Do fewer but wildly important thingsDirector of Econet Wireless Zimbabwe Limited. He holds a Masters of Business Administration Degree from the University of Zimbabwe. He is a fellow

Do fewer but wildly important things better.

1

Rainbow Tour ism Group L imited Annual Report 2011

Vision, Mission and Values 2

Divisional Composition 3

RTG Foot Prints 4

6

Product Portfolio 7

Board of Directors 8

Senior Management 11

Corporate Information 12

Chairman’s Statement 14

Chief Executive’s Review of Operations 17

Corporate Governance 22

Report of Directors 25

Directors’ Responsibility Statement 26

Independent Auditor’s Report 27

Consolidated Statement of Financial Position 30

Consolidated Statement of Comprehensive Income 31

32

Consolidated Statement of Changes in Equity 33

Notes to the Financial Statements 34

Top 20 Shareholders 65

contents

2


OUR VISIONTo be the preferred provider of seamless hospitality services in Southern Africa.

OUR MISSIONTo provide convenient hospitality services through differentiated guest offerings that deliver

value to our stakeholders.

OUR VALUES

TEAMWORK

By TEAMWORK we mean: Our success as a diverse family thrives on openness and

communication to meet dynamic customer needs.

RESPECT

By RESPECT we mean: We value and treat our stakeholders with high esteem and recognise

their contribution to our existence and business growth.

COMMITMENT

By COMMITMENT we mean: Being devoted to serve with excellence to meet guest

expectations.

INTEGRITY

By INTEGRITY we mean: To conduct ourselves responsibly in an honest and ethical manner that

displays respect and fairness for all.

PASSION

By PASSION we mean: Openly showing love for hard work in achieving our set goals and

objectives.

2

3


Divisional Composition

• The Rainbow Towers Hotel and Conference Centre (100%)

• Bulawayo Rainbow Hotel• Kadoma Hotel and Conference Centre• Victoria Falls Rainbow Hotel• A’Zambezi River Lodge• New Ambassador Hotel (100%)

• Touring Coaches• Cruise boats• Excursions• Accommodation (100%)

• Rainbow Hospitality Business School (100%)

Other Properties

• Matetsi Water Lodge, Victoria Falls • Hotel Mocambique, Beira• Hotel Edinburgh, Kitwe, Zambia (100%)

• Hotel Savoy, Ndola, Zambia (Management contract)

• Sable Valley Lodge• Sikumi Tree Lodge• Matobo Hills Lodge• Lodge at the Ancient City• Harare Safari Lodge (100%)


3

4


1981

Zimbabwe Tourist Board is formed as a body corporate.

1983

Government of Zimbabwe commissions construction

of a 5-star hotel and conference centre in Harare and

engages Sheraton Overseas Management Services (a

subsidiary of ITT Sheraton) to manage the 5-star hotel

upon completion.

1984

Parastatal, Zimbabwe Tourist Development Corporation

(ZTDC) is formed.

1985

The 5-star Hotel and Conference Centre construction

completed and hotel starts operating under management

contract with the name Harare Sheraton Hotel. The

Conference Centre is named Harare International

Conference Centre operated by Ministry of Environment

and Tourism.

1986

ZTDC takes over Victoria Falls Rainbow Hotel closed

during Zimbabwe’s liberation war. Victoria Falls Rainbow

Hotel closes again due to security problems; Government

asks for its reopening. ZTDC acquires two hotels,

Ambassador Hotel and A ’Zambezi River Lodge, to avert

their closure.

1987

ZTDC establishes touring division as a joint venture under

a different name, Zimbabwe Tours.

1989

The Zimbabwe Tourist Development Corporation Act is

amended to hive off commercial side of ZTDC operations.

1991

Zimbabwe Tourism Investment Company (Pvt) Ltd

(ZTIC), a company wholly owned by Government, is

registered under the Companies Act, Chapter 190. First

Board appointed in November to turnaround ZTDC loss

making operations, namely Hotels Division [A ‘Zambezi

River Lodge, Rainbow Hotel, New Ambassador Hotel

(formerly Ambassador Hotel) and Christmas Pass Hotel],

Tours Division (comprising Zimbabwe Tours), Conference

Division (comprising Harare International Conference

Centre) and the Investment Division (represented by

the Harare Sheraton Hotel which was operated under

a management contract with Sheraton Overseas

Management Services).

1992

First CEO appointed and commercial business assets

transferred from ZTDC and Ministry of Environment and

Tourism to ZTIC. Operations start on 1 April.

1994

ZTIC changed name to Rainbow Tourism Group Limited

(RTG) with RTG still wholly owned by Government.

Zimbabwe Tours becomes a joint venture on a

shareholding structure of 60% for RTG and 40% for a

strategic partner, Ireland Blyth Ltd (IBL) Mauritius, and is

renamed Zimbabwe Mauritius Tours and Travel (Pvt) Ltd

trading as Tourism Services Zimbabwe.

1995

RTG acquires Rhodes Nyanga Hotel and Kadoma Ranch

Motel.

1996

Chimanimani Hotel is acquired on a shareholding of

75% for RTG and 25% for a strategic partner Bervin

Investments. Zambezi Safari Lodges is commissioned

on a shareholding of 50% for RTG and 50% for a strategic

partner Conservation Corporation Zimbabwe.

1997

Christmas Pass Hotel, Mutare, is disposed. Bulawayo

Sun Hotel is purchased and renamed Bulawayo Rainbow

Hotel.

1998

Touch the Wild Lodges and Safaris acquired on a

shareholding structure of 60% for RTG and 40% for IBL

Mauritius. ITT Sheraton is bought by Starwood Hotels

and Resorts Worldwide Inc.

RTG Footprints

19811982 19921983 19931984 19941985 19951986 19961987 1988 1989 1990

1991


5


RTG Footprints (continued)

20032002 2004 2005 20061997 20071998 20081999 20092000 20102001 2011

1999

Management contract over Harare Sheraton Hotel

renegotiated by RTG and Starwood Hotels and Resorts

Worldwide Inc. and renamed Sheraton Harare Hotel

and Towers. RTG is restructured into four business units

(Rainbow Hotels and Conferences division, Sheraton

Harare Hotel and Towers division, Touch the Wild

(Pvt) Ltd, Tourism Services Zimbabwe). A voluntary

retrenchment scheme is offered. Cabinet approval for

RTG privatisation is given on 29 June. RTG’s strategic

partnership with Accor is approved on 19 October. RTG

becomes the 72nd quoted company on the Zimbabwe

Stock Exchange on 1 November.

2000

RTG/Accor strategic partnership agreement is concluded;

Accor’s 35% shareholding becomes fully subscribed on

1 March. Chimanimani Hotel and Rhodes Nyanga Hotel

disposed as they could not achieve critical mass in

capacity and yield.

2001

Re-branding of A ‘Zambezi River Lodge to Hotel Mercure

A ‘Zambezi.

2002

Re-branding of Victoria Falls Rainbow Hotel to Hotel

Mercure Rainbow.

2004

By mutual agreement, management contract with IBL

Mauritius terminated. However, IBL Mauritius maintains

its shareholding.

2005

Management agreement with Starwood came to an

end and not renewed. Management of Sheraton Harare

Hotel and Towers localized. Business of Sheraton Harare

Hotel and Towers and Harare International Conference

Centre merged. RTG successfully carries out a rights issue

in September and new shareholders emerged. Accor,

Laaico, and Ministry of Environment and Tourism get

diluted.

2006

The merged business successfully rebranded: The

Rainbow Towers Hotel and Conference Centre on 19

March. Management contract with Accor terminated.

Hotel Mercure A ‘Zambezi and Hotel Mercure Rainbow

rebranded to A ‘Zambezi River Lodge and Victoria Falls

Rainbow Hotel respectively under the Rainbow Hotels

Division. Group reverses losses of the past 3 years and

wipes out foreign debt incurred over management

contracts.

2007

South African marketing office established and Tourism

Services Zambia registered. Regional expansion strategy

unveiled. Group finds partner with piece of land for

construction of a hotel in Beitbridge.

2008

RTG takes over management of first hotel in the region in

the name of Hotel Edinburgh in Kitwe, Zambia. RTG also

signs a management contract for Savoy Hotel in Ndola,

Zambia. Rainbow Hospitality Business School (RHBS) is

established.

2010

Refurbishment of A ‘Zambezi River Lodge commences.

Matetsi Water Lodge is acquired as a going concern

effective 1st of March. RTG also acquired a long term

lease over Hotel Mozambique in Beira and commences

operations in July. Rainbow Hotels in Zimbabwe acquired

ISO 9001:2008 certification in March.

2011

A ‘Zambezi River Lodge refurbished and rebranded to a

4-star hotel. The hotel is opened mid-May.

RTG seeks to recapitalise and to dispose subsidiaries,

TTW, Matetsi Water Lodge and TSZ in order to focus on

core hotel operations and retire short term debt.

6


Rainbow Tourism Group Profile

Rainbow Tourism Group Limited is listed on the Zimbabwe

Stock Exchange and is the second largest hospitality

company in Zimbabwe.

Currently the Group has established a presence in Beira,

Mozambique as well as in the Copperbelt towns of Ndola

and Kitwe in Zambia.

The Group runs hotels, lodges, a destination management

company and a hospitality management school as

outlined below:

• 4 city hotels

• 3 regional city hotels (Zambia and Mozambique)

• 2 resort hotels

• 6 lodges

(The lodges and destination management company is in

the process of being disposed)

Our Success Factors

People DevelopmentTo recruit, attract, develop and retain a motivated

workforce.

Financial PerformanceTo secure adequate financial resources and achieve

profitability.

Business GrowthTo optimise current capacity and grow business

opportunities.

Marketing We will develop a new brand image which will be

unveiled during the course of 2012.

Operational EfficienciesTo achieve efficient operational efficiencies through our

product Innovation by

Diversifying our product range to meet market

demands.


7


Category No. of Units Conference No. of rooms

Capacity

ZIMBABWE OPERATIONS

5 Star

Rainbow Towers Hotel and

Conference Centre 1 7,000 305

3-4 Star

A’ Zambezi River Lodge,

Victoria Falls Rainbow Hotel,

Bulawayo Rainbow Hotel,

Kadoma Hotel and Conference Centre,

New Ambassador Hotel. 5 1,010 566

Lodges

Matetsi Water Lodge,

Sikumi Tree Lodge,

Lodge at the Ancient City,

Matopo Hills Lodge,

Harare Safari Lodge,

Sable Valley Lodge. 6 174 95

Destination management company

- Tourism Services Zimbabwe (TSZ) 1 n/a n/a

Business School – Rainbow

Hospitality Business School (RHBS) 1 n/a n/a

Sub-total 14 8,184 966

REGIONAL OPERATIONS

Hotel Edinburgh – Kitwe (Zambia) 1 450 76

Savoy Hotel – Ndola (Zambia) 1 350 154

Hotel Mozambique (Beira) 1 600 182

Sub-total 3 1400 412

Grand Total 17 9,484 1,376

RTG South Africa Marketing and Channel Management office


Product Portfolio

8


Board of Directors

Paschal ChangundaFinance Director

Mr. Changunda holds a Bachelor of Accountancy (Hons) degree from the University of Zimbabwe and is a Chartered Accountant (CAZ). He joined the Goup in 2002 as Group Finance Manager and was appointed to the Board as Group Finance Director and Company Secretary in July 2004. He served his articles with Delloitte & Touché. Prior to joining the Group, he was Divisional Finance Manager for Cairns Foods Limited.

Mr Changunda was appointed Acting Chief Executive effective 1 April 2012.

Krison ChirairoNon-Executive Director Mr. Chirairo is the Finance Director of Econet Wireless Zimbabwe Limited. He holds a Masters of Business Administration Degree from the University of Zimbabwe. He is a fellow member of both the Chartered Institute of Management Accountants and the Institute of Chartered Secretaries and Administrators. He has been Finance Director at Econet Wireless Zimbabwe since May 2004.

Mr Chirairo resigned from the board of RTG effective 31 March 2012.

John M Chikura Non-Executive Director

Mr. John Chikura is the Chief Executive Officer of the Deposit Protection Board and current Chairman of the Africa Region, International Association of Deposit Insurers (IADI) based in Switzerland. He holds a Masters of Business Administration (Finance and Banking) degree from Manchester University and is a Fellow of the Institute of Chartered Secretaries and Administrators (FCIS). His vast experience at senior management levels include the post of Finance and Administration Manager for Cluff Resources (now Ashanti Gold Mining) and Lonrho Zimbabwe. He has also previously worked as General Manager – Finance and Company Secretary for Southern Africa Reinsurance Limited.

Chipo Mtasa Chief Executive

Mrs. Mtasa holds a Bachelor of Accountancy (Hons) degree from the University of Zimbabwe and is a Chartered Accountant (CAZ). She joined the Group in 1999 as Financial Controller at the Sheraton Harare Hotel and became Group Finance Director in 2002. She assumed the position of Group Operations Director before her appointment as Group Chief Executive on 1 October 2004. Mrs. Mtasa sits on a number of boards including that of Inter-Fresh Limited.

Mrs Mtasa resigned as Chief Executive and director of RTG effective 31 March 2012.

Tracy MpofuNon –Executive Chairman

Mrs. Mpofu is the Chief Operating Officer of Econet Wireless Group. She has extensive business exposure spanning over 25 years which include her tenure as Regional Finance Director for Coca Cola Central Africa and Audit positions with Ernst and Young. Her directorships include Econet Wireless Zimbabwe, Data Control and Systems and Mutare Bottling Company. She holds a Bachelor of Accountancy Degree and a Masters of Business Administration Degree, both from the University of Zimbabwe. She is a Chartered Accountant and also a Chartered Management Accountant.

Mrs Mpofu resigned from the board effective 31 March 2012.

9


Board of Directors (continued)

Shadreck C VeraNon-Executive Director

Mr. Vera is the Investments Director at National Social Security Authority (NSSA). He holds a Masters of Business Administration degree from Nottingham Trent University and a Postgraduate Diploma in Management Studies from the same University. He also holds an Advanced Diploma in Treasury Management and Finance from Institute of Bankers South Africa and a Certificate in Management Information Systems (London).

Elliot R M Nyoni Non-Executive Director

Mr. Nyoni holds a Bachelor of Arts degree and Post Graduate Certificate in Education. He previously worked as Head of Group Support Services with Zimbabwe Banking Corporation Limited. Prior to joining Zimbabwe Banking Corporation Limited, he was Deputy Secretary in the Ministry of Finance responsible for the Public Sector expenditure branch. Mr. Nyoni was appointed to the Board of RTG in 1991. His other directorships include National Furniture Industries, Ginhold Investments and Matabeleland Zambezi Water Trust Limited.

Godfrey T ManhambaraNon-Executive Director Mr. Manhambara holds a BSc Economics (Hons) degree from the University of London and a Masters of Business Administration degree from the University of Zimbabwe. He has held senior marketing positions at executive level at Affretair (Private) Limited and has been the Chief Executive of Civil Aviation Authority of Zimbabwe. He is currently the Group Chief Executive of Beta Holdings (Private) Limited. His other directorships include James North (Zimbabwe) (Private) Limited, Zimnat Asset Management Company and Tractive Power Holdings Limited.

Mr Manhambara was appointed Acting Chairman of the board of RTG effective 1 April 2012.

Trynos KufazvineiNon-Executive Director

Mr. Kufazvinei is the Deputy Group Chief Executive of FBC Holdings Limited. He holds a Bachelor of Accountancy (Hons) degree from the University of Zimbabwe and a Masters of Business Administration degree from the University of Manchester. He is a member of the Institute of Chartered Accountants of Zimbabwe.

John GouldNon-Executive Director

Mr. Gould is the Chief Executive Officer of Econet Capital. Mr. Gould is a past Director of the Zimbabwe Tourism Council and past Chairman of the Zimbabwe Association of Tour and Safari Operators. He has also previously worked as the Managing Director of Sable Hotels and Tourism. Mr. Gould holds a Bachelor of Accountancy from the University of Zimbabwe. He qualified as a Chartered Accountant and is a former partner of Ernest and Young Chartered Accountants.

Mr Gould resigned from the board of RTG effective 31 March 2012.

10


Firming our financial position.

11


Senior Management

Operations ManagerDumisani Mhlanga

Human Resources DirectorCinderella Masimbe

Chief ExecutiveChipo Mtasa

Company SecretaryStephen Nyabadza

Commercial Director Godfrey Pasipanodya

Head Internal Audit and RiskSamson Chitsato

GM - Rainbow Towers Hotel and Conference Centre

Richard Nkomo

Finance DirectorPaschal Changunda

12


NATURE OF BUSINESS

The company and its subsidiaries are involved in the tourism services industry as hoteliers, tour operators, providers of

conference facilities and safari lodges.

DIRECTORS

T. Mpofu (Mrs) Chairman (Resigned on 31st March 2012)

G T Manhambara Non-executive (Appointed Acting Chairman on 1st April 2012)

C. Mtasa Chief Executive (Resigned on 31st March 2012)

P. Changunda Finance Director (Appointed Acting Chief Executive on 1st April 2012)

J.M. Chikura Non-executive

K. V Chirairo Non-executive (Resigned on 31st March 2012)

J. H Gould Non-executive (Resigned on 31st March 2012)

T. Kufazvinei Non-executive

E.R.M Nyoni Non- executive

S.C. Vera Non-executive

REGISTERED OFFICE

Rainbow Towers Hotel and Conference Centre

No.1 Pennefather Avenue / Samora Machel Avenue

HARARE

AUDITORS

BDO Zimbabwe Chartered Accountants

3 Baines Avenue

HARARE

LAWYERS

Kantor and Immerman

MacDonald House

10 Selous Avenue

HARARE

Corporate Information

13


Corporate Information (continued)

CORPORATE OFFICE

Chipo Mtasa Chief Executive (Resigned on 31st March 2012)

Paschal Changunda Finance Director (Appointed Acting Chief Executive on 1st April 2012)

Cinderella Masimbe Human Resources Director

Godfrey Pasipanodya Commercial Director

Dumisani Mhlanga Operations Manager

Stephen Nyabadza Company Secretary

Samson Chitsato Head Internal Audit and Risk

Richard Nkomo General Manager - Rainbow Towers Hotel and Conference Centre

BANKERS

Stanbic Bank Zimbabwe

Stanbic Centre

59 Samora Machel Avenue

HARARE

TRANSER SECRETARIES

First Transfer Secretaries (Private) Limited

1 Armagh Road

Eastlea

HARARE

14


HIGHLIGHTS

• Turnover up by 32% to $27,320,901 from $20,740,166.

• Average room rate up by 10% to $75 from $68.

• Occupancy: Zimbabwe Operations: 47% up from 41%.

External Operations : 35% from 34%.

• EBITDA increased by 863% to $2,789,675 from a negative $354,441.

• Operating profit from continuing operations : $1,796,593

• Operating loss from discontinuing operations : $916,741

• Group loss reduces by 68% to $371,433 compared to prior year loss of $1,152,887.

THE 2011 OPERATING ENVIRONMENT

Notwithstanding a challenging operating environment,

Zimbabwe registered positive growth in tourist traffic

and this has been in spite of challenges on domestic air

access throughout the year. The continued marketing of

Zimbabwe as a destination of choice in Southern Africa

has seen the country winning the bid to co-host with

Zambia the 2013 UNWTO General Assembly in Victoria

Falls. These positive developments are beneficial to the

Group.

FINANCIAL REVIEW

Group Financial Performance

The Group registered its strongest operating performance

since dollarization during this period. At $27,320,901, the

Group’s revenues for the period were 32% higher than

that of the same period in prior year.

The Group recorded EBITDA of $2,789,675 which is a

growth of 863% compared to prior year. The growth

was mainly driven by regional and city hotels. Profit

from operations was $1,796,593 which is a significant

improvement from the operating loss of $1,323,847 for

the same period in prior year.

The delays in the implementation of the recapitalization

programme led to high borrowings and therefore

significantly high interest charges. Apart from the high

interest charges, the loss position is also attributable to

the poor financial performance of subsidiaries which are

held for disposal and are discussed below.

Total assets increased by $7,752,098 to $52,025,313

which is an increase of 18% from prior year. The growth

is attributable to A’Zambezi River Lodge and Rainbow

Towers Hotel and Conference Centre capital projects

which were undertaken during the year.

Discontinued Operations

The performance of Touch the Wild Lodges, Tourism

Services Zimbabwe, and Hathanay Investments (trading

as Matetsi Water Lodge) remained depressed for the

period under review, reducing the Group profits from

operations by $916,741. The board has approved the

disposal of Touch the Wild, Tourism Services Zimbabwe

and Hathanay Investments (trading as Matetsi Water

Lodge). The disposal process is at an advanced stage with

all agreements to be concluded in early 2012.

Chairman’s Statement

Tracy MpofuNon –Executive Chairman

15


HIGHLIGHTS

• Turnover up by 32% to $27,320,901 from $20,740,166.

• Average room rate up by 10% to $75 from $68.

• Occupancy: Zimbabwe Operations: 47% up from 41%.

External Operations : 35% from 34%.

• EBITDA increased by 863% to $2,789,675 from a negative $354,441.

• Operating profit from continuing operations : $1,796,593

• Operating loss from discontinuing operations : $916,741

• Group loss reduces by 68% to $371,433 compared to prior year loss of $1,152,887.

Chairman’s Statement (continued)

RECAPITALIZATION

The recapitalization of the Group was postponed to 2012

in order to finalize shareholder engagement regarding

the same matter. The recapitalization will extinguish in

the main, the short term borrowings thereby creating a

stronger balance sheet and a solid platform for positive

operating performance in 2012 and beyond. Proceeds

from the recapitalization exercise will also be used to

complete the refurbishment of the hotels in order to

enhance the competitiveness of the product offering.

Stakeholders will be advised of developments in due

course.

REFURBISHMENT PROGRAMME


The refurbishment project commenced in April 2011.

However, progress in terms of the work plan was

significantly impeded as a result of the curatorship of

ReNaissance Merchant Bank. With the restructuring of

ReNaissance Merchant Bank’s shareholding, the Group

will be able to access the project funds and fully resume

the project before the end of the first half of 2012.

The refurbishment will cover the entire room stock,

replacement of furniture and fittings as well as the public

areas.

Kadoma Hotel & Conference Centre Project

The first phase of the refurbishment of Kadoma Hotel

and Conference Centre was completed in December 2011.

This entailed the modernization of public areas within the

building. The second phase is the refurbishment of the

bedrooms which is expected to commence in the second

quarter of 2012.

Hotel Mozambique Project

Work on the refurbishment of Hotel Mozambique in Beira

commenced late in 2011, with materials and equipment

required for the project being purchased and brought on

site. Work on site will commence during the first quarter

of 2012, with an estimated completion date of December

2012.

The refurbishment is going to result in the modernization

of the entire 180 room stock and the upgrading of room

amenities.

BEITBRIDGE HOTEL PROJECT

The construction of Rainbow Beitbridge Hotel funded

by the National Social Security Authority (NSSA) is at an

advanced stage. It is expected that the hotel will open its

doors to the public by December 2012.

BORROWINGS

The Group’s debt closed at $23,196,908. The debt

is composed of $12,324,070 in short term debt and

$10,872,838 in long term debt. The debt was incurred in

order to undertake the Group’s refurbishment projects as

well as to cover working capital requirements since the

introduction of the multi-currency system.

The Group intends to retire the short term debt in its

entirety through recapitalization. However, the long

term debt will be maintained as it has been secured on

favourable terms.

DIVIDENDS

In view of the losses incurred during the period and the

need to conserve cash, the directors have recommended

that no dividend be declared for the year ended 31

December 2011.

DIRECTORATE

Mrs. Mpofu, Mrs. Mtasa and Messrs. Gould and Chirairo

resigned as directors of the Group effective 31st March

2012.

16


OUTLOOK

The business will focus on revenue improvement, cost

reduction, product upgrade and delivery of quality service.

The board is optimistic that based on these strategies,

the operational growth and recovery demonstrated in

the past year will continue into 2012.

ACKNOWLEDGEMENT

I would like to express my gratitude to the board

members, management and all stakeholders for their

continued support and commitment in driving this Group

forward.

Mrs. T. MpofuChairman 8 March 2012

Chairman’s Statement (continued)

17


Chief Executive’s Review of Operations

1. INTRODUCTION

The Group registered improved operating

performance in 2011. This was against a background

of improved tourist traffic in all the three countries

where the group operates. The economies of these

countries maintained a positive growth trajectory

with Mozambique’s currency firming against the

United States dollar and Zambia achieving single

digit inflation. Although Zimbabwe achieved a Gross

Domestic Product (GDP) of 9%, liquidity challenges

prevailing in the economy throughout the year

continued to affect growth in most economic

sectors including tourism.

Group revenues grew by 32 percent over prior

year while EBITDA grew by 863 percent. This was

in spite of operating losses of $1 million incurred by

the Lodges and touring company which are in the

process of being disposed. High costs and level

of short term debt resulted in interest charges of

$1,7million which wiped off the positive operating

profit resulting in a profit before tax of $146 278

(prior year loss of - $2,7million).

2. DIVISIONAL PERFORMANCE

OCCUPANCY (%)

ADR ($)

REVPAR ($)

PROFIT MARGIN

(%)

CONTINUING OPERATIONS

City Hotels 54 73 39 5

Resort Hotels 33 79 26 -11

Regional Hotels

• Zambia 48 52 25 -3

• Hotel Mozambique 29 85 25 35

AVERAGE FOR CONTINUING OPERATIONS

46 75 35 6

DISCONTINUED OPERATIONS

Touch The Wild Lodges 20 70 14 -46

Matetsi Water Lodge 38 188 71 -48

Tourism Services Zimbabwe -14

AVERAGE FOR DISCONTINUED OPERATIONS 26 111 29 -37

“The company is expected to record improved

performance following its divesture”

Chief ExecutiveChipo Mtasa

18


3. CONTINUING OPERATIONS

a) City Hotels

The four Zimbabwe city hotels remain solid performers

in the Group with the key source of business being

local conferencing.The performance of the city hotel

business has been consistent. However, the second half

performance was somewhat lower than the first half

performance as the conferencing groups involved in the

country’s constitution making process became smaller in

the later phase of the process.

The Group will continue to generate significant income

from city hotels and the current refurbishment plans are

currently targeting these hotels.

b) Resort Hotels

The A’Zambezi River Lodge which had been closed for the

greater part of the first half of the year was reopened at

mid-year. The Victoria Falls Rainbow struggled for most

of the year as it was affected by a tired product and price

undercutting by other hotels in Victoria Falls. Although

performance by these two hotels improved considerably

in the latter part of the year, it was not sufficient to offset

losses incurred. It is expected that the Group will start to

benefit from the upgrade of the A’Zambezi River Lodge

in 2012. Victoria Falls Rainbow hotel will go through a soft

refurbishment during 2012.

c) Zambia Hotels

The two city hotels in the Zambian copperbelt continue

to be affected by low occupancies due to a tired product.

The location of both hotels is excellent for business

traffic. Product improvement will be implemented during

2012 so as to achieve desired occupancy levels.

d) Hotel Mozambique

This hotel has low occupancies as it is in need of

refurbishment. The hotel business model is that of a bed

and breakfast facility and it has resulted in very good

operating margins and cash generation. The hotel has

now mobilized most of the funding required for the first

phase of its refurbishment which is targeted at all the

bathrooms in early 2012.

4. DISCONTINUED OPERATIONS

a) Touch the Wild Lodges

The lodges continued to generate very low revenues

which could not sustain their cost base. This has been the

case over the past five years and it is clear that the lodges

business model is not complementing the hotel business

hence the decision to dispose them. The disposal process

is earmarked for completion in 2012.

b) Matetsi Water Lodge

The 18-bedroomed lodge, which has a staff complement

of 112, struggled throughout the year with high

management fees being paid to an external management

company. This again has shown its disconnection with

the rest of the Group’s operations. While the lodge itself

remains one of the most outstanding in the country, its

lack of business fit in the Group due to high overheads,

specialized operations and marketing needs, require

Chief Executive’s Review of Operations (continued)

Revenue Contribution

City hotels 70%

City hotels

Lodges 6%

Lodges

Tours 3%

Tours

RHBS 1%

RHBS

Regional 13%

Regional

Resort 7%

Resort

19


separate focus which the Group cannot sustain, hence

the decision to dispose the entity.

c) Tourism Services Zimbabwe

This tour operation has always been a marginal

performer in the Group. Its core business of destination

management requires a high level of autonomy from the

hotel portfolio. Turnover was below budget and the unit

incurred a loss for the year as it struggled to operate and

gain market acceptance as an autonomous entity. The

disposal of the company is expected to be finalised in

early 2012.

5. GROUP FINANCIAL POSITION

The Group is saddled with short term debt which is very

expensive and requires retirement. This debt was incurred

to finance part of the project costs for the A’Zambezi

River Lodge, the retrenchment to reduce staff overheads

in 2010 and other working capital requirements since

dollarization.

The short term debt has resulted in negative working

capital with the current ratio now at 0,75:1 (2010 – 0,99:1)

while the debt to equity ratio is at 127%. The recapitalization

programme approved by the Board requires shareholder

approval. A successful recapitalization should result

in the debt to equity ratio going down to 30% and the

company’s borrowings will be confined to long term.

6. STAFF MATTERS

The total staff headcount for 2011 was 1 381 compared to

1 313 in 2010. This translates to a staff room ratio of 1,12:1

against a target of 0,9:1. The disposal of non core assets

will reduce staff numbers to 1 080 and it is also envisaged

that the opening of the new hotel in Beitbridge towards

the end of 2012 should align the staff room ratio to

targeted levels.

No major industrial relations problems were noted during

the year. However, staff continue to press for improved

remuneration above the levels stipulated by the unions.

It is the Group’s desire to maintain its position as a

favourable employer and to link remuneration levels to

productivity.

Staff sporting activities during the year included netball

and football soccer tournaments.

There were long service awards, with 50 employees

receiving 10 to 35 year service awards. Employees who

distinguished themselves in providing outstanding

customer service also received awards.

7. CORPORATE SOCIAL INVESTMENT

The Group maintained its focus on Environmental and

Health matters in its Corporate Social Investment (CSI)

initiatives. The sponsorship of the Environment Reporter

Award in partnership with Environment Africa was

maintained as well as participation in the Green Fund

established to promote Environmental awareness in

Victoria Falls.

Assistance was provided to the Wilkins Infectious

Diseases Hospital in Harare and Kadoma District Hospital.


Mrs Mtasa awarding the 2011 netball champions trophy.

20



8. PROJECTS

Group Refurbishments

The Group will continue to refurbish its entire hotel

portfolio in line with the strategy to improve both the

product and service standards. Some of the hotels have

not been refurbished at all over the past decade.

The key thrust will be to refurbish the hotels where

revenue and profit generation is most significant. To

this end, Kadoma Hotel & Conference Centre, Bulawayo

Rainbow Hotel and Rainbow Hotel Mozambique have

been earmarked for extensive upgrade.

The three hotels are also likely to generate almost all their

funding requirements of about $2 million from internal

resources. The Victoria Falls Rainbow Hotel will receive a

soft touch up in its old wing composed of 44 rooms using

materials from the other hotels.

The Rainbow Towers hotel refurbishment project which

had started in April 2011 and is funded by a loan from

Afreximbank had to be stopped in August 2011 due to

the freezing of funds held at ReNaissance Merchant Bank

during curatorship. However, with the coming on board

of a new investor at the bank, funding is expected to

be released in trenches and refurbishment of the hotel

will resume in early 2012. The project is expected to be

completed in 2012.

Key successes in 2011 were the commissioning of the

A’Zambezi River Lodge as a four-star hotel. A total

of $6,3 million was spent on this project. Kadoma

Hotel and Conference Centre also opened its new look

public areas and a total of $110 000 was spent on this.

Capital expenditure of $1.9 million was spent on the

Rainbow Towers rooms refurbishment as well as on

computerization of the front office systems in the hotels.

9. STRATEGIC INITIATIVES

The Group continues with the strategic initiatives started

in 2010 in order to maintain the turnaround in business

operations. These initiatives which were previously

reported on include: product upgrade, cost management,

skills development and service delivery and funding. In

addition to these areas, the Group has identified two

more initiatives, marketing improvement and rebranding

and the remodeling of operational systems and business

models.

a) Cost Management

The current strategy by the Group is to focus on achieving

cost efficiencies through a disciplined and robust system

of controls. In addition, the purchasing department that

was created a few years ago will be capacitated in order

to achieve economies of scale and eliminate middle

men in the supply chain. The utilities bill will be reduced

through use of alternative energy sources such as solar

and gas and own water supply.

b) Skills Development and Service Delivery

The continued use of the in-house training school, the

Rainbow Hospitality Business School as a source of

core hotel operational skills, will be enhanced. This

will be done through resourcing the school in terms of

experienced hospitality trainers and adequate facilities

to ensure high quality training which meet international

hospitality standards.

21


A quality assurance department has now been created

to monitor and follow up on service standards. This will

ensure an independent check on service standards of all

the hotels. Performance tracking and corrective action

will be monitored through this department.

c) Marketing Improvement and Branding

The e-commerce platform will be fully exploited as a

major distribution channel into the hotels. Most hotels’

bookings are now done online and the Group has been

lagging behind in establishing this channel. Funding to

establish a balanced ICT network to facilitate global

bookings and payments online will be established. All

hotels have now been put on the Global Distribution

System (GDS). The Group will also undergo a rebranding

process in order to establish a new look that embraces

current market developments as well as positioning

the Group favourably in its key markets. The new brand

image will be launched during 2012.

d) Remodelling of Operational Systems and Business

Models

Stemming from the rebranding, there is need to align the

whole organization’s business systems and operating

model to focus on meeting stakeholder needs particularly

the guests.

The product and service offering will be such that they

meet and/or exceed international star ratings. The

provision of excess services such as room service in

three-star hotels will be streamlined, while focus will be

enhancing value to the guest due to superior product

and hygiene standards. Provision of internet services and

enhanced security systems in all the hotels will also be a

priority.

10. CONCLUSION

The successful turnaround of the Group remains

underpinned by the proposed recapitalization. The Group

requires to retire its short term debt as well as raise some

funding for product improvement. The target for the

recapitalization still remains $15 million.

The Group is expected to record improved performance

following its divesture from loss making non core

businesses. Key strategic initiatives which include

rebranding, ICT infrastructure improvement and product

improvement will assist in attaining this goal.

Mrs. C. MtasaChief Executive8 March 2012


22


Corporate Governance

1. INTRODUCTION

The Board is committed to an open and disciplined

governance process based on accountability, integrity,

transparency and independence. For 2011, the Board

believes that it complied with the Code of Corporate

Practices and Conduct as set out in the King Report 2009

(King III), in all material respects.

2. BOARD OF DIRECTORS

The Board is responsible for providing effective

leadership based on a sound ethical foundation. The roles

of the Chairman and the Chief Executive are separate and

distinct.

It is the policy of the Board that the Board should comprise

of a balance of executive and non-executive Directors,

with the non-executive Directors in the majority. During

the course of the year, the Board comprised of two

executive Directors and seven non-executive Directors.

Three of the non-executive Directors are independent

Directors in terms of the King III classification.

The non-executive Directors provide the necessary

objectivity for the Board’s effective functioning and

carry sufficient weight in the Board’s deliberations and

resolutions. The Board composition reflects varying skills,

knowledge and experience. The Board members are fully

aware of their duties to ensure that the Group maintains

a high standard of corporate governance. Through its’

Remuneration and Nominations committee, the Board

undertakes the role of selection and appointment of new

Directors subject to the Group’s constitutive documents.

Mrs Mpofu, Mrs Mtasa, and Messrs Gould and Chirairo

resigned as directors with effect from 31st March 2012.

The Board meets at least once every quarter to review and monitor

the performance of the Group and executive management.

The Board considers and approves Group strategy, corporate

governance policies and risk and compliance structures, risk

management and internal control policies and structures, business

continuity plans and Board composition.

Attendance at meetings held during the financial year ended 31st

December 2011, was as follows;

NAME BOARD REMUNERATION AUDIT AND MARKETING MEETING AND FINANCE COMMITTEE NOMINATIONS COMMITTEE

T. Mpofu 4/8 N/A N/A N/A

C. Mtasa 8/8 4/4 N/A 4/4

P. Changunda 8/8 4/4 N/A N/A

G.T.Manhambara 5/8 N/A N/A 4/4

J. M. Chikura 6/8 3/4 4/8 2/4

K. V. Chirairo 5/8 N/A 3/8 N/A

J. H. Gould 6/8 1/4 N/A 2/4

T. Kufazvinei 8/8 N/A 8/8 N/A

E. R. M. Nyoni 8/8 4/4 7/8 N/A

S. C. Vera 7/8 N/A N/A 1/4

P. F. Timba 1/1 N/A N/A N/A

C. R. Daniels - 1/1 N/A 1/1

*Mr. Vera was coopted to the Board in March 2011, whilst Messrs.

Gould, Chirairo and Mrs. Mpofu were coopted to the Board in May

2011. Mr. Timba and Mrs. Daniels resigned as directors in May 2011.

3. AUDIT AND FINANCE COMMITTEE

The Committee comprises of three non-executive Directors and

is chaired by an independent Director. The Committee deals inter

alia with compliance, internal control and risk management. The

external auditors attend all meetings as ex officio members.

The committee meets at least four times a year to consider

23


Corporate Governance (continued)

compliance with financial reporting requirements,

monitor the appropriateness of accounting policies and

the effectiveness of the systems of internal control and

consider the findings of the internal and external auditors.

4. REMUNERATION AND NOMINATIONS COMMITTEE

The Committee comprises of three non-executive

Directors and is chaired by an independent Director.

The primary functions of the committee is to assist the

Board by reviewing policies, relating to senior executives’

remuneration and the current industry practice with

regards to executive remuneration. The Committee

also makes recommendations to the Board on the

composition of the Board and the balance between

executives and non-executives. Skills and diversity is also

taken into account in this process.

5. MARKETING COMMITTEE

The marketing committee is made up of two non-

executive Directors and is chaired by an independent

Director. The purpose of this Committee include, to

review and advise on the Group’s marketing strategy,

and to identify and explore new business opportunities

for the Group.

6. DEAlinG in SECuRiTiES

The Board has implemented a formal trading policy

prohibiting directors, officers and employees of the

company from dealing in the company’s shares during its

closed periods as prescribed in the ZSE Listing Rules.

7. ETHICS

The Group subscribes to sound principles of ethics and

good business practice. A code of ethical conduct is

in place and is consistently enforced, with disciplinary

measures and appropriate measures taken to prevent

recurrence of an offence. Full details of Directors interests

are disclosed in writing by Directors on joining the Board

and at each Directors meeting.

For and on behalf of the Board.

S. NyabadzaCompany Secretary8 March 2012

24


unknown

The mark of a successful man is one that is spent an entire day on the bank of a river

without feeling guilty about it.

25


Your Directors have pleasure in presenting their report

and audited financial statements for the year ended

31 December 2011.

SHARE CAPITAL

The authorised share capital of the company is

US$250,000 divided into 2,500,000,000 ordinary shares

of US$0.0001 each, whilst US$164,555 divided into 1,645

913 ordinary shares of US$ 0.0001 has been issued.

RESERVES

The movement of the reserves of the Group is shown in

the statement of changes in equity.

DIVIDENDS

The directors deemed it prudent not to declare a dividend

in order for the Group to conserve cash and meet the

requirements of the on-going refurbishment programme.

DIRECTORS

Messrs. John H. Gould, Krison V. Chirairo , Mrs. C. Mtasa

and Mrs. T. Mpofu resigned as directors of the company

effective 31st March 2012.

DIRECTOR’S FEES

Shareholders will be asked to approve payment of

directors fees of US$ 46 810 for the year ended 31

December 2011.

AUDITORS

A resolution seeking the re-appointment of Messrs. BDO

Zimbabwe and approval of their remuneration for the

past year’s audit will be submitted at the Annual General

Meeting.

BORROWING POWERS

In terms of the Articles of Association, the company

is authorised to borrow funds amounting to, but not

exceeding twice the aggregate of:-

Report of Directors

i. The amount of issued and paid up share capital of the

company and,

ii. The total amount of capital and revenue reserves of

the company including share premium.

The directors confirm that during the year under review

the company’s borrowings were within the above limits.

RESPONSIBILITY FOR FINANCIAL STATEMENTS

The directors are responsible for the maintenance of

adequate accounting records and the preparation of the

financial information included in this Annual Report. The

Financial Statements have been consistently prepared

in accordance with International Financial Reporting

Standards (IFRS), and where required, reflect the

directors best estimates and judgements.

To fulfil this responsibility the Group maintained systems

of internal control which are designed to provide

reasonable assurance that the records accurately reflect

the transactions of the Group and safeguard its interests.

The financial statements have been prepared on the

going concern basis since the directors have every reason

to believe that the Group has adequate resources to

continue into the foreseeable future.

For and on behalf of the Board.

S. NyabadzaCompany Secretary8 March 2012

26


The directors are required by the Companies Act (Chapter

24:03), to maintain adequate accounting records and

are responsible for the content and integrity of the

consolidated financial statements and related financial

information included in this report. It is their responsibility

to ensure that the consolidated financial statements

fairly present the state of affairs of the Group as at the

end of the financial year and the results of its operations

and cash flows for the year then ended, in conformity

with International Financial Reporting Standards.

The directors acknowledge that they are ultimately

responsible for the system of internal financial control

established by the Group and place considerable

importance on maintaining a strong control environment.

To enable the directors to meet these responsibilities,

the Board sets standards for internal control aimed

at reducing the risk of error or loss in a cost effective

manner. The standards include the proper delegation

of responsibilities within a clearly defined framework,

effective accounting procedures and adequate

segregation of duties to ensure an acceptable level of risk.

These controls are monitored throughout the Group and

all employees are required to maintain the highest ethical

standards in ensuring the Group’s business is conducted

in a manner that in all reasonable circumstances is above

reproach. The focus of risk management in the Group is

on identifying, assessing, managing and monitoring all

known forms of risk across the Group. While operating

risk cannot be fully eliminated, the Group endeavours to

minimize it by ensuring that appropriate infrastructure,

controls, systems and ethical behaviour are applied

and managed within predetermined procedures and

constraints.

The directors are of the opinion, based on the information

and explanations given by management, that the system

of internal control provides reasonable assurance that

the financial records may be relied on for the preparation

of the financial statements. However, any system of

internal financial control can provide only reasonable, and

not absolute assurance against material misstatement or

loss.

The directors have assessed the ability of the Group to

continue operating as a going concern, and believe that

the preparation of the consolidated financial statements

on a going concern basis is still appropriate. This is despite

the fact that the Group has been posting losses, current

liabilities exceed current assets and the gearing is high.

The Group is pursuing a number of fund-raising initiatives

to enable it to retire it’s short term debt, thereby reducing

the gearing ratio to manageable levels. The initiatives

include the sale and lease-back of Bulawayo Rainbow

Hotel building to the National Social Security Authority

(NSSA) and the disposal of Touch The Wild (Private)

Limited, Tourism Services Zimbabwe (Private) Limited

and Matetsi Water Lodge as disclosed in note 30. The

directors are confident with regards to the success of the

initiatives which are being pursued, and the Group will

return to profitability in 2012. It is on that basis that the

consolidated financial statements have been prepared on

a going concern basis.

The external auditors are responsible for independently

auditing and reporting on the consolidated financial

statements. The consolidated financial statements

and related notes have been examined by the Group’s

external auditors and their report is presented on pages

27 to 28.

The financial statements and the related notes set out on

pages 30 to 64, which have been prepared on the going

concern basis, were approved by the Board and were

signed on its behalf by:

------------------------------------ ------------------------------------

Mrs T. Mpofu Mrs C. Mtasa

Chairman Chief Executive

8 March 2012

Directors’ Responsibility Statement

27


TO THE MEMBERS OF

RAINBOW TOURISM GROUP LIMITED AND ITS SUBSIDIARIES

Report on the consolidated financial statements

We have audited the accompanying consolidated financial statements of RAINBOW TOURISM GROUP LIMITED AND

ITS SUBSIDIARIES as set out on pages 30 to 64 which comprise the consolidated statement of financial position at 31

December 2011, and the consolidated statement of comprehensive income, the consolidated statement of changes in

equity and the consolidated statement of cashflows for the year then ended, and the notes to the consolidated financial

statements, which include a summary of the significant accounting policies and other explanatory notes.

Directors’ responsibility for the consolidated financial statements

The Group’s directors are responsible for the preparation and fair presentation of the consolidated financial statements

in accordance with International Financial Reporting Standards and in the manner required by Companies Act (24:03).

This responsibility includes designing, implementing and maintaining internal control relevant to the preparation and fair

presentation of the consolidated 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 the consolidated 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 consolidated financial

statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated

financial statements. The procedures selected depend on our judgment, including the assessment of the risks of material

misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments,

we consider internal control relevant to the entity’s preparation and fair presentation of the consolidated 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 consolidated financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Report of the Independent Auditors

Tel: +263 4 703 876 /7/8 Fax: +263 4 703 876/7/8 www.bdo.co.zw

Kudenga House 3 Baines Avenue

P.O Box 334 Harare Zimbabwe

BDO Zimbabwe Chartered Accountants

28


Opinion

In our opinion, the consolidated financial statements give a true and fair view of the financial position of RAINBOW

TOURISM GROUP LIMITED AND ITS SUBSIDIARIES as at 31 December 2011, and of its financial performance and its cash

flows for the year then ended in accordance with International Financial Reporting Standards.

Report on other legal and regulatory requirements

In our opinion, the consolidated financial statements have been properly prepared in compliance with the requirements

of the Companies Act (Chapter 24:03) and the relevant Statutory Instruments SI 33/99 and SI 62/99.

------------------------------------

BDO Zimbabwe Harare

Chartered Accountants 9 March 2012

Report of the Independent Auditors (continued)

BDO Zimbabwe, a Zimbabwean partnership, is a member of BDO International Limited, a UK company limited by gaurantee, and forms part of the BDO network of independent member firms.

BDO is the brand name for BDO network and for each of the BDO member firms

Partners: N. Kudenga, G. Sabarauta, J. Jonga, M. Makaya

29


Seamless hospitality services.

30


2011 2010 2011 2010 Notes US$ US$ US$ US$ASSETS Non current assets Property and equipment 7 33,385,813 30,692,185 33,041,323 28,220,269Investment property 8 450,000 - 450,000 - Intangible asset 9 235,932 - 235,932 - Investment in subsidiaries 10.1 - - 1,926,024 1,826,024 Held to maturity investment 10.2 - 900,000 - - 34, 071, 745 31, 592, 185 35, 653, 279 30,046, 293

Current assets Inventories 11 1,718,539 1,413,219 1,553,602 1,107,256 Held to maturity investment 10.2 900,000 - - - Held for trading investments 10.3 18,335 24,994 18,335 24,994 Accounts receivable 12 6,676,245 5,334,423 7,377,994 5,793,160 Bank and cash 13 6,113,206 5,908,394 5,497,824 5,511,792 15,426,325 12,681,030 14,447,755 12,437,202

Assets in disposal group classified as held for sale 14 2,527,243 - - -

Total assets 52, 025, 313 44, 273, 215 50, 101, 034 42, 483, 495

EQUITY AND LIABILITIES Capital and reserves Share capital 15 164,555 164,555 164,555 164,555 Non distributable reserve 17,174,038 17,174,038 16,395,610 16,395,610 Foreign currency translation reserve 8,166 26,208 - - Revaluation reserve 1,108,995 1,108,995 1,303,792 1,303,792 Accumulated losses (1,441,307) (1,069,874) (1,074,340) (1,026,545) 17,014,447 17,403,922 16,789,617 16,837,412

Non current liabilities Borrowings 16.1 10,872,838 9,669,657 10,872,838 9,669,657 Deferred tax 17 3,576,342 4,377,746 3,690,817 4,325,426 14,449,180 14,047,403 14,563,655 13,995,083

Current liabilities Borrowings 16.2 10,750,631 6,370,212 10,750,631 6,070,213 Accounts payable 18 7,510,057 3,894,234 6,618,643 3,148,209 Tax payable 378,228 124,866 - - Bank overdraft 1,573,439 2,432,578 1,378,488 2,432,578 20,212,355 12,821,890 18,747,762 11,651,000

Liabilities directly associated with assets in disposal group classified as held for sale 14 349,331 - - -

Total liabilities 35,010,866 26,869,293 33,311,417 25,646,083

Total equity and liabilities 52, 025, 313 44, 273, 215 50, 101, 034 42, 483, 495

as at 31 December 2011

Mrs T. Mpofu (Chairperson)

08 March 2012

Mrs C. Mtasa (Chief Executive)

Consolidated Statement of Financial Position

Group Company

31


2011 2010 2011 2010

Notes US$ US$ US$ US$

Revenue 19 27,320,901 20,740,166 23,355,963 18,542,192

Cost of sales (3,389,479) (2,803,661) (3,005,996) (2,495,548)

Gross profit 23,931,422 17,936,505 20,349,967 16,046,644

Other operating income 178,971 288,277 - 422,281

Administrative expenses (6,030,842) (7,973,331) (5,558,977) (7,447,569)

Distribution expenses (614,048) (807,794) (596,634) (794,870)

Other operating expenses (15,668,910) (10,767,504) (13,326,436) (9,892,397)

Profit/(loss) from operations 1,796,593 (1,323,847) 867,920 (1,665,911)

Net finance cost 20 (1,650,315) (1,397,334) (1,650,315) (1,343,888)

Profit/(loss) before tax 21 146,278 (2,721,181) (782,395) (3,009,799)

Income tax credit 22 417,235 1,677,954 734,600 1,800,227

Profit/(loss) after tax from continuing operations 563,513 (1,043,227) (47,795) (1,209,572)

loss from discontinued operations, net of tax 23 (934,946) (109,660) - -

Loss for the year (371,433) (1,152,887) (47,795) (1,209,572)

Other comprehensive income:

Gain on property revaluation, net of tax - 97,503 - -

Exchange (loss) / gain arising on translation of foreign operations (18,042) 28,280 - 71,242

Other comprehensive income, net of tax (18,042) 125,783 - 71,242

Total comprehensive loss for the year (389,475) (1,027,104) (47,795) (1,138,330)

Continuing operations

Basic earnings/(loss) per ordinary share - US cents 0.034 (0.063) (0.003) (0.074)

Diluted earnings/(loss) per ordinary share - US cents 0.034 (0.063) (0.003) (0.074)

Consolidated Statement of Comprehensive Income for the year ended 31 December 2011

Group Company

32


2 2011 2010 2011 2010

Notes US$ US$ US$ US$

CASHFLOWS FROM OPERATING ACTIVITIES

Cash generated from operations 25.1 3,981,205 (3,675,641) 3,275,415 (2,508,370)

Interest received 383,599 226,715 383,599 223,808

Investment income 104,473 213,055 - 106,769

Interest paid (2,136,097) (1,626,382) (2,033,914) (1,567,696)

Income tax paid (124,866) (59,867) - (50,639)

Exchange losses on translation of foreign operations (18,042) (23,066) - -

net cash inflow/(outflow) from operating activities 2,190,272 (4,945,186) 1,625,100 (3,796,127)

CASHFLOWS FROM INVESTING ACTIVITIES

Purchase of property and equipment (6,777,490) (5,299,013) (6,167,020) (5,223,615)

Proceeds on sale of property and equipment 746,841 135,463 377,716 138,576

Purchase of intangible assets (235,932) - (235,932) -

Increase in held to maturity investments - - - (1,837,401)

Decrease in stock market investments 6,659 12,378 6,659 -

Purchase of investment property (450,000) - (450,000) -

net cash outflow from investing activities (6,709,922) (5,151,172) (6,468,577) (6,922,440)

CASHFLOWS FROM FINANCING ACTIVITIES

Increase in borrowings 5,583,600 14,530,759 5,883,599 14,871,785

net cash inflow from financing activities 5,583,600 14,530,759 5,883,599 14,871,785

nET inCREASE in CASH AnD CASH EQuiVAlEnTS 1,063,951 4,434,401 1,040,122 4,153,218

CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 3,475,816 (958,585) 3,079,214 (1,074,004)

CASH AnD CASH EQuiVAlEnTS AT EnD OF YEAR 25.2 4,539,767 3,475,816 4,119,336 3,079,214

Consolidated Statement of Cash flowsfor the year ended 31 December 2011

Group Company

33


Sharecapital

Non distributable

reserve

Foreign currency

translation reserve

Revaluation reserve

Retainedearnings

Equity attributable

to the owners

Non controlling

interests

Total equity

GROUP US$ US$ US$ US$ US$ US$ US$ US$

Balance at 1 January 2010 - 17,338,593 (2,072) 1,011,492 393,669 18,741,682 (146,646) 18,595,036

Transfer to share capital on redenomination

164,555 (164,555) - - - - - -

Purchase of shares in a subsidiary

- - - - (310,656) (310,656) 146,646 (164,010)

Total comprehensive income for the year

- - 28,280 97,503 (1,152,887) (1,027,104) - (1,027,104)

Balance at 31 December 2010 164,555 17,174,038 26,208 1,108,995 (1,069,874) 17,403,922 - 17,403,922


- - (18,042) - (371,433) (389,475) - (389,475)

Balance at 31 December 2011 164,555 17,174,038 8,166 1,108,995 (1,441,307) 17,014,447 - 17,014,447

COMPANY

Balance at 1 January 2010 - 16,380,258 - 1,232,550 362,934 - - 17,975,742

Transfer to reserves - 179,907 - - (179,907) - - -

Transfer to share capital on redenomination

164,555 (164,555) - - - - - -


- - - 71,242 (1,209,572) - - (1,138,330)

Balance at 31 December 2010 164,555 16,395,610 - 1,303,792 (1,026,545) - - 16,837,412


- - - - (47,795) - - (47,795)

Balance at 31 December 2011 164,555 16,395,610 - 1,303,792 (1,074,340) - - 16,789,617

Consolidated Statement of Changes in Equityfor the year ended 31 December 2011

34


1. GENERAL INFORMATION

1.1 Nature of business and incorporation

Rainbow Tourism Group Limited is a company

incorporated and domiciled in Zimbabwe and is

listed on the Zimbabwe Stock Exchange. It has

subsidiaries with operations in Zimbabwe, Zambia

and Mozambique. The company and its subsidiaries

are in the tourism services industry as hoteliers, tour

operators, providers of conference facilities and

safari lodges.

1.2 Currency

The Group’s financial statements are expressed in

United States dollars which is both the functional and

the presentation currency.

2. ACCOUNTING POLICIES

2.1 Basis of preparation

The principal accounting policies adopted in the

preparation of the financial statements are set out

below. The policies have been consistently applied to

all the years presented, unless otherwise stated.

These financial statements have been prepared in

accordance with International Financial Reporting

Standards, International Accounting Standards and

Interpretations (collectively IFRSs) issued by the

International Accounting Standards Board (IASB).

The preparation of financial statements in compliance

with adopted IFRS requires the use of certain

critical accounting estimates. It also requires Group

management to exercise judgment in applying

the Group’s accounting policies. The areas where

significant judgments and estimates have been made

in preparing the financial statements and their effect

are disclosed in note 3.

2.2 Changes in accounting policies

The following new standards, amendments and

interpretations are effective for the first time but

none have had a material effect on the Group’s

financial statements:

• Classification of Rights Issues (Amendment to IAS 32)

• IFRIC 19 Extinguishing Financial Liabilities with Equity

Instruments

• Amendment to IFRS 1 First-time Adoption of

International Financial Reporting Standards

• Amendments to IAS 24 Related Party Disclosures

• Amendments to IFRIC 14 Prepayments of a Minimum

Funding Requirement

• Improvements to IFRSs (May 2010)

a) New standards, interpretations and amendments

not yet effective

The following new standards, interpretations and

amendments, which have not been applied in these

financial statements, will or may have an effect on the

Group’s future financial statements:

• IFRS 9 Financial instruments, effective 1 January 2013

• IFRS 10 Consolidated financial statements, effective 1

January 2013

• IFRS 11 Joint arrangements, effective 1 January 2013

• IFRS 12 Disclosure of interest in other entities,

effective 1 January 2013

• IFRS 13 Fair value measurement, effective 1 January

2013

• IAS 19 Employee benefits (Revised), effective 1

January 2013

• IAS 27 Separate financial statements (Revised),

effective 1 January 2013

• IAS 28 Investments in associates and joint ventures

(Revised), effective 1 January 2013

Notes to the Consolidated Financial Statements

35


2.3 Basis of consolidation

Where the company has the power, either directly

or indirectly, to govern the financial and operating

policies of another entity or business so as to

obtain benefits from its activities, it is classified as

a subsidiary. The consolidated financial statements

present the results of the company and its subsidiaries

(“the Group”) as if they formed a single entity.

Intercompany transactions and balances between

Group companies are therefore eliminated in full.

2.4 Business combination

The consolidated financial statements incorporate

the results of business combinations using the

purchase method. In the statement of financial

position, the acquiree’s identifiable assets, liabilities

and contingent liabilities are initially recognised at

their fair values at the acquisition date. The results of

acquired operations are included in the consolidated

statement of comprehensive income from the date

on which control is obtained. They are deconsolidated

from the date control ceases.

2.5 Revenue

i) Services rendered

Revenue from services rendered that is

accommodation, food and beverages, conferencing

facilities, tour operations and safari activities; is

recognized in the statement of comprehensive

income when the service is rendered. No revenue

is recognized if there are significant uncertainties

regarding recovery of the consideration due,

associated costs or the possible return of goods.

Turnover comprises the invoice value of sales in

respect of trading operations and excludes non-

operating income and value added tax.

ii) Interest income

Interest income is accrued on a time basis, by

reference to the principal amount outstanding and

effective interest rate applicable.

2.6 inventories

Inventories are initially recognised at cost, and

subsequently at the lower of cost and net realisable

value. Cost comprises all costs of purchase, costs of

conversion and other costs incurred in bringing the

inventories to their present location and condition.

Weighted average cost is used to determine the cost

of ordinarily interchangeable items.

Service stocks which include linen, cutlery and

crockery are initially included in inventory at cost.

Subsequently the annual charge for usage is

recognised in profit and loss.

2.7 Property and equipment

Items of property and equipment are initially

recognised at cost. As well as the purchase price, cost

includes directly attributable costs and the estimated

present value of any future unavoidable costs of

dismantling and removing items. The corresponding

liability is recognised within provisions.

Subsequent costs are included in the assets’

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 entity and the cost can be measured reliably. All

other repairs and maintenance costs are charged to

the statement of comprehensive income during the

period in which they are incurred. The assets’ useful

lives and residual values are reviewed, and adjusted

if appropriate, at each statement of financial position

date.

Notes to the Consolidated Financial Statements (continued)

36


Land and capital work-in-progress are not depreciated.

Depreciation on assets under construction does not

commence until they are complete and available

for use. Depreciation is provided on all other items

of property and equipment so as to write off their

carrying value over their expected useful economic

lives. It is provided on a straight line basis over the

remaining useful lives at the following rates:

· Buildings 2-4%

· Leasehold improvements 5-20%

· Furniture & equipment 10-15%

· Motor vehicles 25-33%

Land and buildings are revalued after every three

years by an independent appraiser based on market

evidence of the most recent prices achieved in arms

length transactions of similar properties. The surplus

arising from the revaluation is recognised directly into

equity.

Impairment of property and equipment

The carrying amount of property and equipment

is reviewed at each statement of financial position

date to determine whether there is any indication of

impairment. If any such indication exists, the asset’s

recoverable amount is estimated. Impairment loss

is recognised directly through the statement of

comprehensive income when the carrying amounts

of the assets exceed the fair values of the respective

assets.

Derecognition of property and equipment

An item of property and equipment is derecognized

upon disposal or when no future economic benefits

are expected from use or disposal.

2.8 Investment property

Investment properties consist of properties acquired

to earn rental income or for capital appreciation.

Properties are stated initially at cost on acquisition,

which comprises the purchase price and directly

attributable expenditure.

Subsequent to initial recognition investment

properties are measured at their fair value. Fair value

is determined annually based on the open market

value basis, using either the discounted cash flow

method or the capitalisation of net income method.

Gains or losses arising from changes in fair value are

included in profit or loss for the period in which they

arise.

2.9 Externally acquired intangible assets

Externally acquired intangible assets are initially

recognised at cost and subsequently amortised on a

straight-line basis over their useful economic lives.

Intangible assets are recognised on business

combinations if they are separable from the acquired

entity or give rise to other contractual/legal rights.

The amounts ascribed to such intangibles are arrived

at by using appropriate valuation techniques.

The useful economic life of the Group’s intangible

asset is as follows:

Microsoft user rights: 8 years

2.10 Post-employment benefits-Defined contribution

schemes

Contributions to defined contribution pension

schemes are charged to the consolidated statement

of comprehensive income on the year to which they

relate.


37


2.11 Leases

Where substantially all of the risks and rewards

incidental to ownership of a leased asset have been

transferred to the Group (a “finance lease”), the asset

is treated as if it had been purchased outright. The

amount initially recognised as an asset is the lower of

the fair value of the leased property and the present

value of the minimum lease payments payable over

the term of the lease. The corresponding lease

commitment is shown as a liability. Lease payments

are analysed between capital and interest. The interest

element is charged to the consolidated statement of

comprehensive income over the period of the lease

and is calculated so that it represents a constant

proportion of the lease liability. The capital element

reduces the balance owed to the lessor. Where

substantially all of the risks and rewards incidental

to ownership are not transferred to the Group (an

“operating lease”), the total rentals payable under

the lease are charged to the consolidated statement

of comprehensive income on a straight-line basis over

the lease term.

The aggregate benefit of lease incentives is

recognised as a reduction of the rental expense over

the lease term on a straight-line basis.

2.12 Non-current assets held for sale and disposal groups

Non-current assets and disposal groups are classified

as held for sale when:

• they are available for immediate sale;

• management is committed to a plan to sell;

• it is unlikely that significant changes to the plan will

be made or that the plan will be withdrawn;

• an active programme to locate a buyer has been

initiated;

• the asset or disposal group is being marketed at a

reasonable price in relation to its fair value; and

• a sale is expected to complete within 12 months from

the date of classification.

Non-current assets and disposal groups classified as

held for sale are measured at the lower of:

• their carrying amount immediately prior to being

classified as held for sale in accordance with the

group’s accounting policy; and

• fair value less costs to sell.

Following their classification as held for sale, non-

current assets (including those in a disposal group)

are not depreciated.

The results of operations disposed during the year

are included in the consolidated statement of

comprehensive income up to the date of disposal.

A discontinued operation is a component of the

Group’s business that represents a separate major line

of business or geographical area of operations or is a

subsidiary acquired exclusively with a view to resale,

that has been disposed of, has been abandoned or

that meets the criteria to be classified as held for sale.

Discontinued operations are presented in the

consolidated statement of comprehensive income as

a single line which comprises the post-tax profit or loss

of the discontinued operation along with the post-

tax gain or loss recognised on the re-measurement

to fair value less costs to sell or on disposal of the

assets or disposal groups constituting discontinued

operations.

2.13 Borrowing costs

Interest incurred on borrowings used to fund the

refurbishment of hotels is capitalized as part of the

cost of the hotels, net of interest received on cash

drawn down yet to be expended. The Group does

not incur any other interest costs that qualify for

capitalization.


38


2.14 Foreign currency transactions

Transactions in foreign currencies are initially

recorded in the functional currency at the exchange

rate ruling at the date of transaction. At each

statement of financial position date, monetary assets

and liabilities denominated in foreign currencies are

translated at the functional currency exchange rate

ruling at the statement of financial position date.

Non-monetary assets and liabilities are carried at

fair value denominated in foreign currencies and are

translated at rates prevailing at the date when the

fair value was determined. All gains and losses arising

on exchange rate are included in the statement of

comprehensive income for the period, except for

exchange differences arising on non-monetary assets

and liabilities where the changes in the fair value are

recognized directly in reserves.

2.15 Share capital

Financial instruments issued by the Group are

classified as equity only to the extent that they do not

meet the definition of a financial liability or financial

asset.

The Group’s ordinary shares are classified as equity

instruments.

2.16 Earnings per share

Earnings per share is calculated by dividing profit/

(loss) after tax by the weighted average number of

shares in issue throughout the year.

2.17 Financial instruments

2.17.1 Financial assets

The Group classifies its financial assets into one of

the categories discussed below, depending on the

purpose for which the asset was acquired.

Other than financial assets in a qualifying hedging

relationship, the Group’s accounting policy for each

category is as follows:

2.17.2 Fair value through profit or loss

This category comprises only in-the-money

derivatives (see Financial liabilities section for out of-

money derivatives). They are carried in the statement

of financial position at fair value with changes in

fair value recognised in the consolidated statement

of comprehensive income in the finance income

or expense line. Other than derivative financial

instruments which are not designated as hedging

instruments, the Group does not have any assets held

for trading nor does it voluntarily classify any financial

assets as being at fair value through profit or loss.

2.17.3 Loans and receivables

These assets are non-derivative financial assets

with fixed or determinable payments that are not

quoted in an active market. They arise principally

through the provision of services to customers (e.g.

trade receivables), but also incorporate other types

of contractual monetary assets. They are initially

recognised at fair value plus transaction costs that

are directly attributable to their acquisition or issue,

and are subsequently carried at amortised cost using

the effective interest rate method, less provision for

impairment. Impairment provisions are recognised

when there is objective evidence (such as significant

financial difficulties on the part of the counterparty

or default or significant delay in payment) that the

Group will be unable to collect all of the amounts

due under the terms receivable, the amount of such

a provision being the difference between the net

carrying amount and the present value of the future

expected cash flows associated with the impaired

receivable.

For trade receivables, which are reported net; such


39


provisions are recorded in a separate allowance

account with the loss being recognised within

administrative expenses in the consolidated

statement of comprehensive income. On confirmation

that the trade receivable will not be collectable, the

gross carrying value of the asset is written off against

the associated provision.

From time to time, the Group elects to renegotiate the

terms of trade receivables due from customers with

which it has previously had a good trading history.

Such renegotiations will lead to changes in the timing

of payments rather than changes to the amounts

owed and, in consequence, the new expected cash

flows are discounted at the original effective interest

rate and any resulting difference to the carrying

value is recognised in the consolidated statement of

comprehensive income (operating profit).

The Group’s loans and receivables comprise trade and

other receivables and cash and cash equivalents in

the consolidated statement of financial position. Cash

and cash equivalents includes cash in hand, deposits

held at call with banks, other short term highly liquid

investments with original maturities of three months

or less, and – for the purpose of the statement of cash

flows - bank overdrafts. Bank overdrafts are shown

within loans and borrowings in current liabilities on

the consolidated statement of financial position.

2.17.4 Available-for-sale

Non-derivative financial assets not included in the

above categories are classified as available for-

sale and comprise principally the Group’s strategic

investments in entities not qualifying as subsidiaries,

associates or jointly controlled entities. They are

carried at fair value with changes in fair value, other

than those arising due to exchange rate fluctuations

and interest calculated using the effective interest

rate, recognised in other comprehensive income

and accumulated in the available-for-sale reserve.

Exchange differences on investments denominated

in a foreign currency and interest calculated using the

effective interest rate method is recognised in profit

or loss.

Where there is a significant or prolonged decline in the

fair value of an available for sale financial asset (which

constitutes objective evidence of impairment), the

full amount of the impairment, including any amount

previously recognised in other comprehensive

income, is recognised in profit or loss. Purchases

and sales of available for sale financial assets are

recognised on settlement date with any change in

fair value between trade date and settlement date

being recognised in the available-for-sale reserve.

On sale, the cumulative gain or loss recognised in

other comprehensive income is reclassified from the

available-for-sale reserve to profit or loss.

2.17.5 Financial liabilities

The Group classifies its financial liabilities into one

of two categories, depending on the purpose for

which the liability was acquired. Other than financial

liabilities in a qualifying hedging relationship (see

below), the Group’s accounting policy for each

category is as follows:

2.17.6 Fair value through profit or loss

This category comprises only out-of-the-money

derivatives (see Financial assets for in the money

derivatives). They are carried in the consolidated

statement of financial position at fair value with

changes in fair value recognised in the consolidated

statement of comprehensive income. The Group

does not hold or issue derivative instruments for

speculative purposes, but for hedging purposes.

Other than these derivative financial instruments, the

Group does not have any liabilities held for trading


40


nor has it designated any financial liabilities as being

at fair value through profit or loss.

2.17.7 Other financial liabilities

Other financial liabilities include the following items:

Bank borrowings are initially recognised at fair value

net of any transaction costs directly attributable to

the issue of the instrument. Such interest bearing

liabilities are subsequently measured at amortised

cost using the effective interest rate method, which

ensures that any interest expense over the period

to repayment is at a constant rate on the balance of

the liability carried in the consolidated statement of

financial position. Interest expense in this context

includes initial transaction costs and other payable

on maturity, as well as any interest or coupon payable

while the liability is outstanding.

Liability components of convertible loan notes are

measured as described further below. Trade payables

and other short-term monetary liabilities, which are

initially recognised at fair value and subsequently

carried at amortised cost using the effective interest

method.

2.17.8 Fair value measurement hierarchy

IFRS 7 requires certain disclosures which require the

classification of financial assets and financial liabilities

measured at fair value using a fair value hierarchy that

reflects the significance of the inputs used in making

the fair value measurement. The fair value hierarchy

has the following levels:

(a) quoted prices (unadjusted) in active markets for

identical assets or liabilities (Level 1);

(b) inputs other than quoted prices included within Level

1 that are observable for the asset or liability, either

directly (i.e. as prices) or indirectly (i.e. derived from

prices) (Level 2); and

(c) inputs for the asset or liability that are not based on

observable market data (unobservable inputs) (Level

3). The level in the fair value hierarchy within which

the financial asset or financial liability is categorised is

determined on the basis of the lowest level input that

is significant to the fair value measurement.

2.17.9 impairment of non-financial assets

Impairment tests on goodwill and other intangible

assets with indefinite useful economic lives are

undertaken annually at the financial year end. Other

non-financial assets are subject to impairment tests

whenever events or changes in circumstances

indicate that their carrying amount may not be

recoverable. Where the carrying value of an asset

exceeds its recoverable amount (i.e. the higher of

value in use and fair value less costs to sell), the asset

is written down accordingly.

Where it is not possible to estimate the recoverable

amount of an individual asset, the impairment test is

carried out on the smallest Group of assets to which

it belongs for which there are separately identifiable

cash flows; its cash generating units (CGUs’).

Goodwill is allocated on initial recognition to each of

the Group’s CGUs that are expected to benefit from

the synergies of the combination giving rise to the

goodwill.

Impairment charges are included in profit or loss,

except to the extent they reverse gains previously

recognised in other comprehensive income. An

impairment loss recognised for goodwill is not

reversed.

2.17.10 Cash and cash equivalents

For the purpose of the cashflow statement, cash

and cash equivalents comprise of bank balances and

amounts due from other banks and dealing securities.


41


2.18 Income tax

i) Current tax

Current tax assets and liabilities for the current and

prior periods are measured at the amount expected

to be recovered from or paid to the tax authorities.

The tax rates and tax laws used to compute the

amount are those that are enacted or substantively

enacted by the reporting date.

ii) Deferred tax

Deferred income tax is provided using the liability

method on temporary differences at the statement

of financial position date between the tax bases of

assets and liabilities and their carrying amounts for

financial reporting purposes.

Deferred tax liabilities are recognised for all taxable

temporary differences except: Where the deferred

tax liability arises from the initial recognition of

goodwill or of an asset or liability in a transaction

that is not a business combination and at the time of

the transaction affects neither the accounting profit

nor taxable profit or loss; and in respect of taxable

temporary differences associated with investments in

subsidiaries, associates and interests in joint ventures

where the timing of the reversal of the temporary

differences can be controlled and it is probable that

reversal of the temporal differences can be controlled

and it is probable that the temporary differences will

not reverse in the foreseeable future.

Deferred income tax assets are recognised for all

deductible temporary differences, carry-forward

of unused tax credits and unused tax losses to the

extent that it is probable that taxable profit will be

available against which the deductible temporary

differences and the carry forward of unused tax

credits and unused tax losses can be utilized except:

“where the deferred income tax asset relating to the

deductible temporary difference arises from the initial

recognition of an asset or liability in a transaction that

is not a business combination and at the time of the

transaction affects neither the accounting profit nor

taxable profit or loss; and in respect of deductible

temporary differences associated with investments in

subsidiaries, associates and interests in joint ventures.

Deferred tax assets are recognised only to the extent

that it is probable that the temporary difference

will reverse in the foreseeable future and taxable

profit will be available against which the temporary

differences can be utilised.

The carrying amount of deferred income tax assets at

each statement of financial position date are reduced

to the extent that it is no longer probable that

sufficient taxable profit will be available to allow all or

part of the deferred income tax asset to be utilised.

Unrecognised deferred income tax assets are

reassessed at each statement of financial position

date and recognised to the extent that it has become

probable that future taxable profit will allow the

deferred tax asset to be recovered.

Deferred income tax assets and liabilities are measured

at the tax rates that are expected to apply to the year

when the asset is realised or the liability is settled

based on tax rates (and tax laws) that have been

enacted or substantively enacted at the statement of

financial position date. Income tax relating to items

recognised directly in equity is recognised in equity

and not in the statement of comprehensive income.

Deferred tax assets and deferred tax liabilities are

offset if a legally enforceable right exists to set off

current tax assets against current tax liabilities and

the deferred tax relate to the same taxable entity

and the same taxation authority. Deferred capital

gains tax arises on the revalued property. The capital

gains tax liability is computed on the revaluation


42


adjustment based on rates ruling on the statement of

financial position date.

3 SIGNIFICANT JUDGEMENTS IN APPLYING THE

GROUP’S ACCOUNTING POLICIES

In preparing the financial statements, management

is required to make estimates and assumptions

that affect the amounts presented in the financial

statements and related disclosures. Use of available

information and the application of judgment is

inherent in the formation of estimates. Actual results

in the future could differ from these estimates

which may be material to the financial statements.

Significant judgements include:-

(a) Trade receivables

The Group assesses its trade receivables for

impairment at each statement of financial position

date. In determining whether an impairment

loss should be recorded in the statement of

comprehensive income, the Group makes judgement

as to whether there is observable data indicating a

measurable decrease in the estimated future cash

flows from a financial asset.

(b) Impairment testing

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.


43


7. PROPERTY AND EQUIPMENT Land & Leasehold Capital work Furniture & Motor

buildings improvements in progress equipment vehicles Total

Group US$ US$ US$ US$ US$ US$

Net carrying amount 31/12/2010 22,434,887 260,484 4,936,709 2,205,795 854,310 30,692,185

Gross carrying amount - cost / valuation 22,947,973 263,425 4,936,709 2,577,459 1,517,468 32,243,034

Accumulated depreciation (513,086) (2,941) - (371,664) (663,158) (1,550,849)

Additions 139,909 696,222 4,866,767 1,026,941 47,651 6,777,490

Transfers 3,655,503 - (6,301,399) 2,645,896 - -

Net carrying amount of disposed assets (339,891) (28,185) - (140,711) (263,264) (772,051)

Gross carrying amount (354,909) (34,962) - (165,106) (328,556) (883,533)

Accumulated depreciation 15,018 6,777 - 24,395 65,292 111,482

Loss on translation of foreign subsidiary - - - 2,552 - 2,552

Depreciation charge (549,854) (36,210) - (476,667) (130,939) (1,193,670)

Carrying amount of non current assets

held for sale (1,525,052) (104,666) - (234,955) (256,020) (2,120,693)

Gross carrying amount (1,565,293) (108,255) (311,592) (569,166) (2,554,307)

Accumulated depreciation 40,241 3,589 76,637 313,146 433,614


Gross carrying amount - cost / valuation 24,823,183 816,430 3,502,077 5,776,150 667,396 35,585,236

Accumulated depreciation (1,007,681) (28,785) - (747,299) (415,658) (2,199,423)

Borrowing costs capitalised were $804,589 (2010:$410,288). The borrowing costs are directly attributed to the refurbishment of

A’Zambezi River Lodge and Rainbow Towers Hotel and Conference Centre.

Included in property and equipment is land and buildings with a net book value of $21,490,615 (2010:$11,044,220) which have

been pledged as security for borrowings.The borrowings are disclosed in note 15.


44


7. PROPERTY AND EQUIPMENT (Cont’d) Land & Leasehold Capital work Furniture & Motor

buildings improvements in progress equipment vehicles Total

Company US$ US$ US$ US$ US$ US$



Accumulated depreciation (499,362) - - (193,388) (258,572) (951,322)

Additions - 522,066 4,866,767 748,457 29,730 6,167,020

Transfers 3,655,503 - (6,301,399) 2,645,896 - -

Net carrying amount of disposed assets - (28,185) - (140,711) (234,030) (402,926)

Gross carrying amount - (34,962) - (165,106) (291,221) (491,289)

Accumulated depreciation - 6,777 - 24,395 57,191 88,363

Depreciation charge (508,612) (31,438) - (390,890) (12,100) (943,040)



Accumulated depreciation (1,007,974) (24,662) - (559,883) (213,481) (1,806,000)

Borrowing costs capitalised were $804,589 (2010:$410,288). The borrowing costs are directly attributed to the refurbishment of

A’Zambezi River Lodge and Rainbow Towers Hotel and Conference Centre.

Included in property and equipment is land and buildings with a net book value of $21,490,615 (2010:$11,044,220) which have been

pledged as security for borrowings. The borrowings are disclosed in note 15.


45


8 INVESTMENT PROPERTY

2011 2010 2011 2010 2011

US$ US$ US$ US$

Opening balance - - - -

Additions 450,000 - 450,000 -

Fair value adjustment - - - -

Closing balance 450,000 - 450,000 -

The investment property is a piece of land in Victoria Falls held for capital appreciation purposes. The fair value of the investment

property is equal to the cost since the land was purchased towards the end of the year.

9 INTANGIBLE ASSET

Net carrying amount 31/12/2010 - - - -

Gross carrying amount - - - -

Accumulated amortisation - - - -

Additions 235,932 - 235,932 -

Amortisation - - - -

Net carrying amount 31/12/2011 235,932 - 235,932 -

Gross carrying amount - cost 235,932 - 235,932 -

Accumulated amortisation - - - -

The Group has a right to use certain Microsoft products indefinitely, however, considering the changes in technology, it is

unlikely that the Group will continue to benefit for a period which is more than 8 years. The intangible asset has not been

amortised as it was acquired at year end.

Group Company


46


2011 2010 2011 2010

10 INVESTMENTS US$ US$ US$ US$

10.1 INVESTMENT IN SUBSIDIARIES

Aggregate investment in subsidiaries

Opening cost - - 1,826,024 1,000

Additions - - 100,000 1,825,024

Closing cost - - 1,926,024 1,826,024

Analysed as follows:

Rainbow Tourism Group (Zambia) Limited - - 1,000 1,000

Hathanay Investments (Private) Limited - - 1,651,814 1,651,814

Rainbow Hotel Mozambique Limited - - 109,000 9,000

Imal Caterers (Private) Limited T/A Rainbow Hospitality Business School 100 100

Touch The Wild (Private) Limited - - 164,110 164,110

- - 1,926,024 1,826,024

All the above investments in subsidiaries are unlisted and are measured at cost. Rainbow Tourism Group Limited has 100% voting

power and control of all the subsidiaries.

10.2 HELD TO MATURITY INVESTMENT

The Group invested in preference shares (900,000 US$1.00 preference shares @12% per annum) in Savoy Hotel (Zambia) on 1

June 2009 and are redeemable on 30 September 2012.

Non current assets - 900,000 - -

Current assets 900,000 - - -

900,000 900,000 - -

10.3 HELD FOR TRADING INVESTMENTS

Quoted shares

Opening balance 24,994 37,373 24,994 37,373

Fair value losses (6,659) (12,379) (6,659) (12,379)

Closing balance 18,335 24,994 18,335 24,994

11 INVENTORIES

Food and beverages 727,391 301,838 637,948 237,298

Service stocks 467,213 587,446 520,756 475,060

Other stocks 523,935 523,935 394,898 394,898

1,718,539 1,413,219 1,553,602 1,107,256

Group Company


47


2011 2010 2011 2010

12 ACCOUNTS RECEIVABLE US$ US$ US$ US$

Trade 4,379,139 3,011,258 3,146,495 2,383,715

Less: Allowance for credit losses (438,105) (353,058) (396,412) (308,565)

3,941,034 2,658,200 2,750,083 2,075,150

Other receivables 2,735,211 2,676,223 4,627,911 3,718,010

6,676,245 5,334,423 7,377,994 5,793,160

The fair value of trade and other receivables classified as loans and receivables are as follows:

Trade 3,941,034 2,658,200 2,750,083 2,075,150

Other 2,735,211 2,676,223 4,627,911 3,718,010

6,676,245 5,334,423 7,377,994 5,793,160

As at 31 December 2011 the Group’s trade receivables of US$2,641,034 (2010 : US$1,695,692) were past due but not impaired.

They relate to the clients with no default history. The aging analysis of these are as follows:

Up to 3 months 2,294,245 363,006 1,675,758 223,007

3 to 6 months 110,920 990,190 85,077 885,771

9 to 12 months 235,869 342,496 198,429 237,702

2,641,034 1,695,692 1,959,264 1,346,480

As at 31 December 2011 the Group’s trade receivables of $438,105 (2010:$396,412) were past due and impaired. The analysis of

these provisions is as follows;

Up to 3 months 91,245 - 85,233 -

3 to 6 months 124,076 12,090 108,347 -

9 to 12 months 222,784 340,968 202,832 308,565

438,105 353,058 396,412 308,565

Movement on the group provision for impairment of trade receivables is as follows:

At the beginning of the year 353,058 23,490 308,565 23,490

Provided for during the year 87,874 378,762 90,674 334,269

Recovered - (2,614) - (2,614)

Receivables written off during the year as uncollectable (2,827) (46,580) (2,827) (46,580)

438,105 353,058 396,412 308,565

The movement on the provision for impaired receivables has been included in other operating expenses line on the consolidated

statement of comprehensive income.

Other classes of financial assets included within trade and other receivables do not contain impaired assets.

Group Company


48


13 ASSETS AND LIABILITIES IN DISPOSAL GROUP CLASSIFIED AS HELD FOR SALE

In November 2011 the Board resolved to dispose of Touch The Wild (Private) Limited (TTW), Tourism Services of Zimbabwe

(Private) Limited (TSZ) and Hathanay Investments (Private) Limited t/a Matetsi Water Lodge in their entirety. These subsidiaries

are 100% owned by the Group and are into lodges and destination management business. The operations have been incurring

losses for the past years. The disposal of these assets began in November 2011 through a tender process being handled by an

independent party. The sale transactions are expected to be completed by 30 June 2012.

The following major classes of assets and liabilities relating to these operations, which are stated at the lower of carrying

amounts and fair value less costs to sell, have been classified as held for sale in the consolidated statement of financial position

on 31 December 2011:

Matetsi Water

TTW TSZ Lodge Total

US$ US$ US$ US$

Assets:

Property and equipment 385,402 260,312 1,474,980 2,120,694

Inventories - 2,128 118,105 120,233

Accounts receivable - 86,922 52,464 139,386

Cash & bank - 12,201 5,047 17,248

Other assets - - 129,682 129,682

Total assets of a disposal group classified as held for sale 385,402 361,563 1,780,278 2,527,243

Liabilities:

Accounts payable - 107,366 230,744 338,110

Other liabilities - 11,221 - 11,221

Total liabilities of a disposal group classified as held for sale - 118,587 230,744 349,331

There is no impairment loss recognised on the assets held for sale as the sale proceeds are likely to exceed the carrying amounts.

The assets and liabilities held for sale have been disclosed under the Zimbabwe operations segment.


49


2011 2010 2011 2010

15 BORROWINGS US$ US$ US$ US$

15.1 Long term loans

African Export-Import Bank-Afreximbank 7,500,000 7,500,000 7,500,000 7,500,000

PTA Bank 3,533,469 2,436,324 3,533,469 2,436,324

11,033,469 9,936,324 11,033,469 9,936,324

Less: current portion (160,631) (266,667) (160,631) (266,667)

10,872,838 9,669,657 10,872,838 9,669,657

15.2 Short term loans

ZB Bank - 2,585,859 - 2,585,859

FBC Bank Limited 2,100,000 1,256,997 2,100,000 956,998

Renaissance Merchant Bank Limited - - - -

Metropolitan Bank Limited 500,000 - 500,000 -

CBZ Bank Limited 5,000,000 - 5,000,000 -

Infrastructure Development Bank of Zimbabwe 2,990,000 2,260,689 2,990,000 2,260,689

Current portion of long term loans 160,631 266,667 160,631 266,667

10,750,631 6,370,212 10,750,631 6,070,213

Total borrowings 21,623,469 16,039,869 21,623,469 15,739,870

15.3 Borrowing terms

African Export-Import Bank-Afreximbank loan

The loan, which is denominated in United States dollars, carries interest of LIBOR rate plus market premium determined by the

bank calculated as the variance between the bank’s cost of funding and relevant LIBOR rate plus 5.5% per annum. The loan has

a tenor of six years with a capital repayment grace period of one year and is secured by a bank guarantee of US$7,500,000 from

Renaissance Merchant Bank Limited. The Rainbow Towers hotel lease was used as security for the loan.

2011 2010 2011 2010

14 SHARE CAPITAL US$ US$ US$ US$

Authorised

2 500 000 000 ordinary shares of US$0.0001 each. 250,000 250,000 250,000 250,000

Issued

1 645 545 913 ordinary shares of US$0.0001 each. 164,555 164,555 164,555 164,555

The unissued shares are under the control of the directors for an indefinite period but subject to the limitations imposed by the

Companies Act (Chapter 24:03), the Zimbabwe Stock Exchange and approval by members in a general meeting.

Group Company

Group Company


50


2011 2010 2011 2010

16 DEFERRED TAX US$ US$ US$ US$

Assessed losses 2,180,770 804,311 1,738,762 616,332

Accelerated wear and tear (5,757,112) (5,182,057) (5,429,579) (4,941,758)

(3,576,342) (4,377,746) (3,690,817 ) (4,325,426)

Reconciliation

Balance at the beginning of year 4,377,746 6,489,432 4,325,426 6,196,895

Temporary differences on property and equipment 575,055 (220,299) 487,820 (222,321)

Revaluation of property and equipment - 14,785 - -

Tax rate adjustment - on revalued assets - (63,945) - (71,242)

- on temporary differences - (1,037,915) - (961,574)

Originating differences on assessed losses (1,376,458) (804,312) (1,122,430) (616,332)

Balance at the end of year 3,576,342 4,377,746 3,690,817 4,325,426

17 ACCOUNTS PAYABLE

Trade 4,968,223 1,517,953 3,797,446 1,061,032

Other 2,541,834 2,376,281 2,821,197 2,087,177

7,510,057 3,894,234 6,618,643 3,148,209

18 REVENUE

Rooms revenue 12,499,253 10,291,955 10,311,181 8,849,399

Food and beverages 11,941,648 8,176,140 11,819,160 8,515,752

Transfers and activities 2,880,000 2,272,071 1,225,622 1,177,041

27,320,901 20,740,166 23,355,963 18,542,192

Revenue represents amounts invoiced for sales, less value added tax as appropriate.

15.3 Borrowing terms (Continued)

The loan agreement has a cash trapping clause which does not permit payment of dividends if debt service coverage ratio defined

as gross revenue minus operating expenses divided by interest and principal payments falls below 150%.

PTA bank loan

The loan, which is denominated in United States dollars, carries interest of 3 months libor rate plus 6% per annum during grace

period and 3 months libor rate plus 5.5% per annum thereafter. The loan has a tenor of seven years with a principal repayment the

grace period of one year and is secured by a bond in favour of the bank over Victoria Falls Rainbow and A ‘Zambezi River Lodge

with a net book value of US$11,044,220.

Short term loans

These are bankers’ acceptances and short term borrowings with various financial institutions. The loans are unsecured except

for the CBZ Bank Limited facility which is secured by a bond in favour of Bulawayo Rainbow Hotel with a net book value of

$10,446,395 and repayable within 30 to 120 days subject to being rolled over. Interest on bankers’ acceptances range between

14% and 42% per annum.

Group Company


51


2011 2010 2011 2010

19 NET FINANCE COST US$ US$ US$ US$

Finance income 383,599 226,715 383,599 223,808

Finance cost (2,033,914) (1,624,049) (2,033,914) (1,567,696)

(1,650,315) (1,397,334) (1,650,315) (1,343,888)

For the purposes of the statement of cash flows, net interest paid comprises the following:

Finance expense from continuing operations (2,033,914) (1,624,049) (2,033,914) (1,567,696)

Finance expense from discontinued operations (102,183) (2,333) - -

(2,136,097) (1,626,382) (2,033,914) (1,567,696)

20 PROFiT/(lOSS) BEFORE TAX

Profit/(Loss) before tax is arrived at after taking into account the following:

Income

Preference share dividend 104,473 213,055 - 106,769

Expenses

Staff costs 10,393,657 7,956,002 8,165,395 6,257,804

Audit fees 139,603 69,904 81,587 63,411

Depreciation of property and equipment 1,193,670 1,092,432 943,040 951,322

Directors’ emoluments :

For services as directors 46,810 37,980 46,810 37,980

For managerial services 113,086 178,800 113,086 178,800

Operating lease expenses 1,703,293 1,607,957 1,174,182 1,174,182

Exchange gain/(loss) 18,267 20,230 (9) 2,988

Loss on disposal of equipment 25,210 34,502 25,210 51,455

21 inCOME TAX CREDiT

Current 296,998 136,784 - -

Deferred (714,233) (1,814,738) (734,600) (1,800,227)

(417,235) (1,677,954) (734,600) (1,800,227)

Tax rate reconciliation

Accounting profit/(loss) 146,278 (2,721,181) (782,395) (3,009,799)

Tax at 25.75% 37,667 (700,704) (201,467) (775,023)

Non-taxable differences (454,902) (977,250) (533,133) (1,025,204)

(417,235) (1,677,954) (734,600) (1,800,227)

Group Company


52


2011 2010 2011 2010

22 DISCONTINUED OPERATIONS US$ US$ US$ US$

Results of discontinued operations

Revenue 2,779,675 2,784,420 - -

Expenses other than finance costs (3,696,416) (3,139,535) - -

Finance costs (102,183) (2,333) - -

Income tax credit 83,978 247,788 - -

Loss for the year (934,946) (109,660) - -

Earnings per share from discontinued operations

Basic loss per share (US cents) (0.057) (0.007) - -

Diluted loss per share (US cents) (0.057) (0.007) - -

Statement of cashflows

The statement of cash flows includes the following amounts relating to discontinued operations:

Operating activities 185,943 (282,253) - -

Investing activities (104,133) (1,589,108) - -

Financing activities (300,000) 1,951,814 - -

Net cash from discontinued operations (218,190) 80,453 - -

2011 2011 2011 2010 2010 2010

23 EARNINGS PER SHARE US$ US$ US$ US$ US$ US$

GROUP

Numerator

Profit/(loss) for the year and earnings used

in basic EPS 563,513 (934,946) (371,433) (1,043,227) (109,660) (1,152,887)

Earnings used in diluted EPS 563,513 (934,946) (371,433) (1,043,227) (109,660) (1,152,887)

Denominator ‘000 ‘000 ‘000 ‘000 ‘000 ‘000

Weighted average number of shares used

in basic EPS 1,645,546 1,645,546 1,645,546 1,645,546 1,645,546 1,645,546

Weighted average number of shares used

in diluted EPS 1,645,546 1,645,546 1,645,546 1,645,546 1,645,546 1,645,546

Group Company

Continuing Continuing Discontinued

operations operations operations Total

Continuing Continuing Discontinued

operations operations operations Total


53


2011 2010 2011 2010

24 CASH FLOW INFORMATION US$ US$ US$ US$

24.1 Cash generated from operating activities

Loss for the year (371,433) (1,152,887) (47,795) (1,209,572)

Adjusted for:

Depreciation of property and equipment 1,193,670 1,092,432 943,040 951,322

Preference share dividend (104,473) (213,055) - (106,769)

Unrealised exchange gain / (loss) 18,267 20,230 (9) 2,988

Loss on disposal of equipment 25,210 34,502 25,210 51,455

Finance costs 2,136,097 1,626,382 2,033,914 1,567,696

Income tax credit (501,213) (1,925,742) (734,600) (1,800,227)

Finance income (383,599) (226,715) (383,599) (223,808)

Operating profit/(loss) before working capital changes 2,012,526 (957,908) 1,836,161 (873,684)

Increase in inventories (305,320) (330,489) (446,346) (105,833)

Increase in accounts receivable (1,341,822) (806,185) (1,584,834) 547,267

Increase in accounts payable 3,615,822 (1,581,059) 3,470,434 (2,076,120)

3,981,205 (3,675,641) 3,275,415 (2,508,370)

24.2 Cash and cash equivalents

Bank and cash balances 6,113,206 5,908,394 5,497,824 5,511,792

Bank overdraft (1,573,439) (2,432,578) (1,378,488) (2,432,578)

4,539,767 3,475,816 4,119,336 3,079,214

The bank overdrafts are unsecured. The interest rates range between 14% and 30%.

Included in the bank and cash is an amount of US$5.1 million which is held with ReNaissance Merchant Bank Limited which

is under curatorship as at the reporting date. The Group has not been able to access the funds since June 2011. However, as

explained in note 32.1 to the consolidated financial statements, the curatorship was lifted after year end and the Group will be

able to access the funds.

25 RELATED PARTY INFORMATION

Volume of transactions with related parties

The aggregate amount brought to account in respect of the following types of transactions and each class of related party

involved were:

Group Company


54


Group Company

2011 2010 2011 2010

25.1 Management fees from related parties US$ US$ US$ US$

Touch The Wild (Private) Limited - - 99,282 155,576

Imal Caterers (Private) Limited Trading As

Rainbow Hospitality Business School - - 28,506 42,728

Rainbow Hotel Mozambique Limited - - 455,786 52,805

- - 583,574 251,109

25.2 Compensation to key management

Short term benefits 477,723 305,784 477,723 305,784

External management 70,786 121,133 - -

548,509 426,917 477,723 305,784

25.3 Non - executive directors

Fees 46,810 37,980 46,810 37,980

The non - executive directors do not receive pension entitlements from the Group.

25.4 Related party receivables

Touch The World (Private) Limited 105,221 174,721

Hathanay Investments (Private) Limited 52,646 44,385

Rainbow Tourism Group (Zambia) Limited 1,669,250 1,338,300

2,388,274 1,774,372

25.5 Loans to key management

Loans 321,801 190,157 321,801 190,157

The loans include motor vehicle and housing loans. The loans attracts interest which ranges between 6% and 9% per annum.

Key management personnel are those persons having the authority and responsibility for planning, directing, and controlling

activities of the Group. They include the Chief Executive, Finance Director and senior management of the company. External

management on note 25.2 relates to management services rendered by a third party to Hathanay Investments (Private) Limited

t/a Matetsi Water Lodge.

25.6 Directors’ shareholding 2011 2010

Ordinary Ordinary

Shares Shares

Mrs Chipo Mtasa 1,474,221 1,474,221

Mr Elliot Nyoni 5,000 5,000

1,479,221 1,479,221


55


25.7 Group structure

The Group comprises the following companies:

Nature of Shareholding

Name Business Location 2011 2010

Touch The Wild (Private) Limited Lodge and Zimbabwe 100% 100%

tour operator

Rainbow Tourism Group (Zambia) Limited Hotelier Zambia 100% 100%

Imal Caterers (Private) Limited T/A Rainbow

Hotel Business School Hotel school Zimbabwe 100% 100%

Hathanay Investments (Private) Limited T/A

Matetsi Water Lodge Lodge operator Zimbabwe 100% 100%

Rainbow Hotel Mozambique Limited Hotelier Mozambique 100% 100%

26 COMMiTMEnTS

26.1 lease commitments

(a) Operating lease terms

The Group maintains a portfolio of six leased properties in Zimbabwe and outside Zimbabwe under fixed operating lease

agreements and two leased properties under variable operating lease agreements. The terms are between 3 to 10 years for

properties under fixed terms and 3 to 25 years for properties under variable terms. All the lease agreements are renewable at

the end of the lease period for a further period agreed by both parties at market rates. The lease agreements do not impose

any restrictions. Future minimum lease payments for variable agreements are based on the current contingent rent as at the

reporting date.

(b) The total future value of minimum lease payments is due as follows:

2011 2010

Period Type US$ US$

Not later than one year -fixed 489,627 562,307

-variable 1,153,211 1,143,133

Later than one year and not later than five years -fixed 1,927,103 2,406,476

-variable 5,026,110 5,594,590

Later than five years -fixed 734,355 833,540

-variable 32,886,092 33,454,572

Total operating lease commitments 42,216,498 43,994,618


56


26.2 Capital expenditure commitments 2011 2010

US$ US$

Contracted 7,500,000 7,500,000

Authorized but not contracted 3,498,390 1,466,040

10,998,390 8,966,040

The contracted US$7,500,000 capital expenditure relates to Rainbow Towers Hotel and Conference Centre refurbishment

funded through loans. All projects will be carried out subject to availability of funds.

27 RETIREMENT BENEFITS

27.1 Catering Industry Pension Fund (NEC) - Zimbabwe

This is a defined contribution scheme which covers employees in specified occupations of the catering industry. The majority

of employees in the Rainbow Tourism Group are members of this Fund.

Contribution for the year 104,012 79,567

27.2 National Social Security Authority Scheme (NSSA) - Zimbabwe

This is a defined contribution scheme legislated under the National Social Security Act (1989).The company’s obligations are

limited to specific contributions as legislated from time to time, and are currently 3% of pensionable earnings limited to US$200

per month per employee.

Contribution for the year 56,857 73,966

27.3 National Pension Scheme Authority (NPSA) - Zambia

This is a defined contribution scheme which was promulgated under the National Pension Scheme Authority (NAPSA) Act.

Contributions by both the company and employees amount to 5% of pensionable emoluments each.

Contributions for the year 13,617 14,613

27.4 Instituto Nacional Seguransa Social (INSS) - Mozambique

This is a defined contribution scheme which was promulgated under the Mozambican Labour Act. Contributions are by both the

company and employees amount to 4% and 3% of basic salary respectively for all employees.

Contributions for the year 5,311 1,999


57


28 FINANCIAL RISK MANAGEMENT

The main risks facing the Group are treasury risk, credit risk, liquidity, exchange rate and cash flow risk.

In common with all other businesses, the Group is exposed to risks that arise from its use of financial instruments. This note

describes the Group’s objectives, policies and processes for managing those risks and methods used to measure them. Further

quantitative information in respect of these risks is presented throughout these financial statements.

There have been no substantive changes in the Group’s exposure to financial instrument risks, its objectives, policies and

processes for managing those risks or the methods used to measure them from the previous periods unless otherwise stated in

this note.

Principal financial instruments

The principal financial instruments used by the Group, from which financial instrument risk arises, are as follows:

a) Accounts receivable

b) Cash at bank

c) Borrowings

d) Accounts payable

General objectives, policies and processes

The Board has overall responsibility for the determination of the Group’s risk management objectives and policies and, whilst

retaining ultimate responsibility for them, it has delegated the authority for designing and operating processes that ensure the

effective implementation of the objectives and policies to the Group’s finance function.

28.1 Treasury risk

The Audit and Finance Committee, made up of executive and non-executive directors, meets regularly to consider and analyse,

among other issues, currency and interest rate exposures and to re-evaluate treasury risk management strategies against

prevailing economic forecasts. Compliance with Group policies and exposure limits is reviewed at regular board meetings.

28.2 Liquidity risk

The Group has a borrowing capacity of $34,807,844 of which 41% was unutilised as at 31 December 2011. This together with cash

generated from operations is adequate to enable the Group to meet its day-to day expenses and service charges as they fall due.

28.3 Credit risk

Financial assets which potentially subject the Group to concentrations of credit risk consist mainly of trade receivables, bank

balances and cash. The Group’s receivables are presented net of provision for doubtful debts where this is considered necessary.

Credit risk in respect of trade debtors is limited because of the nature of the major receivables i.e. local private companies and

Government departments which although they take time, eventually make payments.


58


28.4 Interest rate risk

The Group’s exposure to interest rate fluctuations is limited to the overdraft amount. Interest rates on the existing loans are

contractual.

28.5 Exchange risk

The Group is exposed to foreign currency fluctuations as it accrues foreign currency-denominated liabilities in its business

activities. It is exposed to such foreign currency fluctuations to the extent that such liabilities are not matched by foreign

currency receipts from operations.

A summary of the financial instruments held by category is provided below:

Fair value

through profit Loans and Held to

Financial assets or loss receivables maturity

2011 2011 2011

US$ US$ US$

Group

Bank and cash balances - 6,113,206 -

Trade and other receivables - 6,676,245 -

Quoted shares 18,335 - -

Redeemable preference shares - - 900,000

18,335 12,789,451 900,000

Company




18,335 12,875,818 -

Group 2010 2010 2010

US$ US$ US$ US$




Redeemable preference shares - - 900,000

24,994 11,242,817 900,000

Company




24,994 11,304,952 -


59


Fair value Fair value

through profit through profit Amortised Amortised

Financial Liabilities or loss or loss cost cost

2011 2010 2011 2010

US$ US$ US$ US$

Group

Trade and other payables - - 7,510,057 3,894,234

Borrowings - - 21,623,469 16,039,869

Bank overdrafts - - 1,573,439 2,432,578

- - 30,706,965 22,366,681

Company

Trade and other payables - - 6,618,643 3,148,209

Borrowings - - 21,623,469 15,739,870

Bank overdrafts - - 1,378,488 2,432,578

- - 29,620,600 21,320,657

Credit risk

Credit risk is the risk of financial loss to the Group if a customer or a counterparty to a financial instrument fails to meet its

contractual obligations. Financial assets which potentially subject the Group to concentrations of credit risk consist primarily of

cash and trade receivables. The Group’s cash and cash equivalents are placed with high quality financial institutions. The credit

risk with respect to trade receivables is limited as a result of the spread of balances owing to various customers who are in

different sectors of the economy.

Carrying Carrying Maximum Maximum

value value Exposure Exposure

Financial assets 2011 2010 2011 2010

US$ US$ US$ US$

Group


Trade and other receivables 6,676,245 5,334,423 6,676,245 5,334,423

Redeemable preference shares 900,000 900,000 900,000 900,000

Qouted shares 18,335 24,994 18,335 24,994

13,707,786 12,167,811 13,707,786 12,167,811

Company


Trade and other receivables 7,377,994 5,793,160 7,377,994 5,793,160

Qouted shares 18,335 24,994 18,335 24,994

12,894,153 11,329,946 12,894,153 11,329,946


60


Financial instruments measured at fair value

Level 1 Level 2 Level 3

2011 2010 2011 2010 2011 2010

Group US$ US$ US$ US$ US$ US$

Equity investments 18,335 24,994 - - - -

Company

Equity investments 18,335 24,994 - - - -

Liquidity risk

This is the risk of insufficient liquid funds being available to cover commitments. In order to mitigate any liquidity risk that

the Group faces, the Group’s policy has been throughout the year ended 31 December 2011, to maintain substantial unutilised

facilities.

Between Between

Up to 3 3 and 12 12 and 24 Over 2

months months months years Total

2011 2011 2011 2011 2011

Group US$ US$ US$ US$ US$

Trade and other payables 7,510,057 - - - 7,510,057

Borrowings 11,094,042 1,030,233 1,373,644 8,125,550 21,623,469

Bank overdrafts 1,573,439 - - - 1,573,439

20,177,538 1,030,233 1,373,644 8,125,550 30,706,965

Company


Borrowings 11,094,042 1,030,233 1,373,644 8,125,550 21,623,469

Bank overdrafts 1,378,488 - - - 1,378,488

19,091,173 1,030,233 1,373,644 8,125,550 29,620,600

2010 2010 2010 2010 2010

Group US$ US$ US$ US$ US$


Borrowings 6,103,545 266,667 1,366,667 8,302,990 16,039,869

Bank overdrafts 2,432,578 - - - 2,432,578

12,430,357 266,667 1,366,667 8,302,990 22,366,681

Company


Borrowings 5,503,546 266,667 1,366,667 8,002,990 15,139,870

Bank overdrafts 2,432,578 - - - 2,432,578

11,084,333 266,667 1,366,667 8,002,990 20,720,657


61


29 MANAGEMENT OF CAPITAL

The primary objective of the Group’s capital management is to ensure that it maintains a strong credit rating and healthy capital

ratios in order to support its business and maximise shareholder value.

The Group manages its capital structure and makes adjustments to it, in light of changes in economic conditions.

No changes were made in the objectives, policies or processes during the year ended 31 December 2011.

The Group monitors its capital ratio using a gearing ratio which is net debt divided by total capital plus net debt. The Group

includes within its net debts, interest bearing loans and borrowings, trade and other payables, less cash and cash equivalents,

excluding discontinued operations; capital includes equity attributable to the equity holders of the parent.

Group Group

2011 2010

US$ US$

Trade and other payables 7,510,057 3,894,234

Borrowings 21,623,469 16,039,869

Tax payables 378,228 124,866

Less: cash and cash equivalents (4,539,767) (3,475,816)

Net debt 24,971,987 16,583,153

Total equity 17,014,446 17,403,922

Capital and net debt 41,986,433 33,987,075

Gearing ratio 59% 49%

30 GOING CONCERN

The Group incurred a loss after tax of US$371,433 (2010: US$1,152,887) for the year ended 31 December 2011 and as of that date

its current liabilities exceeded its current assets by US$4,786,030 (2010: US$140,860). The gearing ratio stood at 59% (2010: 49%),

with a significant part of the borrowings being short term and expensive.

The Group is pursuing a number of fund raising initiatives to enable it to retire its short term debt, thereby reducing the gearing

ratio to manageable levels. The initiatives include the disposal of Touch The Wild (Private) Limited, Tourism Services Zimbabwe

(Private) Limited and Matetsi Water Lodge. As at the date of approval of these consolidated financial statements, the sale of

Matetsi Water Lodge had already been finalised. Negotiations for the disposal of the other two subsidiaries were at an advanced

stage.

Shareholders are also being engaged on the recapitalisation initiatives which includes the sale and lease back of one of the

Group’s properties and rights issue. Refer to notes 32.2 and 32.3 for further details.

The directors are confident that the initiatives which are being pursued will be successful and it is on that basis that the

consolidated financial statements have been prepared on a going concern basis.


62


31 SEGMENTAL PERFORMANCE

31.1 Basis of segmentation

The Group has interests in Zimbabwe and outside Zimbabwe. The Group generates revenue from the following principal

business activities which are tourism, safari, conferencing and hotelier. The type of services from which each operating segment

derives its revenues are described below.

Rainbow Tourism Group has two main business segments:-

Zimbabwe

This division is involved in hotels, conferencing and safari lodges. The segment accounts for 91% (2010: 92%) of the revenue from

parties outside the Group.

Outside Zimbabwe

This division is made up of Mozambique and Zambia. It is involved in hotels and accounts for 9% (2010: 8%) of the Group’s

external revenue. The segment has experienced steady growth over the past year.

Measurement of operating segment profit or loss, assets and liabilities

Management has determined the operating segments based on the reports reviewed by the chief operating executive, who is

responsible for allocating resources to the reportable segments and assesses their performance. The chief operating decision-

maker assesses the performance of the operating segments based on a measure of profit or loss.

The accounting policies of the operating segments are the same as those described in the summary of significant accounting

policies. The Group’s evaluation performance excludes the effect of non recurring expenditure from the operating segments

such as restructuring costs and legal fees. The measure also excludes the effects of equity settled share-based payments and

unrealised gains or losses on financial instruments.

Inter-segment sales are priced along the same lines as sales to external customers, with an appropriate discount being applied to

encourage use of group resources at a rate acceptable to local tax authorities. This policy was applied consistently throughout

the current and prior periods.


63


Outside

Zimbabwe Zimbabwe Total

2011 2011 2011

US$ US$ US$

Revenue 26,422,698 3,677,878 30,100,576

Inter-segmental revenue - - -

Total revenue from external customers 26,422,698 3,677,878 30,100,576

Discontinued operations (2,779,675) - (2,779,675)

Group’s revenue per consolidated statement of comprehensive income 23,643,023 3,677,878 27,320,901

Depreciation on property and equipment (1,156,987) (36,683) (1,193,670)

Segment profit 1,733,397 1,082,120 2,815,517

Finance income 383,599

Finance expense (2,033,914)

Segment profit included in discontinued operations (1,018,924)

Group profit before tax and discontinued operations 146,278

Additions to non current assets 6,750,115 27,375 6,777,490

Reportable segment assets 48,872,971 3,152,342 52,025,313

Reportable segment liabilities 33,009,446 2,001,420 35,010,866


64


Outside

Zimbabwe Zimbabwe Total

2010 2010 2010

US$ US$ US$

Revenue 21,674,454 1,850,132 23,524,586

Inter-segmental revenue - - -

Total revenue from external customers 21,674,454 1,850,132 23,524,586

Discontinued operations (2,784,420) - (2,784,420)

Group’s revenue per consolidated statement of comprehensive income 18,890,034 1,850,132 20,740,166

Depreciation on property and equipment 1,089,841 2,591 1,092,432

Segment profit (1,350,085) 383,686 (966,399)

Finance income 226,715

Finance expense (1,624,049)

Segment profit included in discontinued operations (357,448)

Group profit before tax and discontinued operations (2,721,181)

Additions to non current assets 5,271,639 27,374 5,299,013

Reportable segment assets 41,838,465 3,239,061 45,077,526

Reportable segment liabilities 26,439,773 1,233,831 27,673,604

32 EVENTS AFTER THE REPORTING DATE 32.1 Lifting of curatorship for Banker As at the reporting date, the Group had funds amounting to US$5,1 million deposited with ReNaissance Merchant Bank Limited

which was under curatorship. As a result of the curatorship, the Group had not been able to access its funds since June 2011. However, on 02 March 2012, the curatorship was lifted and the Bank resumed normal operations. The Group is now able to access its funds and continue with the refurbishment exercise.

32.2 Sale and lease back of Bulawayo Rainbow Hotel building Subsequent to year end a memorandum of agreement for the sale and lease back of Bulawayo Rainbow Hotel building to

National Social Security Authority (NSSA) was signed. The selling price was US$9.5 million and Rainbow Tourism Group Limited will pay monthly rentals of US$55,420.

32.3 Major shareholders agreement on rights issue A memorandum of agreement was signed by major shareholders National Social Security Authority (NSSA), the Hamilton and

Hamilton Trustees Limited, the Hamilton Family and the Zimcor Limited to vote in favour of the approval of the resolution of rights issue subsequent to year end. These major shareholders collectively own 63.7% of Rainbow Tourism Group Limited’s shares.

No adjustments in the financial statements have been made regarding these events.

32.4 Approval of the consolidated financial statements These consolidated financial statements were approved by the Board of Directors on the 8th of March 2012.


65


Top 20 Shareholdersas at 31 December 2011

“If you can’t fly then run, if you can’t run then walk, if you can’t walk then crawl, but whatever you do you

have to keep moving forward.”Martin Luther King Jr

RANK ACCOUNT NAME SHARES % OF TOTAL

1 NATIONAL SOCIAL SECURITY AUTHORITY 451,903,124 27.46

2 HAMILTON AND HAMILTON TRUSTEES LTD 300,200,782 18.24

3 ZIMCOR LIMITED 217,784,465 13.24

4 FIRST MUTUAL LIFE - POLICY HOLDERS 134,819,549 8.19

5 MINISTRY OF ENVIRONMENT ANDTOURISM 83,402,508 5.07

6 TRISTAR INSURANCE COMPANY LIMITED 73,428,208 4.46

7 LAAICO - FCA NON-RES 60,000,000 3.65

8 FIRST MUTUAL LIFE -MANAGED FUND 54,853,036 3.33

9 PEARL PROPERTIES (2006) LIMITED 42,915,563 2.61

10 FMRE PROPERTY AND CASUALTY - SHAREHOLDERS 26,643,635 1.62

11 HAMILTON, NICHOLAS RHODES- NNR 16,695,788 1.01

12 PINNACLE INVESTMENTS (PRIVATE) LIMITED 15,521,167 0.94

13 FIRST MUTUAL LIFE - SHAREHOLDERS 15,336,057 0.93

14 HAMILTON, MAXIMILIAN RHETT 13,996,703 0.85

15 FMRE PROPERTY AND CASUALTY-POLICYHOLDERS 10,267,278 0.62

16 FIRST MUTUAL LIFE - MANAGED FUND 10,090,750 0.61

17 HAMILTON, ORRIE LINCOLN 10,000,000 0.61

18 HAMILTON, RICHMOND LOUIS 10,000,000 0.61

19 HAMILTON, ALEXANDER SETHI 10,000,000 0.61

20 EUGENIE BRITANNIA, HAMILTON 9,990,000 0.61

TOTAl 1,567,848,613 95.27

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Do fewer but wildly important thingsDirector of Econet Wireless Zimbabwe Limited. He holds a Masters of Business Administration Degree from the University of Zimbabwe. He is a fellow