2018 ANNUAL REPORT · 2020. 11. 4. · 4 CRESTA MARAKANELO LIMITED 2018 ANNUAL REPORT COMPANY REGISTRATION NO: 1974/556 NATURE OF BUSINESS Cresta Marakanelo Limited (“the Company’’

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CRESTA MARAKANELO LIMITED 2018 ANNUAL REPORT

2018ANNUALREPORT

Where One Smile Starts Another

2018ANNUALREPORT

WHERE ONE SMILE STARTS ANOTHER

INDEX PAGE

General Information 04

Board of Directors 05

Chairman’s Statement 09

Executive Management 12

Managing Director’s Statement 13

Corporate Governance 16

Sustainability and Corporate Social Responsibility 20

Consolidated Financial Statements 25

Top 20 Shareholders 91

TABLE OF CONTENTSTHE CRESTA MARAKANELO GROUP


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COMPANY REGISTRATION NO:

1974/556

NATURE OF BUSINESS

Cresta Marakanelo Limited (“the Company’’ or “CML”) and its subsidiary (“the Group”) operate hotels in Botswana and Zambia. The Group is also engaged in other hotel related businesses.

DIRECTORS

M K Lekaukau - (Chairman) J Y StevensT G Ondoko O MajuruP MolefeG SainsburyB K Molomo M Mbo M Morulane

SECRETARY

P Mothoteng

TRANSFER SECRETARIES

DPS Consulting Services (Pty) Ltd

REGISTERED OFFICE

Marula House, Prime PlazaPlot 745382nd FloorGaborone

INDEPENDENT AUDITORS

Deloitte & Touche

BANKERS

Barclays Bank of Botswana LimitedBarclays Bank Zambia PlcBotswana Savings BankBank Gaborone LimitedFirst National Bank of Botswana LimitedStanbic Bank Botswana Limited

CURRENCY

Botswana Pula

GENERAL INFORMATIONFOR THE YEAR ENDED 31 DECEMBER 2018

CRESTA MARAKANELO LIMITED

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CRESTA MARAKANELO

LIMITED

FOR THE YEAR ENDED 31 DECEMBER 2018

BOARD OF DIRECTORS

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CRESTA MARAKANELO LIMITEDBoard of Directors

Gavin SainsburyNon-Executive Director

Moatlhodi Lekaukau Chairman

Tshepidi Moremong-OndokoNon-Executive Director

Mr Lekaukau is the Acting Managing Director of Botswana Development Corporation (BDC) and the Chairman of YMH Media Group, a diversified media holding company with interests in Botswana and Zambia. He is the former Chief Executive Officer of Standard Chartered Bank Botswana. Prior to his role at Standard Chartered, Moatlhodi spent 12 years at Deloitte South Africa where he left as partner and Head of Mergers and Acquisitions for Southern Africa. Moatlhodi is the Chairman of Metropolitan Life Botswana Limited and a Director of African Banking Corporation Zambia Limited. He also serves as a director on a number of private company boards.

Moatlhodi is a member of the South African Institute of Chartered Accountants, a fellow member of the Botswana Institute of Chartered Accountants and holds a Bachelor of Commerce Degree and Postgraduate Diploma in Accounting from the University of Cape Town.

Mr Sainsbury is the Chief Executive Officer of Masawara Financial Services. Before joining Masawara, he was Chief Executive Officer of TA Holdings Limited, a company previously listed on the Zimbabwe Stock Exchange. Prior to that, he was the Managing Direcor of Colcom Holdings Limited from 2000 to 2010. Gavin is a qualified Chartered Accountant and obtained his qualification in 1981 in both Zimbabwe and South Africa. Gavin worked for Deloitte & Touche Zimbabwe from 1981 to 1998. He was appointed a Partner at Deloitte & Touche in 1989.

Ms. Tshepidi Moremong-Ondoko holds a BA Degree in Economics and Political Science from Swathmore College and an MBA in Finance and International Business from Columbia University Business School. Tshepidi started her career with Ernst and Young Botswana where she helped establish the management consultancy group. She is currently Head of Coverage Africa at Rand Merchant Bank and is Co-Chairman of African Venture Capital Association. Tshepidi has previously worked at Goldman Sachs, London in the investment banking division, focusing on mergers and acquisitions for Europe.

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CRESTA MARAKANELO LIMITEDBoard of Directors (CONTINUED)

Bafana Molomo Non-Executive Director

Pius Komane Molefe Non-Executive Director

Mbako Mbo Non-Executive Director

Mr Molefe is the Chief Executive Officer of Botswana Building Society. He holds a Post Graduate Diploma in Economics from the University of Sussex in the United Kingdom. Pius previously worked for Barclays Bank of Botswana and Ministry of Finance among others. At the Ministry of Finance, he was involved in the handling of all development projects.

He was further involved in the development of policies regulating the financial services sector. He was involved in the establishment of the Botswana Stock Exchange and also served as a member in the exchange.

Mr Molomo is a co-founder and partner of Aleyo Capital, a Botswana-based private equity fund management company. Bafana previously served as the Chief Investment Officer at the Botswana Development Corporation (BDC). He joined BDC in 2015 from Vantage Capital a leading mezzanine fund manager based in Johannesburg and operating across sub-Saharan Africa.

At Vantage, Bafana was a Senior Associate originating and structuring private equity and mezzanine deals in Sub-Saharan Africa with a focus on South Africa, Botswana, Namibia and Mozambique. He was previously with VPB in Botswana and Namibia as a senior investment professional. He began his career as an analyst with Fleming Asset Management Botswana.

Bafana earned a Bachelor of Commerce (Economics and Finance) and an MBA from University of Cape Town. He also holds a Post-graduate Diploma in Business from the University of Pretoria’s Gordon Institute of Business Science. Bafana also serves on the Boards of Letlole La Rona Limited and Sechaba Brewery Holdings Limited.

Dr Mbo is the Chief Financial Officer of Standard Chartered Botswana Limited. Prior to his current role he was the Chief Financial Officer of Botswana Development Corporation (BDC) where he oversaw the Finance, Treasury, ICT, Procurement and Administration functions. Prior to joining BDC, he worked for the African Development Bank as a Financial Management Expert working on an investment and program portfolio spanning across seven African countries.

Mbako holds a Bachelor’s Degree in Accounting, BSc (Hons) Applied Accounting, an MBA, a PhD and is also a Member of the Association of Chartered Accountants (ACCA) and a Member of the Association of Corporate Treasurers (AMCT).

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Mokwena MorulaneExecutive Director

John Yendell StevensNon-Executive Director

Osborne Majuru Non-Executive Director


Mr Stevens served Deloitte in South Africa and Botswana for over 33 years. Eight of those years were as partner in charge of Deloitte Botswana. John retired from Deloitte in 2007 and took up the challenge of private consultancy. He holds a B.Comm Degree from Rhodes University, is a fellow member of the Botswana Institute of Chartered Accountants, a member of the South African Institute of Chartered Accountants and a member of the Institute of Chartered Accountants of England and Wales.

John is also a member of the Board of Standard Chartered Bank Botswana.

Mr Majuru is a Chartered Accountant (Z) with an Accounting (Honours) Degree from the University of Zimbabwe. Osborne has more than 20 years senior management experience including as Financial Director for Anglogold Ashanti in Zimbabwe, Tanzania and Isle of Man; Chief Executive Officer for Cresta Group of Hotels and Zuva Petroleum (Pvt) Limited. In 2019 Osborne was appointed Chief Executive Officer in charge of the Cresta Hotels Cluster for the Masawara Group. Prior to this, he was the Group Chief Financial Officer and thereafter the Group Chief Strategy Officer for Masawara Zimbabwe (Pvt) Limited. Osborne sits on various boards as a non-executive director in Zimbabwe and Botswana.

Mr Morulane is the Managing Director of Cresta Marakanelo Limited. Mokwena started his career at Deloitte, and has held leadership roles in the mining and financial service sectors. Most recently he held the position of General Manager – Corporate Services at Botswana Oil Limited.

Mokwena is a fellow of the Association of Chartered Certified Accountants (ACCA), and a member of the Chartered Institute of Secretaries in Southern Africa. He holds a BA (Hons) in Accounting from the University of Luton, United Kingdom. He has also completed a Management Development Programme with the University of Stellenbosch Business School, South Africa.

Board of Directors (CONTINUED)

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CRESTA MARAKANELO

LIMITED


CHAIRMAN’S STATEMENT

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CRESTA MARAKANELO LIMITEDChairman’s Statement

On behalf of the Board of Directors of Cresta Marakanelo Limited, I am pleased to present to you the Annual Report and Financial Statements for the Group, for the year ended 31 December 2018

FINANCIAL PERFORMANCEThe Group had a strong performance during the second half of the year, which resulted in the Group exceeding the prior year profit after tax by 9%, despite trailing prior year performance at the half year. This was achieved due to a significant number of tourist arrivals during the peak period at the predominantly leisure properties, as well as a marked increase in business across all the properties.

Total overheads increased by 7%, including the additional costs for the Maun hotel, which had only been in operation for six months in the previous year. An overall profit before tax of P35.8 million was recorded for the period, reflecting a 7% increase from the result recorded for the previous year. Profit after tax increased by 9% compared to the previous year.

Botswana operationsThe Botswana operations exceeded prior year overall occupancies, despite two of the hotels having rooms unavailable as a result of phased refurbishments. Occupancies increased considerably at the new Cresta Maun Hotel, which was in its first full year of operation, after opening for business in June 2017. The hotel has appealed to both the leisure market and the conference market, with further increases in occupancies expected in the future as a result of additional marketing efforts especially to tour operators. Operating profit for the Botswana hotels increased by 6% compared to the previous year, with a positive contribution from Cresta Maun Hotel.

Zambian operationsThe Zambia operations experienced a recovery during the second half of the year, after low occupancies during the first five months of the year due to a cholera outbreak in Lusaka, which resulted in cancelled conference bookings and minimal business travellers at the hotel.

FINANCIAL HIGHLIGHTS

GROUP AUDITEDDec-18

P’000Dec-17

P’000%

changeRevenue 370,847 337,294 10%

Operating profit 35,094 33,048 6%

Profit before income tax 35,818 33,472 7%

Profit for the year 28,561 26,190 9%

Earnings per share (thebe) 15.79 14.47 9%

Total assets 272,992 256,507 6%

Total shareholders’ equity 191,008 177,333 8%

Cash and cash equivalents 61,636 68,513 (10%)

Cash generated from operations 67,046 65,344 3%Moatlhodi Lekaukau Chairman

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CRESTA MARAKANELO LIMITEDChairman’s Statement (CONTINUED)

M Lekaukau Chairman 29 March 2019

STATEMENT OF FINANCIAL POSITIONTotal assets increased by 6%, while equity increased by 8% compared to the same period last year. The increase in non-current assets is due to the investment in capital expenditure, from cash held by the Group. Total cash balances reduced by P6.9 million following the investment of P48.7 million (2017: P21.9 million) in capital projects across the Group. The Group ended the year with cash resources of P61.6 million (2017: P68.5 million), which will be utilised to fund refurbishments and expansion activities.

CASH FLOWCash generated from operations was P67.0 million (2017: P65.3 million), a 3% increase compared to the same period last year. Significant investment was made in capital expenditure, with P48.7m being spent on refurbishments being undertaken at two hotels as well as continuous product improvements being made in the rest of the hotel properties. This investment in capital expenditure was an increase of 122% on the P21.9 million expenditure in the prior year. Dividends paid to shareholders amounted to P14.7 million (2017: P27.1 million); as a result, there was an overall P6.9 million decrease in cash resources at the end of the year.

SUBSEQUENT EVENTSSubsequent to the year end, the Company received shareholder and relevant regulatory approval to acquire a total of five hotel properties currently being leased from Letlole La Rona Limited and Botswana Hotel Development Company (Proprietary) Limited, for a total consideration of P260 million. The acquisitions will be funded by debt.

DIVIDENDThe Directors took a prudent position of not declaring a dividend for the 2018 financial year. Capital expenditure will be required during 2019 to uplift the properties being acquired and position them competitively. There will be additional refurbishments required at other properties within the portfolio. Preservation and judicial management of cash is therefore critical at this stage in order to invest in the future growth of the Group.

COMPARED TO THE PREVIOUS YEAR

PROFIT AFTER TAX INCREASED

9%OUTLOOKThe Group will be investing in refurbishing and repositioning the properties it acquires, and will continue to explore opportunities to increase its footprint and bed stock in Botswana and the region.

APPRECIATIONI would like to commend management, staff and fellow Directors for their commitment and contribution to the Group. I would also like to thank our valued customers and stakeholders for their continued support.

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CRESTA MARAKANELO LIMITEDExecutive Management

Mokwena MorulaneManaging Director

Rutendo Maziva Chief Financial Officer

Segomotso BandaGroup Human Resources Manager

Karl Snater Group Operations Manager

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CRESTA MARAKANELO

LIMITED


MANAGING DIRECTOR’S STATEMENT

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CRESTA MARAKANELO LIMITEDManaging Director’s Statement

The Group recorded pleasing results for 2018 on the backdrop of subdued results in 2017. The year 2018 therefore reflects a recovery phase for the Group which augurs well for the future. Group revenue for the year ended 31 December 2018 grew by 10% from P337 million in 2017 to P372 million

FINANCIAL HIGHLIGHTSThe Group recorded pleasing results for 2018 on the backdrop of subdued results in 2017. The year 2018 therefore reflects a recovery phase for the Group which augurs well for the future. Group revenue for the year ended 31 December 2018 grew by 10% from P337 million in 2017 to P372 million. The Earnings before interest, tax, depreciation, amortisation and rental (EBITDAR) were 5% above the previous year at P104 million, compared to P99 million in 2017. The Group’s Earnings before interest, tax, depreciation, and amortisation (EBITDA) were also 5% above prior year at P57 million and P54 million respectively; whilst the Group’s Profit before tax (PBT) grew by 7% from P33 million recorded in 2017 to P36 million in 2018.

Our business is cash generative; and the Group remains cash positive, with net cash at P61.6 million as at 31 December 2018 (P68.5 million in 2017). The reduction was mostly attributable to the major refurbishment undertaken at our flagship Mowana Resort and Spa during the year.

OUR CORE VALUESThe core values represent the attitudes, behaviours, and characters that will create an enabling environment, guide the organisation and shape the high-performance culture for the successful implementation of the Group’s Strategy. We uphold the following values in the way we do business:

• We value our people and will invest in their continuous development through lifelong learning;

• We will always conduct business with honesty and integrity;

• We are passionate about consistently exceeding our guests’ expectations.

These core values dictate how we interact with our valued employees and form the cornerstone of our relationships with external stakeholders.

OUR PEOPLEOur people take a central position in the way we doing things. We cannot over emphasise the importance of looking after our people who will in turn ensure that we achieve our core purpose which is “to make our guests happy”. Our leadership through our Human Resources (HR) function has been updating policies, procedures and a work environment that places our people first, to ensure that they derive maximum satisfaction from their work and are fully involved in the execution of the Group’s strategy. Continuous training and development across all our functions is a constant occurrence. Regular feedback and engagement is undertaken to ensure we have an employee that takes pride in their work and is able to leave our mantra where “one smile starts another”.


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CRESTA MARAKANELO LIMITEDManaging Director’s Statement (CONTINUED)

INFORMATION AND COMMUNICATIONS TECHNOLOGY (ICT)As a Group, we recognise that we are in the 4th Industrial Revolution and our ICT offering has to be reflective of the same. Technology, in its various forms, continues to be a major enabling factor within our Group and serving the evolving needs of our discerning guests is a key focus area. We are in the process of upgrading and renewing our ICT offering to ensure amongst others a seamless Wi-Fi connectivity across our hotels. The security and efficacy of our data is also paramount and we are looking to continuously review and ensure a world class offering.

DIGITAL MARKETINGWe have during the year under review implemented traditional marketing strategies such as targeted radio, print and bill board advertising. We do also recognise the advent and importance of digital marketing platforms such as social media interaction with our valued guests. Digitisation and digital marketing will continue to feature into the future as a necessary platform for brand awareness and positioning; as well as more effective dissemination and integration of content across multiple digital platforms.

LETLOLE LA RONA (LLR) & BOTSWANA HOTEL DEVELOPMENT COMPANY (BHDC) PROPERTY ACQUISITIONSWe are at the tail end of concluding the transactions to acquire 5 hotel properties; 4 currently leased from LLR, being Cresta Lodge; President Hotel, Thapama Hotel and Bosele Hotel; and 1 currently leased from BHDC, being Rileys Hotel. This is part of our ‘Asset Right Strategy’ a deliberate departure from our hitherto ‘Asset Light Strategy’. Shareholder approvals for both transactions have been passed. The Competitions Authority has also sanctioned both acquisitions. It is also pleasing to note that the Credit Committees and the Board of Barclays Botswana has approved a loan facility of P300m in favour of CML for the acquisitions (P260m and the remainder to go towards refurbishments). These acquisitions are transformational for CML. The properties will not only show growth in the balance sheet of CML and ensure immediate EBITDA uplift; but they will also ensure that we can proactively reposition the properties to be competitive and also enhance CML’s branding aspirations.

LOOKING AHEAD We remain confident about the future prospects of CML. The positive financial results for 2018 augur well for the future. The execution of our Corporate Strategy is well on track. It would, however, be remiss of us not to recognise some headwinds such as the increasing competitive operating environment characterised by the entry of more established hotel brands particularly in the Gaborone market. This poses a risk of loss of market share. However, as a Group we continue to pursue organic and inorganic growth opportunities; and in that regard we are at various stages of investigating and pursuing local and regional growth opportunities.

APPRECIATIONI would like to acknowledge firstly our Staff and Management who continue to fly the Cresta flag high and who each and every day wake up with a singular purpose to demonstrate unwavering commitment to ‘making our guests happy’. Special thanks goes out to all our stakeholders including our valued guests, suppliers, business partners, government officials, the communities in which we operate; and last but not least my fellow directors in the Board of CML – your guidance and support as always is highly valued and appreciated.

______________________________Mokwena MorulaneManaging Director

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CRESTA MARAKANELO

LIMITED


CORPORATE GOVERNANCE

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CRESTA MARAKANELO LIMITEDCorporate Governance

The Board is committed to ensuring that good practice in corporate governance is observed throughout the Group, and remains the responsibility of the whole Board.

The Board is committed to maintaining high standards of business integrity and professionalism in all its activities, and continues to support the highest standards in corporate governance.

Overall control of the Group is exercised by the Board, which has responsibility, among other things, for setting strategy and ensuring adequate resources are available and leadership is provided to achieve the Group’s strategy. The Board meets at least four times a year and has a schedule of matters reserved for its attention. All Directors receive board papers prior to the meetings.

Executive management is responsible to the Board for the Group’s operational performance including: implementing Group strategy as determined by the Board; maintaining adequate internal control systems and risk management processes; monitoring operational performance against plans and targets and reporting to the Board any significant variances, maintaining an effective management team and succession planning.

The Board currently comprises the Chairman, two independent non-executive Directors and four non-executive Directors, all of whom are appointees of major shareholders. Each Director is expected to fulfil their duties for the benefit of all shareholders and it is believed that the independent non-executive Directors provide strong independent judgement to the deliberations of the Board.

The Board has established agreed procedures for managing potential conflicts of interest. All Directors are required to disclose at each meeting their shareholding, additional directorships and any potential conflicts of interest to the Chairperson and the Company Secretary. The Board reviews these procedures on an annual basis. The Board is satisfied that the procedures for managing potential conflicts remain effective.

BOARD COMMITTEESIn relation to certain matters, committees have been established with specific delegated

authority. The standing committees of the Board are the Finance, Risk and Audit Committee and the Human Resources Committee. Both of these committees have terms of references agreed by the Board.

FINANCE, RISK AND AUDIT COMMITTEE

The Finance, Risk and Audit Committee consists of one independent non-executive Director and two non-executive Directors. All of the Directors have the relevant financial experience as required.

Mandate of the Committee:• Assist the Board with the evaluation of

adequacy and effectiveness of the internal control systems, accounting practices, information systems and auditing processes applied in business.

• Ongoing reviews of the Group’s risk management processes.

• Introduce such measures that would serve to enhance the credibility and objectivity of the financial statements.

• Monitoring and reviewing the effectiveness of the internal audit function.

• Agreement of detailed scope of the external audit prior to commencement of their audit; reviewing the scope and results of the audit and its cost effectiveness; and recommendation of the audit fee to the Board.

Chairman - John Y StevensFinance, Risk and Audit Committee

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CRESTA MARAKANELO LIMITEDCorporate Governance (CONTINUED)

2018 Board and Committee Meetings Attendance

Board meetings Audit Committee

meetingsHuman Resources

Committee meetingsMaximum possible Attended

Maximum possible Attended

Maximum possible Attended

Moatlhodi Lekaukau 5 5 - - 2 2 John Stevens 5 5 4 4 - - Gavin Sainsbury 5 4 - - - - Pius Molefe 5 4 - - 2 1 Bafana Molomo 5 5 - - - - Mbako Mbo 5 4 4 4 - - Osbourne Majuru 5 5 4 4 - - Tshepidi Moremong-Ondoko 5 3 - - - - Mokwena Morulane 5 5 4 4 2 2

The Finance, Risk and Audit Committee is responsible for reviewing the independence and objectivity of the external auditor and has reported to the Board that it considers that the auditor’s independence and objectivity has been maintained. Audit independence and objectivity are safeguarded by the Finance, Risk and Audit Committee monitoring and approving, when appropriate, the nature of any non-audit work and levels of fees paid.

THE HUMAN RESOURCES COMMITTEE

The Human Resources Committee consists of two independent non-executive Directors and one executive Director.

It is responsible for considering and making recommendations to the Board, within agreed terms of reference, on the Group’s remuneration policies, determining the remuneration packages of executive management and the operation of the Group’s phantom share scheme. The Group’s Managing Director attends meetings but would not be present when his own remuneration is being discussed. The Committee takes independent advice as deemed necessary.

Other functions of the Committee include a review of the performance conditions used for long term incentive plan, review of short-term bonus arrangements and targets.

INTERNAL CONTROL SYSTEMSThe Board is responsible for the Group’s system of internal control, including the Group’s financial reporting process and the Group’s process for preparation of consolidated accounts, and for monitoring its effectiveness. In establishing this system, the Directors have considered the nature of the Group’s business, with regard to the risks to which the business is exposed to, the likelihood of such risks occurring, their potential impact and the costs of protecting against them. However, such a system is designed to manage rather than eliminate the risk of failure to achieve business objectives and can only provide reasonable and not absolute assurance against material misstatement.

Chairman – Pius K MolefeHuman Resources Committee

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CRESTA MARAKANELO LIMITEDCorporate Governance (CONTINUED)

Moatlhodi Lekaukau Chairman


The Board confirms that there is an ongoing process for identifying, evaluating and managing the significant risks faced by the Group. This process is reviewed by the Finance, Risk and Audit Committee on behalf of the Board and has been in place for the year under review, and up to the date of the approval of the annual report. Primary responsibility for the operation of the system of internal controls is delegated to executive management. The effectiveness of the operation of internal control system is reviewed by the internal audit function and, where appropriate, by the Group’s external auditor, who report to management and to the Finance, Risk and Audit Committee.

In addition, responsibility delegated to executive management to monitor the effectiveness of the systems of control in managing identified risks as established by the Board. The internal audit function reviews the effectiveness of key internal controls as part of its standard work programme, and individual reports are issued to appropriate senior management. These reports are summarized and distributed to the Finance, Risk and Audit Committee, the Managing Director and senior management of the group. They are subsequently reviewed by the Finance, Risk and Audit Committee, which ensures that, where necessary, recommendations on appropriate corrective action are drawn to the attention of the full Board.

COMMUNICATION WITH STAKEHOLDERSThe Group holds Annual General Meetings. At these meetings, there is an opportunity for all shareholders to question the Chairperson and other Directors (including Chairman of the Audit Committee, Human Resources Committee). The Group prepares separate resolutions on each substantially separate issue put to shareholders and does not combine resolutions together inappropriately. A schedule of proxy votes cast is made available for inspection at the conclusion of the proceedings and the annual report is laid before the shareholders at the Annual General Meeting. Notice of the annual general meeting and related papers are sent to shareholders at least 21 working days prior to the date of the meeting, and the Group encourages all shareholders to make positive use of the annual general meeting for communication with the Board.

Further, the group has made available an investor relations page on the Group’swebsite: www.crestamarakanelo.com

All information about the Group and activities can be found on this page. Comments and questions can be channeled to management through this page.

CLOSED PERIODThe closed period for the trading in the Group’s shares by Directors and employees is from the beginning of the months of both the interim and the year end, up to the date of publication of the interim and final results in the print media. Directors and employees are prohibited from dealing in the Group’s shares during such periods in which they are privy to unpublished price sensitive information.

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CRESTA MARAKANELO

LIMITED


SUSTAINABILITY AND CORPORATE SOCIAL RESPONSIBILITY

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CRESTA MARAKANELO LIMITEDSustainability and Corporate Social Responsibility

Our approach to sustainability reporting is one that is in line with the Cresta Marakanelo

Limited values: respect, dignity, integrity, honesty and passion. The Board is accountable for the

sustainability of the business and believes that the existence of the business and its continued

success is dependent on relationships that prevail with its stakeholders.

The Group recognises the importance of balancing its long-term business sustainability

requirements with short-term focus and goals. Strategies and policies that contribute to the

sustainable development of the Group to ensure that both the financial and non-financial aspects

of the business are appropriately evaluated and managed, have been adopted. Our stakeholders

are represented by our people and customers, suppliers and the communities we serve in.

Our people play a critical role in the success of the business and the following are relevant in this regard

Development of Human CapitalHuman capital is a key component of Cresta

Marakanelo Limited. The Group values its

employees and endeavours to recruit and

retain the best skills in the market. The focus

for developing human capital is based on

training, continuous reviews for compensation

and benefits.

Staff Welfare and DevelopmentIn the quest of the Group’s drive to improve

productivity for the employees; sporting and

recreational activities have been identified

as an integral part by employees of the

various hotels. The Group has various sports

being played including soccer, volleyball

and netball. The Group also promotes inter-

country sporting competitions between the

Cresta hotels in Botswana, Zimbabwe and

Zambia. The interaction between these groups

is believed to impact positively on employee

motivation.

RemunerationManagement in conjunction with the Human

Resources Committee, continuously reviews

incentive schemes for the employees. The

Group has got a Performance Appraisal System

that is used to reward employees. The results

of the appraisal system are also used as inputs

for training the employees on various areas.

Employee EngagementGeneral employee engagement at various

levels of the organisation has yielded positive

results for the Group. This has led to an

improved customer focus. Our employees

are allowed to associate themselves with a

recognised hospitality Union which negotiates

on their behalf. In the Committee of the Union,

there are staff representatives who participate

in negotiations on behalf of the rest of the staff

members.

PEOPLE

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CRESTA MARAKANELO LIMITEDSustainability and Corporate Social Responsibility (CONTINUED)

COMMUNITIESThe Group operates in a number of areas and therefore places a lot of importance on contributing

to the upliftment of the communities it operates in. The Group executes its Corporate Social

Responsibility in these areas depending on the need of the community after a needs assessment

has been carried out.

The Group has continued to benchmark itself against the leading brands and the standards required to be customer focused, quality conscious, innovative and being responsible for its actions. The Group continues to be the market leader in the hospitality sector in the country

Attention has been paid to the following;

PricingThe hotels’ tariffs are regularly published in

the hotels for customers to see. In addition,

there are different discount levels for our

customers. Customers get different discounts

after a careful assessment of the customer and

the business levels the customer brings to the

entity. The Group also has a loyalty programme

where cardholders are entitled to various

discounts.

Customer ComplaintsCustomer complaints are normally directed to

a specific hotel and the ultimate responsibility

to resolve these issues lies with the General

Manager at the hotel. In the event the

customer is not satisfied with the complaint

resolution at the hotel, this can be escalated to

the Group’s Operations Manager who is based

at the Group’s headquarters in Gaborone.

Customer Information SharingThe Group has various means of sharing

information with its stakeholders. One of the

mediums is through the frequently updated

website where new developments or new

products will feature. Further, the Group

has an in-house magazine called “Cresta

Calling” where information is relayed to our

stakeholders.

The Group maintains sound working relationships with all the regulatory bodies and ensures compliance with all legislation in order to ensure good governance. This enables the Group to operate in a stable environment, which is conducive for the successful operation of the business

CUSTOMERS

REGULATORY AUTHORITIES

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Sustainability and Corporate Social Responsibility (CONTINUED)

Cresta Marakanelo Limited is committed to the development of hotel management skills in the country. As the hotel group with the largest geographic footprint in Botswana, Cresta has fully embraced its responsibility of playing a meaningful role towards academic excellence in tourism and hospitality training by opening its doors to students requiring on-the-job exposure. Furthermore Cresta has extended this gesture to non-academic platforms by partnering with Non-governmental Organizations that coordinate youth mentoring and training programmes. To that effect, Cresta Marakanelo through Cresta Mowana Safari Resort & Spa play an instrumental role in the Hotel Internship Programme initiated by Botswana National Youth Council (BNYC), which was developed after realizing that several unemployed youths showed interest in the hospitality sector.


Cresta Mowana Safari Resort and Spa during 2018, as it has done in the preceding years, accepted 18 unemployed youth from Kasane on attachment. They were mentored by various Heads of Departments to expose them to the hospitality industry. During the three months attachment, the youth received on-the-job training in different departments including but not limited to Front Office, Kitchen & Restaurant, Housekeeping and Maintenance.

The youth showing potential have been over the year absorbed into the Cresta Marakanelo system while others are further guided on how to use their experience to enhance their job seeking prospects or in opening small catering businesses.

Cresta Marakanelo is also committed to the supporting of human rights, by working hand in hand with various government and non-governmental entities in addressing various human needs. The company has taken voluntary steps in improving the quality of life of local community members by donating linen, blankets, and towels. Cresta has also made monetary donations to Lifeline Botswana, an organisation that offers free, anonymous and confidential counselling services and empowers the community through behavior modification training.

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CRESTA MARAKANELO

LIMITED


CONSOLIDATED FINANCIAL STATEMENTS

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INDEX PAGE

Directors’ statement of responsibility and approval of the financial statements 26

Independent auditor’s report 27

Statements of comprehensive income 32

Statements of financial position 33

Statements of changes in equity 34

Statements of cash flows 35

Summary of significant accounting policies 36

Financial risk management 55

Critical accounting estimates and assumptions 64

Notes to the financial statements 66

TABLE OF CONTENTSTHE CRESTA MARAKANELO GROUP

CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2018

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CRESTA MARAKANELO LIMITEDDirectors’ statement of responsibility and approval of the financial statementsFor the year ended 31 December 2018

Directors’ statement of responsibility

The Board of Directors of Cresta Marakanelo Limited (“the Company”) and its subsidiary (“the Group”) are required by the Botswana Companies Act, 2003 to maintain adequate accounting records and to prepare financial statements for each financial year which show a true and fair view of the state of affairs of the Company and Group at the end of the financial year and of the results and cash flows for the period. In preparing the accompanying Company and Group financial statements, International Financial Reporting Standards have been followed, suitable accounting policies have been used and applied consistently except for the adoption of IFRS 15 (Revenue from Contracts with Customers) and IFRS 9 (Financial Instruments), and reasonable and prudent judgements and estimates have been made. Any changes to accounting policies are approved by the Group’s Board of Directors and the effects thereof are fully explained in the financial statements. The financial statements incorporate full and responsible disclosure in line with the significant accounting policies of the Group noted on pages 36-54.

The Directors have reviewed the Group and Company budget and cash flow forecasts for the year to 31 December 2019. On the basis of this review, and in the light of the current financial position and existing borrowing facilities of the Group, the directors are satisfied that Cresta Marakanelo Limited Company and Group are a going concern and have continued to adopt the going concern basis in preparing the financial statements. The Group’s external auditors, Deloitte & Touche, have audited the financial statements and their unmodified audit report appears on pages 27 to 31 of the financial statements.

The Board of Directors recognises and acknowledges its responsibility for the Group and Company’s systems of internal financial control. Cresta Marakanelo Limited has adopted

policies on business conduct, which cover ethical behaviour, compliance with legislation and sound accounting practice and which underpin the Group and Company’s internal financial control process. The control systems include written accounting and control policies and procedures, clearly defined lines of accountability and delegation of authority, and comprehensive financial reporting and analysis against approved budgets. The responsibility for operating these systems is delegated to the executive director and management, who have confirmed that they have reviewed the effectiveness thereof.

The Directors consider that the systems are appropriately designed to provide reasonable assurance, as to the reliability of financial statements and that assets are safeguarded against material loss or unauthorised use and that transactions are properly authorised and recorded.

The effectiveness of the internal financial control systems is monitored through management reviews, comprehensive reviews and testing by internal auditors and the external auditors’ review and testing of appropriate aspects of the internal financial control systems during the course of their statutory examinations of the Company and Group.

The Group and Company’s Directors have considered the results of these reviews, none of which indicate that the systems of internal control were inappropriate or operated unsatisfactorily. Additionally, no breakdowns involving material loss have been reported to the Directors in respect of the year under review.

Directors’ approval of the financial statements

The financial statements for the year ended 31 December 2018 which appear on pages 32 to 90 were approved for issue by the Board of Directors on 29 March 2019 and are signed on its behalf by:

_________________________

M Lekaukau Chairman

_________________________

M MokwenaManaging Director

27


INDEPENDENT AUDITOR’S REPORT To The Shareholders of Cresta Marakanelo Limited

Opinion

We have audited the consolidated and separate financial statements of Cresta Marakanelo Limited and its subsidiary (“the Group”), set out on pages 32 to 90, which comprise the statements of financial position as at 31 December 2018, and the statements of comprehensive income, the statements of changes in equity and statements of cash flows for the year then ended, including a summary of significant accounting policies and the notes to the financial statements.

In our opinion, the consolidated and separate financial statements give a true and fair view of the consolidated and separate financial position of Cresta Marakanelo Limited as at 31 December 2018, and its consolidated and separate financial performance and consolidated and separate cash flows for the year then ended in accordance with International Financial Reporting Standards (“IFRS”).

Basis for Opinion

We conducted our audit in accordance with International Standards on Auditing (“ISAs”). Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Consolidated and Separate Financial Statements section of our report. We are independent of the Group in accordance with the International Ethics Standards Board for Accountants Code of Ethics for Professional Accountants (Part A and B), together with other ethical requirements that are relevant to our audit of the consolidated and separate financial statements in Botswana, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Key Audit Matters

Key Audit Matters are those matters that, in our professional judgement, were of most significance in our audit of the consolidated and separate financial statements of the current period. These matters were addressed in the context of our audit of the consolidated and separate financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.

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INDEPENDENT AUDITOR’S REPORT

To The Shareholders of Cresta Marakanelo Limited

Key Audit Matter How the matter was addressed in the audit

Accounting for the customer loyalty programme

The Group and Company operate a customer loyalty programme in which both corporates (Cresta Select) and individuals (Cresta Pride) earn points on amounts spent on accommodation. IFRS 15 (Revenue from Contracts with Customers) requires that such customer loyalty programmes/schemes be accounted for as multiple element sales arrangements in which the consideration received for the sale of goods or services (from which the points are earned) is allocated between the value of the goods and services delivered (revenue recognised on which a cardholder has earned points), and the points that will be redeemed in the future (contract liabilities). The following risks are associated with the accounting for the customer loyalty programme:

• The judgement involved in the allocation of the consideration received between the value of goods and services delivered and the points that will be redeemed in future;

• The challenges experienced with accurate record-keeping of loyalty points earned, redeemed and forfeited; and

• Critical assumptions and judgements are made in computing the future redemption and expiry pattern of the points. Consequently, the determination of the fair value of the points involves significant estimation and judgements.

Accordingly, we identified the accounting of the customer loyalty programme as a Key Audit Matter due to the need for accurate record-keeping of loyalty points and the judgement required to be applied by the Directors and management.

Related disclosures in the consolidated and separate financial statements:• Note 3.5 – Critical Accounting Estimates and

Judgements• Note 24 Contract Liabilities

We performed the following procedures:• Obtained a detailed understanding of

the customer loyalty programme policy as it applies to the points accumulation, redemption and expiry/forfeiture;

• Evaluated the design and implementation of relevant controls around the points accumulation, redemption, expiry/forfeiture;

• Assessed the customer loyalty programme policy against IFRS 15;

• Evaluated the judgements in the allocation of the consideration received between the value of goods and services delivered and the points that will be redeemed in future;

• Tested the points accumulated at year end by testing the opening balance, points earned, redeemed and expired during the year;

• Evaluated the assumptions for future redemption based on usage patterns of the cardholders for reasonability;

• Evaluated the Directors’ contract liabilities detailed computations for compliance with the requirements of IFRS 15; and

• Reviewed the related disclosures for compliance with the requirements of IFRS 15.

• The data was interrogated, and detailed analytic and substantive procedures were performed to arrive at a “reasonably accurate” estimate of loyalty points outstanding for purposes of estimating the contract liability relating to the loyalty programme at year end.

In conclusion, we consider the estimate of points accumulated at year end, judgements made in relation to future redemption to be in an acceptable range and related disclosures to be appropriate.

(CONTINUED)

29




Key Audit Matter How the matter was addressed in the audit

Impairment of Goodwill – Goodwill attributed to Jwaneng Cash Generating Unit (“CGU”) and Cresta Golfview Hotel Limited

The Group and the Company have goodwill attributed to two cash generating units which are Cresta Jwaneng (Group and Company) and Cresta Golfview (Group). In terms of the requirements of IAS 36: Impairment of Assets (“IAS 36”) an annual impairment assessment should be performed for the goodwill. Significant judgement and estimates are required by the directors in assessing the impairment of the goodwill, which is determined with reference to the value in use, including the key assumptions into the discounted cash flow (“DCF”) model for each cash generating unit. The DCF Model relies on the accuracy of the budgeted and projected net cash flows and the appropriateness of the discount rates used for each of the cash generating units. Accordingly, we identified the impairment assessment of goodwill as a Key Audit Matter.

Related disclosures in the consolidated and separate financial statements:• Note 3.1 – Critical Accounting

Estimates and Judgements, Estimated Impairment of Goodwill

• Note 14 – Goodwill

We performed the following procedures:• Tested the design and implementation of the

controls associated with the directors’ assessment of the impairment of goodwill for the two cash generating units;

• Challenged the impairment calculations prepared by the directors and audited the validity and reasonableness of the assumptions applied in the impairment assessment;

• Reviewed the future projected cash flows used in the directors’ “value in use” calculation to determine whether they are reasonable;

• Compared the projected cash flows against historical performance to test the reasonableness of the directors’ projections;

• Tested the accuracy of the key inputs used in the computation which include the future growth rates, and the discount rates;

• Performed independent sensitivity analyses of key inputs (discount rates and the future growth rates) used in the “value in use” computation;

• Recalculated the “value in use” and the final impairment amounts recognised and compared the amounts to the directors’ computation; and

• Reviewed the related disclosures for compliance with the requirements of IAS 36.

In conclusion, we consider the judgements and estimates used for the goodwill impairment assessment and related disclosures to be appropriate.

(CONTINUED)

Other Information

The Directors are responsible for the other information. The other information comprises the Statement of Directors’ Responsibility and Approval of the Financial Statements, which we obtained prior to the date of this auditor’s report and the Annual Report will be made available after the date of our independent auditor’s report. The other information does not include the consolidated and separate financial statements and our auditor’s report thereon.

Our opinion on the consolidated and separate financial statements does not cover the other information and we do not express any form of assurance conclusion thereon.

In connection with our audit of the consolidated and separate financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated.

If, based on the work we have performed on the other information that we obtained prior to the date of this auditor’s report, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard.

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(CONTINUED)

Responsibilities of the Directors for the Consolidated and Separate Financial Statements

The Directors are responsible for the preparation presentation of the consolidated and separate financial statements which present a true and fair view in accordance with International Financial Reporting Standards and for such internal control as the Directors determine is necessary to enable the preparation of consolidated and separate financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the consolidated and separate financial statements, the Directors are responsible for assessing the Group’s and the Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the Directors either intend to liquidate the Group and/or the Company or to cease operations, or have no realistic alternative but to do so.

Auditor’s Responsibilities for the Audit of the Consolidated and Separate Financial Statements

Our objectives are to obtain reasonable assurance about whether the consolidated and separate financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated and separate financial statements.

As part of an audit in accordance with ISAs, we exercise professional judgement and maintain professional skepticism throughout the audit. We also:

• Identify and assess the risks of material misstatement of the consolidated and separate financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.

• Obtain an understanding of internal control relevant to the audit 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 Group’s and the Company’s internal control.

• Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the Directors.

• Conclude on the appropriateness of the Directors’ use of the going concern basis of accounting and based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the consolidated and separate financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Group and/or the Company to cease to continue as a going concern.

• Evaluate the overall presentation, structure and content of the consolidated and separate financial statements, including the disclosures, and whether the consolidated and separate financial statements represent the underlying transactions and events in a manner that achieves fair presentation.

• Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the consolidated and separate financial statements. We are responsible for the direction, supervision and performance of the Group audit. We remain solely responsible for our audit opinion.

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(CONTINUED)

We communicate with the Finance, Risk and Audit Committee regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.

We also provide the Finance, Risk and Audit Committee with a statement that we have complied with relevant ethical requirements regarding independence, and communicate with them any relationships and other matters that may reasonably be thought to bear on our independence that we are aware of, and where applicable, related safeguards.

From the matters communicated with the Finance, Risk and Audit Committee, we determine those matters that were of most significance in the audit of the consolidated and separate financial statements for the financial year ended 31 December 2018, and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the users’ interest benefits of such communication.

Deloitte & ToucheCertified Auditors GaboronePracticing Member: Pragna Naik (CAP0072019) 29 March 2019

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Statements of Comprehensive IncomeFor The Year Ended 31 December 2018

CONSOLIDATED COMPANY2018 2017 2018 2017

Notes P'000 P'000 P'000 P'000

Revenue 4 370,847 337,294 347,257 316,511

Cost of sales 5 (245,499) (216,871) (227,026) (202,272)

Gross profit 125,348 120,423 120,231 114,239

Sales and distribution expenses 5 (9,503) (8,252) (9,138) (7,911)

Administration and operating expenses 5 (80,751) (79,123) (77,043) (74,267)

Operating profit 35,094 33,048 34,050 32,061

Finance income 7 956 1,289 762 1,207

Finance expense 7 (232) (865) (147) (750)

Profit before income tax 35,818 33,472 34,665 32,518

Income tax expense 8 (7,257) (7,282) (7,652) (7,162)

Profit for the year 28,561 26,190 27,013 25,356

Other comprehensive loss

Currency translation differences (subject to subsequent recycling through profit or loss)

(1,241) (41) - -

Other comprehensive loss for the year (1,241) (41) - -

Total comprehensive income for the year 27,320 26,149 27,013 25,356

Basic and diluted earnings per share (thebe) 9 15.79 14.47


33


Statements of Financial PositionAt 31 December 2018

CONSOLIDATED COMPANY2018 2017 2,018 2017

Notes P'000 P'000 P'000 P'000ASSETS

Non-current assetsProperty, plant and equipment 13 166,043 142,704 162,778 139,079 Intangible assets 14 - Lease rights/Software 1,831 1,352 1,740 1,250 - Goodwill 10,396 11,365 5,274 5,274 Investment in subsidiary 10 - - 10,572 10,572 Deferred income tax assets 20 3,226 3,702 2,816 3,687 Total non-current assets 181,496 159,123 183,180 159,862

Currents assetsInventories 16 3,072 2,870 2,774 2,651 Trade and other receivables 17 26,556 26,001 25,764 25,460 Current income tax assets 232 - - - Cash and cash equivalents 18 61,636 68,513 58,974 66,358 Total current assets 91,496 97,384 87,512 94,469

Total assets 272,992 256,507 270,692 254,331

EQUITY

Capital and reservesStated capital 19 18,500 18,500 18,500 18,500 Treasury shares 15 (5,915) (5,915) (2,105) (2,105)Foreign currency translation reserve (196) 1,045 - - Retained earnings 178,619 163,703 177,833 164,465 Total equity 191,008 177,333 194,228 180,860

LIABILITIES

Non-current liabilitiesDeferred lease obligation 23 14,476 26,030 13,374 24,316 Borrowings 21 2,854 5,477 2,854 5,477 Total non-current liabilities 17,330 31,507 16,228 29,793

Current liabilitiesTrade and other payables 22 38,678 31,969 35,369 29,343 Current income tax liabilities 1,653 2,011 1,653 1,861 Borrowings 21 2,580 2,880 2,580 2,880 Contract liabilities 24 10,408 7,769 9,520 6,597Deferred lease obligation 23 11,335 3,038 11,114 2,997Total current liabilities 64,654 47,667 60,236 43,678

Total liabilities 81,984 79,174 76,464 73,471

Total equity and liabilities 272,992 256,507 270,692 254,331


34


Statements of Changes in EquityFor The Year Ended 31 December 2018

Stated capital

Treasury shares

Foreign currency

translation reserve

Retainedearnings

Total equity

CONSOLIDATED P'000 P'000 P'000 P'000 P'000Year ended 31 December 2017Balance at 1 January 2017 18,500 (5,915) 1,086 157,268 170,939

Total comprehensive (loss)/income for the year

- - (41) 26,190 26,149

Profit for the year - - - 26,190 26,190

Other comprehensive loss for the year

- - (41) - (41)

Gross dividends paid - - - (19,755) (19,755)

Balance at 31 December 2017 18,500 (5,915) 1,045 163,703 177,333

Year ended 31 December 2018Balance at 1 January 2018 18,500 (5,915) 1,045 163,703 177,333 Total comprehensive (loss)/income for the year

- - (1,241) 28,561 27,320

Profit for the year - - - 28,561 28,561 Other comprehensive loss for the year

- - (1,241) - (1,241)

Gross dividends paid - - - (14,475) (14,475)Unclaimed dividends - - - 830 830 Balance at 31 December 2018 18,500 (5,915) (196) 178,619 191,008

COMPANYYear ended 31 December 2017Balance at 1 January 2017 18,500 (2,105) - 158,864 175,259

Profit for the year - - - 25,356 25,356

Gross dividends paid - - - (19,755) (19,755)

Balance at 31 December 2017 18,500 (2,105) - 164,465 180,860 -

Year ended 31 December 2018Balance at 1 January 2018 18,500 (2,105) - 164,465 180,860 Profit for the year - - - 27,013 27,013 Gross dividends paid - - - (14,475) (14,475)Unclaimed dividends - - - 830 830 Balance at 31 December 2018 18,500 (2,105) - 177,833 194,228


35


CONSOLIDATED COMPANY2018 2017 2018 2017

Notes P'000 P'000 P'000 P'000Cash flows from operating activitiesCash generated from operations 27 67,046 65,344 65,242 63,364 Interest paid 7 (232) (865) (147) (750)Tax paid 27 (7,371) (4,647) (6,989) (4,675)

Net cash generated from operating activities 59,443 59,832 58,106 57,939

Cash flows from investing activities

Purchase of property, plant and equipment 13 (48,742) (21,940) (47,727) (20,486)Purchase of computer software 14 (1,287) (1,254) (1,258) (1,087)Proceeds on disposal of plant and equipment 131 134 131 130 Interest received 7 956 1,289 762 1,207

Net cash utilised in investing activities (48,942) (21,771) (48,092) (20,236)

Cash flows from financing activitiesRepayment of borrowings (2,923) (4,480) (2,923) (4,480)Dividends paid to company's shareholders (14,475) (27,140) (14,475) (27,140)

Net cash utilised in financing activities (17,398) (31,620) (17,398) (31,620)

Net (decrease)/increase in cash and cash equivalents (6,897) 6,441 (7,384) 6,083 Cash and cash equivalents at beginning of year 68,513 61,823 66,358 60,275 Exchange gain on cash and cash equivalents 20 249 - -

Cash and cash equivalents at end of year 18 61,636 68,513 58,974 66,358

CRESTA MARAKANELO LIMITEDStatements of Cash FlowsFor The Year Ended 31 December 2018

36


CRESTA MARAKANELO LIMITEDSummary of Significant Accounting Policies For The Year Ended 31 December 2018

General information

Cresta Marakanelo Limited (“the Company”) is a public limited company listed on the Botswana Stock Exchange and primarily operates hotels and related services in Botswana and Zambia. The address of its registered office is disclosed on the general information page.

The consolidated Group financial statements and separate Company financial statements for the year ended 31 December 2018 have been approved for issue by the Board of Directors on 29 March 2019.

Summary of significant accounting policies

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.

1.1 Basis of preparation

The Group and Company financial statements have been prepared in accordance with the International Financial Reporting Standards (IFRS). The financial statements have been prepared under the historical cost convention as modified by certain financial assets and liabilities at fair value.

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. These areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the Group’s financial statements are disclosed in the “Critical estimates and assumptions” section of the financial statements.

Estimates and judgements are continually evaluated based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances.

Adoption of new and revised International Financial Reporting Standards

The Cresta Marakanelo Limited accounting policies are described in the notes to the financial statements. The accounting policies adopted by the Group are in line with International Financial Reporting Standards (IFRS). In the current year, the following applicable new or revised Standards issued by the International Accounting Standards Board (IASB) and effective for annual reporting periods beginning on or after 1 January 2018 were adopted by the Group.

IFRS 9 Financial Instruments (effective annual periods beginning on or after 1 January 2018)

In the current year, the Group has applied IFRS 9 Financial Instruments which is effective 1 January 2018. On its effective date IFRS 9 superseded IAS 39 Financial Instruments: Recognition and Measurement. The new accounting policies as a result of the adoption of IFRS 9 are set out under the financial instruments heading of the significant accounting policies.

The changes in financial instruments classifications and measurement criteria as a result of implementation of IFRS 9 are not material for both the separate Company and consolidated Group financial statements.

IFRS 15 Revenue from Contracts with Customers (effective annual periods beginning on or after 1 January 2018)

In the current year, the Group has applied IFRS 15 Revenue from Contracts with Customers which is effective 1 January 2018. IFRS 15 superseded the following revenue Standards and Interpretations on its effective date: IAS 18 Revenue; IAS 11 Construction Contracts; IFRIC 13 Customer Loyalty Programmes; IFRIC 15 Agreements for the Construction of Real Estate; IFRIC 18 Transfers of Assets from Customers; and SIC 31 Revenue – Barter Transactions Involving Advertising Services.

37


CRESTA MARAKANELO LIMITEDSummary of Significant Accounting Policies (CONTINUED)For The Year Ended 31 December 2018

Adoption of new and revised International Financial Reporting Standards (continued)

IFRS 15 introduces a 5-step approach to revenue recognition. The core principle of IFRS 15 is that the Group should recognise revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The 5-step approach to revenue recognition is as follows:

• Step 1: Identify the contract(s) with a customer;• Step 2: Identify the performance obligations in the contract;• Step 3: Determine the transaction price;• Step 4: Allocate the transaction price to the performance obligations in the contract; and • Step 5: Recognise revenue when (or as) the Group satisfies a performance obligation

Under IFRS 15, the Group recognises revenue when (or as) a performance obligation is satisfied, i.e. when ‘control’ of the goods or services underlying the particular performance obligation is transferred to the customer. Far more prescriptive guidance has been added in IFRS 15 to deal with specific scenarios. The new accounting policies are set out under the revenue heading of the significant accounting policies.

Apart from providing more extensive disclosures on the Group’s revenue transactions, the application of IFRS 15 has not had a material impact on the financial position and/or financial performance of the Group.

IFRIC 22 Foreign Currency Transactions (effective annual periods beginning on or after 1 January 2018)The interpretation addresses foreign currency transactions or part of transactions where there is consideration that is denominated or priced in a foreign currency and the prepayment asset or deferred income liability is non-monetary.

International Financial Reporting Standards in issue but not yet effectiveAs at the date of approval of these financial statements, the following standards and interpretations were in issue but not effective.

Amendments to IFRS 9 - Prepayment features with negative compensation (effective annual periods beginning on or after 1 January 2019)Amends the existing requirements in IFRS 9 regarding termination rights in order to allow measurement at amortised cost even in the case of negative compensation payments.

Annual Improvements to IFRS Standards 2015–2017 Cycle (effective annual periods beginning on or after 1 January 2019)Makes amendments to IFRS 3, IFRS 11, IAS 12 and IAS 23

IFRS 16 Leases (effective annual periods beginning on or after 1 January 2019)IFRS 16 specifies how an IFRS reporter will recognise, measure, present and disclose leases. The standard provides a single lessee accounting model, requiring lessees to recognise assets and liabilities for all leases unless the lease term is 12 months or less or the underlying asset has a low value. Lessors continue to classify leases as operating or finance, with IFRS 16’s approach to lessor accounting substantially unchanged from its predecessor, IAS 17.

38



Adoption of new and revised International Financial Reporting Standards (continued)

International Financial Reporting Standards in issue but not yet effective (continued)

IFRS 17 Insurance Contracts (effective annual periods beginning on or after 1 January 2021IFRS 17 requires insurance liabilities to be measured at a current fulfillment value and provides a more uniform measurement and presentation approach for all insurance contracts. IFRS 17 creates one accounting model for all insurance contracts in all jurisdictions that apply IFRS and requires an entity to measure insurance contracts using updated estimates and assumptions that reflect the timing of cash flows and take into account any uncertainty relating to insurance contracts. These requirements are designed to achieve the goal of a consistent, principle-based accounting for insurance contracts.

IFRIC 23 Uncertainty over Income Tax Treatments (effective annual periods beginning on or after 1 January 2019)The interpretation addresses the determination of taxable profit (tax loss), tax bases, unused tax losses, unused tax credits and tax rates, when there is uncertainty over income tax treatments under IAS 12. The interpretation specifies how an entity should reflect the effects of uncertainties in accounting for income taxes.

Amendments to IAS 28 - Long-term Interests in Associates and Joint (effective periods beginning on or after 1 January 2019)Clarifies that an entity applies IFRS 9 Financial Instruments to long-term interests in an associate or joint venture that form part of the net investment in the associate or joint venture but to which the equity method is not applied.

IFRS 10 and IAS 28 Sale or contribution of assets between an investor and its associate or joint venture (effective date not yet published)The amendment clarified the treatment of a sale or contribution of assets between an investor and associate or joint venture.

The Directors do not expect that the adoption of the Standards listed below will have a material impact on the financial statements of the Group in future periods, except as noted below.

IFRS 16 Leases

General impact of application of IFRS 16 Leases

IFRS 16 provides a comprehensive model for the identification of lease arrangements and their treatment in the financial statements for both lessors and lessees. IFRS 16 will supercede the current lease guidelines including IAS 17 Leases and the related interpretations when it becomes effective for accounting periods beginning on or after 1 January 2019. The date of application of IFRS 16 for the Group will be 1 January 2019.

The Group has chosen the retrospective application of IFRS 16 in accordance with IFRS 16:C5 (b) with the cumulative effect being recognised at the date of initial application.

Impact of the new definition of a lease

The Group will make use of the practical expedient available on transition to IFRS 16 not to reassess whether a contract is or contains a lease. Accordingly, the definition of a lease in accordance with IAS 17 and IFRIC 4 will continue to apply to those leases entered or modified before 1 January 2019.

The change in definition of a lease mainly relates to the concept of control. IFRS 16 distinguishes between leases and service contracts on the basis of whether the use of an identified asset is controlled by the customer. Control is considered to exist if the customer has:

- The right to obtain substantially all of the economic benefits from the use of an identified asset; and - The right to direct the use of that asset.

39



IFRS 16 Leases (continued)

The Group will apply the definition of a lease and related guidance set out in IFRS 16 to all lease contracts entered into or modified on or after 1 January 2019 (whether it is a lessor or a lessee in the lease contract). In preparation for the first-time application of IFRS 16, the Group has carried out an implementation project. The project has shown that the new definition in IFRS 16 will not change significantly the scope of contracts that meet the definition of a lease for the Group.

Impact on Lessee Accounting

Operating leases

IFRS 16 will change how the Group accounts for leases previously classified as operating leases under IAS 17, which were off-balance sheet.

On initial application of IFRS 16, for all leases (except as noted below), the Group will:

a) Recognise right-of-use assets and lease liabilities in the consolidated statement of financial position, initially measured at the present value of the future lease payments;

b) Recognise depreciation of right-of-use assets and interest on lease liabilities in the consolidated statement of profit or loss;

c) Separate the total amount of cash paid into a principal portion (presented within financing activities) and interest (presented within operating activities) in the consolidated cash flow statement.

Lease incentives (e.g. rent-free period) will be recognized as part of the measurement of the right-of-use assets and lease liabilities whereas under IAS 17 they resulted in the recognition of a lease liability incentive, amortised as a reduction of rental expenses on a straight-line basis.

Under IFRS 16, right-of-use assets will be tested for impairment in accordance with IAS 26 Impairment of Assets. This will replace the previous requirements to recognize a provision for onerous lease contract.

For short-term leases (lease term of 12 months or less) and leases of low-value assets (such as personal computers and office furniture), the Group will opt to recognise a lease expense on a straight-line basis as permitted by IFRS 16.

As at 31 December 2018, the Group has operating lease commitments of P 200 677 000 for leases other than short-term leases and leases of low-value assets. Of this amount P 49 833 000 relates to properties that the Group is currently in the process of acquiring. These amounts have been excluded from the preliminary assessments below as the lease term for these properties will fall below one year.

Hence the Group will recognise a right-of-use asset of P 111 269 000 and a corresponding lease liability of P 111 269 000 in respect of all these leases. The impact on profit or loss is to decrease expenses by P 20 117 000, to increase depreciation by P 18 022 000 and to increase interest expense by P 9 180 000.

Under IAS 17, all lease payments on operating leases are presented as part of cash flows from operating activities. The impact of the changes under IFRS 16 would be to reduce the cash generated by operating activities by P 9 180 000 and to increase net cash used in financing activities by the same amount.

Summary of Significant Accounting Policies (CONTINUED)For The Year Ended 31 December 2018

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1.2 Basis of consolidation

(a) Subsidiaries

Subsidiaries are all entities over which the Group has control. The Group controls an entity when the group is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. Subsidiaries are fully consolidated from the date on which control is transferred to the group. They are deconsolidated from the date that control ceases.

The Group applies the acquisition method to account for business combinations. The consideration transferred for the acquisition of a subsidiary is the fair values of the assets transferred, the liabilities incurred to the former owners of the acquiree and the equity interests issued by the Group. The consideration transferred includes the fair value of any asset or liability resulting from a contingent consideration arrangement. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date. The Group recognises any non-controlling interest in the acquire on an acquisition-by-acquisition basis, either at fair value or at the non-controlling interest’s proportionate share of the recognised amounts of acquiree’s identifiable net assets. Acquisition-related costs are expensed as incurred.

If the business combination is achieved in stages, the acquisition date carrying value of the acquirer’s previously held equity interest in the acquiree is re-measured to fair value at the acquisition date; any gains or losses arising from such re-measurement are recognised in statement of comprehensive income.

Any contingent consideration to be transferred by the Group is recognised at fair value at the acquisition date. Subsequent changes to the fair value of the contingent consideration that is deemed to be an asset or liability is recognised in accordance with IAS 39 either in statement of comprehensive income or as a change to other comprehensive income. Contingent consideration that is classified as equity is not re-measured, and its subsequent settlement is accounted for within equity.

Inter-Group transactions, balances and unrealised gains on transactions between Group companies are eliminated. Unrealised losses are also eliminated. When necessary amounts reported by subsidiaries have been adjusted to conform with the Group’s accounting policies.

(b) Changes in ownership interests in subsidiaries without change of control

Transactions with non-controlling interests that do not result in loss of control are accounted for as equity transactions – that is, as transactions with the owners in their capacity as owners. The difference between fair value of any consideration paid and the relevant share acquired of the carrying value of net assets of the subsidiary is recorded in equity. Gains or losses on disposals to non-controlling interests are also recorded in equity.

(c) Disposal of subsidiaries

When the Group ceases to have control any retained interest in the entity is re-measured to its fair value at the date when control is lost, with the change in carrying amount recognised in statement of comprehensive income. The fair value is the initial carrying amount for the purposes of subsequently accounting for the retained interest as an associate, joint venture or financial asset. In addition, any amounts previously recognised in other comprehensive income in respect of that entity are accounted for as if the Group had directly disposed of the related assets or liabilities. This may mean that amounts previously recognised in other comprehensive income are reclassified to statement of comprehensive income.

1.3 Foreign currency translation

(a) Functional and presentation currency

Items included in the financial statements of the Group 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 Pula, which is the Group’s functional and presentation currency.


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1.3 Foreign currency translation (continued)

(b) 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’.

(c) Group companies

The results and financial position of all Group entities (none of which has the currency of a hyper-inflationary economy) that have a functional currency different from the presentation currency are translated into the presentation currency as follows:

(i) assets and liabilities for each balance sheet presented are translated at the closing rate at the date of that balance sheet;

(ii) 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 rate on the dates of the transactions); and

(iii) all resulting exchange differences are recognised in other comprehensive income.

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. Exchange differences arising are recognized in other comprehensive income.

1.4 Revenue recognition

The Group recognises revenue from the following major sources:

• Provision of services – accommodation revenue from the sale of bed nights at its hotels and lodges• Food and bar revenue from the sale of food, beverages, curios and ancillary goods• Other revenue from activities such as safaris, room hire and other services including spa,

laundry and Cresta loyalty Cards.

Revenue is measured based on the consideration to which the Group expects to be entitled in a contract with a customer and excludes amounts collected on behalf of third parties. The Group recognises revenue when it transfers control of the goods and services to the customers.

Revenue is recognised as follows:

(a) Provision of services – accommodation revenueProvision of services is recognised when the Group satisfies its performance obligations, by reference to completion of the specific transaction assessed on the basis of the actual service provided as a proportion of the total services to be provided. The Group sells bed nights at its hotels and lodges to guests and also provides guided safaris to guests. Revenue from these services is recognised when the service is provided to the guest, usually over the period of the guests’ stay at the hotels and lodges.

(b) Sale of goods – Food, Beverages and curiosFor sales of food, beverages, curios and ancillary goods, revenue is recognised when control of the goods has transferred, being at the point the customer purchases/consumes the goods. Payment of the transaction price is due immediately at the point the customers purchase/consume the goods.


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1.5 Revenue recognition (continued)

(c) Interest income

Interest income is recognised on a time-proportion basis using the effective interest rate method.

(d) Dividend income

Divid

Documents

2018 ANNUAL REPORT · 2020. 11. 4. · 4 CRESTA MARAKANELO LIMITED 2018 ANNUAL REPORT COMPANY REGISTRATION NO: 1974/556 NATURE OF BUSINESS Cresta Marakanelo Limited (“the Company’’