Source - RNS
RNS Number : 6465J
Masawara Plc
30 June 2017
 



30 June 2017

 

Masawara plc ("Masawara", the "Company" or the "Group")

 

Final results for the year ended 31 December 2016

 

Masawara, an investment company focused on acquiring interests in companies based in Zimbabwe and the southern African region, is pleased to announce its audited results for the year ended 31 December 2016.

 

The Company's financial statements for the year ended 31 December 2016 have today been posted to shareholders, and may also be viewed on, or downloaded from, the Company's website at www.masawara.com.

 

Contact details

 

Masawara plc

(Masawara Zimbabwe (Private) Limited, the Company's Investment Advisor in Zimbabwe)

Osbourne Majuru/Munashe Nyengerai

+263 4 751805

 

Cenkos Securities plc (Nominated adviser and broker)

Nicholas Wells/Elizabeth Bowman/Harry Hargreaves

 +44 20 7397 8900

 

CHAIRMAN'S STATEMENT

 

Firstly I would like to thank David Suratgar, who retired as Chairman at the AGM in June 2016, for his commitment to Masawara from the time of its listing on the AIM section of the London Stock Exchange in August 2010. His sharp intellect, huge experience of business and transactions across every continent over very many years, together with his belief in the skills of the team at Masawara has established a strong base from which the company can continue to grow. All involved with Masawara are very grateful for his support, leadership and advice over those years.

 

Throughout 2016 Masawara faced continuing headwinds in its core markets, particularly the steadily worsening liquidity conditions within Zimbabwe. Despite that background the Company, on a consolidated basis, made a small profit after tax of $0.58 million (2015: loss after tax of $4.7 million) on turnover of $98.7million (2015: $101.7million). Masawara increased its net asset value (NAV) per share to $0.63 per share (2015: $0.61), whilst total assets were stable at $288 million. Further information on the key drivers of the Group's performance is detailed in the Directors' report.

 

The core leadership team at Masawara that came together following the completion of the TA Holdings Group acquisition in 2015 has demonstrated the control and motivation of the underlying investee companies that had been expected by your Board. The detailed and proactive 'Monthly Deliverables' review with each company is found to be a valuable process by the management teams as well as by Masawara. This approach is establishing a culture whereby the support of Masawara is seen by each investee company as vital to their objective of achieving global best practices in all sector-relevant business metrics.

 

The partnership with Sanlam Emerging Markets across the insurance and life insurance businesses developed further in 2016 through the acquisition of 50% of Botswana Insurance Corporation, Masawara's short term insurance business based in Botswana. The relationship has continued to deepen in the first months of 2017 through further joint approaches to business in other Southern African markets. Importantly the Zimbabwean insurance and other financial businesses have recently been rebranded to include the Sanlam association. This core partnership offers opportunities to improve further the existing businesses within the Group, to take advantage of the trend towards industry consolidation and to enter new markets with a powerful platform.

 

Overall the insurance sector investments were the mainstay of Masawara's investments, contributing $13.8 million (2015: $9.1 million) to profit before tax (PBT). This strong performance was driven largely by excellent performance of the Zimbabwe insurance cluster which benefitted both from strong operational results across all lines and increased levels of capital in the reinsurance and short term businesses. The improved performance of the Zimbabwean insurance cluster outweighed the 56% decline in Botswana Insurance Company Limited's PBT which was mainly driven by a reduction in investment income.

 

Sable Chemicals lost $4.5 million during 2016 (2015: $2 million). The consistent rain in late 2016 and into 2017 offers a better outlook and the tenacity of the management team, which has succeeded in restructuring the business model of the Kwekwe plant, is to be applauded. There remain significant hurdles to be overcome before that investment can regain its previous status as a regular cash generator but after several very difficult years there is now at least a realistic chance.

 

Your Board is concerned about the continuing macroeconomic challenges in its core markets as they are having negative effects on Masawara's businesses. The economies in Botswana and Zimbabwe are weak and business growth has been possible only through market share gains, new product introduction and tight cost control. The extreme liquidity conditions in Zimbabwe have hindered business development and the substantial worsening of foreign exchange availability has had significant implications for all businesses that require overseas payments such as insurance, reinsurance and agrochemicals. Through the central treasury, Masawara is taking steps to ensure that its external liabilities are minimised and matched with external cash flows.

 

Notwithstanding those factors the Board of Masawara has always sought to make significant real returns from its assets and notes the substantial progress made by many of the businesses within the company. In particular the insurance cluster, which made up 74% of the revenues of Masawara in 2016, shows the potential for excellent returns in a growing business where clear focus and strong management teams continue to add value.

 

The growth in 2016, driven by a distinctive team based culture and clear understanding of the challenging market circumstances that look set to continue, gives good reason to be optimistic for a future in which the Board expects that the investee businesses of Masawara will continue to perform successfully. Further substantial opportunities are likely to be available to an investment focussed management team that has become respected as a reliable partner in the region.

 

Finally I would like, on behalf of the Board, to thank all of the employees of the Masawara Group and its underlying companies. Their high levels of energy, enthusiasm and team effort are the greatest asset of your company.

 

 

Christopher Getley

30 June 2017

 

DIRECTORS' REPORT

 

The Directors present the audited financial statements of the Group for the year ended 31 December 2016.

 

Principal activities

 

Masawara Plc is an investment holding company focused on acquiring interests in companies based in Zimbabwe and the Southern African region. The portfolio comprises of:

·      significant interests in a diversified portfolio of businesses within the insurance, agro-chemical and hospitality sectors across sub-Saharan Africa;

·      a significant interest in Joina City, a premium, multi-purpose property, located in Harare's Central Business District, providing rental property for retail, entertainment and office space;

·      a non-controlling interest in Telerix Communications (Private) Limited ("Telerix") and iWayAfrica Zimbabwe (Private) Limited ("iWayAfrica"), Zimbabwean broadband internet service providers.

 

Investment strategy

 

Masawara Plc principally invests in businesses and assets located in Zimbabwe. To the extent that value opportunities exist and attractive returns can be achieved, investments will also be considered elsewhere on the African continent.

 

In the identification of investment opportunities, emphasis is placed by Masawara Plc on identifying value propositions, with a view to finding, unlocking and extracting embedded real value. The Investment Advisor, Masawara Zimbabwe (Private) Limited (a subsidiary of the company), advises the Board on opportunities, acquisitions, joint ventures and disposals, exit strategies and manages the Group's portfolio of investments in Zimbabwe on a day-to-day basis, with a view to achieving the Group's investment objective and strategy.

 

Business preference

The investment criteria adopted are:

 

·      ability to influence the business at a board level, with the Group's executives adding structuring and financing expertise to the management of the business, as well as significant industry relationships and access to finance;

·      ability to work alongside a strong management team to maximize returns through revenue growth, accretive acquisitions, and the optimization of cost control;

·      investing in businesses with a clear growth potential;

·      focusing on the creation of intrinsic value through the restructuring of the investment or a merger with complementary businesses; and

·      emphasis on investment in cash generative businesses.

 

The Group will continuously assess its portfolio of investments in the light of further opportunities and the mix of investments.

 

Business review

 

Principal risks and uncertainties

The Group's business activities together with the factors likely to affect its future development, performance and position are set out below. Note 47 to the financial statements includes the Group's objectives, policies and processes for managing its capital; its financial risk management objectives; details of its financial instruments; its exposures to credit risk and liquidity risk; and other risks.

 

The principal risks and uncertainties affecting the business relate to the political and economic environment of Zimbabwe, where its investments are predominantly held. There is a further risk that investments made by the Group will not result in the originally envisaged cash generation or capital appreciation. This risk is managed by the careful evaluation of all proposed investments, with detailed due diligence work being undertaken, before any investments are made and ongoing monitoring of existing investments.

 

There is a risk that the illiquidity of the Zimbabwean equity and capital markets may affect;

 

·      the valuation of the Group's investment property in the short to medium term. Significant judgements, estimates and assumptions made when valuing the investment property are detailed in Note 6.1 and Note 29.

·      the success of Sable Chemical Industries Limited's ("Sable") ammonia importation model which is reliant on the availability of third party debt in order to finance the working capital requirements.

 

The Group's cash and cash equivalent balances held in Zimbabwe are exposed to transfer risk as a result of the foreign currency shortages in the country. The foreign currency shortages have resulted in the slow-down of foreign creditor payments. As at 31 December 2016 cash and cash equivalents amounting to $15.5 million were held in Zimbabwe.

 

The Group's transfer and liquidity risks were affected by exchange control regulations put in place by the Reserve Bank of Zimbabwe during the year under review. In terms of Exchange Control Operational Guide 8, a foreign payments priority list has to be followed when making foreign payments. Any foreign payments that are made by the Zimbabwean companies are ranked based on the RBZ prioritization criteria.

 

Going concern

In assessing the ability of the Group to continue as a going concern, management carried out a sensitivity analysis on the cash flow assumptions to reflect a range of other reasonably possible outcomes and concluded that Masawara will be able to continue as a going concern.

 

The Directors reviewed the cash flow forecasts prepared by management when assessing the ability of the Group to continue operating as a going concern. The significant assumptions made were that the proceeds from the planned disposal of the Group's investment in Lion Assurance Company Limited ("LAC") of $5.7 million will be received before the end of July 2017. These proceeds will be utilized to settle a long term loan repayment of $1.1 million which is due on 18 August 2017 and early settle a significant portion of the same loan which matures in February 2018. Refer to note 9 for information on the classification of LAC as a disposal group held for sale, and Note 40.1 for information on the long-term loan.

 

The agreement for the disposal of the Group's investment in LAC was entered into on 22 May 2017 and is subject to conditions precedent inter alia the receipt of regulatory approvals. The timing of the receipt of the regulatory approvals will have an effect on the timing of the receipt of the sales proceeds that will be utilised to settle the Group's long-term loan facility. The Group is reliant on outside Zimbabwe cash flows to extinguish this facility due to the uncertainty of the timing of dividend remittances from Zimbabwe. In terms of the Reserve Bank of Zimbabwe Exchange Control Operational Guide 8, any foreign payments that are made by Zimbabwean companies are ranked based on the RBZ prioritization criteria. As a consequence of these controls over foreign payments, the Group is reliant on cash inflows from outside of Zimbabwe to meet certain non-Zimbabwean liabilities. There is therefore material uncertainty which may cast significant doubt about the Group's ability to continue as a going concern.

 

The Directors also assessed the probability of the regulatory approvals not being received as unlikely and therefore have a reasonable expectation that the sales proceeds will be available for the settlement of the loan facility. Based on the review of the Group's cash flow forecasts, the Directors believe that the Group will have sufficient resources to continue to trade as a going concern for a period of at least 12 months from the date of approval of these financial statements and accordingly, the financial statements have been prepared on the going concern basis. The financial statements do not include the adjustments that would result if the Group was unable to continue as a going concern.

 

Results for the year

 

Overview

 

The following were the significant events for the year ended 31 December 2016:

 

·      This was the first full year of Sable being consolidated into our results. Sable became a subsidiary of the Group on 25 June 2015 (Note 8).

·      On 24 January 2016, the Group disposed a 12% shareholding in Botswana Insurance Company Limited (BIC). The Group now holds a 50% stake in BIC from its previous 62% shareholding (Note 7.1).

·      On 24 January 2016 the Group acquired an additional 32.44% interest in Lion Assurance Company Limited (LAC). The Group now holds an 87.44% stake in LAC from its previous 55% shareholding (Note 7.2).

·      On 31 December 2016 the Group classified its investment in LAC as a disposal group held for sale (Note 9).

 

The results for the year ended 31 December 2016 are set out in the financial statements. The Group incurred a profit after tax of $0.58 million for the year (2015: loss after tax of $4.7 million). The composition of the Group's statement of comprehensive income for the year ended 31 December 2016 is different from the comparative results primarily due to the following:

 

·      This was the first full year of Sable being consolidated into our results. Sable became a subsidiary of the Group on 25 June 2015, therefore during prior year its results were only included for six months. 

·      The prior year results include a bargain purchase gain of $5.2 million from acquisition of control over Sable for no consideration.

·      There was a $12.5 million impairment of the Telerix loan notes in 2015.

 

Group's performance by segment

 

Masawara Plc, classifies the Group's business units into different clusters i.e. insurance, hotels, agrochemicals, property (Joina City) and technology for the purpose of monitoring the operating results of business units and resource allocation to business units. The following shows the Group's performance by segment.

 

Insurance

All the insurance companies except for LAC registered a growth in gross written premium when compared to the prior year. And all companies achieved underwriting profits for the year.

 

Profit after tax

US$'000

 2016

US$'000

2015

Botswana Insurance Company Limited

1,394

3,161

Lion Assurance Company (Uganda)

1,585

981

Zimnat Lion Insurance Company Limited (Zimbabwe)

2,542

194

Zimnat Life Assurance Company (Zimbabwe)

4,707

3,310

Grande Reinsurance Company (Zimbabwe)

1,643

666

Minerva Risk Advisors Private Limited (Zimbabwe)

1,891

780


13,762

9,092

 

For the companies operating in Botswana and Uganda, the results in their functional currencies of Botswana Pula (BWP) and Ugandan Shillings (UGX) were as follows:

 

Profit after tax

BWP'000

2016

BWP'000

2015

Growth/ (Decline)

Botswana Insurance Company Limited

14,193

31,525

(55%)

 

Profit after tax

UGX'000

2016

UGX'000

2015

Growth

Lion Assurance Company (Uganda)

5,363,587

3,202,180

67%

 

The key performance ratios of the insurance businesses as at year end were as follows:

 


Claims ratio 2016

Claims ratio 2015

Combined ratio 2016

Combined ratio 2015

Botswana Insurance Company Limited

57%

53%

96%

91%

Lion Assurance Company (Uganda)

29%

34%

89%

90%

Zimnat Lion Insurance Company Limited (Zimbabwe)

43%

44%

86%

92%

Zimnat Life Assurance Company (Zimbabwe)

25%

34%

78%

83%

Grande Reinsurance Company (Zimbabwe)

28%

27%

78%

83%

 

The claims and combined ratios are measures of profitability. The claims ratio is calculated by expressing the net claims expense as a percentage of earned premiums. The combined ratio is calculated by taking the sum of the net claims expense and operating expenses and dividing them by earned premium.

 

Hotels

The Zimbabwe hotels experienced increased levels of competition which resulted in lower profit being recorded for the current year as pressure was placed on both occupancy levels and rates. The outside Zimbabwe hotels recorded an increase in profitability compared to the prior year in local currency, as a result of an increase in revenue. Construction of a new hotel in Maun, Botswana that began during 2015 was completed in 2017.

 

Profit before tax

US$'000

 2016

US$'000

2015

Cresta Hotels (Private) Limited (Zimbabwe)

24

400

Group's 35% of Cresta Marakanelo Limited Profit after tax

1,304

1,155


1,328

1,555




Cresta Marakanelo Limited (Botswana and Zambia)

3,725

2,684

 

Profit after tax

BWP'000

2016

BWP'000

 2015

Growth

Cresta Marakanelo Limited (Botswana and Zambia)

37,447

26,761

40%

 

The key performance indicators of the hotel businesses as at year end were as follows:

 


Occupancy 2016

Occupancy 2015

RevPAR

2016

RevPAR

2015

Cresta Hotels Private Limited (Zimbabwe)

58%

58%

$39

$40

Cresta Marakanelo (Botswana and Zambia)

60%

67%

$55

$56

 

The occupancy rate refers to the rooms sold during the year expressed as a percentage of the total rooms that were available to sell. Revenue per available room (RevPar) measures the financial performance of the hotel by multiplying the average daily rate charged for a room by the occupancy rate.

 

Agro chemicals

The agro chemicals segment is comprised of Sable and Zimbabwe Fertiliser Company Limited ("ZFC"). The Group has a 22.5% interest in ZFC and accounts for it as an associate. The Group has a 50.6% interest in Sable, which is accounted for as a subsidiary.

 

Sable commenced production under the full importation model in November 2016. The revenues earned by the business therefore remained subdued resulting in a loss after tax of $4.7 million (2015: $2 million). Note that the loss after tax for 2015 reflects the results of Sable's operations from 25 June 2015.

 

Joina City

The key performance indicators of Joina City as at year end were as follows:

 


Occupancy 2016

Occupancy 2015

Debtors as % of revenue

2016

Debtors as % of revenue

2015

Payments to shareholders

2016

Payments to shareholders

2015

Joina City

53%

62%

10%

22%

Nil

$970,000

Group's share

n/a

n/a

n/a

n/a

Nil

$556,000

 

During the year under review Joina City did not make any payments to the shareholders as a decision was taken to reinvest the business' resources into refurbishing parts of the building. Debtors' collections continue to improve with the percentage of debtors over revenue declining by 12% from previous year. Despite the decline in occupancy, revenue increased by 3% due to a change in the anchor tenant. The office section occupancies continue to be a challenge, as some companies chose to move out of the city centre, and management is not expecting the trend to change. Alternative uses for some of the vacant office space are being sought.

 

Occupancy rate refers to the ratio of leased space compared to the total amount of available space.

 

Technology

The Group did not recognize its share of losses of Telerix Communications (Private) Limited ("Telerix") for the year, after the Group's investment in Telerix was fully impaired during the year ended 31 December 2012.

 

During the current year Dandemutande Investments (Private) Limited ("Dandemutande"), (a wholly owned subsidiary of Telerix), entered into the following significant transactions;

 

·      Purchase of the customer base of BSAT on 1 July 2016

·      Purchase of the assets and liabilities of Yo! Africa on 18 November 2016

·      Consolidation of the customer books of various internet service providers who had their operations closed down by the Post and Telecommunications Authority of Zimbabwe (POTRAZ).

 

The above mentioned transactions resulted in an increased revenue base and a broader product and service offering. The business continues to generate profit at an EBITDA level however, due to the level of finance costs, was still incurring a loss after tax.

 

During the year ended 31 December 2013, the Group provided a limited guarantee of $1.5 million to Telerix, for a $2.5 million loan obtained by Telerix's wholly owned subsidiary, ("Dandemutande") from Central African Building Society ("CABS"). The Group had a liability of $0.37 million in its books as at 31 December 2015 for the financial guarantee. This provision was fully unwound during 2016 as Dandemutande had fully paid off its CABS loan as at 31 December 2016.

 

Cash flow for the year

 

The Group recorded an overall increase in cash and cash equivalents of $2.3 million from the previous year with cash flows from operations of $8.5 million compared to cash utilised in operations of $1.6 million during the previous year.

 

Net cash inflow from investing activities included proceeds from the sale of the 12% interest in BIC of $2.6 million and a transfer of LAC's cash on hand of $0.5 million to the disposal group held for sale. Net cash from financing activities includes proceeds from borrowings of $17.9 million, cash outflow of $21.9 million for repayment of borrowings and outflow of $1.4 million for dividends paid to non-controlling interests of the Group.

 

Financial position

 

The total assets of the Group remained at $288 million as at 31 December 2016 when compared to previous year. LAC had assets amounting $14.9 million that were classified as held for sale. The total liabilities of the Group amounted to $185 million (2015: $189 million). LAC had liabilities amounting to $9.4 million that were classified as held for sale.

 

The net asset value per share attributable to equity holders of the parent as at 31 December 2016 was $0.63 (31 December 2015: $0.61).

 

Outlook

 

It is anticipated that the economic conditions in Zimbabwe will continue to be challenging in the year ahead. The Group's management will focus on defending the Group's financial and market position, finding opportunities to grow in the environment and employ various initiatives to increase market share and profitability.

 

The insurance businesses registered a 36% growth in profit before tax ("PBT") during the first quarter of 2017. Management expect another profitable year for this segment. Zimnat Lion, Zimnat Life, Grand Reinsurance and BIC will continue to focus on the growth of gross written premium through an increase in market share.

 

The Zimbabwean Insurance businesses are expected to benefit from the rebranding that took place during the second quarter of 2017 representing the partnership with Sanlam Emerging Markets. It is expected that the Group's investment in LAC will be fully disposed of during 2017.

 

Price wars within the hospitality industry in Zimbabwe are expected to continue. Occupancies within the Cresta Zimbabwe hotels are expected to increase in future following the refurbishment of the Cresta Churchill rooms during the first half of 2017.

 

At Joina City, attention will continue to be placed on retaining quality tenants, finding suitable tenants for the vacant office space and on debtors' collections, in order to increase occupancy levels and the cash available for distribution to the Joina City Co-owners. We do not expect the office occupancies to increase significantly during 2017, as there has been no change in the trend of businesses moving out of the city centre to less congested suburban areas. Joina City is exploring various initiatives to improve debtors performance, including providing incentives for tenants who pay their rentals on time.

 

Sable's business model that is based on the full importation of ammonia will depend on the ability of the business to raise finance. In the short term Sable is not expected to contribute positively to the Group's results. The Directors will continue to pursue strategic initiatives, which are aimed at procuring that Sable does not impact negatively on the Group's performance in the short term, but contributes positively to Group profitability in the medium to long term.

 

Telerix's revenue is expected to increase as a result of the growth in its customer base due to the acquisition of third party books that took place during 2016. Telerix will continue to pursue cost containment measures in order to maintain its positive EBITDA levels.

 

Auditors

 

PricewaterhouseCoopers LLP has expressed its willingness to continue in office and a resolution re-appointing PricewaterhouseCoopers LLP as auditor of the Company and authorising the Directors to determine their remuneration will be proposed at the forthcoming Annual General Meeting.

 

By Order of the Board

Masawara Plc

 

 

 

 

Maureen Erasmus

30 June 2017

 

STATEMENT OF CORPORATE GOVERNANCE

The Board has complied with the Corporate Governance Guidelines for Smaller Quoted Companies, as issued by The Quoted Companies Alliance. We are currently in the process of formulating a Corporate Social Responsibility (CSR) policy.

Values

 

The Board is always guided by the following core values:

·      integrity;

·      transparency;

·      promoting the best interests of the shareholders, employees and other stakeholders of the Company; and

·      compliance with the requirements of the legal and regulatory environment in which the Company operates.

 

Governance Structures

 

Board of Directors

 

Christopher Getley (Chairman)

Francis Daniels

Yvonne Deeney

Maureen Erasmus

Shingai Mutasa

Julian Vezey (Resigned 18 January 2016)

Stephen Folland

David Suratgar (Resigned 8 June 2016)

 

The Board is the primary governance organ. One of its key functions is to develop, review and monitor the overall strategy and policies of the Group. It, therefore, considers and approves, among other things, all major investment decisions, the key risks to which the business is exposed, and measures to eliminate or minimize the impact of such risks, capital expenditure and the appointment of certain key executives.

 

The Board currently comprises six non-executive Directors, five of whom are independent. Day to day management is devolved to the Investment Advisor who is charged with consulting the Board on all significant financial and operational matters. The independence of non-executive Directors is assessed and confirmed annually.

 

The Investment Advisor

 

The Investment Advisor, Masawara Zimbabwe (Private) Limited, a subsidiary of the company, advises the Board on investment opportunities, acquisitions and sales, exit strategies and manages the Group's portfolio of investments in Zimbabwe on a day-to-day basis, with a view to achieving the Group's investment objective and strategy.

 

Management Engagement Committee

 

Ms Yvonne Deeney, an independent Director, chairs the Management Engagement Committee. The other Committee members are Mr Christopher Getley and Mr Stephen Folland. The Committee monitors, reviews and evaluates the performance of the Investment Advisor. The Committee also determines and agrees with the Board the framework for the remuneration of the employees of the Investment Advisor (including pension rights and compensation payments).

 

Audit Committee

 

The Audit Committee comprises of three non-executive Directors, two of whom are independent.  The Committee members are Mr Christopher Getley, Mr Francis Daniels and Mrs Maureen Erasmus. Mrs Maureen Erasmus (an independent Director) chairs the Committee. The Committee, amongst other duties, monitors the integrity of the financial statements of the company, and any formal announcements relating to the company's financial performance, reviews significant financial reporting judgements contained in them and reviews the company's internal control and risk management systems. The Committee meets with the external auditors at least twice a year.

 

Co-ownership Committee

 

Dubury Investments (Private) Limited (a sub-subsidiary of Masawara Zimbabwe (Private) Limited) and Cherryfield Investments (Private) Limited (a consortium of pension funds and an insurance company) are Co-owners (joint venturers) in the Joina City building, which is governed by a Co-ownership Agreement. The Co-owners of Joina City formed a Co-ownership Committee, which comprises all their shareholders. The Co-ownership Committee was delegated all the powers to make resolutions for and on behalf of the Co-owners.

 

Mr Shingai Mutasa sits on the Co-ownership Committee as the chairman. The Group relies on the Joina City Co-ownership Committee to deal with all matters of their investment. The powers of the Committee include the power to decide and pass resolutions on all matters which the Co-owners would themselves have power to jointly decide in respect of Joina City. The Co-ownership Committee's primary functions include:

 

·      to consider, review, and where necessary, approve capital expenditure; and

·      to review and monitor property management of Joina City.

 

The Committee meets quarterly and consists of six members, five of whom are representatives of the Co-owners, and the chairman of the Committee, Mr Shingai Mutasa.

 

Governance Processes

 

The Board of Directors meets at least four times a year or as often as the circumstances may determine. In addition to the Board members, professional advisors on corporate transactions and senior employees of the Investment Advisor are requested to attend as required. The Group's shareholders meet at least once every year, at the Annual General Meeting. The external auditor of the Group has unlimited access to the Board.

 

STATEMENT OF DIRECTORS' RESPONSIBILITIES

 

The Directors are responsible for preparing the financial statements in accordance with applicable laws and International Financial Reporting Standards ("IFRS") as adopted by the European Union.

 

Companies (Jersey) Law 1991 requires the directors to prepare financial statements for each financial year, which give a true and fair view of the state of affairs of the Group and the profit and loss for that year.

  
In preparing those financial statements the directors should:

·      select suitable accounting policies and then apply them consistently;

·      make judgements and estimates that are reasonable and prudent;

·      prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Group will continue the business; and

·      state whether applicable accounting standards have been followed, subject to any material departures disclosed and explained in the financial statements.

 

The Directors confirm they have complied with all the above requirements in preparing the financial statements.

 

The Directors are responsible for keeping proper accounting records, which disclose with reasonable accuracy at any time the financial position of the Group and to enable them to ensure that the financial statements comply with the Companies (Jersey) Law 1991. They have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the Group and to prevent and detect fraud and other irregularities.

 
So far as the Directors are aware, there is no relevant audit information of which the Group's auditors are unaware, and each Director has taken all the steps that he or she ought to have taken as a director in order to make himself or herself aware of any relevant audit information and to establish that the Group's auditors are aware of that information.


INDEPENDENT AUDITORS' REPORT TO THE MEMBERS OF MASAWARA PLC

 

Report on the group financial statements

 

Our opinion

In our opinion, Masawara Plc's group financial statements (the "financial statements"):

·      give a true and fair view of the state of the group's affairs as at 31 December 2016 and of its profit and cash flows for the year then ended;

·      have been properly prepared in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union; and

·      have been prepared in accordance with the requirements of the Companies (Jersey) Law 1991.

Emphasis of matter - Going concern

In forming our opinion on the financial statements, which is not modified, we have considered the adequacy of the disclosure made in note 2 to the financial statements concerning the group's ability to continue as a going concern. Masawara has current obligations to repay debt outside of Zimbabwe of $1.1 million due in August 2017. There is a material uncertainty surrounding the timing of the receipt of proceeds from the sale of Lion Assurance Company of $5.7 million which was agreed on 22 May 2017 as disclosed in note 9. The sale has a number of conditions precedent (including regulatory approval) and should these not be satisfied and the sale proceeds not be received before 14 August 2017, the group would be unable to meet their current debt repayment and would enter into default. These conditions, along with the other matters explained in note 2 to the financial statements, indicate the existence of a material uncertainty which may cast significant doubt about the group's ability to continue as a going concern. The financial statements do not include the adjustments that would result if the group was unable to continue as a going concern.

Emphasis of matter - Valuation of Joina City investment property

In forming our opinion on the financial statements, which is not modified, we draw your attention to note 29 where the range of values attributable to the valuation of Joina City are disclosed. In performing our audit procedures we noted that the range of values attributable to Joina City is significant in relation to the value of the building and based on level 3 unobservable inputs. These inputs require judgment around macroeconomic factors surrounding the Zimbabwean economy.

What we have audited

The financial statements, included within the Annual Report, comprise:

·      the Consolidated statement of financial position as at 31 December 2016;

·      the Consolidated statement of comprehensive income for the year then ended;

·      the Consolidated statement of cash flows for the year then ended;

·      the Consolidated statement of changes in equity for the year then ended; and

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

The financial reporting framework that has been applied in the preparation of the financial statements is IFRSs as adopted by the European Union, and applicable law.

 

In applying the financial reporting framework, the directors have made a number of subjective judgements, for example in respect of significant accounting estimates. In making such estimates, they have made assumptions and considered future events.

Other matters on which we are required to report by exception

 

Accounting records and information and explanations received

Under the Companies (Jersey) Law 1991 we are required to report to you if, in our opinion we have not received all the information and explanations we require for our audit. We have no exceptions to report arising from this responsibility

 

Responsibilities for the financial statements and the audit

 

Our responsibilities and those of the directors

As explained more fully in the Statement of Directors' Responsibilities, the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view.

Our responsibility is to audit and express an opinion on the financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland) ("ISAs (UK & Ireland)"). Those standards require us to comply with the Auditing Practices Board's Ethical Standards for Auditors.

This report, including the opinions, has been prepared for and only for the company's members as a body in accordance with Article 113A of the Companies (Jersey) Law 1991 and for no other purpose. We do not, in giving these opinions, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing.

What an audit of financial statements involves

 

We conducted our audit in accordance with ISAs (UK & Ireland). An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of:

·      whether the accounting policies are appropriate to the group's circumstances and have been consistently applied and adequately disclosed;

·      the reasonableness of significant accounting estimates made by the directors; and

·      the overall presentation of the financial statements.

We primarily focus our work in these areas by assessing the directors' judgements against available evidence, forming our own judgements, and evaluating the disclosures in the financial statements.

We test and examine information, using sampling and other auditing techniques, to the extent we consider necessary to provide a reasonable basis for us to draw conclusions. We obtain audit evidence through testing the effectiveness of controls, substantive procedures or a combination of both.

In addition, we read all the financial and non-financial information in the Annual Report to identify material inconsistencies with the audited financial statements and to identify any information that is apparently materially incorrect based on, or materially inconsistent with, the knowledge acquired by us in the course of performing the audit. If we become aware of any apparent material misstatements or inconsistencies we consider the implications for our report.

David Snell

for and on behalf of  PricewaterhouseCoopers LLP

Chartered Accountants

London

30 June 2017

 

a)    The maintenance and integrity of the Masawara Plc website is the responsibility of the directors; the work carried out by the auditors does not involve consideration of these matters and, accordingly, the auditors accept no responsibility for any changes that may have occurred to the financial statements since they were initially presented on the website.

b)    Legislation in Jersey governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.





Consolidated statement of comprehensive income for the year ended 31 December 2016




2016

2015


Note

 US$ '000

 US$ '000





INCOME




Gross insurance premium revenue

12.1

86,628

83,093

Insurance premium ceded to reinsurers on insurance contracts

12.2

(32,062)

(31,246)

Net insurance premium revenue


54,566

51,847

Fees and commission income

13

18,529

19,888

Hotel revenue

14

14,365

15,304

Manufacturing revenue

15

8,056

11,661

Rental income from investment properties

29

3,168

3,019

Net total revenue


98,684

101,719





Gain on bargain purchase of Sable Chemical Limited

8

-

5,206

Investment income

16

7,119

3,499

Realised and unrealised gains

17.1

4,569

192

Other operating income

18

1,790

9,055

Unwinding of financial guarantee - Telerix Communications (Private) Limited

30.2.1

365

295

Total other income


13,843

18,247





EXPENSES




Insurance claims and loss adjustment expense

19.1

(36,293)

(35,982)

Insurance claims and loss adjustment recovered from reinsurers

19.2

4,945

9,392

Net insurance claims


(31,348)

(26,590)

Realised and unrealised losses

17.2

(1,179)

(1,494)

Expenses for the acquisition of insurance contracts

20

(12,491)

(9,136)

Hotel cost of sales

21

(5,291)

(5,475)

Manufacturing cost of sales

22

(7,621)

(1,623)

Operating and administrative expenses

23

(47,226)

(62,677)

Property expenses

29

(1,992)

(1,793)

Impairment loss on loan notes - Telerix Communications (Private) Limited

31.2.1

-

(12,516)

Total net insurance claims and operating expenses


(107,148)

(121,304)





Finance costs

24

(3,866)

(2,620)

Profit/(loss) before share of profit of associates and tax


1,513

(3,958)

Share of profit of other associates and joint ventures

30

2,207

1,886

Profit/(loss) before tax


3,720

(2,072)

Income tax expense

25.1

(3,136)

(2,585)

Profit/(loss) for the year


584

(4,657)

 

Profit/(loss) for the year attributable to:




Owners of the parent


(699)

(5,636)

Non-controlling interests


1,283

979

Profit/(loss) for the year


584

(4,657)





 



2016

2015


Note

US$ '000

 US$ '000





Profit/(loss) profit for the year


584

(4,657)





Other comprehensive income/(loss), net tax:








Items that may be subsequently reclassified to profit or loss




Exchange differences on translation of foreign operations

39

780

(5,403)

Change in value of available-for-sale financial assets

39

(61)

(16)



719

(5,419)

Items that will not be reclassified to profit or loss




Share of other comprehensive income of associate


618

-

Revaluation of property, plant and equipment


50

-



668

-

Total other comprehensive income/(loss)


1,387

(5,419)





Total comprehensive income/(loss)


1,971

(10,076)





Total comprehensive income/(loss) attributable to:




Owners of the parent

     

481

(9,231)

Non-controlling interests


1,490

(845)

Total comprehensive income/(loss) for the year


1,971

(10,076)

 



2016

2015



 US$

 US$




 

Earnings per share:



 

Basic and diluted loss for the year attributable to owners of the parent

26

(0.6 cents)

(5 cents)

 

Consolidated statement of financial position as at 31 December 2016                                                     



Notes

2016

2015

 




US$ '000

US$ '000

 

ASSETS





 

Property, plant and equipment


27

34,148

35,503

 

Intangible assets


28

3,224

3,660

 

Investment properties


29

49,892

46,832

 

Investment in associates and joint ventures


30

15,389

12,593

 

Financial assets


31

47,755

52,285

 

Deferred tax asset


25.2

1,080

1,080

 

Total non-current assets



151,488

151,953

 

Inventory


32

7,750

13,999

 

Reinsurance assets


41.2

17,213

23,910

 

Insurance receivables


33

12,858

13,927

 

Deferred acquisition costs


34

3,841

2,966

 

Trade and other receivables


35

51,804

55,529

 

Cash and cash equivalents


36

28,165

25,912

 

Total current assets



121,631

136,243

 

Assets for disposal group classified as held for sale


9

14,892

-

 

Total assets



288,011

288,196

 

EQUITY





 

Share capital


37

1,238

1,235

 

Share premium


37

80,433

80,102

 

Treasury shares


37

(37)

(232)

 

Group restructuring reserve


38

(9,283)

(9,283)

 

Other reserves


39

(3,462)

(3,999)

 

Non-distributable reserve


3.17.4

(27)

370

 

Revaluation reserve



402

-

 

Retained earnings



8,334

7,205

 

Equity attributable to owners of the parent


77,598

75,398


Non-controlling interest



25,738

24,221

 

Total equity



103,336

99,619

 

LIABILITIES





 

Financial liabilities


40

13,913

17,412

 

Deferred tax liabilities


25.3

7,280

7,989

 

Investment contracts


41.4

39,730

33,012

 

Total non-current liabilities



60,923

58,413

 

Financial liabilities


40

17,761

19,083

 

Insurance contract liabilities


41.5

42,468

48,841

 

Deferred income


42

1,435

1,395

 

Income tax liability



598

220

 

Insurance payables


43

3,039

3,749

 

Provisions


44

2,183

5,032

 

Trade and other payables


45

46,827

51,844

 

Total current liabilities



114,311

130,164

 

Liabilities for disposal group classified as held for sale


9

9,441

-

 

Total liabilities



184,675

188,577

 

Total equity and liabilities



288,011

288,196

 


Consolidated statement of changes in equity for the year ended 31 December 2016

 



Attributable to the owners of the parent







US$ '000



US$'000


Share

Share

Treasury

Group

Other

Non

Revaluation

Retained

Equity attributable to

Non-Controlling

Total

Capital

Premium

Shares

Restructuring

Reserves

Distributable

Reserve

Earnings

owners

Interest

Equity




Reserve


Reserves



of parent

(NCI)


Note 37

Note 37

Note 37

Note 38

Note 39

Note 3.17.4






At 1 January 2015

1,235

80,110

(333)

(9,283)

35

(695)

-

13,547

84,616

18,897

103,513

(Loss)/profit for the year

-

-

-

-

-

-

-

(5,636)

(5,636)

979

(4,657)

Exchange differences on translation of foreign operations

-

-

-

-

(3,584)

-

-

-

(3,584)

(1,819)

(5,403)

Net loss on available for sale investments   

-

-

-

-

    (11)

-

-

-

    (11)

(5)

    (16)

Total comprehensive loss

-

-

-

-

(3,595)

-

-

(5,636)

(9,231)

(845)

(10,076)

Allocation of treasury shares

-

(8)

101

-

-

-

-

-

93

-

93

Share based payment transactions

-

-

-

-

98

-

-

-

98

-

98

Reserve transfer - Note 3.17.4

-

-

-

-

(168)

1,065

-

(897)

-

-

-

Increase in shareholding in subsidiary - Note 7.4

-

-

-

-

-

-

-

(1,226)

(1,226)

(8,859)

(10,085)

NCI on acquisition of subsidiary -  Note 8

-

-

-

-

-

-

-

-

-

5,003

5,003

Disposal of NCI in subsidiary- Note 9

-

-

-

-

-

-

-

1,417

1,417

10,183

11,600

Adjustment to TA Holdings acquisition accounting - Note 31.5

-

-

-

-

(369)

-

-

-

(369)

-

(369)

Dividend paid

-

-

-

-

-

-

-

-

-

(158)

(158)

At 31 December 2015

1,235

80,102

(232)

(9,283)

(3,999)

370

-

7,205

75,398

24,221

99,619


 



Attributable to the owners of the parent







US$ '000



US$'000


Share

Share

Treasury

Group

Other

Non

Revaluation

Retained

Equity attributable to

Non-Controlling

Total

Capital

Premium

Shares

Restructuring

Reserves

Distributable

Reserve

Earnings

owners

Interest

Equity




Reserve


Reserves



of parent

(NCI)


Note 37

Note 37

Note 37

Note 38

Note 39

Note 3.17.4






At 1 January 2016

1,235

80,102

(232)

(9,283)

(3,999)

370

-

7,205

75,398

24,221

99,619

(Loss)/profit for the year

-

-

-

-

-

-

-

(699)

(699)

1,283

584

Exchange differences on translation of foreign operations

-

-

-

-

525

-

-

-

525

255

780

Net gain/(loss) on available for sale investments

-

-

-

-

12

-

-

-

12

(73)

(61)

Share of associates other comprehensive income

-

-

-

-

-

-

618

-

618

-

618

Revaluation of land and buildings

-

-

-

-

-

-

25

-

25

25

50

Total comprehensive profit/(loss)

-

-

-

-

537

-

643

(699)

481

1,490

1,971

Share based payment transaction

3

390

-

-

-

-

-

-

393

-

393

Allocation of treasury shares

-

(59)

195

-

-

-

-

-

136

-

136

Reserve transfer - Note 3.17.4

-

-

-

-

-

86

-

(57)

29

-

29

Disposal of interest in subsidiary - Note 7.4

-

-

-

-

-

(483)

(241) 

1,885

1,161

1,441

2,602

Dividend paid

-

-

-

-

-

-

-

-

-

(1,414)

(1,414)

At 31 December 2016

1,238

80,433

(37)

(9,283)

(3,462)

(27)

402

8,334

77,598

25,738

103,336

 

 

 

 


Consolidated statement of cash flows for the year ended 31 December 2016








 2016


 2015


Notes

US$ '000


US$ '000






CASH FLOWS FROM OPERATING ACTIVITIES





Cash generated from/(used in) operations

46

7,545


(1,674)

Interest income


6,367


4,292

Dividend income


752


554

Finance costs paid


(3,655)


(2,477)

Income tax paid


(2,511)


(2,247)

Net cash flows generated from/(used in) operating activities


8,498


(1,552)

 

CASH FLOWS FROM INVESTING ACTIVITIES





Acquisition of additional shares in TA Holdings Limited

7

-


(8,336)

Acquisition of subsidiary, net of cash acquired

8

-


3,823

Purchase of property, plant and equipment

27

(1,138)


(2,599)

Purchase of intangible assets

28

(150)


(190)

Additions to investment property

29

(3,450)


(160)

Purchase of financial instruments


(25,043)


(33,083)

Proceeds from disposal of financial instruments


27,101


25,455

Deferred consideration payment to Minet Group

40.3

(800)


(1,194)

Proceeds on disposal of property, plant and equipment


1,379


787

Proceeds on disposal of investment property


-


50

Loans granted to related parties


(1,278)


(1,222)

Proceeds from repayment of loans granted to related parties


100


100

Proceeds on sale of interest in subsidiary

7.1

2,602


-

Transfer to disposal group held for sale

9

(514)


-

Net cash flows used in investing activities


(1,191)


(16,569)

 

CASH FLOWS FROM FINANCING ACTIVITIES





Proceeds on disposal of shares in a subsidiary

9

-


10,890

Proceeds from borrowings


17,905


18,689

Repayment of borrowings


(21,926)


(2,035)

Dividend paid


(1,414)


(158)

Net cash flows (used in)/generated from financing activities


(5,435)


27,386






Net increase in cash and cash equivalents


1,872


9,265

Net effect of exchange rate movements on cash and cash equivalents


381


(1,653)

Cash and cash equivalents at 1 January


25,912


18,300

Cash and cash equivalents at 31 December


28,165


25,912

 

NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2016

 

1.            Corporate information

 

Masawara Plc ("the Company") is an investment company incorporated and domiciled in Jersey, Channel Islands, whose shares are publicly traded on the London Stock Exchange's AIM. The company is managed in Jersey and its registered office is located at Queensway House, Hilgrove Street in St Helier, Jersey.

 

The investment portfolio of the Company includes Joina City (a multi-purpose property situated in Harare that earns rental income), Masawara Mauritius Limited (a diversified investment company that holds investments in insurance, agro-chemical and hospitality businesses), iWayAfrica Zimbabwe (Private) Limited (a broadband internet service company) and Telerix Communications (Private) Limited (a company that has a license that allows it to construct, operate and maintain a public data internet access and Voice Over IP network in Zimbabwe).

 

The Group financial statements consolidate those of the Company, its subsidiaries and the Group's interest in associates (together referred to as "the Group"). The financial statements of the Group for the year ended 31 December 2016 were authorized for issue in accordance with a resolution of the Directors on 30 June 2017.

 

2.            Basis of preparation

 

The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) and IFRS Interpretations Committee as adopted by the European Union (EU), and in compliance with the requirements of the Companies (Jersey) Law 1991.

 

The consolidated financial statements have been prepared on a historical cost basis, except for property, available-for-sale financial assets, and financial assets that have been measured at fair value. The consolidated financial statements are presented in United States Dollars and all values are rounded to the nearest thousand dollar ($ '000), except when otherwise indicated.

 

Going concern

In assessing the ability of the Group to continue as a going concern, management carried out a sensitivity analysis on the cash flow assumptions to reflect a range of other reasonably possible outcomes and concluded that Masawara will be able to continue as a going concern.

 

The Directors reviewed the cash flow forecasts prepared by management when assessing the ability of the Group to continue operating as a going concern. The significant assumptions made were that the proceeds from the planned disposal of the Group's investment in Lion Assurance Company Limited ("LAC") of $5.7 million will be received before the end of July 2017. These proceeds will be utilized to settle a long term loan repayment of $1.1 million which is due on 18 August 2017 and early settle a significant portion of the same loan which matures in February 2018. Refer to note 9 for information on the classification of LAC as a disposal group held for sale, and Note 40.1 for information on the long-term loan.

 

The agreement for the disposal of the Group's investment in LAC was entered into on 22 May 2017 and is subject to conditions precedent inter alia the receipt of regulatory approvals. The timing of the receipt of the regulatory approvals will have an effect on the timing of the receipt of the sales proceeds that will be utilised to settle the Group's long-term loan facility. The Group is reliant on outside Zimbabwe cash flows to extinguish this facility due to the uncertainty of the timing of dividend remittances from Zimbabwe. In terms of the Reserve Bank of Zimbabwe Exchange Control Operational Guide 8, any foreign payments that are made by Zimbabwean companies are ranked based on the RBZ prioritization criteria. As a consequence of these controls over foreign payments, the Group is reliant on cash inflows from outside of Zimbabwe to meet certain non-Zimbabwean liabilities. There is therefore material uncertainty which may cast significant doubt about the Group's ability to continue as a going concern.

 

The Directors also assessed the probability of the regulatory approvals not being received as unlikely and therefore have a reasonable expectation that the sales proceeds will be available for the settlement of the loan facility. Based on the review of the Group's cash flow forecasts, the Directors believe that the Group will have sufficient resources to continue to trade as a going concern for a period of at least 12 months from the date of approval of these financial statements and accordingly, the financial statements have been prepared on the going concern basis. The financial statements do not include the adjustments that would result if the Group was unable to continue as a going concern.

 

3             Significant accounting policies

 

The principal accounting policies applied in the preparation of these consolidated financial statements are set out as follows. These policies have been consistently applied to all the years presented, unless otherwise stated.

 

3.1          Consolidation

 

3.1.1       Subsidiaries

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

 

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

 

Acquisition-related costs are expensed as incurred.

 

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

 

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

 

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

 

3.1.2       Changes in ownership interests in subsidiaries without change of control

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

 

3.1.3       Disposal of subsidiaries

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

 

3.1.4       Associates

Associates are all entities over which the Group has significant influence but not control, generally accompanying a shareholding of between 20% and 50% of the voting rights. Investments in associates are accounted for using the equity method of accounting. Under the equity method, the investment is initially recognised at cost, and the carrying amount is increased or decreased to recognise the investor's share of the profit or loss of the investee after the date of acquisition. The Group's investment in associates includes goodwill identified on acquisition. If the ownership interest in an associate is reduced but significant influence is retained, only a proportionate share of the amounts previously recognised in other comprehensive income is reclassified to profit or loss where appropriate.

 

The Group's share of post-acquisition profit or loss is recognised in the statement of comprehensive income, and its share of post-acquisition movements in other comprehensive income is recognised in other comprehensive income with a corresponding adjustment to the carrying amount of the investment. When the Group's share of losses in an associate equals or exceeds its interest in the associate, including any other unsecured receivables, the group does not recognise further losses, unless it has incurred legal or constructive obligations or made payments on behalf of the associate.

 

The Group determines at each reporting date whether there is any objective evidence that the investment in the associate is impaired. If this is the case, the group calculates the amount of impairment as the difference between the recoverable amount of the associate and its carrying value and recognises the amount adjacent to 'share of profit/ (loss) of associates in the statement of comprehensive income. Gains and losses resulting from upstream and downstream transactions between the group and its associate are recognised in the group's financial statements only to the extent of unrelated investor's interests in the associates. Unrealised losses are eliminated unless the transaction provides evidence of an impairment of the asset transferred. Accounting policies of associates have been changed where necessary to ensure consistency with the policies adopted by the Group.

 

Dilution gains and losses arising in investments in associates are recognised in the statement of comprehensive income.

 

3.1.5       Joint arrangements

The Group applies IFRS 11 to all joint arrangements. Under IFRS 11 investments in joint arrangements are classified as either joint operations or joint ventures depending on the contractual rights and obligations of each investor. Joint ventures are accounted for using the equity method. Under the equity method of accounting, interests in joint ventures are initially recognised at cost and adjusted thereafter to recognise the Group's share of the post-acquisition profits or losses and movements in other comprehensive income.

 

When the Group's share of losses in a joint venture equals or exceeds its interests in the joint ventures (which includes any long-term interests that, in substance, form part of the group's net investment in the joint ventures), the group does not recognise further losses, unless it has incurred obligations or made payments on behalf of the joint ventures.

 

Unrealised gains on transactions between the Group and its joint ventures are eliminated to the extent of the Group's interest in the joint ventures. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. Accounting policies of the joint ventures have been changed where necessary to ensure consistency with the policies adopted by the Group.

 

3.2          Segment reporting

 

Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision-maker. The chief operating decision-maker, who is responsible for allocating resources and assessing performance of the operating segments, has been identified as the Investment Advisor's executive committee that makes strategic decisions.

 

3.3          Foreign currency translation

 

3.3.1       Functional and presentation currency

Items included in the financial statements of each of the Group's entities are measured using the currency of the primary economic environment in which the entity operates (the "functional currency"). The consolidated financial statements are presented in United States of America dollars, which is the functional and presentation currency of the parent.

 

3.3.2       Transactions and balances

Foreign currency transactions are translated into the parent's functional currency at exchange rates prevailing at the date of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation of monetary assets and liabilities denominated in foreign currencies at year-end exchange rates are recognised in profit or loss (except when recognised in other comprehensive income as qualifying cash flow hedges and qualifying net investment hedges).

 

Foreign exchange gains and losses that relate to borrowings and cash and cash equivalents are presented in the statement of comprehensive income within 'other operating income'. All other foreign exchange gains and losses are presented in the statement of comprehensive income within 'other operating revenue' or 'other operating expenses'.

 

Changes in the fair value of monetary securities denominated in foreign currency classified as available for sale are analysed between translation differences resulting from changes in the amortised cost of the security, and other changes in the carrying amount of the security. Translation differences related to changes in amortised cost are recognised in profit or loss; other changes in carrying amount are recognised in 'other comprehensive income'.

 

Translation differences on financial assets and liabilities held at fair value through profit or loss are reported as part of the fair value gain or loss. Translation differences on non-monetary financial assets such as equities classified as available-for-sale financial assets are included in 'other comprehensive income'

 

3.3.3       Group companies

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

 

Assets and liabilities for each statement of financial position presented are translated at the closing rate at the date of that statement of financial position;

·      Income and expenses for each statement of comprehensive income are translated at average exchange rates (unless this average is not a reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case, income and expenses are translated at the dates of the transactions); and

·      All resulting exchange differences are recognised in 'Other comprehensive income'.

 

On consolidation, exchange differences arising from the translation of the net investment in foreign entities, and of borrowings and other currency instruments designated as hedges of such investments, are taken to shareholders' equity.

 

On a partial disposal that does not result in the Group losing control over a subsidiary that includes a foreign operation, the proportionate share of cumulative amount of exchange differences are re-attributed to non-controlling interests in that foreign operation and are not recognised in the statement of comprehensive income. In any other partial disposals, the proportionate share of the cumulative amount of the exchange differences is reclassified to the consolidated statement of comprehensive income.

 

Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as the foreign entity's assets and liabilities and are translated at the closing rate.

 

3.4          Property, plant and equipment

 

Property, plant and equipment, including owner-occupied property, is initially stated at cost. Costs include all expenditure that is directly attributable to the acquisition of an asset and bringing it to a working condition for its intended use, including import duties and non-refundable purchases taxes, but excluding trade discounts and rebates. Maintenance and repairs expenditure, which neither adds to the value of property and equipment nor significantly prolongs its expected useful life, is recognised directly in the statement of comprehensive income.

 

Subsequent costs are included in the asset's carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. All other repairs and maintenance are charged to the statement of comprehensive income during the financial period in which they are incurred.

 

For subsequent measurement the Group uses the revaluation model i.e. fair value at the date of revaluation less subsequent accumulated depreciation and subsequent accumulated impairment losses in the valuation of freehold land and buildings. All other classes of property, plant and equipment are measured using the cost model. Valuations of freehold land and buildings are performed annually by external independent appraisers to ensure that the fair value of a revalued asset does not differ materially from its carrying amount.

 

Any revaluation surplus is recognised in other comprehensive income and accumulated in the asset revaluation reserve in equity, except to the extent that it reverses a revaluation decrease on the same asset previously recognised in profit or loss, in which case the increase is recognised in profit or loss. A revaluation deficit is recognised in profit or loss, except to the extent that it offsets an existing surplus on the same asset recognised in the revaluation reserve.

 

Additionally, accumulated depreciation as at the revaluation date is eliminated against the gross carrying amount of the asset and the net amount is restated to the revalued amount of the asset. Upon disposal, any revaluation reserve relating to the particular asset being sold is transferred to retained earnings.

 

Land is not depreciated. Depreciation is provided for on a straight-line basis over the useful lives of the following classes of assets:

·      Buildings: over 40 - 50 years

·      Machinery and vehicles: 3 - 10 years

·      Furniture, fittings and other: 3 - 10 years

 

The assets' residual values, and useful lives and method of depreciation are reviewed and adjusted if appropriate at each financial year end and adjusted prospectively, if appropriate. Impairment reviews are performed where there are indicators that the carrying value may not be recoverable. Impairment losses are recognised in the statement of comprehensive income as an expense.

 

An item of property and equipment is derecognised upon disposal or where no further future economic benefits are expected from its use or disposal. Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is included in the statement of comprehensive income in the year the asset is derecognised.

 

3.5          Investment properties

 

Investment properties are measured initially at cost, including transaction costs. Subsequent to initial recognition, investment properties are stated at fair value, which reflects market conditions at the reporting date. Gains or losses arising from changes in the fair values of investment properties are included in the statement of comprehensive income in the period in which they arise. Fair values are evaluated annually by an accredited external, independent valuer, applying a valuation model recommended by the International Valuation Standards Committee.

 

Investment properties are derecognised where either they have been disposed of, or when the investment property is permanently withdrawn from use and no future economic benefit is expected from its disposal.

 

Any gains or losses on the retirement or disposal of an investment property are recognised in the statement of comprehensive income in the year of retirement or disposal. Gains or losses on the disposal of investment property are determined as the difference between net disposal proceeds and the carrying value of the asset in the previous full period financial statements.

 

Transfers are made to investment property only when there is a change in use evidenced by the end of owner-occupation or commencement of development with a view to sell. For a transfer from investment property to owner occupied property, the deemed cost for subsequent accounting is the fair value at the date of change in use.

 

If owner occupied property becomes an investment property, the Group accounts for such property in accordance with the policy stated under property, plant and equipment up to the date of the change in use.

 

3.6          Revaluation of property, plant and equipment and fair value of investment properties

 

In assessing the carrying amounts of property, plant and equipment and investment properties, management considers the condition of the assets and their life span on an item by item basis and by placing fair market values that are obtainable from the sale of assets in a similar condition. Valuations are performed with sufficient regularity to ensure that the fair value of a revalued asset does not differ materially from its carrying amount.

 

Increases in the carrying amount arising on revaluation of land and buildings are credited to other comprehensive income and shown as other reserves in shareholders' equity. Decreases that offset previous increases of the same asset are charged in other comprehensive income and debited against revaluation surplus directly in equity; all other decreases are charged to profit or loss. When revalued assets are sold, the amounts included in revaluation surplus are transferred to retained earnings.

 

Gains or losses arising from changes in the fair values of investment properties are included in the statement of comprehensive income in the year in which they arise.

 

3.7          Intangible assets

 

Intangible assets acquired separately are measured on initial recognition at cost. The cost of intangible assets acquired in a business combination is their fair value as at the date of acquisition. Following initial recognition, intangible assets are carried at cost less any accumulated amortisation and any accumulated impairment losses. Internally generated intangible assets, excluding capitalised development costs, are not capitalised and expenditure is reflected in the statement of comprehensive income in the year in which the expenditure is incurred.

 

The useful lives of intangible assets are assessed to be either finite or indefinite.

 

Intangible assets with finite lives are amortised over the useful economic life and assessed for impairment whenever there is an indication that the intangible asset may be impaired. The amortisation period and the amortisation method for an intangible asset with a finite useful life are reviewed at least at each financial year end. Changes in the expected useful life or the expected pattern of consumption of future economic benefits embodied in the asset are accounted for by changing the amortisation period or method, as appropriate, and are treated as changes in accounting estimates. The amortisation expense on intangible assets with finite lives is recognised in the statement of comprehensive income in operating expenses.

 

Intangible assets with indefinite useful lives are tested for impairment annually either individually or at the cash generating unit level. Such intangibles are not amortised. The useful life of an intangible asset with an indefinite life is reviewed annually to determine whether indefinite life assessment continues to be supportable. If not, the change in the useful life assessment from indefinite to finite is made on a prospective basis.

 

Gains or losses arising from derecognition of an intangible asset are measured as the difference between the net disposal proceeds and the carrying amount of the asset and are recognised in the statement of comprehensive income when the asset is derecognised.

 

Subsequent to initial recognition, the intangible asset is carried at cost less accumulated amortisation and accumulated impairment losses.

 

An impairment review is performed whenever there is an indication of impairment. When the recoverable amount is less than the carrying value, an impairment loss is recognised in the statement of comprehensive income.

 

Amortisation is provided for on a straight-line basis over the useful lives of the following classes of assets:

·      Brands: 5 - 15 years

·      Customer list: 10 years

·      Computer software: 5 years

 

3.7.1       Goodwill

Goodwill arises on the acquisition of subsidiaries, associates and joint arrangements; it represents the excess of the consideration transferred over Group's interest in net fair value of the net identifiable assets, liabilities and contingent liabilities of the acquiree and the fair value of the non-controlling interest in the acquiree.

 

If the total of consideration transferred, non-controlling interest recognised and previously held interest measured at fair value is less than the fair value of the net assets of the subsidiary acquired, in the case of a bargain purchase, the difference is recognised directly in the statement of comprehensive income.

 

3.7.2       Computer software

Costs associated with maintaining computer software programmes are recognised as an expense as incurred. Development costs that are directly attributable to the design and testing of identifiable and unique software products controlled by the Group are recognised as intangible assets when the following criteria are met:

·      It is technically feasible to complete the software product so that it will be available for use;

·      Management intends to complete the software product and use or sell it;

·      There is an ability to use or sell the software product;

·      It can be demonstrated how the software product will generate probable future economic benefits;

·      Adequate technical, financial and other resources to complete the development and to use or sell the software product are available; and

·      The expenditure attributable to the software product during its development can be reliably measured.

 

Directly attributable costs that are capitalised as part of the software product include the software development employee costs and an appropriate portion of directly attributable overheads.

 

Computer software costs recognised as assets are amortised over their useful lives, which does not exceed five years.

 

3.7.3       Deferred acquisition costs ("DAC")

Those direct and indirect costs incurred during the financial period arising from the writing or renewing of short-term insurance contracts, are deferred to the extent that these costs are recoverable out of unearned premiums. All other acquisition costs are recognised as an expense when incurred.

 

Subsequent to initial recognition, DAC for short-term insurance contracts are amortised over the terms of the insurance policies as premiums are earned. The reinsurers' share of deferred acquisition costs is amortised in the same manner as the underlying asset amortisation is recorded in the statement of comprehensive income.

 

Changes in the expected useful life or the expected pattern of consumption of future economic benefits embodied in the asset are accounted for by changing the amortisation period and are treated as a change in an accounting estimate.

 

An impairment review is performed at each reporting date or more frequently when an indication of impairment arises. When the recoverable amount is less than the carrying value, an impairment loss is recognised in the statement of comprehensive income. DAC are also considered in the liability adequacy test for each reporting period. DAC are derecognised when the related contracts are either settled or disposed of.

 

3.7.4       Reinsurance commissions

Commissions receivable on outwards reinsurance contracts are deferred and amortised on a straight line basis over the term of the reinsurance contract.

 

3.7.5       Brands

The cost of brands acquired in a business combination is their fair value at the date of acquisition. Brands are recognised as an intangible asset where the brand has a long-term value. Acquired brands are only recognised where title is clear or the brand could be sold separately from the rest of the business and the earnings attributable to it are separately identifiable.

 

An impairment review is performed at each reporting date or more frequently when an indication of impairment arises. When the recoverable amount is less than the carrying value, an impairment loss is recognised in the statement of comprehensive income.

 

3.8          Impairment of non-financial assets

 

The Group assesses at each reporting date whether there is an indication that an asset may be impaired. If any such indication exists, or when annual impairment testing for an asset is required, the Group estimates the asset's recoverable amount. An asset's recoverable amount is the higher of an asset's or cash-generating unit's fair value less costs to dispose and its value in use. The recoverable amount is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets.

 

Impairment losses of continuing operations are recognised in the statement of comprehensive income in those expense categories consistent with the function of the impaired asset.

 

For assets excluding goodwill, an assessment is made at each reporting date as to whether there is any indication that previously recognised impairment losses may no longer exist or may have decreased. If such indication exists, the Group makes an estimate of recoverable amount. A previous impairment loss is reversed only if there has been a change in the estimates used to determine the asset's recoverable amount since the last impairment loss was recognised. If that is the case, the carrying amount of the asset is increased to its recoverable amount. That increased amount cannot exceed the carrying amount that would have been determined, net of depreciation, had no impairment loss been recognised for the asset in prior years. Such reversal is recognised in the statement of comprehensive income unless the asset is carried at revalued amount, in which case the reversal is treated as a revaluation increase.

 

3.9          Non-current assets held for sale and discontinued operations

 

The Group classifies non-current assets and disposal groups as held for sale if their carrying amounts will be recovered principally through a sale transaction rather than through continuing use. Non-current assets and disposal groups classified as held for sale are measured at the lower of their carrying amount and fair value less costs to dispose. The criteria for held for sale classification is regarded as met only when the sale is highly probable and the asset or disposal group is available for immediate sale in its present condition. Management must be committed to the sale, which should be expected to qualify for recognition as a completed sale within one year from the date of classification.

 

Discontinued operations are excluded from the results of continuing operations and are presented as a single amount as profit or loss after tax from discontinued operations in the statement of comprehensive income. Property, plant and equipment and intangible assets are not depreciated or amortised once classified as held for sale.

 

3.10       Financial assets

 

The Group classifies its financial assets into the following categories: at fair value through profit or loss, loans and receivables, held to maturity and available for sale. The classification is determined by management at initial recognition and depends on the purpose for which the investments were acquired or originated.

 

3.10.1     Initial recognition

Financial assets are recognised initially at fair value plus, in the case of investments not at fair value through profit or loss, directly attributable transaction costs. Financial assets carried at fair value through profit or loss are initially recognised at fair value, and transaction costs are expensed in the statement of comprehensive income.

 

Purchases or sales of financial assets that require delivery of assets within a time frame established by regulation or convention in the marketplace (regular way trades) are recognised on the trade date, i.e., the date that the Group commits to purchase or sell the asset.

 

3.10.2     Classification and measurement

 

3.10.2.1 Financial assets at fair value through profit or loss

This category has two sub-categories: financial assets held for trading and those designated at fair value through profit or loss at inception.

 

A financial asset is classified into the 'financial assets at fair value through profit or loss' category at inception if acquired principally for the purpose of selling in the short term, if it forms part of a portfolio of financial assets in which there is evidence of short-term profit-taking, or if so designated by management.

 

This category includes derivative financial instruments entered into by the Group that are not designated as hedging instruments in hedge relationships as defined by IAS 39. Derivatives, including separated embedded derivatives, are also classified as held for trading unless they are designated as effective hedging instruments. For investments designated as at fair value through profit or loss, either of the two following criteria must be met:

·      the designation eliminates or significantly reduces the inconsistent treatment that would otherwise arise from measuring the assets or liabilities or recognising gains or losses on a different basis

·      the assets and liabilities are part of a group of financial assets, financial liabilities, or both, which are managed and their performance evaluated on a fair value basis, in accordance with a documented risk management or investment strategy.

 

These investments are initially recorded at fair value. Subsequent to initial recognition, they are remeasured at fair value. Changes in fair value are recorded in 'net fair value gains and losses', determined based on the change in quoted market prices in active markets for identical financial assets.

 

Interest is accrued and presented in 'Investment income' or 'Finance cost', respectively, using the effective interest rate ("EIR"). Dividend income is recorded in 'Investment income' when the right to the payment has been established.

 

The Group evaluates its financial assets at fair value through profit and loss (held for trading) whether the intent to sell them in the near term is still appropriate. When the Group is unable to trade these financial assets due to inactive markets and management's intent to sell them in the foreseeable future significantly changes, the Group may elect to reclassify these financial assets in rare circumstances. The reclassification to loans and receivables, available-for-sale or held to maturity depends on the nature of the asset. This evaluation does not affect any financial assets designated at fair value through profit or loss using the fair value option at designation.

 

3.10.2.2 Loans and receivables (including insurance receivables)

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market other than those that the Group intends to sell in the short term or that it has designated as at fair value through profit or loss or available for sale. Receivables arising from insurance contracts are classified in this category and are reviewed for impairment as part of the impairment review of loans and receivables.

 

After initial measurement, loans and receivables are measured at amortised cost, using the EIR, less allowance for impairment. Amortised cost is calculated by taking into account any discount or premium on acquisition and fee or costs that are an integral part of the EIR. The EIR amortisation is included in 'finance income' in the statement of comprehensive income. Gains and losses are recognised in the statement of comprehensive income when the investments are derecognised or impaired, as well as through the amortisation process.

 

3.10.2.3 Held-to-maturity financial assets

Held-to-maturity investments are non-derivative financial assets with fixed or determinable payments and fixed maturities that the Group's management has the positive intention and ability to hold to maturity, other than:

·      those that the Group upon initial recognition designates as at fair value through profit or loss;

·      those that the Group designates as available for sale; and

·      those that meet the definition of loans and receivables.

 

After initial measurement, held to maturity financial assets are measured at amortised cost, using the EIR, less impairment. The EIR amortisation is included in 'investment income' in the consolidated statement of comprehensive income. Gains and losses are recognised in the statement of comprehensive income when the investments are derecognised or impaired, as well as through the amortisation process.

 

3.10.2.4 Available-for-sale financial assets

Available-for-sale financial assets are financial assets that are either designated in this category because they are intended to be held for an indefinite period of time, which may be sold in response to needs for liquidity or changes in interest rates, exchange rates or equity prices; or that are not classified as loans and receivables, held to maturity investments or financial assets at fair value through profit or loss.

 

After initial measurement, available-for-sale financial assets are subsequently measured at fair value, with unrealised gains or losses recognised in other comprehensive income in the available-for-sale reserve (equity). The unrealised gains or losses are determined based on the change in inputs other than quoted prices that are observable for the financial assets either directly or indirectly.

 

Where the insurer holds more than one investment in the same security, they are deemed to be disposed of on a first-in first-out basis. Interest earned whilst holding available-for-sale investments is reported as interest income using the EIR.

 

Dividends earned whilst holding available-for-sale investments are recognised in the statement of comprehensive income as 'Investment income' when the right of the payment has been established.

 

When the asset is derecognised the cumulative gain or loss is recognised in other operating income, or determined to be impaired, or the cumulative loss is recognised in the statement of comprehensive income in finance costs and removed from the available-for-sale reserve.

 

The Group evaluates its available-for-sale financial assets to determine whether the ability and intention to sell them in the near term would still be appropriate. In the case where the Group is unable to trade these financial assets due to inactive markets and management's intention significantly changes to do so in the foreseeable future, the Group may elect to reclassify these financial assets in rare circumstances.

 

Reclassification to loans and receivables is permitted when the financial asset meets the definition of loans and receivables and management has the intention and ability to hold these assets for the foreseeable future or until maturity. The reclassification to held-to-maturity is permitted only when the entity has the ability and intention to hold the financial asset until maturity.

 

For a financial asset reclassified out of the available-for-sale category, any previous gain or loss on that asset that has been recognised in equity is amortised to profit or loss over the remaining life of the investment using the EIR. Any difference between the new amortised cost and the expected cash flows is also amortised over the remaining life of the asset using the EIR. If the asset is subsequently determined to be impaired then the amount recorded in equity is reclassified to the consolidated statement of comprehensive income.

 

3.10.3     De-recognition of financial assets

A financial asset (or, when applicable, a part of a financial asset or part of a group of similar financial assets) is derecognised when:

·      the rights to receive cash flows from the asset have expired, or;

·      the Group retains the right to receive cash flows from the asset or has assumed an obligation to pay the received cash flows in full without material delay to a third party under a 'pass-through' arrangement; and either:

·      the Group has transferred substantially all the risks and rewards of the asset, or;

·      the Group has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset.

 

When the Group has transferred its right to receive cash flows from an asset or has entered into a pass through arrangement, and has neither transferred nor retained substantially all the risks and rewards of the asset nor transferred control of the asset, the asset is recognised to the extent of the Group's continuing involvement in the asset.

 

Continuing involvement that takes the form of a guarantee over the transferred asset is measured at the lower of the original carrying amount of the asset and the maximum amount of consideration that the Group could be required to repay. In that case, the Group also recognises an associated liability. The transferred asset and the associated liability are measured on a basis that reflects the rights and obligations that the Group has retained.

 

3.10.4     Impairment of financial assets

The Group assesses at each reporting date whether there is any objective evidence that a financial asset or group of financial assets is impaired. A financial asset or a group of financial assets is deemed to be impaired if, and only if, there is objective evidence of impairment as a result of one or more events that has occurred after the initial recognition of the asset (an incurred 'loss event') and that loss event has an impact on the estimated future cash flows of the financial asset or the group of financial assets that can be reliably estimated.

 

Objective evidence of impairment may include indications that the debtors or a group of debtors is experiencing significant financial difficulty, default or delinquency in interest or principal payments, the probability that they will enter bankruptcy or other financial reorganisation and where observable data indicate that there is a measurable decrease in the estimated future cash flows, such as changes in arrears or economic conditions that correlate with defaults.

 

3.10.4.1 Financial assets carried at amortised cost

For financial assets carried at amortised cost, the Group first assesses individually whether objective evidence of impairment exists individually for financial assets that are individually significant, or collectively for financial assets that are not individually significant. If the Group determines that no objective evidence of impairment exists for an individually assessed financial asset, whether significant or not, it includes the asset in a group of financial assets with similar credit risk characteristics and collectively assesses them for impairment. Assets that are individually assessed for impairment and for which an impairment loss is, or continues to be, recognised are not included in a collective assessment of impairment.

 

If there is objective evidence that an impairment loss on assets carried at amortised cost has been incurred, the amount of the loss is measured as the difference between the carrying amount of the asset and the present value of estimated future cash flows (excluding future expected credit losses that have not been incurred) discounted at the financial asset's original effective interest rate. If a loan has a variable interest rate, the discount rate for measuring any impairment loss is the current effective interest rate.

 

The carrying amount of the asset is reduced directly and the amount of the loss is recognised in the net realized and unrealized gains line item on the consolidated statement of comprehensive income. Interest income continues to be accrued on the reduced carrying amount and is accrued using the rate of interest used to discount the future cash flows for the purpose of measuring the impairment loss. The interest income is recorded as part of investment income in the consolidated statement of comprehensive income. Loans together with the associated allowance are written off when there is no realistic prospect of future recovery and all collateral has been realised or has been transferred to the Group.

 

If, in a subsequent year, the amount of the estimated impairment loss increases or decreases because of an event occurring after the impairment was recognised, the previously recognised impairment loss is increased or reduced by adjusting the allowance account. If a future write-off is later recovered, the recovery is credited to the 'other operating revenue' in the statement of comprehensive income.

 

Future cash flows on a group of financial assets that are collectively evaluated for impairment are estimated on the basis of historical loss experience for assets with credit risk characteristics similar to those in the group. Historical loss experience is adjusted on the basis of current observable data to reflect the effects of current conditions on which the historical loss experience is based and to remove the effects of conditions in the historical period that do not exist currently. The methodology and assumptions used for estimating future cash flows are reviewed regularly to reduce any differences between loss estimates and actual loss experience.

 

3.10.4.2 Available-for-sale financial investments

For available-for-sale financial investments, the Group assesses at each reporting date whether there is objective evidence that an investment or a group of investments is impaired.

 

In the case of equity investments classified as available-for-sale, objective evidence would include a 'significant or prolonged' decline in the fair value of the investment below its cost. 'Significant' is to be evaluated against the original cost of the investment and 'prolonged' against the period in which the fair value has been below its original cost.

 

Where there is evidence of impairment, the cumulative loss - measured as the difference between the acquisition cost and the current fair value, less any impairment loss on that investment previously recognised in profit or loss - is removed from other comprehensive income and recognised in profit or loss. Impairment losses on equity investments are not reversed through the statement of comprehensive income; increases in their fair value after impairment are recognised directly in other comprehensive income.

 

In the case of debt instruments classified as available-for-sale, impairment is assessed based on the same criteria as financial assets carried at amortised cost. However, the amount recorded for impairment is the cumulative loss measured as the difference between the amortised cost and the current fair value, less any impairment loss on that investment previously recognised in the consolidated statement of comprehensive income.

 

Future interest income continues to be accrued based on the reduced carrying amount of the asset and is accrued using the rate of interest used to discount the future cash flows for the purpose of measuring the impairment loss. The interest income is recorded as part of investment income. If, in a subsequent year, the fair value of a debt instrument increases and the increase can be objectively related to an event occurring after the impairment loss was recognised in the consolidated statement of comprehensive income, the impairment loss is reversed through the consolidated statement of comprehensive income.

 

3.10.5   Offsetting of financial instruments

 

Financial assets and financial liabilities are offset and the net amount is reported in the consolidated statement of financial position if, and only if, there is a currently enforceable legal right to offset the recognised amounts and there is an intention to settle on a net basis, or to realise the assets and settle the liabilities simultaneously. Income and expense will not be offset in the consolidated statement of comprehensive income unless required or permitted by any accounting standard or interpretation, as specifically disclosed in the accounting policies of the Group.

 

3.10.6   Fair value of financial instruments

 

The fair value of financial instruments that are actively traded in organised financial markets is determined by reference to quoted market bid prices for assets and offer prices for liabilities, at the close of business on the reporting date, without any deduction for transaction costs.

 

For units in unit trusts and shares in open ended investment companies, fair value is determined by reference to published bid values in an active market.

 

For all other financial instruments not traded in an active market, the fair value is determined by using appropriate valuation techniques. Valuation techniques include the discounted cash flow method, comparison to similar instruments for which market observable prices exist, options pricing models, credit models and other relevant valuation models.

 

Certain financial instruments are recorded at fair value using valuation techniques because current market transactions or observable market data are not available. Their fair value is determined using a valuation model that has been tested against prices or inputs to actual market transactions and using the Group's best estimate of the most appropriate model assumptions. Models are adjusted to reflect the spread for bid and ask prices to reflect costs to close out positions, counterparty credit and liquidity spread and limitations in the models. Also, profit or loss calculated when such financial instruments are first recorded ('Day 1' profit or loss) is deferred and recognised only when the inputs become observable or on derecognition of the instrument.

 

For discounted cash flow techniques, estimated future cash flows are based on management's best estimates and the discount rate used is a market-related rate for a similar instrument. The use of different pricing models and assumptions could produce materially different estimates of fair values.

 

The fair value of floating rate and overnight deposits with credit institutions is their carrying value. The carrying value is the cost of the deposit and accrued interest. The fair value of fixed interest bearing deposits is estimated using discounted cash flow techniques. Expected cash flows are discounted at current market rates for similar instruments at the reporting date.

 

If the fair value cannot be measured reliably, these financial instruments are measured at cost, being the fair value of the consideration paid for the acquisition of the investment or the amount received on issuing the financial liability. All transaction costs directly attributable to the acquisition are also included in the cost of the investment.

 

3.11       Financial liabilities

 

The Group classifies its financial liabilities into the following categories: at fair value through profit or loss and financial liabilities at amortised cost. The classification is determined by management at initial recognition and depends on the purpose for which the liabilities were acquired or originated.

 

A financial instrument is classified as debt if it has a contractual obligation to:

·      deliver cash or another financial asset to another entity, or;

·      exchange financial assets or financial liabilities with another entity under conditions that are potentially unfavourable to the Group.

 

If the Group does not have an unconditional right to avoid delivering cash or another financial asset to settle its contractual obligation, the obligation meets the definition of a financial liability.

 

3.11.1     Initial recognition

All financial liabilities are recognised initially at fair value and, in the case of loans and borrowings, less directly attributable transaction costs.

 

The Group's financial liabilities include investment contracts, trade and other payables, borrowings and insurance payables.

 

3.11.2     Classification and subsequent measurement

The subsequent measurement of financial liabilities depends on their classification, as follows:

 

3.11.2.1 Financial liabilities at fair value through profit or loss

Financial liabilities at fair value through profit or loss includes financial liabilities held for trading and financial liabilities designated upon initial recognition as at fair value through profit or loss.

 

Financial liabilities are classified as held for trading if they are acquired for the purpose of selling in the near term. This category includes derivative financial instruments entered into by the Group that are not designated as hedging instruments in hedge relationships as defined by IAS 39. Separated embedded derivatives are also classified as held for trading unless they are designated as effective hedging instruments.

 

Gains or losses on designated or held for trading liabilities are recognised in fair value gains and losses in the consolidated statement of comprehensive income.

 

3.11.2.2 Financial liabilities at amortised cost

After initial recognition, insurance payables, interest bearing loans and borrowings are subsequently measured at amortised cost using the effective interest rate method. Gains and losses are recognised in the statement of comprehensive income when the liabilities are derecognised as well as through the effective interest rate method (EIR) amortisation process.

 

Amortised cost is calculated by taking into account any discount or premium on acquisition and fee or costs that are an integral part of the EIR. The EIR amortisation is included in finance cost in the consolidated statement of comprehensive income.

Fees paid on the establishment of loan facilities are recognised as transaction cost of the loan to the extent that it is probable that some or all of the facility will be drawn down. In this case, the fee is deferred until the draw-down occurs. To the extent there is no evidence that it is probable that some or all of the facility will be drawn down, the fee is capitalised as a pre-payment for liquidity services and amortised over the period of the facility to which it relates.

 

Preference shares, which are mandatorily redeemable on a specific date, are classified as liabilities. The dividends on these preference shares are recognised in the consolidated statement of comprehensive income as finance costs.

 

Borrowings are classified as current liabilities unless the Group has an unconditional right to defer settlement of the liability for at least twelve months after the reporting date.

 

3.11.3   Derecognition of financial liabilities

 

A financial liability is derecognized when the obligation under the liability is discharged or cancelled or expires.

 

When an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as a derecognition of the original liability and the recognition of a new liability, and the difference in the respective carrying amounts is recognised in the statement of comprehensive income.

 

3.12       Insurance contracts and investment contracts

 

3.12.1     Classification

Insurance and investment contracts are classified into four categories, depending on the duration of or type of insurance risks or investment benefits and whether or not the terms and conditions are fixed, namely, short-term insurance contracts, long- term insurance contracts, investment contracts with discretionary participation features (DPF) and investment contracts without DPF.

 

A discretionary participation feature is a contractual right to receive additional benefits, as a supplement to the guaranteed benefits of the insurance or investment contract. The amount and timing of these benefits are contractually at the discretion of the issuer. The benefits are contractually dependent on the performance of a specified pool of contracts or investment returns on a specified pool of assets or the profit or loss of the company.

 

The Group issues contracts that transfer insurance risk or financial risk or both. Insurance contracts are when the Group (the insurer) has accepted significant insurance risk from another party (the policyholder) by agreeing to compensate the policyholder if a specified uncertain future event (the insured event) adversely affects the policyholder.

 

Investment contracts are those contracts that transfer financial risk and no significant insurance risk. Financial risk is the risk of a possible future change in one or more of a specified interest rate, financial instrument price, commodity price, foreign exchange rate, index of price or rates, credit rating or credit index or other variable, provided in the case of a non-financial variable that the variable is not specific to a party to the contract.

 

Once a contract has been classified as an insurance contract, it remains an insurance contract for the remainder of its lifetime, even if the insurance risk reduces significantly during this period, unless all rights and obligations are extinguished or expire. Investment contracts can, however, be reclassified as insurance contracts after inception if the terms are amended to include significant insurance risk.

 

3.12.2     Short-term insurance contracts

The insurance products offered by the Group include motor, household, commercial and business interruption insurance.

 

For all these contracts, premiums are recognised as revenue (earned premiums) proportionally over the period of coverage. The portion of premium received on in-force contracts that relates to unexpired risks at the statement of financial position date is reported as the unearned premium liability. Premiums are shown before deduction of commission and are gross of any taxes or duties levied on premiums.

 

Claims and loss adjustment expenses are charged to income as incurred based on the estimated liability for compensation owed to contract holders or third parties' damages by the contract holders. They include direct and indirect claims settlement costs and arise from events that have occurred up to the end of the reporting period even if they have not yet been reported to the Group.

 

The Group does not discount its liabilities for unpaid claims other than for disability claims. Liabilities for unpaid claims are estimated using the input of assessments for individual cases reported to the Group and statistical analyses for the claims incurred but not reported, and to estimate the expected ultimate cost of more complex claims that may be affected by external factors (such as court decisions).

 

3.12.3     Long-term insurance contracts with fixed and guaranteed terms

These contracts insure events associated with human life (for example, death or survival) over a long duration. Premiums are recognised as revenue when they become payable by the contract holder. Premiums are shown before deduction of commission.

 

Benefits are recorded as an expense when they are incurred.

 

Life insurance liabilities are recognised when contracts are entered into and premiums are charged. These liabilities are measured by using the net premium method. The liability is determined as the sum of the discounted value of the expected future benefits, claims handling and policy administration expenses, policyholder options and guarantees and investment income from assets backing such liabilities, which are directly related to the contract, less the discounted value of the expected theoretical premiums that would be required to meet the future cash outflows based on the valuation assumptions used (valuation premiums). The liability is based on current assumptions that may include a margin for risk and adverse deviation. A separate reserve for longevity may be established and included in the measurement of the liability.

 

Furthermore, the liability for life insurance contracts comprises the provision for unearned premiums and premium deficiency, as well as for claims outstanding, which includes an estimate of the incurred claims that have not yet been reported to the Group. Adjustments to the liabilities at each reporting date are recorded in the statement of comprehensive income. Profits originated from margins of adverse deviations on run-off contracts are recognised in profit or loss over the life of the contract, whereas losses are fully recognised in the consolidated statement of comprehensive income during the first year of run-off.

 

Where insurance contracts have a single premium or a limited number of premium payments due over a significantly shorter period than the period during which benefits are provided, the excess of the premiums payable over the valuation premiums is deferred and recognised as income in line with the decrease of unexpired insurance risk of the contracts in force or, for annuities in force, in line with the decrease of the amount of future benefits expected to be paid.

 

The liabilities are recalculated at each end of the reporting period using the assumptions established at inception of the contracts.

 

The liability is derecognised when the contract expires, is discharged or is cancelled. At each reporting date, an assessment is made of whether the recognised life insurance liabilities are adequate, net of related PVIF (Present value of in-force business) by using an existing liability adequacy test. The liability value is adjusted to the extent that it is insufficient to meet future benefits and expenses (refer to note 3.12.6 for liability adequacy tests).

 

In performing the adequacy test, current best estimates of future contractual cash flows, including related cash flows such as claims handling and policy administration expenses, policyholder options and guarantees, as well as investment income from assets backing such liabilities, are used. A number of valuation methods are applied, including discounted cash flows, option pricing models and stochastic modelling.

 

3.12.4     Investment contracts with DPF

The liability for these contracts is established in the same way as for the long-term insurance contracts with fixed and guaranteed terms (see above). Revenue is also recognised in the same way. Where the resulting liability is lower than the sum of the amortised cost of the guaranteed element of the contract and the intrinsic value of the surrender option embedded in the contract, it is adjusted and any shortfall is recognised immediately in the statement of comprehensive income.     

 

The group does not recognise the guaranteed element of the investment contract separately from the discretionary participation feature (DPF) and therefore classifies an entire investment contract as a liability.

 

3.12.5     Investment contracts without DPF

The Group issues investment contracts without fixed terms (unit-linked) and investment contracts with fixed and guaranteed terms (fixed interest rate).

 

Investment contracts without fixed terms are financial liabilities whose fair value is dependent on the fair value of underlying financial assets, derivatives and/or investment property (these contracts are also known as unit-linked investment contracts) and are designated at inception as at fair value through profit or loss. The Group designates these investment contracts to be measured at fair value through profit or loss because it eliminates or significantly reduces a measurement or recognition inconsistency (sometimes referred to as 'an accounting mismatch') that would otherwise arise from measuring assets or liabilities or recognising the gains and losses on them on different bases.

 

The best evidence of the fair value of these financial liabilities at initial recognition is the transaction price (that is, the fair value received) unless the fair value of that instrument is evidenced by comparison with other observable current market transactions in the same instrument or based on a valuation technique whose variables include only data from observable markets. When such evidence exists, the Group recognises profit on day 1. The Group has not recognised any profit on initial measurement of these investment contracts because the difference is attributed to the pre-payment liability recognised for the future investment management services that the Group will render to each contract holder.

 

The Group's main valuation techniques incorporate all factors that market participants would consider and make maximum use of observable market data. The fair value of financial liabilities for investment contracts without fixed terms is determined using the current unit values in which the contractual benefits are denominated. These unit values reflect the fair values of the financial assets contained within the Group's unitised investment funds linked to the financial liability. The fair value of the financial liabilities is obtained by multiplying the number of units attributed to each contract holder at the end of the reporting period by the unit value for the same date. For investment contracts with fixed and guaranteed terms, the amortised cost basis is used. In this case, the liability is initially measured at its fair value less transaction costs that are incremental and directly attributable to the        acquisition or issue of the contract. Subsequent measurement of investment contracts at amortised cost uses the effective interest method.

 

The Group re-estimates at each reporting date the expected future cash flows and recalculates the carrying amount of the financial liability by calculating the present value of estimated future cash flows using the financial liability's original effective interest rate. Any adjustment is immediately recognised as income or expense in the consolidated statement of comprehensive income.

 

3.12.6     Liability adequacy test

   At the end of the reporting period, liability adequacy tests are performed to ensure the adequacy of the contract liabilities net of related DAC assets. In performing these tests, current best estimates of future contractual cash flows and claims handling and administration expenses, as well as investment income from the assets backing such liabilities, are used. Any deficiency is immediately charged to profit or loss initially by writing off DAC and by subsequently establishing a provision for losses arising from liability adequacy tests (the unexpired risk provision).

 

   As set out in Note 3.12.3 long-term insurance contracts with fixed terms are measured based on assumptions set out at the inception of the contract. When the liability adequacy test requires the adoption of new best estimate assumptions, such assumptions (without margins for adverse deviation) are used for the subsequent measurement of these liabilities.

 

3.12.7     Reinsurance contracts held

Contracts entered into by the Group with reinsurers under which the Group is compensated for losses on one or more contracts issued by the Group and that meet the classification requirements for insurance contracts in Note 3.12.1 are classified as reinsurance contracts held. Contracts that do not meet these classification requirements are classified as financial assets. Reinsurance assets represent balances due from reinsurance companies. Amounts recoverable from reinsurers are estimated in a manner consistent with the outstanding claims provision or settled claims associated with the reinsurer's policies and are in accordance with the related reinsurance contract.

 

Reinsurance assets are reviewed for impairment at each reporting date, or more frequently, when an indication of impairment arises during the reporting year. Impairment occurs when there is objective evidence as a result of an event that occurred after initial recognition of the reinsurance asset that the Group may not receive all outstanding amounts due under the terms of the contract and the event has a reliably measurable impact on the amounts that the Group will receive from the reinsurer. The impairment loss is recorded in the consolidated statement of comprehensive income.

 

Gains or losses on buying reinsurance are recognised in the consolidated statement of comprehensive income immediately at the date of purchase and are not amortised. Ceded reinsurance arrangements do not relieve the Group from its obligations to policyholders. The Group also assumes reinsurance risk in the normal course of business for life insurance and non-life insurance contracts where applicable. Premiums and claims on assumed reinsurance are recognised as revenue or expenses in the same manner as they would be if the reinsurance were considered direct business, taking into account the product classification of the reinsured business.

 

Reinsurance liabilities represent balances due to reinsurance companies. Amounts payable are estimated in a manner consistent with the related reinsurance contract.

Premiums and claims are presented on a gross basis for both ceded and assumed reinsurance.

 

Reinsurance assets or liabilities are derecognised when the contractual rights are extinguished or expire or when the contract is transferred to another party.

 

Reinsurance contracts that do not transfer significant insurance risk are accounted for directly through the statement of financial position. These are deposit assets or financial liabilities that are recognised based on the consideration paid or received less any explicit identified premiums or fees to be retained by the reinsured.

 

Investment income on these contracts is accounted for using the effective interest rate method when accrued.

 

3.12.8     Receivables and payables related to insurance contracts

Receivables and payables are recognised when due. These include amounts due to and from agents, brokers and insurance contract holders. If there is objective evidence that the insurance receivable is impaired, the Group reduces the carrying amount of the insurance receivable accordingly and recognises that impairment loss in the consolidated statement of comprehensive income. The Group gathers the objective evidence that an insurance receivable is impaired using the same process adopted for loans and receivables. The impairment loss is calculated under the same method used for these financial assets.

 

3.12.9     Salvage and subrogation reimbursements

Some insurance contracts permit the Group to sell (usually damaged) property acquired in settling a claim (for example, salvage). The Group may also have the right to pursue third parties for payment of some or all costs (for example, subrogation). Estimates of salvage recoveries are included as an allowance in the measurement of the insurance liability for claims, and salvage property is recognised in other assets when the liability is settled. The allowance is the amount that can reasonably be recovered from the disposal of the property. Subrogation reimbursements are also considered as an allowance in the measurement of the insurance liability for claims and are recognised in other assets when the liability is settled. The allowance is the assessment of the amount that can be recovered from the action against the liable third party.

 

3.12.10  Non-life insurance (general insurance) contract liabilities

Non-life insurance contract liabilities include the outstanding claims provision, the provision for unearned premium and the provision for premium deficiency incurred but not reported (IBNR). The outstanding claims provision is based on the estimated ultimate cost of all claims incurred but not settled at the reporting date, whether reported or  not, together with related claims handling costs and reduction for the expected value of salvage and other recoveries. Delays can be experienced in the notification and settlement of certain types of claims, therefore the ultimate cost of these cannot be known with certainty at the reporting date. The liability is calculated at the reporting date using a range of standard actuarial claim projection techniques, based on empirical data and current assumptions that may include a margin for adverse deviation. The liability is not discounted for the time value of money. No provision for equalisation or catastrophe reserves is recognised. The liabilities are derecognised when the obligation to pay a claim expires, is discharged or is cancelled.

 

The provision for unearned premiums represents that portion of premiums received or receivable that relates to risks that have not yet expired at the reporting date. The provision is recognised when contracts are entered into and premiums are charged, and is brought to account as premium income over the term of the contract in accordance with the pattern of insurance service provided under the contract.

 

At each reporting date the Group reviews its unexpired risk and a liability adequacy test is performed to determine whether there is any overall excess of expected claims and deferred acquisition costs over unearned premiums. This calculation uses current estimates of future contractual cash flows after taking account of the investment return expected to arise on assets relating to the relevant nonlife insurance technical provisions. If these estimates show that the carrying amount of the unearned premiums (less related deferred acquisition costs) is inadequate, the deficiency is recognised in the statement of comprehensive income by setting up a provision for premium deficiency.

 

3.12.11  Shadow accounting

The Group applies shadow accounting in order to ensure that unrealised gains or losses on policyholder insurance assets affect the measurement of policyholder insurance liabilities in the same way that realised gains or losses do (i.e. elimination of the accounting mismatch). Changes to policyholder liabilities arising from revaluation gains or losses on owner-occupied properties held are reclassified from equity to profit or loss in-order to match the corresponding gross increase or decrease in policyholder insurance liabilities. Note that the gross change in policyholder insurance liabilities is recorded in profit or loss.

 

3.13       Financial guarantee contracts

 

Financial guarantee contracts issued by the Group are those contracts that require a payment to be made to reimburse the holder for a loss it incurs because the specified debtor fails to make a payment when due inaccordance with the terms of a debt instrument. Financial guarantee contracts are recognised initially as a liability at fair value, adjusted for transaction costs that are directly attributable to the issuance of the guarantee.

 

Subsequently, the liability is measured at the higher of the best estimate of the expenditure required to settle the present obligation at the reporting date and the amount recognised less cumulative amortisation.

 

3.14       Inventories

 

Inventories which consist of foodstuffs, beverages and consumable stores are stated at the lower of cost and net realisable value. Cost is determined using the first-in, first-out ("FIFO") method. The cost of finished goods and work in progress comprises direct raw materials, direct labour, other directs costs and related production overheads (based on normal operating capacity). Net realisable value is the estimated selling price in the ordinary course of business, less estimated costs to completion and applicable variable selling expenses necessary to make the sale.

 

3.15       Trade receivables

 

Trade receivables are amounts due from customers for food, beverages and rooms sold in the ordinary course of business and other unsettled amounts not classified as insurance receivables. If collection is expected in one year or less (or in the normal operating cycle of the business if longer), they are classified as current assets, if not they are presented as non-current assets. Trade receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest rate method, less provision for impairment.

 

3.16       Cash and cash equivalents

 

Cash and cash equivalents comprise cash at bank and in hand and short-term deposits with an original maturity of three months or less in the statement of financial position.

 

3.17       Equity movements

 

3.17.1     Ordinary share capital

The Group has issued ordinary shares that are classified as equity.

 

3.17.2     Share premium

The difference between the issue price and the par value of ordinary share capital, is allocated to share premium. The transaction costs incurred for the share issue are accounted for as a deduction from share premium, net of any related income tax benefit, to the extent they are incremental costs directly attributable to the share issue that otherwise would have been avoided.

 

3.17.3     Treasury shares

Own equity instruments that are reacquired (treasury shares) are recognised at cost and deducted from equity. No gain or loss is recognised in profit or loss on the purchase, sale, issue or cancellation of the Group's own equity instruments. Any difference between the carrying amount and the consideration, if reissued, is recognized directly in equity. Voting rights related to treasury shares are nullified for the Group and no dividends are allocated to them. Share options exercised during the reporting period are satisfied with treasury shares.

 

3.17.4     Non-distributable reserves

Non-distributable reserves opening balance of $0.37 million represents the equity of the Masawara Zimbabwe (Private) Limited sub-group that arose on the change of the functional currency to United States Dollars effective from 1 January 2009.

 

Current year movement of $0.09 million in the non-distributable account is the transfer of funds to statutory reserves by Lion Assurance Company of Uganda and Botswana Insurance Company (outside Zimbabwe insurance companies) as per Ugandan Insurance Act and the Insurance Industry Act of Botswana. The transfer is 5% and 15% of net profits after tax each year, respectively.

 

3.17.5     Revaluation reserve

The revaluation reserve records revaluation gains and losses (to the extent that revaluation losses are not more than revaluation gains) on the Group's property that is carried at fair value and Group's share of the associate's revaluation reserve. The Group accounts for all impairments and revaluation surpluses in this reserve.

 

3.17.6     Group restructuring reserve

The group restructuring reserve arose on consolidation, under the pooling of interests method.

 

3.17.7     Other capital reserve

Other capital reserve is the reserve that the Group uses to record share based payment expenses, fair value gains or losses on available for sale investments, exchange rate movements on translation of foreign operations, share of movements in other reserves of the Group's associates and the Group's share of other comprehensive income of associates, with the exception of the Group's share of revaluation reserves of associates which is recorded under the revaluation reserve.

 

3.17.8     Distributions

Under Jersey Law, distributions can be made against any equity account with the exception of the share capital account or any capital redemption account.

 

3.18       Trade payables

 

Trade payables are obligations to pay for goods or services that have been acquired in the ordinary course of business from suppliers and service providers. Trade payables are classified as current liabilities if payment is due within one year or less (or in the normal operating cycle of the business if longer). If not, they are presented as non-current liabilities. Trade payables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method.

 

3.19       Borrowing costs

 

General and specific borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, which are assets that necessarily take a substantial period of time to get ready for their intended use or sale, are added to the cost of those assets, until such time as the assets are substantially ready for their intended use or sale.

 

Investment income earned on the temporary investment of specific borrowings pending their expenditure on qualifying assets is deducted from the borrowing costs eligible for capitalisation.

 

All other borrowing costs are recognised in profit or loss in the period in which they are incurred.

 

3.20       Taxation

 

3.20.1     Current tax

Current income tax assets and liabilities for the current and prior periods are measured at the amount expected to be recovered from or paid to the taxation authorities. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted at the reporting date in the countries where the Group operates and generates taxable income.

 

Current income tax relating to items recognised directly in other comprehensive income or equity is recognised in other comprehensive income or equity and not in the statement of comprehensive income.    

 

3.20.2     Deferred tax

Deferred income tax is provided using the liability method on temporary differences at the reporting date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes.

 

Deferred income tax liabilities are recognised for all taxable temporary differences, except:          

·      Where the deferred income 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 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 utilised except:

·      Where the deferred income tax assets relating to the deductible temporary difference arise from the  initial recognition of an asset or liability in a transaction that is not a business combination and, at 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 income tax assets are recognised only to the extent that it is probable that the temporary differences 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 is reviewed at each reporting date and 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 reporting date and are 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 reporting date.    

 

Deferred income tax relating to items recognised directly in other comprehensive income or equity is recognised in other comprehensive income or equity and not in profit or loss. Deferred income tax assets and deferred income tax liabilities are offset, if a legally enforceable right exists to set off current tax assets against current income tax liabilities and the deferred income taxes relate to the same taxable entity and the same taxation authority.

 

3.20.3     Value Added Tax (VAT)

Revenue and expenses are recognised net of the amount of VAT except:

 

·      When the VAT incurred on a purchase of assets or services is not recoverable from the taxation authority, in which case, the VAT is recognised as part of the cost of acquisition of the assets or as part of the expense item as applicable; and

·      For receivables and payables that are stated with the amount of VAT included.

 

The net amount of VAT recoverable from, or payable, to the taxation authorities is included as part of receivables or payables in the statement of financial position.

 

3.21       Leasing

 

The determination of whether an arrangement is a lease, or contains a lease, is based on the substance of the arrangement at the inception date.

 

3.21.1     Group as a lessee

Leases that transfer to the Group substantially all of the risks and benefits incidental to ownership of the leased item, are classified as finance leases and capitalised at the commencement of the lease at the fair value of the leased property or, if lower, at the present value of the minimum lease payments.

 

Lease payments are apportioned between finance charges and reduction of the lease liability so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are recognised in finance cost in the statement of comprehensive income.

 

Leased assets are depreciated over the useful life of the asset. However, if there is no reasonable certainty that the

Group will obtain ownership by the end of the lease term, the asset is depreciated over the shorter of the estimated useful life of the asset and the lease term.

 

Leases that do not transfer to the Group substantially all the risks and benefits incidental to ownership of the leased items are operating leases. Operating lease payments are recognised as an expense in the statement of comprehensive income on a straight-line basis over the lease term. Contingent rentals are recognised as an expense in the period in which they are incurred.

 

3.21.2   Group as a lessor

Leases in which the Group does not transfer substantially all of the risks and benefits of ownership of the asset are classified as operating leases. Initial direct costs incurred in negotiating an operating lease are added to the carrying amount of the leased asset and recognised over the lease term on the same bases as rental income. Contingent rents are recognised as revenue in the period in which they are earned.

 

3.22       Employee benefits

 

3.22.1     Pension obligations

The Group has a defined contribution plan. A defined contribution plan is a pension plan under which the Group pays fixed contributions into a separate entity. The Group has no legal or constructive obligations to pay further contributions if the fund does not hold sufficient assets to pay all employees the benefits relating to employee service in the current period and prior periods.

 

The Group pays contributions to publicly or privately administered pension insurance plans on a mandatory, contractual or voluntary basis. The Group has no further payment obligations once the contributions have been paid. The contributions are recognised as an employee benefit expense when they are due. Pre-paid contributions are recognised as an asset to the extent that a cash refund or reduction in the future payment is available.

 

3.22.2     Termination benefits

Termination benefits are payable when employment is terminated by the Group before the normal retirement date, or whenever an employee accepts voluntary redundancy in exchange for these benefits. The Group recognises termination benefits when it is demonstrably committed to a termination when the entity has a detailed formal plan to terminate the employment of current employees without possibility of withdrawal. In the case of an offer made to encourage voluntary redundancy, the termination benefits are measured based on the number of employees expected to accept the offer. Benefits falling due more than 12 months after the end of the reporting period are discounted to their present value.

 

3.23       Share-based payment transactions

 

Employees (including senior executives) of the Group receive remuneration in the form of share-based payment transactions, whereby employees render services as consideration for equity instruments.

 

In situations where equity instruments are issued and some or all of the goods or services received by the entity as consideration cannot be specifically identified, the unidentified goods or services received (or to be received) are measured as the difference between the fair value of the share-based payment transaction and the fair value of any identifiable goods or services received at the grant date. This is then capitalised or expensed as appropriate.

 

The cost of equity-settled transactions is recognised, together with a corresponding increase in other capital reserves in equity, over the period in which the performance and/or service conditions are fulfilled.

 

The cumulative expense recognised for equity-settled transactions at each reporting date until the vesting date reflects the extent to which the vesting period has expired and the Group's best estimate of the number of equity instruments that will ultimately vest. The statement of comprehensive income expense or credit for a period represents the movement in cumulative expense recognised as at the beginning and end of that period and is recognised in staff costs.

 

No expense is recognised for awards that do not ultimately vest except for awards where the vesting is conditional upon a market condition where they are treated as vesting irrespective of whether the market condition is met. Where the terms of an equity-settled transaction award are modified, the minimum expense recognised is the expense as if the terms had not been modified, if the original terms of the award are met.

 

An additional expense is recognised for any modification that increases the total fair value of the share-based payment transaction, or is otherwise beneficial to the employee as measured at the date of modification.

 

Where an equity-settled award is cancelled, it is treated as if it vested on the date of cancellation, and any expense not yet recognised for the award is recognised immediately. This includes any award where non-vesting conditions within the control of either the entity or the employee are not met. However, if a new award is substituted for the cancelled award, and designated as a replacement award on the date that it is granted, the cancelled and new awards are treated as if they were a modification of the original award, as described in the previous paragraph. All cancellations of equity-settled transaction awards are treated equally.

 

The dilutive effect of outstanding options, if there are any, is reflected as additional share dilution in the computation of diluted earnings per share (Note 26).

 

3.24       Provisions

 

3.24.1     General

Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, and it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. Where the Group expects some or all of a provision to be reimbursed, the reimbursement is recognised as a separate asset but only when the reimbursement is virtually certain. The expense relating to any provision is presented in the statement of comprehensive income net of any reimbursement. If the effect of the time value of money is material, provisions are discounted using a current pre-tax rate that reflects, where appropriate, the risks specific to the liability. Where discounting is used, the increase in the provision due to the passage of time is recognised as a borrowing cost.

 

3.24.2     Onerous contracts

A provision is recognised for onerous contracts in which the unavoidable costs of meeting the obligations under the contract exceed the expected economic benefits expected to be received under it. The unavoidable costs reflect the least net cost of exiting the contract, which is the lower of the cost of fulfilling it and any compensation or penalties arising from failure to fulfill it.

 

3.25       Revenue recognition

 

Revenue is measured at the fair value of the consideration received or receivable, taking into account contractually defined terms of payment and excluding taxes or duty for sale of goods and services in the ordinary course of the Group's activities.

 

The Group recognises revenue when the amount of revenue can be reliably measured; it is probable that future economic benefits will flow to the Group and when specific criteria have been met for each of the Group's revenue streams described below. The Group assesses its revenue arrangements against specific criteria in order to determine if it is acting as principal or agent. The Group has concluded that it is acting as a principal in all of its revenue arrangements.

 

3.25.1     Gross premiums

Gross recurring premiums are recognised as revenue when payable by the policyholder. For single premium business, revenue is recognised on the date on which the policy is effective. Gross general insurance written premiums comprise the total premiums receivable for the whole period of cover provided by contracts entered intoduring the accounting period and are recognised on the date on which the policy commences. Premiums include any adjustments arising in the accounting period for premiums receivable in respect of business written in prior accounting periods. Premiums collected by intermediaries, but not yet received, are assessed based on estimates from underwriting or past experience and are included in premiums written.

 

Unearned premiums are those proportions of premiums written in a year that relate to periods of risk after the reporting date. Unearned premiums are calculated on a daily pro rata basis. The proportion attributable to subsequent periods is deferred as a provision for unearned premiums.

 

3.25.2     Reinsurance premiums

Gross reinsurance premiums on life insurance are recognised as an expense when payable or on the date on which the policy is effective. Gross general reinsurance premiums written comprise the total premiums payable for the whole cover provided by contracts entered into the period and are recognised on the date on which the policy incepts. Premiums include any adjustments arising in the accounting period in respect of reinsurance contracts incepting in prior accounting periods.

 

Unearned reinsurance premiums are those proportions of premiums written in a year that relate to periods of risk after the reporting date. Unearned reinsurance premiums are deferred over the term of the underlying direct insurance policies for risks-attaching contracts and over the term of the reinsurance contract for losses occurring contracts.

 

3.25.3     Fees and commission income

The Group earns fees and commission income from its provision of insurance, asset management and hoteling services. These fees are recognised as revenue over the period in which the related services are performed or      rendered. If the fees are for services provided in future periods then they are deferred and recognised over those      future periods.

 

3.25.4     Sale of goods

The Group operates hotels and earns revenue through the sale of food and beverages. Revenue from the sale of goods is recognised when all the following conditions are satisfied:

·      the Group has transferred to the buyer the significant risks and rewards of ownership of the goods;

·      the Group retains neither continuing managerial involvement to the degree usually associated with ownership nor effective control over the goods sold;

·      the amount of revenue can be measured reliably; it is probable that the economic benefits associated with the transaction will flow to the entity; and

·      the costs incurred or to be incurred in respect of the transaction can be measured reliably.

 

3.25.5     Investment income

Interest income earned from the Group's interest bearing financial assets is recognised within investment income. Interest income is recognised in the consolidated statement of comprehensive income as it accrues and is calculated by using the effective interest rate method. Fees and commissions that are an integral part of the effective yield of the financial asset or liability are recognised as an adjustment to the effective interest rate of the instrument. When a receivable is impaired, the Group reduces the carrying amount to its recoverable amount, being the estimated future cash flow discounted at the original effective interest rate of the instrument, and continues unwinding the discount as interest income.

 

Investment income also includes dividend income earned from the Group's equity investments. Dividend income is recognised when the right to receive payment is established. For listed securities, this is the date the security is listed as ex dividend.

 

3.25.6     Rendering of services

The Group earns revenue from the provision of accommodation at its hotels. Revenue arising from the rendering of services is recognised by reference to the stage of completion of the transaction at the statement of financial position date (the percentage-of-completion method), provided that all of the following criteria are met:

·      the amount of revenue can be measured reliably;

·      it is probable that the economic benefits will flow to the seller;

·      the stage of completion at the statement of financial position date can be measured reliably; and

·      the costs incurred, or to be incurred, in respect of the transaction can be measured reliably.

 

When the above criteria are not met, revenue arising from the rendering of services is recognised only to the extent of the expenses recognised that are recoverable (a "cost-recovery approach").

 

3.25.7     Rental income

Rental income receivable under operating leases is recognised on a straight-line basis over the term of the lease, except for contingent rental income which is recognised when it arises.

 

Incentives for lessees to enter into lease agreements are spread evenly over the lease term, even if the payments are not made on such a basis. The lease term is the non-cancellable period of the lease together with any further term for which the tenant has the option to continue the lease, where, at the inception of the lease, the directors are reasonably certain that the tenant will exercise that option.

 

Premiums received to terminate leases are recognised in the consolidated statement of comprehensive income when they arise.

 

3.25.8     Service charges and expenses recoverable from tenants

Income arising from expenses recharged to tenants is recognised in the period in which the expense can be contractually recovered. Service charges and other such receipts are included gross of the related costs in revenue, as the Directors consider that the Group acts as principal in this respect.

 

3.25.9     Net realised gains and losses

Net realised gains and losses recorded in the consolidated statement of comprehensive income on investments include gains and losses on financial assets and investment properties. Gains and losses also include the ineffective portion of hedge transactions. Gains and losses on the sale of investments are calculated as the difference between net sales proceeds and the original or amortised cost and are recorded on occurrence of the sale transaction.

 

3.26       Benefits, claims and expenses recognition

 

3.26.1     Gross benefits and claims

Gross benefits and claims for life insurance contracts include the cost of all claims arising during the year including internal and external claims handling costs that are directly related to the processing and settlement of claims, as well as changes in the gross valuation of insurance contract liabilities. Death claims and surrenders are recorded on the basis of notifications received. Maturities and annuity payments are recorded when due.

 

General insurance claims include all claims occurring during the year, whether reported or not, related internal and external claims handling costs that are directly related to the processing and settlement of claims, a reduction for the value of salvage and other recoveries, and any adjustments to claims outstanding from previous years.

 

3.26.2     Reinsurance claims

Reinsurance claims are recognised when the related gross insurance claim is recognised according to the terms of the relevant contract.

 

3.26.3     Outstanding claims

Provision is made for the estimated cost of claims net of anticipated recoveries under reinsurance arrangements notified but not settled at period end using the best information available at the time. Provision is also made for the cost of claims Incurred But Not Reported ("IBNR") until after the statement of financial position date and for the estimated administrative expenses that will be incurred after the statement of financial position date in settling claims outstanding at that date.

 

Outstanding claims do not include any provision for possible future claims where claims arise under contracts not in existence at statement of financial position date.

 

3.27       Events after the reporting date

 

The financial statements are adjusted to reflect events that occurred between the reporting date and the date when the financial statements are authorised for issue, provided they give evidence of conditions that existed at the reporting date. Events that are indicative of conditions that arose after the reporting date are disclosed, but do not result in an adjustment of the financial statements themselves.

 

3.28       Profit allocation in the Life Assurance subsidiary company

 

The Board of Zimnat Life Assurance Company Limited (Life Assurance Company), the Group's life assurance subsidiary, in consultation with an independent actuary, have set the profit participation rules between shareholders and policyholders in that company. In terms of these rules shareholder assets and life assurance noncurrent assets (policyholder assets) in the Life Assurance Company are managed separately, and net investment returns from such assets are credited to shareholder funds and policyholder funds respectively.

 

Shareholder funds are also credited with administration, investment and service charges for managing policyholder funds at rates set out in the Profit Participation Rules. These rates are reviewed annually by the Life Assurance Company Board, in consultation with the independent actuary.

 

At statement of financial position date, an independent valuation of policy holder liabilities is carried out. The value of policy holder liabilities is then deducted from the total value of policy holder assets. Any actuarial surplus (i.e. excess of assets over liabilities) is split between policy holders and shareholders as per recommendations from the independent actuary. The surplus allocated to shareholders is debited from the life assurance fund and credited to the shareholders' funds. If there is a deficit (policyholder liabilities in excess of policyholder assets) the total amount is debited against the shareholders' funds.

 

4.            Changes in accounting policies and disclosures

 

New and amended standards and interpretations

 

The accounting policies adopted in the preparation of the financial statements are consistent with those followed in the preparation of the Group's annual financial statements for the previous year, except for the following new and amended IFRS effective as of 1 January 2016;

 

Standard

Effective date

Executive summary

Amendments to IFRS 10, 'Consolidated financial statements' and IAS 28,'Investments in associates and joint ventures' on applying the consolidation exemption

1 January 2016

The amendments clarify the application of the consolidation exception for investment entities and their subsidiaries.

 

Amendment to IFRS 11, 'Joint arrangements' on acquisition of an interest in a joint operation.

1 January 2016

This amendment adds new guidance on how to account for the acquisition of an interest in a joint operation that constitutes a business. The amendments specify the appropriate accounting treatment for such acquisitions.

IFRS 14 - Regulatory deferral accounts

1 January 2016

The IASB has issued IFRS 14, 'Regulatory deferral accounts' specific to first time adopters ('IFRS 14'), an interim standard on the accounting for certain balances that arise from rate-regulated activities ('regulatory deferral accounts').

Rate regulation is a framework where the price that an entity charges to its customers for goods and services is subject to oversight and/or approval by an authorised body.

Amendments to IAS 1,'Presentation of financial statements' disclosure initiative

1 January 2016

In December 2014 the IASB issued amendments to clarify guidance in IAS 1 on materiality and aggregation, the presentation of subtotals, the structure of financial statements and the disclosure of accounting policies.

Amendment to IAS 16,

'Property, plant and equipment' and IAS 38,'Intangible assets',

on depreciation and

amortisation.

1 January 2016

In this amendment the IASB has clarified that the use of revenue based methods to calculate the depreciation of an asset is not appropriate because revenue generated by an activity that includes the use of an asset generally reflects factors other than the consumption of the economic benefits embodied in the asset. The IASB has also clarified that revenue is generally presumed to be an inappropriate basis for measuring the consumption of the economic benefits embodied in an intangible asset.

Amendments to IAS 16, 'Property, plant and equipment' and IAS 41, 'Agriculture' on bearer plants

1 January 2016

In this amendment to IAS 16 the IASB has scoped in bearer plants, but not the produce on bearer plants and explained that a bearer plant not yet in the location and condition necessary to bear produce is treated as a self-constructed asset. In this amendment to IAS 41, the IASB has adjusted the definition of a bearer plant include examples of non-bearer plants and remove current examples of bearer plants from IAS 41.

Amendments to IAS 27, 'Separate financial statements' on equity accounting

1 January 2016

In this amendment the IASB has restored the option to use the equity method to account for investments in subsidiaries, joint ventures and associates in an entity's separate financial statements.

 

5.            Standards issued but not yet effective

 

Certain new accounting standards and interpretations have been published that are not mandatory for 31 December 2016 reporting periods and have not been early adopted by the Group. The Group's assessment of the impact of these new standards and interpretations is set out below.

                       

 

Standard

Effective date

Summary of changes

Amendment to IAS 12 - Income taxes

 

Recognition of deferred tax assets for unrealised losses.

Annual periods beginning on or after  

1 January 2017

 

The amendment was issued to clarify the requirements for recognising deferred tax assets on unrealised losses. The amendment clarifies the accounting for deferred tax where an asset is measured at fair value and that fair value is below the asset's tax base. It also clarifies certain other aspects of accounting for deferred tax assets.

 

The amendment clarifies the existing guidance under IAS 12. It does not change the underlying principles for the recognition of deferred tax assets.

Amendment to IAS 7 - Cash flow statements

 

Statement of cash flows on disclosure initiative

Annual periods beginning on or after  

1 January 2017

 

In January 2016, the International Accounting Standards Board (IASB) issued an amendment to IAS 7 introducing an additional disclosure that will enable users of financial statements to evaluate changes in liabilities arising from financing activities.

 

The amendment responds to requests from investors for information that helps them better understand changes in an entity's debt. The amendment will affect every entity preparing IFRS financial statements. However, the information required should be readily available. Preparers should consider how best to present the additional information to explain the changes in liabilities arising from financing activities.

Amendments to IFRS 2 - 'Share-based payments'

 

Clarifying how to account for certain types of share-based payment transactions.

Annual periods beginning on or after

1 January 2018

 

This amendment clarifies the measurement basis for cash-settled, share-based payments and the accounting for modifications that change an award from cash-settled to equity-settled. It also introduces an exception to the principles in IFRS 2 that will require an award to be treated as if it was wholly equity-settled, where an employer is obliged to withhold an amount for the employee's tax obligation associated with a share-based payment and pay that amount to the tax authority.

IFRS 15 - Revenue from contracts with customers.

Annual periods beginning on or after

1 January 2018

 

The FASB and IASB issued their long awaited converged standard on revenue recognition on 29 May 2014. It is a single, comprehensive revenue recognition model for all contracts with customers to achieve greater consistency in the recognition and presentation of revenue. Revenue is recognised based on the satisfaction of performance obligations, which occurs when control of good or service transfers to a customer.

Amendment to IFRS 15 - Revenue from contracts with customers.

Annual periods beginning on or after

1 January 2018

 

The IASB has amended IFRS 15 to clarify the guidance, but there were no major changes to the standard itself. The amendments comprise clarifications of the guidance on identifying performance obligations, accounting for licenses of intellectual property and the principal versus agent assessment (gross versus net revenue presentation).  New and amended illustrative examples have been added for each of these areas of guidance. The IASB has also included additional practical expedients related to transition to the new revenue standard.

IFRS 9 - Financial Instruments (2009 &2010)

 

Annual periods beginning on or after

1 January 2018

 

This IFRS is part of the IASB's project to replace IAS 39.  IFRS 9 addresses classification and measurement of financial assets and replaces the multiple classification and measurement models in IAS 39 with a single model that has only two classification categories: amortised cost and fair value.

 

The IASB has updated IFRS 9, 'Financial instruments' to include guidance on financial liabilities and derecognition of financial instruments. The accounting and presentation for financial liabilities and for derecognising financial instruments has been relocated from IAS 39, 'Financial instruments: Recognition and measurement', without change, except for financial liabilities that are designated at fair value through profit or loss.

Amendment to IFRS 9 -'Financial instruments',

 

 

 

Annual periods beginning on or after

1 January 2018

 

 

 

 

 

 

 

The IASB has amended IFRS 9 to align hedge accounting more closely with an entity's risk management. The revised standard also establishes a more principles-based approach to hedge accounting and addresses inconsistencies and weaknesses in the current model in IAS 39.

 

Early adoption of the above requirements has specific transitional rules that need to be followed. Entities can elect to apply IFRS 9 for any of the following:

·      The own credit risk requirements for financial liabilities.

·      Classification and measurement (C&M) requirements for financial assets.

·      C&M requirements for financial assets and financial liabilities.

·      The full current version of IFRS 9 (that is, C&M requirements for financial assets and financial liabilities and hedge accounting).

The transitional provisions described above are likely to change once the IASB completes all phases of IFRS 9.

IFRS 16 - Leases

Annual periods beginning on or after 1 January 2019 - earlier application permitted if IFRS 15 is also applied.

 

 

This standard replaces the current guidance in IAS 17 and is a far reaching change in accounting by lessees in particular.

 

Under IAS 17, lessees were required to make a distinction between a finance lease (on balance sheet) and an operating lease (off balance sheet). IFRS 16 now requires lessees to recognise a lease liability reflecting future lease payments and a 'right-of-use asset' for virtually all lease contracts. The IASB has included an optional exemption for certain short-term leases and leases of low-value assets; however, this exemption can only be applied by lessees.

 

For lessors, the accounting stays almost the same. However, as the IASB has updated the guidance on the definition of a lease (as well as the guidance on the combination and separation of contracts), lessors will also be affected by the new standard.

 

At the very least, the new accounting model for lessees is expected to impact negotiations between lessors and lessees. Under IFRS 16, a contract is, or contains, a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration.

 

IFRS 16 supersedes IAS 17, 'Leases', IFRIC 4, 'Determining whether an Arrangement contains a Lease', SIC 15, 'Operating Leases - Incentives' and SIC 27, 'Evaluating the Substance of Transactions Involving the Legal Form of a Lease'.

IFRS 4, 'Insurance contracts'

 

Regarding the implementation of IFRS 9, 'Financial instruments'

Annual periods beginning on or after 1 January 2018

 

These amendments introduce two approaches: an overlay approach and a deferral approach. The amended standard will:

·      Give all companies that issue insurance contracts the option to recognise in other comprehensive income, rather than profit or loss, the volatility that could arise when IFRS 9 is applied before the new insurance contracts standard is issued; and

·      Give companies whose activities are predominantly connected with insurance an optional exemption from applying IFRS 9 until 2021. The entities that defer the application of IFRS 9 will continue to apply the existing financial instruments standard - IAS 39.

IAS 40, 'Investment property'

 

Transfers of investment property

Annual periods beginning on or after 1 January 2018

 

 

These amendments clarify that to transfer to, or from, investment properties there must be a change in use. To conclude if a property has changed use there should be an assessment of whether the property meets the definition. This change must be supported by evidence.

IFRIC 22, 'Foreign currency transactions and advance consideration

Annual periods beginning on or after 1 January 2018

 

This IFRIC addresses foreign currency transactions or parts of transactions where there is consideration that is denominated or priced in a foreign currency. The interpretation provides guidance for when a single payment/receipt is made as well as for situations where multiple payment/receipts are made. The guidance aims to reduce diversity in practice.

IFRS 17, Insurance Contracts

Annual periods beginning on or after 1 January 2021

IFRS 17 establishes the principles for the recognition, measurement, presentation and disclosure of insurance contracts within the scope of the standard. The objective of IFRS 17 is to ensure that an entity provides relevant information that faithfully represents those contracts. This information gives a basis for users of financial statements to assess the effect that insurance contracts have on the entity's financial position, financial performance and cash flows.

Annual improvements 2014-2016

Annual periods beginning on or after 1 January 2017 and 2018

These amendments impact 3 standards:

·    IFRS 1,' First-time adoption of IFRS', regarding the deletion of short term exemptions for first-time adopters regarding IFRS 7, IAS 19, and IFRS 10 effective 1 January 2018.

·    IFRS 12,'Disclosure of interests in other entities' regarding clarification of the scope of the standard. The amendment clarified that the disclosures requirement of IFRS 12 are applicable to interest in entities classified as held for sale except for summarised financial information (para B17 of IFRS 12). Previously, it was unclear whether all other IFRS 12 requirements were applicable for these interests. These amendments should be applied retrospectively for annual periods beginning on or after 1 January 2017.

·    IAS 28,'Investments in associates and joint ventures' regarding measuring an associate or joint venture at fair value. IAS 28 allows venture capital organisations, mutual funds, unit trusts and similar entities to elect measuring their investments in associates or joint ventures at fair value through profit or loss (FVTPL). The Board clarified that this election should be made separately for each associate or joint venture at initial recognition. Effective 1 January 2018.

Amendments to IFRS 10, 'Consolidated financial statements' and IAS 28,'Investments in associates and joint ventures' on sale or contribution of assets

Effective date postponed (initially 1 January 2016)

The postponement applies to changes introduced by the IASB in 2014 through narrow-scope amendments to IFRS 10 'Consolidated Financial Statements' and IAS 28 'Investments in Associates and Joint Ventures'. Those changes affect how an entity should determine any gain or loss it recognises when assets are sold or contributed between the entity and an associate or joint venture in which it invests. The changes do not affect other aspects of how entities account for their investments in associates and joint ventures.

 

The reason for making the decision to postpone the effective date is that the IASB is planning a broader review that may result in the simplification of accounting for such transactions and of other aspects of accounting for associates and joint ventures.

 

6.            Significant accounting judgements, estimates and assumptions

 

The preparation of financial statements in conformity with IFRS requires the use of certain accounting estimates. It also requires management to exercise its judgement in the process of applying the Group's accounting policies. Changes in assumptions may have a significant impact on the financial statements in the period the assumptions are changed. Management believes that the underlying assumptions are appropriate and that the Group's financial statements therefore fairly present the financial position and results.

 

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods. The areas involving a higher degree of judgements or complexity, or areas where assumptions and estimates are significant to the financial statements are disclosed in the relevant notes to the financial statements.

 

The following are the estimates, assumptions and critical judgements that management has made in the process of applying the Group's accounting policies and that have the most significant effect on the amounts recognised in the financial statements.

 

6.1          Estimates and assumptions

 

6.1.1      Valuations of properties

 

The Group's property comprise of freehold land and buildings that are classified under the property, plant and equipment category and investment properties. The Group has three distinct investment properties categories i.e. commercial buildings that offer retail and office space, residential buildings and industrial buildings. The distinct property categories were valued by independent professional valuers (Dawn Property Consultancy and Bard Real Estate) differently as highlighted below.

 

6.1.1.1    Property classified under the property, plant and equipment category

The freehold land and buildings valuations were based on market values which are defined as the estimated amount for which, a property would be exchanged between knowledgeable, and willing parties in an arm's length transaction. In determining the open market value estimates, comparable market evidence was considered.

 

6.1.1.2    Commercial buildings

The determination of the fair value of investment properties requires the use of estimates such as future cash flows from assets (such as lettings, tenants' profiles and future revenue streams) and discount rates applicable to those assets. These estimates are based on local market conditions existing at the reporting date.

 

The lack of liquidity in the Zimbabwean market means that, if it was intended to dispose of the investment properties, it may be difficult to achieve a successful sale in the short term.  Therefore, in arriving at their estimates of market values as at 31 December 2016 and 31 December 2015, the valuers have used their market knowledge and professional judgement and have not only relied solely on historic transactional comparables.

 

In arriving at the market value of the property, the valuer used the Implicit Investment Approach based on capitalization of income. This method is based on the principle that rents and capital values are inter-related. Hence given the estimate of income produced by a property, its value can be estimated.

 

This approach requires careful estimation of future benefits and the application of investor yield or return requirements. The rental estimates were based on comparable rentals, inferred from retail and office spaces within the locality of the property in the Harare central business district and surrounding areas. The estimated future rental income streams were discounted in order to determine the fair value of the investment properties, refer to Note 29 for more details on inputs used in the valuation.

 

6.1.1.3    Industrial and residential buildings

The Industrial and residential buildings valuations were based on market values which are defined as the estimated amount for which, a property would be exchanged between knowledgeable, willing parties in an arm's length transaction. In determining the open market value estimates, comparable market evidence was considered. This comprised of transactions where offers had been made but the transaction had not been finalized. Professional judgement was used to adjust the market evidence.

 

6.1.2      Financial instruments at amortised cost

 

The value of financial assets and financial liabilities held at amortised cost are based on the expected cash flows under consideration of a market interest rate. The judgements include considerations of inputs such as expected cash flows, amortisation period, market interest rate applied and also whether or not the financial assets are recoverable.

 

6.1.3      Impairment assessment of investments in associates and joint ventures

 

The Group determines at each reporting date, whether there is any objective evidence that the investment in the associates and joint venture is impaired. This requires an estimation of recoverable amount of the investment in associate or joint venture by reference to the value in use. A value in use calculation requires the Group to make an estimate of the expected future cash flows from the associate or joint venture and also to choose a suitable discount rate in order to calculate the present values of those cash flows.

 

6.1.4      Recoverability of loans granted to investee companies

 

The Group assesses the recoverability of loans granted to investee companies at each reporting date and where appropriate an impairment loss is recognized against loans that are deemed to be irrecoverable or those that will be recoverable over extended periods i.e. periods that are longer than the periods as per the original agreements.

 

The Group reviews the investee company's financial performance and also reviews the capital as well as interest payment pattern by the investee company in order to come up with estimations of how much of the loans granted will be recoverable and also over what time frame. The Group fully impaired its $12.5 million loan note investment in Telerix Communications (Private) Limited. The Group assessed Telerix Communications (Private) Limited's cash flow forecasts, financial and operating position it concluded that Telerix Communications (Private) Limited will not be able to make capital and interest repayments in accordance with loan note contract (Note 30.1.2).

 

6.1.5.1    Non-life insurance (which comprises general insurance) contract liabilities

For non-life insurance contracts, estimates have to be made both for the expected ultimate cost of claims reported at the reporting date and for the expected ultimate cost of claims incurred but not yet reported at the reporting date ("IBNR").

 

Insurance risks are unpredictable and the Group recognises that it is not always possible to forecast with absolute precision, future claims payable under existing insurance contracts. The ultimate cost of outstanding claims is estimated by using a range of standard actuarial claims projection techniques. Overtime, the group has developed a methodology that is aimed at establishing insurance provisions that have an above-average likelihood of being adequate to settle its insurance obligations.

 

The main assumption underlying these techniques is that a company's past claims development experience can be used to project future claims development and hence ultimate claims costs. As such, these methods extrapolate the development of paid and incurred losses, average costs per claim and claim numbers based on the observed development of earlier years and expected loss ratios.

 

Historical claims development is mainly analysed by accident years, but can also be further analysed by geographical area, as well as by significant business lines and claim types. Large claims are usually separately addressed, either by being reserved at the face value of loss adjuster estimates or separately projected in order to reflect their future development. In most cases, no explicit assumptions are made regarding future rates of claims inflation or loss ratios. Instead, the assumptions used are those implicit in the historical claims development data on which the projections are based.

 

Additional qualitative judgement is used to assess the extent to which past trends may not apply in future, (for example to reflect one-off occurrences, changes in external or market factors such as public attitudes to claiming, economic conditions, levels of claims inflation, judicial decisions and legislation, as well as internal factors such as portfolio mix, policy features and claims handling procedures) in order to arrive at the estimated ultimate cost of claims that present the likely outcome from the range of possible outcomes, taking account of all the uncertainties involved.

 

Similar judgements, estimates and assumptions are employed in the assessment of adequacy of provisions for unearned premium. Judgement is also required in determining whether the pattern of insurance service provided by a contract requires amortisation of unearned premium on a basis other than time apportionment.

 

6.1.5.2    Life insurance contract liabilities

The liability for life insurance contracts is either based on current assumptions or on assumptions established at inception of the contract, reflecting the best estimate at the time increased with a margin for risk and adverse deviation. All contracts are subject to a liability adequacy test, which reflect management's best current estimate of future cash flows.

 

Certain acquisition costs related to the sale of new policies are recorded as deferred acquisition costs ("DAC") and are amortised to the consolidated statement of comprehensive income over time. If the assumptions relating to future profitability of these policies are not realised, the amortisation of these costs could be accelerated and this may also require additional impairment write-offs to the consolidated statement of comprehensive income.

 

The main assumptions used relate to mortality, morbidity, longevity, investment returns, expenses, lapse and surrender rates and discount rates. The Group bases mortality and morbidity on standard industry mortality tables which reflect historical experiences, adjusted when appropriate to reflect the Group's unique risk exposure, product characteristics, target markets and own claims severity and frequency experiences. For those contracts that insure risk related to longevity, prudent allowance is made for expected future mortality improvements as well as wide ranging changes to life style, could result in significant changes to the expected future mortality exposure.

 

Estimates are also made as to future investment income arising from the assets backing life insurance contracts. These estimates are based on current market returns as well as expectations about future economic and financial developments.

 

Assumptions on future expense are based on current expense levels, adjusted for expected expense inflation if appropriate.

 

Lapse and surrender rates are based on the Group's historical experience of lapses and surrenders.

 

Discount rates are based on current industry risk rates, adjusted for the Group's own risk exposure.

 

The assumptions used for the actuarial valuation of the insurance contracts disclosed in this note are as follows:

 

Economic rates - The economic rates were set as follows:


Rate

Rate

Variable

2016

2015




Inflation

(0.93%)

6%

Expense

3.0%

5.5%

Valuation interest rate

6.0%

6.0%

Discount rate

6.0%

8.0%

Discount rate annuitants

6.0%

7.5%

 

Mortality - The tables used for mortality were:

·      10% of the A24/29 table of Assured Lives experience in the UK in the years 1924 to 1929.

·      HIV/AIDS - as the HIV/AIDS pandemic develops in Zimbabwe, the assumption concerning deaths from the pandemic is of increasing importance. As such, a light AIDS loading was allowed on the mortality rates. However the HIV/AIDS transmission rate has been decreasing due to the increased awareness, use of protection methods and the use of Anti-retroviral drugs, ARVs. This means that the mortality may reach a stable state system.

·      A(55), a table of annuitant experience in the UK thought to be appropriate for annuities purchased in 1955. For female policyholders, spouses were assumed to be 3 years older, whilst for male policyholders, spouses were assumed to be 3 years younger.

 

Expenses - The allowance for expenses in the valuation should be sufficient to ensure that expenses can be covered not only in the next year but also in all future years. The following were the assumptions used to project the present value of future expenses and these were based on expense analysis figures for the year 2016.

·      For new Cashpal policies, the base year (2016) expense per policy was set at $28.48 per annum.

·      For Whole Life policies, the base year (2016) expense per policy was set at $42.62 per annum.

·      For Pension Plan policies, the base year (2016) expense per policy was set at $29.41 per annum.

·      For Individual Life Funeral policies, the base year (2015) expense per member was set at $13 per annum for all of the future years.

·      For Individual Life Funeral policies, the base year (2016) expense per member was set at $16.01 per annum for all of the future years.

·      For new Individual Life Funeral policies, expense per main member was set at $61.43 per annum for all of the future years.

·      For Whole Life policies without-profits where there is a will-writing benefit to be exercised after one year. A take up rate of 10% was assumed. The will-writing expense was set as $185 per policy.

 

Expense per policy assumption needs to be reviewed continuously in line with expense inflation. Commission was allowed for as per pricing basis.

 

Unit growth rate - This was assumed to be 10% p.a. after the valuation date.

 

Bonuses - There were no bonuses awarded to Investment Contracts with Discretionary Participation Features, Conventional Annuities, Individual Life Old Conventional Fund and Whole Life as at 31 December 2016.

 

Transfer to shareholders - There was no transfer of profits from Policyholders to Shareholders for the year ended 31 December 2016.

 

Planned margins - The intention of the compulsory margins (to be added to the best estimate assumptions) is to introduce a degree of prudence to allow for possible adverse deviations in experience during the expected future lifetime of the business. These compulsory margins will at the same time serve to an extent to defer profits and thus reduce the risk that profits are recognised prematurely. The margins added to the best estimate assumptions were as follows:



Margin

Margin

Assumption


2016

2015





Mortality


7.5%

7.5%

Lapse


25%

25%

Surrender


10%

10%

Expense inflation


10%

10%

Renewal expense


10%

10%

 

Lapse Rates - We have set expected future lapse rates and these are given below:

 

Duration

Funeral

Whole Life

Cashpal

Pension Plan






Within Year 1

35%

30%

5%

10%

Year 1 to 2

25%

21%

5%

5%

Year 2 to 3

19%

13%

12%

5%

Year 3 to 4

15%

5%

20%

0%

Year 5+

5%

5%

0%

0%

 

The expected funeral lapse rates have been based on the lapse experience investigation done as at 31 October 2016.

 

The Group follows the guidance of IFRS 10 Consolidated Financial Statements to determine when control exists over an investee. This determination requires significant judgement. In making this judgement, the Group evaluates, whether it has power over the investee, exposure or rights to variable returns from its involvement with the investee and the ability to use its power over the investee to affect the amount of the Group's returns.

 

Telerix Communications (Private) Limited

Masawara owns 50% of Telerix Communications (Private) Limited "Telerix" issued share capital. Telerix's relevant activities are controlled by the Telerix board, which Masawara has the right to appoint two out of four directors. A consortium of other Telerix shareholders has the right to appoint the other two board members. Masawara and the consortium of the other shareholders collectively control Telerix as they must act together to direct the relevant activities. No investor can direct the activities without the co-operation of the others i.e. neither Masawara nor the consortium of the other Telerix shareholders individually controls the Telerix. Consequently, the Group accounts for its investment in Telerix as a joint venture.

 

Sable Chemical Industries Limited

On 25 June 2015, the Group, through its wholly owned subsidiary, TA Holdings Limited, obtained control of Sable Chemical Industries Limited "Sable Chemicals". This was after the intermediary companies within the fertilizer industry shareholding structure were liquidated resulting in TA Holdings having a direct shareholding of 50.6%, instead of indirectly holding 50.6%. Masawara's indirect shareholding was through different companies, none of which Masawara had control over.

 

Under the new shareholding structure, the Group has the ability to appoint the majority of the Board members using its direct shareholding of 50.6%. The Group is therefore in a position to direct the relevant activities of Sable Chemicals Industries Limited. The Group is exposed to variable returns from Sable Chemicals as the profitability of Sable affects the Group (through profit after tax).  In addition, the Group is in a position to affect the returns from Sable Chemicals through determining its financial and operating policies. Consequently, Sables Chemicals has been consolidated effective 30 June 2015. More details on the acquisition have been included in Note 8.

 

Cresta Marakanelo Limited

The Group holds 35% of the equity shares of Cresta Marakanelo Limited (Marakanelo). The Group entered into a management agreement with Marakanelo that stipulates that the Managing Director and the Finance Director of Marakanelo are appointed by the Group. The Group has assessed that it has no control over the relevant activities of Marakanelo due to the following:

·      The Group has two (2) representatives on the Marakanelo board which comprises eight (8) members. The Group therefore does not control the Board but has significant influence.

·      The management agreement indicates that the Group is accountable to the Marakanelo Board.

·      The agreement has a limited term and expires on 31 December 2019.

 

Due to the fact that the Group has the ability to exert significant influence on Marakanelo, it accounts for its investment in Marakanelo as an associate.

 

7             Transactions with non-controlling interests

 

7.1          Decrease in shareholding in Botswana Insurance Company Limited

 

On 24 January 2016, the Group disposed of a 12% interest out of its 62% interest held in Botswana Insurance Company Limited (BIC) at a consideration of $2.6 million. The carrying amount of non-controlling interests in BIC on the date of disposal was $6.5 million (representing 35% interest). The transaction resulted in an increase in non-controlling interests of $2.8 million and decrease in equity attributable to owners of the parent of $0.2 million. The effect of changes in ownership interest of BIC is summarized as follows;

 


2016


US$ '000



Cash consideration received

2,602

Carrying amount of interest disposed to non-controlling interest

(2,804)

Loss on change in degree of control

(202)

 

 

7.2          Increase in shareholding in Lion Assurance Company Limited

 

On 24 January 2016, the Group acquired an additional 32.44% interest in Lion Assurance Limited (LAC) for no consideration. The Group now holds 87.44% of the equity share capital of LAC. The carrying amount of non-controlling interests in LAC on the date of acquisition was US$ 1.9 million (representing a 45% interest). This resulted in a decrease in non-controlling interests and an increase in equity attributable to owners of the parent of US$ 1.4 million. The effect of changes in ownership interest of LAC is summarized as follows:


2016


US$ '000



Cash consideration paid

-

Carrying amount of interest acquired from non-controlling interest

1,363

Gain on change in degree of control

1,363

 

 

7.3          Increase in shareholding in TA Holdings Limited

 

Effective 8 April 2015, Masawara Plc increased its ownership in TA Holdings Limited "TA Holdings" from 75.74% to 100% when the High Court of Zimbabwe sanctioned a mandatory offer made by Masawara Plc to acquire shares from the remaining TA Holdings shareholders. The acquisition took place when Masawara Plc, through its wholly owned subsidiary Masawara Holdings (Mauritius) Limited ("MHML") purchased 41,403,383 TA Holdings shares representing 24.26% of TA Holdings' issued share capital for $10.3 million.

 

Notwithstanding the fact that the effective date of change in ownership interests was 8 April 2015, 1 April 2015 was adopted as the date of change in ownership interest for accounting purposes. The exclusion of transactions that took place between 1 April 2015 and 8 April 2015 did not have a material impact on the consolidated financial statements as at and for the year ended 31 December 2015.

 

This transaction was accounted for as an equity transaction with owners and the carrying amounts of Masawara Plc interest and non-controlling interest were adjusted to reflect the changes in their relative interests. The computation below shows how the loss on the change in degree of control in TA Holdings Limited was calculated. The loss was recognized directly in retained earnings and attributed to Masawara Plc.


2015


US$ '000



Cash consideration

8,336

Deferred consideration

1,945

Total consideration

10,281

New shares issued by TA Holdings in 2015

(196)

Non-controlling interest

(8,859)

Loss on acquisition recognized directly in retained earnings

1,226

 

7.4          Net effect of transactions with non-controlling interests on the Group

               


2016

2015


US$ '000

US$ '000

Decrease in non-distributable reserve

(483)

-

Decrease in revaluation reserve

(241)

-

Increase/(decrease) in retained earnings

1,885

(1,226)

Net gain/(loss) on change in degree of control

1,161

(1,226)

 

8             Business combination 

 

On 25 June 2015, Masawara Plc, through its wholly owned subsidiary, TA Holdings Limited, obtained control of Sable Chemical Industries Limited ("Sable Chemicals"). This was after the intermediary companies within the fertilizer industry shareholding structure were liquidated resulting in TA Holdings having a direct shareholding of 50.6%, instead of indirectly holding 50.6%. Masawara's indirect shareholding was through different companies, none of which Masawara had control over. Under the new shareholding structure, Masawara Plc has the ability to appoint the majority of the Board members using its direct shareholding of 50.6%. Effective 25 June 2015, Masawara Plc was in a position to direct the relevant activities of Sable Chemicals Industries Limited and became exposed to variable returns from Sable Chemicals. In addition, Masawara Plc is in a position to affect the returns from Sable Chemicals through determining its financial and operating policies. Consequently, Sable Chemicals has been consolidated effective 30 June 2015.

 

Notwithstanding the fact that the effective acquisition date of Sable Chemical Industries Limited was 25 June 2015, 30 June 2015 was adopted as the acquisition date for accounting purposes. The exclusion of transactions that took place between 25 June 2015 and 30 June 2015 did not have a material effect on the consolidated financial statements as at and for the year ended 31 December 2015.

 

The acquisition for no consideration resulted in a gain on bargain purchase amounting to $5.2 million and this has been recognized in the consolidated statement of comprehensive income. The transaction resulted in a gain on bargain purchase because the provisional value of the net assets acquired was higher than the fair value of the previously held investment and minority interest value. As highlighted above, through having control of Sable Chemicals, Masawara Plc is able to determine operational polices which will improve returns thus justifying a gain on bargain purchase. If the business combination had taken place on 1 January 2015, the Group's total income for the year ended 31 December 2015 would have been $138 million and the Group's loss after tax would have been $6.2 million for the same period.

 

The following table summarises the acquisition for no consideration, the value of assets acquired, liabilities assumed and the non-controlling interest at the acquisition date.

 


Footnotes

Fair value



US$ '000

Consideration transferred



Cash

a

-

Fair value previously held equity

b

-

Total consideration transferred


-

Add fair value of non-controlling interest

c

5,003

Less fair value of identifiable assets acquired and liabilities assumed

Property, plant and equipment

d

6,556

Financial assets

e

2

Inventory

f

13,903

Trade and other receivables

g

17,227

Cash resources

h

3,823

Financial liabilities

I

(5,216)

Deferred tax liabilities

j

(500)

Trade and other payables

K

(25,586)

Total assumed identifiable net assets


10,209




Gain on bargain purchase


5,206

 

Footnotes

               

a.     The business combination was achieved without any transfer of consideration as direct control was obtained through the liquidation of the intermediary companies within the fertilizer industry shareholding structure.

 

b.     In the 2013 financial year, the investment in Sable Chemicals was impaired to $nil. As at the date of acquisition the previously recognized impairment losses had not been reversed because none of the conditions necessary for impairment reversal were present e.g. Sable Chemicals is still incurring losses. Consequently, the fair value in Sable Chemicals was maintained at $nil.

 

c.     The fair value of non-controlling interest was the non-controlling interest's portion of the fair value of net assets on acquisition date.

 

d.     Property was revalued as at 31 December 2014 by Dawn Property Consultancy (Private) Limited, professional valuers with recognized and relevant professional qualifications and with recent experience in the location and category of the property being valued. As at the acquisition date, there were no significant events that occurred that warrant changes to the value therefore the carrying amount of property approximates fair value.

 

e.     Financial assets comprised of interest bearing deposits. The carrying amount of financial assets held at amortized cost approximated fair value at the date of the business combination due to the fact that the effective interest rate used to calculate the amortised cost approximated fair value.

 

f.      Inventory was valued at the lower of cost or net realizable value using the weighted average cost method. The inventory balance as at 30 June 2015 approximated fair value.

 

g.     Trade and other receivables' carrying amount approximated fair value at 30 June 2015. Effect of discounting was immaterial due to the fact that trade and other receivables are expected to be recovered within one year.

 

h.     Cash resources comprised cash at bank and cash on demand. The carrying amount of cash resources approximated fair value.

 

i.      Financial liabilities comprised overdraft facilities and short term borrowings. The borrowings as at 30 June 2015 matured by 31 May 2016. Due to the short term nature of the borrowings, the effect of discounting was immaterial. The carrying amount approximated fair value.

 

j.      Deferred tax liabilities were determined by applying appropriate tax rates on the temporary difference on assets and liabilities.

 

k.     The carrying amount of trade and other payables approximated fair value because trade and other payables were short term in nature i.e. they were expected to be settled within one year.

 

Acquisition costs on the transaction were not significant.

 

9             Disposal group held for sale

 

The assets and liabilities related to Lion Assurance Company Limited ("LAC") have been presented as held for sale following the approval of the Group's plan to sell LAC. LAC is part of the Insurance segment. The sale is expected to be completed by 31 July 2017. The share purchase agreement for the sale of the Group's investment in LAC was entered into on 22 May 2017. Refer to note 53 for more information on subsequent events. 

 

The assets and liabilities of the disposal group classified as held for sale are as follows;


2016


US$ '000

Assets


Property, plant and equipment

125

Intangible assets

4

Financial assets

5,313

Reinsurance assets

3,700

Insurance receivables

3,846

Trade and other receivables

1,390

Cash and cash equivalents

514


14,892

Liabilities


Deferred tax

324

Insurance contract liabilities

6,251

Trade and other payables

2,866


9,441

 

The fair value less costs to dispose exceeds the carrying amount of LAC. In accordance with IFRS 5 Non- Current Assets Held for Sale which requires a disposal group to be measured at the lower of its fair value less costs to dispose or carrying amount, LAC has been measured at its carrying amount. The fair value has been determined in relation to the selling price of LAC. The transaction is at arms-length.

 

                An analysis for the result of the disposal group held for sale is as follows.

               


2016


US$ '000

Statement of comprehensive income




Income

6,814

Expenses

(5,250)

Profit before tax

1,564

Income tax expense

(484)

Profit after for the year

1,080



Statement of cash flows




Operating cash flows

(194)

Investing cash flows

329

Financing cash flows

(290)

Total cash flows

(155)

 

10           Segment information

 

The chief operating decision maker i.e. the Investment Advisor's executive committee classifies the Group's business units into different clusters i.e. hotels, insurance, technology, agrochemicals and property (Joina City) for the purpose of monitoring the operating results of business units and resource allocation to business units. Segmentation of business units into different clusters is based on the type of product and service offering by the different companies. There have been no changes to the measurement methods used to determine segment information from those used during the previous year.

 

As at 31 December 2016, the Group had five reportable segments which are listed below:

·      The Joina City segment which comprises of the Group's largest investment property that leases retail and office space in the Joina City building which is located in Harare, Zimbabwe's largest capital city.

·      The hotels segment which comprises of the Group's interest in Cresta Zimbabwe (Private) Limited and Cresta Marakanelo Limited.

 

Name of company

Effective shareholding

Country of incorporation

Principal activity





Cresta Zimbabwe (Private) Limited

100%

Zimbabwe

Hospitality and leisure

Cresta Marakanelo Limited

35%

Zimbabwe

Hospitality and leisure

 

·      Insurance segment comprises of the Group's investment in insurance businesses i.e. Zimnat Life Assurance Company Limited and its subsidiaries and joint venture, Zimnat Lion Insurance Company Limited, Grand Reinsurance (Private) Limited, Botswana Insurance Company Limited, Lion Assurance Company Limited and Minerva Risk Advisors (Private) Limited.

 

Name of company

Effective shareholding

Country of incorporation

Principal activity





Zimnat Life Assurance Company Limited

100%

Zimbabwe

Life assurer

Zimnat Lion Insurance Company Limited

100%

Zimbabwe

Short term insurer

Grand Reinsurance (Private) Limited

100%

Zimbabwe

Reinsurer

Botswana Insurance Company Limited

50%

Botswana

Short term insurer

Lion Assurance Company Limited

86%

Uganda

Short term insurer

Minerva Risk Advisors (Private) Limited

95%

Zimbabwe

Insurance broker

 

·      Agrochemicals segment which comprises of the Group's investment in Sable Chemical Industries Limited and Zimbabwe Fertilizer Company Limited.

 

Name of company

Effective shareholding

Country of incorporation

Principal activity





Sable Chemical Industries Limited

51%

Zimbabwe

Manufacturer of fertilizer

Zimbabwe Fertilizer Company Limited

22.5%

Zimbabwe

Manufacturer and distributor of fertilizer and pesticides

 

·      Technology segment comprising Telerix Communications (Private) Limited, a company that is licensed to construct, operate and maintain public data internet access and Voice Over Internet Protocol network in Zimbabwe, and iWayAfrica Zimbabwe (Private) Limited, a broadband internet service company in Zimbabwe.


 











Joina City

Hotels

Insurance

Agrochemicals

Technology

Central

IFRS Adjustments

Total Group

Year ended 31 December 2016

US$ '000

US$ '000

US$ '000

US$ '000

US$ '000

US$ '000

US$ '000

US$ '000










Net insurance premium revenue

-

-

55,190

-

-

-

(624)

54,566

Hotel and manufacturing revenue

-

14,365

-

8,056

-

-

-

22,421

Rental income from investment properties

1,782

 

-

1,454

 

-

 

-

 

-

 

(68)

3,168

Net insurance claims

-

-

(31,348)

-

-

-

-

(31,348)

Expenses for acquisition of insurance claims

-

 

-

(13,694)

 

-

 

-

 

-

 

1,203

(12,491)

Hotel and manufacturing cost of sales

-

(5,291)

  -

(7,621)

-

-

-

(12,912)

Segment gross profit

1,782

9,074

11,602

435

-

-

511

23,404

Fees and commission income

-

-

21,187

-

-

146

(2,804)

18,529

Investment income and other income

30

260

10,141

399

365

1,609

(3,530)

9,274

Net realized and unrealized fair values (losses)/gains

(651)

 

-

3,071

 

970

 

-

 

-

 

-

3,390

Operating and other expenses

-

(7,038)

(33,052)

(5,378)

-

(4,400)

2,642

(47,226)

Property expenses

(1,801)

-

(191)

-

-

-

-

(1,992)

(Loss)/profit before finance costs, equity accounted earnings and tax

(640)

 

2,296

12,758

 

(3,574)

 

365

 

(2,645)

 

(3,181)

5,379

Finance costs

(532)

(603)

(1,062)

(1,091)

-

(994)

416

 (3,866)

Equity accounted earnings

-

-

2,111

96

-

-

-

2,207

Income tax expense

(13)

(152)

(2,851)

(16)

-

(125)

21

(3,136)

Segment (loss)/profit after tax

(1,185)

1,541

10,956

(4,585)

365

(3,764)

(2,744)

584










Revenue from external customers

1,714

14,365

74,403

8,056

-

-

-

98,538

Intersegment revenue

68

-

3,428

-

-

-

-

3,496

Segment revenue

1,782

14,365

77,831

8,056

-

-

-

102,034










Depreciation

-

811

707

215

-

70

-

1,803

Amortisation

-

-

265

-

-

324

-

589










As at 31 December 2016









Non-current assets

31,521

18,261

97,260

5,771

-

96,326

(97,651)

151,488

Current assets

250

3,138

94,155

23,786

-

78,550

(78,248)

121,631

Disposal group held for sale

-

-

14,892

-

-

-

-

14,892

 

Segment assets

31,771

 

21,399

 

206,307

 

29,557

 

-

 

174,876

 

(175,899)

288,011










Non-current liabilities

(6,096)

(7,573)

(46,303)

-

-

(10,442)

9,491

(60,923)

Current liabilities

(23,262)

(3,344)

(78,190)

(25,810)

-

(65,888)

82,183

(114,311)

Held for sale liabilities

-

-

(9,441)

-

-

-

-

(9,441)

Segment liabilities

(29,358)

(10,917)

(133,934)

(25,810)

-

(76,330)

91,674

(184,675)










Investments in associates and joint ventures

 

-

 

6,453

 

4,360

 

4,294

 

282

 

-

 

-

 

15,389

Additions to non-current assets

-

331

4,314

60

-

33

-

4,738

 



Joina City

Hotels

Insurance

Agrochemicals

Technology

Central

IFRS Adjustments

Total Group

Year ended 31 December 2015

US$ '000

US$ '000

US$ '000

US$ '000

US$ '000

US$ '000

US$ '000

US$ '000










Net insurance premium revenue

-

-

52,392

-

-

-

(545)

51,847

Hotel and manufacturing revenue

-

16,258

-

18,616

-

-

(7,909)

26,965

Rental income from investment properties

1,886

 

-

1,133

 

-

 

-

 

-

 

-

3,019

Net insurance claims

-

-

(26,653)

-

-

-

63

(26,590)

Expenses for acquisition of insurance claims

-

 

-

(9,136)

 

-

 

-

 

-

 

-

(9,136)

Hotel and manufacturing cost of sales

-

(5,475)

  -

(1,623)

-

-

-

(7,098)

Segment gross profit/(loss)

1,886

10,783

17,736

16,993

-

-

(8,391)

39,007

Fees and commission income

-

-

19,867

-

-

1,048

(1,027)

19,888

Gain on bargain purchase

-

-

-

5,206

-

-

-

5,206

Investment income and other income

-

-

4,848

-

295

539

7,167

12,849

Net realized and unrealized fair values gains/(losses)

133

 

-

(1,147)

 

-

 

-

 

-

 

(288)

(1,302)

Operating and other expenses

-

(9,554)

(30,425)

(18,229)

-

(10,127)

5,658

(62,677)

Property expenses

(1,537)

-

(256)

-

-

-

-

(1,793)

Impairment loss on loan notes

-

-

-

-

-

(12,516)

-

(12,516)

Profit/(loss) before finance costs, equity accounted earnings and tax

482

 

1,229

10,623

 

3,970

 

295

 

(21,056)

 

3,119

(1,338)

Finance costs

(84)

-

-

(863)

-

(780)

(893)

(2,620)

Equity accounted earnings

-

1,155

654

77

-

-

-

1,886

Income tax expense

2

35

(2,063)

96

-

(359)

(296)

(2,585)

Segment profit/(loss) after tax

400

2,419

9,214

3,280

295

(22,195)

1,930

(4,657)










Revenue from external customers

1,126

16,258

71,820

18,616

-

-

-

107,820

Intersegment revenue

60

-

1,572

-

-

-

-

1,632

Segment revenue

1,186

16,258

73,392

18,616

-

-

-

109,452










Depreciation

-

869

647

259

-

83

-

1,858

Amortisation

-

-

384

-

-

385

-

769










As at 31 December 2015


















Non-current assets

32,094

28,243

83,626

9,835

282

66,020

(68,147)

151,953

Current assets

281

3,976

87,942

36,793

-

20,108

(12,857)

136,243

Segment assets

32,375

32,219

171,568

46,628

282

86,128

(81,004)

288,196










Non-current liabilities

-

(7,214)

(43,089)

(328)

-

(14,126)

6,344

(58,413)

Current liabilities

(6,501)

(3,499)

(76,505)

(34,649)

-

(30,633)

21,623

(130,164)

Segment liabilities

(6,501)

(10,713)

(119,594)

(34,977)

-

(44,759)

27,967

(188,577)










Investments in associates and joint ventures

 

-

 

5,306

 

3,048

 

3,580

 

282

 

-

 

-

 

12,216

Additions to non-current assets

154

1,145

1,426

211

-

13

-

2,949










  The additions to non-current assets comprise of additions to property, plant and equipment, intangibles and equity accounted investments.

 


Geographical information

 

The Geographical spread of revenues and non-current assets is split as follows:              





2016

2015


US$ '000

US$ '000

Income



From Zimbabwe

82,513

92,822

Outside Zimbabwe (Botswana)

21,532

19,997

Outside Zimbabwe (excluding Botswana)

8,482

7,147

Total

112,527

119,966

 

Non-current assets



From Zimbabwe

134,028

122,457

Outside Zimbabwe (Botswana)

16,873

23,987

Outside Zimbabwe (excluding Botswana)

5,312

5,509

Total

156,213

151,953

 

11           Operating leases

 

                Group as lessor

The Group has entered into leases on its property portfolio. The commercial property leases typically have lease terms of one to six years and include clauses to enable bi-annual upward revision of the rental charge. Future minimum rentals receivable under non-cancellable operating leases were as follows:         

 


2016

2015


US$ '000

US$ '000




Within 1 year

3,168

2,527

After 1 year, but not more than 5 years

3,570

2,710

More than 5 years

1,758

1,250


8,496

6,487

 

Operating lease commitments - Group as lessee

The Group entered into commercial leases on three hotel properties and offices. These leases have an average life of between one and four years with a renewal option included in the contracts. There are no restrictions placed upon the Group by entering into these leases. Future minimum rentals payable under the non-cancellable operating lease as at 31 December are as follows:


2016

2015


US$ '000

US$ '000




Within 1 year

1,228

1,031

After 1 year, but not more than 5 years

4,912

2,190


6,140

3,221

 

12           Net insurance premium revenue

 


2016

2015


US$' 000

US$' 000

12.1        Gross insurance premium revenue 

Life insurance

18,275

18,783

Non-life insurance

71,799

67,929

Change in unearned premium reserve

(3,446)

(3,619)

Total gross premiums

86,628

83,093

 

12.2        Insurance premium ceded to reinsurers on insurance contracts

Life insurance

(795)

(745)

Non-life insurance

(32,607)

(32,266)

Change in unearned premium reserve

1,340

1,765

Total premiums ceded to reinsurers

(32,062)

(31,246)

 

13           Fees and commission income

 

Policyholder administration and investment management services

3,763

3,731

Re-insurance commission received

6,598

7,098

Brokerage fees

8,168

9,059

Total fees and commission income

18,529

19,888

 

14           Hotel revenue

                       



Accommodation

7,383

7,582

Food and beverages

5,314

5,887

Hotel management fees

1,668

1,835

Total hotel revenue

14,365

15,304

 

15           Manufacturing revenue

 

Ammonium nitrate sales

8,056

11,661

 

16           Investment income

 

Interest and dividend income from financial assets at fair value

 

1,545

 

1,983

Interest on bank deposits

4,032

394

Held to maturity financial instruments and loan receivable interest income

 

1,542

 

1,122

Total investment income

7,119

3,499

 

17           Realised and unrealised (losses)/gains

 

17.1        Realised and unrealised gains

Gain on disposal of financial assets

-

71

Profit on disposal of investment properties

-

17

Fair value gains on investment property - Note 29

-

104

Fair value gains on financial assets - Note 31.5

3,522

-

Gain on disposal of property, plant and equipment

1,047

-

Total realised and unrealised gains

4,569

192

 

2016

2015

US$ '000

US$ '000

17.2        Realised and unrealised losses

Loss on disposal of financial assets

(535)

-

Loss on disposal of property, plant and equipment

-

(123)

Fair value loss on financial assets - Note 31.5

-

(731)

Fair value loss on investment property - Note 29

(644)

-

Revaluation loss on property, plant and equipment

-

(640)

Total realised and unrealised losses

(1,179)

(1,494)

 

18           Other operating income                               

                                                                 

Ancillary hotel services

260

214

Sundry income

981

7,777

Motor pool income

253

86

Exchange gains

296

978

Total other operating income

1,790

9,055

 

19           Net insurance claims

 

19.1       Insurance claims and loss adjustment expense

 

19.1.1     Gross benefits and claims paid                                         

Life insurance contracts

(7,384)

(8,145)

Non-life insurance contracts

(21,572)

(26,527)

Total gross benefits and claims paid

(28,956)

(34,672)

 

19.1.2     Gross change in insurance contract liabilities                                                               

Change in life insurance contract liabilities

(6,965)

(3,730)

Change in non-life insurance contract liabilities

(372)

2,420

Total gross change in contract liabilities

(7,337)

(1,310)




Insurance claims and loss adjustment expense

(36,293)

(35,982)

 

19.2       Insurance claims and loss adjustment expenses recovered from reinsurers

 

19.2.1     Claims recovered from reinsurers                                                    

Life insurance contracts

93

121

Non-life insurance contracts

4,707

8,919

Total claims ceded to reinsurers

4,800

9,040

 

19.2.2     Change in insurance contract liabilities ceded to reinsurers                                                                     

Change in non-life insurance contract liabilities

145

352

Total change in contract liabilities ceded to reinsurers

145

352

 

Insurance claims and loss adjustment expenses recovered from reinsurers

 

4,945

 

9,392

 


2016

2015


US$ '000

US$ '000

20           Expenses for the acquisition of insurance contracts

 

Commission paid

(13,369)

(9,573)

Change in deferred expenses

878

437

Total expenses for the acquisition of insurance contracts

(12,491)

(9,136)

 

21           Hotel cost of sales

 

Employee benefits expense

(2,168)

(3,464)

Consumption of inventories

(3,123)

(2,011)

Total hotel cost of sales

(5,291)

(5,475)

 

22           Manufacturing cost of sales

 

Employee benefits expense

(755)

(841)

Consumption of inventories

(6,866)

(782)

Total hotel cost of sales

(7,621)

(1,623)

 

23           Operating and administrative expenses




Audit fees

(1,018)

(1,010)

Consultancy and due diligence costs

(211)

(1,080)

Exchange losses

(271)

(3)

Depreciation on property, plant and equipment - Note 27

(1,803)

(1,858)

Impairment loss on property, plant and equipment - Note 27

(150)

(88)

Impairment loss on intangible assets - Note 28

-

(333)

Amortisation of intangible assets - Note 28

(589)

(769)

Impairment loss on insurance receivables

(254)

(571)

Impairment loss on trade receivables

(519)

(351)

Directors' remuneration - Note 49

(1,057)

(2,138)

Staff costs

(24,943)

(30,953)

Other administration expenses

(16,411)

(23,523)

Total operating expenses

(47,226)

(62,677)

 

Staff costs and directors remuneration include share option expense amounting to $393,000 (2015: $98,000).




Short term staff costs

(23,581)

(28,014)

Short term staff costs in hotel cost of sales - Note 21

(2,168)

(3,464)

Short term staff costs in manufacturing cost of sales  - Note 22

(755)

(841)

Total short term staff costs

(26,504)

(32,319)

Long term staff costs (defined contribution plan)

(1,322)

(1,335)

Termination costs

(40)

(1,604)

Total staff costs

(27,866)

(35,258)

 

Short term staff costs include salaries and wages, long term staff costs include pension and social security costs and termination costs related to retrenchment.

 

                During the year the Group obtained the following services from the company auditors and its investee companies.





2016

2015


US$ '000

US$ '000




Fees payable to company's auditors and its associates for the audit of parent company and consolidated financial statements

376

325

Fees payable to company's auditors and its associates for other services:



The audit of company's subsidiaries

578

646

Audit-related assurance services

-

-

Other services

64

39

Total

1,018

1,010

 

Operating and administrative expenses include operating lease rentals of $1.5 million (2015: $1.6 million). There were no contingent rentals incurred during the year (2015: Nil). Contingent rentals are determined as a percentage of revenue, however the revenue levels that trigger contingent rentals were not met. The minimum lease payments for rental agreements that have contingent rent clauses amounted to $0.37 million (2015: $0.41 million).

 

24           Finance costs

 

Current borrowings:



Interest expense on bank loans

(1,428)

(1,008)

Interest expense on non-bank loans

-

(274)

Interest expense on deferred consideration payable to Minet Group

-

(71)

Non-current borrowings:



Interest expense on non-bank loans

(1,167)

(664)

Interest expense on bank loans

(1,271)

(603)

Total finance costs

(3,866)

(2,620)

 

25           Income taxes

 

The major components of income tax expense for the years ended 31 December 2016 and 31 December 2015 are shown below.

 

25.1       Income tax expense




Current tax expense           

(2,845)

(2,697)

Deferred income tax

(291)

112

Income tax expense reported in statement of comprehensive income

(3,136)

(2,585)

 

A reconciliation between tax expense and the product of accounting profit or loss multiplied by the Jersey's tax rate of 0% for the year ended 31 December 2016 (2015: 0%) is as follows:

 


2016

2015


US$ '000

US$ '000

Profit/(loss) before tax

3,720

(2,072)

Tax at a standard rate of 0% (2015: 0%)

-

-

Effect of higher tax rates in Zimbabwe

(1,752)

(1,703)

Effect of higher tax rates in Botswana and Uganda

(1,317)

(1,257)

Other adjustments

(67)

375

Income tax expense

(3,136)

(2,585)

 

Other adjustments on the tax reconciliation relate to items such as withholdings tax, utilisation of previously unrecognised tax losses, tax adjustments relating to the previous years and differences arising from movements in unrealised (gains)/ losses.

 

25.2       Deferred tax asset


2016

2015


 US$ '000

US$ '000

Deferred tax asset resulted from the following:



Fair value loss relating to deferred acquisition costs

640

640

Fair value adjustments on investment in associates

440

440

Total

1,080

1,080

 

Reconciliation of deferred tax asset



At 1 January

1,080

1,080

Deferred tax charge

-

-

At 31 December

1,080

1,080

 

25.3      Deferred tax liability




Deferred tax liability resulted from the following:



Revaluations of investment properties to fair value

2,066

1,414

Revaluations of property, plant and equipment to fair value

4,198

3,069

Provisions and other temporary differences

932

3,035

Intangible assets

84

471

Total

7,280

7,989




 Reconciliation of deferred tax liability



 At 1 January

7,989

7,506

 Acquisition of subsidiary - Note 8

-

500

Transfer to disposal group held for sale

(324)

-

 Recognised in profit or loss

291

(112)

 Effects of exchange rates

(676)

95

 At 31 December

7,280

7,989

 

25.4       Recovery of deferred tax assets and liabilities

 

                The Group expects to realise its deferred tax assets and liabilities over the following time period.

 


2016

2015


US$ '000

US$ '000

Deferred tax asset



More than 12 months after the reporting date

1,080

1,080

Deferred tax liability



Within 12 months of the reporting date

932

3,035

More than 12 months after the reporting date

6,348

4,954

Total

7,280

7,989

 

 

26           Earnings per share

 

Basic earnings per share amounts are calculated by dividing profit or loss for the year attributable to owners of the parent by the weighted average number of ordinary shares outstanding during the year.

 

Diluted earnings per share amounts are calculated by dividing the profit or loss attributable to owners of the parent by the weighted average number of ordinary shares outstanding during the year plus the weighted average number of ordinary shares that would be issued on conversion of all the dilutive potential ordinary shares into ordinary shares.

 

The following reflects the income and share data used in the basic and diluted earnings per share computations:

 


2016

2015


 US$ '000

US$ '000




Loss attributable to owners of the parent for basic earnings and diluted earnings

 

(699)

 

(5,636)





2016

2015


'000

'000




Weighted average number of ordinary shares for basic earnings per share

123,697

123,187

Effect of dilution: share warrants

1,403

1,122

Weighted average number of ordinary shares for diluted earnings per share

125,100

124,309





2016

2015


US$

US$

 

Basic and diluted loss for the year attributable to owners of the parent (cents)

(0.6 cents)

(5 cents)

 

There were no other transactions involving ordinary shares or potential ordinary shares between the reporting date and the date of completion of these financial statements.

 

Share warrants are in relation to the $8.8 million (2015: $11 million) debt included in financial liabilities in Note 40.1. The share warrants give the debt investors the option but not the obligation to subscribe for, in aggregate, 1,402,500 shares in Masawara Plc at a strike price of £0.01.

               

27           Property, plant and equipment

 


Freehold land and buildings

Machinery and vehicles

Furniture, fittings and other

Capital work in progress

Total


US$ '000

US$ '000

US$ '000

US$ '000

US$ '000







At 31 December 2016






Opening net book value

29,041

3,039

3,400

23

35,503

Additions

75

554

509

-

1,138

Disposals

(229)

(76)

(27)

-

(332)

Depreciation

(520)

(700)

(583)

-

(1,803)

Transfers to investment property

 

(432)

 

-

 

-

 

-

 

(432)

Transfers to assets held for sale

 

-

 

(21)

 

(104)

 

-

 

(125)

Transfers

23

-

-

(23)

-

Gain on revaluation

66

-

-

-

66

Impairment loss

(4)

(143)

(3)

-

(150)

Exchange rates movements

135

73

75

-

283

Closing net book value

28,155

2,726

3,267

-

34,148

 

At 31 December 2016






Cost/valuation

30,676

5,053

4,185

-

39,914

Accumulated depreciation and impairment

 

(2,521)

 

(2,327)

 

(918)

 

-

 

(5,766)

Closing net book value

28,155

2,726

3,267

-

34,148

 

At 31 December 2015






Opening net book value

23,789

2,392

3,016

779

29,976

Acquisition of subsidiary  - Note 8

 

5,076

 

1,436

 

44

 

-

 

6,556

Additions

631

768

1,200

-

  2 599

Disposals

-

(580)

(207)

-

(787)

Depreciation

(457)

(778)

(623)

-

(1 858)

Transfers

756

-

-

(756)

-

Loss on revaluation

(654)

(137)

-

-

(791)

Impairment loss

(36)

(52)

-

-

(88)

Exchange rates movements

(64)

(10)

(30)

-

(104)

Closing net book value

29,041

3,039

3,400

23

35,503

 

At 31 December 2015






Cost/valuation

30,637

4,596

4,260

23

39,516

Accumulated depreciation and impairment

 

(1,596)

 

(1,557)

 

(860)

 

-

 

(4,013)

Closing net book value

29,041

3,039

3,400

23

35,503

 

Fair values of freehold land and buildings

 

The revaluation of freehold land and buildings for the year ended 31 December 2016 was carried out by independent professional valuers (Bard Real Estate (Private) Limited and Dawn Property Consultancy (Private) Limited). The gain on revaluation net of applicable deferred income taxes was credited to the revaluation reserve.

 

The freehold land and buildings valuations were based on market values which are defined as the estimated amount for which, a property would be exchanged between knowledgeable, and willing parties in an arm's length transaction.

 

In determining the open market value estimates, comparable market evidence was considered. Refer to Note 6.1.1 for more details on the valuation of property. No borrowing costs were capitalised to property, plant and equipment for the years ended 31 December 2016 and 31 December 2015. If land and buildings were stated on a historical cost basis, the amounts would be as follows:


2016

2015


US$ '000

US$ '000




Cost

12,300

12,454

Accumulated depreciation

(1,379)

(1,174)

At 31 December

10,921

11,280

 

Breakdown of freehold land and buildings

 

Hotel properties:



Cresta Lodge - Mutare Road, Harare, Zimbabwe *

9,975

10,219

Cresta Oasis - Nelson Mandela Avenue (CBD), Harare, Zimbabwe

5,667

5,741

Residential properties:



Burnside suburb, Bulawayo, Zimbabwe

110

110

Belmont flat, Harare, Zimbabwe

-

29

Sable Chemicals, Kwekwe

5,245

5,694

Commercial properties - Offices:



Gaborone Business Park, Botswana

2,753

2,927

Zimnat House - Nelson Mandela Avenue (CBD), Harare, Zimbabwe

4,200

4,116

Number 134 George Silundika Street, Bulawayo, Zimbabwe

205

205

Total

28,155

29,041

 

* The Cresta Lodge, Mutare Road, was used as security for bank loan amounting to $4.6 million (2015: $3.8 million) (Note 40.1). For fair value hierarchy disclosures refer to Note 50.2.

 

28           Intangible assets

 

                               


Software

Customer list

Brands

Total

 


US$ '000

US$ '000

US$ '000

US$ '000

 

At 31 December 2016





 

Opening net book value

599

178

2,883

3,660

 

Additions

150

-

-

150

 

Amortisation

(247)

(20)

(322)

(589)

 

Transfer to disposal group held for sale

 

(4)

 

-

 

-

 

(4)

 

Effects of exchange rate movements

 

-

 

7

 

-

 

7

 

At 31 December 2016

498

165

2,561

3,224

 

Cost/valuation

1,544

182

3,289

5,015

Accumulated amortization and impairment

 

(1,046)

 

(17)

 

(728)

 

(1,791)

Closing net book value

498

165

2,561

3,224

 

At 31 December 2015





Opening net book value

1,204

182

3,289

4675

Additions

190

-

-

190

Amortisation

(341)

(22)

(406)

(769)

Impairment

(333)

-

-

(333)

Effects of exchange rate movements

 

(121)

 

18

 

-

 

(103)

At 31 December 2015

599

178

2,883

3,660






Cost/valuation

1,394

182

3,289

4,865

Accumulated amortization and impairment

 

(795)

 

(4)

 

(406)

 

(1,205)

Closing net book value

599

178

2,883

3,660

 

Brands include the Cresta South Africa Limited brand, Botswana Insurance Company Limited brand and the Lion Assurance Company Limited brand that were recognized when Masawara Plc assumed control over TA Holdings Limited in 2014. The initial fair value of the brands was determined by Brand Finance Africa (Proprietary) Limited.

 

The remaining useful life for the brands are as follows;

·      Insurance brands: 4 years

·      Hotel brands:                          14 years

 

The impairment loss on software recognised in 2015 related to the write off of the Agillis system by Zimnat Lion Insurance Company ("Zimnat Lion") during that year. The write off was necessitated by the failure to implement the system successfully. The likelihood of future economic benefits flowing to Zimnat Lion due to the use of Agillis was remote, therefore its value in use was $nil and Agillis system was fully written off. The impairment loss was included in operating and administrative expenses.

 

There are no intangibles that are pledged as security.

 

29                Investment properties

                                                                                                                                                                 


2016

2015


US$ '000

US$ '000




At 1 January

46,832

46,685

Additions

3,450

160

Disposals

-

(50)

Fair value adjustment

(644)

104

Transfer from property, plant and equipment

432

-

Effects of exchange rate movements

(178)

(67)

At 31 December

49,892

46,832




The total property expenses, $2.0 million (2015: $1.8 million), disclosed on the face of the statement of comprehensive income are made up of direct operating expenses that generated rental income, $0.66 million (2015: $0.96 million) and direct operating expenses that did not generate rental income, $1.3 million (2015: $0.84 million) detailed as follows:

 


2016

2015


US$ '000

US$ '000

Group's share of:



Rental income derived from investment properties

3,168

3,019

Direct operating expenses (including repair and maintenance) generating rental income during the year

(664)

(955)

Direct operating expenses (including repair and maintenance) that did not generate rental income during the year

(1,328)

(838)

Profit arising from investment properties at fair value (excluding fair value adjustments, finance costs and finance income)

1,176

1,226

 

The following table shows the Group's largest investment property Joina City's fair value, insurance value and the gross replacement cost at 31 December 2016 and 31 December 2015.

 


Fair value

Gross replacement cost

Insured value

2016

US$ '000

US$ '000

US$ '000





Value of the whole property

55,000

90,332

106,164

Masawara's share of the value

31,521

51,769

60,843

 


Fair value

Gross replacement cost

Insured value

2015

US$ '000

US$ '000

US$ '000





Value of the whole property

56,000

90,332

102,564

Masawara's share of the value

32,094

51,769

58,779

 

 

Breakdown of investment properties                                                                            


2016

2015


US$ '000

US$ '000

Commercial - Offices:



Commercial building - Joina City, Jason Moyo, Julius Nyerere, Harare, Zimbabwe

31,521

32,094

Commercial building - Zimnat Plaza, Kwame Nkrumah, Harare, Zimbabwe

8,200

8,200

Commercial building - Gweru, Zimbabwe

410

410

Commercial building - Elsworth, Zimbabwe

-

430

Commercial property - 72 Birmingham Road, Harare, Zimbabwe

2,400

2,400

Supermarket - 99 Harare Street, Harare, Zimbabwe

810

810

Supermarket - Riverside Mall, Harare, Zimbabwe

3,450

-

Residential:



Makuti House, Nyanga, Zimbabwe

250

250

Northern suburbs, Harare, Zimbabwe

1,555

1,320

Phakalane, Gaborone, Botswana

378

388

Broadhurst, Gaborone, Botswana

388

-

Industrial:



Warehouses - Msasa, Harare

530

530

Total

49,892

46,832

 

The investment property, Commercial building - Joina City, Jason Moyo, Julius Nyerere, Harare, is the Group's share of 57.31% joint ownership in Joina City. This is held through Dubury Investments (Private) Limited (a subsidiary of Masawara Zimbabwe (Private) Limited) which owns 57.31% of Joina City.  

 

The Group has contractual obligations for on-going repairs, maintenance and enhancements, which are then recoverable from tenants as part of the service levy charge. As it is a recently constructed building, the Group is responsible for repairs arising out of any identified latent defects from the construction of the building.

 

Valuation of investment properties

Fair valuations of investment properties have been carried out by independent professional valuers, Dawn Property Consultancy (Private) Limited and Bard Real Estate (Private) Limited. The valuers are registered with the Real Estate Institute of Zimbabwe and have recent experience in the location and category of investment property held by the Group.

 

The property market is highly segmented into different sectors i.e. industrial, residential and commercial property markets. There is further segregation on a geographical basis with some locations attracting a higher demand than others. Property may also be acquired for speculative, investment or owner occupation purposes. Although the different property markets may be difficult to distinguish, each market tends to have characteristics peculiar to it.

                               

This results in sharp differences in the values of the different properties based on type, location and demand for the particular property. The property valuations were carried out on the following basis:

 

The implicit investment approach was applied on the commercial properties, which is based on the principle that rentals and capital values are inter-related. Hence given income produced by a property, its capital value can be estimated. Comparable rentals inferred from other commercial properties within the locality of the properties based on use, location, size and quality of finishes were also used.

 

The residential property and industrial property valuations were based on market values, which were defined as the estimated amount for which a property could be exchanged between knowledgeable, willing parties in an arm's length transaction. In determining the open market value estimates of the properties, comparable market evidence was considered. This comprised of current prices in active markets for similar properties in a similar location and condition and transactions where offers had been made but the transaction had not been finalized. Professional judgement was used to adjust the market evidence.

 

There are significant uncertainties in the market and the growth assumptions in the valuation model are made on the basis of a recovery in the market.     

 

The following is a disclosure of the significant assumptions made relating to the valuation of investment properties. This disclosure relates to only investment properties classified in level 3 fair value hierarchy i.e. the commercial properties. Due to the fact that Joina City makes up a significant portion of the total investment property balance and also due to its uniqueness in comparison to the other investment properties the significant assumptions used in determining its fair value have been shown separately. 


2016

2015

Joina City



Yield (market based adjusted for Joina City conditions)

7.75%

7.5%

Occupancy

100%

100%

Estimated average retail space value (market rent) per sqm per month in Year 1

$13

$11

Estimated office space value (market rent) per sqm per month in Year 1

$10

$10

Estimated parking value (market rent) per bay per month in Year 1

$10

$50

Advertising revenue per month

$15,000

$37,000

 


2016

2015

Other investment properties



Estimated market rentals per sqm per month

$3-$10

$3-$10

Yield (market based)

9%-11%

9%-11%

Voids rate

0%-10%

0%-10%

 

Sensitivity analysis

The valuation of investment properties gives the highest and best value of the investment properties at 31 December 2016 as the current use of the properties represents the best use for the properties.

 

A sensitivity analysis has only been done for the three largest investment properties by value i.e. Joina City, Zimnat Mall and Birmingham commercial property.

 

The following table presents the sensitivity of the Group's share of the market based valuation of the Joina City to changes in the most significant assumptions underlying the valuation of the investment property.

 

Increase/(decrease) in valuation


2016

2015


US$ '000

US$ '000




Increase in the yield by 100 basis points

(3,673)

(7,000)

Decrease in the yield by 100 basis points

4,578

8,000

Impact of maintaining occupancy at current 53% (2015: 62%) - no reduction in voids

(14,857)

(8,000)

 

The following table presents the sensitivity of the Group's market-based valuation of the other investment properties to changes in the most significant assumptions underlying the valuation of the investment property.  The sensitivity analysis for the other three significant properties is as below:


2016

2015


US$ '000

US$ '000

Other investment properties:



Zimnat Plaza



Increase in capitalization rate by 1 basis point

(794)

(794)

Decrease in capitalization rate by 1 basis point

852

852

Void rate of 20%

(959)

(959)

Void rate at 0%

852

852

Increase in rent rates by 10%

761

761

Decrease in rent rates by 10%

(868)

(868)

Birmingham



Increase in capitalization rate by 1 basis point

(364)

(364)

Decrease in capitalization rate by 1 basis point

89

89

Void rate of 10%

(384)

(384)

Increase in rent rates by 10%

64

64

Decrease in rent rates by 10%

(384)

(384)

Riverside Mall



Increase in capitalization rate by 1 basis point

(345)

-

Decrease in capitalization rate by 1 basis point

449

-

Void rate of 10%

(345)

-

Increase in rent rates by 10%

345

-

Decrease in rent rates by 10%

(345)

-

 

For fair value hierarchy disclosures, refer to Note 50.2

 

30           Investment in associates and joint ventures

               


2016

2015

             

US$ '000

US$ '000




Investment in associates - Note 30.1

14,426

12,216

Investment in joint ventures - Note 30.2

963

Total

15,389

 

Share of profit of other associates and joint venture that is disclosed on the face of the statement of comprehensive income is broken down as follows:

 

Zimbabwe Fertilizer Company Limited - Note 30.1.1

96

77

Cresta Marakanelo Limited - Note 30.1.2

1,304

1,155

Continental Reinsurance Company Limited - Note 30.1.3

101

236

Alexington Investments (Private) Limited

586

377

Other associates

120

41

Total

2,207

1,886

 

Investments in iWayAfrica Zimbabwe (Private) Limited and Sovereign Health Zimbabwe Private Limited are not disclosed separately and are classified as other associates.

 

30.1       Investment in associates

 

The following shows a summary of the composition of the carrying amount of the Group's investment in associates.


2016

2015

             

US$ '000

US$ '000




Zimbabwe Fertiliser Company Limited - Note 30.1.1

4,294

3,580

Cresta Marakanelo Limited - Note 30.1.2

6,453

5,306

Continental Reinsurance Company Limited - Note 30.1.3

2,828

2,600

Other associates

851

730

At 31 December

14,426

12,216

 

Investment in other associates includes the Group's interest in iWayAfrica Zimbabwe (Private) Limited amounting to $282,000 and investment in Sovereign Health Zimbabwe Limited amounting to $569,000. There are no further disclosures for other associates because they are not material to the Group.

 

30.1.1     Investment in Zimbabwe Fertiliser Company Limited ("ZFC")

 

The Group has a 22.5% (2015: 22.5%) interest in ZFC, a manufacturer and distributer of agrochemicals in Zimbabwe.

 

The following is a reconciliation of the Group's interest in ZFC:

 


2016

US$ '000

2015

US$ '000




At 1 January

3,580

3,629

Acquisition of subsidiary

-

-

Share of profit of associate

96

77

Share of other comprehensive income of associate

618

-

Dividends received

-

(126)

At 31 December

4,294

3,580

 

ZFC's total comprehensive profit for the year ended 31 December 2016 amounted to $3.2 million (2015: $0.3 million).

 

Other ZFC financial information for the year ended 31 December 2016 has been summarised in Note 30.1.4.

 

30.1.2     Investment in Cresta Marakanelo Limited ("Cresta Marakanelo")

 

The Group has a 35% (2015: 35%) interest in Cresta Marakanelo, a company which is incorporated in Botswana that provides hotel management services in Botswana and Zambia.

 

The following is a reconciliation of the Group's interest in Cresta Marakanelo:

 


2016

US$ '000

2015

US$ '000




At 1 January

5,306

6,460

Acquisition of subsidiary

-

-

Share of profit of associate

1,304

1,155

Dividends received

(981)

(404)

Effects of exchange rate movements

824

(1,905)

At 31 December

6,453

5,306

 

Cresta Marakanelo's total comprehensive income after tax for the year ended 31 December 2016 amounted to $3.7 million (2015: $2.9 million). Other Cresta Marakanelo financial information for the year ended 31 December 2016 has been summarised in Note 30.1.4.

 

30.1.3     Investment in Continental Reinsurance Company Limited (Botswana) ("Continental Re")

 

The Group has a 40% (2015: 40%) interest in Continental Re, a company which is incorporated in Botswana that provides treaty and facultative reinsurance for life assurance and short-term insurance companies in Southern Africa. The following is a reconciliation of the Group's interest in Continental Re:

 


2016

US$ '000

2015

US$ '000




At 1 January

2,600

2,890

Acquisition of subsidiary

-

-

Share of profit of associate

101

236

Effects of exchange rate movements

127

(526)

At 31 December

2,828

2,600

 

Continental Re's total comprehensive income after tax for the year ended 31 December 2016 was $0.25 million (2015: $0.59 million). Other Continental Re's financial information for the year ended 31 December 2016 has been summarised in Note 30.1.4.

 

30.1.4     Summarised financial information of associates

 


Revenue

 

US$ '000

Profit/(loss) after tax

US$ '000

Non-current assets

US$ '000

Current Assets

US$ '000

Non-current liabilities

US$ '000

Current Liabilities

US$ '000








Zimbabwe Fertilizer Company Limited












2016

46,015

427

16,012

20,932

3,029

14,573

2015

61,383

343

13,334

28,276

2,855

22,586

 

Cresta Marakanelo Limited













2016

31,051

3,725

15,779

8,401

3,113

4,122

2015

32,046

2,683

14,356

7,778

3,923

3,491








Continental Reinsurance Company Limited












2016

8,993

253

179

14,637

1,980

6,771

2015

6,120

591

244

11,707

2,826

3,630

 

Reconciliation of summarised financial information to carrying value of associates

 

 

 

 


ZFC

US$'000

Cresta Marakanelo

US$'000

Continental Reinsurance

US$'000

2016





Net assets at 31 December 2016


19,342

16,945

6,065

Interest in associate


22.5%

35%

40%

Share of net assets


4,352

5,931

2,426

Goodwill


-

3,456

-

Business combination adjustment

(58)

(2,934)

402

Carrying amount at 31 December 2016

4,294

6,453

2,828

 

 

 

 

 


ZFC

US$'000

Cresta Marakanelo

US$'000

Continental Reinsurance

US$'000

2015





Net assets at 31 December 2015


16,169

14,720

5,495

Interest in associate


22.5%

35%

40%

Share of net assets


3,638

5,152

2,198

Goodwill


-

3,087

-

Business combination adjustment

(58)

(2,934)</