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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| Masawara | LSE:MASA | London | Ordinary Share | JE00B42XFD25 | ORD USD0.01 |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 0.00 | 0.00% | 24.00 | 23.00 | 25.00 | 0.00 | 01:00:00 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| 0 | 0 | N/A | 0 |
From May 2019 to May 2024
TIDMMASA
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 $12.5 million impairment of the Telerix loan notes in 2015.
Group's performance by segment
Masawara Plc, classifies the Group's business units into different clusters i.e. insurance, hotels, agrochemicals, property (Joina City) and technology for the purpose of monitoring the operating results of business units and resource allocation to business units. The following shows the Group's performance by segment.
Insurance
All the insurance companies except for LAC registered a growth in gross written premium when compared to the prior year. And all companies achieved underwriting profits for the year.
Hot Features
Premium
Profit after tax US$'000 US$'000
2016 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 BWP'000 Growth/ (Decline)
2016 2015
------------------------------------ -------- -------- ------------------
Botswana Insurance Company Limited 14,193 31,525 (55%)
Profit after tax UGX'000 UGX'000 Growth
2016 2015
--------------------------------- ---------- ---------- -------
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 US$'000
2016 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 BWP'000 Growth
2016 2015
------------------------------------------------- -------- -------- -------
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 RevPAR
2016 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 Occupancy Debtors Debtors Payments Payments
2016 2015 as % of as % of to shareholders to shareholders
revenue revenue 2016 2015
2016 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.
INDEPENT 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
---------------------- ----------------------------------------------------------------------------- ---------------------------
Equity
attributable
Share Share Treasury Group Other Non Revaluation Retained to Non-Controlling Total
Capital Premium Shares Restructuring Reserves Distributable Reserve Earnings owners Interest Equity
Reserve Reserves of parent (NCI)
Note Note Note
Note 37 37 37 Note 38 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
---------------------- ----------------------------------------------------------------------------- --------------------------
Equity
attributable
Share Share Treasury Group Other Non Revaluation Retained to Non-Controlling Total
Capital Premium Shares Restructuring Reserves Distributable Reserve Earnings owners Interest Equity
Reserve Reserves of parent (NCI)
Note Note Note
Note 37 37 37 Note 38 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 YEARED 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 Executive summary
date
---------------------------- ---------- -----------------------------------------------
Amendments to IFRS 1 January The amendments clarify the application
10, 'Consolidated 2016 of the consolidation exception for investment
financial statements' entities and their subsidiaries.
and IAS 28,'Investments
in associates and
joint ventures' on
applying the consolidation
exemption
---------------------------- ---------- -----------------------------------------------
Amendment to IFRS 1 January This amendment adds new guidance on
11, 'Joint arrangements' 2016 how to account for the acquisition of
on acquisition of an interest in a joint operation that
an interest in a constitutes a business. The amendments
joint operation. specify the appropriate accounting treatment
for such acquisitions.
---------------------------- ---------- -----------------------------------------------
IFRS 14 - Regulatory 1 January The IASB has issued IFRS 14, 'Regulatory
deferral accounts 2016 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 January In December 2014 the IASB issued amendments
1,'Presentation of 2016 to clarify guidance in IAS 1 on materiality
financial statements' and aggregation, the presentation of
disclosure initiative subtotals, the structure of financial
statements and the disclosure of accounting
policies.
---------------------------- ---------- -----------------------------------------------
Amendment to IAS 1 January In this amendment the IASB has clarified
16, 2016 that the use of revenue based methods
'Property, plant to calculate the depreciation of an
and equipment' and asset is not appropriate because revenue
IAS 38,'Intangible generated by an activity that includes
assets', the use of an asset generally reflects
on depreciation and factors other than the consumption of
amortisation. 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 1 January In this amendment to IAS 16 the IASB
16, 'Property, plant 2016 has scoped in bearer plants, but not
and equipment' and the produce on bearer plants and explained
IAS 41, 'Agriculture' that a bearer plant not yet in the location
on bearer plants 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 1 January In this amendment the IASB has restored
27, 'Separate financial 2016 the option to use the equity method
statements' on equity to account for investments in subsidiaries,
accounting 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 Summary of changes
date
------------------------------ ------------------ -------------------------------------------------------------
Amendment to IAS Annual periods The amendment was issued to clarify
12 - Income taxes beginning the requirements for recognising deferred
on or after tax assets on unrealised losses. The
Recognition of deferred 1 January amendment clarifies the accounting
tax assets for unrealised 2017 for deferred tax where an asset is
losses. 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 Annual periods In January 2016, the International
7 - Cash flow statements beginning Accounting Standards Board (IASB) issued
on or after an amendment to IAS 7 introducing an
Statement of cash 1 January additional disclosure that will enable
flows on disclosure 2017 users of financial statements to evaluate
initiative 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 Annual periods This amendment clarifies the measurement
2 - 'Share-based beginning basis for cash-settled, share-based
payments' on or after payments and the accounting for modifications
1 January that change an award from cash-settled
Clarifying how to 2018 to equity-settled. It also introduces
account for certain an exception to the principles in IFRS
types of share-based 2 that will require an award to be
payment transactions. 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 Annual periods The FASB and IASB issued their long
from contracts with beginning awaited converged standard on revenue
customers. on or after recognition on 29 May 2014. It is a
1 January single, comprehensive revenue recognition
2018 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 Annual periods The IASB has amended IFRS 15 to clarify
15 - Revenue from beginning the guidance, but there were no major
contracts with customers. on or after changes to the standard itself. The
1 January amendments comprise clarifications
2018 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 Annual periods This IFRS is part of the IASB's project
Instruments (2009 beginning to replace IAS 39. IFRS 9 addresses
&2010) on or after classification and measurement of financial
1 January assets and replaces the multiple classification
2018 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 Annual periods The IASB has amended IFRS 9 to align
9 -'Financial instruments', beginning hedge accounting more closely with
on or after an entity's risk management. The revised
1 January standard also establishes a more principles-based
2018 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 This standard replaces the current
beginning guidance in IAS 17 and is a far reaching
on or after change in accounting by lessees in
1 January particular.
2019 - earlier
application Under IAS 17, lessees were required
permitted to make a distinction between a finance
if IFRS 15 lease (on balance sheet) and an operating
is also applied. 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 Annual periods These amendments introduce two approaches:
contracts' beginning an overlay approach and a deferral
on or after approach. The amended standard will:
Regarding the implementation 1 January * Give all companies that issue insurance contracts the
of IFRS 9, 'Financial 2018 option to recognise in other comprehensive income,
instruments' 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 Annual periods These amendments clarify that to transfer
property' beginning to, or from, investment properties
on or after there must be a change in use. To conclude
Transfers of investment 1 January if a property has changed use there
property 2018 should be an assessment of whether
the property meets the definition.
This change must be supported by evidence.
------------------------------ ------------------ -------------------------------------------------------------
IFRIC 22, 'Foreign Annual periods This IFRIC addresses foreign currency
currency transactions beginning transactions or parts of transactions
and advance consideration on or after where there is consideration that is
1 January denominated or priced in a foreign
2018 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 Annual periods IFRS 17 establishes the principles
Contracts beginning for the recognition, measurement, presentation
on or after and disclosure of insurance contracts
1 January within the scope of the standard. The
2021 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 Annual periods These amendments impact 3 standards:
2014-2016 beginning * IFRS 1,' First-time adoption of IFRS', regarding the
on or after deletion of short term exemptions for first-time
1 January adopters regarding IFRS 7, IAS 19, and IFRS 10
2017 and effective 1 January 2018.
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 Effective The postponement applies to changes
10, 'Consolidated date postponed introduced by the IASB in 2014 through
financial statements' (initially narrow-scope amendments to IFRS 10
and IAS 28,'Investments 1 January 'Consolidated Financial Statements'
in associates and 2016) and IAS 28 'Investments in Associates
joint ventures' on and Joint Ventures'. Those changes
sale or contribution affect how an entity should determine
of assets 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 Principal activity
of incorporation
------------------------ ------------------------- ------------------ -------------------
Cresta Zimbabwe (Private) 100% Zimbabwe Hospitality and
Limited 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 Country Principal activity
shareholding of incorporation
-------------------------------- -------------- ------------------ -------------------
Zimnat Life Assurance Company 100% Zimbabwe Life assurer
Limited
Zimnat Lion Insurance Company 100% Zimbabwe Short term insurer
Limited
Grand Reinsurance (Private) 100% Zimbabwe Reinsurer
Limited
Botswana Insurance Company 50% Botswana Short term insurer
Limited
Lion Assurance Company 86% Uganda Short term insurer
Limited
Minerva Risk Advisors (Private) 95% Zimbabwe Insurance broker
Limited
-- Agrochemicals segment which comprises of the Group's investment in Sable Chemical Industries Limited and Zimbabwe Fertilizer Company Limited.
Name of company Effective Country of Principal activity
shareholding incorporation
---------------------------- -------------- --------------- -------------------
Sable Chemical Industries 51% Zimbabwe Manufacturer of
Limited fertilizer
Zimbabwe Fertilizer Company 22.5% Zimbabwe Manufacturer and
Limited 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 Hotels Insurance Agrochemicals Technology Central IFRS Total
City Adjustments Group
Year ended 31 US$ '000 US$ '000 US$ '000 US$ '000 US$ '000 US$ '000 US$ '000 US$ '000
December 2016
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 Hotels Insurance Agrochemicals Technology Central IFRS Total
City Adjustments Group
Year ended 31 US$ '000 US$ '000 US$ '000 US$ '000 US$ '000 US$ '000 US$ '000 US$ '000
December
2015
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 - 3,522 -
Note 31.5
Gain on disposal of property, plant and 1,047 -
equipment
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 (644) -
- Note 29
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: $11 million) debt included in financial liabilities in Note 40.1. The share warrants give the debt investors the option but not the obligation to subscribe for, in aggregate, 1,402,500 shares in Masawara Plc at a strike price of GBP0.01.
27 Property, plant and equipment
Freehold Machinery Furniture, Capital Total
land and and vehicles fittings work in
buildings and other progress
US$ '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 Insured value
cost
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 Insured value
cost
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 (345) -
point
Decrease in capitalization rate by 1 basis 449 -
point
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 30.2 963 377
--------- ---------
Total 15,389 12,593
--------- ---------
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 $569,000. There are no further disclosures for other associates because they are not material to the Group.
30.1.1 Investment in Zimbabwe Fertiliser Company Limited ("ZFC")
The Group has a 22.5% (2015: 22.5%) interest in ZFC, a manufacturer and distributer of agrochemicals in Zimbabwe.
The following is a reconciliation of the Group's interest in ZFC:
2016 2015
US$ '000 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 618 -
associate
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: $0.3 million).
Other ZFC financial information for the year ended 31 December 2016 has been summarised in Note 30.1.4.
30.1.2 Investment in Cresta Marakanelo Limited ("Cresta Marakanelo")
The Group has a 35% (2015: 35%) interest in Cresta Marakanelo, a company which is incorporated in Botswana that provides hotel management services in Botswana and Zambia.
The following is a reconciliation of the Group's interest in Cresta Marakanelo:
2016 2015
US$ '000 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: $2.9 million). Other Cresta Marakanelo financial information for the year ended 31 December 2016 has been summarised in Note 30.1.4.
30.1.3 Investment in Continental Reinsurance Company Limited (Botswana) ("Continental Re")
The Group has a 40% (2015: 40%) interest in Continental Re, a company which is incorporated in Botswana that provides treaty and facultative reinsurance for life assurance and short-term insurance companies in Southern Africa. The following is a reconciliation of the Group's interest in Continental Re:
2016 2015
US$ '000 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: $0.59 million). Other Continental Re's financial information for the year ended 31 December 2016 has been summarised in Note 30.1.4.
30.1.4 Summarised financial information of associates
Revenue Profit/(loss) Non-current Current Non-current Current
after tax assets Assets liabilities Liabilities
US$ '000 US$ '000 US$ '000 US$ '000 US$ '000 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 Cresta Marakanelo Continental Reinsurance
US$'000 US$'000 US$'000
--------- ------------------ ------------------------
2016
Net assets at 31 December
2016 19,342 16,945 6,065
Interest in associate 22.5% 35% 40%
--------- ------------------ ------------------------
Share of net assets 4,352 5,931 2,426
Goodwill - 3,456 -
Business combination adjustment (58) (2,934) 402
Carrying amount at 31 December
2016 4,294 6,453 2,828
--------- ------------------ ------------------------
ZFC Cresta Marakanelo Continental Reinsurance
US$'000 US$'000 US$'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) 402
Carrying amount at 31 December
2015 3,580 5,305 2,600
--------- ------------------ ------------------------
Cresta Marakanelo business combination adjustment relates to a write down of the equity accounted carrying amount of the investment in Cresta Marakanelo to fair value. The fair value was based on share price of Cresta Marakanelo on 1 December 2014, which was the date when Masawara Plc assumed control of TA Holdings Limited in the 2014 financial year.
30.2 Investment in joint ventures
The following shows a summary of the composition of the carrying amount of the Group's investment in joint ventures.
2016 2015
US$ '000 US$ '000
Alexington Investments (Private) Limited
"Alexington" 963 377
At 31 December 963 377
--------- ---------
No further disclosures relating to Alexington have been included in the financial statements as it is not a significant joint venture.
30.2.1 Investment in Telerix Communications (Private) Limited ("Telerix")
The Group has a 50% (2015: 50%) interest in Telerix, 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.
In accordance with IAS 28 Investment in Associates and Joint Ventures, Masawara Plc discontinued recognizing its share of losses after the investment in Telerix was written off to $nil during the year ended 31 December 2012. Cumulative unrecognised share of losses at 31 December 2016 amounted to $5.45 million (2015: $5.2 million million), which was determined as unrecognized share of losses at the beginning of the year plus current year unrecognised share of losses.
During the year ended 31 December 2013, the Group provided a guarantee to Telerix, limited to $1,465,250 relating to a $2.5 million loan obtained by Telerix's wholly owned subsidiary, Dandemutande Investments (Private) Limited "Dandemutande" from Central African Building Society "CABS". The amount owed by Dandemutande to CABS as at 31 December 2016 was nil (2015: $635,000) and this resulted in the Group reducing its liability relating to the financial guarantee from $365,000 at 31 December 2015 to nil at 31 December 2016.
The $365,000 that is disclosed in the statement of comprehensive income relates to the unwinding of the financial guarantee liability (2015: $295,000).
Merger transaction
In March 2015, Telerix Communications (Private) Limited agreed to merge the business of its subsidiary, Dandemutande Investments (Private) Limited "Dandemutande" with those of iWayAfrica (Private) Limited "iWay" and Africa Online (Private) Limited. Gondwana International Networks (Proprietary) Limited "GIN" is the ultimate parent of iWay and Africa Online and is a leading pan - African technology player with presence in 22 African countries.
The merger proceeded by way of iWay Zimbabwe and Africa Online Zimbabwe selling and transferring selected assets, liabilities and transferring employees to Dandemutande. As consideration, iWay Zimbabwe and Africa Online Zimbabwe were allocated shares constituting 26.75% and 22.75% respectively in Dandemutande. Following the completion of the transaction, Telerix reduced its shareholding in Dandemutande from 100% to 50.5% and GIN owns 49.5% equity interest in Dandemutande.
Despite the fact that Telerix owns 50.5% equity interest in Dandemutande, Telerix does not control Dandemutande because it does not have the power to control Dandemutande's relevant activities. Telerix therefore accounts for its interest in Dandemutande using the equity method.
The merger transaction had the impact of reducing Masawara Plc's effective interest in Dandemutande from 50% to 25.3%.
No further disclosures have been included in the financial statements as Telerix is not a significant joint venture.
31 Financial assets
2016 2015
US$ '000 US$ '000
Loan receivable - Note 31.1 1,810 1,778
Held-to-maturity financial assets- Note
31.2 13,916 22,364
Available-for-sale financial assets -
Note 31.3 - 374
Financial assets at fair value through
profit or loss - Note 31.4 32,029 27,769
Total 47,755 52,285
----------------- -----------------
31.1 Loan and receivable
Masawara Zimbabwe (Private) Limited, through its subsidiary Melville Investments (Private) Limited, holds debentures in Cherryfield Investments (Private) Limited, a co-owner of Joina City. These debentures represent a further interest in Joina City, in addition to the 57.31% share of Joina City which the Group holds through its subsidiary Dubury Investments (Private) Limited.
The debentures are unsecured and began to earn interest at a coupon rate of 2% on 1 January 2013. The debentures had an initial repayment date of February 2016. However, the repayment date was extended to a date when the Joina City building has excess cash reserves to settle any current creditors of the company and capital expenditure. The change in the repayment date to a non fixed date led to a change in the classification of the debentures in prior years from the held to maturity category to loans and receivables.
2016 2015
US$ '000 US$ '000
At 1 January 1,778 1,764
Finance income 32 35
Receipts - (21)
--------- ---------
At 31 December 1,810 1,778
--------- ---------
31.2 Held-to-maturity financial assets
Fixed deposit - Note 31.2.2 1,500 1,500
Debt securities - Note 31.2.3 12,416 20,864
Total held-to-maturity financial assets 13,916 22,364
--------------- ---------------
31.2.1 Loan note
2016 2015
US$ '000 US$ '000
At 1 January - 11,380
New loans granted during the year - 1,136
Impairment loss - (12,516)
At 31 December - -
---------- ---------
During the year ended 31 December 2015 the Group assessed Telerix Communications (Private) Limited's cash flow forecasts, financial and operating position and concluded that Telerix Communications (Private) Limited will not be able to make capital and interest repayments in accordance with the loan note contract.
Masawara Plc fully impaired its $12.5 million loan note investment in Telerix Communications (Private) Limited "Telerix" after the following factors were considered:
-- Financial difficulties as evidenced by the loss incurred by Telerix and the inability to make any interest payments on the Loan Notes during the year.
-- Based on the current budgets, despite the improved performance from the business, the forecast cash flows are less than the initial forecasts and therefore it would take a number of years for Telerix to repay the loan notes. Cash flow forecasts for long periods tend to be less accurate in comparison with cash forecast for relatively shorter periods, resulting in inherent uncertainty around the future cash flows.
An impairment assessment was carried out at 31 December 2016 and the previously identified impairment factors were still in existence at that date. No impairment reversal was accounted for in the Group's financial statements.
Based on the facts highlighted above, no interest income was recognized on the loan notes because it did not meet the recognition criteria relating to recoverability.
31.2.2 Fixed deposit
The Group holds a $1.5 million (2015: $1.5 million) fixed deposit with Afrasia Bank Limited beginning 7 November 2015. The fixed deposit earns interest at a rate of 1.5% per annum, which is payable quarterly.
31.2.3 Debt securities
The Group's investment in fixed interest rate unlisted debt securities amounted to $12.4 million (2015: $20.9 million). The debt securities are held by the Group's insurance companies through placements with various financial institutions. Interest is earned on the debt securities at rates ranging from 4% to 10% per annum.
31.3 Available for sale financial assets
2016 2015
US$ '000 US$ '000
Debt securities
- Unlisted (Uganda government bonds) - 374
------------------ -----------------
Total available for sale financial assets - 374
------------------ -----------------
31.4 Financial assets at fair value through profit or loss
Equity securities
- Listed 27,824 23,552
- Unlisted 4,205 4,217
--------------- ---------------
Total financial assets at fair value through
profit or loss 32,029 27,769
--------------- ---------------
31.5 Financial assets movement
The movement in the Group's financial assets is summarized in the table below by measurement category:
Held to Available Fair value Total
maturity for sale through
and loan profit or
receivable loss
US$ '000 US$ '000 US$ '000 US$ '000
At 1 January 2016 24,142 374 27,769 52,285
Additions 13,227 908 9,384 23,519
Disposals (maturities and sales) (20,116) (387) (7,133) (27,636)
Fair value (loss)/gains - (16) 3,522 3,506
Finance income 1,542 - - 1,542
Transfer to disposal group
held for sale (2,971) (841) (1,501) (5,313)
Effects of exchange rate movements (98) (38) (12) (148)
---------- ---------- ----------- ---------
At 31 December 2016 15,726 - 32,029 47,755
---------- ---------- ----------- ---------
At 1 January 2015 24,239 817 34,199 59,255
Additions 24,712 617 7,803 33,132
Disposals (maturities and sales) (14,623) (1,094) (10,096) (25,813)
Repayments (21) - - (21)
Fair value loss - (14) (731) (745)
Finance income 1,122 - - 1,122
Impairment loss (12,516) - - (12,516)
Business combination - Note
8 - - 2 2
TA Holdings acquisition accounting
adjustment 1,270 119 (1,758) (369)
Effects of exchange rate movements (41) (71) (1,650) (1,762)
--------- -------- --------- ---------
At 31 December 2015 24,142 374 27,769 52,285
--------- -------- --------- ---------
TA Holdings acquisition accounting adjustment relates to a correction of the TA Holdings Limited take on balances when Masawara acquired TA Holdings in 2014. This qualified as a re-measurement adjustment as it was effected within one year of the acquisition of TA Holdings.
As at 31 December 2016, no financial assets were subject to offsetting, enforceable master netting arrangements and similar agreements. For fair value hierarchy disclosures, refer to Note 50.1.
32 Inventories
2016 2015
US$ '000 US$ '000
Hotel inventory 223 245
Manufacturing inventory 7,464 13,715
Other consumables 63 39
--------- ---------
Total inventories 7,750 13,999
--------- ---------
33 Insurance receivables
2016 2015
US$ '000 US$ '000
Due from agents, brokers and intermediaries 15,333 14,737
Less: impairment allowance (2,475) (810)
Total insurance receivables 12,858 13,927
--------- ---------
Below is the movement in the provision for impairment.
At 1 January 810 239
Charge for the year 1,842 571
Transfer to disposal group held for (177) -
sale
At 31 December 2,475 810
------ ----
The Group does not hold any collateral as security against potential default by all counterparties. As at 31 December 2016 insurance receivables amounting to $5.1 million (2015: $9.8 million) were fully performing.
As of 31 December 2016, insurance receivables of $7.7 million (2015: $4.1 million) were past due but not impaired. The ageing of these receivables is as follows:
3 - 6 months 6,813 2,060
Over 6 months 913 2,021
------ ------
7,726 4,081
------ ------
As at 31 December 2016, insurance receivables amounting to $2.5 million (2015: $0.8 million) were impaired. The ageing of these receivables is as follows:
Over 6 months 2,475 810
------ ----
2,475 810
------ ----
There are no credit ratings for insurance receivables. The creditworthiness of all counterparties is assessed before transacting with them. There have been some defaults in the past. Most of the defaults were fully recovered and the Group has stopped transacting with counter parties with a history of defaults.
34 Deferred acquisition costs
2016 2015
US$ '000 US$ '000
At 1 January 2,966 -
Current year provision 813 3,255
Transfer to disposal group held for (4) -
sale
Effects of exchange rate movements 66 (289)
Total deferred acquisition costs 3,841 2,966
--------- ---------
35 Trade and other receivables
2016 2015
US$ '000 US$ '000
Gross trade receivables 41,872 49,613
Allowance for credit loses (1,944) (2,856)
--------- ---------
Net trade receivables 39,928 46,757
Prepayments 3,618 1,636
Receivables from related parties 2,152 1,439
Rent and service charge receivables 177 88
Loans to Directors and employees 3,771 2,528
VAT receivables 146 10
Bills receivable 458 270
Other receivables 1,554 2,801
At 31 December 51,804 55,529
--------- ---------
Trade receivables are non-interest bearing and are generally on 30 - 90 day terms. The fair values of trade and other receivables approximate their carrying amounts. The carrying amounts of the financial assets best represent the maximum exposure to credit risk. The Group does not hold any collateral as security against potential default by all counterparties.
Loans receivable from related parties are considered to be fully recoverable although where appropriate, loans and receivables from related parties have been impaired in order to reflect the delay in the timing of repayments. For more details on what procedures the Group implements to cater for the risk of non-recoverability of trade and other receivable balances, refer to Group's credit risk policy included in Note 47.1.
Rent and service charge receivables are non-interest bearing and are typically due within 30 days. Rent and service charge receivables that are in the 60 and over day period are provided for in the financial statements by way of an allowance for credit losses account. Below is a reconciliation of the allowance for credit loss account against the rent and service charge receivables:
2016 2015
US$ '000 US$ '000
At 1 January 253 307
Current year provision 211 23
Bad debts written off (159) (77)
At 31 December 305 253
--------- ---------
Loans to Directors and employees include loans granted to Directors amounting to $818,000 (2015: $874,000) (Note 49). Loans to Directors and employees are charged interest of 6% per annum.
36 Cash resources
2016 2015
US$ '000 US$ '000
Cash at banks and cash on hand 28,165 25,912
Total 28,165 25,912
--------- ---------
Cash at bank earns interest at floating rates based on daily bank deposit rates. Included in cash and cash equivalents are balances with banks. These balances are used for transacting on a daily basis. During the year, the Reserve Bank of Zimbabwe ("RBZ"), through Exchange Control Operational Guide 8 (ECOGAD8), introduced a foreign payments priority list that 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.
37 Share capital and share premium
Authorised shares 2016 2015
US$'000 US$'000
Authorised ordinary shares of $0.01 each 35,000,000 35,000,000
Ordinary shares issued and fully paid
Number of shares US$
At 1 January 2015 123,065,409 1,230,655
Allocation of treasury shares 121,795 1,218
----------------- ----------
At 31 December 2015 123,187,204 1,231,873
Issued ordinary shares 330,733 3,307
Allocation of treasury shares 234,672 2,347
----------------- ----------
At 31 December 2016 123,752,609 1,237,527
----------------- ----------
Share capital and share premium movement
Number of Share premium Treasury
shares Share capital shares Total
US$ '000 US$ '000 US$ '000 US$ '000
Balance at 1 January
2015 123,065,409 1,235 80,110 (333) 81,012
Allocation of treasury
shares 121,795 - (8) 101 93
Balance at 31 December
2015 123,187,204 1,235 80,102 (232) 81,105
Issue of ordinary shares 330,733 3 390 - 393
Allocation of treasury
shares 234,672 - (59) 195 136
------------ -------------- -------------- --------- ---------
Balance at 31 December
2016 123,752,609 1,238 80,433 (37) 81,634
------------ -------------- -------------- --------- ---------
38 Group restructuring reserve
This reserve of $9,283,000 (2015: $9,283,000) arose in the 2010 financial year on consolidation under the pooling of interests method, where the Masawara Group was treated as a continuation of the Masawara Zimbabwe (Private) Limited Group. Share capital together with share premium in the new parent company, Masawara Plc, was $40,466,000, which reflected the cost of the investment in Masawara Zimbabwe (Private) Limited, which equated to the net assets of Masawara Zimbabwe (Private) Limited at the date of reorganization. The difference between the share capital and share premium of the new parent company, Masawara Plc, and the share capital and share premium of the old parent company, Masawara Zimbabwe (Private) Limited, was $9,283,000 which was recorded in the Group Restructuring Reserve.
39 Other reserves
2016 2015
US$ '000 US$ '000
At 1 January (3,999) 35
Share based payment transactions - 98
Exchange differences on translation of foreign
operations 525 (3,584)
Net gain/(loss) on available for sale investments 12 (11)
Adjustment to TA Holdings acquisition accounting
- Note 31.5 - (369)
Reserve transfer - (168)
At 31 December (3,462) (3,999)
--------- ---------
Within other reserves, is a reserve that records share based payment expenses, a reserve that records fair value gains or losses on available for sale investments, a reserve that records exchange rate movements on translation of foreign operations, a reserve that records share of the movements in other reserves of associates and another reserve that records 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.
Share based payment reserve
On 1 October 2012, Masawara Plc granted 8,333,916 share options to Masawara Zimbabwe (Private) Limited ("Masawara Zimbabwe") senior management. The share options granted gave the Masawara Zimbabwe senior management the right to purchase Masawara Plc shares at an exercise price of 50 pence, being the price per share at which shares were placed on admission of Masawara Plc on AIM.
The share options were fully expensed on 19 August 2015. No options have been exercised as the vesting conditions have not been met. Despite the vesting conditions not being met, the share based payment expense was recognized because the vesting conditions were treated as market conditions. The options expire on 19 August 2020.
There were no other share options that were exercised during the year.
Foreign currency translation reserve (FCTR)
Included in other reserves is an accumulated FCTR loss of $2.6 million (31 December 2015: $3.1 million). During the year there was an FCTR gain of $0.5 million (2015: FCTR loss of $3.6 million).
40 Financial liabilities
2016 2015
Non-current financial liabilities US$ '000 US$ '000
Long term bank loans - Note 40.1 11,250 15,450
Debentures payable - Note 40.5 2,663 1,962
Total 13,913 17,412
--------------- ------------------------------
Current financial liabilities
Current portion of long term bank loans -
Note 40.1 3,964 558
Loan payable to non-controlling shareholder
- Note 40.2 6,093 6,073
Deferred consideration payable to Minet Group
- Note 40.3 319 1,057
Short term bank loans and bank overdraft
- Note 40.4 5,960 10,557
Current portion of debentures payable - Note
40.5 1,425 838
Total 17,761 19,083
------- -------
Financial liabilities are stated at amortised cost. The carrying amount of borrowings approximates fair value.
Movements in borrowings per category
40.1 Long term bank loans
2016 2015
US$ '000 US$ '000
At 1 January 16,846 5,300
Additions 5,350 12,395
Repayments (8,676) (1,493)
Finance cost 1,694 644
Total bank loans 15,214 16,846
Less current portion of bank loans (3,964) (1,396)
----------- -----------------------------
Total long term bank loans 11,250 15,450
----------- -----------------------------
The long term bank borrowings comprise the following:
-- Long term loan of $4.6 million (2015: $3.8 million) with an interest rate of 6.5% (2015: 11%), maturing in 2021. The borrowing is secured by a hotel property (Cresta Lodge) included in Note 27. During the year, the borrowing was refinanced resulting in a 4.5% reduction in the interest rate and an extension of the tenure from 2019 to 2021.
-- Long term loan of $6.6 million (2015: $11 million) loan with an interest rate of 10%, maturing in 2018. The borrowing is secured by Masawara Zimbabwe (Private) Limited's shareholding in Melville Investments (Private) Limited and Masawara Holdings Mauritius Limited's shareholdings in TA Holdings Limited, Masawara Investments Mauritius Limited, Masawara Hospitality Mauritius Limited and Masawara Industries Mauritius Limited.
40.2 Loan payable to non-controlling shareholder
2016 2015
US$'000 US$'000
At 1 January 6,073 5,975
Finance cost 120 120
Repayment (100) (22)
--------- ---------
At 31 December 6,093 6,073
--------- ---------
Loan payable to non-controlling shareholder is unsecured, does not have fixed repayment terms and the loan began bearing interest with effect from 1 January 2013 at a rate of 2% per annum.
40.3 Deferred consideration payable to Minet Group
This relates to the amount payable to Minet Group for the acquisition of Minerva Holdings (Private) Limited. Refer to the reconciliation below.
At 1 January 1,057 2,180
Finance cost 62 71
Loan repayment (800) (1,194)
------ --------
Total deferred consideration payable to
Minet Group "Minet" 319 1,057
Less current portion of deferred consideration
payable to Minet (319) (1,057)
------ --------
Non-current portion of deferred consideration
payable to Minet - -
------ --------
40.4 Short term bank loans
2016 2015
US$ '000 US$ '000
At 1 January 10,557 1,416
New loans - cash 10,104 4,371
Acquisition of subsidiary - Note 8 - 5,216
Loan repayment (14,701) (446)
At 31 December 5,960 10,557
-------------------- --------------------
The short term bank borrowings comprise the following:
-- Overdraft facility of $0.81 million (2015: 0.96 million) with an interest rate of 16% plus LIBOR rate. The Group had undrawn borrowing facilities of $0.5 million (2015: $0.1 million) at the reporting date.
-- Short term bank loan of $4 million (2015: $7.1 million) with an interest rate of 15%, maturing in November 2017 and another short term bank loan of $2.5 million (2015: $2.54 million) with an interest rate of 10%, maturing in November 2017.
-- Short term portion of the long term borrowings described in note 40.1 amounting to $2.6 million.
40.5 Debenture payable
2016 2015
US$ '000 US$ '000
At 1 January 2,800 2,800
New loans - cash 2,451 -
Accrued finance costs 447 -
Loan repayment (1,610) -
At 31 December 4,088 2,800
-------------------- --------------------
The debenture payable amounting to $4.1 million (2015: $2.8 million) bears interest at a rate of 10.5% and mature in September 2018. The debenture is secured by a hotel property (Cresta Oasis) included in Note 27.
41 Insurance and investment contract liabilities
41.1 Insurance contract liabilities
2016 2015
US$ '000 US$ '000
Short-term insurance contracts
- Claims reported and loss adjustment
expenses 9,801 14,615
- Claims incurred but not reported 4,129 3,810
- Unearned premium 22,068 24,317
Long-term insurance contracts
- With fixed and guaranteed terms 6,470 6,099
Total insurance contract liabilities,
gross 42,468 48,841
--------- ---------
41.2 Reinsurance assets
Short-term insurance contracts
- Claims reported and loss adjustment
expenses (6,389) (9,299)
- Claims incurred but not reported (3,316) (1,452)
- Unearned premium (7,234) (13,159)
Long term insurance contracts
-With fixed and guaranteed term (274) -
Total reinsurance assets (17,213) (23,910)
--------- ---------
41 Insurance and investment contract liabilities
41.3 Net insurance liabilities
2016 2015
US$ '000 US$ '000
Short-term insurance contracts
- Claims reported and loss adjustment
expenses 3,412 5,316
- Claims incurred but not reported 813 2,358
- Unearned premium 14,834 11,158
Long-term insurance
- With fixed and guaranteed terms 6,196 6,099
Total insurance liabilities, net 25,255 24,931
--------- ---------
41.4 Investment contracts with and without discretionary participation features
At 1 January 33,012 30,372
Movement for the year 6,718 2,640
At 31 December 39,730 33,012
------- -------
$23 million (2015: $17.4 million) related to investment contracts with discretionary participation features and $16.7 million (2015: $15.6 million) related to investment contracts without discretionary participation.
41.5 Insurance contract liabilities movement analysis
At 1 January 48,841 48,441
Transfer to disposal group held for sale (6,251) -
Movement for the year (122) 400
-------- -------
At 31 December 42,468 48,841
-------- -------
42 Deferred income
At 1 January 1,395 1,912
Utilisation of deferred income (5) (268)
Effects of exchange rate movements 45 (249)
------
At 31 December 1,435 1,395
------ ------
43 Insurance payables (amounts payable in direct insurance business)
At 1 January 3,749 2,688
Net movement for the year (773) 1,309
Effects of exchange rate movements 63 (248)
------
At 31 December 3,039 3,749
------ ------
44 Provisions
2016 2015
US$ '000 US$ '000
At 1 January 5,032 1,824
Acquisition of subsidiary - 573
Charge to profit or loss 1,307 5,006
Utilised during the year (4,130) (2,336)
Exchange difference (26) (35)
At 31 December 2,183 5,032
--------- ---------
The following table shows the movements of the Group's provisions by type.
Bonus provision Leave pay Retrenchment
provision provision Total
US$ '000 US$ '000 US$ '000 US$ '000
--------------------------- ---------------- ----------- ------------- ---------
At 1 January 2015 758 1,066 - 1,824
Acquisition of subsidiary 246 327 - 573
Charge to profit or loss 2,385 1,016 1,605 5,006
Utilised during the year (875) (1,461) - (2,336)
Effects of exchange rate
movements (35) - - (35)
---------------- ----------- ------------- ---------
At 31 December 2015 2,479 948 1,605 5,032
Charge to profit or loss 1,086 221 - 1,307
Utilised during the year (2,205) (320) (1,605) (4,130)
Effects of exchange rate
movements (26) - - (26)
At 31 December 2016 1,334 849 - 2,183
---------------- ----------- ------------- ---------
Provisions are expected to be settled within a period of one year from year end.
45 Trade and other payables
2016 2015
US$ '000 US$ '000
Trade payables 19,995 26,212
Amounts due to related parties 123 102
Accrued expenses 8,883 5,377
Value Added Tax payable 14,751 14,855
Guest deposits 621 337
Financial guarantee contract - 365
Other payables 2,454 4,596
------------------ ------------------
At 31 December 46,827 51,844
------------------ ------------------
Included in other payables is $2 million that relates to amounts payable to TA Holdings Limited's previous shareholders for the TA Holdings Limited shares that were acquired by Masawara Plc.
46 Cash generated from operating activities
2016 2015
Note US$ '000 US$ '000
Profit/(loss) before tax 3,720 (2,072)
Adjustments to reconcile profit/(loss)
before tax to net cash flows from operating
activities:
Gain on bargain purchase of Sable Chemicals 8 - (5,206)
Investment income 16 (7,119) (3,499)
Realized and unrealized gains 17.1 (4,569) (192)
Realized and unrealized losses 17.2 1,179 1,494
Unrealized exchange losses 23 271 3
Finance cost 24 3,866 2,620
Depreciation 27 1,803 1,858
Impairment loss on property, plant and
equipment 27 150 88
Amortisation of intangible assets 28 589 769
Impairment loss on intangible assets 28 - 333
Share of profit of associates and joint
ventures 30 (2,207) (1,886)
Unwinding of financial guarantee - Telerix 30.2.1 (365) (295)
Impairment loss on loan notes - Telerix 31.2.1 - 12,516
Share-based payment transaction expense 393 296
Working capital adjustments:
Decrease in inventory 6,249 214
Decrease/(increase) in reinsurance receivables 2,997 (103)
Increase in deferred acquisition costs (877) (3,255)
Increase in insurance receivables (2,777) (5,881)
Decrease/(increase) in trade and other
receivables 5,208 (17,585)
Increase in loans to Directors and employees (1,243) (149)
(Decrease)/increase in insurance contract
liabilities (122) 2,724
Increase/(decrease) in deferred income 40 (268)
(Decrease)/Increase in insurance payables (710) 1,129
Increase in investment contracts 6,718 4,103
(Decrease)/increase in other payables (5,649) 10,570
---------- ---------
Cash generated from /(used in) operating
activities 7,545 (1,674)
---------- ---------
47 Financial risk management
The primary objective of the Group's risk management framework is to protect the Group's shareholders from events that hinder the sustainable achievement of financial performance objectives, including failing to exploit opportunities. Key management recognises the critical importance of having efficient and effective risk management systems in place.
The Group is exposed to financial risk through its financial assets and financial liabilities. The Group's principal financial liabilities comprise bank loans and overdrafts, trade payables, other loans and investment contract liabilities. The main purpose of these financial liabilities is to raise finance for the Group's operations.
The Group has various financial assets such as shares in listed and unlisted entities, trade receivables and cash and short-term deposits, which arise directly from its operations.
The Group's policy is to manage financial risk separately through its operations subject to monitoring by the Group Treasurer and the Investment Committee. The risks arising from policyholder and shareholder financial instruments are similar in nature, as such no distinction has been made in assessing the quantitative effects of the financial risks emanating from these financial instruments.
The policies for managing each of these risks are summarized below:
47.1 Credit risk
Credit risk is the risk that a counterparty will not meet its obligations under a financial instrument or customer contract, leading to financial loss. The Group is exposed to credit risk from its leasing activities, loan receivables, investments in debt securities, insurance policyholder receivables, amounts due from underwriting agencies and brokers, reinsurance assets and from deposits with banks.
For lease receivables, credit risk is minimized by requiring tenants to pay rentals in advance. The credit quality of customers is assessed based on a credit rating scorecard at the time of entering into a lease agreement. Outstanding receivables are regularly monitored and followed up.
The Group's share of outstanding tenants' receivables as at 31 December 2016 was $482,000 (2015: $334,000) of which 23% (2015: 18%) had been owed for 30 days and below. 10% (2015: 6%) of the outstanding tenants' receivables as at 31 December 2016 had been owed for between 30 days and 60 days, 7% (2015: 7%) had been owed for between 60 days and 90 days, and 60% (2015: 69%) had been owed for between 90 days and 120 days. There were no past due but not impaired tenant's receivables at 31 December 2016 (2015: $nil).
With respect to credit risk arising from cash and cash equivalents, debt securities, trade and other receivables and debt securities; the Group's exposure to credit risk arises from default of the counterparty, with a maximum exposure equal to the carrying amount of these instruments at the reporting date, of $95.7 million (2015: $105.6 million).
For cash and cash equivalents, debt securities and loan receivables the Group manages its credit risk by performing a liquidity gap analysis for each counterparty on a quarterly basis. In the event that liquidity gap analysis indicates that the counterparty's default risk is elevated, the investments are moved to a different counterparty. The Group also ensures that there is no concentration of cash and cash equivalents, loan receivables and debt securities.
For insurance policyholder receivables, amounts due from underwriting agencies and brokers and reinsurance assets, the Group assesses the financial position of each counterparty before entering into a transaction. The credit risk is also controlled by implementation of underwriting and reinsurance strategy guidelines. Refer to note 47.7 for more information on how insurance risk is managed.
As of 31 December 2016, trade receivables of $31.62 million (2015: $ 39.16 million) were past due but not impaired. The ageing analysis of these trade receivables is as follows:
2016 2015
US$ US$
Up to 3 months 5,275 11,078
3 to 6 months 6,513 28,084
Over 6 months 19,833 -
------- -------
Total 31,621 39,162
------- -------
As of 31 December 2016, trade receivables of $1.9 million (2015 $2.9 million) were impaired. The ageing analysis of these trade receivables is as follows:
2016 2015
US$'000 US$'000
Up to 3 months - -
3 to 6 months 1,944 2,856
--------- ---------
Total 1,944 2,856
--------- ---------
The Group has no significant concentration of credit risk.
The credit quality of cash at banks can be assessed by reference to external credit ratings (if available) or to historical information about counterparty default rates. The ratings for counterparties with whom bank deposits were held as at 31 December are as follows:
2016 2015
US$ '000 US$ '000
Cash at banks and short-term bank deposits
AAA- 22 -
AA+ - 5,224
AA 4,877 2,724
AA- 1,855 8,993
A+ 401 1,900
A 866 59
A- - 626
BBB+ 4,360 5,379
BBB 10,458 516
BBB- 2,166 -
BB+ 4 148
BB- 5 -
BB 543 -
B 265 -
Unrated (rating not available) 2,034 343
--------- ---------
27,856 25,912
Cash in hand 309 -
Total cash and cash equivalents 28,165 25,912
--------- ---------
Investment Description
grade
AAA- Highest credit quality. The risk factors are extremely
low.
AA+ Very high credit quality. Protection factors are very
AA strong. Adverse changes in business, economic or financial
AA- conditions would increase investment risk although not
significantly.
A+ High credit quality. Protection factors are good. However,
A- risk factors are more variable and greater in periods
of economic stress.
BBB+ Adequate protection factors and considered sufficient
BBB for prudent investment. However, there is considerable
BBB- variability in risk during economic cycles.
BB+ Below investment grade but capacity for timely repayment
BB- exists. Present or prospective financial protection
BB factors fluctuate according to industry conditions or
company fortunes. Overall quality may move up or down
frequently within this category.
B Below investment grade and possessing risk that obligations
will not be met when due. Financial protection factors
will fluctuate widely according to economic cycles,
industry conditions and/or company fortunes.
LD Defaulted on one or more of its obligations, failing
to meet the scheduled principal and/or interest payments
(LD). Defaulted on all obligations, or is likely to
default on all or substantially all scheduled principal
and/or interest payments (DD).
Unrated The financial institutions in this category do not have
ratings. Based on management's experience with these
institutions their financial performance has been stable
and their generally adopt a prudent approach to liquidity
management.
47.2 Liquidity risk
Liquidity risk is the risk that the Group may fail to meet its financial obligations as they fall due. The Group's exposure to liquidity risk relates mainly to borrowings, investment contracts and their liabilities, insurance contracts and their liabilities and trade and other payables.
The Group's approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities as they fall due, without incurring unacceptable losses or risking damage to the Group's reputation. The Group manages liquidity risk by maintaining adequate cash resources and banking facilities and by continuously monitoring forecast and actual cash flows.
The table below summarises the maturity profile of the Group's financial liabilities at 31 December 2016:
Maturity profile for liabilities
The amounts disclosed in the table are the contractual undiscounted cash flows.
Within 3 - 12 1- 5 years More than Total
31 December 2016 3 months months 5 years
US$ '000 US$' 000 US$ '000 US$ '000 US$ '000
Liabilities
Borrowings 3,480 6,007 19,177 6,096 34,760
Investment contracts
with DPF 317 580 13,628 8,272 22,797
Investment contracts
without DPF 207 638 11,835 4,051 16,731
Insurance contract liabilities - 35,998 - 6,470 42,468
Insurance payables 760 2,279 - - 3,039
Trade and other payables 22,167 24,968 - - 47,135
---------- --------- ----------- ---------- ---------
26,931 70,470 44,640 24,889 166,930
---------- --------- ----------- ---------- ---------
Within 3 - 12 1- 5 years More than Total
31 December 2015 3 months months 5 years
US$ '000 US$' 000 US$ '000 US$ '000 US$ '000
Liabilities
Borrowings 436 13,804 22,255 - 36,495
Investment contracts
with DPF 240 439 10,473 6,265 17,417
Investment contracts
without DPF 193 594 11,031 3,776 15,594
Insurance contract liabilities - 48,840 - - 48,840
Insurance payables 938 2,813 - - 3,751
Trade and other payables 37,514 14,330 - - 51,844
---------- --------- ----------- ---------- ---------
39,321 80,820 43,759 10,041 173,941
---------- --------- ----------- ---------- ---------
The liquidity risk on foreign creditors and lenders has increased due to the exchange control regulations issued by the Reserve Bank of Zimbabwe. Refer to note 36 for additional disclosures under cash and cash equivalents.
47.3 Fair values of financial assets and financial liabilities
The carrying amounts of the Group's financial instruments are reasonable approximations of fair values because the interest rates charged are market related rates with the exception of debentures held with Cherryfield Investments (Private) Limited ("Cherryfield") (Note 31.1.1).
The following table shows a comparison of the carrying amounts of the debentures held with Cherryfield with the fair values.
The fair value disclosed in the following table was determined by using the DCF method using a discount rate of 16% (2015: 16%) which reflects the fair market rates at the end of the reporting period.
Carrying amount Fair value
2016 2015 2016 2015
US$ '000 US$ '000 US$ '000 US$ '000
Cherryfield Investments
debentures 1,810 1,778 1,378 1,479
47.4 Market risk
Market risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market prices. Market risk comprises of foreign exchange rates (currency risk) and market interest rates (interest rate risk).
Interest rate risk
Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates. This risk arises from the Group's investment in debt securities and its borrowings which comprise overdraft facilities and short-term and long-term bank loans.
Floating rate instruments expose the Group to cash flow interest risk, whereas fixed interest rate instruments expose the Group to fair value interest risk. The Group's interest risk policy requires it to manage interest rate risk by maintaining an appropriate mix of fixed and variable rate instruments. The policy also requires it to manage the maturities of interest bearing financial assets and interest bearing financial liabilities. Interest on floating rate instruments is re-priced at intervals of less than one year. Interest on fixed interest rate instruments is priced at inception of the financial instrument and is fixed until maturity. None of the Group's instruments giving rise to interest rate risk are carried at fair value.
The Group has no significant concentration of interest rate risk.
An increase or decrease by five percent (5%) in the respective interest rates would result in the following changes
Increase 5% Decrease 5%
US$ '000 US$ '000
2016 2015
(Decrease)/increase in long-term bank
loans (1,508) 1,667
2016 2015
(Decrease)/increase in long-term bank
loans (358) 791
As at 31 December 2016, an increase or decrease of 5% in the interest rates relating to interest bearing borrowings and debt securities, with all other variables held constant, would result in an increase/decrease in profit after tax by $193,000 (2015: $66,080).
Foreign currency risk
As a result of significant investment operations in Botswana, Uganda and South Africa, the Group's statement of financial position can be affected significantly by movements in the US$ to the other currencies' exchange rate. The Group also has transactional currency exposures. Such exposure arises from normal trading activities as well as investments by an operational unit in currencies other than the unit's functional currency.
The Group mitigates foreign currency risk by ensuring financial assets are primarily denominated in the same currencies as its insurance contract liabilities. And ensuring that there is a balance between total assets attributable to Group companies whose functional currency is the same as the holding company's and group companies whose functional currency is different from the holding company's. Approximately 26% (2015: 30%) of the Group's total assets are denominated in currencies other than the functional currency of the holding company.
A strengthening or weakening in foreign exchange rates against the US$ of 10%, with all other variables held constant would result in the following changes in shareholders' equity at 31 December 2016 and profit after tax for the year then ended.
2016 2016 2016
BWP UGX ZAR
Currency US$ equivalent $ '000 $ '000 $ '000
10% strengthening
Increase in shareholders'
equity 3,185 535 54
Increase in (loss)/profit
after tax (20) 120 2
10% weakening
Decrease in shareholders'
equity (2,606) (438) (44)
Decrease in loss/(profit) after
tax 16 (98) (2)
2015 2015 2015
BWP UGX ZAR
Currency US$ equivalent $ '000 $ '000 $ '000
10% strengthening
Increase in shareholders'
equity 3,433 450 45
Increase in profit after
tax 259 109 10
10% weakening
Decrease in shareholders'
equity (2,809) (369) (37)
Decrease in profit after tax (144) (212) (8)
The table below summarises the group's monetary assets and liabilities,
which are denominated in a currency other than the United States
Dollar:
2016 2016 2016
BWP UGX ZAR
Currency US$ equivalent $'000 $'000 $'000
Monetary assets 31,729 14,892 636
Monetary liabilities 24,819 9,441 145
2015 2015 2015
BWP UGX ZAR
Currency US$ equivalent $'000 $'000 $'000
Monetary assets 32,445 14,218 458
Monetary liabilities 23,610 9,956 55
The maximum exposure to foreign currency risk at the reporting date is limited to the net asset value of Outside Zimbabwe Investments of $34 million (2015: $35.4 million).
47.5 Operational risks
Operational risk is the risk of loss arising from system failure, human error, fraud or external events. When controls fail to perform, operational risks can cause damage to reputation, have legal or regulatory implications or can lead to financial loss. The Group cannot expect to eliminate all operational risks, but by establishing a control framework and by monitoring and responding to potential risks, the Group will be able to manage the risks. Controls include effective segregation of duties, access controls, authorisation and reconciliation procedures, staff education and assessment processes.
Business risks such as changes in environment, technology and the industry are monitored through the Group's strategic planning and budgeting process. There has been negative publicity about Zimbabwe's prior socio-economic difficulties and political instability, which may result in negative perceptions of Zimbabwe among investors and financiers, and could lead to difficulties in raising more capital in the future.
47.6 Price risk
Equity price risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in market prices (other than those arising from interest rate risk or currency risk), whether those changes are caused by factors specific to the individual financial instrument or its issuer, or factors affecting all similar financial instruments traded in the market.
The Group's equity price risk arises as a result of financial assets (i.e. listed equity securities measured at fair value through profit or loss) whose values will fluctuate as a result of changes in market prices, principally investment securities not held for the account of unit-linked business.
The Group's price risk policy requires it to manage such risks by setting and monitoring objectives and constraints on investments, diversification plans and limits on investments in each country, sector and market.
At 31 December 2016, the fair value of equities exposed to price risk was $27.8million (2015: $23.6 million). A 5% increase/decrease in each individual unit price would result in an increase or decrease in profit after tax by $1.39 million (2015: $1.18 million).
The Group has no significant concentration of price risk.
47.7 Insurance risk
The Group issues contracts that transfer insurance risk and or financial risk under short term and long term insurance contracts. Short term insurance contracts are underwritten in Zimbabwe, Botswana and Uganda. Long term insurance contracts are underwritten in Zimbabwe. This section summarises the insurance risks and the way the Group manages them.
The principal risks the Group faces under insurance contracts are:
-- fluctuations in the timing, frequency and severity of claims and claim settlements relative to expectations;
-- inadequate reinsurance protection or other risk transfer techniques; and -- inaccurate pricing of risks;
The Group's underwriting strategy is designed to ensure that risks are well diversified in terms of type of risk and level of insured benefits. This is largely achieved through diversification across industry sectors and geography, regular review of actual claims experience and product pricing, as well as detailed claims handling procedures. Underwriting limits are in place to enforce appropriate risk selection criteria. The Group further enforces a policy of actively managing and promptly pursuing claims, in order to reduce its exposure to unpredictable future developments that can negatively impact the Group.
The concentration of insurance liabilities is as follows;
2016 2015
% %
Concentration by type of insurance
Short term insurance 49 53
Long term insurance 51 47
----- -----
Total 100 100
----- -----
Concentration by geography
Zimbabwe 70 69
Uganda 7 8
Botswana 23 23
----- -----
Total 100 100
----- -----
Claims
The Group faces a risk that the actual claims and benefit payments or the timing thereof, differ from expectations. This is influenced by the frequency of claims, severity of claims, actual benefits paid and subsequent development of long term claims. The Group's objective is to ensure that sufficient reserves are available to cover these liabilities. The risk is mitigated by diversification across a large portfolio of insurance contracts and geographical areas. The variability of risks is also improved by careful selection and implementation of underwriting strategy guidelines, as well as the use of reinsurance arrangements.
The average claims ratio for the Group derived by expressing claims as a percentage of gross written premium, which is important in monitoring insurance risk, is closely monitored and is disclosed below:
2016 2015
% %
Short term insurance 39 40
Long term insurance 25 34
Reinsurance
The Group purchases reinsurance as part of its risks mitigation programme. Amounts recoverable from reinsurers are estimated in a manner consistent with the outstanding claims provision and are in accordance with the reinsurance contracts. Although the Group has reinsurance arrangements, it is not relieved of its direct obligations to its policyholders and thus a credit exposure exists with respect to ceded insurance, to the extent that any reinsurer is unable to meet its obligations assumed under such reinsurance agreements. The Group's placement of reinsurance is diversified such that it is neither dependent on a single reinsurer nor are the operations of the Group substantially dependent upon any single reinsurance contract.
Pricing
The Group bases its pricing policy on the theory of probability. Underwriting limits are set for underwriting managers and intermediaries to ensure that this policy is consistently applied. The Group also has the right to reprice and change the conditions for accepting risks on renewal. It also has the ability to impose deductibles and reject fraudulent claims. Through the use of extensive industry knowledge, selective underwriting practices and pricing techniques, the Group is able to produce appropriate and competitive premium rates.
47.8 Capital management
The primary objective of the company's capital management is to ensure that it maintains a strong credit rating and healthy capital ratios in order to support its business and maximize shareholders value.
The company manages its capital structure and makes adjustments to it, in light of changes in economic conditions. To maintain or adjust the capital structure, the Group may adjust the dividend payment to shareholders, or issue new shares.
The Group monitors capital using a gearing ratio, which is net debt divided by total capital plus net debt. The Group's current policy is to keep the gearing ratio below 40%. The Group includes within net debt, interest bearing loans and borrowings, trade and other payables, less cash and cash equivalents. Equity is equity attributable to ordinary equity holders of the parent.
2016 2015
US$ '000 US$ '000
Borrowings 31,674 36,495
Trade and other payables 46,827 51,844
Less cash and short-term deposits (28,165) (25,912)
--------- ---------
Net debt 50,336 62,427
Equity 77,598 75,398
Capital and net debt 127,934 137,825
Gearing ratio 39% 45%
The Group policy is to keep the capital requirements above the statutory limit. The comparison of actual capital levels against the statutory limit is shown below:
Statutory
Company limit 2016 2015
----------------------------------- --------------- ------- -------
Zimnat Lion 25% 57% 49%
Grand Reinsurance 25% 139% 212%
Lion Assurance, Uganda 25% 100% 82%
Botswana Insurance 20% 147% 161%
Zimnat Life Assurance ($'000) 500 20,215 16,486
Zimnat Financial Services ($'000) 25 862 1,006
Zimnat Asset management ($'000) 250 849 743
Minerva Risk Advisors ($'000) 450 2,384 2,352
47.9 Laws and regulations
There is a risk that a change in laws and regulations in Zimbabwe where the investments are predominantly held, will materially impact a business, sector or market. A change in laws or regulations made by the government or a regulatory body can increase the costs of operating a business, reduce the attractiveness of investment and/or change the competitive landscape.
48 US$ Translation rates
2016 2016 2015 2015
Closing Average Closing Average
GBP/US$ 1.234 1.355 1.480 1.528
US$/BWP 10.568 10.744 11.074 9.973
US$/UGX 3,608.46 3,428.76 3,377 3,264.20
BWP/UGX 328.779 306.017 293.669 311.151
US$/ZAR 13.700 14.692 15.529 12.759
BWP/ZAR 1.260 1.328 1.366 1.238
EUR/US$ 1.052 1.107 1.091 1.110
BWP Botswana Pula
GBP British Pound Sterling
UGX Uganda Schillings
US$ United States Dollar
ZAR South African Rand
49 Related party disclosures
The financial statements include the financial statements of Masawara Plc and its subsidiaries, joint venture and associates listed in the following table.
31 December 2016 Country of Incorporation % equity interest --------------------------------------- -------------------------- ------------------ Masawara Zimbabwe (Private) Limited Zimbabwe 100% FMI Investments (Private) Limited Zimbabwe 100% Melville Investments (Private) Limited Zimbabwe 100% Masawara Communications Zimbabwe (Private) Limited Zimbabwe 100% Dubury Investments (Private) Limited Zimbabwe 63.79% TA Holdings Limited Zimbabwe 100% Telerix Communications (Private) Limited Zimbabwe 50% Minerva Holdings (Private) Limited Zimbabwe 100% iWayAfrica Zimbabwe (Private) Limited Zimbabwe 15.03% Masawara (Mauritius) Limited Mauritius 100% Masawara Communications Mauritius Limited Mauritius 100% Masawara Holdings (Mauritius) Limited Mauritius 100% Masawara Investments (Mauritius) Limited Mauritius 60% Masawara Industries (Mauritius) Limited Mauritius 100% Masawara Hospitality (Mauritius) Limited Mauritius 100% 31 December 2015 Country of Incorporation % equity interest --------------------------------------- -------------------------- ------------------ Masawara Zimbabwe (Private) Limited Zimbabwe 100% FMI Investments (Private) Limited Zimbabwe 100% Melville Investments (Private) Limited Zimbabwe 100% Masawara Communications Zimbabwe (Private) Limited Zimbabwe 100% Dubury Investments (Private) Limited Zimbabwe 63.79% TA Holdings Limited Zimbabwe 100% Telerix Communications (Private) Limited Zimbabwe 50% Minerva Holdings (Private) Limited Zimbabwe 100% iWayAfrica Zimbabwe (Private) Limited Zimbabwe 15.03% Masawara (Mauritius) Limited Mauritius 100% Masawara Communications Mauritius Limited Mauritius 100% Masawara Holdings (Mauritius) Limited Mauritius 100% Masawara Investments (Mauritius) Limited Mauritius 60% Masawara Industries (Mauritius) Limited Mauritius 100% Masawara Hospitality (Mauritius) Limited Mauritius 100%
The table below shows the breakdown of non-controlling interests.
2016 2015
US$'000 US$'000
Dubury Investments (Private) Limited 229 658
Botswana Insurance Company Limited 11,343 10,038
Lion Assurance Company Limited 601 663
Minerva Risk Advisors (Private) Limited 119 110
Masawara Investment (Mauritius) Limited 12,599 10,183
Sable Chemicals Industries Limited 847 2,569
-------- --------
Total 25,738 24,221
-------- --------
Summarised financial information on subsidiaries with material non-controlling interests
Set out below is the summarised financial information for Masawara Holdings Mauritius Limited (2015: TA Holdings Limited), a subsidiary that has non-controlling interests that are material to the Group. The following information is the amounts before inter-company eliminations.
Summarised statement of financial position
Masawara Holdings TA Holdings
Mauritius Limited Limited
2016 2015
US$ '000 US$ '000
Current assets
Assets 117,312 125,719
Liabilities (123,048) (118,246)
--------------------------- --------------------
Total current assets (5,736) 7,473
--------------------------- --------------------
Non-current
Assets 118,272 116,665
Liabilities (61,202) (45,598)
--------------------------- --------------------
Total non-current assets 57,070 71,067
--------------------------- --------------------
Net assets 51,334 78,540
Summarised statement of comprehensive income
Income 103,285 116,553
---------------- ----------------
Profit before income tax 5,702 14,486
Income tax expense (2,467) (2,478)
---------------- ----------------
Profit from operations 3,235 12,008
Other comprehensive loss 1,376 (6,306)
---------------- ----------------
Total comprehensive income 4,611 5,702
---------------- ----------------
Total comprehensive income allocated to
non-controlling interest 1,779 (1,894)
Summarised cash flows
Masawara Holdings TA Holdings
Mauritius Limited Limited
2016 2015
US$ '000 US$ '000
Cash flows from operating activities
Cash generated from operations 7,595 3,617
Income tax paid (1,195) (2,247)
--------------------------- --------------------
Net cash generated from operating activities 6,400 1,370
Net cash used in investing activities 5,807 (1,051)
Net cash generated from/(used in) financing
activities (10,404) 1,351
--------------------------- --------------------
Net increase in cash and cash equivalents 1,803 1,670
Cash and cash equivalents at the beginning
of the year 20,221 17,585
Effect of foreign currency translation 383 (1,595)
--------------------------- --------------------
Cash and cash equivalents at the end of
the year 22,407 17,660
--------------------------- --------------------
Sales Purchases Balance Balance
to owed owed
Related from related to related by related
Parties Parties Parties Parties
US$ '000 US$ '000 US$ '000 US$ '000
--------- ------------- ----------- -----------
New World Property Managers a
(Private) Limited
2016 - 406 - 68
2015 - 439 - 166
Cherryfield Investments (Private) b
Limited
2016 - - 123 -
2015 - - 102 -
Axis Fiduciary Limited c
2016 - - - -
2015 - 82 - -
Telerix Communications (Private) d
Limited
2016 77 - - -
2015 50 21 - 14
Turklane Investments (Private) e
Limited
2016 - - - -
2015 - - - 278
Total 2016 77 418 123 65
--------- ------------- ----------- -----------
Total 2015 50 542 102 458
--------- ------------- ----------- -----------
a. New World Property Managers (Private) Limited, a fellow subsidiary of FMI Holdings (Private) Limited, was engaged as the Joina City property manager commencing 1 November 2009. During the year ended 31 December 2016, Dubury Investments (Private) Limited paid property management fees of $123,000 (2015: $156,000) and security fees of $283,000 (2015: $238,000) to New World Property Managers (Private) Limited. The balance of $68,000 (2015: $166,000) owed by New World Property Managers (Private) Limited relates to rent collected from tenants, due to Dubury Investments (Private) Limited.
b. Cherryfield Investments (Private) Limited is a co-owner of Joina City, and the amount payable relates to payments made by Dubury Investments (Private) Limited on behalf of Cherryfield Investments (Private) Limited.
c. Axis Fiduciary Limited is a business which one of the Directors had significant influence in. The amounts paid were in line with the agreements signed for the provision of secretarial and legal services. The Director resigned from the Masawara Plc Board in December 2015.
d. Telerix Communications (Private) Limited ("Telerix") is a joint venture of the Group. Purchases from Telerix relate to bandwidth purchases by Masawara Plc from Telerix during the year and sales to Telerix relates to amounts charged to Telerix for consultancy services provided during the year. The amount receivable from Telerix relates to unpaid consultancy fees and loan notes at year end.
e. Turklane Investments (Private) Limited is a fellow shareholder of iWayAfrica Zimbabwe (Private) Limited ("iWayAfrica"). The loan receivable from Turklane bears interest at a rate of 12% per annum. Interest was payable on 28 June 2013, 30 June 2014 and 30 June 2015 and the capital was repayable on 30 June 2015. The loan was secured by Turklane's shares in iWayAfrica and in the event that Turklane failed to repay capital and accrued interest by 30 June 2015, Masawara Plc had the option to convert the unpaid capital and accrued interest into equity. As at 31 December 2016, Masawara Plc had not exercised its option.
Mr Francis Daniels, a director of Masawara Plc, has significant influence over the Esi Wilhemina Daniels Memorial Trust, which is a shareholder of Masawara Plc. No transactions occurred during the year between Esi Wilhemina Daniels Memorial Trust and the Group.
The parent
The immediate and ultimate parent and ultimate controlling party of Masawara Plc is FMI Holdings (Private) Limited. FMI Holdings (Private) Limited does not produce financial statements available for public use. A family trust, controlled by a Director of Masawara Plc, has a 100% interest in FMI Holdings (Private) Limited.
Terms and conditions of transactions with related parties
Outstanding balances as at year-end are unsecured, interest free and settlement occurs in cash. For the year ended 31 December 2016, the Group had Telerix Communication (Private) Limited loan notes that remained fully impaired from previous years; for more details refer to Note 31.2.1. This assessment is undertaken each financial year through examining the financial position of the related party and the market in which it operates.
Transactions with key management personnel
Directors' loans
Loans to Directors are unsecured and the interest rate is 6% per annum and are repayable within 5 years. Any loans granted are included in trade and other receivables on the face of the statement of financial position.
Interest Amounts owed
received by related parties
---------- --------------------
Loans to related parties US$ '000 US$ '000
Key management personnel of the Group:
Directors' loans
2016 108 2,152 2015 44 874
Details of Directors' loans
2016 2015
US$ '000 US$ '000
S Mutasa 2,152 827
J Vezey - 47
--------- ----------
Total 2,152 874
--------- ----------
Compensation of key management personnel of the Group
Short-term employee benefits 588 1,269
Share based payments - 414
Medical benefits 59 77
---- ------
Total compensation paid to key management personnel 647 1,760
---- ------
The amounts disclosed in the table are the amounts recognized as an expense during the reporting period related to key management personnel. The details of Directors' remuneration are as follows:
Share-based
Year ended 31 December 2016 Fees Payment Medical Total
US$ '000 US$ '000 US$ '000 US$ '000
D Suratgar 48 - - 48
C Getley 88 - - 88
M Erasmus 90 - - 90
F Daniels 80 - - 80
Y Deeney 90 - - 90
S Folland 14 - - 14
S Mutasa 588 - 59 647
Total remuneration 998 - 59 1,057
--------- ------------ ---------- ----------
Share-based
Year ended 31 December 2015 Fees Payment Medical Total
US$ '000 US$ '000 US$ '000 US$ '000
D Suratgar 95 - - 95
M Erasmus 90 - - 90
F Daniels 80 - - 80
I Rajahbalee 8 - - 8
J Harel - - - -
Y Deeney 90 - - 90
S Folland 15 - - 15
S Mutasa 538 - 72 610
J Vezey 731 414 5 1,150
Total remuneration 1,647 414 77 2,138
--------- ------------ ---------- ----------
Directors' interests in shares
2016 2015
Number of Number of shares
shares
C Getley - -
D Suratgar - -
M Erasmus - -
F Daniels 3,666,667 3,666,667
Y Deeney - -
S Folland 20,000 20,000
S Mutasa 62,958,373 62,958,373
J Vezey - 204,631
S Mutasa, through a family trust that controls FMI Holdings (Private) Limited, which owns the shares in Masawara Plc.
50 Fair value measurement 50.1 Financial assets fair value hierarchy
The following table presents the Group's financial assets that are carried at fair value at 31 December 2016 and 31 December 2015:
2016 Level 1 Level 2 Level 3 Total
US$ '000 US$ '000 US$ '000 US$ '000
Financial assets at fair value
through profit or loss
- Equity securities 27,824 - 4,205 32,029
Total 27,824 - 4,205 32,029
--------- --------- --------- ---------
2015 Level 1 Level 2 Level 3 Total
US$ '000 US$ '000 US$ '000 US$ '000
Available for sale
* Equity securities - 374 - 374
Financial assets at fair value
through profit or loss
* Equity securities 23,552 - 4,217 27,769
--------- --------- --------- ---------
Total 23,552 374 4,217 28,143
--------- --------- --------- ---------
There have been no transfers between Level 1, Level 2 and Level 3 during the period. The fair value hierarchy level at which a fair value measurement is categorised is determined on the basis of the lowest level input that is significant to the fair value measurement in its entirety. Classifications are accumulated for each class of instruments and the totals for each class are presented. The fair value hierarchy levels are explained as follows:
Financial instruments in level 1
The fair value of financial instruments traded in active markets is based on quoted market prices at the reporting date. A market is regarded as active if quoted prices are readily and regularly available from an exchange, dealer, broker, industry group, pricing service, or regulatory agency, and those prices represent actual and regularly occurring market transactions on an arm's length basis. The quoted market price used for financial assets held by the Group is the current bid price. These instruments are included in Level 1. Instruments included in Level 1 comprise primarily Zimbabwe Stock Exchange, Botswana Stock Exchange and Uganda Stock Exchange equity investments classified as held for trading or available for sale securities.
Financial instruments in level 2
The fair value of financial instruments that are not traded in an active market (for example, over-the-counter derivatives) is determined by using valuation techniques. These valuation techniques maximise the use of observable market data where it is available and rely as little as possible on entity specific estimates. If all significant inputs required to fair value an instrument are observable, the instrument is included in level 2.
Financial instruments in level 3
The level 3 equity instruments comprise of a $2.4 million (2015: $2.4 million) investment in ZB Building Society (ZBBS) and a $1.8 million (2015: $1.8 million) investment in Cherryfield Investments (Private) Limited (Cherryfield). The investments in ZBBS and Cherryfield represent shareholdings of 13% (2015: 13%) and 3.17% (2015 3.17%) respectively. ZBBS is a financial institution that lends capital for the purchase or improvement of houses. Cherryfield is a property investment company that is invested in Joina City.
The fair value of the investment in ZBBS has been determined using the net asset value per share of the company. The Group discounted the net asset value per share in-order to take into account the fact that the share is not publically traded and that the share represents a non-controlling interest. The significant unobservable inputs used in determining the fair value of ZBBS are the net asset value per share of 0.02 cents (2015: 0.02 cents) and the discount factor of 10% (2015: 10%). A 10% increase or decrease in the unobservable inputs will result in an increase or decrease of the fair value of ZBBS of $0.24 million.
The fair value of the investment in Cherryfield has been determined using the company's effective share of its investment in Joina City. The key assumptions, unobservable inputs and sensitivity analysis for the valuation methodology of Joina City have been disclosed in note 29.
50.2 Non financial assets fair value hierarchy
The following table analyses the non-financial assets carried at fair value, by valuation method. The different levels have been defined as follows:
-- Quoted prices (unadjusted) in active markets for identical assets or liabilities (Level 1).
-- Inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (that is, as prices) or indirectly (that is, derived from prices) (Level 2).
-- Inputs for the asset or liability that are not based on observable market data (that is, unobservable inputs) (Level 3).
Level 1 Level 2 Level 3 Total
US$ '000 US$ '000 US$ '000 US$ '000
2016
Freehold land and buildings
Hotels properties - - 15,642 15,642
Residential properties - - 5,355 5,355
Commercial properties - offices - - 7,158 7,158
---------- ---------- --------- ---------
Total freehold land and buildings
- Note 27 - - 28,155 28,155
---------- ---------- --------- ---------
Investment properties
Commercial properties - - 46,791 46,791
Residential properties - - 2,571 2,571
Industrial properties - - 530 530
---------- ---------- --------- ---------
Total investment properties
- Note 29 - - 49,892 49,892
---------- ---------- --------- ---------
2015
Freehold land and buildings
Hotels properties - - 15,960 15,960
Residential properties - - 5,833 5,833
Commercial properties - offices - - 7,248 7,248
--- --- ------- -------
Total freehold land and buildings
- Note 27 - - 29,041 29,041
--- --- ------- -------
Investment properties
Commercial properties - - 44,344 44,344
Residential properties - - 1,958 1,958
Industrial properties - - 530 530
--- --- ------- -------
Total investment properties
- Note 29 - - 46,832 46,832
--- --- ------- -------
Key assumptions used in the valuation of properties and sensitivity analysis have been included in notes 27 and 29.
50.3 Fair value measurements
The fair value gains/(losses) recognised in the consolidated statement of comprehensive income are classified as follows;
Level 1 Level 2 Level 3 Total
US$ '000 US$ '000 US$ '000 US$ '000
31 December 2016
Property, plant and equipment-
Note 27 - - 66 66
Investment property - Note
29 - - (644) (644)
Financial assets - Note
31.5 3,534 (16) (12) 3,506
--------- --------- --------- ---------
Total 3,534 (16) (590) 2,928
--------- --------- --------- ---------
31 December 2015 -
Property, plant and equipment-
Note 27 - - (791) (791)
Investment property - Note
29 - - 104 104
Financial assets - Note
31.5 (859) (14) 128 (745)
--------- --------- --------- ---------
Total (859) (14) (559) (1,432)
--------- --------- --------- ---------
The movement schedule for level 3 financial instruments measured at fair value through profit or loss is as follows;
2016 2015
US$ '000 US$ '000
At I January 4,217 4,089
Fair value (loss)/gain (12) 128
---------
At 31 December 4,205 4,217
---------
Refer to notes 27 and 29 for the property, plant and equipment and investment property movement schedules respectively.
51 Commitments and contingencies
Guarantee on loan acquired by Dandemutande Investments (Private) Limited
During the year ended 31 December 2013, the Group provided a guarantee to Telerix, limited to $1,465,250 relating to a $2.5 million loan obtained by Telerix's wholly owned subsidiary, Dandemutande Investments (Private) Limited ("Dandemutande") from Central African Building Society ("CABS"). The amount owed by Dandemutande to CABS as at 31 December 2016 was nil and this resulted in the Group reducing its liability relating to the financial guarantee to nil at 31 December 2016 (2015: $365,000).
52 Analysis of shareholder and policyholder performance and financial position
Included in the Group's statement of comprehensive income for the year ended 31 December 2016 is the financial performance of Zimnat Life Fund. The financial performance of Zimnat Life Fund is attributable to policyholders. In terms of the Zimbabwean Insurance and Pensions Commissions Act (Chapter 24:21), separate accounting records should be maintained for shareholders and policyholders with regards to life assurance. The analysis of the financial performance attributable to the Group's shareholders and policyholders is shown below
Shareholder Policyholder Masawara
Group
2016 2016 2016
INCOME US$ '000 US$ '000 US$ '000
Gross insurance premium revenue 77,893 8,735 86,628
Insurance premiums ceded to reinsurers
on insurance contracts (31,894) (168) (32,062)
Net insurance premium revenue 45,999 8,567 54,566
Fees and commission income 18,511 18 18,529
Hotel revenue 14,365 - 14,365
Manufacturing revenue 8,056 - 8,056
Rental income 2,492 676 3,168
Net total revenue 89,423 9,261 98,684
Investment income 5,342 1,777 7,119
Realised and unrealized gains 1,441 3,128 4,569
Other operating income 1,707 83 1,790
Unwinding of financial guarantee-Telerix 365 - 365
Total income 98,278 14,249 112,527
EXPENSES
Insurance claims and loss adjustment
expense (24,609) (11,684) (36,293)
Insurance claims and loss recovered
from reinsurers 4,945 - 4,945
Net insurance claims (19,664) (11, 684) (31,348)
Realised and unrealized losses (759) (420) (1,179)
Expenses for the acquisition of insurance
contracts (12,483) (8) (12,491)
Hotel cost of sales (5,291) - (5,291)
Manufacturing cost of sales (7,621) - ( 7,621)
Operating and administrative expenses (45,212) (2 ,014) (47,226)
Property expenses (1,893) ( 99) (1,992)
Total net insurance claims and operating
expenses (92,923) (14 225) (107,148)
Finance costs (3,866) - (3,866)
Profit before share of profit of associates
and tax 1,489 24 1,513
Share of profits of other associates
and joint ventures 2,207 - 2,207
Profit before tax 3,696 24 3,720
Income tax expense (3,112) (24) (3,136)
Profit for the year 584 - 584
Shareholder Policyholder Masawara
Group
2016 2016 2016
US$ '000 US$ '000 US$ '000
ASSETS
Property, plant and equipment 29,948 4,200 34,148
Intangible assets 3,224 - 3,224
Investment properties 41,967 7,925 49,892
Investment in associates 15,389 - 15,389
Financial assets 15,232 32,523 47,755
Deferred tax asset 1,080 - 1,080
Inventory 7,750 - 7,750
Reinsurance assets 17,192 21 17,213
Deferred acquisition costs 3,841 - 3,841
Insurance receivables 12,417 441 12,858
Trade and other receivables 51,596 208 51,804
Cash and cash equivalents 27,398 767 28,165
Assets classified as held-for-sale 14,892 - 14,892
Total assets 241,926 46,085 288,011
EQUITY AND LIABILITIES
Issued share capital 1,238 - 1,238
Share premium 80,433 - 80,433
Treasury shares (37) - (37)
Group structuring reserves (9,283) - (9,283)
Non distributable shares (27) - (27)
Revaluation reserve 402 - 402
Other reserves (3,462) - (3,462)
Retained earnings 8,334 - 8,334
Equity attributable to equity holders
of the parent 77,598 - 77,598
Non-controlling interests 25,738 - 25,738
Total equity 103,336 - 103,336
Liabilities
Financial liabilities 31,674 - 31,674
Deferred tax liabilities 7,280 - 7,280
Investment contracts - 39,730 39,730
Insurance contract liabilities 36,860 5,608 42,468
Deferred income 1,435 - 1,435
Income tax liability 598 - 598
Insurance payables 3,039 - 3,039
Provisions 2,183 - 2,183
Trade and other payables 46,080 747 46,827
Liabilities for assets held-for-sale 9,441 - 9,441
Total liabilities 138,590 46,085 184,675
Total equity and liabilities 241,926 46,085 288,011
Shareholder Policyholder Masawara
Group
2015 2015 2015
INCOME US$ '000 US$ '000 US$ '000
Gross insurance premium revenue 72,820 10,273 83,093
Insurance premiums ceded to reinsurers
on insurance contracts (31,105) (141) (31,246)
Net insurance premium revenue 41,715 10,132 51,847
Fees and commission income 19,866 22 19,888
Hotel revenue 15,304 - 15,304
Manufacturing revenue 11,661 - 11,661
Rental income 2,549 470 3,019
Net total revenue 91,095 10,624 101,719
Gain on bargain purchase of Sable Chemical
Limited 5,206 - 5,206
Investment income 1,728 1,771 3,499
Realised and unrealized gains 1,775 (1,583) 192
Other operating income 9,055 - 9,055
Unwinding of financial guarantee-Telerix 295 - 295
Total income 109,154 10,812 119,966
EXPENSES
Insurance claims and loss adjustment
expense (26,978) (9,004) (35,982)
Insurance claims and loss recovered
from reinsurers 9,392 - 9,392
Net insurance claims (17,586) (9,004) (26,590)
Realised and unrealized losses (1,449) (45) (1,494)
Expenses for the acquisition of insurance
contracts (9,128) (8) (9,136)
Hotel cost of sales (5,475) - (5,475)
Manufacturing cost of sales (1,623) - ( 1,623)
Operating and administrative expenses (61,145) (1,532) (62,677)
Property expenses (1,591) (202) (1,793)
Impairment loss on loan notes-Telerix (12,516) - (12,516)
Total net insurance claims and operating
expenses (110,513) (10,791) (121,304)
Finance costs (2,620) - (2,620)
(Loss)/ profit before share of profit
of associates and tax (3,979) 21 (3,958)
Share of profits of other associates
and joint ventures 1,886 - 1,886
(Loss)/ profit before tax (2,093) 21 (2,072)
Income tax expense (2,564) (21) (2,585)
Loss for the year (4,657) - (4,657)
Shareholder Policyholder Masawara
Group
2015 2015 2015
US$ '000 US$ '000 US$ '000
ASSETS
Property, plant and equipment 31,303 4,200 35,503
Intangible assets 3,660 - 3,660
Investment properties 42,392 4,440 46,832
Investment in associates 12,593 - 12,593
Financial assets 22,169 30,116 52,285
Deferred tax asset 1,080 - 1,080
Inventory 13,999 - 13,999
Reinsurance assets 23,889 21 23,910
Deferred acquisition costs 2,966 - 2,966
Insurance receivables 13,927 - 13,927
Trade and other receivables 55,393 136 55,529
Cash and cash equivalents 25,912 - 25,912
Total assets 249,283 38,913 288,196
EQUITY AND LIABILITIES
Issued share capital 1,235 - 1,235
Share premium 80,102 - 80,102
Treasury shares (232) - (232)
Non-distributable reserves 370 - 370
Group structuring reserves (9,283) - (9,283)
Other reserves (3,999) - (3,999)
Retained earnings 7,205 - 7,205
Equity attributable to equity holders
of the parent 75,398 - 75,398
Non-controlling interests 24,221 - 24,221
Total equity 99,619 - 99,619
Liabilities
Financial liabilities 36,495 - 36,495
Deferred tax liabilities 7,989 - 7,989
Investment contracts - 33,012 33,012
Insurance contract liabilities 43,233 5,608 48,841
Deferred income 1,395 - 1,395
Income tax liability 220 - 220
Insurance payables 3,749 - 3,749
Provisions 5,022 10 5,032
Trade and other payables 51,561 283 51,844
Total liabilities 149,664 38,913 188,577
Total equity and liabilities 249,283 38,913 288,196
53 Subsequent events
Disposal of interest in Lion Assurance Company Limited
On 22 May 2017, the Group entered into an agreement to dispose of its entire interest (87.44%) in Lion Assurance Company Limited ("LAC"). The Group will receive a consideration of $5.7 million upon fulfillment of the conditions precedent and a deferred consideration that is contingent on profit after tax over a three year period.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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(END) Dow Jones Newswires
June 30, 2017 02:00 ET (06:00 GMT)
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