ended 30 April 2010 Impairment of Non-Financial Assets Assets that have an indefinite useful life, for example goodwill, are not subject to amortisation and are tested annually for impairment. Assets that are subject to amortisation are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash-generating units). Non-financial assets other than goodwill that suffered impairment are reviewed for possible reversal of the impairment at each reporting date. Leasing Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee. All other leases are classified as operating leases. The Group as lessor Amounts due from lessees under finance leases are recorded as receivables at the amount of the Group’s net investment in the leases. Finance lease income is allocated to accounting periods so as to reflect a constant periodic rate of return on the Group’s net investment outstanding in respect of the leases. Rental income is recognised on a straight line basis over the term of the relevant lease. Initial direct costs incurred in negotiating and arranging an operating lease are added to the carrying amount of the leased asset and recognised on a straight-line basis over the lease term. The Group as lessee Assets held under finance leases are initially recognised as assets of the Group at their fair value at the inception of the lease or, if lower, at the present value of the minimum lease payments. The corresponding liability to the lessor is included in the balance sheet as a finance lease obligation. Lease payments are apportioned between finance charges and reduction of the lease obligation so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are charged directly to the statement of comprehensive income, unless they are directly attributable to qualifying assets, in which case they are capitalised in accordance with the Group’s general policy on borrowing costs. Contingent rentals are recognised as expenses in the periods in which they are incurred. Operating lease payments are recognised as an expense on a straight-line basis over the lease term, except where another systematic basis is more representative of the time pattern in which economic benefits from the leased asset are consumed. Contingent rentals arising under operating leases are recognised as an expense in the period in which they are incurred. In the event that lease incentives are received to enter into operating leases, such incentives are recognised as a liability. The aggregate benefit of incentives is recognised as a reduction of rental expense on a straight-line basis, except where another systematic basis is more representative of the time pattern in which economic benefits from the leased asset are consumed. Borrowings Borrowings are recognised initially at fair value, net of transaction costs incurred. Borrowings are subsequently stated at amortised cost; any difference between the proceeds (net of transaction costs) and the redemption value is recognised in the statement of comprehensive income over the period of the borrowings using the effective interest method. Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets which are assets that necessarily take a substantial period of time to get ready for their intended use or sale, are added to the cost of those assets, until such time as the assets are substantially ready for their intended use or sale. Investment income earned on the temporary investment of specific borrowings pending their expenditure on qualifying assets is deducted from the borrowing costs eligible for capitalisation. All other borrowing costs are recognised in the statement of comprehensive income for the period in which they are incurred.

SEFALANA HOLDING COMPANY LIMITED Annual Report 2010

Notes to the Financial Statements for the year ended 30 April 2010 Borrowings are classified as current liabilities unless the Group has an unconditional right to defer settlement of the liability for at least 12 months after the balance sheet date. Employee Benefits Pension obligations Contributions to defined contribution retirement benefit plans are recognised as an expense when the employees have rendered service entitling them to the contributions. A defined contribution plan is a pension plan under which the Group pays fixed contributions into a separate entity. The Group has no legal or constructive obligations to pay further contributions if the fund does not hold sufficient assets to pay all employees the benefits relating to employee service in the current and prior periods. Where employees are not members of the Group’s retirement benefit plan, provision is made for severance benefit as required in terms of Botswana’s labour laws or terminal service gratuity. Costs incurred herein are recognised in the statement of comprehensive income in the period in which they are incurred. Profit-sharing and bonus plans The Group recognises a liability and an expense for bonuses and profit-sharing, based on a formula that takes into consideration the profit attributable to the Company’s shareholders after certain adjustments. The Group recognises a provision where contractually obliged or where there is a past practice that has created a constructive obligation. Current and Deferred Income Tax The tax expense for the period comprises current and deferred tax. Tax is recognised in the statement of comprehensive income, except to the extent it relates to items recognised directly in equity. In this case, tax is also recognised in equity. The current income tax charge is calculated on the basis of the tax laws enacted or substantively enacted at the balance sheet date in the countries where the Group’s subsidiaries generate taxable income. Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulations are subject to interpretation and establishes provisions where appropriate on the basis of amounts expected to be paid to the tax authorities. Deferred income tax is provided for in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying values for financial reporting purposes. However, if the deferred income taxes arise from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss, it is not accounted for. Deferred income tax is determined using tax rates (and laws) that have been enacted or substantially enacted at the balance sheet date and are expected to apply when the related deferred income tax asset is realised or the deferred income tax liability is settled. Deferred income tax assets are recognised to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilised. Deferred income tax assets are recognised for loss carry-forwards to the extent that the realisation of the related tax benefit through future taxable profits is probable. Deferred income tax is provided on temporary differences arising on investments in subsidiaries and associates and joint ventures, except where the timing of the reversal of the temporary difference is controlled by the Group and it is probable that the temporary difference will not reverse in the foreseeable future. Withholding tax of 15% is payable on the gross value of dividends. This withholding tax is treated as an advance payment of Company tax and is set off against Additional Company Tax in the financial year in which it is paid. Dividends are accounted for gross of this withholding tax.

101

102

SEFALANA HOLDING COMPANY LIMITED Annual Report 2010

Notes to the Financial Statements for the year ended 30 April 2010 Inventories Inventories comprising fast moving consumer goods for resale are valued at the lower of cost and net realisable value. Cost on these goods is determined on the weighted average basis and is the net of the invoice price, insurance, freight, customs duties, trade discounts, rebates and settlement discounts. Inventories comprising vehicles and equipment for resale are also stated at the lower of cost and net realisable value. Costs, including an appropriate portion of fixed and variable overhead expenses, are assigned to inventories held by the method most appropriate to the particular class of inventory, with the majority being valued on the first-in first-out basis. Work in progress arising from rendering of services of vehicles and equipment is valued with costs of materials used and excludes labour or overhead components. Net realisable value is the estimated selling price in the ordinary course of business, less estimated costs necessary to complete the sale. Financial Assets Classification The Group classifies its financial assets under the loans and receivables category. Management determines the classification of its financial assets at initial recognition. Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They are included in current assets, except for maturities greater than 12 months after the balance sheet date. These are classified as non-current assets. The Group’s loans and receivables comprise ‘trade and other receivables’ other than prepayments, ‘amounts due from related parties’ and ‘cash and cash equivalents’ in the balance sheet. Recognition and measurement Regular purchases and sales of financial assets are recognised on the trade-date, the date on which the Group commits to purchase or sell the asset. Investments are initially recognised at fair value plus transaction costs for all financial assets not carried at fair value through profit or loss. Financial assets are derecognised when the rights to receive cash flows from the investments have expired or have been transferred and the Group has transferred substantially all risks and rewards of ownership. Loans and receivables are carried at amortised cost using the effective interest method Changes in the fair value of monetary securities denominated in a foreign currency and classified as available for sale are analysed between translation differences resulting from changes in amortised cost of the security and other changes in the carrying amount of the security. The translation differences on monetary securities are recognised in the statement of comprehensive income; translation differences on non-monetary securities are recognised in other comprehensive income. The fair values of quoted investments are based on current bid prices. If the market for a financial asset is not active (and for unlisted securities), the Group establishes fair value by using valuation techniques. These include the use of recent arm’s length transactions, reference to other instruments that are substantially the same, discounted cash flow analysis, and option pricing models making maximum use of market inputs and relying as little as possible on entity-specific inputs. The Group assesses at each balance sheet date whether there is objective evidence that a financial asset or a Group of financial assets is impaired. In the case of equity securities classified as available for sale, a significant or prolonged decline in the fair value of the security below its cost is considered as an indicator that the securities are impaired. Impairment testing of trade receivables is described in note 22. De-recognition of financial assets The Group derecognises a financial asset only when the contractual rights to the cash flows from the asset expire; or it transfers the financial asset and substantially all the risks and rewards of ownership of the asset to another entity. If the Group neither transfers nor retains substantially all the risks and rewards of ownership and continues to control the transferred asset, the Group recognises its retained interest in the asset and an associated liability for amounts it may have to pay. If the Group retains substantially all the risks and rewards of ownership of a transferred financial asset, the Group continues to recognise the financial asset and also recognises a collateralised borrowing for the proceeds received.

SEFALANA HOLDING COMPANY LIMITED Annual Report 2010

Notes to the Financial Statements for the year ended 30 April 2010 Trade Receivables Trade receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method, less provision for impairment. A provision for impairment of trade receivables is established when there is objective evidence that the Group will not be able to collect all amounts due according to the original terms of the receivables. Significant financial difficulties of the debtor, probability that the debtor will enter bankruptcy or financial reorganisation, and default or delinquency in payments (more than 30 days overdue) are considered indicators that the trade receivable is impaired. The amount of the provision is the difference between the asset’s carrying amount and the present value of estimated future cash flows, discounted at the original effective interest rate. The carrying amount of the asset is reduced through the use of an allowance account, and the amount of the loss is recognised in the statement of comprehensive income within ‘selling and marketing costs’. When a trade receivable is uncollectible, it is written off against the allowance account for trade receivables. Subsequent recoveries of amounts previously written off are credited against ‘administration expenses’ in the statement of comprehensive income. Cash and Cash Equivalents Cash and cash equivalents include cash in hand, deposits held at call with banks, other short-term highly liquid investments with original maturities of three months or less, and bank overdrafts. Bank overdrafts are shown within borrowings in current liabilities on the balance sheet. Non-current assets held for sale and disposal groups Non current assets and disposal groups are classified as held for sale if their carrying amount will be recovered through a sale transaction rather than through continuing use. This condition is regarded as met only when the sale is highly probable and the asset (or disposal group) is available for immediate sale in its present condition. Management must be committed to the sale, which should be expected to qualify for recognition as a completed sale within one year from the date of classification. Non current assets held for sale (or disposal group) are measured at the lower of its carrying amount and fair value less costs to sell. A non-current asset is not depreciated (or amortised) while it is classified as held for sale, or while it is part of a disposal group classified as held for sale. Interest and other expenses attributable to the liabilities of a disposal group classified as held for sale are recognised in profit or loss. Stated Capital Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net of tax, from the proceeds. Financial Liabilities Classification The Group classifies its financial liabilities as ‘financial liabilities at amortised cost’. Financial liabilities, including borrowings, are initially measured at fair value, net of transaction costs. Financial liabilities are subsequently measured at amortised cost using the effective interest method, with interest expense recognised on an effective yield basis. The effective interest method is a method of calculating the amortised cost of a financial liability and of allocating interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments through the expected life of the financial liability, or, where appropriate, a shorter period. De-recognition of financial liabilities The Group de-recognises financial liabilities when, and only when, the Group’s obligations are discharged, cancelled or they expire.

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SEFALANA HOLDING COMPANY LIMITED Annual Report 2010

Notes to the Financial Statements for the year ended 30 April 2010 Trade Payables Trade payables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method. Provisions Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, and it is probable that the Group will be required to settle that obligation, and a reliable estimate can be made of the amount of the obligation. The amount recognised as a provision is the best estimate of the consideration required to settle the present obligation at the balance sheet date, taking into account the risks and uncertainties surrounding the obligation. Where a provision is measured using the cash flows estimated to settle the present obligation, its carrying amount is the present value of those cash flows. When some or all of the economic benefits required to settle a provision are expected to be recovered from a third party, the receivable is recognised as an asset if it is virtually certain that reimbursement will be received and the receivable can be measured reliably. Provisions are measured at the directors’ best estimate of the expenditure required to settle the obligation at the balance sheet date, and are discounted to the present value where the effect is material. Onerous Contracts Present obligations arising under onerous contracts are recognised and measured as a provision. An onerous contract is considered to exist where the Group has a contract under which the unavoidable costs of meeting the obligations under the contract exceed the economic benefits expected to be received under it. Warranties Provisions for warranty costs are recognised at the date of the sale of the relevant products, at the directors’ best estimate of the expenditure required to settle the Group’s obligation. Revenue Recognition Revenue comprises the fair value of the consideration received or receivable for the sale of goods and services in the ordinary course of the Group’s activities. Revenue is shown net of value-added tax, returns, rebates and discounts and after eliminating sales within the Group. The Group recognises revenue when the amount of revenue can be reliably measured, it is probable that future economic benefits will flow to the entity and when specific criteria have been met for each of the Group’s activities as described below. The amount of revenue is not considered to be reliably measurable until all contingencies relating to the sale have been resolved. The Group bases its estimates on historical results, taking into consideration the type of customer, the type of transaction and the specifics of each arrangement. Sale of goods - Merchandise Merchandise sales are recognised upon delivery of products and customer acceptance. Payment is generally received via cash, debit card, credit card or cheque, or through charge to a line of credit granted to the customer. Related card transaction costs are recognised in the statement of comprehensive income as other expense.

SEFALANA HOLDING COMPANY LIMITED Annual Report 2010

Notes to the Financial Statements for the year ended 30 April 2010 Sales of goods - Others Revenue from the sale of other goods is recognised when the following conditions are satisfied: • the Group has transferred to the buyer the significant risks and rewards of ownership of the goods; • the Group retains neither continuing managerial involvement to the degree usually associated with ownership nor effective control over the goods sold; • the amount of revenue can be measured reliably; • it is probable that the economic benefits associated with the transaction will flow to the entity; and • the costs incurred or to be incurred in respect of the transaction can be measured reliably. Sales of services When the outcome of a transaction involving the rendering of services can be estimated reliably, revenue associated with the transaction is recognised by reference to the stage of completion of the transaction at the balance sheet date. The outcome of a transaction can be estimated reliably when all the following conditions are satisfied: • the amount of revenue can be measured reliably; • it is probable that the economic benefits associated with the transaction will flow to the Group; • the stage of completion of the transaction at the balance sheet date can be measured reliably; and • the costs incurred for the transaction and the costs to complete the transaction can be measured reliably. When the outcome of the transaction involving the rendering of services cannot be estimated reliably, revenue shall be recognised only to the extent of the expenses recognised that are recoverable. Dividend and interest income Dividend income from investments is recognised when the shareholder’s right to receive payment has been established. Interest income is accrued on a time basis, by reference to the principal outstanding and at the effective interest rate applicable, which is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset to that asset’s net carrying amount. Rental income Rental income from investment properties is recognised on a straight-line basis over the term of the relevant lease. Cost of sales When inventories are sold, the carrying amount of those inventories is recognised as an expense in the period in which the related revenue is recognised. The amount of any write down of inventories to net realisable value and all losses of inventories are recognised as an expense in the period the write down or loss occurs. The amount of any reversal of any write down of inventories, arising from an increase in net realisable value, is recognised as a reduction in the amount of inventories recognised as an expense in the period in which the reversal occurs. The related cost of providing services recognised as revenue in the current period is included in cost of sales. Contract costs comprise: • costs that relate directly to the specific contract; • costs that are attributable to contract activity in general and can be allocated to the contract; and • such other costs as are specifically chargeable to the customer under the terms of the contract. Dividend Distribution Dividend distribution to the Company’s shareholders is recognised as a liability in the Group’s financial statements in the period in which the dividends are approved by the Company’s shareholders.

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SEFALANA HOLDING COMPANY LIMITED Annual Report 2010

Notes to the Financial Statements for the year ended 30 April 2010 Segmental Reporting Business segments are distinguishable components of the Group that provide products or services that are subject to risks and reward that are different to those of other business segments. The costs of shared services are accounted for in a separate (“unallocated”) segment. Transactions between segments are generally accounted for in accordance with Group policies as if the segment were a stand-alone business with intra-segment revenue being eliminated through a separate adjustment to revenue. The Group’s areas of operations were limited to the Republic of Botswana during the reporting periods. Given the homogeneous nature of the domestic economy, the Group does not prepare segmental analyses based on regional distinctions.

CRITICAL ACCOUNTING JUDGEMENTS AND KEY SOURCES OF ESTIMATION UNCERTAINTY (a)

Critical Judgement in Applying Accounting Policies The following is the critical judgement, apart from those involving estimations, that management has made in the process of applying the entity’s accounting policies and that have the most significant effect on the amounts recognised in the financial statements. Revaluation of property Notes 14 and 15 describe the valuation method adopted by the Directors to determine the fair value of property under property, plant and equipment and investment property at 30 April 2010. In making their judgement, the Directors considered the revaluation on an open market basis prepared by the independent valuers, escalation factor on leases, the self repairing element of certain leases and benchmark yields. The rentals were discounted over the period of the relevant leases and capitalised.

(b) Key Sources of Estimation Uncertainty The following are the key assumptions concerning the future and other key sources of estimation uncertainty at the balance sheet date, that have a significant risk of causing a material adjustment to the carrying amount of assets and liabilities within the next financial year. Impairment loss on debtors The Group reviews its debtors to assess impairment on a monthly basis. In determining whether an impairment loss should be recorded in profit or loss, the Group companies make judgements as to whether there is any observable data indicating that there is a measurable decrease in estimated cash flows from a portfolio of debtors. Management uses estimates based on historical loss experience of assets. The assumptions used for estimating the amount and timing of cash flows are reviewed regularly to reduce any difference between loss estimates and actual loss experience. Impairment of goodwill The Group tests annually whether goodwill has suffered any impairment, in accordance with its accounting policy on goodwill. The recoverable amounts of cash-generating units have been determined by the Directors based on forecast pre-tax free cash flows of each cash-generating unit. These calculations require the use of estimates, the most significant of which are assumptions of a growth rate of 3 % and a discount rate of 12.50% on future cash flows. Residual values and useful lives Residual values and useful lives of property, plant and equipment are based on current estimates of the values of these assets at the end of their useful lives. Provision for shrinkage The provision for shrinkage is based on the historical results of stock counts.

SEFALANA HOLDING COMPANY LIMITED Annual Report 2010

Notes to the Financial Statements for the year ended 30 April 2010 Provision for warranties One of the subsidiary companies gives a warranty on vehicles sold by it; most of the warranty costs are met by the initial suppliers of these vehicles, but there is an element of cost that will be borne by the company. Based on the directorsâ&#x20AC;&#x2122; knowledge of the industry and previous practices a provision has been made to account for future warranty costs on vehicles sold. Provisionsâ&#x20AC;&#x201C;others Provisions were raised and management determined an estimate based on the information available. Contingent provisions on business combinations Contingencies recognised in the current year required estimates and judgments, refer to note 36 on business combinations. Allowance for slow moving, damaged and obsolete stock Management have made estimates of the selling price and direct cost to sell on certain inventory items, in the calculation of allowance for stock to write stock down to the lower of cost or net realisable value Impairment testing The recoverable amounts of cash generating units and individual assets have been determined based on the higher of value in use calculations and fair values less costs to sell. These calculations require the use of estimates and assumptions. It is reasonably possible that the useful life assumption may change which may then impact our estimations and may then require a material adjustment to the carrying value of goodwill and tangible assets. The Group reviews and tests the carrying value of assets when events or changes in circumstances suggest that the carrying amount may not be recoverable. In addition, goodwill is tested on an annual basis for impairment. Assets are grouped at the lowest level for which identifiable cash flows are largely independent of cash flows of other assets and liabilities. If there are indications that impairment may have occurred, estimates are prepared of expected future cash flows for each group of assets. Expected future cash flows used to determine the value in use of goodwill and tangible assets are inherently uncertain and could materially change over time. They are significantly affected by a number of factors including production estimates, supply and demand, together with economic factors such as exchange rates, inflation and interest. Expected manner of realisation for deferred tax Deferred tax is provided for on the fair value adjustments of investment properties based on the expected manner of recovery, i.e. sale or use. This manner of recovery affects the rate used to determine the deferred tax liability. Refer note 10 â&#x20AC;&#x201C; Deferred taxes. Taxation Judgement is required in determining the provision for income taxes due to the complexity of legislation. There are many transactions and calculations for which the ultimate tax determination is uncertain during the ordinary course of business. The Group recognises liabilities for anticipated tax audit issues based on estimates of whether additional taxes will be due. Where the final tax outcome of these matters is different from the amounts that were initially recorded, such differences will impact the income tax and deferred tax provisions in the period in which such determination is made. The Group recognises the net future tax benefit related to deferred income tax assets to the extent that it is probable that the deductible temporary differences will reverse in the foreseeable future. Assessing the recoverability of deferred income tax assets requires the Group to make significant estimates related to expectations of future taxable income. Estimates of future taxable income are based on forecast cash flows from operations and the application of existing tax laws in each jurisdiction. To the extent that future cash flows and taxable income differ significantly from estimates, the ability of the Group to realise the net deferred tax assets recorded at the end of the reporting period could be impacted.

107

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SEFALANA HOLDING COMPANY LIMITED Annual Report 2010

Notes to the Financial Statements for the year ended 30 April 2010 GROUP

REVENUE An analysis of the Group’s revenue is as follows: Sale of consumer goods and other products Property rental income Property rental income comprises: Contractual rental income Straight line lease rental adjustment

2010 P’000

2009 P’000

1 706 737 3 213 1 709 950

1 872 244 3 256 1 875 500

2 716 497 3 213

2 524 732 3 256

BUSINESS SEGMENTS The Group’s operating businesses are organised and managed separately according to the nature of products and services offered by each of such segments representing a strategic business unit. The Group is organised into four principal business areas and these make up four reportable operating segments as follows: Trading - consumer goods: Wholesale and retail distribution of fast moving consumer goods. Trading - others: Sale of automotive products, equipment for construction and agricultural related sectors including after sale services. Manufacturing: Milling, production and sale of sorghum, soya and maize based extruded food products. Manufacture and sale of full range of laundry and bath soaps. Property: Holding of commercial and industrial properties for own use as well as for generating income from lease arrangements with external tenants. The Company’s Board of Directors acts as the Chief Operating Decision Maker of the Group and it assesses the performance of the operating units based on the measure of profit after tax. This measurement basis assesses performance on bases of recognition and measurement which are consistent with the accounting policies of the Group. Inter-segment transactions between business segments are based on an arm’s length basis in a manner similar to transactions with third parties. Revenue of the Trading - others and Manufacturing operating segments is derived primarily from various Government departments following award of tenders. Geographical segments The Group has significant operations only in Botswana during the reporting year and hence a geographical segment analysis has not been provided. Once the Group’s investment in a property and the joint venture on a distribution business in Zambia generates revenue, which is expected in the coming year, the Zambian operations will be reported on as a separate geographical segment.

SEFALANA HOLDING COMPANY LIMITED Annual Report 2010

Notes to the Financial Statements for the year ended 30 April 2010 6

BUSINESS SEGMENTS (Continued) Segment results by products and services

2010

Revenue Cost of sales Gross profit Investment revenue Other gains Administrative expenses Finance costs Profit before share of loss from associates Share of loss from associates Income tax expense Profit after tax

Trading Consumer goods P’000

Trading Others P’000

Manufacturing P’000

Property P’000

1 501 866 (1 422 105 ) 79 761 5 055 51 (28 224 ) (4 191 ) 52 452 (3 836 ) (8 423 ) 40 193

110 869 (85 864 ) 25 005 743 850 (18 640 ) (71 ) 7 887

107 618 (85 706) 21 912 325 6 170 (13 968) (3) 14 436

18 866 18 866 751 25 048 (9 154) (6 263) 29 248

(1 940 ) 5 947

(2 310) 12 126

(8 031) 21 217

11 166 62 441 1 328 709

572 10 192 85 002

2 387 11 030 70 309

3 205 6 170

Trading Consumer goods P’000

Trading Others P’000

Intersegment or Unallocated Consolidated P’000 P’000 (29 269) 1 709 950 29 721 (1 563 954) 452 145 996 (807) 6 067 (10 050) 22 069 819 (69 167) (671) (11 199) (10 257) 93 766 (3 836) (360) (21 064) (10 617) 68 866

Total segment results above include: Depreciation and amortisation Staff costs Inventories expensed

2009

Revenue Cost of sales Gross profit Investment revenue Other gains and losses Administrative expenses Finance costs Profit before share of loss from associates Share of loss from associates Income tax expense Profit after tax

1 569 028 (1 480 235 ) 88 793 5 999 (29 103 ) (4 835 ) 60 854 (2 669 ) (14 237 ) 43 948

597

17 330 90 430 1 484 020

Intersegment or Unallocated Consolidated P’000 P’000

Manufacturing P’000

Property P’000

198 140 (164 412 ) 33 728 981 878 (17 848 ) (652 ) 17 087

119 057 (91 230) 27 827 846 466 (13 125) (2) 16 012

22 139 22 139 348 115 (8 035) (8 022) 6 545

(32 864) 32 761 (103) (857) (764) 1 507 216 (1)

(4 729 ) 12 358

(2 249) 13 763

(1 234) 5 311

(2 804) (2 805)

2 327 11 103 76 145

2 800 6 229

488

1 875 500 (1 703 116) 172 384 7 317 695 (66 604) (13 295) 100 497 (2 669) (25 253) 72 575

Total segment results above include: Depreciation and amortisation Staff costs Inventories expensed

9 511 57 618 1 383 266

431 10 165 164 412

15 069 85 603 1 623 823

109

110

SEFALANA HOLDING COMPANY LIMITED Annual Report 2010

Notes to the Financial Statements for the year ended 30 April 2010 6

BUSINESS SEGMENTS (Continued) Segment assets and liabilities

2010

Assets Liabilities Inter-group balances

Total assets include: Capital expenditure Investment in associates Assets held for sale

2009

Assets Liabilities Inter-group balances

Trading Consumer goods P’000 350 543 (223 429 )

Trading Others P’000 150 501 (113 075 )

24 750 3 060 3 331

2 578

Trading Consumer goods P’000

Trading Others P’000

357 541 (238 637 ) (1 488 )

Manufacturing P’000 70 662 (10 832 ) (1 473 )

3 360

Property P’000 174 754 (75 793 ) (36 982 )

Intersegment or Unallocated Consolidated P’000 P’000 12 581 (23 667 ) 38 455

2 501 29

Manufacturing P’000

Property P’000

84 283 (55 203 )

67 753 (13 202 ) (12 026 )

155 787 (41 891 ) (67 412 )

1 938

4 465

40 301

759 041 (446 796 )

33 189 3 089 3 331

Intersegment or Unallocated Consolidated P’000 P’000 13 380 (56 479 ) 80 926

678 744 (405 412 )

Total assets include: Capital expenditure Investment in associates

5 018 7 510

51 722 7 510

SEFALANA HOLDING COMPANY LIMITED Annual Report 2010

Notes to the Financial Statements for the year ended 30 April 2010 GROUP

INVESTMENT REVENUE Interest revenue from : bank deposits related party loans other loans and receivables Dividends from subsidiaries

2009 P’000

2010 P’000

2009 P’000

6 067

7 225

4 4 421

14 8 021

30 077 34 502

14 004 22 039

360

330

485

(99 )

106

385 695

50 311

36 472

7 002 3 952

8 456 4 354

4 918

7 806

420

870

245 11 199

485 13 295

5 338

8 676

92 6 067

7 317

OTHER GAINS Commission received Management fees from subsidiaries Gain on disposal of property, plant and equipment Gain / (loss) on revaluation of investment property Profit on disposal of investment property Net foreign exchange gain / (loss) Insurance claim received Miscellaneous

COMPANY

2010 P’000

213 185 13 520 1 250 1 663 4 918 533 22 069

344 (732 )

FINANCE COSTS Interest paid on: bank overdrafts and loans obligations under finance leases related party loans others

The weighted average capitalisation rate on funds borrowed for working capital purposes generally is 8.20% per annum (2009: 12.65%).

111

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SEFALANA HOLDING COMPANY LIMITED Annual Report 2010

Notes to the Financial Statements for the year ended 30 April 2010 GROUP

10 INCOME TAX EXPENSE Current tax Basic company tax Additional company tax (ACT) at 10% Adjustment in respect of prior years Withholding tax set off on dividends Withholding tax on dividend paid Total current tax Deferred tax Origination and reversal of timing difference Total deferred tax Income tax expense

COMPANY

2010 P’000

2009 P’000

10 950 8 398 (602 ) (2 608 ) 16 138

15 938 11 585 3 (424 ) 767 27 869

4 926 4 926

(2 616 ) (2 616 )

21 064

25 253

2010 P’000

2 838 2 838

(525 ) (525 )

2009 P’000

( 64) 2 101 767 2 804

(368 ) (368 )

2 313

2 436

27 777 6 944

12 532 3 133

The basic taxation rate in Botswana for year 2010 is 15% (2009: 15%), other than in the case of manufacturing companies, where it is 5% (2009: 5%). The company tax rate in Zambia is 35%. The charge for the year can be reconciled to the accounting profit as follows: Profit before tax Tax calculated at current tax rates Effect of differential tax rates Utilisation of previously unrecognised tax losses Tax losses for which no deferred income tax asset recognised Expenses not deductible for tax purposes Withholding tax (net of ACT utilised) Adjustment in respect of prior year Tax effect of income not chargeable Expenses entitled to double deduction Income tax expense per income statement ACT available to be offset against future withholding tax on dividends

89 930 22 482 (11 ) (235 ) 538 1 969 (2 608 ) (602 ) (36 ) (433 ) 21 064

97 828 24 457 (737 ) (26 ) 309 904 343 3

25 253

50 2 838 (7 519 )

2 101 (64 ) (2 734 )

2 313

2 436

16 806

18 479

The Botswana Ministry of Finance and Development Planning has announced that the Botswana Income Tax Act will be amended from 1 July 2011, abolishing the current dual system of taxation of companies and the consequential removal of the process of offset of dividend withholding tax against accumulated ACT reserves. Once the Amendment Bill is approved at the Parliament, Company tax will be at a flat rate of 25% and any unutilised ACT brought forward will no longer be available for offset against withholding tax on dividend declared from 1 July 2011. Dividends declared after 30 June 2011, will attract withholding tax of 7.5% on the gross amount.

SEFALANA HOLDING COMPANY LIMITED Annual Report 2010

Notes to the Financial Statements for the year ended 30 April 2010 GROUP

10 INCOME TAX EXPENSE (Continued) Current tax assets and liabilities Current tax assets: Income tax refund receivable Current tax liabilities: Income tax payable

COMPANY

2010 P’000

2009 P’000

2010 P’000

2009 P’000

2 998

1 548

1 248

823

6 771

13 414

767

Accelerated tax depreciation P’000

Revaluation of property P’000

Other P’000

Total P’000

Deferred Taxes Group Deferred tax assets (liabilities) arise from the following:

At 30 April 2009 Arising from revaluation of properties Charge to other comprehensive income Arising from business combination (Note 36) Reversal on disposal of property At 30 April 2010

Disclosed as: Deferred tax assets Deferred tax liabilities Total net deferred tax liabilities

Company At 30 April 2009 Tax credit on losses At 30 April 2010

520 598

(16 445 ) (4 637 ) (3 366 )

7 889 (887 ) 1 003

1 118

124 (24 324 )

2010 P’000

2009 P’000

12 402 (27 603 ) (15 201 )

11 770 (19 806 ) (8 036 )

8 005

(8 036) (4 926) (3 366) 1 003 124 (15 201)

Total P’000 368 525 893

113

114

SEFALANA HOLDING COMPANY LIMITED Annual Report 2010

Notes to the Financial Statements for the year ended 30 April 2010 GROUP

COMPANY

2010 P’000

2009 P’000

2010 P’000

2009 P’000

1 963 2 904 1 484 020 14 426 88 329 4 229

2 137 2 861 1 623 823 12 208 83 770 3 241

145

305

597

264

453 144

264

597

264

597

264

11 PROFIT FOR THE YEAR Profit for the year from continuing operations has been arrived at after considering: Audit fees Amortisation of intangible assets (Note 16) Cost of inventories expensed Depreciation of property, plant and equipment (Note 14) Directors and employee benefits Impairment of trade receivables (Note 22) Operating lease costs: - properties - motor vehicles Pension costs - defined contribution plans Profit on disposal of investment property Profit on disposal of property, plant and equipment

2 991 782 2 101 (1 250 ) (185 )

2 793 1 395 1 833 (344)

12 DIRECTORS EMOLUMENTS Emoluments of the Directors of Sefalana Holding Company Limited from the Company and its subsidiaries: Fees for services as Directors Fees for consultancy services Managerial services Total Less: paid by subsidiaries Borne by the company

573 240 4 547 5 360 (4 763 ) 597

384 240 5 097 5 721 (5 457) 264

SEFALANA HOLDING COMPANY LIMITED Annual Report 2010

Notes to the Financial Statements for the year ended 30 April 2010 COMPANY 2010

2009

56 968

56 887

13 EARNINGS AND COMPREHENSIVE INCOME PER SHARE Profit attributable to equity holders of the Company (P’000) Shares in issue at year end (number)

165 649 067 165 649 067

Basic earnings per share is calculated by dividing the profit for the year attributable to equity holders of the parent by the weighted average number of ordinary shares in issue during the year. The Scheme of Arrangement referred to in note 41 results in an increase in the basic earnings per share. This anti-dilutionary impact results mainly from the reclassification of minorities interest in the earnings of Sefalana Cash and Carry Limited to the equity holders of the Company. Total comprehensive income per share is calculated by dividing the total comprehensive income attributable to equity holders of the parent by the weighted average number of ordinary shares in issue during the year. DIVIDENDS

Declared and paid during the year: Final 2009: 20 thebe per share paid in 2010 (Final 2008: 10 thebe paid in 2009) Proposed for approval: Final 2010: Nil (2009: 20 thebe)

2010 P’000

2009 P’000

33 130

16 565

33 130

115

116

SEFALANA HOLDING COMPANY LIMITED Annual Report 2010

Notes to the Financial Statements for the year ended 30 April 2010 14 PROPERTY, PLANT AND EQUIPMENT Land and buildings P’000

Buildings capitalised under finance leases P’000

Plant, fixtures and equipment P’000

Motor vehicles P’000

35 933 6 436

4 718 3 987

Total P’000

Group Cost or valuation At 30 April 2008 Additions Transfer from investment property Disposals At 30 April 2009

98 599 25 831 665 (81) 125 014

12 492

(725) 41 644

(1 626 ) 7 079

At 30 April 2009 Additions Increase in fair value Transfer from investment property Transfer to investment property Reclassification Disposals At 30 April 2010

125 014 3 421 12 662 15 000 (20 626) (6) (2 670) 132 795

12 492 413

41 644 20 979

7 079 4 013

186 229 28 826 12 662 15 000 (20 626 )

12 905

6 (608) 62 021

(560 ) 10 532

(3 838 ) 218 253

52 3 063

3 024 1 662

3 115

4 686

9 001 5 838 (482) 14 357

1 703 1 645 (978 ) 2 370

13 780 12 208 (1 460 ) 24 528

3 115 3 493 (804) (54) 5 750

4 686 1 583

14 357 7 245

2 370 2 105

6 269

(356) 21 246

(408 ) 4 067

24 528 14 426 (804 ) (818 ) 37 332

127 045 121 899

6 636 7 806

40 775 27 287

6 465 4 709

Depreciation and impairment At 30 April 2008 Charge for the year Disposals At 30 April 2009 At 30 April 2009 Charge for the year Reversal on recognition of fair value Disposals At 30 April 2010 Carrying amount At 30 April 2010 At 30 April 2009

151 742 36 254 665 (2 432 ) 186 229

180 921 161 701

The Group’s land and buildings were valued in 2008 by Messer’s Pam Golding International Botswana, independent qualified property valuers. At the end of reporting current financial year, the properties were valued by the Directors through an internal valuation model which discounts contractual future cash flows to present value using a discount rate of 12.50%. The Directors have compared these values against recent market transactions of similar properties in the same location where such data were available.

SEFALANA HOLDING COMPANY LIMITED Annual Report 2010

Notes to the Financial Statements for the year ended 30 April 2010 14 PROPERTY, PLANT AND EQUIPMENT (Continued) In the instances where a significant variations between the carrying amount and the internal valuation model were noted, the Directors enlisted the services of Messer’s CB Richard Ellis, professional and qualified property valuers, to carry out independent valuations for such properties. The revaluation surplus arising from these professional valuations net of applicable deferred income taxes was credited to other comprehensive income. Depreciation expenses of P 8.63 million (2009: P 7.23 million) and P 5.80 million (2009: P 4.98 million) are charged to ‘cost of sales’ and ‘administration expenses’ respectively in the comprehensive income. If land and buildings were stated on the historical cost basis the amounts would be as follows:

Cost Accumulated depreciation Net carrying amount

2010 P’000 54 673 (5 750 ) 48 923

2009 P’000 59 500 (3 115) 56 385

Certain property, plant and equipment is encumbered as security for banking facilities enjoyed by the Group as noted in note 33.

117

118

SEFALANA HOLDING COMPANY LIMITED Annual Report 2010

Notes to the Financial Statements for the year ended 30 April 2010

15 INVESTMENT PROPERTY Group Freehold and leasehold land and buildings at fair value Straight line lease rental adjustment Revaluation surplus Balance at end of year Reconciliation of fair value: Opening fair value At valuation Straight line lease rental adjustment Property refurbishments during the year Additional properties acquired during the year Transfer to property, plant and equipment Transfer from property, plant and equipment Disposals during the year Increase in fair value during the year Straight line lease rental adjustment

2010 P’000

2009 P’000

45 109 (1 297 ) 14 017 57 829

40 768 (800 )

39 968 40 768 (800 ) 65

26 117 26 185 (68 ) 248 15 000 (665 )

(15 000 ) 20 626 (1 350 ) 14 017 (497 ) 57 829

39 968

(732 ) 39 968

The Group’s investment properties were valued in 2008 by Messer’s Pam Golding International Botswana, independent qualified property valuers. At the end of the reporting current financial year, the properties were valued by the Directors through an internal valuation model which discounts contractual future cash flows to present value using a discount rate of 12.50%. The Directors have compared these values against recent market transactions of similar properties in the same location where such data were available. The Directors have enlisted the services of Messer’s Anderson and Anderson, registered valuation surveyors in Zambia, for carrying out an independent valuation of the property in Zambia. The revaluation surplus arising from this professional valuation was credited to ‘other gains’ in the statement of comprehensive income. One of the investment properties is encumbered as security for banking facilities enjoyed by the Group as noted in note 29. Contractual rental income from investment property Expenses directly attributable to investment property

2 716 (143 )

2 524 (112 )

SEFALANA HOLDING COMPANY LIMITED Annual Report 2010

Notes to the Financial Statements for the year ended 30 April 2010 16 INTANGIBLE ASSETS

Group Cost At 30 April 2009 Additions At 30 April 2010 Amortisation and impairment At 30 April 2009 Charge during the year At 30 April 2010 Carrying amount At 30 April 2010 At 30 April 2009

Goodwill Goodwill has been allocated for impairment testing to three individual cash-generating units as follows: Sefalana Cash and Carry Limited MF Holdings (Proprietary ) Limited Wholesale operations in South West Botswana

Goodwill P’000

Computer Software P’000

Total P’000

25 323 3 008 28 331

8 598 287 8 885

33 921 3 295 37 216

443 443

5 188 2 904 8 092

5 631 2 904 8 535

27 888 24 880

793 3 410

28 681 28 290

2010 P’000

2009 P’000

21 701 3 794 2 393 27 888

18 693 3 794 2 393 24 880

Goodwill arising from provisional accounting for business combination is detailed in note 36. At the end of current reporting year, the Group has assessed the recoverable amount of goodwill based on discounted cash flows of estimated future earnings from the individual cash-generating units and determined that goodwill is not impaired. The key assumptions used for the calculations are as follows: Growth rate Discount rate (pre-tax)

3.00% 12.50%

Computer software rights Acquired computer software licenses are capitalised on the basis of the costs incurred to acquire and bring to use the specific software. The useful lives of software are reviewed at each balance sheet date.

119

120

SEFALANA HOLDING COMPANY LIMITED Annual Report 2010

Notes to the Financial Statements for the year ended 30 April 2010 2010

2009

Total P’000

714 12 711 13 425 (6 505 ) (500 ) (3 331 ) 3 089

736 9 943 10 679 (2 669 ) (500 )

17 INVESTMENT IN ASSOCIATES Horizon Seftim Distributors Hardware Limited, (Proprietary) Zambia Limited P’000 P’000 Shares at cost Loan to associate Total cost of investment Less: Share of loss Impairment against investment Classified as held for sale (Note 25) Carrying value at end of year

1 9 597 9 598 (5 767 ) (500 ) (3 331 )

Hyperbola (Proprietary) Limited P’000 684 3 114 3 798 (738)

3 060

7 510

The financial results of the unlisted associates and their assets and liabilities are as follows. Horizon Seftim Distributors Hardware Limited, (Proprietary) Zambia Limited

Hyperbola (Proprietary) Limited

2010

Revenue Total loss Group’s share of loss Assets Liabilities

21 561 (6 744 ) (3 372 ) 8 877 20 410

11 109 (947) (464) 7 540 7 632

2009

Revenue Total loss Group’s share of loss Assets Liabilities

14 917 (4 790 ) (2 395 ) 14 611 19 400

1 602 (559) (274) 4 455 3 015

Horizon Distributors Limited, Zambia is engaged in the distribution business and is expected to generate revenue from the following financial periods. Other information pertaining the associate companies: Country of incorporation Financial year end Effective interest in stated capital Principal activity

Zambia

Botswana

28 February

30 April

40%

50%

49%

Wholesale distribution of fast moving consumer goods

Hardware trading in retail sector

Retail trade in fast moving consumer goods

SEFALANA HOLDING COMPANY LIMITED Annual Report 2010

Notes to the Financial Statements for the year ended 30 April 2010 17 INVESTMENT IN ASSOCIATES (Continued) None of the Group’s investment in associates is publically traded and therefore no quoted market prices are available. Following a decision by the Directors of the associate company, Seftim Hardware (Proprietary) Limited, on 5 July 2010, the Group’s share of the net investment in that company has been classified as ‘assets of disposal group held for sale under current assets in the balance sheet. The decision to close down the operations of the associate company was arrived at as it is believed that continued investment in this company is not going to support the goals and objectives of the investors. Interest on loans to Seftim Hardware (Proprietary) Limited and Hyperbola (Proprietary) Limited are charged at 2% below prime rate and prime rate respectively. The loans are unsecured and have no fixed terms of repayment. There are no significant contingent liabilities relating to the Group’s interest in associates.

18 PROPERTY DEVELOPMENT LOAN Group Loan receivable

2010 P’000

2009 P’000

972

1 105

The loan is secured over property owned by BG Estate (Proprietary) Limited, which is leased under a long-term lease agreement. It bears interest at 14.50% per annum and is payable in 120 equal installments from February 2005. The fair value of the loan approximates the carrying value.

19 DEFERRED LEASE ASSETS Group At beginning of year Raised during the year - straightline lease rental At end of year

916 484 1 400

197 719 916

The International Accounting Standard on operating leases (IAS 17) requires that lease income be recognised in the income statement on a straight line basis over lease term. The straight line method results in an equal impact on the income statement in each reporting period irrespective of the fact that the cash flows differ. The cumulative difference between the accounts recognised in the income statement and the cash flows is recognised on the balance sheet as deferred lease assets or liabilities as applicable.

121

122

SEFALANA HOLDING COMPANY LIMITED Annual Report 2010

Notes to the Financial Statements for the year ended 30 April 2010

20 INVESTMENT IN SUBSIDIARIES Company Held directly: Botswana Grain and Milling Company (Proprietary) Limited Brook Street Holdings (Proprietary) Limited Dumela Development (Proprietary) Limited Foods (Botswana) (Proprietary) Limited Jaedena Enterprises (Proprietary ) Limited KSI Holdings (Proprietary) Limited Meybeernick Investments (Proprietary) Limited MF Holdings (Proprietary) Limited Ngwato Industrial Distributing Company (Proprietary) Limited Riverview Holdings (Proprietary) Limited Sefalana Cash and Carry Limited Sefalana Housing (Proprietary) Limited Sefalana sa Botswana Limited Selibe-Pikwe Wholesale (Proprietary) Limited Sefalana Properties Limited, Zambia Sefalana Cash and Carry Limited, Zambia The Barn (Proprietary) Limited

2010 P’000

2009 P’000

337 26 1 044 2 524 1 4 250 12 8 861 51 32 48 855

337 26 1 044 2 524 4 250 12 8 861 51 32 48 855

1 61 61 1 66 117

1 61 61 1 66 116

% holding 100 100 100 100 51 50 100 55 100 100 79.35 100 100 100 85 85 100

% holding by the controlling entity Held indirectly, through : MF Holdings (Proprietary) Limited: Bargen (Proprietary) Limited Commercial Motors (Proprietary) Limited Ellerry Holdings (Proprietary) Limited Mechanised Farming (Proprietary) Limited KSI Holdings (Proprietary) Limited: Kgalagadi Soap Industries (Proprietary) Limited Refined Oil Products (Proprietary) Limited

2010

2009

72 100 100 100

72 90 100 100

100 100

The principal activities of the subsidiaries are described in the Group Managing Director’s report and company profiles. Although the Company does not control more than one half of the voting rights of KSI Holdings (Proprietary) Limited, management has assessed that KSI Holdings (Proprietary) Limited is de-facto controlled by the Company by virtue of operation of an agreement between the shareholders which gives the Company the right to appoint majority of Directors to the subsidiary’s Board of Directors.

SEFALANA HOLDING COMPANY LIMITED Annual Report 2010

Notes to the Financial Statements for the year ended 30 April 2010 20 INVESTMENT IN SUBSIDIARIES (Continued) During the reporting year, MF Holdings (Proprietary) Limited acquired the shares held by a non-controlling shareholder in Commercial Motors (Proprietary) Limited, increasing its ownership interest from 90% to 100%. Subsequent to the year end, the Company acquired all of the shares held by the non-controlling shareholders of Sefalana Cash and Carry Limited through a “Scheme of Arrangement” approved by the shareholders of both companies and by the Botswana Stock Exchange and High Court of Botswana by the issue of 4.5 shares of the Company for each of the acquisition shares. Details of this transaction are given under note 41.

21 INVENTORIES Group Purchased for resale Finished goods Raw materials Work in progress Less: provision for obsolescence

2010 P’000

184 703 2 452 15 671 916 (4 619 ) 199 123

2009 P’000

173 252 2 059 17 120 2 364 (4 235 ) 190 560

Inventories stated at net realisable value amount to P 7.38 million (2009: P 1.57 million). Inventories written off during the year amount to P 0.59 million (2009: P 1.04 million). The value of vehicles in stock secured under the Wesbank floor plan facility at end of the year is P 0.20 million (2009: P Nil).

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124

SEFALANA HOLDING COMPANY LIMITED Annual Report 2010

Notes to the Financial Statements for the year ended 30 April 2010

22 TRADE AND OTHER RECEIVABLES Group Trade receivables Allowance for doubtful debts Prepaid expenses Other

2010 P’000

83 381 (10 642 ) 72 739 4 950 44 207 121 896

2009 P’000

81 113 (7 809 ) 73 304 5 281 13 492 92 077

The average credit period on sale of goods is 40 days ( 2009: 40 days). Included in trade and other receivables are amounts due in foreign currencies: being South African Rand, ZAR 0.84 million (2009: ZAR 1.73 million); Euro, EUR 3.48 million (2009:EUR Nil) and United State Dollars, USD 0.041 million (2009: USD 0.053 million) all of which equates to P 32.48 million (2009: P 1.87 million). From the Group’s historical delinquency experience, once trade receivables remain outstanding for a period of more than 90 days after the date of invoicing, there is an indication of possible impairment of the debt and the debtor’s ability to settle its debt. Accordingly, the Group accounts for specific impairment of all receivables which are aged over 90 days at the reporting date. Trade receivables which are aged between 30 and 90 days are classified as past due but not individually impaired. Provisions for impairment are raised against these receivables based on a specific identification of the impaired debtor. Before accepting any new customer the Group assesses the potential customer’s credit quality and defines credit limits by customer. Limits and scoring attributed to customers are reviewed regularly. Included in the Group’s trade receivable balance are debtors with a carrying amount of P 14.30 million (2009: P 8.10 million) which are past due at the reporting date for which the Group has not provided as there has not been any observable change in credit quality and the amounts are still considered recoverable. The Group does not hold any collateral over these balances. The average age of these receivables is 60 days (2009: 60 days). Ageing of past due but not impaired: Group 30-60 days 60-90 days 90-120 days Total

11 231 1 991 1 104 14 326

6 510 1 611 7 8 128

Movement in allowances for impairment: Group At beginning of year Impairment losses recognised on receivables Amounts written off as uncollectible Amounts recovered during the year At end of year

7 808 4 229 (1 345 ) (50 ) 10 642

6 035 3 241 (1 291 ) (176 ) 7 809

In determining the recoverability of a trade receivable the Group considers any change in the credit quality of the debtor from the date credit was initially granted up to the reporting date. Credit risk is not concentrated in any particular segment due to the customer base being large and unrelated. Accordingly, the Directors believe that no further impairment provision is required in excess of the allowance for doubtful debts and that the carrying value of trade receivables presents the fair value of these assets. The book debts of one of the subsidiary company is hypothecated to bankers as noted under note 33. The maximum exposure to credit risk at the reporting date is the carrying value of each receivable mentioned above.

SEFALANA HOLDING COMPANY LIMITED Annual Report 2010

Notes to the Financial Statements for the year ended 30 April 2010

22 TRADE AND OTHER RECEIVABLES (Continued) Company Trade receivables Prepaid expenses

2010 P’000

2009 P’000

111 27 138

209 23 232

23 RELATED PARTY BALANCES Transactions between related parties are made at terms equivalent to those that prevail in arm’s length transactions. There is no impairment provision of amounts owed by related parties at the end of the reporting year, other than for the investment in Seftim Hardware (Proprietary) Limited, an associate company; assessment is undertaken each financial year through examining the financial position of the related party and the market in which it operates to ensure no provision is required. Related party loans bear interest at bank prime rate less 3.35% which represents the Company’s borrowing rate from its main banker in Botswana; there are no fixed terms for payment. Interest on loans to associates are as stated in note 17. Interest on loan balances to a foreign subsidiary company is linked to the terms and conditions of the matching facility enjoyed by the Company with its facility provider. Company Amounts due from: Botswana Grain and Milling Company (Proprietary) Limited Brook Street Holdings (Proprietary) Limited Dumela Development (Proprietary) Limited Foods (Botswana) (Proprietary) Limited Jaedena Enterprises (Proprietary) Limited KSI Holdings (Proprietary) Limited Meybeernick Investments (Proprietary) Limited Sefalana Cash and Carry Limited Riverview Holdings (Proprietary) Limited Selibe-Pikwe Wholesale (Proprietary) Limited The Barn (Proprietary) Limited Total current dues

720 17 881 23 687

47 202 79 183 875 15 741 77 565

Amounts due from foreign subsidiary : Sefalana Properties Limited, Zambia Total non-current dues Total amounts due from related parties

17 008 17 008 40 695

2 050 2 050 79 615

952 1 684 562 373 118 1 318 79

248 2 074 625 10 538

Dues from foreign subsidiary represent an amount receivable in United States Dollars, USD 2 503 623 ( 2009: USD 285 000). The Company has entered into an agreement with Sefalana Properties Limited, Zambia, to secure its term loan installment liabilities to First National Bank of Botswana Limited on the same terms and conditions as provided for in the term loan agreement and as described in note 29. This long term loan advance is recognised as a non-current asset. Amounts due to: Foods (Botswana) (Proprietary) Limited 15 Ngwato Industrial Distributing Company (Proprietary) Limited 81 361 Riverview Holdings (Proprietary) Limited 1 726 Sefalana Housing (Proprietary) Limited 1 398 1 286 Sefalana sa Botswana Limited 5 056 5 056 Total amounts due to related parties 8 276 6 703 Key management include non-executive and the executive directors of the Company. The compensation paid or payable to key management is diclosed in note 12.

125

126

SEFALANA HOLDING COMPANY LIMITED Annual Report 2010

Notes to the Financial Statements for the year ended 30 April 2010

24 CASH AND CASH EQUIVALENTS Group Cash on hand Bank balances Short term deposits (with maturities of less than 3 months)

2010 P’000

2009 P’000

252 90 146 56 001 146 399

148 62 273 80 878 143 299

(66 840 )

Bank overdrafts Company Bank balances

23 (24 233 )

Bank overdrafts

(71 002 )

189 (71 002 )

The credit quality of cash at bank and short term deposits that are neither past due nor impaired and can be assessed by reference to external credit ratings or historical information about counterparty default rates.

25 ASSETS OF DISPOSAL GROUP CLASSIFIED AS HELD FOR SALE AND DISCONTINUED OPERATIONS Following a decision by the Directors of the associate company, Seftim Hardware (Proprietary) Limited, to cease operations, on 5 July 2010, the Group’s share in the net investment in that company has been classified as ‘assets of disposal group held for sale’ under current assets in the balance sheet. The decision to close down the operations of the associate company was reached as it is believed that, continued investment in this company is not going to support the goals and objectives of the investors. Net investment in associate as on 30 April 2010 classified as held for sale is as follows: P’000 1 9 597 9 598 (5 767) (500) 3 331

Shares at cost Loan to associate Total cost of investment Share of accumulated operational losses Impairment against investment Classified as held for sale

Summary financial information of disposal group classified as held for sale:

P’000

Year

Assets

Liabilities

Revenue

2010 2009

8 877 14 611

20 410 19 400

21 561 14 917

Loss (6 744 ) (4 790 )

Group’s share of loss (3 372 ) (2 395 )

SEFALANA HOLDING COMPANY LIMITED Annual Report 2010

Notes to the Financial Statements for the year ended 30 April 2010 26 STATED CAPITAL AND RESERVES Stated capital Group and Company Issued and fully paid: At beginning and end of year - 165 649 067 numbers of shares

2010 P’000

2009 P’000

14 612 14 612

The Company has one class of ordinary shares of no par value which carry no right to fixed income. Subsequent to the current reporting date, the Company has issued additional 18 891 063 shares in accordance with a “Scheme of Arrangement” whereby the non-controlling shareholders of Sefalana Cash and Carry Limited have exchanged each of their shares for 4.5 shares of the Company. These additional share were listed on the Botswana Stock Exchange on 16 September 2010. Sefalana Cash and Carry Limited was delisted from the Botswana Stock Exchange and became a wholly owned subsidiary of the Company. Details of this transaction are given under note 41. Reserves Group Reserves include the following: Foreign currency translation reserve Reserve for surpluses on revaluation of own-use properties

14 30 557 30 571

24 454 24 454

27 FINANCE LEASE OBLIGATIONS 2010

Group Finance lease liabilities are payable as follows: Within one year Between two to five years More than five years Unearned finance charges

Comprising: Long term Short term

Minimum payment P’000 7 726 19 075 2 206 29 007 (9 410 ) 19 597

2009 Present value of capital payments P’000 4 367 13 406 1 824 19 597 19 597

Minimum payment P’000

Present value of capital payments P’000

6 891 24 147 4 657 35 695 (13 362 ) 22 333

2 939 15 474 3 920 22 333

2010 P’000

2009 P’000

15 230 4 367 19 597

19 394 2 939 22 333

22 333

The leases are in respect of store premises and comprise fixed rentals payable monthly with annual escalations of between 1% and 10%. Main leases have renewal options for a further period of five years.

127

128

SEFALANA HOLDING COMPANY LIMITED Annual Report 2010

Notes to the Financial Statements for the year ended 30 April 2010

28 DEFERRED LEASE OBLIGATIONS Group At beginning of year Raised / (released) during the year At end of year

2010 Pâ&#x20AC;&#x2122;000

342 511 853

2009 Pâ&#x20AC;&#x2122;000

740 (398 ) 342

Deferred lease obligations arises on account of recognising lease rentals for store premises, offices and workshop premises of subsidiary companies on a straight-line basis over the lease period. The International Accounting Standard on operating leases (IAS 17) requires that lease income be recognised in the income statement on a straight line basis over lease term. The straight line method results in an equal impact on the income statement in each reporting period irrespective of the fact that the cash flows differ. The cumulative difference between the accounts recognised in the income statement and the cash flows is recognised on the balance sheet as deferred lease assets or liabilities as applicable.

29 LONG TERM BORROWINGS Term loan from First National Bank of Botswana Limited Group Comprising: Long term portion Current portion

Company Comprising: Long term portion Current portion

13 565 1 507 15 072

14 353 1 025 15 378

13 565 1 507 15 072

The term loan from First National Bank of Botswana Limited for United States Dollars, USD 2 137 500 bears interest at the 3 month Libor rate plus 1.75% and is repayable in 120 months commencing from 31 May 2010. The loan is secured by a first Covering Mortgage Bond of P 21 million over Plot 22026/27 Gaborone, Botswana, and by an unlimited letter of suretyship from a subsidiary company, Meybeernick Investments (Proprietary) Limited.

SEFALANA HOLDING COMPANY LIMITED Annual Report 2010

Notes to the Financial Statements for the year ended 30 April 2010 30 TRADE AND OTHER PAYABLES Group Trade payables Accrued expenses Other payables Unclaimed dividends

2010 Pâ&#x20AC;&#x2122;000

2009 Pâ&#x20AC;&#x2122;000

167 072 19 481 109 090 805 296 448

189 358 21 655 31 739 546 243 298

Included above are liabilities denominated in foreign currencies South African Rand, ZAR 56.22 million (2009: ZAR 68.36 million) which equate to P 52.56 million ( 2009: P 60.46 million); Euro, EUR 10.92 million (2009: EUR 3.16 million) which equate to P 98.50 million ( 2009: P 30.03 million) and United States Dollars, USD 0.036 million (2009: USD Nil) which equate to P 0.25 million (2009: P Nil). The average credit period for certain service cost liabilities is 30 days. Other payables are settled as and when they fall due. The Group has financial risk management policies in place to ensure that all payables are paid within the credit time frame. Company Trade payables Accrued expenses Unclaimed dividends

106 391 447 944

190 883 281 1 354

31 FINANCIAL ASSETS BY CATEGORY The accounting policies for financial instruments have been applied to financial assets and financial liabilities as applicable. Financial assets of the Group and Company are classified as follows: Category- loans and receivables Group Property development loan Deferred lease asset Trade and other receivables Cash and cash equivalents

Company Amounts due from related parties Trade and other receivables Cash and cash equivalents

972 1 400 116 946 146 399 265 717

1 105 916 86 796 143 299 232 116

40 695 111 23 40 829

79 615 209 189 80 013

129

130

SEFALANA HOLDING COMPANY LIMITED Annual Report 2010

Notes to the Financial Statements for the year ended 30 April 2010 2010 P’000

32 FINANCIAL LIABILITIES BY CATEGORY

2009 P’000

The accounting policies for financial instruments have been applied to financial assets and financial liabilities as applicable. Financial liabilities of the Group and Company are classified as follows: Category - financial liabilities at amortised cost Group Trade and other payables Finance lease obligations Borrowings Bank overdraft Deferred lease obligations

Company Amounts due to related parties Trade and other payables Bank overdraft

296 448 19 597 15 072 66 840 853 398 810

243 298 22 333 15 378 71 002 342 352 353

8 276 944 24 233 33 453

6 703 1 354 71 002 79 059

33 BANKING FACILITIES The short term borrowing facilities of the Group are classified as follows. The term loan facility available for the Group is detailed in note 29.

Currency

Limit in foreign currency

Limit in equivalent reporting currency (P)

Overdraft Letters of credit Letters of credit Performance guarantee

P ZAR EUR P

N/A 8 million 7.44 million N/A

75.74 million 7.40 million 67.13 million 13.83 million

Barclays Bank of Botswana Limited

Letters of credit

EUR

3.47 million

31.36 million

Wesbank (a division of First National Bank of Botswana Limited)

Vehicles and equipments floor plan

N/A

4.75 million

Letters of credit and guarantees Overdraft

P P

N/A N/A

4.00 million 25.00 million

Banker

Facility

First National Bank of Botswana Limited

Standard Chartered Bank Botswana Limited

The average interest rate on overdraft facilities utilised by the Group is at the commercial banks’ prime rate less 3.30%. One of the properties owned by a subsidiary company is mortgaged for P 5 million against certain of the Group’s banking facilities with First National Bank of Botswana Limited. The Wesbank floor plan facility is secured over vehicles and equipment under the floor plan. Certain book debts of the subsidiary companies are also secured for their available facilities. There are cross suretyships between companies within the same group proportionate to their shareholdings. Group’s unutilised facilities at the end of year is approximately P 43.87 million (2009: P 73.00 million).

SEFALANA HOLDING COMPANY LIMITED Annual Report 2010

Notes to the Financial Statements for the year ended 30 April 2010

34 PROVISIONS Group At 30 April 2009 Arising during the year Utilised during the year At 30 April 2010

Employee benefits P’000

17 365 8 356 (13 140 ) 12 581

Others P’000

2 474 (610 ) (833 ) 1 031

Total P’000

19 839 7 746 (13 973 ) 13 612

The provision for employee benefits represents annual leave and severance benefit entitlements as applicable. Other provisions include provisions for warranties and service plans.

35 OPERATING LEASES Group as lessor Operating leases relate to the property owned by the Group with lease terms of between 3 to 10 years, with an option to extend for a further negotiated period. All operating lease agreements contain market review clauses in the event that the lessee exercises its option to renew. No lessee has an option to purchase the property at the expiry of the lease period.

Within one year Within two to five years Over five years

Group as lessee At the year end, the Group had contracted with tenants for the following minimum lease payments: Within one year Within two to five years Over five years

2010 P’000 2 444 9 837 9 044 21 325

2009 P’000 2 360 16 061 8 990 27 411

3 597 10 669 7 483 21 749

1 434 3 251 4 685

131

132

SEFALANA HOLDING COMPANY LIMITED Annual Report 2010

Notes to the Financial Statements for the year ended 30 April 2010 36 BUSINESS COMBINATION During the current reporting year, Sefalana Cash and Carry Limited (Sefcash) entered into agreements with NTS Holdings (Proprietary) Limited, a company registered in Botswana, to acquire five of their retail supermarket business units which operated within Botswana. Based on these agreements, Sefcash assumed the lease rights on such premises, certain of the movable assets and stock items at various dates during March and April 2010. At the current reporting date, three of these locations were refurbished to the requirements of Sefcash and have been re-opened under the brand name “Shoppers”. The other two are expected to be opened before December, 2010. These acquisitions are in the nature of a business combination requiring a ‘purchase price allocation’ in accordance with International Financial Reporting Standards, IFRS 3. Sefcash has accounted for these business combinations provisionally at the date of reporting by allocating identified fair values to the assets and goodwill. These provisional values will be reviewed within the 12 month period from the date of acquisition of these business units and any adjustments required to the fair values of assets and goodwill will be done retrospectively. At the balance sheet date, the purchase price paid for the businesses was provisionally allocated based on an internal fair valuation exercise to various asset accounts as follows: Acquisition Fair value cost P’000 P’000 Inventories Property, plant and equipment Deferred tax asset Total Purchase consideration Goodwill

7 923 2 462 1 003 11 388 (14 396 ) (3 008 )

6 972 7 424 14 396

The goodwill is attributable to the anticipated economies of scale to be achieved between these new retail outlets and Sefcash’s existing cash and carry operations, as well as the location of these outlets in established retail nodes and commercial centres.

37 RETIREMENT BENEFIT PLANS The Group operates two defined contribution retirement benefit plans: (i) Sefcash Retirement Fund: Members of this fund are the qualifying employees of Sefalana Cash and Carry Limited; and (ii) Sefalana Pension Fund: Members of this fund are the qualifying employees of Sefalana Holding Company Limited and its subsidiary or associate companies other than Sefalana Cash and Carry Limited. The assets of these pension funds are held separately from those of the Group’s businesses in funds under the control of respective Boards of Trustees of the pension funds. Both the funds are administered by an independent professional body, Glenrand MIB, Botswana.

SEFALANA HOLDING COMPANY LIMITED Annual Report 2010

Notes to the Financial Statements for the year ended 30 April 2010 37 RETIREMENT BENEFIT PLANS (Continued) Sefalana Pension Fund has an employer reserve of P 23.61 million (2009: P 19.10 million) which can be utilised to set off against amounts due from the employer as its contribution to the members funds. During the reporting year, Sefalana Holding Company Limited has utilised P 563 694 (2009: P 545 912) of such employer reserve in lieu of its cash contribution to the members fund accounts. Those employees who are not members of the pension funds and who are not on a fixed cost to company packages are entitled to severance benefit in terms of Botswana Labour Laws; for which, yearly provisions are made in the accounts by the respective companies. The Boards of Trustees of both the funds have approved an amalgamation of the funds with the consent of the regulatory authorities. All members of both the funds are being appraised of this amalgamation exercise and the effective date of establishment of the amalgamated fund is expected to be 1 October 2010. The Boards of Trustees have confirmed that no members from either of the amalgamating funds are disadvantaged from this exercise. The amalgamated fund will be administered by a selected Board of Trustees in accordance with the rules of the amalgamated fund.

38 FINANCIAL INSTRUMENTS Capital risk management The Group manages its capital to ensure that entities in the Group will be able to continue as a going concern while maximising the return to stakeholders through the optimisation of the debt and equity balance. The Group’s overall strategy remains unchanged from prior years. The capital structure of the Group consists of long term borrowings, bank overdrafts and equity attributable to equity holders of the parent. Gearing ratio The Board of Directors reviews the capital structure on an on-going basis. As part of this review, the Board considers the cost of capital and the risks associated with each class of capital. The Group aims to minimise net borrowings on a Group basis but will incur debt for expansion of operations. The Group has a target maximum gearing ratio of 20-25% determined as the proportion of net debt to equity. At the year end, the Group’s cash and cash equivalents exceeded the debts from banks. Significant accounting policies Details of the significant accounting policies and methods adopted, including the criteria for recognition, the basis of measurement and the basis on which income and expenses are recognised, in respect of each class of financial asset, financial liability and equity instrument are disclosed in note 3 to the financial statements. Financial risk management objectives The Group’s Corporate Treasury function provides services to the business, co-ordinates access to domestic and international financial markets, monitors and manages the financial risks relating to the operations of the Group through internal risk reports which analyse exposures by degree and magnitude of risks. These risks include market risk (including currency risk, fair value interest rate risk, cash flow interest rate risk and price risk), credit risk and liquidity risk. The Group’s financial risk management policies are approved by the Board of Directors, which provides principles on foreign exchange risk, interest rate risk, credit risk, and the investment of excess liquidity. Compliance with policies and exposure limits is reviewed by management on a continuous basis. The Group does not enter into or trade in financial instruments, including derivative financial instruments, for speculative purposes. The Corporate Treasury function reports quarterly to the Group’s Board of Directors, an independent body that monitors risks and policies implemented to mitigate risk exposures.

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Notes to the Financial Statements for the year ended 30 April 2010 38 FINANCIAL INSTRUMENTS (Continued) Market risk The Group’s activities expose it primarily to the financial risks of changes in foreign currency exchange rates and interest rates. The Group enters into forward foreign exchange contracts to hedge the exchange rate risk arising on the import of supplies throughout the Group. Market risk exposures in the prices of grains used by Foods (Botswana) (Proprietary) Limited are managed by securing contracts for bulk purchases of grain. Foreign currency risk management The Group undertakes certain transactions denominated in foreign currencies. Hence, exposures to exchange rate fluctuations arise. The most significant foreign exchange exposures arise from South African Rand denominated purchases of goods for the Trading - Consumer Goods and Manufacturing operating segments. These obligations are generally settled within 30 days of delivery of goods, thus limiting the Group’s exposure. Furthermore, anticipated changes in foreign exchange rates are considered in the sales pricing of such goods. The Trading - Others operating segment attracts exposure to foreign currency exchange risk to the Euro and United States Dollar through importation of vehicles and equipment from foreign suppliers. The Group manages these risks through securing appropriate deposits in the underlying currencies. The carrying amounts of the Group’s foreign currency denominated monetary assets and monetary liabilities at the reporting date are as follows:

South African Rand (ZAR ) United States Dollars (USD) Great Britain Pounds (GBP) Euro (EUR) Pula equivalent

Liabilities 2010 P’000

Liabilities 2009 P’000

Assets 2010 P’000

Assets 2009 P’000

56 384 2 267

68 360 2 138

10 920 117 934

3 161 103 607

5 602 660 4 10 930 103 488

3 673 670 5 3 478 41 151

Foreign currency sensitivity analysis The Group is exposed to the currency of South Africa through its regional buying operations; Euro, as a result of a trading agreement and United States Dollars through a long term borrowing facility. The following table details the Group’s sensitivity to a 10% increase and decrease in the Pula against the relevant foreign currencies. 10% is the sensitivity rate used when reporting foreign currency risk internally to key management personnel and represents management’s assessment of the reasonably possible change in foreign exchange rates. The sensitivity analysis includes only outstanding foreign currency denominated monetary items and adjusts their translation at the year end for a 10% change in foreign currency rates. A positive number below indicates an increase in profit and other equity where the Pula strengthens 10% against the relevant currency. For a 10% weakening of the Pula against the relevant currency, there would be an equal and opposite impact on the profit and other equity, and the balances below would be negative.

SEFALANA HOLDING COMPANY LIMITED Annual Report 2010

Notes to the Financial Statements for the year ended 30 April 2010 38 FINANCIAL INSTRUMENTS (Continued) EUR impact 2010 P’000

EUR impact 2009 P’000

ZAR impact 2010 P’000

ZAR impact 2009 P’000

USD impact 2010 P’000

USD impact 2009 P’000

9 850

2 730

5 269

5 388

1 540

1 398

Loss if Pula weakens at 10%

(9 850 )

(2 730 )

(5 269)

(5 388)

(1 540 )

(1 398 )

On assets: Profit if Pula weakens at 10%

9 858

3 003

524

289

449

438

(9 858 )

(3 003 )

(524)

(289)

(449 )

(438 )

On liabilities: Profit if Pula strengthens at 10%

Loss if Pula strengthens at 10%

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Notes to the Financial Statements for the year ended 30 April 2010 38 FINANCIAL INSTRUMENTS (Continued) Interest rate risk management The Group is exposed to interest rate risk as entities in the Group borrow funds at floating interest rates. The Group’s exposure to interest rates on financial assets and financial liabilities is detailed in the liquidity risk management section of this note. Interest rate sensitivity analysis The sensitivity analysis has been determined based on the exposure of financial instruments to interest rates at the balance sheet date. For floating rate liabilities denominated in the reporting currency, the analysis is prepared assuming the amount of liability outstanding at the balance sheet date was outstanding for the whole year. A 50 basis point increase or decrease is used when reporting interest rate risk internally to key management personnel and represents management’s assessment of the reasonably possible change in interest rates. If interest rates had been 50 basis points higher/lower and all other variables were held constant, the Group’s profit for the year ended 30 April 2010 would decrease/increase by P 515 000 (2009: decrease/increase by P 355 000). Credit risk management Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the Group. The Group has adopted a policy of only dealing with creditworthy counterparties and obtaining sufficient collateral, where appropriate, as a means of mitigating the risk of financial loss from defaults. The Group only transacts with entities that are rated the equivalent of investment grade and above. The Group uses publicly available financial information and its own trading records to rate its major customers. The Group’s exposure and the credit ratings of its counterparties are continuously monitored and the aggregate value of transactions concluded is spread amongst approved counterparties. Credit exposure is controlled by counterparty limits that are reviewed and approved by the risk management committee annually. Trade receivables consist of a large number of customers, spread across diverse industries and geographical areas. Ongoing credit evaluation is performed on the financial condition of accounts receivable. The Group does not have any significant credit risk exposure to any single counterparty or any group of counterparties having similar characteristics. The Group defines counterparties as having similar characteristics if they are related entities. Concentration of credit risk did not exceed 5% of gross monetary assets at any time during the year. The credit risk on liquid funds is limited because the counterparties are banks with high credit-ratings assigned by international credit-rating agencies. The carrying amount of financial assets recorded in the financial statements is net of impairment losses and represents the Group’s maximum exposure to credit risk. Financial assets exposed to credit risk at end of year

Trade and other receivables Bank balances with: First National Bank of Botswana Limited Standard Chartered Bank Botswana Limited Barclays Bank of Botswana Limited Stanbic Bank Botswana Limited Standard Bank of South Africa Limited First National Bank of South Africa Limited Other non current financial assets

2010 P’000

2009 P’000

116 946

86 796

86 791 46 870 3 251 3 596 1 087 4 552 2 372 265 465

28 948 74 660 36 153 3 124 37 229 2 021 231 968

SEFALANA HOLDING COMPANY LIMITED Annual Report 2010

Notes to the Financial Statements for the year ended 30 April 2010 38 FINANCIAL INSTRUMENTS (Continued) Liquidity risk management Ultimate responsibility for liquidity risk management rests with the Board of Directors, which has built an appropriate liquidity risk management framework for the management of the Group’s short, medium and long-term funding and liquidity management requirements. The Group manages liquidity risk by maintaining adequate reserves, banking facilities and reserve borrowing facilities, by continuously monitoring forecast and actual cash flows and matching the maturity profiles of financial assets and liabilities. The following tables detail the Group’s remaining contractual maturity for its non-derivative financial liabilities. The tables have been drawn up based on the undiscounted cash flows of financial liabilities based on the earliest date on which the Group can be required to repay the liability. The table includes both interest and principal cash flows. Less than 1 year P’000

Between 2 - 5 years P’000

Above 5 years P’000

At 30 April 2010: Bank overdraft Trade and other payable Finance lease liabilities Term loan

66 840 296 448 7 726 1 606

19 075 6 422

2 206 8 028

At 30 April 2009: Bank overdrafts Trade and other payables Finance lease liabilities Term loan

71 002 243 298 6 891 1 174

24 147 8 803

4 657 7 629

The Group will finance cash flows to settle the above obligations through utilisation of unused banking facilities and future operating cash flows.

The Group has unused banking facilities available at the balance sheet date as follows: Overdrafts Wesbank floor plan Letters of credit

2010 P’000

2009 P’000

38 331 4 547 1 000

67 299 5 350 399

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SEFALANA HOLDING COMPANY LIMITED Annual Report 2010

Notes to the Financial Statements for the year ended 30 April 2010 39 CONTINGENT LIABILITIES Sefalana Cash and Carry Limited Sefalana Cash and Carry Limited has successfully concluded an earlier legal proceeding instituted by Metcash Trading Limited, a former controlling shareholder, at no cost to the Company. Commercial Motors (Proprietary) Limited Two litigations against this subsidiary company are in process through which claims of approximately P 1 million is sought by third parties. The company’s attorney’s and the Directors consider the success of the actions against the company as unlikely, and the cases should be resolved within the next two years. The company has issued a performance guarantee in the ordinary course of business in favour of Botswana Defence Force for an amount of Euro 3.48 million through Barclays Bank of Botswana Limited and Euro 7.44 million through First National Bank of Botswana Limited. This guarantee is secured through the company’s fixed deposit account in Euro with Barclays Bank of Botswana Limited and First National Bank of Botswana Limited for the equivalent amounts. The company has also issued standby Letters of Credit for importation of vehicles to the values of ZAR 5 Million and ZAR 3 Million in favour of Tata Automobile Corporation (SA) (Proprietary) Limited and Accordian Investment (Proprietary) Limited. These standby Letters of Credit facilities are from Standard Chartered Bank Botswana Limited. Mechanised Farming (Proprietary) Limited The company has issued a bank guarantee in the ordinary course of business for P 0.268 million. The property owned by the company is mortgaged for P 5 million against its group’s banking facilities as disclosed in note 33. Bargen (Proprietary) Limited The company has issued bank guarantees in the ordinary course of business in favour of International Air Transport Association (IATA) for P 0.84 million (2009: P 3.52 million) and Singapore Airlines Limited for ZAR 50 000 (2009: ZAR 50 000) through the First National Bank of Botswana Limited. These guarantees are secured through the company’s tangible assets and letter of suretyship issued by the company’s holding company, MF Holdings (Proprietary) Limited and fellow subsidiary company, Mechanised Farming (Proprietary) Limited. Foods (Botswana) (Proprietary) Limited The company has issued bank guarantees in favour of the Department of Local Government Finance and Technical Services, Government of Botswana for P 10.72 million (2009: P 9.93 million) to support the company’s performance. Kgalagadi Soap Industries (Proprietary) Limited Bank guarantees arising from ordinary course of business issued in favour of Department of Customs and Excise P 0.17 million ( 2009: P 0.17 million). Meybeernick Investments (Proprietary) Limited One of the properties owned by the company is mortgaged to First National Bank of Botswana Limited as disclosed in note 29.

GROUP

40 CAPITAL COMMITMENTS

2010 P’000

2009 P’000

310 30 132 30 442

4 574 22 600 27 174

Capital expenditures approved by the Directors: Contracted for Not contracted for

SEFALANA HOLDING COMPANY LIMITED Annual Report 2010

Notes to the Financial Statements for the year ended 30 April 2010 41 POST BALANCE SHEET EVENTS (i) “Scheme of Arrangement” Sefalana Holding Company Limited (Sefhold) has acquired all of the issued shares of Sefalana Cash and Carry Limited (Sefcash), previously held by a number of individuals and institutions. Each of the shares of Sefcash were exchanged for 4.5 number of shares in Sefhold. The swap ratio determined by the Sefhold Directors was supported by a fair and reasonable opinion by Imara Botswana Limited (Imara), independent financial advisors, to the transaction. In effecting the recommendation to the Sefcash shareholders, Sefcash Directors established a sub-committee to consider and support the methodology incorporated in the fair and reasonable report issued by Imara. The sub-committee was comprised of the Managing Director of Sefcash and two independent qualified persons. At the Extraordinary General Meeting of Sefhold held on 7 September 2010, the shareholders of Sefhold approved the additional issue of 18 891 063 shares of Sefhold in exchange for the shares of Sefcash held by the non-controlling shareholders. At the Scheme Meeting of Sefcash held on the same day, the non controlling shareholders of Sefcash accepted the offer from Sefhold. The effect of this transaction is: (a) Sefcash has become a wholly owned subsidiary of Sefhold effective 16 September 2010; (b) Sefcash has been de-listed from the Botswana Stock Exchange; and that (c) Additional shares of 18 891 063 issued by Sefhold were listed in the Botswana Stock Exchange along with the existing 165 649 067 listed shares. (ii) Discontinuation of Seftim Hardware businesses Subsequent to the financial year end, the Group and its joint venture partner, decided to close down the operations of Seftim Hardware (Proprietary) Limited, as this business has not performed and do not foresee that continued investment will support the Group’s performance objectives. This closure was effected on 5 July 2010. (iii) Amalgamation of Pension Funds The Boards of Trustees of Sefalana Pension Fund and Sefcash Retirement Fund have approved the amalgamation of both the pension funds. It is anticipated that at 1 October 2010 the processes will be completed and the new amalgamated pension fund will become effective.

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Notice of Annual General Meeting Notice is hereby given that an Annual General Meeting of Sefalana Holding Company Limited will be held at the Sefcash Head Office, Plot 10235, Corner Lejara and Moporoporo Roads, Broadhurst Industrial, Gaborone on Wednesday, 17 November 2010 at 16H00 for the purpose of transacting the following businesses: 1

To receive, consider and adopt the financial statements for the year ended 30 April 2010 together with the Directors and Auditors reports thereon.

To elect Directors in the place of Mrs. Jenny Marinelli and Mr. Andrew Pegge who retire by rotation. Both, being eligible, offer themselves for re-election.

To approve the appointment of Mr. Neo Moroka who filled the casual vacancy arising during the year from the resignation of Mr. Lawrence Lekalake.

To approve the remuneration of the Directors for the year ended 30 April 2010 as required by the Articles of Association and as detailed on note 12 to the financial statements.

To approve the remuneration of the Auditors for the year ended 30 April 2010.

To approve the appointment of PricewaterhouseCoopers as Auditors for the forthcoming financial year.

To transact such other business as may be transacted at an Annual General Meeting.

A member entitled to attend and vote at the above mentioned meeting is entitled to appoint a proxy to attend and speak and, on a poll, to vote in his/ her/ its stead. A proxy need not be a member of the Company. Proxy forms must be deposited or received at Sefalana Head Office, Plot 10247/50, Corner of Noko and Lejara Roads, Broadhurst Industrial, Private bag 0080, Gaborone, not less than 48 hours before the meeting. By order of the Board

Venkit Iyer Company Secretary 5 October 2010

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Notes

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SEFALANA HOLDING COMPANY LIMITED Annual Report 2010

Notes to Form of Proxy 1

A Shareholder may insert the names of two alternative proxies of the Shareholder’s choice in the space provided, with or without deleting “the Chairman of the Meeting.” The person whose name appears first on the form of proxy, and whose name has not been deleted will be entitled to act as proxy to the exclusion of those whose names follow.

A Shareholder’s instructions to the proxy must be indicated by the insertion of the relevant number of votes exercisable by the Shareholder in the appropriate space provided. Failure to comply herewith will be deemed to authorise the proxy to vote at th Meeting as he/she deems fit in respect of the Shareholder’s votes exercisable thereat, but where the proxy is the Chairman, failure to comply will be deemed to authorise the proxy to vote in favour of the resolution. A Shareholder or his/ her/ its proxy is obliged to use all the votes exercisable by the Shareholder or by his/ her/ its proxy. Forms of proxy must be lodged at or posted to the Secretary of the Company, to reach him not less than 48 hours before the meeting.

The completion and lodging of this form will not preclude the relevant Shareholder from attending the Meeting and speaking and voting in person thereat to the exclusion of any proxy appointed in terms hereof should such Shareholder wish to do so.

The Chairman of the Meeting may reject or accept any form of proxy not completed and/or received other than in accordance with these notes provided that he is satisfied as to the manner in which the Shareholder concerned wishes to vote.

An instrument of proxy shall be valid for the Meeting as well as for any adjournment thereof, unless the contrary is stated thereon.

A vote given in accordance with the terms of a proxy shall be valid, notwithstanding the previous death or insanity of the Shareholder, or revocation of the proxy, or of the authority under which the proxy was executed, or the transfer of the Ordinary Shares in respect of which the proxy is given, provided that no intimation in writing of such death, insanity or revocation shall have been received by the Company not less than one hour before the commencement of the Meeting or adjourned Meeting at which the proxy is to be used.

The authority of a person signing the form of proxy under a power of attorney or on behalf of a company must be attached to the form of proxy, unless the authority or full power of attorney has already been registered by the Company or the Transfer Secretaries.

Where Ordinary Shares are held jointly, all joint Shareholders must sign.

A minor must be assisted by his/her guardian, unless the relevant documents establishing his/her legal capacity are produced or have been registered by the Company.