CBZ Holdings Limited Annual Report 2010
Table of Contents
1 Group salient features 2 2 Group Structure 3 3 Chairman’s Statement 6 4 Group Chief Executive Officer’s Report 9 5 Chief Executive Officer’s Report-CBZ Bank Limited 11 6 Managing Director’s Report-CBZ Asset Management (Private) Limited 13 7 Managing Director’s Report-Optimal Insurance Company (Private) Limited 15 8 Managing Director’s Report-CBZ Life (Private) Limited 16 9 Analysis of Shareholders 17 10 Corporate Governance Statement 18 11 Statement of Directors’ Responsibility 24 12 Report of the Directors 26 13 Report of the Independent Auditor 29 14 Financial Statements Consolidated Statement of Comprehensive Income 30 Consolidated Statement of Financial Position 31 Consolidated Statement of Changes in Equity 32 Consolidated Statement of Cash Flows 33 15 Group Accounting Policies 34 16 Notes to the Consolidated Financial Statements 50 17 Company Statement of Financial Position 80 18 Notice to Members 81 19 Shareholders’ Calendar 82 20 Group Details 83
1 CBZ Holdings Limited Annual Report 2010
Group Salient Features
31 December 31 December 2010 2009 US$ US$
Total assets 686.9m 452.5m
Gross advances 449.7m 248.4m
Impairment on advances 5.1m 3.5m
Total net advances 444.6m 245.0m
Total deposits 578.4m 360.8m
Profit for the year 17.6m 8.1m
Capital adequacy (%) – CBZ Bank 11.2% 12.03%
Capital adequacy (%) – CBZ Building Society 48.3% 49.4%
Funds under management –CBZ Asset Management 75.6m 70.1m
Total technical assets – Optimal Insurance 1.3m 0.3m
Basic earnings per share (cents) 2.81 1.31
Return on assets 2.6% 2.68%
Return on equity 21% 12.85%
Non interest income as a % of total income 46.0% 60.4%
Advances/Deposits ratio (including offshore) 76.9% 67.8%
Cost to income ratio 66.7% 62.7%
Staff compliment 1 287 1 411
2 CBZ Holdings Limited Annual Report 2010
Group Structure
3 CBZ Holdings Limited Annual Report 2010
4 CBZ Holdings Limited Annual Report 2010
... pull you out of tight spots.
Business Motor Home Health Farming
5 CBZ Holdings Limited Annual Report 2010
Chairman’s Statement
L Zembe CHAIRMAN
I take great pleasure in presenting the financial results of CBZ Lack of medium to long term financing has however Holdings Limited and its subsidiaries for the year ended 31 continued to constrain a faster increase in capacity utilisation December 2010. and very little investment in infrastructure development and maintenance. Investor mixed reactions to the implementation Below are the highlights of the Group’s performance for the of the Indigenisation and Economic Empowerment Act and year and the comparative period:- Regulations, as well as the uncertainty surrounding elections, has threatened to slow down the much needed Foreign Direct Financial Highlights Investment for full steam economic recovery.
31-Dec-10 31-Dec-09 Inflation
$m $m Inflation remained largely in positive territory during the first Financial Performance half of 2010 as annual inflation rose from -4.8% in January to Profit Before Taxation 25.5 12.1 reach a high of 6.1% in May before decelerating intermittently to close the period under review at 3.2%. The rise in annual Profit For the Year 17.6 8.1 inflation was largely driven by the increase in the prices of fuel, Total Comprehensive Income 22.2 16.1 food and alcoholic beverages, utility and rental prices, as well Total Assets 686.9 452.5 as hotel and restaurant prices. The strengthening of the South Total Equity and Reserves 85.7 63.2 African Rand also made imports more expensive thereby impacting negatively on the inflation trend. Total Deposits 578.4 360.8 Total Net Advances 444.6 245.0
Other statistics Basic Earnings per Share 2.81c 1.31c Non - interest Income to Total Income 46% 60% Cost to Income Ratio 66.7% 63% Annualised Return on Assets 2.6% 1.8% Annualised Return on Equity 21% 13%
Operating Environment
The stabilisation of the political environment and continued implementation of sound macroeconomic policies since 2009 witnessed the return of a predictable planning and operational Monthly inflation, rose from 0.7% in January to 1.2% in March environment, as well as improved business confidence. and thereafter remained largely close to zero percent up until September 2010 before closing the year at a negative 0.4%. The economy is estimated to have registered a positive growth rate of 8.1% in 2010 and is forecast to continue on Capital Markets the growth path, driven largely by recovery in agriculture, mining, manufacturing and tourism. The opening of the One- Liquidity constraints and perceived country risk by foreign Stop-Shop Investment Centre to speed up the processing of investors saw activity on the stock market remaining subdued investment proposals augurs well for the attraction of new for the greater part of the year. Companies generally shied and positive net investment into the productive sectors of the away from expansion projects, acquisitions and other economy. investment plans involving significant cash-outlays due to long term capital constraints.
6 CBZ Holdings Limited Annual Report 2010
Chairman Statement (Continued)
The CBZ Holdings’ stock opened the year trading at 16 cents Dividend and thereafter traded intermittently in line with market developments. The stock reached a high of 20.1 cents in The Board decided to pass the declaration of a final dividend January and a low of 11 cents in July before closing the year for the year ended 31 December 2010. The need for the re- at 16 cents. investment of profits and the strengthening of the business underwriting capacity of the Group was persuasive in arriving at such a decision. However, the Board is very mindful of the need to declare a dividend in the near future should the economy continue on a positive trajectory.
Outlook
General economic prospects for the country remain bright, with positive developments in key sectors of the economy and most notably mining, pointing towards a strong recovery of the economy. Global commodity prices have continued to firm and the country stands to benefit if the right policies are Corporate Governance put in place and implemented wisely and judiciously.
CBZ Holdings Limited is regulated by a number of statutory It is therefore imperative that the country works on improving bodies in which all relevant compliance issues have been the investment climate to attract positive net investment into adhered to. The Group views good governance as a critical the key sectors of the economy so as to help unlock the effective issue in the success of its operations and that it gives assurance demand and supply side bottlenecks. Improved agricultural to the Shareholders, Regulatory Authorities, Staff and Clients production for food security and industrial production that the business is being properly managed and controlled. for increased export revenues will help stem inflation and Implementation of the pronouncements of Basel II is already thereby make the economy more robust and competitive. underway and full adoption is scheduled for the year ending Continuous supply of energy, utility, rental and social services 31 December 2011. at affordable and sustainable prices is imperative. Sub-Saharan Africa remains a safe tourist destination and putting together Corporate Citizenship packages for the global travelers will witness the country enjoying the benefits of tourism. The Group recognizes that being a responsible organization means more than just good service delivery but also entails Appreciation good community relations. In the period under review, the Group was involved in various charitable or community shared I am greatly humbled by the commitment of the Boards of value initiatives that included provision of health, education, the Group companies, Management and staff towards the cultural and sporting assistance to both individuals and shared common values and vision. We value greatly, our community social organizations in need. “partners for success” and all other stakeholders in the journey of continuous improvement of our products and services and I.T Platform delivery of competitive value to all our stakeholders.
The Group’s IT platform is currently being upgraded so as to enhance the efficiency of the delivery channels including internet banking and SMS banking in line with consumer life style and global technological trends.
Amalgamation L. Zembe Chairman The Banking and Mortgage Finance arms of the business were operationally integrated during the year and adopted the 25 March 2011 monolithic CBZ Bank brand. As a result, a staff rationalization exercise with a payback period of 2 years was smoothly implemented and concluded during the same period.
7 CBZ Holdings Limited Annual Report 2010 Standing from left: Mr. F M Dernawi, Mr. D Govere, Mr. T. Bere, Mr. D Mutambara, Mr. A Lowe, Mr. M H Nanabawa, Mr M I O Ben Ghali, Mr G Taputaira and Mr J G Osterberg Taputaira Mr M H Nanabawa, I O Ben Ghali, Mr G Mr. A Lowe, Mr. D Mutambara, Mr. Bere, T. Mr. D Govere, F M Dernawi, Mr. left: from Mr. Standing V M Chasi N Makuvise and Mrs. Mr. L. Zembe, J P Mangudya, Mr. Dr. left: from Mrs. R Nhamo, Seated
8 CBZ Holdings Limited Annual Report 2010
GROUP CHIEF EXECUTIVE OFFICER’S REPORT N Makuvise GROUP CHIEF EXECUTIVE OFFICER Introduction
The operating environment has greatly improved since the mortgage business. The Bank has established a firm footing in commencement of the use of the multi-currency system. the international debts markets with the successful launch of This has brought with it more business opportunities and the $50 million Diaspora Bond. prospects for growth. The CBZ Holdings Limited (the “Group”) has embarked on a growth path as promised in my report of The amalgamation of CBZ Building Society and the Bank was 2009. The strong performance reflected by the Group results successfully completed resulting in a voluntary retrenchment is evidence of great resilience and innovation which can only exercise that allowed for a smooth staff rationalization be improved upon as the operating environment continues exercise. to improve. During the year, the Group launched CBZ Life, a life assurance Operating Environment unit that commenced trading from 1 December 2010. This unit will benefit from the Group synergies. The year under review was marked by continuous improvements on the economic front and notable increased The liquidity challenges facing the financial market had a industry capacity utilisation. The financial services sector visible toll that manifested in the lukewarm performance of witnessed significant growth in key performance indicators the local bourse. This is traditionally the trading ground of such as deposits, advances, funds under management and Asset Management firms, which in turn faced challenges in gross premium underwritten. Activity on the Zimbabwe Stock generating meaningful revenues. CBZ Asset Management, Exchange (ZSE) continued to be adversely affected by low despite growing its Funds Under Management during the liquidity levels and slow growth in Foreign Direct Investment year under review, posted a loss as its performance depended due to low investor confidence. on the performance of the ZSE.
The performance of Foreign Direct Investment is expected to The short term insurance company, Optimal Insurance, improve once the political front in the country attracts investor performed well, turning around its position to post a profit confidence through clarity and certainty on the Indeginisation despite the challenges facing the insurance sector. Synergistic and Empowerment Act, its regulations and implementation relationships with other subsidiaries are set to benefit this unit thereof. in a great way as it taps into established clientele.
The Government of National Unity continues to provide an Diversification improving political platform to do business. The Group is set to grow its non-financial services units with Group Performance major focus on properties, agriculture and commodities trading. The Group’s performance during the period is very commendable, with a number of variables comparing well Capitalisation with regional peer financial services groups. The Group has maintained dominance in the local financial services sector. The Group’s operating units are well above the minimum capital required by the regulatory authorities. The continued stability within the economic and political environment granted the Group an opportunity to grow. Social Responsibility Activities Generally, I am glad to report that the Group not only preserved, The Group plays a major role in providing community support but grew, its capital and as such, shareholder value. initiatives. The business units within the Group undertook The Group’s flagship subsidiary, CBZ Bank Limited (the “Bank”) various social responsibility activities. During the year under performed very well. It maintained its pole market position review, the Group supported activities in the fields of sports, with respect to total asset base, funding liabilities and interest education, health, arts and the under privileged. earning intermediation activities such as loans and advances. These activities are very important for the Group as it is able to The Bank also managed to facilitate offshore funding plough back to the community within which it operates. through strategic partnerships for both Corporates, SMEs and
9 CBZ Holdings Limited Annual Report 2010
Group Chief Executive Officer’s Report (Continued)
Strategic Priorities
In the preceding year, one of the Group’s major strategic priorities was meeting the regulatory capital requirements. This objective was achieved and the Group sought to consolidate its position as the biggest player in the industry.
Shareholder wealth maximisation was also a strategic priority. This saw the Group amalgamate the Bank and the Building Society operations with a view to contain operational costs. An approximate 35% cost reduction has been set as the ultimate target to be achieved through the amalgamation. A two year pay-back period is envisaged.
The Group will continue to focus on business growth in the productive sectors of the economy and human capital development to ensure the sustainance of the business growth model.
Prospects for 2011
Prospects for the whole economy remain bright as we look into the year 2011. The financial services industry is considered the intermediary in any growth activities, and as such gets a fair share of the returns in such growth. As a major player within this sector, the Group is at a vantage point.
The launch of the Life Assurance company within the Group is set to widen the revenue base especially if synergistic relationships with the Bank are fully utilised.
The completion of the IT platform upgrade is set to improve service delivery and convenience to our valued customers through provision of integrated financial packages in “one stop shops”.
Appreciation
The Board members of all Group companies worked hard and guided Executive Management in setting up very clear strategic priorities for the respective companies. I thank them sincerely for their support and guidance during the year.
To Executive Management, I thank you for the support you gave me to achieve our strategic goals. Your hard work and dedication to duty are most appreciated.
To all staff members, your dedication to the common goals of the Group is evident as reflected in the impressive results reported herein.
To the shareholders, our valued clients and the rest of our stakeholders, thank you for your continued support. Your partnerships with the Group continue to be individually treasured as they are instrumental in shaping its future.
N MAKUVISE GROUP CHIEF EXECUTIVE OFFICER 25 March 2011
10 CBZ Holdings Limited Annual Report 2010
Chief Executive Officer’s Report- CBZ Bank Limited
DR J P MANGUDYA CHIEF EXECUTIVE OFFICER
I am pleased to report on the performance of the Bank launch of the $50 Million Diaspora bond as a test for the year ended 31 December 2010 and to highlight case; and the macroeconomic environment in which the Bank was • Launch of the payoff line “Partners for Success” to operating. embrace the new look business operating philosophy of the Bank. Improved Business Environment Financial Performance Highlights CBZ Bank Limited turned in a strong performance during the year under review, which was complemented by the improving • Deposits up 61% to $578 million. operating environment as a result of, inter alia, increasing • Advances up 76% to $425 million. financial intermediation, improved confidence of the off shore • Total assets up 60% to $650 million. financiers, continuance of the Government of National Unity • Total revenue up 112% to $72 million. (GNU) and the stable currency as a result of the continued use • Profit after tax up 163% to $21 million. of the multicurrency system . International Global Credit Ratings
The business operating environment, however still had a The Bank’s international credit rating remained stable showing number of constraints chief among them were the short term international confidence in its operations and performance. nature of deposits, high funding costs and high operational The Bank obtained a long term rating of “A” which was similar costs pushed mainly by continuous wage increase demands. to that obtained during the preceeding year.
Commendable Milestones Business Units
Despite these challenges, the Bank forged forward and During the period under review, the Bank’s key business units achieved commendable milestones that included; continued to make significant inroads into new markets. This • Operational integration of our two banking businesses, was achieved through focus on continuous improvement and CBZ Bank Limited and CBZ Building Society, into one the need to provide appropriate products and services to universal bank called CBZ Bank, thereby improving our valued customers. The business units are Treasury, Retail on customer convenience and reduction in costs; Banking, Home Loans, Corporate and Merchant Banking • Embarked on a major rationalisation exercise that and Investment Banking. The focus for all these units remain included a voluntary retrenchment exercise and customer service excellence, value creation and preservation. closure of excess branches; • Embarked on a major rebranding exercise of the Risk Management Branch network with focus on good ambiance to The Bank remained committed to striking a balance between enhance the CBZ brand; risk and return. During the period under review, the Bank • Centralisation of shared services and processes committed itself to activities and projects after careful analysis to enhance operational efficiencies and cost of risk-return relationships. containment; The low levels of liquidity in the market required a careful • Funding of the key growth sectors of the economy, process of asset creation. This was complimented by strong resulting in improved capacity utilisation; Management and Board oversight. • Courted the International Debt market with the
11 CBZ Holdings Limited Annual Report 2010
Chief Executive Officer’s Report - CBZ Bank Limited (Continued)
Regional and international benchmarking remained key in the management of the Bank. The introduction of Basel II expected at the beginning of the New Year will therefore further strengthen the Bank’s risk management processes.
Information Technology
Technological advancement the world over continues to be central to quality service delivery in the banking sector. The Bank shall be upgrading the core banking system in the first half of 2011. Sufficient resources have been made available to this noble cause that will help improve service delivery to our valued customers.
Compliance
The Bank adheres to the principles of good corporate governance and compliance with the governing laws. During the year under review, the Bank was fully compliant with all regulatory requirements, chief among them were those related to capital adequacy. The Bank had a capital of $55 million as at 31 December 2010 compared to the Central Bank’s minimum required capital of $12.5 million.
Outlook
The economy looks set to remain on a continued growth path. This will certainly have a positive impact on liquidity and a mitigant against default risk within the economy as business and individual financial standing improves. The full implementation of Basel II will improve risk management in the financial services sector.
Appreciation
On behalf of Staff and Management, I would like to thank the Board for the support and guidance received during the year under review.
My special thanks goes to our customers, without whose unwavering support the strong performance achieved in 2010 would not have been possible, as well as various stakeholders including our chief asset, our staff, for their valuable support and loyalty during the year.
DR J P MANGUDYA CHIEF EXECUTIVE OFFICER
25 March 2011
12 CBZ Holdings Limited Annual Report 2010
MANAGING DIRECTOR’S REPORT - CBZ ASSET MANAGEMENT (PRIVATE) LIMITED t/a DATVEST J SMITH MANAGING DIRECTOR
Introduction the year. Cash-flow management remained a key task for the team. A comparatively difficult operating environment prevailed during the year ended 31 December 2010 for the industry in Funds Under Management particular. The economic gains that had been achieved during the year 2009 were marred by the political developments The funds under management grew from US$70 million in that characterised the 2010 year resulting in a significant 2009 to US$75 million as at 31 December 2010 as a result of slow down during the year under review. Some inconsistent increased support from our clients. pronouncements made during the year had a negative impact on the pace of economic growth and the industry as Human Resources a whole. Of significance was the issue of the Indigenisation The Company’s staff compliment declined from 45 at the and Economic Empowerment Act and its Regulations which beginning of the year to 36 permanent employees by year brought in mixed reactions and uncertainty during the first end. The closure of the Bulawayo Office was finalised in the half of the year. first half of the year and the Mutare office was closed in the last The prevailing uncertainty discouraged the inflow of the much quarter of 2010. The long term benefits of these office closures needed investor funds resulting in negative performance are expected to outweigh the costs incurred. on the equities market. The Zimbabwe Stock Exchange’s During the year, several in-house training sessions, designed Industrial Index fell by 16% from the 1st of January 2010 to to enhance staff members’ soft skills, were undertaken as part the 30th of June 2010. The second half of the year witnessed of a strategic drive to improve the service level offering to our the recovery of the equities market which was attributable clients. Staff development remained a key area of focus into to the amendments to the Indigenisation and Economic the year 2010. Empowerment Regulations that clarified the implementation process of the Act. Consequently, the Industrial Index finished The Investments Director, Mr Paul Brien, tendered his resig- the year with a cumulative negative performance of 0.47%. nation from the Board of Directors to pursue other interests Whilst official figures on Real GDP growth are not as yet at the end of the year. Paul joined the Company in 2005. The available, it is estimated that the economy may have achieved Board and Management take this opportunity to extend their a real growth of about 8.1%. appreciation for his years of dedication and commitment.
The money market remained largely unchanged through Information Technology out the year, with the average interest rates offered by our counterparties varying by no more than a couple of percentage The Company is currently involved in the implementation of a points. There was significant growth experienced in the new wealth management IT system that will offer convenience overall level of deposits in the banking industry, signalling an and efficiency to our valued clients. The Company has also increasing level of confidence in the formal economy. embarked on the enhancement of its website, which will allow full interaction with clients. All this “good” news had a knock on effect on the Company’s financial performance but unfortunately it was not enough to Outlook reverse the losses made during the first half of 2010. The prognosis for the year ahead remains subdued. Whilst the Financial Performance economy was experiencing some growth, it still had plenty of room for improvement given a conducive environment. The The Company incurred a loss of US$ 493 645 for the year ended unpredictability of the prevailing political environment was 31 December 2010. This was attributable to the lukewarm the biggest challenge the Company and the rest of business perfomance on the stock exchange and costs associated faced. The market liquidity level had generally improved with the closure of the regional offices. Administration costs compared to 2009 although the issue remained a constraint remained unchanged with a notable decreasing trend through
13 CBZ Holdings Limited Annual Report 2010
Managing Director’s Report - CBZ Asset Management (Private) Limited t/a Datvest (Continued) to business and the stock market in particular. Clarity on matters of government policy as well as consistent application of such policy is imperative before investor confidence can be restored. It is apparent that the year ahead will require a measure of patience, foresight and innovation from the Management team.
Appreciation
On behalf of the Executive Committee I would like to extend our sincere appreciation to the Board of Directors, our staff and our various stakeholders for their support throughout the year.
J Smith Managing Director
25 MARCH 2011
14 CBZ Holdings Limited Annual Report 2010
MANAGING DIRECTOR’S REPORT – OPTIMAL INSURANCE COMPANY (PRIVATE) LIMITED
J WHACHA MANAGING DIRECTOR
Introduction industry and individuals to consider insurance as part of their risk management philosophy in their turnaround strategies. I have great pleasure in reporting on the performance of Optimal Insurance Company for the year ended 31 December Financial Performance 2010. It was a year of significant growth for the Company, having achieved a 344% increase in premium revenue. Our The Company achieved a net profit of US$140,000 for the year operating and financial performance has been gaining which was mainly driven by underwriting and investment momentum on the back of our clear and simple goal to be income. It has been a remarkable year as evidenced by the the leading and preferred short term insurer in Zimbabwe. increase in underwriting income by 207%. The Company’s We have survived the economic downturn reasonably well underwriting capacity has also grown gradually and has seen compared to other industry powerhouses that were reporting the retention ratio improving from 32% the previous year to losses. The Company’s underwriting profit has grown due 52%. to selective underwriting, maturity and experience in underwriting discipline. Capital Adequacy
Macroeconomic Environment The Company is in compliance with the minimum capital requirements as prescribed by the Insurance and Pensions The economic environment improved significantly during the Commission. Management will strive to continue to improve year under review. Analysts have estimated that the insurance the size of the balance sheet which will improve the industry projected market annual premium was over US$100 underwriting capacity. million for the year 2010. Inflation reached a high of 6.1% in May and closed the year at 3.2%. The country’s economic Outlook growth was estimated at 8.1% in 2010 from 5.7% in 2009. The operating environment for the financial year 2011 is Agriculture, which is the backbone of the country contributed expected to improve once political stability is attained and 33.9% in 2010. investor confidence restored. It is hoped that the improvement The improvement in disposable income and the need by in these factors will result in better liquidity and improvement corporates to participate on the regional and international in the economy as a whole. markets opened up various opportunities in terms of increased Appreciation demand for insurance cover on assets, credit guarantee cover, marine/goods in transit, directors and officers liability I would like to extend my appreciation to the Board of Directors, insurance. This resulted in an upsurge of business activities Shareholders, business partners, bankers and customers for in 2010 compared to 2009. However, the absence of lines of their support during a year full of challenges. I also thank credit and liquidity constraints remained the key issues for the our employees for their loyalty and dedication during a very industry and Zimbabwe. tough year. Industry Analysis
The industry’s survival hinges on the performance of the economy. Despite the positive growth in the insurance industry, the year under review was characterized by J WHACHA underinsurance and selective insurance by both corporate Managing Director and individual customers. The sector was also subject to stiff competition amongst its many players with some resorting to 25 MARCH 2011 rate undercutting.
The sector contributes to the stability and growth of the economy by providing security to corporates and individuals. Now that the economy is on the mend, it is time for the
15 CBZ Holdings Limited Annual Report 2010
MANAGING DIRECTOR’S REPORT – CBZ Life (PRIVATE) LIMITED
N Mureriwa MANAGING DIRECTOR
Introduction Appreciation
CBZ Life was duly licensed by the Commissioner of Insurance I would like to thank the Board of CBZ Life for their support in September 2010 and initially focussed on bancassurance in and guidance during the formative stages of the business. To the short term. the Management team and staff of CBZ Bank, I salute you for the support given to me during the year. Overview of the Operating Environment
Prior to the adoption of the multi-currency system, the operating environment was dogged by a lot of challenges that hindered business performance in general. However, since 2009 there has been a general improvement in the economy due to the political stability brought about by the Government of National Unity and the implementation N. MURERIWA of sound macroeconomic policies. The year under review MANAGING DIRECTOR witnessed improvement although lack of credit lines and liquidity constraints remained a drawback that affected the 25 March 2011 insurance sector as margins and disposable incomes remained low. The economy is estimated to have registered a positive growth rate of 8.1% in 2010 and is forecast to continue on the growth path, driven largely by recovery in agriculture, mining, manufacturing and tourism.
CBZ Life’s Business Performance
CBZ Life commenced trading on 1 December 2010 with the launch of the Credit Life Plan through the Bank’s branches. The first month’s premium income was in line with the expected volumes of loans issued by the Bank.
Outlook
The economy is expected to continue on the growth path and this will have a positive impact on business performance and disposable income. The country should strive to bring back investor confidence so as to reduce the liquidity constraints currently obtaining in the market. Once this is achieved through political stability and an enabling legislative environment, the insurance sector should achieve better performance.
16 CBZ Holdings Limited Annual Report 2010
ANALYSIS OF SHAREHOLDERS AS AT 31 DECEMBER 2010
Size of Shareholding No of Holders % of Total No of shares % of Total 1 – 5 000 10 134 90.03 8 072 964 1.18 5 001 – 10 000 412 3.66 3 059 591 0.45 10 001 – 25 000 333 2.96 5 225 590 0.76 25 001 – 100 000 204 1.81 10 296 144 1.50 100 001 – 200 000 49 0.44 7 063 554 1.03 200 001 – 500 000 53 0.47 16 004 199 2.34 500 001 and over 71 0.63 634 422 504 92.74 TOTAL 11 256 100.00 684 144 546 100.00
ANALYSIS BY SHAREHOLDER TYPE
Category No of Holders % of Total Holders No of shares % of Total shares Individuals 10 539 93.62 39 637 586 5.79 Companies 492 4.37 202 854 060 29.65 Non Residents 33 0.29 248 742 386 36.36 Pension Funds 101 0.90 95 507 618 13.96 Directors 4 0.04 8 605 857 1.26 Nominee Company 66 0.59 84 637 756 12.37 Insurance Companies 21 0.19 4 159 283 0.61 TOTAL 11 256 100.00 684 144 546 100.00
TOP TEN SHAREHOLDERS AS AT 31 DECEMBER 2010
Shareholder’s name No of Shares Shareholding % Government of Zimbabwe 110 000 000 16.08 Libyan Foreign Bank (New Non Resident) 96 609 470 14.12 Africa Investment SUB 2 Limited -NNR 92 600 587 13.54 National Social Security Authority 71 684 150 10.48 CBZ Holdings Limited 55 723 448 8.14 Remo Nominees (Pvt) Ltd 26 577 280 3.88 Barclays Zimbabwe Nominees P/L NNR A/C 25 483 337 3.72 Datvest Nominees (Pvt) Ltd 18 087 725 2.65 Bethel Nominees No. 2 14 756 621 2.16 Stanbic Nominees (Pvt) Ltd NNR 14 488 369 2.12 Total 526 010 987 76.89 Others 158 133 559 23.11 Total 684 144 546 100.00
17 CBZ Holdings Limited Annual Report 2010
Corporate Governance Statement
Introduction
CBZ Holdings Limited (CBZH) is committed to high standards of corporate governance, including reporting on the Group’s activities to its stakeholders with completeness, relevancy and honesty. Its governance strategy, objectives and structures have been designed to ensure that it complies with legislation and a myriad of best practice codes, while moving beyond conformance to governance performance. Our governance, risk and compliance philosophy recognises the importance of ensuring continued adherence to legislative, regulatory, supervisory and international best practice requirements as a critical part of effective sound governance and effective risk management.
The Group is further committed to managing risk to protect its shareholders, employees, other stakeholders,the environment, its assets and reputation, as well as identifying and bringing to fruition relevant business opportunities. It has incorporated competitive governance and compliance practices as core strategic imperatives for sustainable development.
The Group’s policies consider the balance of risk and reward, as far as is practicable, in order to optimise the returns gained from business activities and to meet the expectations of its stakeholders.
The Group is also committed to the highest standards of integrity, professionalism and ethical behaviour. All its employees are required to display these traits in order to comply with all relevant laws, rules and standards when conducting the business of the Group. The Group is thus dedicated to being ethical, compliant and transparent in all its activities.
Internal Oversight Functions
The Board has overall responsibility for ensuring that the Group maintains a sound system of internal control that provides reasonable assurance regarding the reliability of the information used within the business and for the public, and to ensure that all business assets are safeguarded.
Internal oversight functions offer independent objective assurance and consulting services designed to add value to and improve the Group’s operations. They help the Group accomplish its objectives by bringing a systematic, disciplined approach to evaluate and improve the effectiveness of governance, risk and compliance management.
Development and implementation of an adequate and sound system of internal control is ordinarily the responsibility of Senior Management. The Board provides the general guidelines and oversight as it is ultimately responsible for ensuring that such a system is established and maintained. As part of this responsibility, the Board regularly reviews the system of internal control in order to determine that it works as expected and that it remains appropriate and relevant.
Useful inputs into these reviews include:
• Senior Management reports on the operations and financial condition of the Group, the performance of governance, risk and compliance management and other control systems during the period under review, and any significant non- compliance with controls, the Group’s code of conduct, or with laws and regulations;
• internal and external audit opinions on the adequacy of controls of the Group as a whole and for individual business entities, and recommendations for improvements; and on matters that might have a material adverse impact on its financial condition;
• the audit report on the audited financial statements and all other reports of the external auditor, including the auditor’s management letter;
• views, solicited by the Board, of the Group’s external and internal auditors and legal counsel; and
• The views and observations of regulatory authorities on the Group.
To assure itself that the internal oversight functions (Board support functions) are in place, the Board:
• actively exercises its responsibility for recommending to shareholders a suitable nominee for appointment as external auditor;
• takes an active interest in the selection of Heads of internal oversight functions;
18 CBZ Holdings Limited Annual Report 2010
Corporate Governance Statement (Continued) • reviews the mandates and Group structures of Internal Control Functions, and approve any major changes thereto, and regularly reviews the scope of the proposed activities of these internal oversight functions and of the external auditors;
• requires that those who are responsible for fulfilling these functions are independent from the operations under review and free of influences that may affect their ability to perform their responsibilities objectively;
• requires that the internal oversight functions and the external auditor have unrestricted access to all operations and the Board;
• satisfies itself that those who are responsible for fulfilling these functions have the resources and authority required to perform their duties appropriately and receive support from Senior Management;
• satisfies itself that the remuneration provided to key individuals in these functions adequately reflects the importance of these functions and that the incentives contained in these remuneration packages are not inconsistent with their roles and responsibilities; and
• discusses key findings of the reports produced by these functions, understand how material disagreements are dealt with, and follow-up on any concerns raised by these internal oversight control functions.
Financial Control and Reporting
The Directors are responsible for ensuring that the Group maintains adequate records for reporting on the financial position of the Group and the results of its activities with accuracy and reliability. Financial reporting procedures are consistently applied within the Group and all financial and related non-financial information is constantly reviewed and remedial action taken, where necessary.
Board of Directors
The Board’s role is to foster effective decision making processes and policies within the Group. The Board is thus proactive and effective in the policy making process. Board meeting procedures are not only focused on reviewing past performance but also on debating new decisions, strategies and policies and ensuring that set targets and goals are realised. The Board works collaboratively with Senior Management through harnessing its intellectual power in dealing with complex matters.
The Directors and the Senior Management team steer themselves toward farsighted strategic goals, financial thinking and succession planning. They thus exercise their broad knowledge and accumulated wisdom about a range of relevant domains; finance, strategy, human resources, marketing, technology and the like.
The Board is characterised by:
• Expertise sufficient to allow the Board to add value to policy direction, effective oversight on the Group’s perfomance and the decision–making process;
• Incentives to ensure that the Board is committed to creating corporate value; and
• Procedures that foster open debate and keep Board Members informed and attuned to the Group’s business and stakeholders’ concerns.
The Board has a balanced mix of skills, competencies, experience and is composed of Executive, Non-Executive and Independent Non-Executive Directors. The roles of Chairperson of the Board and Chief Executive Officer are separated and held by different persons. It has established and appointed Board Sub-committees with defined terms of reference, composition and reporting requirements. These Committees have been established and appointed in light of:
• The need to increase the effectiveness of the Board by utilising specialised skills of Board Members;
• Need to provide focused support and guidance to Senior Management; and
• Need to ensure effective and independent professional consideration of issues in key areas of the Group business.
19 CBZ Holdings Limited Annual Report 2010
Corporate Governance Statement (Continued)
Appointment, Selection, Induction, Training, Development and Succession of Directors
The Board is involved in the selection and appointment of Directors. This selection process takes into account any skills and competency deficiencies of current Board Members arising from the operation of the Board and /or the changes in the operating business environment. The composition of the Board fairly represents the diversity of the required skills to meet both current and the emerging issues which support the growth of the Business.
The Board actively encourages good candidates to stand for Board appointments. New Board Members are introduced to their duties through an appropriate induction process. Each Board Member is provided with a Board manual and a copy of standing orders as well as regulations governing conduct of Board meetings.
Every Board Member is also provided with a calendar of Board meetings and critical events of the Group. The Directors are also provided with all relevant legislation and regulations. The Group Legal Corporate Secretary manages the induction and training programme for Board Members.
Board Members understand the extent of their relationship with Senior Management and the separation of stewardship and management.
The Board of Directors as at 31 December 2010 was constituted as tabulated below:-
Luxon Zembe Chairperson, Independent Non-Executive Director John George Osterberg Vice-Chairperson, Independent Non-Executive Director David Mutambara Lead, Independent Non-Executive Director Tinoziva Bere Non-Independent Non-Executive Director Mohamed Ibrahim Omar Ben Ghali Non-Independent Non-Executive Director Fouad Moktar Dernawi Non-Independent Non-Executive Director David Govere Non-Independent Non-Executive Director Andrew Lowe Non-Independent Non-Executive Director Mohamed Hanif Nanabawa Independent Non-Executive Director Roseline Nhamo (Mrs) Independent Non-Executive Director Givemore Taputaira Independent Non-Executive Director Nyasha Makuvise Group Chief Executive Officer John Panonetsa Mangudya (Dr) Alternate Executive Director Viola Makanyara Chasi (Mrs) Group Legal Corporate Secretary
Board Meetings
Board meetings are conducted in a manner that encourages open communication, meaningful participation and timely resolution of issues. Sufficient time is provided during Board meetings for thoughtful discussions. Board meetings are facilitated, but not overly influenced by the Chairperson.
The Board has established and appointed all Board Sub-committees as required by the Banking Act [Chapter 24:20] and the Corporate Governance Guideline No. 01- 2004/BSD. The terms of reference of each committee are well documented.
20 CBZ Holdings Limited Annual Report 2010
Corporate Governance Statement (Continued)
Board meetings were well attended. This enabled directors to both individually and collectively become and remain effective enhancers of corporate governance performance. The detailed attendance schedule for the Holding Company’s Board is disclosed hereunder:
CBZ HOLDINGS LIMITED BOARD COMMITTEE AND BOARD ATTENDANCE REGISTER
(January 2010 to December 2010)
CORPORATE AUDIT & RISK HUMAN GOVERNANCE AND INVESTMENTS MAIN STRATEGIC MANAGEMENT RESOURCES NOMINATIONS Bere, T 4 4 3 N/A 4 2 Ben Ghali, M O I 2 N/A N/A 1 2 2 Dernarwi, F M N/A 1 N/A 1 3 1 Govere, D N/A N/A N/A 0 2 2 Lowe, A N/A N/A 1 1 3 2 Mutambara, D 2 4 N/A N/A 3 2 Nanabawa, M H 4 N/A N/A 3 4 2 Nhamo, R (Mrs) N/A 4 3 N/A 4 2 Osterberg, J G 4 N/A N/A 3 4 2 Taputaira, G 4 N/A N/A 3 3 2 Zembe, L N/A N/A 2 N/A 4 2 Mangudya, J P* (Dr) 3 4 3 2 4 2 Makuvise, N* 4 4 3 3 4 2
*- Executive Directors
N/A - Not a member
Key
Audit and Risk Management Committee Meetings held: 4
Corporate Governance and Nominations Committee meetings held: 4
Human Resources Committee Meetings held: 3
Investments Committee meetings held: 3
Main Board Meetings held: 4
Strategic Planning Committee meetings held: 2
21 CBZ Holdings Limited Annual Report 2010
Corporate Governance Statement (Continued)
Board Committees’ composition and function
Committee Committe Members Main Function Audit &Risk Manage- M H Nanabawa i)The Committee oversees, reviews, establishes and recommends to the Board the approval of an Audit and ment Risk Management Policy. D Mutambara ii) Recommends to the Board, for acceptance by share owners, the appointment of external auditor(s); their J G Osterberg retention and any matters relating to their resignation or dismissal; G Taputaira iii) Evaluates the performance and effectiveness of the external auditor(s) and consider any non-audit services T Bere rendered by such auditors as to whether this substantively impairs their independence; M I O Ben Ghali iv) Receives and recommend approval of Consolidated Financial Statements; * N Makuvise v) Considers any accounting treatments, significant unusual transactions, or accounting judgement, that could be contentious; * J P Mangudya (Dr) vi) identifies key matters arising in the current year’s management letter and satisfy itself that these are being properly followed up; vii) Obtains assurance from the external auditor(s) that adequate accounting records are being maintained. viii) Examines and review the annual financial statements, the interim reports, the accompanying reports to shareowners, the preliminary announcement of results and any other announcements regarding the Group’s results or other financial information to be made public, prior to submission and approval by the Board; ix) Reviews the effectiveness of the Group’s systems of internal control, including internal financial control and business risk management, information technology systems and maintenance of effective internal control systems; and x) Determines quality, integrity and reliability of the Group’s management systems including the review and adoption of the risk management policies including information technology, strategies and direction of the Group in order to achieve set goals with reference to the Group’s risk/reward profile. Investments J G Osterberg The Committee assists the Board in discharging its responsibilities in overseeing, reviewing and recommending to the Board, the establishment of an investment policy and the management of the Group’s investment G Taputaira portfolio. A Lowe F M Dernawi D Govere M H Nanabawa M I O Ben Ghali *N Makuvise *J P Mangudya (Dr)
22 CBZ Holdings Limited Annual Report 2010
Corporate Governance Statement (Continued)
Committee Committe Members Main Function Human Resources R Nhamo (Mrs) The Committee ensures the establishment, through recommendations to the Board, of a formal and transparent procedure for developing a policy on executive recruitment, remuneration, performance L Zembe evaluation, staff welfare, health and safety and any other human resources issues for the Holding Company. A Lowe T Bere *N Makuvise *J P Mangudya (Dr)
Corporate Governance & D Mutambara The Committee oversees , reviews and recommends to the Board the setting up of corporate governance Nominations principles, determine the desirable balance of expertise and diversity among Board members, identify T Bere individuals with the highest personal and professional integrity who are qualified to become Board members, R Nhamo (Mrs) and aid in attracting qualified candidates to the Board. Establish Board performance evaluation procedures; review and recommendation of the Group structure and succession planning of senior management and the F M Dernawi Board. *N Makuvise *J P Mangudya (Dr) Board Strategic com- L Zembe Establishes, reviews and recommends the approval of the Group’s strategic direction. mittee J G Osterberg D Mutambara M H Nanabawa G Taputaira R Nhamo (Mrs) T Bere F M Dernawi M I O Ben Ghali A Lowe D Govere N Makuvise J P Mangudya (Dr)
*- Attend by invitation only
STATEMENT OF COMPLIANCE
Based on the information set out in this corporate governance statement, the Board believes that throughout the accounting period under review, the Group complied with the requisite regulatory requirements.
As at 31 December 2010 the Group was not involved in any material litigation, dispute or arbitration proceedings which may have had a significant effect on its financial position.
23 CBZ Holdings Limited Annual Report 2010
Statement of Directors’ Responsibility
1. RESPONSIBILITY
The Directors are responsible for preparing the Annual Report, the Company and Group financial statements in accordance with applicable laws and regulations and in compliance with International Financial Reporting Standards (IFRSs). The Companies Act (Chapter 24.03) and the relevant Statutory Instruments (SI 33/99 and SI 62/99) require the Directors to prepare Group and parent financial statements for each financial year.
The Group and the Company financial statements are required by law and IFRSs to present fairly the financial position of the Group and parent company and the performance for that period.
In preparation of each of the Group and parent company financial statements, the directors are required to:
• state whether they have been prepared in accordance with IFRSs;
• prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Group and the parent company will continue in business;
• select suitable accounting policies and then apply them consistently; and
• make judgements and estimates that are reasonable and prudent.
The Directors are responsible for keeping proper accounting records that disclose with reasonable accuracy at any time the financial position of the Group and enable them to ensure that the financial statements comply with the Companies Act. They have general responsibility for taking such steps as appropriate to them to safeguard the assets of the Group and to prevent and detect fraud and other irregularities.
Compliance with Companies, Banking, Insurance and Building Society Acts and Statutory Instruments (SI 33/99 and SI 62/99)
These financial statements which have been prepared under the historical cost convention are in agreement with the underlying books and records. The financial statements have been prepared in accordance with the Group’ s accounting policies and are in compliance with all the requirements of the Companies Act (Chapter 24:03) and Statutory Instruments SI 33/99 and SI 62/99, the Banking Act (Chapter 24:20), the Insurance Act (Chapter 24:07), the Building Societies Act (Chapter 24:02) and the Asset Management Act (Chapter 24:26).
Compliance with IFRSs
The financial statements have been prepared in conformity with IFRS, promulgated by the International Accounting Standards Board (IASB), which includes standards and interpretations approved by the IASB as well as International Accounting Standards (IAS) and Standing Interpretations Committee (SIC) interpretations issued under previous constitutions.
2. GOING CONCERN
The Directors have assessed the ability of the Group to continue operating as a going concern and believe that the preparation of these financial statements on a going concern basis is still appropriate. The Directors have engaged themselves to continuously assess the ability of the Group to continue to operate as a going concern to determine the continued appropriateness of the going concern assumption that has been applied in the preparation of these financial statements.
3. CORPORATE GOVERNANCE
The Group adheres to principles of corporate governance derived from the King Reports and the Reserve Bank of Zimbabwe Corporate Governance Guidelines. The Group is cognisant of its duty to conduct business with due care and in good faith in order to safeguard all stakeholders’ interests.
4. BOARD OF DIRECTORS
Board appointments are made to ensure a variety of skills and expertise on the Board. Non-executive Directors are of such calibre as to provide independence to the Board. The Chairman of the Board is a non-executive director. The Board is supported by various committees in executing its responsibilities. The Board meets quarterly to assess risk, review performance and provide guidance to management on strategic and policy issues.
24 CBZ Holdings Limited Annual Report 2010
Statement of Directors’ Responsibility (Continued)
5. INTERNAL FINANCIAL CONTROL
It is the responsibility of the Board to ensure that effective financial controls are implemented in the Group. Internal controls focus on critical risk areas and are based on established policies and procedures. Adequate segregation of duties is in place to enhance the effectiveness of these controls. The Board monitors the effectiveness of these controls through reviews by the Audit and Risk Management Committee and independent evaluation by the external auditors.
The internal financial controls are designed to:-
• Provide reasonable assurance of the integrity and reliability of financial information;
• Safeguard income and assets; and
• Prevent and detect fraud.
6. INTERNAL AUDIT
The internal audit activities have formally defined purposes, authority and responsibility consistent with the Institute of Internal Auditors’ definition of internal auditing and include evaluating the effectiveness of the processes by which risks are identified, prioritised, managed and controlled. To this end, a systematic, disciplined and objective approach has been developed to help the Group to accomplish its objectives and assist in evaluating and improving the effectiveness of risk management, control and governance processes. The internal audit activities include reviews of the reliability and integrity of financial and operating information, the systems of internal control, the means of safeguarding assets, the efficient management of the Group’s resources, and the conduct of its operations.
7. AUDIT AND RISK MANAGEMENT COMMITTEE
The Audit and Risk Management Committee, comprising a majority of independent non-executive directors and chaired by an independent non-executive director, meets quarterly to review the internal control environment, audit processes and financial reporting. The internal and external auditors have unrestricted access to the Committee.
8. SOCIAL RESPONSIBILITY
The Group recognises that being a responsible entity is more than just about service delivery but good community relations. Pursuant to this, the Group is involved in various charitable and social endeavours, including educational assistance to the underprivileged children, donations to health institutions, charitable homes and sporting organisations.
9. REGULATION
The banking, building society and asset management subsidiaries are subject to regulation by the Reserve Bank of Zimbabwe and the Registrar of Banks and Financial Institutions. Where appropriate, the Group participates in industry-consultative committees and discussion groups aimed at enhancing the business environment.
The financial statements which appear on pages 30 to 80 were approved by the Board of Directors on 25 March 2011.
L ZEMBE N MAKUVISE CHAIRMAN GROUP CHIEF EXECUTIVE OFFICER
Date: 25 March 2011
25 CBZ Holdings Limited Annual Report 2010
Report of the Directors
We have pleasure in presenting to shareholders our report and the audited financial statements for the year ended 31 Decem- ber 2010.
1. SHARE CAPITAL
The authorised and issued share capital of CBZ Holdings Limited is as follows;
Authorised
1 000 000 000 ordinary shares
Issued and fully paid
684 144 546 ordinary shares
2. INCORPORATION, ACTIVITIES AND RESULTS
The Group offers commercial banking, mortgage finance, asset management, short and long term insurance and other non- financial services, and is incorporated in Zimbabwe.
Summarised below is a breakdown of the application of profit after tax attributable to shareholders.
31 Dec 2010 US $ Current year dividends - Retained for future growth 17 558 611 17 558 611
3. Directorate Mr L Zembe Chairman Mr T Bere Mr F M Dernawi Mr D Govere Mr A Lowe Mr D Mutambara Mr M H Nanabawa (Appointed 26 March 2010) Mrs R Nhamo Mr J G Osterberg Mr G Taputaira Mr M I O Ben Ghali Mr N Makuvise * Group Chief Executive Officer Dr J P Mangudya* Alternate - CBZ Bank CEO
* Executive Mrs V M Chasi Group Legal Corporate Secretary
26 CBZ Holdings Limited Annual Report 2010
Report of the Directors (Continued)
Directors’ interests in shares
As at 31 December 2010, the Directors held the following direct and indirect beneficial interest in the shares of the Company.
N Makuvise 7 013 645 J P Mangudya (Dr) 1 586 366 J G Osterberg 15 000 8 615 011
4. DIVIDEND ANNOUNCEMENT
The Board has decided to pass the final dividend for the year ended 31 December 2010.
By order of the Board
V M CHASI (MRS)
GROUP LEGAL CORPORATE SECRETARY
25 MARCH 2011
27 CBZ Holdings Limited Annual Report 2010
28 CBZ Holdings Limited Annual Report 2010
Report of the Independent Auditors (Continued) Report of the Independent Auditor
To the Members of CBZ HOLDINGS LIMITED
Report on the Financial Statements
We have audited the accompanying consolidated financial statements of CBZ Holdings Limited as set out on pages 30 to 80, which comprise the consolidated statement of financial position at 31 December 2010, and the consolidated statement of comprehensive income, the consolidated statement of changes in equity and the consolidated statement of cash flows for the year then ended, and the notes to the consolidated financial statements, which include a summary of significant accounting policies and other explanatory notes.
Directors’ Responsibility for the Financial Statements
The Directors are responsible for the preparation and fair presentation of these financial statements in accordance with International Financial Reporting Standards (IFRS) and in the manner required by the Companies Act (Chapter 24:03), the Banking Act (Chapter 24:20), the Asset Management Act (Chapter 24:26), the Building Society Act (Chapter 24:02), the Insurance Act (Chapter 24:07) and the relevant statutory instruments (SI 33/99 and SI 62/96). This responsibility includes: designing, implementing and maintaining internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances.
Auditor’s Responsibility
Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. Those Standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance whether the financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgement, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of CBZ Holdings Limited at 31 December 2010, and its financial performance and its cash flows for the year then ended in accordance with International Financial Reporting Standards.
Report on Other Legal and Regulatory Requirements
In our opinion, the financial statements have, in all material respects, been properly prepared in compliance with the disclosure requirements of the Companies Act (Chapter 24:03), the Banking Act (Chapter 24:20), the Asset Management Act (Chapter 24:26), the Building Society Act (Chapter 24:02), the Insurance Act (Chapter 24:07) and the relevant statutory instruments (SI 33/99 and SI 62/96).
Deloitte & Touche Harare, Zimbabwe
25 March 2011
29 CBZ Holdings Limited Annual Report 2010
Consolidated Statement of Comprehensive Income for the year ended 31 December 2010
31 Dec 2010 31 Dec 2009 Notes US$ US$
Interest income 2 65 831 136 20 596 842 Interest expense 2 (21 665 538) (4 071 346) Net interest income 44 165 598 16 525 496 Non-interest income 3 36 327 832 25 004 590 Underwriting income (net) 4 1 074 514 211 827 Total income 81 567 944 41 741 913 Operating expenditure 5 (54 389 661) (26 178 855) Operating income 27 178 283 15 563 058 Charge for impairment (1 596 313) (3 389 341) Share of associate’s loss (38 648) (34 609) Profit before taxation 25 543 322 12 139 108 Taxation 6.1 (7 926 765) (4 008 857) Profit for the year 17 616 557 8 130 251
Other Comprehensive Income
Gains on property revaluations 6 109 871 8 828 508 Fair value adjustment on available-for-sale (AFS) financial instruments (635 037) 223 400 Deferred tax relating to components of other comprehensive income (876 857) (1 090 644) Other comprehensive income for the year net of tax 6.3 4 597 977 7 961 264 Total comprehensive income for the year 22 214 534 16 091 515
Profit for the year attributable to: Equity holders of parent 17 558 611 8 184 505 Non - controlling interests 57 946 (54 254) 17 616 557 8 130 251 Total comprehensive income attributable to: Equity holders of parent 22 156 588 16 145 769 Non -controlling interests 57 946 (54 254) 22 214 534 16 091 515 Earnings per share (cents): Basic 2.81 1.31 Fully diluted 2.81 1.31
30 CBZ Holdings Limited Annual Report 2010
Statement of financial position as at 31 December 2010 Consolidated Statement of Financial Position as at 31 December 2010
31 Dec 2010 31 Dec 2009 1 Jan 2009 Note US$ US$ US$
ASSETS Balances with banks and cash 7 131 052 391 132 146 742 50 338 449 Money market assets 10 22 148 137 2 374 291 - Advances 11 444 605 401 244 951 876 14 566 586 Insurance assets 12 1 267 377 269 193 52 962 Other assets 13 9 781 940 3 456 078 4 060 679 Investments in equities 14 2 886 014 3 317 361 871 893 Investment in associate 14.1 - 8 671 43 280 Investment properties 16 16 138 587 10 590 692 7 764 404 Property and equipment 15 56 931 378 54 727 602 37 402 637 Intangible assets 17 825 780 189 002 9 953 Deferred taxation 18 1 243 422 460 425 32 184 TOTAL ASSETS 686 880 427 452 491 933 115 143 027
LIABILITIES Deposits 19 578 367 553 360 827 098 63 855 720 Insurance liabilities 20 2 255 317 633 795 236 996 Other liabilities 21 11 918 981 20 575 656 1 842 226 Current tax payable 3 575 561 2 951 515 - Deferred taxation 18 5 090 875 4 256 529 3 284 728 TOTAL LIABILITIES 601 208 287 389 244 593 69 219 670
EQUITY AND RESERVES
Share capital 22 6 841 445 - - Share premium 22.4 26 708 659 - - Treasury shares (587 510) (594 691) (668 374) Non - distributable reserve 22.1 13 000 000 46 550 104 46 550 104 Revaluation reserve 12 962 954 7 740 164 - Available- for - sale reserve 22.5 (403 713) 221 100 - Revenue reserves 22.2 26 940 009 9 277 502 - Equity and reserves attributable to equity holders of the parent 85 461 844 63 194 179 45 881 730
Non - controlling interests 22.3 210 296 53 161 41 627 TOTAL EQUITY AND RESERVES 85 672 140 63 247 340 45 923 357 TOTAL LIABILITIES AND EQUITY AND RESERVES 686 880 427 452 491 933 115 143 027
L ZEMBE N MAKUVISE V M CHASI (MRS) CHAIRMAN GROUP CHIEF EXECUTIVE OFFICER GROUP LEGAL CORPORATE SECRETARY
25 MARCH 2011
31 CBZ Holdings Limited Annual Report 2010
Consolidated Statement of Changes in Equity for the year ended 31 December 2010
Non Available- Non- Share Share Treasury distributable Revaluation for -Sale Revenue Controlling Capital Premium Shares reserve Reserve Reserve Reserve Interests Total US$ US$ US$ US$ US$ US$ US$ US$ US$ 2009 Recognition of opening balances - - (668 374) 46 550 104 - - - 41 627 45 923 357 Total comprehensive income - - - - 7 740 164 221 100 8 184 505 (54 254) 16 091 515 Rights issue ------65 788 65 788 Treasury shares disposal - - 73 683 - - - 1 092 997 - 1 166 680 Balance at 31 December 2009 - - (594 691) 46 550 104 7 740 164 221 100 9 277 502 53 161 63 247 340
2010 Balance at the beginning of the year - - (594 691) 46 550 104 7 740 164 221 100 9 277 502 53 161 63 247 340 Share capital redenomination 6 841 445 26 708 659 - (33 550 104) - - - - - Total comprehensive income - - - - 5 222 790 (624 813) 17 558 611 57 946 22 214 534 Rights issue ------99 189 99 189 Treasury shares disposal - - 7 181 - - - 103 896 - 111 077
Balance at 31 December 2010 6 841 445 26 708 659 (587 510) 13 000 000 12 962 954 (403 713) 26 940 009 210 296 85 672 140
32 CBZ Holdings Limited Annual Report 2010
Consolidated Statement of Cash Flows for the year ended 31 December 2010
31 Dec 2010 31 Dec 2009 US$ US$
CASH FLOWS FROM OPERATING ACTIVITIES
Profit before taxation 25 543 322 12 139 108 Non cash items: Depreciation and amortisation 2 742 923 1 717 943 Fair value adjustment (2 245 757) (2 216 411) Impairment on advances 1 634 924 3 389 341 Share of associate company’s loss 38 648 34 609 Unrealised loss on foreign currency (2 692 239) - Unearned premium 617 066 87 939 Claims provision Incurred But Not Reported (IBNR) 63 785 34 843 Profit/(Loss)on sale of property and equipment 145 169 (142 468) Operating profit before changes in operating assets and liabilities 25 847 841 15 044 904
Changes in operating assets and liabilities Deposits 220 232 694 296 971 378 Advances (201 288 449) (233 774 636) Money market assets (19 773 846) (2 374 291) Insurance assets (1 679 035) (339 014) Insurance liabilities 1 621 522 396 799 Other assets (1 764 148) 604 603 Other liabilities (8 656 675) 18 733 430 (11 307 937) 80 218 269
Corporate tax paid (8 128 226) (1 604 421) Net cash inflow from operating activities 6 411 678 93 658 752
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of investment property (628 719) (339 500) Net change in investments (564 295) (2 671 495) Proceeds on disposal of property and equipment 1 221 648 927 920 Purchase of property and equipment (7 328 520) (10 999 852) Purchase of intangible assets (415 802) - Net cash outflow from investing activities (7 715 688) (13 082 927)
CASH FLOWS FROM FINANCING ACTIVITIES
Rights Issue(Non-controlling interest’s portion) 99 189 65 788 Disposal of Treasury Shares 110 470 1 166 680 209 659 1 232 468
NET (DECREASE)/ INCREASE IN CASH AND CASH EQUIVALENTS (1 094 351 ) 81 808 293 Cash and cash equivalents at the beginning of the year 132 146 742 50 338 449 Cash and cash equivalents at the end of the year 131 052 391 132 146 742
33 CBZ Holdings Limited Annual Report 2010
Group Accounting Policies
1. GROUP ACCOUNTING POLICIES
The following paragraphs describe the main accounting policies applied consistently by the Group.
1.1 BASIS OF PREPARATION
The Group’s financial statements have been prepared in accordance with International Financial Reporting Standards (‘IFRS’). The financial statements are based on statutory records that are maintained under the historical cost convention as modified by the revaluation of property, equipment and investment property.
The financial statements are presented in United States dollars (US$).
Basis of consolidation
The Group financial statements incorporate the financial statements of the Company, its subsidiaries and associate company. Subsidiary undertakings are those companies in which the Group, directly or indirectly, has an interest of more than one half of the voting rights and is able to exercise control of the operations. Control exists when the Group has the power, directly or indirectly, to govern the financial and operating policies of an entity so as to obtain benefits from its activities. The results of subsidiaries acquired or disposed of during the year are incorporated from the dates control was acquired and up to the date control ceased.
The financial statements of the subsidiaries and associate company are prepared for the same reporting period as the parent company, using consistent accounting policies.
All intra-group balances, transactions, income and expenses, profits and losses resulting from intra-group transactions that are recognised in assets and liabilities are eliminated in full.
Non-controlling interests represent the portion of profit and net assets that is not held by the Group and are presented separately in the consolidated statement of comprehensive income and within equity in the consolidated statement of financial position, separately from parent shareholders’ equity.
Statement of compliance
Transition to IFRS
The Group is resuming presentation of IFRS financial statements after the Group issued financial statements in the prior reporting period ended 31 December 2009 which did not include an explicit and unreserved statement of compliance with IFRS due to the effects of severe hyperinflation. The Group has early adopted the amendment to IFRS 1 and is therefore applying that standard in returning to compliance with IFRS. The Group’s functional currency for the period before 1 January 2009, the Zimbabwe dollar (“ZW$”), was deemed subjected to severe hyperinflation as it had both of the following characteristics:
(a) As from 1 August 2008, a reliable general price index was not available to all entities with transactions and balances in ZW$, while the existence of market distortions made measurement of inflation by alternative means unreliable: and
(b) Exchangeability between the ZW$ and a relative stable foreign currency had ceased to exist.
The Group’s functional currency ceased to be subject to severe hyperinflation from 1 January 2009 when the Group changed its functional and presentation currency from the Zimbabwe dollar, (“ZW$”) to the United States dollar (“US$”).
Exemption for fair value as deemed cost
The Group elected to measure certain items of cash and bank balances, loans and advances to customers, trade investments available-for-sale, investment property, property and equipment, deposits from other banks, deposits from customers and other liabilities at fair value and to use the fair value as the deemed cost of those assets and liabilities in the opening IFRS statement of financial position.
34 CBZ Holdings Limited Annual Report 2010
Group Accounting Policies (Continued) Comparative financial information
The financial statements comprise three statements of financial position, two statements of comprehensive income, changes in equity and cash flows as a result of the retrospective application of the amendments to IFRS 1. The comparative statements of comprehensive income, changes in equity and cash flows are for twelve months.
Significant assumptions and estimations in determining the values in the Group’s opening statement of financial position as at 1 January 2009 are listed below:
Monetary items
●● Cash and financial investments in currencies other than the Zimbabwe dollar were converted into the United States Dollar using the cross rates prevailing on 1 January 2009; ●● Loans and advances that were denominated in foreign currency were carried at fair value as at 1 January 2009; ●● Deposits and current accounts denominated in foreign currency were converted into United States Dollars using cross rates prevailing on 1 January 2009; ●● Other liabilities were determined by establishing the settlement amounts with suppliers; and ●● All monetary assets and liabilities denominated in Zimbabwe dollars as at 1 January 2009 have not been considered in the determination of the opening balances.
Non Monetary items
●● Owner occupied and investment properties were recorded at fair values determined by an independent professional valuer; ●● Motor vehicles were recorded at fair values determined by external valuers; ●● Office equipment, furniture and fittings were recorded at deemed costs as determined by an independent professional valuer; ●● Deferred taxation was calculated on the temporary difference between the carrying amounts of assets and liabilities for accounting purposes and the income tax values as approved by the Zimbabwe Revenue Authority (ZIMRA); and ●● The Non-distributable Reserve was derived as the residual of assets and liabilities in United States Dollars as at 1 January 2009.
Reconciliation to previous basis of preparation
The Group’s financial statements for the prior reporting period ended 31 December 2009, claimed compliance with IFRS, except for certain of the requirements of IAS 1 “Presentation of Financial Statements”, IAS 21 “The Effects of Changes in Foreign Exchange Rates”, and IAS 29 “Financial Reporting in Hyperinflationary Economies”. However, after the application of the exemption for fair value as deemed cost, no measurement differences exist between the amounts previously presented and the comparative amounts presented as at 1 January 2009 and for the period ended 31 December 2009. As a result, no reconciliation has been presented between the IFRS results and the basis of preparation.
1.2 SIGNIFICANT ACCOUNTING ESTIMATES AND JUDGEMENTS
In the process of applying the Group’s accounting policies, Management made certain judgements and estimates that have a significant effect on the amounts recognised in the financial statements as stated below:
Fair value measurement principles
The fair value of financial instruments is based on their market price at the statement of financial position date before deducting transaction costs. If a market price is not available, the fair value of an instrument is estimated using the discounted cash flow techniques. Where discounted cash flow techniques are used, estimated future cash flows are based on Management’s best estimates and the discount rate is market related at the statement of financial position date for an instrument with similar terms and conditions.
The fair value of money market investments has been determined by reference to a valuation model approved by Management.
Available-for-sale financial instruments are carried at fair value based on their market price at statement of financial position date. The fair value adjustment is adjusted for through the statement of comprehensive income.
35 CBZ Holdings Limited Annual Report 2010
Group Accounting Policies (Continued) Origination fees on loans and advances
Origination fees are recognised using the effective interest rate method over the average life of the underlying asset.
Impairment on loans and advances
The Group reviews individually significant loans and advances at each statement of financial position date to assess whether impairment should be recorded in the statement of comprehensive income. In particular, judgement by Management is required in the estimation of the amount and timing of future cash flows when determining the impairment. In estimating these cash flows, the Group makes judgements about the borrower’s financial situation and the net realisable value of collateral. These estimates are based on assumptions about a number of factors and actual results may differ, resulting in future changes to the allowance.
The Group determines the loan loss provisions as mandated by the Reserve Bank of Zimbabwe’s (RBZ) Banking Regulations, Statutory Instrument 205 of 2000 (part IV). Management exercises judgements in assigning loan grades which form the basis of provisioning.
The RBZ regulations prescribe minimum percentages to be applied on outstanding loan balances depending on each loan’s grading.
IAS 39 requires the assessment of impairment on individually significant loans and portfolio impairment assessments for the remaining loans.
The Group records the loan loss provision through the statement of comprehensive income.
Estimation of property and equipment useful life
The determination of estimated useful life for property and equipment is carried out at each reporting date.
Estimation of property and equipment residual values
The residual values of property and equipment are reviewed at each reporting date.
Valuation of equity investments
Investments in equities listed on the Zimbabwe Stock Exchange are valued by reference to the prices as published on the statement of financial position date. Other equity investments which are not actively traded are valued at cost.
Incured But Not Reported (IBNR)
In the process of applying the Group`s accounting policies, Management has estimated the incurred but not reported claims (IBNR) at 5% of net written premium for all other products with the exception of motor which has been estimated at 25% of net written premium.
1.3 INVESTMENT IN ASSOCIATES
The Group’s investment in associates is accounted for in accordance with the equity method. An associate is an entity in which the Group has significant influence but in which the entity does not exercise indirect or direct control.
Under the equity method, the investment in the associate is carried in the statement of financial position at cost plus post- acquisition changes in the Group’s share of net assets of the associate. Where there has been a change recognised directly in the equity of the associate, the Group recognises its share of any change.
Profits and losses resulting from intra-group transactions are eliminated to the extent of the interest in the associate.
36 CBZ Holdings Limited Annual Report 2010
Group Accounting Policies (Continued) 1.4 INVESTMENT PROPERTIES
Recognition criteria
Investment properties are those properties held for earning rental income and / or for capital appreciation. Some of these properties are partly occupied by the Group for its business activities. To this extent, the Group’s own use does not exceed 20%.
Investment properties are measured initially at cost, including transaction costs. The carrying amount includes the cost of replacing part of an existing investment property at the time that cost is incurred if the recognition criteria are met; and excludes the costs of day-to-day servicing of an investment property. Subsequent to initial recognition, investment properties are stated at fair value, based on valuations performed by professional valuers.
Transfers to and from investment properties
Transfers are made to or from investment property only when there is a change in use. If an investment property becomes more than 20% owner occupied, it is reclassified as property and equipment in accordance with IAS 16 and its fair value at the date of its classification becomes its cost for accounting purposes for subsequent recording.
Derecognition
Investment properties are derecognised when 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. The difference between the net disposal proceeds and the carrying amount of the asset is recognised in the statement of comprehensive income in the period of derecognition.
1.5 PROPERTY AND EQUIPMENT
Property and equipment are stated at gross carrying amount excluding costs of day-to-day servicing less accumulated depreciation and where applicable accumulated impairment in value. Such costs include the cost of replacing part of such property and equipment when that cost is incurred if the recognition criteria are met. Gross carrying amount represents either cost or the revalued amount, in the case of revalued property.
An item of property and equipment is derecognised upon disposal or when no 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.
Valuations are done by a professional valuer.
Property and equipment are depreciated over their estimated useful lives on a straight line basis such that the cost or valuation of the assets are reduced to their estimated residual values. The estimated useful lives at the end of this reporting period are:
Buildings 40 years Computer and other equipment 5 years Furniture 10 years Leasehold improvements 10 years Motor vehicles 3 – 5 years
The carrying values of property and equipment are reviewed for impairment when events or changes in circumstances indicate that the carrying value may not be recoverable.
The assets` residual values, useful lives and methods of depreciation are reviewed and adjusted if appropriate at each financial year end.
Freehold land and buildings are reported at open market value while subsequent additions between valuation dates are shown at cost.
37 CBZ Holdings Limited Annual Report 2010
Group Accounting Policies (Continued) Any revaluation surplus is credited to the asset revaluation reserve except to the extent that it reverses a revaluation loss of the same asset previously recognised in statement of comprehensive income in which case the increase is recognised in statement of comprehensive income. A revaluation deficit is recognised in statement of comprehensive income except where a deficit directly offsets a previous surplus on the same asset. This deficit is directly offset against the surplus in the asset revaluation reserve.
1.6 FOREIGN CURRENCIES
The presentation and functional currency is United States Dollars (US$). Transactions in foreign currencies are initially recorded at the exchange rate ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are translated at the rate ruling at statement of financial position date. All exchange gains/losses are taken to the statement of comprehensive income.
1.7 TAXATION
Deferred taxation
Deferred income tax is provided using the full liability method on temporary differences at the statement of financial position date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes.
Deferred tax liabilities are recognised for all taxable temporary differences except:
• where the deferred tax liability arises from the initial recognition of goodwill or of an asset or liability in a transaction that is not a business combination and at the time of the transaction affects neither the accounting profit nor taxable profit or loss; and
• in respect of taxable temporary differences associated with investments in subsidiaries, associates and interests in joint ventures where the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future.
Deferred tax assets are recognised for all deductible temporary differences and unused tax losses to the extent that it is probable that taxable profit will be available against which the deductible temporary differences and unused tax losses can be utilised except:
• where the deferred tax asset relating to the deductible temporary difference arises from the initial recognition of an asset or liability in a transaction that is not a business combination and at the time of the transaction affects neither the accounting profit nor taxable profit or loss; and
• in respect of deductible temporary differences associated with investments in subsidiaries, associates and interests in joint ventures, deferred tax assets are recognised only to the extent that it is probable that the temporary 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 tax assets is reviewed at each statement of financial position 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 tax asset to be utilised. Unrecognised deferred tax assets are reassessed at each statement of financial position 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 tax assets and liabilities are measured at the tax rates that are expected to apply to the year when the asset is realised or the liability is settled based on tax rates (and tax laws) that have been enacted or substantively enacted at the statement of financial position date.
Deferred tax relating to items recognised directly in equity is recognised in equity and not in the statement of comprehensive income.
Deferred tax assets and deferred tax liabilities are offset if a legally enforceable right exists to set off current tax assets against current tax liabilities and the deferred taxes relate to the same taxable entity and the same taxation authority.
38 CBZ Holdings Limited Annual Report 2010
Group Accounting Policies (Continued) Current taxation
The tax currently payable is based on taxable profit for the year. Taxable profit differs from profit reported in the statement of comprehensive income because it excludes items of income or expense that are taxable or deductible in other years, and it further excludes items that never taxable or deductible. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted at the statement of financial position date.
Capital gains tax
Deferred tax arising on valuation of property and equity investment is computed at the applicable capital gains tax rates ruling at the statement of financial position date.
Value added tax
Revenue, expenses, and assets are recognised net of Value Added Tax (VAT) except:
• Where 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 the acquisition of the asset or as part of the expense item as applicable, and;
• receivables and payables that are stated with the amount of VAT included.
1.8 FINANCIAL ASSETS
Initial recognition
A financial instrument is a contract that gives rise to both a financial asset of one and a financial liability of another enterprise. Financial instruments held by the Group include balances with banks and cash, money market assets, advances, investments and deposits.
Financial assets in the scope of IAS 39 are classified as either financial assets at fair value through profit or loss, loans and receivables, held-to-maturity investments and available for sale financial assets as appropriate. When financial assets are recognised initially they are measured at fair value, plus, in the case of investments not at fair value through profit or loss, directly attributable transaction costs. The Group determines the classification of its financial assets after initial recognition and where allowed and appropriate re-evaluates this designation at each financial year-end.
All regular way purchases and sales of financial assets are recognised on the trade date i.e. the date that the Group commits to purchase the asset. Regular way purchases or sales are purchases or sales of financial assets that require delivery of assets within the period generally established by regulation or convention in the marketplace.
Subsequent measurement
The subsequent measurement of financial assets depends on their classification as follows:
Financial assets at fair value through profit or loss
Financial assets classified as held for trading are included in the category ‘financial assets at fair value through profit or loss’. Financial assets are classified as held for trading if they are acquired for the purpose of selling in the near term. Derivatives, where applicable, are also classified as held for trading unless they are designated and effective hedging instruments. Gains or losses on investments held for trading are recognised in income. (These include certain investments and money market assets).
Financial assets at fair value through profit or loss are carried in the statement of financial position at fair value with gains or losses recognised in the statement of comprehensive income.
Held to maturity investments
Non-derivative financial assets with fixed or determinable payments and fixed maturity are classified as held- to-maturity when the Group has the positive intent and ability to hold to maturity. Investments intended to be held for an undefined period are not included in this classification but other long-term investments that are intended to be held to maturity such as bonds are included. Held-to-maturity instruments are subsequently measured at amortised cost. This cost is computed as the amount initially recognised minus principal payments plus or minus the cumulative amortisation using the effective interest rate method of any difference between the initially recognised amount and the maturity amount. This calculation
39 CBZ Holdings Limited Annual Report 2010
Group Accounting Policies (Continued) includes all fees and amounts paid or received between parties to the contract that are an integral part of the effective interest rate, transaction costs and all other premiums and discounts. For investments carried at amortised cost, gains and losses are recognised in income when the investments are recognised or impaired as well as the amortisation process. (These include certain investments and money market assets).
Loans and receivables
Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. Such assets are carried at amortised cost using the effective interest rate method. Gains and losses are recognised in income when the loans and receivables are derecognised or impaired as well as through the amortisation process. (These include advances, insurance assets, and other assets).
Available-for-sale financial assets
Available-for-sale financial assets are those non-derivative financial assets that are designated as available-for-sale or are not classified in any of the three preceding categories. After initial recognition, available-for-sale financial assets are measured at fair value with gains or losses being recognised as a separate component of equity until the investment is derecognised or until the investment is determined to be impaired at which time the cumulative gain or loss previously reported in equity is included in the statement of comprehensive income. (These include certain investments and money market assets).
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 at the close of business on the statement of financial position date. For financial instruments where there is no active market, fair value is determined using valuation techniques. Such techniques may include using recent arm’s length market transactions; reference to the current fair value of another instrument that is substantially the same; discounted cash flow analysis or other valuation models.
Balances with banks and cash
Balances with banks and cash comprise cash balances on hand, cash deposited with the Central Bank and other banks.
Offsetting arrangements
Financial assets and liabilities are offset and the net amount presented in the statement of financial position when, and only when, the Group has a legal right to offset the amounts and intends either to settle on a net basis or to realise the asset and settle the liability simultaneously.
1.9 FINANCIAL LIABILITIES
Initial recognition
Financial liabilities are recognised initially at fair value and in the case of loans and borrowings, directly attributable transaction costs are included in the determination of fair value.
Subsequent measurement
The measurement of financial liabilities depends on their classification as follows:
Financial liabilities held for trading
Financial liabilities held for trading, comprising financial instruments other than derivatives are recorded in the statement of financial position at fair value. Changes in fair value are recognised in ‘Net trading income’. Interest expense is recorded in ‘Net trading income’ according to the terms of the contract or when the right to the payment has been established (These include money market deposits).
Financial liabilities designated at fair value through profit or loss
Financial liabilities at fair value through profit or loss are recorded in the statement of financial position at fair value. Interest incurred is accrued in interest expense according to the terms of the contract (These include money market deposits).
40 CBZ Holdings Limited Annual Report 2010
Group Accounting Policies (Continued)
Deposits
Deposits, debt securities issued and subordinated liabilities are initially measured at fair value plus incremental direct transaction costs, and subsequently measured at their amortised cost using the effective interest rate method except where the Group chooses to carry the liabilities at fair value through profit or loss.
Other financial liabilities are measured at amortised cost.
Derecognition of financial assets and liabilities
Financial assets
A financial asset (or where applicable a part of a financial asset or part of a group of similar financial assets) is derecognised where:
• the rights to receive cash flows from the asset have expired;
• the Group retains the right to receive cash flows from the asset but has assumed an obligation to pay them in full without material delay to a third party under a ‘pass-through’ arrangement; or
• the Group has transferred its right to receive cash flows from the asset and either (a) has transferred substantially all the risks and rewards of the asset or (b) has neither transferred nor retained substantially all the risks and rewards of the asset but has transferred control of the asset.
Where the Group has transferred its rights to receive cash flows from an asset 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 pay.
Where continuing involvement takes the form of a written and/or purchased option (including a cash-settled option or similar provision) on the transferred asset, the extent of the Group’s continuing involvement is the amount of the transferred asset that the Group may repurchase except that in the case of a written put option (including a cash-settled option or similar provision) on an asset measured at fair value the extent of the Group’s continuing involvement is limited to the lower of the fair value of the transferred asset and the option exercise.
Financial liabilities
A financial liability is derecognised when the obligation under the liability is discharged cancelled or expires.
Where 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 statement of comprehensive income.
1.10 IMPAIRMENT
The Group assesses at each statement of financial position date whether there is any objective evidence that a financial asset or a 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. Evidence of impairment may include indications that the debtors or a group of debtors is experiencing significant 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 changes in arrears or economic conditions that correlate with defaults.
Assets carried at amortised cost
The carrying amount of the asset shall be reduced either directly or through use of an allowance account if there is objective evidence that an impairment has been incurred. The amount of the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows (excluding future credit losses that have not been
41 CBZ Holdings Limited Annual Report 2010
Group Accounting Policies (Continued) incurred) discounted at the financial asset’s original effective interest rate (i.e. the effective interest rate computed at initial recognition). The amount of the loss shall be recognised in statement of comprehensive income.
The Group first assesses whether objective evidence of impairment exists individually for financial assets that are individually significant, and individually or collectively for financial assets that are not individually significant. If it is determined that no objective evidence of impairment exists for an individually assessed financial asset whether significant or not, the asset is included in a group of financial assets with similar credit risk characteristics and that group of financial assets is collectively assessed for impairment. Assets that are individually assessed for impairment and for which an impairment is or continues to be recognised are not included in a collective assessment of impairment. If in a subsequent period, the amount of the impairment decreases and the decrease can be related objectively to an event occurring after the impairment was recognised, the previously recognised impairment is reversed. Any subsequent reversal of an impairment is recognised in the statement of comprehensive income to the extent that the carrying value of the asset does not exceed its amortised cost at the reversal date.
Assets carried at cost
If there is objective evidence that an impairment on an unquoted equity instrument that is not carried at fair value because its fair value cannot be reliably measured or on a derivative asset that is linked to and must be settled by delivery of such an unquoted equity instrument has been incurred the amount of the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows discounted at the current market rate of return for a similar financial asset.
Available-for-sale financial assets
If an available-for-sale asset is impaired, an amount comprising the difference between its cost (net of any principal payment and amortisation) and its current fair value less any impairment previously recognised in profit or loss is transferred from equity to the statement of comprehensive income. Reversals in respect of equity instruments classified as available-for-sale are not recognised in profit. Reversals of impairment on debt instruments is reversed through profit or loss if the increase in fair value of the instrument can be objectively related to an event occurring after the impairment was recognised in statement of comprehensive income.
Other 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 makes an estimate of 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 cost to sell and its value in use and is determined for an individual asset unless the asset does not generate cash inflows that are largely independent of those from other assets or group of assets. Where the carrying amount of an asset exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount. In assessing value in use the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects market assessments of the time value of money and the risks specific to the asset. Impairment of continuing operations are recognised in the statement of comprehensive income in those expense categories consistent with the function of the impaired asset.
An assessment is made at each reporting date as to whether there is any indication that previously recognised impairment may no longer exist or may have decreased. If such indication exists the recoverable amount is estimated. A previously recognised impairment is reversed only if there has been a change in the estimate used to determine the asset’s recoverable amount since the last impairment 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 been recognised for the asset in prior years. Such reversal is recognised in profit or loss unless the asset is carried at the revalued amount in which case the reversal is treated as a revaluation increase. After such a reversal the depreciation charge is adjusted in future periods to allocate the asset’s revised carrying amount less any residual value on a systematic basis over its remaining useful life.
The Group complies with the regulatory guidelines in respect of its impairment policy and considers those guidelines when assessing impairment in accordance with the requirements of International Accounting Standard (IAS 36 – Impairment).
42 CBZ Holdings Limited Annual Report 2010
Group Accounting Policies (Continued)
1.11 REVENUE RECOGNITION
Revenue is recognised to the extent that it is probable that the economic benefits will flow to the Group and the revenue can be reliably measured and the risks and rewards have passed to the Group.
Trading Income
The Group includes profits or losses and fair value adjustments on held for trading financial instruments both realised and unrealised in income as earned.
Interest Income
Revenue is recognised in the statement of comprehensive income on an accrual basis using the effective interest rate method; that is the rate that exactly discounts the estimated future cash receipts through the expected life of the financial instrument to the net carrying amount of the financial asset.
Interest expense
Expense is recorded in the statement of comprehensive income according to the terms of the contract or when the right to the payment has been established. Interest expense is calculated on a time proportion basis using effective interest rate method.
Commission and fee income
The Group recognises commission and fee income on an accruals basis when the service is rendered. Commission income on acceptances and bills is credited to income over the lives of the relevant instrument on a time apportionment basis.
Services rendered
The Group recognises revenue for services rendered to customers based on the estimated outcome of the transactions. When the outcome can be reliably estimated, transaction revenue is recognised by reference to the stage of completion of the transaction at the statement of financial position date. The stage of completion is measured based on the amount of work performed. When the outcome cannot be reliably estimated, revenue is recognised only to the extent of the expenses incurred that are recoverable.
Dividends
Revenue is recognised when the Group’s right to receive the payment is established.
Premiums
Premiums written comprise the premiums on insurance contracts entered into during the year, irrespective of whether they relate in whole or in part to a later accounting period. Premiums are disclosed gross of commission to intermediaries and exclude taxes and levies based on premiums. Premiums written include adjustments to premiums written in prior accounting periods. Outward reinsurance premiums are accounted for in the same accounting period as the premiums for the related direct insurance or inwards reinsurance business. An estimate is made at the financial reporting date to recognise retrospective adjustments to premiums or commissions.
The earned portion of premiums received, including unclosed business, is recognised as revenue. Premiums on unclosed business are brought into account, based upon the pattern of booking of renewals and new business. Premiums are earned from the date of attachment of risk, over the indemnity period, based on the pattern of risks underwritten.
Outward reinsurance premiums are recognised as an expense in accordance with the pattern or reinsurance service received. A portion of outwards reinsurance premiums is treated as prepayments.
Commission receivable
Commission receivable relating to the unexpired portion of a risk is recognised at the statement of financial position date calculated on a 1/365 basis.
43 CBZ Holdings Limited Annual Report 2010
Group Accounting Policies (Continued)
Basis of accounting for underwriting activities
Underwriting results are determined on an annual basis whereby the incurred cost of claims, commission and related expenses is charged against the unearned proportion of premiums.
Claims
Claims represent the ultimate cost (net of salvage recoveries) of settling all claims arising from events that have occurred up to the statement of financial position date. Claims incurred but not reported are claims arising out of events which have occurred by the statement of financial position date but have not yet been reported at that date.
Unexpired risk provision
An unexpired risk provision is made for any deficiencies arising when unearned premiums, net of associated acquisition costs, are insufficient to meet expected claims and expenses likely to arise after the end of the financial year from contracts concluded before that date. The expected claims are calculated having regard to events that have occurred prior to the statement of financial position date. Unexpired risks, surpluses and deficits, are aggregated where business classes are managed together.
Liability adequacy test
At each statement of financial position date, the liability adequacy test is performed to ensure the adequacy of the contract liabilities net of Deferred Acquisition Costs (DAC). In performing these tests, current best estimates of future contractual cash flows and claims handling and administration costs are used. Any deficiency is immediately charged to the statement of comprehensive income initially by writing off the DAC and by subsequently establishing a provision for losses arising from liability adequacy tests (the unexpired risk provision). Any DAC written off as a result of this test is not reinstated.
Insurance and investment contracts
The company issues contracts that transfer insurance risk and / or financial risk.
Insurance contracts are those that transfer significant insurance risk. Significant insurance risk is defined as the risk of the company paying benefits on the occurrence of an insured uncertain event.
Investment contracts are those that transfer financial risk with no significant insurance risk.
Insurance contracts are classified as short term and include motor, fire, accident, engineering, farming and marine. Premium is recognised over the term of the contract on a proportionate basis. Claims are charged to the statement of comprehensive income based on an estimated liability for compensation. These claims are not discounted as settlement generally occurs within a reasonable period of the claim.
Insurance assets
These comprise reinsurance receivables and deferred acquisition costs.
Reinsurance contracts held
Contracts entered into by the Group with the re-insurers whereby the Group recovers losses on insurance contracts issued are classified as reinsurance contracts held.
The benefits to which the Group is entitled under its reinsurance contracts are recognised as reinsurance assets. The assets consist of short term balances due from re-insurers (classified as reinsurance receivables). The amounts recoverable are measured consistently in accordance with the terms of the reinsurance contracts.
Acquisition Costs
Acquisition costs, which represent commission and other related expenses, are deferred over the period in which the related premiums are earned.
44 CBZ Holdings Limited Annual Report 2010
Group Accounting Policies (Continued)
Lapses and reversals
Lapses relate to the termination of policies due to non-payment of premiums by policyholders. The subsidiary assesses the ability of an insured to settle outstanding amounts at each statement of financial position date. Whenever circumstances or events indicate that the insured may not pay the outstanding amount, a lapse is effected and immediately recognised in the statement of comprehensive income.
Reversals
Reversals relate to the voluntary termination of policies by policyholders. Reversals are recognised immediately in the statement of comprehensive income on a pro-rata basis i.e the unexpired term of a policy.
Premium taxes
Outstanding net amounts of levies recoverable from, or payable to, the taxation authorities are included as part of receivables or payables in the statement of financial position.
Co-insurance
Included in the gross premium is co-insurance premium net of co-insurer’s portion.
Claims handling costs
Claims incurred include the cost of all claims incurred during the year including internal and external claims handling costs that are directly related to the processing and settlement of claims.
1.12 EMPLOYEE BENEFITS
Employee benefits are the considerations given by the Group in exchange for services rendered by employees. In summary such benefits are:
Short-term benefits
Benefits earned by employees under normal employment terms including salaries, wages, bonuses and leave pay. These are expensed as earned and accordingly provisions are made for unpaid bonuses and leave pay.
Post-employment benefits
i) The Group and employees contribute towards the National Social Security Authority, a defined contribution fund. Costs applicable to this scheme are determined by the systematic recognition of legislated contributions.
ii) The Group operates a defined contribution scheme, the assets of which are held in a separate trustee-administered fund. The costs are charged to the statement of comprehensive income as incurred.
1.13 CONTINGENCIES AND COMMITMENTS
Transactions are classified as contingencies where the Group’s obligations depend on uncertain future events and principally consist of third party obligations underwritten. Items are classified as commitments where the Group commits itself to future transactions or if the items will result in the acquisition of assets.
1.14 INSTALMENT CREDIT AGREEMENTS
Leases, instalment credit and rental agreements are regarded as financing transactions. The capital amounts and capitalised interest less repayments are included under advances. Finance charges earned are computed at effective rates of interest inherent in the contracts.
1.15 OPERATING SEGMENTS
An operating segment is a component of the Group that engages in business activities from which it may earn revenues and incur expenses including revenue and expenses that relate to transactions with any of the Group’s other components. All operating segments’ operating results are reviewed regularly by the Group Chief Executive Officer to make decisions about resources to be allocated to the segment and assess its performance, for which discreet information is available.
45 CBZ Holdings Limited Annual Report 2010
Group Accounting Policies (Continued)
1.16 FIDUCIARY ACTIVITIES
The Group’s Asset Management subsidiary acts as a trustee in other fiduciary capacities that result in the holding or placing of assets on behalf of individuals, trusts, post employment benefit plans and other institutions. These assets and income arising thereon are excluded from these consolidated financial statements as they are not assets of the Group.
FINANCIAL GUARANTEES
Financial guarantees are contracts that require the Group to make specified payments to reimburse the holder for a loss it incurs because a specified debtor fails to make payment when due in accordance with the terms of a debt instrument. Financial guarantee liabilities are initially recognised at their fair value, and the initial fair value is amortised over the life of the financial guarantee. The guarantee liability is subsequently carried at the higher of this amortised amount and the present value of any expected payment (when a payment under the guarantee has become probable).
EARNINGS PER SHARE
The Group presents basic and diluted earnings per share (EPS) data for its ordinary shares. Basic EPS is calculated by dividing the profit or loss attributable to ordinary shareholders of the Group by the weighted average number of ordinary shares outstanding during the period, adjusted for own shares held. Diluted EPS is determined by adjusting the profit or loss attributable to ordinary shareholders and the weighted average number of ordinary shares outstanding, adjusted for own shares held, the effects of all potential dilutive ordinary shares.
INTANGIBLE ASSETS
Intangible assets are recorded at cost less any accumulated amortisation and impairment losses.
The estimated useful life at the end of this reporting period for computer software is 5 years.
LEASED ASSETS
Leases in terms of which the Group assumes substantially all the risks and rewards of ownership are classified as finance leases. Upon initial recognition the leased asset is measured at an amount equal to the lower of its fair value and the present value of the minimum lease payments. Subsequent to initial recognition, the asset is accounted for in accordance with the accounting policy applicable to that asset. All other leases not qualifying as finance leases are classified as operating leases. Expenditure relating to operating leases is accounted for through the statement of comprehensive income and according to the specifications of the lease agreement.
Except for the investment property, the leased assets are not recognised on the Group’s statement of financial position. Investment property held under an operating lease is recognised on the Group’s statement of financial position at its fair value.
SHARE CAPITAL
Ordinary share capital
Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of ordinary shares and share options are recognised as a deduction from equity, net of any tax effects.
Repurchase of share capital (treasury shares)
When share capital recognised as equity is repurchased, the amount of the consideration paid, which includes directly attributable costs, net of any tax effects, is recognised as a deduction from equity. Repurchased shares are classified as treasury shares and are presented as a deduction from total equity. When treasury shares are sold or reissued subsequently, the amount received is recognised as an increase in equity, and the resulting surplus or deficit on the transaction is transferred to / from retained earnings.
RELATED PARTIES
Parties are considered to be related if one party has the ability to control the other party or exercise significant influence over the other party in making financial and operating decisions. The Group has related party relationships with its shareholders, subsidiaries, associates and key management employees.
46 CBZ Holdings Limited Annual Report 2010
Group Accounting Policies (Continued)
GOING CONCERN
The Directors have assessed the ability of the Group to continue operating as a going concern and believe that the preparation of these financial statements on a going concern basis is still appropriate. The Directors have engaged themselves to continuously assess the ability of the Group to continue to operate as a going concern, and the continued appropriateness of the going concern assumption that has been applied in the preparation of these financial statements.
1.24 APPLICATION OF NEW AND REVISED INTERNATIONAL FINANCIAL REPORTING STANDARDS
New and amended standards, and interpretations mandatory for the first time for the financial year beginning 1 January 2010 but not currently relevant to the Group (although they may affect the accounting for future transactions and events.)
The following new and revised IFRSs have been adopted in these financial statements. The application of these new and revised IFRSs has not had any material impact on the amounts reported for the current and prior years but may affect the accounting for future transactions or arrangements.
IFRIC 17, ‘Distribution of non-cash assets to owners’ (effective on or after 1 July 2009)
The interpretation was published in November 2008. This interpretation provides guidance on accounting for arrangements whereby an entity distributes non-cash assets to shareholders either as a distribution of reserves or as dividends. IFRS 5 has also been amended to require that assets are classified as held for distribution only when they are available for distribution in their present condition and the distribution is highly probable.
IFRIC 18, ‘Transfers of assets from customers’
Effective for transfer of assets received on or after 1 July 2009. The Interpretation addresses the accounting by recipients for transfers of property, plant and equipment from ‘customers’ and concludes that when the item of property, plant and equipment transferred meets the definition of an asset from the perspective of the recipient, the recipient should recognise the asset at its fair value on the date of the transfer, with the credit being recognised as revenue in accordance with IAS 18, ‘Revenue’.
IFRIC 9, ‘Reassessment of embedded derivatives and IAS 39, Financial Instruments: Recognition and measurement’
Effective 1 July 2009. This amendment to IFRIC 9 requires an entity to assess whether an embedded derivative should be separated from a host contract when the entity reclassifies a hybrid financial asset out of the ‘fair value through profit or loss’ category. This assessment is to be made based on circumstances that existed on the later of the date the entity first became a party to the contract and the date of any contract amendments that significantly change the cash flows of the contract. If the entity is unable to make this assessment, the hybrid instrument must remain classified at fair value through profit or loss in its entirety.
IFRIC 16, ‘Hedges of a net investment in a foreign operation’
Effective 1 July 2009. This amendment states that, in a hedge of a net investment in a foreign operation, qualifying hedging instruments may be held by any entity or entities within a group, including the foreign operation itself, as long as the designation, documentation and effectiveness requirements of IAS 39, ‘Financial Instruments: Recognition and Measurement’ that relate to a net investment hedge are satisfied. In particular, the entity should clearly document its hedging strategy because of the possibility of different designations at different levels of the Group.
IAS 38 (amendment), ‘Intangible assets’
Effective 1 January 2010, the amendment clarifies guidance in measuring the fair value of an intangible asset acquired in a business combination and permits the Grouping of intangible assets as a single asset if each asset has similar useful economic lives.
IAS 1 (amendment), ‘Presentation of financial statements’
The amendment clarifies that the potential settlement of a liability by the issue of equity is not relevant to its classification as current or non-current. By amending the definition of current liability, the amendment permits a liability to be classified as non- current (provided that the entity has an unconditional right to defer settlement by transfer of cash or other assets for at least 12 months after the accounting period) notwithstanding the fact that the entity could be required by the counterparty to settle in shares at any time.
47 CBZ Holdings Limited Annual Report 2010
IAS 36 (amendment), ‘Impairment of assets’
Effective 1 January 2010, the amendment clarifies that the largest cash-generating unit (or group of units) to which goodwill should be allocated for the purposes of impairment testing is an operating segment, as defined by paragraph 5 of IFRS 8, ‘Operating segments’ (that is, before the aggregation of segments with similar economic characteristics).
IFRS 2 (amendments), ‘Group cash-settled share-based payment transactions’
Effective 1 January 2010. In addition to incorporating IFRIC 8, ‘Scope of IFRS 2’, and IFRIC 11, ‘IFRS 2 – Group and treasury share transactions’, the amendments expand on the guidance in IFRIC 11 to address the classification of Group arrangements that were not covered by that interpretation.
IFRS 5 (amendment), ‘Non-current assets held for sale and discontinued operations’
The amendment clarifies that IFRS 5 specifies the disclosures required in respect of non-current assets (or disposal groups) classified as held for sale or discontinued operations. It also clarifies that the general requirement of IAS 1, ‘Presentation of Financial Statements’ still apply, in particular paragraph 15 (to achieve a fair presentation) and paragraph 125 (sources of estimation uncertainty) of IAS 1.
New and reviewed standards in issue but not effective
The Group has not applied the following new and revised standards that have been issued but are not yet effective. Its assessment of the impact of these new standards and interpretations is set out below.
IFRS 9, ‘Financial instruments’
Issued in November 2009, this standard is the first step in the process to replace IAS 39, ‘Financial Instruments: Recognition and Measurement’. IFRS 9 introduces new requirements for classifying and measuring financial assets and is likely to affect the Group’s accounting for its financial assets. The standard is not applicable until 1 January 2013 but is available for early adoption. The Group is yet to assess IFRS 9’s full impact.
IAS 24 (revised), ‘Related party disclosures’
Issued in November 2009, this amendment is mandatory for periods beginning on or after 1 January 2011. Earlier application, in whole or in part, is permitted. The revised standard clarifies and simplifies the definition of a related party and removes the requirement for government-related entities to disclose details of all transactions with the government and other government- related entities. The Group will apply the revised standard from 1 January 2011.
‘Classification of rights issues’ (amendment to IAS 32)
Classification of rights issues’ (amendment to IAS 32), issued in October 2009. The amendment applies to annual periods beginning on or after 1 February 2010. Earlier application is permitted. The amendment addresses the accounting for rights issues that are denominated in a currency other than the functional currency of the issuer. Provided certain conditions are met, such rights issues are now classified as equity regardless of the currency in which the exercise price is denominated. Previously, these issues had to be accounted for as derivative liabilities. The amendment applies retrospectively in accordance with IAS 8 ‘Accounting policies, changes in accounting estimates and errors’.
IFRIC 19, ‘Extinguishing financial liabilities with equity instruments’
Effective 1 July 2010, the interpretation provides guidance regarding the accounting for the extinguishment of a financial liability by the issue of equity instruments. To date, the Group has not entered into transactions of this nature. However, if the Group does enter into any such transactions in the future, IFRIC 19 will affect the required accounting. In particular, under IFRIC 19, equity instruments issued under such arrangements will be measured at their fair value, and any difference between the carrying amount of the financial liability extinguished and the fair value of equity instruments issued will be recognised in profit or loss. The Group will apply the interpretation from 1 January 2011. It is not expected to have any impact on the financial statements.
‘Prepayments of a minimum funding requirement’ (amendment to IFRIC 14)
The amendments correct an unintended consequence of IFRIC 14, ‘IAS 19 – The limit on a defined benefit asset, minimum funding requirements and their interaction’. Without the amendments, entities are not permitted to recognise as an asset some voluntary prepayments for minimum funding contributions. This was not intended when IFRIC 14 was issued, and the amendments correct this. The amendments are effective for annual periods beginning 1 January 2011. Earlier application is permitted.
48 CBZ Holdings Limited Annual Report 2010
IFRS 7, ‘Financial Instruments: Disclosures’
Effective for annual periods beginning on or after 1 January 2011. Earlier application permitted. Encourages qualitative disclosures in the context of the quantitative disclosure required to help users to form an overall picture of the nature and extent of risks arising from financial instruments. Clarifies the required level of disclosure around credit risk and collateral held and provides relief from disclosure of renegotiated loans.
IAS 34, ‘Interim Financial Reporting’
Effective for annual periods beginning on or after 1 January 2011. Earlier application permitted. Emphasises the principle in IAS 34 that the disclosure about significant events and transactions in interim periods should update the relevant information presented in the most recent annual financial report. Clarifies how to apply this principle in respect of financial instruments and their fair values.
IFRIC 13, ‘Customer Loyalty Programmes’
Effective for annual periods beginning on or after 1 January 2011. Earlier application permitted. Clarifies that the ‘fair value’ of award credits should take into account: ●● the amount of discounts or incentives that would otherwise be offered to customers who have not earned award credits from an initial sale; and ●● any expected forfeitures.
49 CBZ Holdings Limited Annual Report 2010
Notes to the consolidated financial statements for the year ended 31 December 2010
1. INCORPORATION AND ACTIVITIES The consolidated financial statements of the Group for the year ended 31 December 2010 were authorised for issue in accordance with a resolution of the Board of Directors on 25 March 2011. The Group offers commercial banking, mortgage finance, asset management, short term insurance, life assurance and other financial services and is incorporated in Zimbabwe.
31 Dec 2010 31 Dec 2009 US$ US$
2. NET INTEREST INCOME Interest Income Bankers acceptances 22 293 50 809 Overdrafts 38 702 345 2 991 354 Loans 20 538 155 17 285 534 Mortgage Interest 791 855 60 595 Staff loans 1 341 379 157 179 61 396 027 20 545 471
Short-term money market assets 1 600 353 46 770 Other Investments 2 834 756 4 601 65 831 136 20 596 842 Interest expense Call deposits 43 250 - Savings deposits 5 514 155 737 292 Money market deposits 11 204 926 1 513 721 Other offshore deposits 4 903 207 1 804 122 21 665 538 4 055 135 Overnight borrowings - 16 211 21 665 538 4 071 346
3. NON-INTEREST INCOME Net income from trading securities 312 438 12 739 Fair value adjustments on financial instruments (246 211) 1 974 423 Fair value adjustments on Investment properties 2 491 968 2 216 411 Net income from foreign currencies dealings 1 792 989 83 260 Commission and fee income 17 599 944 12 715 838 Profit on sale of property and equipment 100 875 285 133 Other operating income 14 275 829 7 716 786 36 327 832 25 004 590 4. UNDERWRITING INCOME (NET) Gross premium insurance 4 116 185 929 538 Reinsurance (1 963 301) (635 023) Net written premium 2 152 884 294 515 Unearned premium (617 066) (87 939) Net earned premium 1 535 818 206 576 Net commission (50 210) 66 320 Net claims (411 094) (61 069) 1 074 514 211 827
50 CBZ Holdings Limited Annual Report 2010
Notes to the consolidated financial statements (Continued)
31 Dec 2010 31 Dec 2009 US$ US$
5. OPERATING EXPENDITURE Staff costs 26 950 134 12 331 385 Administration expenses 24 412 604 11 739 156 Audit fees 284 000 390 371 Depreciation 2 633 899 1 717 943 Ammortisation of intangible assets 109 024 - 54 389 661 26 178 855 Directors remuneration (included in staff costs) Fees for services as directors 388 643 313 453 Pension for past and present directors 54 247 1 337 Salaries and other benefits 2 675 391 1 289 203 3 118 281 1 603 993 Operating Leases The following is an analysis of expenses related to operating leases: Non cancellable lease rentals are payable as follows:
Less than 1 year 224 758 1 008 884 Between 1 and 5 years 1 035 672 1 798 535 1 260 430 2 807 419
The Group leases a number of branches under operating leases. The leases typically run for a period of less than 5 years with an option to renew the lease after the date.
During the year ended 31 December 2010 an amount of $2 030 844 was recognised as rent expense in profit or loss.
6. TAXATION Current income tax and deferred tax on temporary differences have been fully provided for. Deferred income tax is calculated using the statement of financial position liability method.
6.1 Analysis of tax charge in respect of the profit for the year Current income tax charge 8 752 272 4 555 936 Deferred income tax (825 507) (547 079) Income tax expense 7 926 765 4 008 857
6.2 Tax rate reconciliation % % Notional tax 25.00 30.00 Bank levy - 5.00 Aids levy 0.75 0.90 Effect of tax rate changes - (5.15) Permanent differences 5.28 2.27 Effective tax rate 31.03 33.02
6.3 Tax effects relating to comprehensive income Gross revaluation adjustment 6 109 871 8 828 508 Tax expense (887 081) (1 088 344) Net revaluation adjustment 5 222 790 7 740 164
Gross revaluation adjustment on AFS financial assets (635 037) 223 400 Tax credit/(expense) 10 224 (2 300) Net fair value adjustment on AFS financial instruments (624 813) 221 100 Total taxation 876 857 1 090 644
51 CBZ Holdings Limited Annual Report 2010
Notes to the consolidated financial statements (Continued)
31 Dec 2010 31 Dec 2009 1 Jan 2009 US$ US$ US$
7. BALANCES WITH BANKS AND CASH Balance with the Reserve Bank of Zimbabwe 68 578 923 41 976 854 15 990 177 Statutory Reserve 9 564 648 9 068 915 3 454 608 Current accounts 59 014 275 32 907 939 12 535 569 Balances with other banks and cash 62 473 468 90 169 888 34 348 272 Cash 42 880 747 43 667 825 16 634 315 Nostro accounts 19 590 774 46 479 112 17 705 214 Interbank clearing accounts 1 947 22 951 8 743 131 052 391 132 146 742 50 338 449
Cash and bank balances are expected to be available for use within 3 months of call.
8. EARNINGS PER SHARE Basic earnings per share amounts are calculated by dividing net profit for the year attributable to ordinary equity holders of the parent by the weighted average number of ordinary shares outstanding during the period.
Diluted earnings per share amounts are calculated by dividing the net profit attributable to ordinary equity holders of the parent adjusted for the effects of all potentially dilutive ordinary shares by the weighted average number of ordinary shares outstanding during the year plus the weighted average number of all potentially dilutive ordinary shares.
The following reflects the income and share data used in the basic and diluted earnings per share computations:
31 Dec 2010 31 Dec 2009 US$ US$
8.1 EARNINGS Basic 17 558 611 8 184 505 Fully diluted 17 558 611 8 184 505
Number of shares used in calculations (weighted)
Basic 625 571 851 624 675 446 Fully diluted 625 571 851 624 675 446
8.2 reconciliation of denominators used for calculating basic and diluted earnings per share: Weighted average number of shares before adjustment for treasury shares 684 144 546 684 144 546 Less: Treasury shares held (58 572 695) (59 469 100) Weighted average number of shares used for basic EPS 625 571 851 624 675 446 Potentially dilutive shares - - Weighted average number of shares used for diluted EPS 625 571 851 624 675 446
52 CBZ Holdings Limited Annual Report 2010
Notes to the consolidated financial statements (Continued)
31 Dec 2010 31 Dec 2009 1 Jan 2009 US$ US$ US$
9. DIVIDENDS PAID AND PROPOSED Interim dividend - - - Final dividend ------
10. MONEY MARKET ASSETS Government bills - 2 329 000 - GMB Bills 20 000 - - Call placements 22 061 333 - - Accrued interest 66 804 45 291 - 22 148 137 2 374 291 -
Money market Portfolio analysis Held for trading portfolio 22 148 137 2 374 291 - 22 148 137 2 374 291 - Maturity analysis Demand - - - Between 1 and 3 months 22 128 137 2 323 604 - Between 3 months and 1 year 20 000 50 687 - 22 148 137 2 374 291 -
10.1 Financial assets held for trading Trading bills and placements 22 148 137 2 374 291 -
Maturity value 22 669 613 2 454 692 - Book Value 22 148 137 2 374 291 -
10.2 Financial assets classification Financial assets held for trading 20 833 496 2 374 291 - Financial assets designated at fair value through profit or loss 1 314 641 - - 22 148 137 2 374 291 - 11. ADVANCES Bankers acceptances - 729 000 - Overdrafts 290 993 074 127 021 912 - Loans 113 206 260 116 692 706 13 816 575 Mortgage advances 38 343 248 1 858 395 - 442 542 582 246 302 013 13 816 575
Interest accrued 7 190 220 2 119 327 830 134 Total gross advances 449 732 802 248 421 340 14 646 709 Impairment (5 127 401) (3 469 464) (80 123) 444 605 401 244 951 876 14 566 586
53 CBZ Holdings Limited Annual Report 2010
Notes to the consolidated financial statements (Continued)
31 Dec 2010 31 Dec 2009 1 Jan 2009 US$ US$ US$
11.1 Sectoral analysis Private 49 837 939 15 029 539 1 003 311 Agriculture 117 581 292 62 845 148 522 903 Mining 7 869 575 3 399 512 1 292 000 Manufacturing 72 164 666 36 655 674 - Distribution 116 617 977 91 490 329 2 524 325 Construction 13 878 444 8 990 437 713 000 Transport 14 274 134 7 601 949 - Communication 9 849 217 5 000 000 - Services 47 049 651 13 861 856 364 878 Financial Organisations 609 907 3 546 896 8 226 292 449 732 802 248 421 340 14 646 709
11.2 Maturity analysis Demand 301 403 928 128 979 923 2 133 214 Between 1 and 3 months 33 005 280 31 908 427 12 513 495 Between 3 and 6 months 24 872 906 43 682 703 - Between 6 months and 1 year 53 138 033 38 758 097 - Between 1 and 5 years 13 786 500 5 092 190 - More than 1 year 23 526 155 - - 449 732 802 248 421 340 14 646 709
Maturity analysis is based on the remaining period from 31 December 2010 to contractual maturity.
11.3 Loans to Directors and employees
Loans to Directors Included in advances are loans to executive directors:-
Balance at beginning of year 1 363 123 - - Advances made during the year 2 054 208 2 894 035 - Repayment during the year (1 501 155) (1 530 912) - Balance at end of year 1 916 176 1 363 123 -
Loans to Executive Directors are issued at arm’s length terms and are in compliance with relevant banking regulations.
Loans to employees Included in advances are loans to employees: - Balance at beginning of year 4 448 525 - - Advances made during the year 27 002 738 7 972 211 - Effects of ammortisation (19 042) - - Repayments during the year (6 158 136) (3 523 686) - Balance at end of year 25 274 085 4 448 525 -
11.4 Non performing advances Total advances on which interest is suspended 1 744 826 2 842 377 - 1 744 826 2 842 377 -
54 CBZ Holdings Limited Annual Report 2010
Notes to the consolidated financial statements (Continued)
31 Dec 2010 31 Dec 2009 1 Jan 2009 US$ US$ US$
11.5 Impairment of advances Balance at the beginning of year 3 469 464 80 123 80 123 Charge for impairment 1 634 925 3 389 341 - Interest in suspense 3 970 - - Amounts written off during the year 19 042 - - Closing balance 5 127 401 3 469 464 80 123
Comprising: Specific impairments 728 425 208 533 80 123 Portfolio impairments 4 398 976 3 260 931 - 5 127 401 3 469 464 80 123 11.6 Collaterals Mortgage bonds 203 483 507 246 776 000 - Notarial general covering bonds 302 202 874 31 438 469 - 505 686 381 278 214 469 -
12. INSURANCE ASSETS Reinsurance receivables 1 087 850 227 358 33 801 Deferred acquisition cost 179 527 41 835 19 161 1 267 377 269 193 52 962
13. OTHER ASSETS (i) Group Miscellaneous assets 9 304 157 3 350 367 4 060 679 Prepayments and deposits 477 783 105 711 - 9 781 940 3 456 078 4 060 679 (ii) Company Miscellaneous assets 2 316 949 4 611 187 - Prepayments and deposits - - - 2 316 949 4 611 187 -
14. INVESTMENTS IN EQUITIES Listed investments 2 723 516 3 154 316 767 367 Unlisted investments 162 498 163 045 104 526 2 886 014 3 317 361 871 893
At cost 547 424 1 242 753 792 655 At fair value 2 338 590 2 074 608 79 238 2 886 014 3 317 361 871 893 Portfolio analysis Trading 2 359 908 2 580 780 688 130 Available-for-sale 526 106 736 581 183 763 2 886 014 3 317 361 871 893
14. 1 Investment in associate Opening balance 8 671 43 280 43 280 Share of loss for the period (38 648) (34 609) - Net share of associate’s equity (29 977) 8 671 43 280 Transfer from ordinary investments 115 000 - - Disposal (85 023) - - Closing balance - 8 671 43 280
CBZ Holdings Limited had a 38.4 % shareholding in Transcontinental Equity Growth Fund which it disposed of on 30 June 2010.
55 CBZ Holdings Limited Annual Report 2010
Notes to the consolidated financial statements (Continued)
31 Dec 2010 31 Dec 2009 1 Jan 2009
14.2 Investment in subsidiaries CBZ Bank Ltd 100% 100% 100% CBZ Asset Management t/a Datvest (Pvt) Ltd 100% 100% 100% CBZ Building Society 100% 100% 100% Optimal Insurance Company (Pvt) Ltd 58.5% 58.5% 58.5% CBZ Properties Ltd 100% 100% 100% CBZ Life Assuarance (Pvt) Ltd 100% - -
All the Group’s subsidiaries are incorporated in Zimbabwe
15. PROPERTY AND EQUIPMENT Leasehold Motor Computer Work in Land Building improvements Vehicles equipment progress 31 Dec 2010 31 Dec 2009 US$ US$ US$ US$ US$ US$ US$ US$ Cost Opening balance 10 815 748 31 594 009 352 971 1 488 725 7 673 093 4 517 959 56 442 505 37 402 637 Additions - 918 878 21 299 883 569 4 348 065 1 156 709 7 328 520 8 828 508 Revaluation surplus 815 670 3 842 501 - (3 390) 225 000 - 4 879 781 10 999 852 Disposals - (4 900) - (101 080) (354 380) (1 005 122) (1 465 482) (788 492) Transfers (7 986 149) 1 452 444 16 516 - 652 254 (1 368 964) (7 233 899) - Closing balance 3 645 269 37 802 932 390 786 2 267 824 12 544 032 3 300 582 59 951 425 56 442 505
Accumulated depreciation Opening balance - 512 514 29 753 207 095 965 541 - 1 714 903 - Charge for the year - 717 575 24 296 352 460 1 539 568 - 2 633 899 1 717 943 Disposals - - - (28 146) (70 520) - (98 666) (3 040) Transfers ------Revaluation - (1 230 089) - - - - (1 230 089) -
Closing balance - - 54 049 531 409 2 434 589 - 3 020 047 1 714 903
Net Book Value 2010 3 645 269 37 802 932 336 737 1 736 415 10 109 443 3 300 582 56 931 378 54 727 602
Net Book Value at 1 Jan 2009 6 836 169 24 389 560 234 143 763 749 4 454 167 724 849 37 402 637 -
Properties were revalued on an open market basis by an independent professional valuer as at 31 December 2010 in ac- cordance with the Royal Institute of Chartered Surveyors Appraisal and valuation manual and the Real Estate Institute of Zimbabwe Standards. The revaluation of land and buildings entailed the following: In determining the market values of the subject properties, the following was considered:
• Comparable market evidence which comprised complete transactions as well as transactions where offers had been made but the transactions had not been finalised, • Professional judgement was exercised to take cognisance of the fact that properties in the transaction were not exactly comparable in terms of size, quality and location to the properties owned by the Society, • The reasonableness of the market values of commercial properties so determined, per above bullet was assessed by reference to the properties in the transactions, • The values per square metre of lettable spaces for both the subject properties and comparables were analysed, • With regards to the market values for residential properties, the comparison method was used. This method entails carrying out a valuation by directly comparing the subject property, which have been sold or rented out. The proce- dure was performed as follows:
(i) Surveys and data collection on similar past transactions. (ii) Analysis of the collected data.
56 CBZ Holdings Limited Annual Report 2010
Notes to the consolidated financial statements (Continued)
• Comparison of the analysis with the subject properties and then carrying out the valuation of the subject properties. Adjustments were made to the following aspects:
a) Age of property – state of repair and maintenance b) Aesthetic quality – quality of fixtures and fittings c) Structural condition – location d) Accommodation offered – size of land
The maximum useful lives are as follows:
• Buildings: 40 years • Motor vehicles: 3 – 5 years • Leasehold improvements: 10 years • Computer equipment: 5 years • Furniture and fittings: 10 years
The carrying amount of buildings would have been $30 357 007 had they been carried at cost. Property and equipment was tested for impairment through comparison with the open market values determined by independent valuers. No impairment loss was identified from the test.
31 Dec 2010 31 Dec 2009 1 Jan 2009 US$ US$ US$
16. INVESTMENT PROPERTIES Opening balance 10 590 692 7 764 404 7 764 404 Additions 628 719 339 500 - Transfer from property and equipment 6 903 899 - - Transfer to other assets (4 476 691) - - Fair valuation gain 2 491 968 2 486 788 - Closing balance 16 138 587 10 590 692 7 764 404
The carrying amount of the investment property is the fair value of the property as determined by a registered independent appraiser having an appropriate recognised professional qualification and recent experience in the location and category of the property being valued. The valuation was in accordance with the Royal Institute of Chartered Surveyors Appraisal and Valuation Manual and the Real Institute of Zimbabwe Standards. Fair values were determined having regard to recent market transactions for similar properties in the same location as the Group’s investment properties. The basis of valuation is consistent with that detailed in note 15 to the financial statements.
The rental income derived from investment properties amounted to US$587 696 with direct operating expenses amounting to US$153 720.
57 CBZ Holdings Limited Annual Report 2010
Notes to the consolidated financial statements (Continued)
31 Dec 2010 31 Dec 2009 1 Jan 2009 US$ US$ US$
17. INTANGIBLE ASSETS Computer software
At cost 934 804 189 002 9 953 Accumulated amortisation (109 024) - - 825 780 189 002 9 953
Movement in intangible assets Opening balance 189 002 9 953 9 953 Additions 415 802 179 049 - Transfer from property and equipment 330 000 - - Amortisation charge (109 024) - - 825 780 189 002 9 953
18. DEFERRED TAXATION Deferred tax liability Deferred tax related to items charged or credited to statement of comprehensive income during the period is as follows:
Revaluation of property and equipment 887 081 1 088 344 3 284 728 Fair value adjustment – available - for- sale (10 224) 2 300 - 876 857 1 090 644 3 284 728 The deferred tax included in the statement of financial position and changes recorded in the income tax expenses are as follows:
Fair value adjustments 489 769 (88 244) - Prepayments 118 631 388 - Property and equipment 2 885 079 (19 223) - Other (3 535 990) (11 764) - (42 511) (118 843) - Add:
Opening balance 4 256 529 3 284 728 - Closing deferred tax balance 5 090 875 4 256 529 3 284 728
Deferred tax asset Opening balance 460 425 32 184 32 184 Arising from assessed loss 796 433 428 241 - Other (13 436) - - Closing deferred tax balance 1 243 422 460 425 32 184
58 CBZ Holdings Limited Annual Report 2010
Notes to the consolidated financial statements (Continued)
31 Dec 2010 31 Dec 2009 1 Jan 2009 US$ US$ US$
19. DEPOSITS Call deposits 1 458 - 35 423 841 Savings and other deposits 466 917 945 320 495 658 18 915 722 Money market deposits 108 927 965 38 850 290 9 516 157 Accrued interest 2 520 185 1 481 150 - 578 367 553 360 827 098 63 855 720 Deposits by source Banks 76 500 000 500 000 - Money market 108 920 365 36 861 202 18 915 722 Customers 392 947 188 323 465 896 44 939 998 578 367 553 360 827 098 63 855 720 Deposits from customers Retail 33 503 814 21 802 977 3 724 917 Corporate 359 443 373 300 418 829 53 390 477 Money market 185 420 366 38 605 292 6 740 326 578 367 553 360 827 098 63 855 720 Portfolio analysis of deposits Financial liabilities at amortised cost 578 367 553 360 827 098 63 855 720 Financial liabilities at fair value - - - 578 367 553 360 827 098 63 855 720 Sectoral Analysis Private 96 819 472 63 059 535 7 295 754 Agriculture 15 178 046 9 397 874 204 508 Mining 3 554 194 2 204 886 25 454 Manufacturing 92 385 588 57 399 323 2 917 557 Distribution 94 939 653 9 506 311 17 624 712 Construction 5 651 751 3 506 130 18 149 Transport 9 205 944 5 711 016 7 985 365 Communication 36 311 889 24 579 055 437 595 Services 126 834 959 136 226 933 5 807 914 Financial organisations 80 397 991 43 708 099 7 483 583 Financial and investments 17 088 066 5 527 936 14 055 129 578 367 553 360 827 098 63 855 720 Maturity analysis Repayable on demand 392 625 669 288 299 781 53 043 680 Between 1 and 3 months 107 441 884 34 629 496 10 812 040 Between 3 months and 1 year 72 520 000 37 897 821 - More than 1 year 5 780 000 - - 578 367 553 360 827 098 63 855 720
Maturity analysis is based on the remaining period from 31 December 2010 to contractual maturity.
59 CBZ Holdings Limited Annual Report 2010
Notes to the consolidated financial statements (Continued)
31 Dec 2010 31 Dec 2009 1 Jan 2009 US$ US$ US$
20. INSURANCE LIABILITIES Reinsurance payables 303 859 234 618 145 932 Gross outstanding claims 531 961 45 530 - Gross unearned premium reserve 1 274 885 306 746 47 871 Deferred reinsurance acquisition revenue 144 612 46 901 43 193 2 255 317 633 795 236 996
20.1 INSURANCE CONTRACT PROVISIONS
(a) Provision for unearned premiums
Gross reinsurance Net US$ US$ US$ Unearned premiums at beginning of year 306 746 204 738 102 008 Written premiums 4 128 811 1 963 301 2 165 510 Premiums earned during the year (3 160 672) (1 612 230) (1 548 442) Unearned premiums at end of year 1 274 885 555 809 719 076
Outstanding claims provision Outstanding claims at beginning of year 45 530 5 212 5 474 Claims incurred 1 360 136 1 012 826 347 310 Incurred but not yet reported claims provision 63 785 34 844 28 941 Claims paid (937 490) (623 398) (314 092) Claims receivable - 137 400 (137 400) Outstanding claims at end of year 531 961 566 884 (69 767)
(b) Reinsurance payables Reinsurance payable at beginning of year 234 618 91 027 Premiums ceded during the year 1 963 301 635 023 Reinsurance paid (1 894 060) (491 432) Reinsurance payable at end of year 303 859 234 618
(c) Commissions Unearned Deferred Commission US$ Acquisition US$ Net US$ Unearned at 1 January 2010 46 901 41 835 5 066 Written premiums 464 170 554 360 (90 190) Lapsed during the year - - - Earned during the year (366 459) (416 668) 50 209 Unearned at 31 December 2010 144 612 179 527 (34 915)
31 Dec 2010 31 Dec 2009 1 Jan 2009 US$ US$ US$ (d) Net claims Gross Claims Incurred 1 326 409 176 211 - Reinsurance claims (1 012 826) (155 460) - Incurred but not yet reported claims 63 785 34 844 - Gross outstanding claims 428 366 10 686 - Reinsurance share of outstanding claims (394 640) (5 212) - 411 094 61 069 - (e) Net commisions Commission received 464 170 135 500 - Commission Paid (554 360) (88 147) - Deferred acquisition costs 39 980 18 967 - Net commission (50 210) 66 320 -
60 CBZ Holdings Limited Annual Report 2010
Notes to the consolidated financial statements (Continued)
31 Dec 2010 31 Dec 2009 1 Jan 2009 US$ US$ US$
21. OTHER LIABILITIES (i) Group Sundry creditors and accounts 11 918 981 20 575 656 1 842 226 11 918 981 20 575 656 1 842 226 (ii) Company Loan payable - 6 806 174 - Sundry creditors and accounts 221 234 - 1 192 320 Intercompany balances 9 954 763 - - 10 175 997 6 806 174 1 192 320 22. SHARE CAPITAL Authorised 1 000 000 000 ordinary shares of US 1 cents each 10 000 000 - -
Issued and fully paid 684 144 500 ordinary shares of 1cent each 6 841 445 - -
During the year the shareholders approved the redenomination of the authorised share capital of the company to US$10 000 000 (ten million) divided into 1 000 000 000 (one billion) ordinary shares of a nominal value of US$0.01 (one cent) each. Furthermore, the shareholders approved the redenomination of the issued share capital of the company to US$6 841 445 divided into 684 144 546 ordinary shares of a nominal value of $0.01 each. Pursuant to the redenomination above, the shareholders authorised the directors to transfer from the non-distributable reserve to share capital, US$6 841 445 and to share premium, $26 708 659.
31 Dec 2010 31 Dec 2009 1 Jan 2009 US$ US$ US$
22.1 Non -distributable reserve Opening balance 46 550 104 46 550 104 46 550 104 Share capital redenomination (33 550 104) - - Closing balance 13 000 000 46 550 104 46 550 104
22.2 revenue reserves Revenue reserves comprise: Opening balance 9 277 502 - - Total comprehensive income 17 558 611 8 184 505 - Treasury shares disposal 103 896 1 092 997 - Closing balance 26 940 009 9 277 502 -
Holding company (1 966 142) (885 765) - Subsidiary companies 32 272 881 9 752 785 - Effects of consolidation journals (3 366 730) 410 482 - 26 940 009 9 277 502 - 22.3 Non-controlling interests Non controlling Interests comprise: Opening balance 53 161 41 627 41 627 Total comprehensive income 57 946 (54 254) - Rights Issue 99 189 65 788 - Closing balance 210 296 53 161 41 627
22.4 Share premium Share capital redenomination 26 708 659 - -
22.5 Available-for-sale reserve Opening balance 221 100 - - Total comprehensive income (624 813) 221 100 - Closing balance (403 713) 221 100 -
61 CBZ Holdings Limited Annual Report 2010
Notes to the consolidated financial statements (Continued)
23. LIQUIDITY PROFILE AS AT 31 DECEMBER 2010
1 to 3 3 to 1 to 5 Above Demand months 1 year years 5 years Total US$ US$ US$ US$ US$ US$
Assets Advances 296 276 528 33 005 280 78 010 939 13 786 500 23 526 154 444 605 401 Balances with banks and cash 82 430 150 48 622 241 - - - 131 052 391 Investment in equities - - - - 2 886 014 2 886 014 Money market assets - 22 148 137 - - - 22 148 137 Financial guarantees - - - 18 668 136 - 18 668 136 Total 378 706 678 103 775 658 78 010 939 32 454 636 26 412 168 619 360 079
Liabilities Deposits 392 625 669 107 441 884 72 520 000 5 780 000 - 578 367 553 Current tax payable - 3 575 561 - - - 3 575 561 Other liabilities - - 11 918 981 - - 11 918 981 Financial guarantees - - - 18 668 136 - 18 668 136 Total 392 625 669 111 017 445 84 438 981 24 448 136 - 612 530 231
Liquidity gap (13 918 991) (7 241 787) (6 428 042) 8 006 500 26 412 168 6 829 848 Cumulative liquidity gap (13 918 991) (21 160 778) (27 588 820) (19 582 320) 6 829 848 6 829 848
LIQUIDITY PROFILE AS AT 31 DECEMBER 2009
1 to 3 3 to 1 to 5 Above Demand months 1 year years 5 years Total US$ US$ US$ US$ US$ US$
Assets Loans and advances 125 595 775 31 823 111 82 356 542 5 176 448 - 244 951 876 Balances with banks and cash 132 146 742 - - - - 132 146 742 Investment in equities - - - 3 317 361 - 3 317 361 Money market assets - 2 374 291 - - - 2 374 291 Financial guarantees - - - 63 632 195 - 63 632 195 Total 257 742 517 34 197 402 82 356 542 72 126 004 - 446 422 465
Liabilities Deposits 290 288 869 32 640 408 37 897 821 - - 360 827 098 Current tax payable - 2 951 515 - - - 2 951 515 Other liabilities - - 20 575 656 - - 20 575 656 Financial guarantees - - - 63 632 195 - 63 632 195 Total 290 288 869 35 591 923 58 473 477 63 632 195 - 447 986 464
Liquidity gap (32 546 352) (1 394 521) 23 883 065 8 493 809 - (1 563 999) Cummulative liquidity gap (32 546 352) (33 940 873) (10 057 808) (1 563 999) (1 563 999) (1 563 999)
62 CBZ Holdings Limited Annual Report 2010
Notes to the consolidated financial statements (Continued)
LIQUIDITY PROFILE AS AT 1 JANUARY 2009
1 to 3 3 to 1 to 5 Above Demand months 1 year years 5 years Total US$ US$ US$ US$ US$ US$
Assets Loans and advances 2 133 214 - 12 433 372 - - 14 566 586 Balances with banks and cash 50 338 449 - - - - 50 338 449 Total 52 471 663 - 12 433 372 - - 64 905 035
Liabilities Deposits 53 043 680 10 811 672 368 - - 63 855 720 Other liabilities - - 236 996 - - 236 996 Equity and reserves ------Total 53 043 680 10 811 672 237 364 - - 64 092 716
Liquidity gap (572 017) (10 811 672) 12 196 008 - - 812 319 Cummulative liquidity gap (572 017) (11 383 689) 812 319 812 319 812 319 812 319
The tables above show the undiscounted cash flows on the Group’s non-derivative financial assets and liabilities, including issued financial guarantee contracts, and unrecognised loan commitments on the basis of their earliest possible contractual maturity. For issued financial guarantee contracts, the maximum amount of the guarantee is allocated to the earliest period in which the guarantee could be called. The Group’s expected cash flows on these instruments may vary from this analysis. For example, demand deposits from customers are expected to maintain a stable or increasing balance and unrecognised loan commitments are not all expected to be drawn down immediately.
The Group carries out static statement of financial position analysis to track statement of financial position growth drivers, statement of financial position structure, levels and direction of the Group`s maturity mismatch and related funding or liquidity gap and Assets and Liabilities Committee comes up with strategies through its monthly meetings to manage these liquidity gaps through new advances and time deposits.
The key measure used by the Group for managing liquidity risk is the ratio of net liquid assets to public liabilities. For this purpose net liquid assets are considered as including cash and cash equivalents and investment grade debt securities for which there is an active and liquid market less any deposits from banks, debt securities issued, other borrowings and commitments maturing within the next month.
Details of the liquidity ratio for CBZ Bank Limited and CBZ Building Society at the reporting date and during the reporting period were as follows:
CBZ Bank Limited CBZ Building Society % %
At 31 December 2010 26 88 Average for the period 32 79 Maximum for the period 39 94 Minimum for the period 23 62
63 CBZ Holdings Limited Annual Report 2010
Notes to the consolidated financial statements (Continued) 24. INTEREST RATE REPRICING AND GAP ANALYSIS
31 December 2010 1 to 3 3 to 1 to Above Non Interest Demand months 1 year 5 years 5 years Bearing Total US$ US$ US$ US$ US$ US$ US$
Assets Balances with banks and cash 79 204 576 51 847 815 - - - - 131 052 391 Money market assets - 22 148 137 - - - - 22 148 137 Advances 296 276 528 33 005 280 78 010 939 13 786 500 23 526 154 - 444 605 401 Insurance assets - - - - - 1 267 377 1 267 377 Other assets - - - - - 9 781 940 9 781 940 Investments - - - - - 2 886 014 2 886 014 Investment properties - - - - - 16 138 587 16 138 587 Property and equipment - - - - - 56 931 378 56 931 378 Deferred taxation - - - - - 1 243 422 1 243 422 Intangible assets - - - - - 825 780 825 780 Total Assets 375 481 104 107 001 232 78 010 939 13 786 500 23 526 154 89 074 498 686 880 427
Liabilities and Equity Deposits 392 625 669 107 441 885 72 519 999 5 780 000 - - 578 367 553 Insurance liabilities - - - - - 2 255 317 2 255 317 Other liabilities - - - - - 11 918 981 11 918 981 Deferred taxation - - - - - 5 090 875 5 090 875 Current tax payable - 3 575 561 - - - - 3 575 561 Equity and reserves - - - - - 85 672 140 85 672 140 Total Equity and Liabilities 392 625 669 111 017 446 72 519 999 5 780 000 - 104 937 313 686 880 427
Interest rate repricing gap (17 144 565) (4 016 214) 5 490 940 8 006 500 23 526 154 (15 862 815) - Cumulative gap (17 144 565) (21 160 779) (15 669 839) (7 663 339) 15 862 815 - -
31 December 2009
1 to 3 3 to 1 to Above Non Interest Demand months 1 year 5 years 5 years Bearing Total US$ US$ US$ US$ US$ US$ US$
Assets Balances with banks and cash 132 146 742 - - - - - 132 146 742 Money market assets - - 2 374 291 - - - 2 374 291 Advances 118 815 233 6 864 800 31 823 111 82 356 543 5 092 189 - 244 951 876 Insurance assets - - - - - 269 193 269 193 Other assets - - - - - 3 456 078 3 456 078 Investments - - - - - 3 317 361 3 317 361 Investments in associate - - - - - 8 671 8 671 Investment properties - - - - - 10 590 692 10 590 692 Property and equipment - - - - - 54 727 602 54 727 602 Deferred taxation - - - - - 460 425 460 425 Intangible assets - - - - - 189 002 189 002 Total Assets 250 961 975 6 864 800 34 197 402 82 356 543 5 092 189 73 019 024 452 491 933
Liabilities and Equity Deposits 287 578 987 720 794 34 680 182 37 847 135 - - 360 827 098 Insurance liabilities - - - - - 633 795 633 795 Other liabilities - - - - - 20 575 656 20 575 656 Deferred taxation - - - - - 4 256 529 4 256 529 Current tax payable - - 2 951 515 - - - 2 951 515 Equity and reserves - - - - - 63 247 340 63 247 340 Total Equity and Liabilities 287 578 987 720 794 37 631 697 37 847 135 - 88 713 320 452 491 932
Interest rate repricing gap (36 617 012) 6 144 006 (3 434 295) 44 509 408 5 092 189 (15 694 296) - Cumulative gap (36 617 012) (30 473 006) (33 907 301) 10 602 107 15 694 296 - -
64 CBZ Holdings Limited Annual Report 2010
Notes to the consolidated financial statements (Continued)
1 January 2009
1 to 3 3 to 1 to Above Non Interest Demand months 1 year 5 years 5 years Bearing Total US$ US$ US$ US$ US$ US$ US$
Assets Loans and advances 2 133 214 - 12 433 372 - - - 14 566 586 Balances with banks and cash 50 338 449 - - - - - 50 338 449 Insurance assets - - - - - 52 962 52 962 Other assets - - - - - 4 060 679 4 060 679 Investment in equities - - - - - 871 893 871 893 Investment in associate - - - - - 43 280 43 280 Investment properties - - - - - 7 258 529 7 258 529 Property and equipment - - - - - 37 908 512 37 908 512 Deferred taxation - - - - - 32 184 32 184 Intangible assets - - - - - 9 953 9 953 Total 52 471 663 - 12 433 372 - - 50 237 992 115 143 027
Liabilities Deposits 53 043 680 10 811 672 368 - - - 63 855 720 Insurance liabilities - - - - - 236 996 236 996 Deferred taxation - - - - - 3 284 728 3 284 728 Other liabilities - - - - - 1 842 226 1 842 226 Equity and reserves - - - - - 45 923 357 45 923 357 Total 53 043 680 10 811 672 368 - - 51 287 307 115 143 027
Liquidity gap (572 017) (10 811 672) 12 433 004 - - (1 049 315) - Cumulative liquidity gap (572 017) (11 383 689) 1 049 315 1 049 315 1 049 315 - -
The management of interest rate risk against interest rate gap limits is suplemented by monitoring the sensitivity of the Group’ s financial assets and liabilities to various standard and non-standard interst rate scenarios.
65 CBZ Holdings Limited Annual Report 2010
Notes to the consolidated financial statements (Continued)
25.1 FOREIGN CURRENCY POSITION Position expressed in US$
31 December 2010
Total USD ZAR GBP Other foreign US$ currencies Assets Balances with banks and cash 131 052 391 102 703 490 24 126 257 2 032 327 2 190 317 Money market assets 22 148 137 11 083 855 10 599 232 - 465 050 Advances 444 605 401 442 919 290 1 190 995 254 212 240 904 Insurance assets 1 267 377 1 267 377 - - - Other assets 9 781 940 8 334 801 431 200 245 965 769 974 Investments in equities 2 886 014 2 781 293 - - 104 721 Investments in associate - - - - - Investment properties 16 138 587 16 138 587 - - - Property and equipment 56 931 378 56 931 378 - - - Deferred taxation 1 243 422 1 243 422 - - - Intangible assets 825 780 825 780 - - - Total Assets 686 880 427 644 229 273 36 347 684 2 532 504 3 770 966
Liabilities and Equity Deposits 578 367 553 541 668 030 29 413 844 859 609 6 426 070 Insurance liabilities 2 255 317 2 255 317 - - - Other liabilities 11 918 981 11 843 603 15 919 59 417 42 Current tax payable 3 575 561 3 575 561 - - - Deferred taxation 5 090 875 5 090 875 - - - Equity and reserves 85 672 140 85 672 140 - - - Total Equity and Liabilities 686 880 427 650 105 526 29 429 763 919 026 6 426 112
31 December 2009
Total USD ZAR GBP Other foreign US$ currencies Assets Balances with banks and cash 132 146 742 120 479 982 2 829 759 5 956 202 2 880 799 Money market assets 2 374 291 2 374 291 - - - Advances 244 951 876 244 817 188 133 257 547 884 Insurance assets 269 193 269 193 - - - Other assets 3 456 078 3 376 260 12 100 (998) 68 716 Investments in equities 3 317 361 3 317 361 - - - Investments in associate 8 671 8 671 - - - Investment properties 10 590 692 10 590 692 - - - Property and equipment 54 727 602 54 727 602 - - - Deferred taxation 460 425 460 425 - - - Intangible assets 189 002 189 002 - - - Total Assets 452 491 933 440 610 667 2 975 116 5 955 751 2 950 399
Liabilities and Equity Deposits 360 827 098 354 398 546 2 396 758 2 441 947 1 589 847 Insurance liabilities 633 795 633 795 - - - Other liabilities 20 575 656 20 540 778 - 34 704 174 Deferred taxation 2 951 515 2 951 515 - - - Current tax payable 4 256 529 4 256 529 - - - Equity and reserves 63 247 340 63 247 340 - - - Total Equity and Liabilities 452 491 933 446 028 503 2 396 758 2 476 651 1 590 021
66 CBZ Holdings Limited Annual Report 2010
Notes to the consolidated financial statements (Continued)
1 January 2009
Total USD ZAR GBP Other foreign US$ currencies Assets Balances with banks and cash 50 338 449 41 491 807 890 727 5 181 894 2 774 021 Advances 14 566 586 14 566 586 - - - Insurance assets 52 962 52 962 - - - Other assets 4 060 679 4 051 749 111 8 819 - Investments in equities 871 893 762 252 - - 109 641 Investments in associate 43 280 43 280 - - - Investment properties 7 258 529 7 258 529 - - - Property and equipment 37 908 512 37 908 512 - - - Deferred taxation 32 184 32 184 - - - Intangible assets 9 953 9 953 - - - Total Assets 115 143 027 106 177 814 890 838 5 190 713 2 883 662
Liabilities and Equity Deposits 63 855 720 58 638 675 998 811 2 709 775 1 508 459 Insurance liabilities 236 996 236 996 - - - Other liabilities 1 842 226 2 186 313 760 779 244 747 036 Deferred taxation 3 284 728 3 284 728 - - - Equity and reserves 45 923 357 45 923 357 - - - Total Equity and Liabilities 115 143 027 108 085 942 1 312 571 3 489 019 2 255 495
67 CBZ Holdings Limited Annual Report 2010
Notes to the consolidated financial statements (Continued)
25.2 FOREIGN CURRENCY POSITION
Position expressed in underlying currency
31 December 2010
ZAR GBP Other Foreign Currencies
Assets Cash and short term assets 159 565 306 1 315 082 2 190 317 Advances 7 876 950 164 496 240 904 Money market assets 70 100 739 Other assets 3 460 091 160 010 774 409 Total Assets 241 003 086 1 639 588 3 205 630
Liabilities Deposits 194 340 009 556 237 6 425 934 Other liabilities 301 325 38 447 178 Total Liabilities 194 641 334 594 684 6 426 112
Net position 46 361 752 1 044 904 (3 220 482)
31 December 2009
ZAR GBP Other Foreign Currencies Assets Cash and short term assets 20 911 917 3 722 626 2 880 799 Advances 984 766 342 884 Other assets 89 416 (642) 68 716 Total Assets 21 986 099 3 722 326 2 950 399
Liabilities Deposits 17 712 038 1 526 217 1 589 847 Other liabilities - 21 690 174 Total Liabilities 17 712 038 1 547 907 1 590 021
Net position 4 274 061 2 174 419 1 360 378
1 January 2009
ZAR GBP Other Foreign Currencies Assets Cash and short term assets 7 957 738 3 583 606 2 774 021 Advances - - - Other assets 996 6 099 - Investments - - 109 641 Total Assets 7 958 734 3 589 705 2 883 662
Liabilities Deposits 8 927 872 1 873 980 1 508 459 Other liabilities 2 804 540 538 896 747 036 Total Liabilities 11 732 412 2 412 876 2 255 495
Net position (3 773 678) 1 176 829 628 167
68 CBZ Holdings Limited Annual Report 2010
Notes to the consolidated financial statements (Continued)
26. CAPITAL MANAGEMENT The primary objectives of the Group`s capital management are to ensure that the Group complies with external imposed capital requirements and the Group maintains strong credit ratings and healthy capital ratios in order to support its business and maximise shareholder value.
The Group manages its capital structure and makes adjustments to it in light of changes in economic conditions and the risk characteristics of its activities. In order to maintain or adjust the capital structure, the Group may adjust the amount of dividend payment to shareholders, retain capital or issue capital securities. No changes were made in the objectives, policies and processes from the previous years.
27. CONTINGENCIES AND COMMITMENTS
31 Dec 2010 31 Dec 2009 1 Jan 2009 US$ US$ US$
Contingent liabilities Guarantees 18 668 136 63 632 195 - Irrevocable letters of credit - - - 18 668 136 63 632 195 -
There is an ongoing labour dispute between the banks and Zimbambwe Bankers And Allied Workers Union (“ZIBAWU”) regarding salary adjustments. To date, CBZ Bank Limited has awarded 5% out of the 30% that ZIBAWU has demanded, and backdated this to July 2010. Should ZIBAWU succeed in their claim, the maximum exposure to the Bank is US$960 512.
Capital commitments Authorised and contracted for 84 749 46 719 - Authorised and uncontracted for - - - 84 749 46 719 -
The capital commitments will be funded from the Group`s own resources and borrowings.
28. FUNDS UNDER MANAGEMENT Pensions 60 957 115 54 969 242 - Private 12 447 934 13 723 066 - Unit trust 506 026 518 221 - Money market 1 681 459 934 388 - 75 592 534 70 144 917 -
29. OPERATING SEGMENTS The Group is comprised of the following operating units:
CBZ Bank Limited - Provides commercial banking and mortgage finance products through retail banking, corporate and merchant banking and investing portfolios through the treasury function. CBZ Asset Management - Provides fund management services to a wide spectrum of investors through placement of either pooled portfolios or individual portfolios Optimal Insurance - Provides short term insurance CBZ Properties - Property investment arm of the business CBZ Life - Provides long term insurance
The following tables present information regarding the Group`s operating segments for the year ended 31 December 2010:-
69 CBZ Holdings Limited Annual Report 2010
Notes to the consolidated financial statements (Continued)
29.1 Segment Operational results
31 December 2010
Other Operations Commercial Mortgage Asset Property (and consolidation Banking Finance Management Insurance Investment adjustment) Consolidated US$ US$ US$ US$ US$ US$ US$
Income Income from external customers 72 215 894 8 798 422 1 078 914 1 147 248 2 805 861 (993 567) 85 052 772 Elimination of Inter segment revenue - - - - - (3 484 828) (3 484 828) Total Income 81 567 944
Depreciation and amortisation 1 483 838 903 636 57 813 144 720 - 152 916 2 742 923
Results Profit/(loss) before taxation 29 547 938 (264 700) (646 788) (112 279) 2 434 499 (1 891 872) 29 066 798 Elimination of inter segment profit - - - - - (3 484 828) (3 484 828) Share of associate’s profit(/loss) - - - - - (38 648) (38 648) Profit before taxation ------25 543 322
Other material non cash items Impairment of assets (incl loan loss provision) 1 591 109 43 816 - (38 612) - - 1 596 313 Reportable segment liabilities 594 321 137 34 858 477 570 781 2 621 831 2 139 499 (33 303 438) 601 208 287
31 December 2009
Other Operations Commercial Mortgage Asset Property (and consolidation Banking Finance Management Insurance Investment adjustment) Consolidated US$ US$ US$ US$ US$ US$ US$
Income Income from external customers 33 981 758 5 542 623 1 804 947 227 665 783 884 177 288 42 518 165 Elimination of Inter segment revenue (776 252) (776 252) Total Income 41 741 913
Depreciation and amortisation 1 110 419 514 814 57 799 34 429 482 1 717 943
Results Profit before taxation 11 719 094 1 225 993 727 745 (159 592) 679 433 (1 242 704) 12 949 969 Elimination of inter segment profit (776 252) (776 252) Share of associate’s profit/(loss) (34 609) (34 609) Profit before taxation 12 139 108
Other material non cash items Impairment of assets (incl loan loss provision) 3 199 296 190 045 - - - - 3 389 341 Reportable segment liabilities 372 148 253 10 593 183 415 623 778 917 3 347 912 1 960 705 389 244 593
70 CBZ Holdings Limited Annual Report 2010
Notes to the consolidated financial statements (Continued)
31 Dec 2010 31 Dec 2009 1 Jan 2009 US$ US$ US$
29.2 Total segment assets Commercial Banking 649 703 775 405 183 602 88 445 657 Mortgage financing 59 671 292 33 373 943 19 331 794 Asset Management 1 651 999 1 490 623 609 144 Insurance 4 329 314 1 130 180 338 853 Property Investment 11 497 037 10 140 281 6 114 220 Total Segment Assets 726 853 417 451 318 629 114 839 668 Other operations (39 972 990) 1 173 304 303 359 Total Segment Assets 686 880 427 452 491 933 115 143 027
30. RELATED PARTIES
The ultimate controlling party of the Group is CBZ Holdings Limited. The Group has related party relationships with its shareholders who own, directly or indirectly, 20% or more of its share capital or those shareholders who control in any manner, the election of the majority of the Directors of the Group or have the power to exercise controlling influence over the management or financial and operating policies of the Group. The Group carried out banking and investments related transactions with various companies related to its shareholders, all of which were undertaken at arm’s length terms and in compliance with the relevant Banking Regulations.
Loans to directors and related parties
31 Dec 2010 31 Dec 2009 1 Jan 2009 US$ US$ US$
Black Brand Investments (Private ) Limited 501 617 - - Mkay Enterprises (Private) Limited 500 032 91 527 - Mauriberg Investments (Private) Limited 273 184 500 000 - TNV Investments (Private) Limited 244 315 93 161 - Grisberg Sevices (Private) Limited 236 520 - - Mt Pleasant Paint & Hardware (Private) Limited 159 697 - - Chirimuuta and Associates Trust 142 866 - - Bext Farm 105 000 65 000 - The Village Place 56 240 - - Rockmount (Pvt) Limited - 130 000 - 2 219 471 879 688 - Transactions with companies owned wholly or partly by Directors of CBZ Holdings Limited and its subsidiaries:
Interest income 339 818 54 022 - Commission and fee income 2 597 1 796 -
The above companies are owned wholly or partly by Directors of CBZ Holdings Limited and its subsidiaries.
Compensation of key management personnel of the Group As required by IAS 24: Related Party Disclosure, the Board’s view is that non-executive and executive directors constitute the management of the Group. Accordingly, key management remuneration is disclosed under note 6 to the financial statements.
31. EXCHANGE RATES ZAR 6.62 7.39 8.95 GBP 1.55 1.60 1.45 EUR 1.33 1.44 1.44
71 CBZ Holdings Limited Annual Report 2010
Notes to the consolidated financial statements (Continued)
32. RISK MANAGEMENT 32.1 INTRODUCTION The Group subscribes to Risk Management principles and processes. The main focus being to identify, measure, monitor and control all risks inherent in the trading activities of the Group’s operating units. The key objective is to safeguard the Group’s reputation in the financial services market. 32.1.1 Risk management framework The Board of directors has overall responsibility for the establishment and oversight of the Group’s risk management framework. The Group’s risk management policies are established to identify and analyse the risks faced by the Group, to set appropriate risk limits and controls, and to monitor risks and adherence to limits. Risk management policies and systems are reviewed regularly to reflect changes in market conditions, products and services offered. The Group, through its training and management standards and procedures, aims to develop a disciplined and constructive control environment, in which all employees understand their roles and obligations. The Group Audit and Risk Management Committee is responsible for monitoring compliance with the Group’s risk management policies and procedures, and for reviewing the adequacy of the risk management framework in relation to the risks faced by the Group. The Group Audit and Risk Management Committee is assisted in these functions by Internal Audit. Internal Audit undertakes both regular and ad-hoc reviews of risk management controls and procedures, the results of which are reported to the Group Audit Committee. 32.2 KEY RISKS REQUIRING SPECIAL MENTION 32.2.1 Credit Risk This risk is defined as the inability or failure of a counter-party to meet commitments with respect to lending, trading, hedging, settlement and other related financial obligations as and when they fall due. Mitigation of this risk is achieved through strict adherence to the Group’s credit policies and use of segregated credit generation, approval as well as monitoring and control processes. Minimum acceptable credit risk grade is derived through compulsory grading matrix undertaken at point of facilities request. The Group has systems generated credit risk reports used for monitoring and control of the credit function on a daily, monthly and quarterly basis against approved limits, internal benchmarks and industrial standards. To cover its loans from unforeseen eventualities, the Group also takes security from its borrowing clients. The Group’s Loans Review Committees stretching to Board level have complete oversight of this risk at subsidiary level. The table below shows the maximum exposure to credit for the components of the statement of financial position.
31 Dec 2010 31 Dec 2009 1 Jan 2009 US$ US$ US$
Cash and balances with Reserve Bank of Zimbabwe 68 578 923 41 999 805 15 990 177 Nostro balances 19 590 774 45 979 112 17 705 214 Due from banks 600 000 500 000 - Financial assets held for trading 22 128 137 2 374 291 - Loans and advances to customers 444 005 401 244 951 876 14 566 586 Other assets 9 781 941 3 456 078 4 060 679 Total 564 685 176 339 261 162 52 322 656
Contingent liabilities 18 668 136 63 632 195 - Commitments 84 749 46 719 - Total 18 752 885 63 678 914 -
Where financial instruments are recorded at fair value the amounts shown above represent the current credit risk exposure but not the maximum risk exposure that could arise in the future as a result of changes in value.
The Group held cash equivalents of $88 171 644 (excluding notes and coins) as at 31 December 2010 which represents its maximum credit exposure on these assets. The cash and cash equivalents are held with the Central Bank, local and foreign banks.
72 CBZ Holdings Limited Annual Report 2010
Notes to the consolidated financial statements (Continued)
32.2.1 (b) Ageing analysis of past due but not impaired loans:
31 Dec 2010 31 Dec 2009 1 Jan 2009 US$ US$ US$
Up to 1 month - 2 415 411 - 1 to 3 months 7 267 960 135 232 - 3-6 months - - - 6-12 months - - - Over 12 months - - - Total 7 267 960 2 550 643
Loans which are less than 90 days past due are not impaired as long as there is no information to indicate the contrary. An industry sector analysis of the Group’s financial assets before and after taking into account collateral held is as follows:
31 Dec 2010 31 Dec 2010 31 Dec 2009 31 Dec 2009 US$ US$ US$ US$
Gross maximum Net maximum Gross maximum Net maximum exposure exposure (not exposure exposure (not covered by mortgage covered by mortgage security) security)
Private 49 837 939 39 702 489 15 029 539 99 543 Agriculture 117 581 292 50 798 605 62 845 148 416 235 Mining 7 869 575 7 869 575 3 399 512 22 516 Manufacturing 72 164 666 68 005 643 36 655 674 242 777 Distribution 116 617 977 1 635 91 490 329 605 957 Construction 13 878 444 8 143 450 8 990 437 59 545 Transport 14 274 134 14 274 107 7 601 949 50 349 Communication 9 849 217 9 849 217 5 000 000 33 116 Services 47 049 651 46 994 667 13 861 856 91 810 Financial Organisations 609 907 609 907 3 546 896 23 492 Gross value at 31 December 449 732 802 246 249 295 248 421 340 1 645 340
31 Dec 2010 31 Dec 2009 1 Jan 2009 US$ US$ US$
Collateral (mortgage security) 203 483 507 246 776 000 - Other forms of security including Notarial General Covering Bonds (NGCBs),cessions, etc 302 202 874 31 438 469 - 505 686 381 278 214 469 -
The Group holds collateral against loans and advances to customers in the form of mortgage interests over property, other reg- istered securities over assets, and guarantees. Estimates of fair value are based on the value of collateral assessed at the time of borrowing, and generally are not updated except when a loan is individually assessed as impaired. Collateral generally is not held over loans and advances to banks, except when securities are held as part of reverse repurchase and securities borrowing activity.
73 CBZ Holdings Limited Annual Report 2010
Notes to the consolidated financial statements (Continued) An estimate of the fair value of collateral and other security enhancements held against loans and advances to customers and banks is shown above and analysed as follows.
31 Dec 2010 31 Dec 2009 1 Jan 2009 US$ US$ US$ Against individually impaired Property 477 390 289 802 - Other - 36 920 - Against collectively impaired Property 254 500 1 013 500 - Other 465 883 129 117 - Against past due but not impaired Property 1 830 867 1 520 250 - Other 1 434 650 193 675 - Against neither past due nor impaired Property 200 920 750 243 952 448 - Other 300 302 341 31 078 757 - 505 686 381 278 214 469 -
Credit Quality per Class of Financial Assets The credit quality of financial assets is managed by the Group using internal credit ratings. The table below shows the credit quality by class of asset for loan-related statement of financial position lines based on the Group’s credit rating system. December 2010 Neither past due nor impaired High Standard Sub-standard Past due or individually grade grade grade impaired Total US$ US$ US$ US$ US$ Advances Due from banks 609 907 - - - 609 907 Agriculture 114 915 716 2 633 606 25 923 6 047 117 581 292 Manufacturing 72 144 549 20 117 - - 72 164 666 Commercial 44 864 993 1 202 918 232 066 749 674 47 049 651 Individual and Households 47 011 782 2 595 966 229 387 804 49 837 939 Mining 7 869 575 - - - 7 869 575 Distribution 115 287 675 702 350 293 112 334 840 116 617 977 Construction 13 845 619 31 770 1 055 - 13 878 444 Transport 14 216 081 58 053 - - 14 274 134 Communication 9 849 217 - - - 9 849 217 440 615 114 7 244 780 781 543 1 091 365 449 732 802
December 2009 Neither past due nor impaired High Standard Sub-standard Past due or individually grade grade grade impaired Total US$ US$ US$ US$ US$ Due from banks 88 478 917 - - - 88 478 917
Advances Agriculture 57 449 783 3 859 804 1 530 588 4 973 62 845 148 Manufacturing 36 530 878 190 - 124 606 36 655 674 Commercial 10 695 660 2 595 010 459 344 111 842 13 861 856 Individual and Households 9 330 787 5 428 337 224 162 46 253 15 029 539 Mining 3 275 621 - 123 891 - 3 399 512 Distribution 89 357 970 1 966 502 161 797 4 060 91 490 329 Construction 8 972 521 17 709 207 - 8 990 437 Transport 7 532 913 18 382 50 654 - 7 601 949 Communication 5 000 000 - - - 5 000 000 Financial services 3 546 896 - - - 3 546 896 231 693 029 13 885 934 2 550 643 291 734 248 421 340
The Group has issued financial guarantee contracts in respect of debtors for which the maximum amount payable by the Group, assuming all guarantees are called on, is $18.5 million.
74 CBZ Holdings Limited Annual Report 2010
Notes to the consolidated financial statements (Continued)
Impaired loans and investment debt securities
Individually impaired loans and securities are loans and advances and investment debt securities (other than those carried at fair value through profit or loss) for which the Group determines that there is objective evidence of impairment and it does not expect to collect all principal and interest due according to the contractual terms of the loan / investment security agreement(s). Loans and advances and investment debt securities carried at fair value through profit or loss are not assessed for impairment but are subject to the same internal grading system.
Past due but not impaired loans and investment debt securities
Past due but not impaired loans and investment debt securities, other than those carried at fair value through profit or loss, are those for which contractual interest or principal payments are past due, but the Group believes that impairment is not appropriate on the basis of the level of security / collateral available and / or the stage of collection of amounts owed to the Group.
Allowances for impairment
The Group establishes an allowance for impairment on assets carried at amortised cost or classified as available-for-sale that represents its estimate of incurred losses in its loan and investment debt security portfolio. The main components of this allowance are a specific loss component that relates to individually significant exposures, and a collective loan loss allowance established for groups of homogeneous assets in respect of losses that have been incurred but have not been identified on loans that are considered individually insignificant as well as individually significant exposures that were subject to individual assessment for impairment but not found to be individually impaired.
Write-offs
The Group writes off a loan or an investment debt security balance, and any related allowances for impairment losses, when the relevant committees determine that the loan or security is uncollectible. This determination is made after considering information such as the occurrence of significant changes in the borrower’s / issuer’s financial position such that the borrower / issuer can no longer pay the obligation, or that proceeds from collateral will not be sufficient to pay back the entire exposure. For smaller balance standardised loans, write-off decisions generally are based on a product-specific past due status.
32.2.2 Market Related Risks
These risks arise from the negative changes in market variables of interest rates, foreign exchange rates, equity prices and commodity prices, which can cause substantial variations in income and economic value of the Group if not properly managed.
Liquidity Risk
This arises from a mismatch of assets and liabilities cash flows, which can result in refinancing risk if liabilities have a shorter maturity profile than assets.
The Group has managed this risk through strict conformity to Asset and Liability management processes and requirements, which are driven by the relevant Management and Board committees. The Group’s liquidity profile is displayed under note 23.
Interest Rate Risk
This is the risk that a change in the interest rates will have a negative effect on the Group’s future cash flows or earnings where the repricing terms as well as the maturity structure of the funding liabilities and related assets are not properly matched.
This is adequately managed through Asset and Liability management processes.
At 31 December 2010, if interest rates (both earning and paying rates) at that date had been 50 basis points higher or lower with all other variables held constant, post tax profit for the year would have been $1 659 677 higher or lower respectively than the reported position. This arises mainly as a result of the sensitivity of the net interest assets to the movements in interest rates.
Foreign Exchange Risk
This risk arises from the changes in exchange rates and originates from mismatches between the values of assets and liabilities denominated in different currencies and can lead to losses if there is an adverse movement in exchange rate where open positions either spot or forward, are taken for both on and off - statement of financial position transactions.
75 CBZ Holdings Limited Annual Report 2010
Notes to the consolidated financial statements (Continued)
The Group manages this risk by ensuring strict control of any exposure to exchange risk by its Treasury function through adherence to Asset and Liability management requirements and benchmarks.
At 31 December 2010, if foreign exchange rates at that date had weakened or strengthened by 50 basis points with all other variables held constant, post tax profit for the year would have been $293 813 higher or lower respectively than the reported position. This arises mainly as a result of the increase or decrease in the fair value of the underlying assets and liabilities denominated in foreign currencies. The foreign currency position for the Group is displayed under note 25.
32.2.3 Operational Risk
This risk arises from human error or fraud, inadequate or failed internal processes or systems, non-adherence to procedures or other external sources that result in the compromising of the Group’s income or erosion of the Group’s statement of financial position value.
Operational risk is adequately monitored by the Internal Audit and Risk Management functions of the Group with appropriate oversight and intervention from the Board.
32.2.4 Strategic Risk
This is the risk that arises where the Group’s strategy may be inappropriate to support its long term corporate goals due to underlying inadequate strategic planning process, weak decision making process as well as weak strategic implementation programs.
To mitigate this risk, Group Management teams craft the strategy with guidance from the Board which is underpinned to Group corporate goals. Approval of the strategy is the responsibility of the Board whilst implementation is carried out by Management. Strategy and goal congruency is reviewed monthly by Management and quarterly by the Board.
32.2.5 Regulatory Risk
Regulatory risk which is defined as the failure to comply with applicable laws and regulations or supervisory requirements, or the exclusion of provisions of relevant regulatory requirements out of operational procedures, is managed and mitigated through:
• Comprehensive and consistent compliance policies and procedures that exist throughout the Group;
• A proactive and complete summary statement of the Group’s position on ethics and compliance;
• A reporting structure of the Compliance Function that ensures independence and effectiveness, and
• Periodic compliance and awareness training targeting employees in compliance sensitive areas.
32.2.6 Reputation Risk
This is the risk that arises from the market perception of the manner in which the Group packages and delivers its products and services, how staff and Management conduct themselves and how it relates to the general business ethics.
This risk is managed and mitigated through:
• Upgrading operating facilities to ensure that they remain within the taste of the Group’s diversified clientele base.
• Ensuring that staff subscribe to the Group’s code of conduct and general business ethics on and after joining the Group.
• Stakeholders’ feedback systems that ensures a proactive attention to the Group’s reputation management.
32.2.7 Money-laundering Risk
This is the risk of financial or reputational loss or liability suffered as a result of transactions in which criminal financiers disguise the origin of funds they deposit in the subsidiaries of the Group and then use the funds to support illegal activities.
This risk is managed and controlled through:
• Know Your Customer Procedures;
• Knowledge management to facilitate learning and leveraging successes and failures;
76 CBZ Holdings Limited Annual Report 2010
Notes to the consolidated financial statements (Continued)
Effective use of compliance enabling technology to enhance anti–money laundering program management, communication, monitoring, and reporting;
• Development of early warning systems; and
• Integration of compliance into individual performance measurement and reward structures.
32.2.8 Settlement Risk
The Group’s activities may give rise to risk at the time of settlement of transactions and trades. Settlement risk is the risk of loss due to the failure of a company to honour its obligations to deliver cash, securities or other assets as contractually agreed.
For certain types of transactions, the Group mitigates this risk by conducting settlements through a settlement/clearing agent to ensure that a trade is settled only when both parties have fulfilled their contractual settlement obligations. Settlement limits form part of the credit approval / limit monitoring process. Acceptance of settlement risk on free settlement trades requires transaction specific or counterparty specific approvals from the Group’s Risk Management Unit.
32.2.9 Capital Risk
Capital risk refers to the risk of the Group’s own capital resources being adversely affected by unfavorable external developments.
The Group’s capital resources should therefore be adequate to absorb losses such as operating losses, and capital losses on investments. So long as net losses can be fully offset against capital invested by the Group’s owners, the legal claims of depositors or other creditors are not compromised, and the Group can continue to function without interrupting its operations.
The Group’s policy is to maintain a strong capital base so as to maintain investor, creditor and market confidence and to sustain future development of the business. The impact of the level of capital on shareholders’ return is recognised and the Group also recognises the need to maintain a balance between higher returns that might be possible with greater gearing and the advantages and security afforded by a sound capital position.
32.2.10 Insurance Risk
The principal risk the insurance company faces under insurance contracts is 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. Therefore the objective of the insurance subsidiary is to ensure that sufficient reserves are available to cover these liabilities.
The above risk exposure 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 subsidiary also purchases reinsurance as part of its risk mitigation programme. Reinsurance ceded is placed on both a proportional and non-proportional basis. The majority of proportional reinsurance is quota-share reinsurance which is taken out to reduce the overall exposure of the company to certain classes of business. Non-proportional reinsurance is primarily excess-of-loss reinsurance designed to mitigate the company’s net exposure to catastrophe losses. Retention limits for the excess-of-loss reinsurance vary by product line and territory.
The insurance company’s placement of reinsurance is diversified such that it is neither dependent on a single reinsurer nor are the operations of the company substantially dependent upon any single reinsurance contract.
At 31 December 2010, if provision for claims at that date had been changed by 20% with all other variables being held constant, post tax profit for the year would have been US$19 726 higher or lower respectively than the reported position.
77 CBZ Holdings Limited Annual Report 2010
Notes to the consolidated financial statements (Continued)
32.2.11 Risk and Credit Ratings
CBZ Bank Limited
Rating Agent 2010 2009 2008 2007 2006 2005
Global Credit Rating Co. (Short Term) - - - - - A1
Global Credit Rating Co. (Long Term) A A A A+ A+ A
CBZ Building Society
Rating Agent 2010 2009 2008 2007 2006 2005
Global Credit Rating Co. (Short Term) ------
Global Credit Rating Co. (Long Term) - - BBB BBB BBB BBB
32.2.11.2 Reserve Bank of Zimbabwe Ratings
CAMELS RATING MATRIX Capital Asset Sensitivity to Composite Adequacy Quality Management Earnings Liquidity market risk CBZ Bank 1 1 2 1 1 2 2 CBZ Building Society 2 1 2 3 2 2 3 CBZ Asset Management 3 3 - 3 2 3 - CBZ Holdings Group 2 2 2 - 2 2 2
78 CBZ Holdings Limited Annual Report 2010
Notes to the consolidated financial statements (Continued)
33. CAPITAL ADEQUACY
The capital adequacy is calculated in terms of the guidelines issued by the Reserve Bank of Zimbabwe.
CBZ Building Bank Society US$ US$
Risk weighted assets 538 440 735 51 815 136
Total qualifying capital 60 253 164 25 046 676
Tier 1 Share capital 5 118 180 7 500 000 Share premium 11 198 956 9 028 622 Revenue reserves 28 843 898 378 502 45 161 034 16 907 124 Tier 2 Revaluation reserve 10 221 602 7 905 692 General provisions 4 870 528 233 960 15 092 130 8 139 652 Tier 3 Capital allocated for market risk - - Capital allocated to operations risk 6 921 270 606 229 6 921 270 606 229
Capital adequacy 11.19% 48.34% - Tier 1 7.10% 31.46% - Tier 2 2.80% 15.71% - Tier 3 1.29% 1.17%
Regulatory capital consists of Tier 1 capital which comprises share capital, share premium and revenue reserves including current period profit. The other component of the regulatory capital is Tier 2 capital, which includes hidden reserves agreed to by Banking Supervision of the Reserve Bank of Zimbabwe, general provisions and revaluation reserves.
79 CBZ Holdings Limited Annual Report 2010
Company Statement of Financial Position for the year ended 31 December 2010
31 Dec 2010 31 Dec 2009 1 Jan 2009 US$ US$ US$
ASSETS Balances with banks and cash 476 457 106 605 15 174 Other assets 2 316 949 4 611 187 - Investments in equities 831 167 885 887 290 045 Investments in subsidiaries 48 729 279 46 773 591 46 773 591 Investment in associate - 43 280 43 280 Property and equipment 558 995 2 697 - Intangible assets 474 028 169 600 - Deferred taxation 824 347 361 933 - TOTAL ASSETS 54 211 222 52 954 780 47 122 090
LIABILITIES Other liabilities 10 175 997 6 806 174 1 192 320 Deferred taxation 8 497 7 895 2 900 TOTAL LIABILITIES 10 184 494 6 814 069 1 195 220
EQUITY AND RESERVES Share capital 6 841 445 - - Share premium 26 708 659 - - Treasury shares (557 234) (594 691) (623 234) Non-distributable reserve 13 000 000 46 550 104 46 550 104 Revenue reserves (1 966 142) 147 840 - TOTAL EQUITY AND RESERVES 44 026 728 46 140 711 45 926 870
TOTAL LIABILITIES AND EQUITY AND RESERVES 54 211 222 52 954 780 47 122 090
L ZEMBE N MAKUVISE V M CHASI (MRS) CHAIRMAN GROUP CHIEF EXECUTIVE OFFICER GROUP LEGAL CORPORATE SECRETARY
25 MARCH 2011
80 CBZ Holdings Limited Annual Report 2010
Notice to Members
Notice is hereby given that the Twenty-first Annual General Meeting of the Members of CBZ Holdings Limited will be held in the Mirabelle Room, Meikles Hotel, Harare, on Thursday 26 May 2011 at 15:00 hours. 1. ORDINARY MATTERS (a) To receive and consider the Audited Annual Financial Statements for the year ended 31 December 2010, including the Chairman’s, Group Chief Executive Officer’s, Managing Directors’ reports and the Report of the External Auditors thereon. (b) To note and confirm the passing of the final dividend for the year ended 31 December 2010. (c) Directorate i) To confirm the appointment of Mr Mohammed Hanif Nanabawa during the course of the year.
ii) To note the resignation of Messrs Andrew Lowe and David Govere at the end of the year.
iii) To note that in terms of Article 67 of the Articles of Association, Directors are required, after serving a period of three years, to retire from the Board by rotation and that in terms thereof there are no Directors eligible for retirement this year. (d) To authorize the Directors to approve payment of the external auditors’ fees for the past year. (e) To confirm the appointment during the year of Deloitte & Touche Chartered Accountants (Zimbabwe) as external auditors of the Company. 2. GENERAL To transact such other business as may be transacted at an Annual General Meeting. 3. PROXIES In terms of the Companies Act (Chapter 24:03) a member entitled to attend and vote at the meeting is entitled to appoint one or more proxies to attend, speak and on a poll to vote or abstain from voting in his stead. A proxy need not be a member. Proxy forms must be received at the registered office of the Company not less than 48 hours before the meeting.
BY ORDER OF THE BOARD
V M CHASI (Mrs) BL (Hons), LLB (Zim) GROUP LEGAL CORPORATE SECRETARY REGISTERED HEAD OFFICE 4th Floor, South Wing, Beverly Court 100 Nelson Mandela Avenue Harare, Zimbabwe Telephone (263-4) 796010-11 e-mail; [email protected]
26 April 2011 Directors Luxon Zembe (Chairman), John George Osterberg (Vice-Chairman), Tinoziva Bere, Fouad Moktar Dernawi, Mohamed I Ben Ghali, David Govere, Andrew Lowe, David Mutambara, Mohammed Hanif Nanabawa, Roseline Nhamo, Givemore Taputaira, Nyasha Makuvise* (Group CEO) and John Panonetsa Mangudya* (Dr) (Alternate). *Executive Director
81 CBZ Holdings Limited Annual Report 2010
Shareholder’s Calendar
Financial Year End 31 December 2011
ANTICIPATED DATES Half year‘s results to 30 June 2011 August 2011 Full year’s results to 31 December 2011 March 2012 Annual Report and Annual General Meeting May 2012
82 CBZ Holdings Limited Annual Report 2010
Group Details
HEAD OFFICE REGISTERED OFFICE 4th Floor, South Wing, Beverly Court 100 Nelson Mandela Avenue Harare, Zimbabwe Telephone (263-4) 796010-12 e-mail; [email protected]
TRANSFER SECRETARIES ZB Transfer Secretaries ZB Centre, 1st Floor Cnr First Street/Kwame Nkrumah Avenue P.O Box 2540 Harare
LEGAL PRACTIONERS Gollop & Blank Legal Practioners 3rd Floor G & B House 83 Sam Nujoma Street/Herbert Chitepo Avenue P.O Box 262 Harare
AUDITORS Deloitte & Touche Kenilworth Gardens 1 Kenilworth Road, Newlands Box 267 Harare
83 CBZ Holdings Limited Annual Report 2010
FORM OF PROXY Form of Proxy
I/We
Of
Being a member of CBZ Holdings Limited and entitled to…………………………votes hereby appoint
Of
Or failing him/her as my/our proxy to vote for me/us and on my/our behalf at the Annual General Meeting to be held in Mirabelle Room, Meikles Hotel, Harare, on 26 May 2011 and at any adjournment thereof.
Signed by me this ______day of______2011.
Signature:
NOTES:
1. Any member of the Company entitled to attend and vote at the meeting of the Company shall be entitled to appoint another person, whether a member of the Company or not, as his proxy to attend, vote and speak in his stead.
2. Proxy Forms should be forwarded to reach the office of the Company at least 48 (forty-eight) hours before the time ap- pointed for holding the meeting.
3. An instrument appointing a proxy shall be valid only for the one specified meeting for which it shall be submitted and any adjournment thereof.
84