http://ipaper.ipapercms.dk/AfricanShareHolder/mw/NITL/2008/RSS.ashxAfrican Annual Reports PagesFri, 21 Nov 2008 16:36:57 +0100http://ipaper.ipapercms.dk/AfricanShareHolder/mw/NITL/2008/http://ipaper.ipapercms.dk/AfricanShareHolder/mw/NITL/2008/?Page=1http://ipaper.ipapercms.dk/AfricanShareHolder/mw/NITL/2008/?Page=12008-11-21T16:36:57+01:00http://ipaper.ipapercms.dk/AfricanShareHolder/mw/NITL/2008/?Page=2http://ipaper.ipapercms.dk/AfricanShareHolder/mw/NITL/2008/?Page=2Annual Report 20082008-11-21T16:36:57+01:00http://ipaper.ipapercms.dk/AfricanShareHolder/mw/NITL/2008/?Page=3http://ipaper.ipapercms.dk/AfricanShareHolder/mw/NITL/2008/?Page=3Annual Report 2008 Contents Investment Policy Directors’ Report Fund Manager’s Report Independent Auditor’s Report Income Statement Balance Sheet Page No. 3 2 5 10 12 14 11 9 Statement of Changes in Equity Statement of Cash Flows Significant Accounting Policies Details of shareholders 13 Notes to the Financial Statements 28 18 12008-11-21T16:36:57+01:00http://ipaper.ipapercms.dk/AfricanShareHolder/mw/NITL/2008/?Page=4http://ipaper.ipapercms.dk/AfricanShareHolder/mw/NITL/2008/?Page=4Annual Report 2008 Investment Policy The principal objective of the Company is to provide a vehicle to facilitate broad public participation in a diverse portfolio of equity investments in Malawi. The Company’s investment portfolio is managed by an independent fund manager, First Merchant Bank Limited, whose management is subject to the overall direction of the Board of Directors of the Company. First Merchant Bank Limited has day-to-day control and discretion in the management of the investment portfolio in accordance with the investment policy. The investment portfolio is managed with a view to providing shareholders with a return by way of both annual income and capital growth. Subject to cash flow considerations, net after tax income, other than income from investment switches and unrealised net gains on the investment portfolio, is distributed to shareholders. The Board of Directors recognizes there will always be risk present in any portfolio of investments but has adopted an investment policy which seeks to minimize that risk by defining permitted investments and placing limits on the extent of exposure to individual investments as follows:Equities Up to 100% of the investment portfolio may be invested in equities provided that no more than 50% of the portfolio may be invested in any single listed company and no more than 25% of the portfolio may be invested in any single unlisted company. Further limitations on investment in equities of property companies are set out below. Bonds Up to 25% of the investment portfolio may be invested in public or private sector bonds provided that no more than 5% of the portfolio may be invested in any single bond issue or series of bonds of a single private sector issuer. It is a requirement that bonds must have a fixed redemption date and period to redemption of not more than ten years. Private sector bonds must be fully secured and public sector bonds must be guaranteed by the Government of Malawi. Property and Equity of Property Companies Up to 25% of the investment portfolio may be invested in properties or equity of property companies provided that no more than 10% of the investment portfolio may be invested in any single property investment. Cash Equivalents No restrictions are placed on short-term investments in the form of Treasury Bills, Reserve Bank Bills or deposits with licensed financial institutions. Restrictions The Fund Manager may not without the consent of the majority of the Board of Directors: acquire or dispose of any unlisted equities or bonds or enter into a contract on behalf of the Company to acquire or dispose of any unlisted equities or bonds; borrow money in the name of the Company; or pledge any property or assets belonging to the Company or create charges or mortgages thereon. 22008-11-21T16:36:57+01:00http://ipaper.ipapercms.dk/AfricanShareHolder/mw/NITL/2008/?Page=5http://ipaper.ipapercms.dk/AfricanShareHolder/mw/NITL/2008/?Page=5Annual Report 2008 Fund Manager’s Report The Malawi economy continues to register impressive growth with forecast real growth in GDP of 8.7% for 2008 following on from real growth of 8.6% achieved in 2007. Government’s commitment to fiscal discipline was maintained and inflation remained in single digits, though sharp increases in global energy and food prices resulted in increased inflationary pressures. The authorities continue to maintain the benchmark bank rate unchanged at 15 % but the market determined yields on both short and long – term government paper have edged upwards in response to fears of further increases in the rate of inflation. Company Performance The prolonged three year bull run on the Malawi equity market appears to have slowed down considerably. Nevertheless, the Domestic Share Index increased by 37.6% over the year to 30 September 2008 which, when viewed against a single digit inflation rate, continues to provide a real return to investors. Following a pre-tax return on equity of 41.2%, the net asset value of NITL grew by 37% from K2,053 million to K2,812 million over the corresponding period. In general, performance of our underlying investments has been good with most counters registering strong growth. Exceptions are Dairibord Malawi Limited which continues to absorb losses on its fruit canning venture and African Lotteries Limited where it may take time to see the benefits of a new majority shareholder and the introduction of innovative technology driven lottery products. Previously expressed concerns over the future strategic direction of Auction Holdings Limited have somewhat abated on the back of much increased volumes and higher average prices for tobacco. Dividend income from our investment portfolio has recovered from a somewhat disappointing 2007. Total dividend income for the year of K100 million is 44% higher than the K69 million recorded in the prior year. The overall dividend yield of 3.5% on the year end investment portfolio valuation is considerably better than the MSE domestic weighted average dividend yield which stood at 3.0% at 30 September 2008. The NITL share price which opened the year at K18, an 18% premium over net asset value, appreciated throughout most of the year to peak at K26 before easing slightly to close at K24.50, a 17.6% premium to underlying book value. 32008-11-21T16:36:57+01:00http://ipaper.ipapercms.dk/AfricanShareHolder/mw/NITL/2008/?Page=6http://ipaper.ipapercms.dk/AfricanShareHolder/mw/NITL/2008/?Page=6Annual Report 2008 Fund Manager’s Report (cont’d) Outlook It remains to be seen whether the recent turmoil in international financial markets will be felt to any great extent in the Malawi equity market. Certainly, with a few possible exceptions, the ratings of MSE listed counters are somewhat demanding compared to other African markets. To a degree the rather thin and illiquid nature of the Malawi market should offer some protection from a major downward re-rating. Domestic investors have limited alternative investment opportunities at present and demand from this sector will hopefully cushion the impact of any potential reduced interest from foreign investors. We, however, remain cautious of the prospects for any material real growth in the capital value of our investment portfolio in the near term. The performance of the majority of the companies in our investment portfolio remains good with increased profitability forecast. We anticipate this to translate into increased dividend payouts and continued growth in NITL’s dividend income in 2009. First Merchant Bank Limited 11 November 2008 42008-11-21T16:36:57+01:00http://ipaper.ipapercms.dk/AfricanShareHolder/mw/NITL/2008/?Page=7http://ipaper.ipapercms.dk/AfricanShareHolder/mw/NITL/2008/?Page=7Annual Report 2008 Directors’ Report Nature of Business The Company is a closed end collective investment scheme established with the objective of providing investors with the opportunity to invest in a diversified portfolio of equity investments in Malawi. The Company’s investment policy, which has been fully complied with during the year, appears on page 2. Share capital Details of the current authorised and issued share capital are set out in the statement of changes in equity on page 12. An analysis of shareholders by type and holding is set out on page 28. Dividends An interim dividend of 22 tambala per share (2007: 20 tambala) was paid on 20 June 2008 to shareholders registered in the Company’s share register on 13 June 2008. The directors recommend a final dividend of 17 tambala per share (2007: 11 tambala) for declaration at the forthcoming annual general meeting. Directors The following directors served in office during the year. D. J. Kamwaza (Chairman) A. T. Konyani R. E. Mdeza E. Mwapasa V. H. Masikini W. G. Nyengo M. Sosola The regulations governing collective investment schemes stipulate that the majority of directors of the Company must not be affiliated persons. None of the directors are affiliated persons In terms of the Company’s articles of association Messrs Kamwaza, Nyengo and Ms. Mwapasa retire at the forthcoming annual general meeting and being eligible offer themselves for reelection. The Nomination and Remuneration Committee of the Board recommends the re-election of the retiring directors. Other than as disclosed in note 12 to the financial statements, none of the directors held a direct or indirect interest in the shares of the Company as at the balance sheet date. 52008-11-21T16:36:57+01:00http://ipaper.ipapercms.dk/AfricanShareHolder/mw/NITL/2008/?Page=8http://ipaper.ipapercms.dk/AfricanShareHolder/mw/NITL/2008/?Page=8Annual Report 2008 Directors’ Report (cont’d) Statement on corporate governance The Company has a unitary Board of directors comprising 7 Non-Executive Directors The Board complies with the major principles of modern corporate governance as contained in the Code of Best Practice for Corporate Governance in Malawi and the Cadbury and King reports. The Board meets four times a year. Adequate and efficient communication and monitoring systems are in place to ensure that the Directors receive all relevant information to guide them in making necessary strategic decisions, and providing effective leadership, control and strategic direction over the Company’s operations, and in ensuring that the Company fully complies with relevant legal, ethical and regulatory requirements. Board Committees Audit Committee The Audit Committee comprises Ms. E. Mwapasa B.Acc, MBA, ACCA, CPA(Mw) and Mr. R. Mdeza B. Comm, FCCA, CPA(Mw). The Committee, which conducts its business in accordance with detailed terms of reference: • • • • • • During the year under review the Audit Committee held 4 meetings and both members of the Committee attended all meetings. There were no disagreements between the Audit Committee and the Board of Directors. Investment Committee The Board has appointed an Investment Committee whose role is to supervise and assist the managers of the Company in their investment decisions. Messrs Nyengo and Sosola and Ms Konyani serve on the Investment Committee. The managers report to the Investment Committee on any investment purchases and disposals and they also have to seek prior authorisation from the Committee before undertaking transactions with a value in excess of K20 million. Transactions with a value in excess of K40 million require approval of the Board of Directors. monitors the integrity of the financial statements of the Company and any formal announcements relating to the Company’s financial performance, including reviewing significant financial reporting judgements contained in them; reviews the Company’s internal financial controls to ensure the operation of adequate systems and control processes to safeguard the Company’s assets; reviews the Company’s policies and procedures to ensure they adequately address compliance and regulatory issues; monitors and reviews the effectiveness of the Company’s internal audit function; oversees the company’s relationship with its external auditor and reviews and monitors the external auditor’s independence and objectivity and the effectiveness of the audit process; makes recommendations to the Board, for it to put to shareholders for their approval in general meeting, in relation to the appointment and remuneration of external auditors 62008-11-21T16:36:57+01:00http://ipaper.ipapercms.dk/AfricanShareHolder/mw/NITL/2008/?Page=9http://ipaper.ipapercms.dk/AfricanShareHolder/mw/NITL/2008/?Page=9Annual Report 2008 Directors’ Report (cont’d) Nomination and Remuneration Committee This Committee comprises three non-affiliated directors Messrs Kamwaza and Nyengo and Mrs Masikini. The Committee reviews on a regular basis the composition, size and balance of the full Board to ensure that the Board is not lacking in skills or experience and adequately represents the interests of the shareholders as a whole. Additionally, the Committee deliberates on the appropriate level of remuneration of directors to be recommended for approval by the shareholders in general meeting. This Committee also makes recommendations to the Board on the appointment and contractual terms of appointment of the Fund Manager. Ethical Standards The Board is fully committed to ensuring the Company’s affairs are conducted with integrity and that the highest ethical standards are maintained. Directors fees Currently directors receive an annual fee of K350,000 each, together with sitting allowances at the rate of K18,000 per meeting for the chairman and K15,000 per meeting for other directors. At the forthcoming annual general meeting it will be proposed that fees and sitting allowances are increased based on recommendations from the Nomination and Remuneration Committee of the Board. Statement of directors’ responsibilities for the financial statements The Malawi Companies Act 1984 requires the directors to ensure that, for each accounting period, financial statements, which show a true and fair view of the state of affairs of the Company and of its results for that period, are properly prepared in accordance with the relevant provisions of the Companies Act 1984. • • • • The directors also accept responsibility on behalf of the Company for the maintenance of proper accounting records sufficient for this purpose. Accordingly the directors have :selected suitable accounting policies and applied them consistently; and made judgements and estimates that are reasonable and prudent; and stated that applicable accounting standards have been followed; and prepared the financial statements on a going concern basis having determined that the Company has adequate resources to continue in operational existence for the foreseeable future. The directors are also responsible for establishing controls to prevent the falsification of entries in the books of account and to facilitate the detection of inaccuracies therein. 72008-11-21T16:36:57+01:00http://ipaper.ipapercms.dk/AfricanShareHolder/mw/NITL/2008/?Page=10http://ipaper.ipapercms.dk/AfricanShareHolder/mw/NITL/2008/?Page=10Annual Report 2008 Directors’ Report (cont’d) Management The Company has an agreement for a period of two years commencing from 1 January 2007 with First Merchant Bank Limited (FMB) under the terms of which FMB is contracted as sole manager of the Company. Subject to the overall policy and direction of the Board, FMB has day to day administrative and general control and discretion in the management, in accordance with the investment policy, of the funds and investments of the Company throughout the term of the agreement. Specific duties of FMB include: • • to ensure adequate administrative, secretarial, accounting, financial and internal audit systems are maintained. to ensure the establishment of acceptable custodial arrangements to ensure the safe custody of the Company’s assets. FMB is a commercial bank, licensed in Malawi under the Banking Act and also licensed as an investment/portfolio manager by Reserve Bank of Malawi under the authority vested in it by the Capital Markets Development Act. Auditors The auditors, KPMG, have signified their willingness to continue in office and a resolution to confirm their re-appointment as auditors is to be proposed at the forthcoming annual general meeting. D. J. Kamwaza Chairman 11 November 2008 82008-11-21T16:36:57+01:00http://ipaper.ipapercms.dk/AfricanShareHolder/mw/NITL/2008/?Page=11http://ipaper.ipapercms.dk/AfricanShareHolder/mw/NITL/2008/?Page=11Annual Report 2008 Independent Auditor’s Report to the members of The National Investment Trust Limited KPMG Public Accountants and Business Advisors MASM House, Lower Sclater Road P. O. Box 508, Blantyre, Malawi Telephone : (265) 01 820 744/01 820 391 Fax: (265) 01 820 575 E-mail: kpmg@kpmgmw.com Report on the financial statements We have audited the accompanying financial statements of The National Investment Trust Limited, which comprise the balance sheet as at 30 September 2008, and the income statement, statement of changes in equity and cash flow statement for the year then ended, and a summary of significant accounting policies and other explanatory notes set out on pages 10 to 27. Directors’ responsibility for the financial statements The Company’s directors are responsible for the preparation and fair presentation of these financial statements in accordance with International Financial Reporting Standards. This responsibility includes: designing, implementing and maintaining internal control system relevant to the preparation and fair presentation of the 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 responsibilities Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance whether the financial statements are free of material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgement, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control system relevant to the entity’s preparation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control system. An audit also includes evaluating the appropriateness of accounting policies used and reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. Opinion In our opinion, the financial statements, which have been prepared in accordance with International Financial Reporting Standards and in compliance with the provisions of the Malawi Companies Act 1984, give a true and fair view of the financial position of The National Investment Trust Limited as at 30 September 2008, and its financial performance and its cash flows for the year then ended. KPMG Certified Public Accountants and Business Advisors Blantyre 11 November 2008 Resident Partners: L. M. Gama, H. B. Nyirenda KPMG Malawi is a member firm of KPMG International a Swiss Cooperative. 92008-11-21T16:36:57+01:00http://ipaper.ipapercms.dk/AfricanShareHolder/mw/NITL/2008/?Page=12http://ipaper.ipapercms.dk/AfricanShareHolder/mw/NITL/2008/?Page=12Annual Report 2008 Income Statement Income For the year ended 30 September 2008 Notes 1 2 3 2008 K’000 99,559 1,798 781,524 882,881 1,049 3,128 26,609 2,649 813 1,553 577 388 36,766 846,115 42,981 803,134 803,134 595 2007 K’000 69,105 1,859 1,070,108 168 1,141,240 969 1,617 18,610 927 815 1,116 233 24,287 1,116,953 1,032 1,115,921 1,115,921 827 Expenditure Auditor’s remuneration Directors’ remuneration Management fees Listing expenses Transfer secretarial fees Communication costs Consultancy fees Other Total expenditure Profit before taxation Taxation Net profit for the year Attributable to equity holders of the Company Basic and diluted earnings per share (Tambala) Dividend income Interest income Net increase in fair value of equity investments Other income Total income 4 5 6 102008-11-21T16:36:57+01:00http://ipaper.ipapercms.dk/AfricanShareHolder/mw/NITL/2008/?Page=13http://ipaper.ipapercms.dk/AfricanShareHolder/mw/NITL/2008/?Page=13Annual Report 2008 Balance Sheet As at 30 September 2008 Assets Equity investments Income notes Income tax recoverable Dividends receivable Prepaid expenses Cash and cash equivalents Total assets Notes 7 8 9 Liabilities Deferred tax liability Provision for withholding tax on dividends Income tax Creditors payable within one year Total liabilities Total equity and liabilities Equity and liabilities Shareholders’ equity Share capital Share premium Retained earnings Total shareholders’ equity 2,825,194 1 8,372 792 26,811 2,861,170 2008 K’000 2,046,413 1 4,203 2,498 274 15,896 2,069,285 2007 K’000 2,700 169,550 2,639,379 2,811,629 25,735 737 3,220 19,849 49,541 2,700 169,550 1,880,795 2,053,045 249 15,991 16,240 10 The financial statements of the Company were approved by the Board of Directors on 11 November 2008 and were signed on its behalf by: E. Mwapasa Director 2,861,170 2,069,285 D. J. Kamwaza Chairman 112008-11-21T16:36:57+01:00http://ipaper.ipapercms.dk/AfricanShareHolder/mw/NITL/2008/?Page=14http://ipaper.ipapercms.dk/AfricanShareHolder/mw/NITL/2008/?Page=14Annual Report 2008 Statement of changes in equity For the year ended 30 September 2008 Share capital K’000 At 1 October 2006 2,700 Dividends paid to Shareholders Net profit for year At 30 September 2007 2,700 Share premium K’000 169,550 169,550 Retained earnings K’000 824,274 (59,400) 1,115,921 1,880,795 Total K’000 996,524 (59,400) 1,115,921 At 1 October 2007 2,700 Dividends paid to Shareholders Net profit for year At 30 September 2008 2,700 169,550 169,550 1,880,795 (44,550) 803,134 2,639,379 2,053,045 (44,550) 803,134 2,811,629 2,053,045 Share capital and share premium The holders of ordinary shares are entitled to receive dividends as declared from time to time and are entitled to one vote per share at meeting of the Company. All shares rank equally with regard to the Company’s residual assets. Share capital 2008 K 2007 K Authorised share capital 150,000,000 ordinary shares of 2 tambala each Issued and fully paid 135,000,000 ordinary shares of 2 tambala each Retained earnings 3,000,000 2,700,000 3,000,000 2,700,000 Included in the reported retained earnings are unrealised gains on revaluation of equity investments net of related deferred taxation totalling K2,615,620,000 (2007: K1,865,771,000) which is not available for distribution to shareholders. 122008-11-21T16:36:57+01:00http://ipaper.ipapercms.dk/AfricanShareHolder/mw/NITL/2008/?Page=15http://ipaper.ipapercms.dk/AfricanShareHolder/mw/NITL/2008/?Page=15Annual Report 2008 Statement of cash flows for the year ended 30 September 2008 Cash Flow from Operating Activities Dividends received Interest received Other income Operating expenditure Note 2008 K’000 2007 K’000 Taxes paid Cash flows from operating activities Cash flow from Financing Activities Dividends paid Cash flows from financing activities Cash flow from Investing Activities Purchase of shares Proceeds from sale of shares Cash flows from investing activities 93,685 1,798 95,483 (35,252) 60,231 (9,335) 50,896 69,853 1,859 168 71,880 (31,001) 40,879 (6,329) 34,550 (57,411) (57,411) (127,255) 129,998 2,743 (42,724) (42,724) 10,915 15,896 26,811 Net increase/(decrease) in cash and cash equivalents Cash and cash equivalents at 1 October Cash and cash equivalents at 30 September 9 (22,861) 38,757 15,896 132008-11-21T16:36:57+01:00http://ipaper.ipapercms.dk/AfricanShareHolder/mw/NITL/2008/?Page=16http://ipaper.ipapercms.dk/AfricanShareHolder/mw/NITL/2008/?Page=16Annual Report 2008 Significant Accounting Policies (a) (b) Basis of preparation (i) Basis of measurement The financial statements are prepared on the historical cost basis except for financial instruments at fair value through profit or loss, which are measured at fair value and financial instruments measured at amortised cost. (ii) Functional and presentation currency These financial statements are presented in Malawi Kwacha, which is the Company’s functional currency. Except as indicated, financial information presented in Malawi Kwacha, has been rounded to the nearest thousand. Statement of compliance The financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) and its interpretations adopted by the International Accounting Standards Board (IASB). (iii) Use of estimates and judgements The preparation of financial statements requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised and in any future periods affected. (c) (iv) Significant accounting policies The accounting policies have been consistently applied by the group and are consistent with those used in the previous year. New standards and interpretations not yet adopted A number of new standards, amendments to standards and interpretations are not yet effective for the year ended 30 September 2008, and have not been applied in preparing these financial statements: • In particular, information about significant areas of estimation uncertainty and critical judgements in applying accounting policies that have the most significant effect on the amount recognised in the financial statements are described in note 13. IFRS 8 Operating Segments introduces the “management approach” to segment reporting. IFRS 8, which becomes mandatory for the Company’s 2009 financial statements, will require the disclosure of segment information based on the internal reports regularly reviewed by the Company’s management in order to assess each segment’s performance and to allocate resources to them. It is not expected to have any impact on the financial statements. 142008-11-21T16:36:57+01:00http://ipaper.ipapercms.dk/AfricanShareHolder/mw/NITL/2008/?Page=17http://ipaper.ipapercms.dk/AfricanShareHolder/mw/NITL/2008/?Page=17Annual Report 2008 Significant Accounting Policies (cont’d) (c) • New standards and interpretations not yet adopted (cont’d) • Revised IAS 23 Borrowing Costs removes the option to expense borrowing costs and requires that an entity capitalise borrowing costs directly attributable to the acquisition, construction or production of a qualifying asset as part of the cost of that asset. The revised IAS 23 which will become mandatory for the Company’s 2009 financial statements is not expected to have any impact on the financial statements. (d) Financial instruments Financial assets and financial liabilities are recognized on the Company’s balance sheet when the Company becomes a party to the contractual provisions of the instrument. (i) IFRIC 13 Consumer Loyalty Programmes addresses the accounting by entities that operate, or otherwise participate in, customer loyalty programmes for their customers. It relates to customer loyalty programmes under which the customer can redeem credits for awards such as free or discounted goods or services. IFRIC 13, which becomes mandatory for the Company’s 2009 financial statements, is not expected to have any impact on the financial statements. Fair value measurement The determination of fair values of financial assets and financial liabilities is based on quoted market prices or dealer price quotations for financial instruments traded in active markets. For all other financial instruments fair value is determined by using valuation techniques. The Company uses widely recognised valuation models for determining the fair value of common and more simple financial instruments. For these financial instruments, inputs into models are market observable. The value produced by a technique is adjusted to allow for a number of factors as appropriate, because valuation techniques cannot appropriately reflect all factors market participants take into account when entering into a transaction. Management believes that these valuation adjustments are necessary and appropriate to fairly state financial instruments carried at fair value on the balance sheet. (ii) Identification and measurement of impairment At each balance sheet date the Company assesses whether there is objective evidence that financial assets not carried at fair value through profit or loss are impaired. Financial assets are impaired when objective evidence demonstrates that a loss event has occurred after the initial recognition of the asset, and that the loss event has an impact on the future cash flows from the asset that can be estimated reliably. The Company considers evidence of impairment at both a specific asset and collective level. All individually significant financial assets are assessed for specific impairment. All significant assets found not to be specifically impaired are then collectively assessed for any impairment that has been incurred but not yet identified. Assets that are not individually significant are then collectively assessed for impairment by grouping together financial assets (carried at amortised cost) with similar risk characteristics. 152008-11-21T16:36:57+01:00http://ipaper.ipapercms.dk/AfricanShareHolder/mw/NITL/2008/?Page=18http://ipaper.ipapercms.dk/AfricanShareHolder/mw/NITL/2008/?Page=18Annual Report 2008 Significant Accounting Policies (cont’d) (d) Financial instruments (cont’d) (ii) Identification and measurement of impairment (cont’d) Objective evidence that financial assets (including equity securities) are impaired can include default or delinquency by a borrower, restructuring of a loan or advance by the Company on terms that the Company would not otherwise consider, indications that a borrower or issuer will enter bankruptcy, the disappearance of an active market for a security, or other observable data relating to a group of assets such as adverse changes in the payment status of borrowers or issuers in the group, or economic conditions that correlate with defaults in the group. Impairment losses on assets carried at amortised cost are measured as the difference between the carrying amount of the financial assets and the present value of estimated cash flows discounted at the assets’ original effective interest rate. Losses are recognised in profit or loss and reflected in an allowance account against loans and advances. Interest on the impaired asset continues to be recognised through the unwinding of the discount. (f) When a subsequent event causes the amount of impairment loss to decrease, the impairment loss is reversed through profit or loss. Equity investments Equity investments are recognized and derecognised on a trade date basis where the purchase or sale of an investment is under a contract whose terms require delivery of the investment within the time frame established by the market, and are initially measured at fair value, plus directly attributable transaction costs. The Company’s equity investments are classified as investments held for trading, and are measured at subsequent reporting dates at fair value. Gains or losses arising from changes in fair value are included in profit or loss for the period. (g) Cash and cash equivalents Balances with banks comprise demand deposits and other short term highly liquid instruments that are readily convertible to a known amount of cash and are subject to an insignificant risk of changes in value. Treasury bills (including repos) are classified as held for trading and are initially and at subsequent reporting dates measured at fair value. Gains or losses arising from changes in fair value are included in profit or loss for the period. (h) Other financial assets Other financial assets which include dividends and other sundry receivables are measured at initial recognition at fair value, and are subsequently measured at amortised cost using the effective interest rate method. Appropriate allowances for estimated irrecoverable amounts are recognized in profit and loss when there is objective evidence that the asset is impaired. The allowance recognized is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows discounted at the effective interest rate computed at initial recognition. 162008-11-21T16:36:57+01:00http://ipaper.ipapercms.dk/AfricanShareHolder/mw/NITL/2008/?Page=19http://ipaper.ipapercms.dk/AfricanShareHolder/mw/NITL/2008/?Page=19Annual Report 2008 Significant Accounting Policies (cont’d) (i) (j) Creditors Creditors are initially measured at fair value, and are subsequently measured at amortised cost, using the effective interest rate method. (k) (l) Revenue recognition Interest income is recognised in the income statement for all interest bearing instruments on an accrual basis using the effective yield basis. Dividend income is recognised when the Company has an unconditional right to receive the income (usually the date on which trading in the underlying investment becomes “ex-dividend”). Expenses All expenses, including management fees are recognized in the income statement on an accrual basis. Taxation Taxation on the profit or loss for the year comprises current tax including taxation withheld on dividend income and deferred taxation. Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantially enacted at the balance sheet date, and any adjustment to tax payable in respect of previous years. Deferred tax is provided using the balance sheet liability method, providing for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. The amount of deferred tax provided is based on the expected manner of realisation or settlement of the carrying amount of assets and liabilities, using tax rates enacted or substantially enacted at the balance sheet date. 172008-11-21T16:36:57+01:00http://ipaper.ipapercms.dk/AfricanShareHolder/mw/NITL/2008/?Page=20http://ipaper.ipapercms.dk/AfricanShareHolder/mw/NITL/2008/?Page=20Annual Report 2008 Notes to the financial statements for the year ended 30 September 2008 1. Dividend income Auction Holdings Limited Dairibord Malawi Limited Illovo Sugar (Malawi) Limited Kang’ombe Investment Limited Malawi Property Investment Company Limited National Bank of Malawi Limited NBS Bank Limited NICO Holdings Limited Packaging Industries Malawi Limited Press Corporation Limited Standard Bank Limited Total dividend income Interest income Treasury bills and treasury bill repos Funds at call and on deposit Total interest income Net increase in fair value of equity investments Net increase/(decrease) in fair value of unlisted equity investments Net increase in fair value of listed equity investments Net increase in fair value of equity investments Increase in fair value of unlisted equity investments Decrease in fair value of unlisted equity investments Net increase in fair value of unlisted equity investments Increase in fair value of listed equity investments Decrease in fair value of listed equity investments 3,000 1,600 40,145 6,250 213 16,502 14,738 3,060 416 8,169 5,466 99,559 2008 K’000 2,000 39,556 2,000 13,329 1,319 172 7,081 3,648 69,105 468 1,391 1,859 (7,281) 1,077,389 1,070,108 2,815 (10,096) (7,281) 2007 K’000 2. 1,798 1,798 127,227 654,297 781,524 127,227 127,227 655,856 (1,559) 654,297 781,524 ( 7,175) 774,349 22,840 3,769 26,609 3. Net increase in fair value of equity investments Of which realized through disposal Unrealised net increase in fair value Net increase in fair value of listed equity investments 1,077,389 1,077,389 1,070,108 1,070,108 16,333 2,277 18,610 4. Management fees Fee payable Value added tax 182008-11-21T16:36:57+01:00http://ipaper.ipapercms.dk/AfricanShareHolder/mw/NITL/2008/?Page=21http://ipaper.ipapercms.dk/AfricanShareHolder/mw/NITL/2008/?Page=21Annual Report 2008 Notes to the financial statements for the year ended 30 September 2008 (cont’d ) 5. Taxation Income tax – current year - adjustment in respect of prior years Deferred taxation Dividend tax Income tax using company income tax of 30% Non deductible expenditure Non taxable element of fair value increase of investments Dividends Adjustment to deferred tax provided in respect of prior years Adjustment to income tax provided in respect of prior years Deferred tax (provided) not provided Tax withheld on dividends Income tax in income statement 486 7,130 25,735 9,630 42,981 253,834 10,812 (207,261) (29,868) 12,227 7,130 46,874 (13,523) 33,351 9,630 42,981 2008 K’000 (5,038) 6,070 1,032 2007 K’000 335,086 (333,680) (20,731) 764 (18,561) 13,523 (5,038) 6,070 1,032 6. Earnings per share Basic earnings per share The calculation of basic earnings per share at 30 September 2008 was based on the profit attributable to ordinary shareholders of K803,134,000 (2007: K1,115,921,000) and the number of ordinary shares in issue at 30 September 2008 of 135,000,000 (2007: 135,000,000). Profit attributable to ordinary shareholders Number of ordinary shares in issue (‘000) Diluted earnings per share The diluted earnings per share are equal to the basic earnings per share Earnings per share (tambala) 2008 K’000 803,134 135,000 595 2007 K’000 1,115,921 135,000 827 The Company is currently appealing against a ruling by the Malawi Revenue Authority to not allow a deduction for tax purposes of certain expenditure incurred for the purposes of its trade. The income tax and deferred tax provision in these accounts have been calculated on the basis of the Revenue Authority ruling and if the appeal is successful income tax and deferred tax provisions of K7,616,000 and K22,552,000 will not be required. 192008-11-21T16:36:57+01:00http://ipaper.ipapercms.dk/AfricanShareHolder/mw/NITL/2008/?Page=22http://ipaper.ipapercms.dk/AfricanShareHolder/mw/NITL/2008/?Page=22Annual Report 2008 Notes to the financial statements for the year ended 30 September 2008 (cont’d) 7. Fair value of equity investments is analysed as: Listed: Illovo Sugar (Malawi)Limited Malawi Property Investment Company Limited National Bank of Malawi Limited NBS Bank Limited Nico Holdings Limited Packaging Industries Malawi Limited Press Corporation Limited Standard Bank Limited Unlisted Auction Holdings Limited Dairibord Malawi Limited Kang’ombe Investment Limited Equity Investments Cost Net adjustment to fair value Fair value 2008 K’000 2007 K’000 322,792 2,502,402 2,825,194 201,014 1,845,399 2,046,413 1,094,527 7,689 357,656 327,500 75,724 8,964 432,750 216,079 2,520,889 27,430 51,875 225,000 304,305 2,825,194 774,468 310,155 208,000 71,310 7,171 464,686 138,545 1,974,335 4,572 23,024 44,482 72,078 2,046,413 Net adjustment to fair value At beginning of year Unrealised gains during year Realised on disposal At end of year 1,845,399 774,349 (117,346) 2,502,402 775,291 1,070,108 1,845,399 202008-11-21T16:36:57+01:00http://ipaper.ipapercms.dk/AfricanShareHolder/mw/NITL/2008/?Page=23http://ipaper.ipapercms.dk/AfricanShareHolder/mw/NITL/2008/?Page=23Annual Report 2008 Notes to the financial statements for the year ended 30 September 2008 (cont’d) At the balance sheet date the equity investment portfolio comprised: African Lotteries Limited Percentage shareholding 0.8 5.0 1.1 1.2 6.6 0.8 2.1 1.7 1.3 Number of shares 45,716,970 500,000,000 32,750,000 8,413,800 1,434,205 2,012,791 2,542,100 2008 5,588,376 8,107,611 200,000 300,000 2008 2008 20.0 25.0 2007 0.8 5.0 1.2 1.2 0.9 2.1 2.0 1.3 20.0 10.0 10.0 Dairibord Malawi Limited Auction Holdings Limited Illovo Sugar (Malawi)Limited Kang’ombe Investment Limited 45,716,970 200,000,000 40,000,000 8,913,800 1,434,205 2,212,791 2,542,100 2007 5,588,376 8,327,611 200,000 300,000 2007 National Bank of Malawi Limited NBS Bank Limited Nico Holdings Limited Packaging Industries Malawi Limited Press Corporation Limited Standard Bank Limited 8. Income notes African Lotteries Limited – at cost K’000 (2,849) 2,850 1 K’000 (2,849) 9. Cash and cash equivalents Balances with banks The Company holds 22,800 secured income notes of nominal value US$1 each in African Lotteries Limited which bear interest at a variable rate ranging from 12% to 20% per annum. Funds at call and on deposit Impairment provision 2,850 1 21,658 26,811 Total cash and cash equivalents 5,153 12,809 15,896 3,087 212008-11-21T16:36:57+01:00http://ipaper.ipapercms.dk/AfricanShareHolder/mw/NITL/2008/?Page=24http://ipaper.ipapercms.dk/AfricanShareHolder/mw/NITL/2008/?Page=24Annual Report 2008 Notes to the financial statements for the year ended 30 September 2008 (cont’d) 10. Creditors payable within one year 2008 K’000 13,522 1,781 4,546 19,849 2007 K’000 11,715 1,556 2,720 15,991 11. Accrued operating expenses Value added tax Unclaimed dividends payable to shareholders Total creditors payable within one year Financial risk management Overview The Company has exposure to the following risks from its use of financial instruments: • • • Credit risk; Liquidity risk; Market risk. This note presents information about the Company’s exposure to each of the above risks, the Company’s objectives, policies, and processes for measuring and managing risk, and the Company’s management of capital. Further quantitative disclosures are included throughout these financial statements. The Board of Directors has overall responsibility for the establishment and oversight of the Company’s risk management framework. The Board has developed risk management policies principal among which is the Investment Policy outlined on page 2 of this annual report. The Investment Committee and the Fund Manager are expected to adhere at all times to the Investment Policy. The Investment Committee reports regularly to the Board of Directors on its activities. The Company’s risk management policies are established to identify and analyse the risks faced by the Company, to set appropriate risk limits and controls, and to monitor risks and adherence to limits. Risk management policies and systems are reviewed regularly to reflect changes in market conditions and the Company’s activities. The Company’s Audit Committee oversees how management monitors compliance with the Company risk management policies and procedures and reviews the adequacy of the risk management framework in relation to the risks faced by the Company. The Company Audit Committee is assisted in its oversight role by the Fund Managers’ internal audit department which undertakes reviews of risk management controls and procedures, the results of which are reported to the Audit Committee. A. Credit risk Credit risk is the risk of financial loss to the Company if a customer or counterparty to a financial instrument fails to meet its contractual obligations and arises principally from the Company’s money market investments. Money market investments are limited to government paper and to deposits with licensed financial institutions. 222008-11-21T16:36:57+01:00http://ipaper.ipapercms.dk/AfricanShareHolder/mw/NITL/2008/?Page=25http://ipaper.ipapercms.dk/AfricanShareHolder/mw/NITL/2008/?Page=25Annual Report 2008 Notes to the financial statements for the year ended 30 September 2008 (cont’d) The table below shows the total credit exposure as at the balance sheet date: Note Funds on call Dividends receivable 9 2008 K’000 21,658 35,183 8,372 5,153 2007 K’000 12,809 18,394 3,087 2,498 Cash and bank balances 9 B. Impairment losses The Company’s policy for recognition of impairment losses is described in note (d). The impairment loss provision of K2,849,000 (2007: K2,849,000) relates to an investment in African Lotteries Limited, an unlisted company which has incurred significant losses since it commenced its operations. This company was restructured during the year but the asset remains fully impaired until such time as a period of sustained profitability demonstrates that this company will be able to service its income note obligations and provide a return to its shareholders. Liquidity risk Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they fall due. The Company’s approach to managing liquidity risk is to ensure, as far as possible, that it has sufficient liquidity to meet liabilities when they fall due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Company’s reputation. The Company maintains sufficient funds in liquid money market investments to meet foreseeable operating expenses. The Company’s financial instruments include investments in unlisted equity investments, which are not traded in an organized public market and which generally may be illiquid. As a result, the Company may not be able to liquidate quickly some of its investments in these instruments at an amount close to fair value in order to meet its liquidity requirements, or to respond to specific events such as a deterioration in the financial position of any particular issuer. The Company’s Investment Policy sets maximum permitted limits for investments in unlisted equities. 232008-11-21T16:36:57+01:00http://ipaper.ipapercms.dk/AfricanShareHolder/mw/NITL/2008/?Page=26http://ipaper.ipapercms.dk/AfricanShareHolder/mw/NITL/2008/?Page=26Annual Report 2008 Notes to the financial statements for the year ended 30 September 2008 (cont’d) Compliance position as at 30 September 2008: 1. % of portfolio invested in equities Equities Permitted limit Current position % of portfolio in individual listed company 2. Bonds 100% 50% 25% 25% 99% % of portfolio in individual unlisted company % of portfolio invested in bonds Property 38% 8% % of portfolio in bonds of single private sector issues 3. % of portfolio invested in property companies/equities % of portfolio in a single property investment 4. 5. Cash equivalents Speculative investments 25% 25% Nil Nil 8% 10% 100% Nil 8% 1% Nil C. Market risk Market risk is the risk that changes in market prices, such as foreign exchange rates, interest rates and equity prices will affect the Company’s income or the value of its holdings of financial instruments. The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while optimising the return on risk. The Company’s market risk is managed on a daily basis by the Fund Manager in accordance with policies and procedures in place. The Company’s overall market positions are monitored by the Audit Committee and reported on a quarterly basis to the Board of Directors. (a) Currency risk The Company is not exposed to currency risk as, save for a fully impaired US dollar denominated income note, all its investments are denominated in kwacha. (b) Interest rate risk The Fund Manager is not permitted to borrow funds without the sanction of the Board of Directors who, in turn, may not, unless sanctioned by an ordinary resolution of shareholders, borrow in excess of the aggregate of the Company’s share capital and reserves. However, since incorporation, the Directors have not exercised their borrowing powers and, accordingly, the Company is not exposed to interest risk on borrowings. At the reporting date the Company has only invested in fixed rate financial instruments and therefore a change in interest rates at the balance sheet date would not affect profit and loss. 242008-11-21T16:36:57+01:00http://ipaper.ipapercms.dk/AfricanShareHolder/mw/NITL/2008/?Page=27http://ipaper.ipapercms.dk/AfricanShareHolder/mw/NITL/2008/?Page=27Annual Report 2008 Notes to the financial statements for the year ended 30 September 2008 (cont’d) (c) Market price risk Equity price risk arises from the Company’s held for trading equity securities. The Company seeks to manage individual equity risk through diversification of its investments within its Investment Policy guidelines on individual investments and/or broad classes of investments. The Fund Manager and the Investment Committee manage risk on an ongoing basis. Due to the nature of its business, the Company is always exposed to overall market risk. D. Capital management The Board’s policy is to maintain its capital base in real terms by not distributing unrealised fair value gains on revaluation of equities or realised profit on sale of equity investments. Sensitivity analysis – equity price risk The carrying value, at latest trading price, of shares listed on the Malawi Stock Exchange represents 88% (2007: 95%) of the Company’s total asset value. Although not directly correlated, it could be expected that the overall value of this portfolio would move broadly in line with movements in the MSE Domestic Share Index. 252008-11-21T16:36:57+01:00http://ipaper.ipapercms.dk/AfricanShareHolder/mw/NITL/2008/?Page=28http://ipaper.ipapercms.dk/AfricanShareHolder/mw/NITL/2008/?Page=28Annual Report 2008 Notes to the financial statements for the year ended 30 September 2008 (cont’d) 12. Related parties Fund Manager The Company entered into a management agreement with First Merchant Bank Limited, a licenced bank and licenced investment/portfolio manager. Management fees for the year amounted to K22.8 million (2007: K16.3 million). Included in accounts payable at 30 September 2008, is management fees payable of K9.7 million (2007: K8.8 million). The fund manager provides banking services to the Company. Balances with banks amounting to K5.2 million (2007: K3.1 million) were held at First Merchant Bank Limited. Interest earned on these balances during the year was K0.06 million (2006: K0.05 million) At various times during the year funds have been placed on short-term deposit at normal commercial rates of interest with The Leasing and Finance Company of Malawi Limited, a subsidiary of First Merchant Bank Limited. Interest earned on these balances during the year was K1.3 million (2007: K0.6 million). At the balance sheet date the Company had K21.7 million (2007: K10.8 million) on seven day call with The Leasing and Finance Company of Malawi Limited. As required by the Malawi Stock Exchange listing rules, First Merchant Bank Limited as fund manager are required to hold a minimum of 5% of the issued share capital of the Company. At 30 September 2008, 11,767,447 issued shares of the Company were held by First Merchant Bank Limited. At 30 September 2008, FMB Pension Fund whose assets are managed by First Merchant Bank Limited held 5,577,314 shares in the Company. At 30 September 2008, directors of First Merchant Bank Limited had beneficial interests in the Company totalling 213,000 shares. Directors’ fees Total directors’ fees are disclosed in the income statement. A listing of the members of the Board of directors is shown on page 5 of the annual report. Directors’ interests As at 30th September 2008, the total direct and indirect interests of the directors and related parties thereto in the issued share capital of the Company were as follows: D.J. Kamwaza R.E. Mdeza 110,000 ordinary shares 16,100 ordinary shares 13. Accounting estimates and judgements Key Sources of estimation uncertainty Fair values of financial instruments Many of the Company’s financial instruments are measured at fair value on the balance sheet and it is usually possible to determine their fair values within a reasonable range of estimates. 262008-11-21T16:36:57+01:00http://ipaper.ipapercms.dk/AfricanShareHolder/mw/NITL/2008/?Page=29http://ipaper.ipapercms.dk/AfricanShareHolder/mw/NITL/2008/?Page=29Annual Report 2008 Notes to the financial statements for the year ended 30 September 2008 (cont’d) For the majority of the Company’s financial instruments, quoted market prices are readily available. However, certain financial instruments for example, unlisted equity investments are fair valued using valuation techniques, including reference to the current fair values of other instruments that are substantially the same (subject to the appropriate adjustments). Fair value estimates are made at a specific point in time, based on market conditions and information about the financial instruments. These estimates are subjective in nature and involve uncertainties and matters of significant judgement and, therefore, cannot be determined with precision. For certain other financial instruments, including other receivables and other payables, the carrying amounts approximate fair value due to the immediate or short–term nature of these financial instruments. The carrying amounts of all the Company’s financial assets and financial liabilities at the balance sheet date approximated their fair values. Contingent assets / Contingent liabilities At the balance sheet date there were no contingent assets or liabilities. 14. 15. 16. Capital Commitments At the balance sheet date there were no capital commitments which were authorized or contracted. Exchange Rates and Inflation Rates 2008 K 141 18 United States Dollars (USD) South African Rand (ZAR) Inflation rates as at 30 September 2007 K 7.4% 141 21 2006 K 15% 140 19 9.3% 272008-11-21T16:36:57+01:00http://ipaper.ipapercms.dk/AfricanShareHolder/mw/NITL/2008/?Page=30http://ipaper.ipapercms.dk/AfricanShareHolder/mw/NITL/2008/?Page=30Annual Report 2008 Details of Shareholders Analysis by number of shares held: Number of shares held 1 5000 5001 10000 10001 50000 50001 100000 100001 200000 200001 300000 300001 400000 400001 500000 500001 and over Grand total Type The number of shareholders in NITL was 1,909 as at 30 September 2008 compared to 1,687 as at 30 September 2007. Number of shareholders 613 346 550 203 85 45 15 18 34 Total holding 1,652,537 3,099,768 15,334,074 17,603,918 12,513,116 11,527,394 5,351,552 8,199,474 59,718,167 135,000,000 Analysis by shareholder type: 1,909 Number of shares held 89,480,049 6,885,870 15,500 Individuals Number of holders Investment & Trust funds Insurance Companies Non-resident Other corporate 1,816 % of total shares 66.28 5.10 0.01 0.69 13 9 1 4 3,251,186 2.41 Pension and provident Banks and nominees Total Shareholders holding in excess of 1% of the Company’s equity: Shareholders name First Merchant Bank Limited FMB Pension Fund Press Trust SUCOMA Non-contributory Fund National Bank of Malawi Limited NBM Pension Fund NICO Life Fund Number of shares 11,767,447 5,577,314 4,795,000 4,720,000 3,946,371 2,970,826 2,425,000 1,909 43 23 135,000,000 17,597,057 16,834,768 935,570 100.00 13.04 12.47 % of total number of shares 8.72 4.13 3.55 3.50 2.92 2.20 1.80 282008-11-21T16:36:57+01:00http://ipaper.ipapercms.dk/AfricanShareHolder/mw/NITL/2008/?Page=31http://ipaper.ipapercms.dk/AfricanShareHolder/mw/NITL/2008/?Page=312008-11-21T16:36:57+01:00