CBZ HOLDINGS LIMITED

Table of Contents Group Details 2

Group salient features 4

Group Structure 5

Analysis of Shareholders 6

Chairman’s Statement 8

Group Chief Executive Officer’s Report 10 GROUP REVIEW

Managing Director’s Report-CBZ Bank Limited 12

Managing Director’s Report-CBZ Asset Management (Private) Limited 14

Managing Director’s Report-CBZ Insurance (Private) Limited and CBZ Life (Private) Limited 16

Report of the Independent Actuary 19

Corporate Social Responsibility Report 20

Corporate Gorvenance Statement 26

Statement of Directors’ Responsibility 31

Report of the Directors 32 CORPORATE CORPORATE GOVERNANCE Board of Directors 33

Report of the Independent Auditor 40

Consolidated Statement of Comprehensive Income 42

Consolidated Statement of Financial Position 43

Consolidated Statement of Changes in Equity 44

Consolidated Statement of Cash Flows 45

Group Accounting Policies 46

Notes to the Consolidated Financial Statements 62 FINANCIAL STATEMENTS FINANCIAL Company Financial Statements 100

Notice to Members 108

Shareholders’ Calendar 109 OTHER

1 CBZ Holdings Limited Annual Report 2012 1 Corporate Information REGISTERED OFFICE 5th Floor, Union House 60 Kwame Nkrumah Avenue Harare, Zimbabwe Telephone: (263-4) 748 050 - 79 Email: [email protected] Website: www.cbz.co.zw

TRANSFER SECRETARIES

ZB Transfer Secretaries ZB Centre, Ground Floor Cnr First Street/Kwame Nkrumah Avenue P.O Box 2540 Harare, Zimbabwe

LEGAL PRACTITIONERS

Mawere & Sibanda Legal Practitioners 3rd Floor Chiyedza House 1st Street/ Kwame Nkrumah Avenue P.O Box CY 1376 Causeway Harare, Zimbabwe

Dube, Manikai & Hwacha Legal Practitioners 6th Floor, Gold Bridge, Eastgate Complex Cnr Sam Nujoma Street/ Robert Mugabe Avenue Harare, Zimbabwe

AUDITORS

Deloitte & Touche No.1 Kenilworth Gardens P.O Box 267 Highlands Harare, Zimbabwe

2 CBZ Holdings Limited Annual Report 2012 Group Review

3 CBZ Holdings Limited Annual Report 2012 3 Group Salient Features

For the year ended 31 December 2012

31 December 31 December 2012 2011 US$ US$

Total assets 1 223.1m 1 055.7m Gross advances 890.1m 812.0m Impairment loss on advances 35.5m 21.7m Total net advances 854.7m 790.3m Total deposits 1 032.4m 829.9m Profit after taxation 45.0m 30.3m

GROUP REVIEW REVIEW GROUP Capital adequacy (%) – CBZ Bank 12.90 11.14 Capital adequacy (%) – CBZ Building Society 36.98 33.42 Funds under management –CBZ Asset Management 111.1m 88.2m Total technical assets – CBZ Insurance 4.7m 1.5m Basic earnings per share (cents) 7.39 4.83 Return on assets (%) 4.5 3.6 Return on equity (%) 32.2 25.5 Non-interest income as a % of total income 33.9 39.0 Advances to Deposits ratio (including offshore) (%) 82.8 95.2 Cost to income ratio (%) 57.8 56.5 Permanent staff compliment 1 319 1 275

4 CBZ Holdings Limited Annual Report 2012 Group Structure

Group Structure

CBZ Holdings Limited Company

CBZ Bank Limited CBZ Life Limited CBZ Insurance CBZ Asset CBZ Properties 100% 100% Company (Pvt) Ltd Management (Pvt) Ltd (Pvt) Ltd 58.5% t/a Datvest 100% 100% GROUP REVIEW Core Business

Property ownership, Commercial banking and Fund management Long term insurance Short term insurance development and mortgage financing and advisory services management

5 CBZ Holdings Limited Annual Report 2012 5 Analysis of Shareholders as at 31 December 2012

Size of shareholding No of holders % of total No of shares % of total

1 - 5 000 9 888 90.19 7 710 150 1.13 5 001 - 10 000 392 3.58 2 883 174 0.42 10 001 - 25 000 328 2.99 5 128 615 0.75 25 001 - 100 000 182 1.66 9 022 696 1.32 100 001 - 200 000 57 0.52 8 377 110 1.22 200 001 - 500 000 50 0.46 15 252 483 2.23 500 001 and over 66 0.60 635 770 318 92.93

TOTAL 10 963 100.00 684 144 546 100.00 GROUP REVIEW REVIEW GROUP ANALYSIS BY SHAREHOLDER TYPE

No of holders % of total No of shares % of total

Individuals 10 263 93.62 42 572 120 6.22 Companies 490 4.47 285 579 986 41.75 Non Resident 30 0.27 206 705 992 30.21 Pension Funds 120 1.09 107 212 532 15.67 Nominee Company 47 0.43 36 426 977 5.32 Insurance Companies 13 0.12 5 646 939 0.83 TOTAL 10 963 100.00 684 144 546 100.00

TOP 10 SHAREHOLDERS AS AT 31 DECEMBER 2012

Shareholder’s Name Total holding Shareholding %

CBZ Holdings Limited 124 278 902 18.17 Government of Zimbabwe 110 000 000 16.08 Libyan Foreign Bank 96 609 470 14.12 National Social Security Authority 73 768 563 10.78 African Investment Sub 2 Limited 46 787 252 6.84 Stanbic Nominees (Private) Limited (New Non Resident & FCA) 42 836 790 6.26 Gun Metal Investments (Private) Limited 14 310 675 2.09 Datvest Nominees (Private) Limited 13 388 070 1.96 Stanbic Nominees NNR Bank of New York 13 274 223 1.94 Commercial Bank of Zimbabwe Employees Share Trust 8 010 802 1.17 Total 543 264 747 79.41

Others 140 879 799 20.59

TOTAL 684 144 546 100.00

6 CBZ Holdings Limited Annual Report 2012 7 CBZ Holdings Limited Annual Report 2012 7 GROUP REVIEW REVIEW GROUP Mr L Zembe Chairman

I take great pleasure in presenting our audited financial results for the Profit after taxation 48.4% year ended 31 December 2012, during which period we continued to make inroads in the banking, insurance and asset management frontiers. Once again our performance has delivered consistent value to our shareholders as we continue to grow our income and profits. Total Comprehensive Operating Environment income 51.3% The positive growth rates registered by the economy since the introduction of the multiple currency regime and other market friendly policies in 2009 decelerated during the period under review. The economy has been affected by liquidity constraints, lack of long term funding for industry recapitalisation and a deteriorating infrastructure. As such, the economy, initially projected to grow by Total Deposits 24.4% only 9.4%, grew by 4.4%.

It was encouraging, however, to observe the declining trend in

Annual Annual and Monthly rate of Inflation % Monthly monthly inflation from 0.46% at the beginning of the year to 0.13% at 0.5 0.6 year end. Annual inflation also declined from 4.31% to close the year 4.5 0.5 4.0 0.4 at 2.91%. The downward trend in inflation was attributed to the fall in 3.5 0.3 3.0 crude oil prices which had exerted a lot of inflationary pressures on 0.2 2.5 0.1 many oil importing countries. 2.0 0.0 1.5 1.0 -0.1 Capital Market 0.5 -0.2 0.0 -0.3 Jan-12 Feb-12 Mar-12 Apr-12 May-12 Jun-12 Jul-12 Aug-12 Sep-12 Oct-12 Nov-12 Dec-12 Trade on the Stock Market remained subdued for the most part Annual Monthly due to liquidity constraints that were still being experienced and the implementation of the country’s indigenisation policy. This saw a decline in the benchmark industrial index, which closed 2012 at

CBZH Share Price and Volumes Traded 131.96 points and the mining index which closed the same period Share Price, Cents Volumes, Thousands at 75.7 points. 16.00 25.000

14.00 20.000 The CBZ Holdings stock opened the year at 14 cents and reached a 12.00 low of 5 cents on 23 March 2012, before rising to close the year at 10.00 15.000

8.00 10 cents. With 648 million shares in issue, approximately 90.7 million 10.000 6.00 of the Company’s shares changed hands during the year, 70 million

4.00 5.000 of which were acquired by the Company as treasury shares. The 2.00 Company reached a market capitalisation of US$64.8 million at the 0 30-12-11 30-01-12 30-03-12 30-04-12 30-05-12 30-06-12 30-07-12 30-08-12 30-09-12 30-10-12 30-11-12 30-12-12 close of the year.

Volumes Price

8 CBZ Holdings Limited Annual Report 2012 Group Chairman Statement (continued)

Overview of the Group’s performance The Group welcomes Mr. Richard Victor Wilde, Mrs. Rebecca Pasi and Mr. Elliot Mugamu, who accepted appointment to the Board as The Group continued to show improved results when compared to Independent Non-executive Directors with effect from 1 June 2012. the same period last year. Below are the key highlights of the Group’s performance for the stated period: Governance

Audited Audited The Group is cognisant of its fundamental role in our economy and Year Ended Year Ended therefore strong governance is integral to our long term success. 31 Dec 12 31 Dec 11 The Group has remained compliant with all requirements of the US$m US$m regulatory bodies in its business environment and continually assesses its governance structures to ensure its effectiveness. Financial Performance Profit before taxation 55.6 38.2 Dividend Profit after taxation 45.0 30.3 In line with the Group’s dividend growth policy, and the need to Total comprehensive income 50.1 33.1 uphold shareholder investment value, the Board has declared an Total assets 1 223.1 1 055.7 interim dividend of 0.132 cents per share. A final dividend of 0.172 GROUP REVIEW cents per share has been proposed, and this translates to a total Total equity and reserves 160.7 119.2 annual dividend of US$ 2 081 397, up 21.7% from the 2011 figure. Total deposits 1 032.4 829.9 Total net advances 854.7 790.3 Outlook

We remain hopeful for an improved operating environment which Other statistics is conducive for sustainable investment. The need for long lasting Basic earnings per share (cents) 7.39 4.83 solutions to the funding challenges and the resuscitation of the Non- interest income to total income (%) 33.9 39.0 manufacturing sector remains a priority for the economy to register meaningful positive growth. Cost to income ratio (%) 57.8 56.5 Annualised return on assets (%) 4.5 3.6 The Group shall make it a priority to contribute to the overall Annualised return on equity (%) 32.2 25.5 improvement of the country’s investment climate in order to attract positive net investment into all sectors of the economy and restore the country’s capacity to produce goods and services competitively. Growth in deposits (%) 24.4 43.5 Growth in advances (%) 8.1 77.8 Appreciation Growth in PBT (%) 45.4 49.6 My appreciation goes to the Board of the Holding Company and Growth in PAT (%) 48.4 61.6 its subsidiaries, management and staff for their commitment to the common goals of growth and success. Achievement of these goals would be impossible without the unwavering support of our I am encouraged by the Group’s progress in meeting one of its key treasured stakeholders who remain the backbone of our existence. objectives of consolidating activities within the Group. The synergies We hope to sustain our relationships in our pursuit of growth through created amongst the subsidiaries resulted in improved overall Group diversification. performance and we shall continue to exploit these synergies to maintain our position as the largest diversified financial services Group in Zimbabwe.

Directorship Luxon Zembe During the period under review Mr. Nyasha Makuvise retired from the Chairman Board of Directors with effect from 1 April 2012 and Mr. Robert Reid resigned from the Board with effect from 31 May 2012. On behalf of the Board I would like to thank them for their valuable contribution. 26 February 2013

9 CBZ Holdings Limited Annual Report 2012 9 GROUP REVIEW REVIEW GROUP DR J P MANGUDYA Group CHIEF EXECUTIVE OFFICER

Introduction

It is pleasing to report on the performance of the CBZ Holdings Limited Group for the year ended 31 December 2012. These results represent our fourth consecutive year of dominance in the financial services sector as we maintain the pole position in all material financial indicators.

Operating Environment “Our human resources are The local stock exchange generally performed below par owing to our most important assets. the persistent liquidity challenges facing the economy. Again, special bargain deals characterised the high volume transactions on the They define our corporate bourse, with very little daily trades taking place. As a result, most counters posted annual fair value losses. image and are the company’s Industry capacity utilisation remained subdued and inflationary interface with our clients.” pressures continued to be felt from the effects of imported goods and services.

Politically, we draw encouragement from the big steps taken in the finalisation of the constitution, paving way for the referendum and ultimately the general elections which provides a degree of certainty essential for predictive planning.

Group Performance

Despite the various challenges, the Group performed commendably, with a number of variables comparing well with regional financial services companies. We remain very confident about our ability for growth and performance going forward.

(i) CBZ Bank Limited

The Bank has already achieved the revised minimum capital requirements set to take effect in June 2014 with a consolidated core capital position of US$118 million as at 31 December 2012. Its deposit book surpassed the US$1 billion mark, signifying the continued strong confidence of our valued clients.

The following constitutes the Bank’s key operational highlights for the year under review. • Partnered with Econet Wireless to provide enhanced mobile banking services to its clients via the Eco-cash platform.

10 CBZ Holdings Limited Annual Report 2012 Group Chief Ececutive Officer’s Statement (continued)

• Launched the Cash-Plus family of savings accounts, which Prospects for 2013 have been resoundingly welcomed on the market. This has provided investment opportunities to our clients through Mobile Banking is set to provide a significant new facet to the Banking high return savings accounts with no maintenance charges. industry. To this end, CBZ Bank has already made key partnership • Maintained its A+ rating by the Global Credit Rating agreements to tap into this potentially profitable segment. Company. The Insurance subsidiaries are set to continue on a growth path and Guided by the Group’s Internal Capital Adequacy Assessment increase their share of revenue contribution thereby reducing the Policy, the Bank will continue to develop internal capital targets concentration risk associated with relying on one major subsidiary. commensurate with the Bank’s risk profile and will actively manage its capital risk in addition to the minimum regulatory standards. The Group is set to attain quality growth and tap on the efficiencies from perfected synergy structures. (ii) CBZ Life (Private) Limited Whilst shareholder wealth maximisation remains a key deliverable The Life Assurance industry in the year under review appeared to be which Management is keen to meet annually, the Group will on a recovery path although business written was predominantly of continuously focus on satisfying our clients and making a positive a recurrent nature. impact on the communities in which we live.

CBZ Life performed profitably in their second year of trading. This Our People was driven by an increased growth in premium income in Credit Life business and the Funeral Cash Plan, with the business mix ensuring a Our human resources are our most important assets. They define our low payout in terms of claims. corporate image and are the Company’s interface with our clients. It is through them that our strategy is implemented and, consequently, GROUP REVIEW Market liquidity challenges have proven to be the major impediment they are the difference between the Company’s success and failure. to the Life Assurance business in general. The Company invested significant amounts in human resources through a variety of training and education initiatives. This has (iii) CBZ Insurance (Private) Limited ensured that competent and professional individuals continue to serve our clientele at all times. The continued development of our The short term insurance Company, CBZ Insurance, recorded people will be a key priority in 2013 as we seek to be at the forefront satisfactory results in the third year running. This was against the of our industry. Our clients are at the centre of everything we do and backdrop of the Company losing its Managing Director, Mr Joe only through adequate staff development will we be able to render Whacha, due to his untimely death during the year. the kind of quality service and performance our clients deserve.

The Company’s claims ratio increased from 29% to 41% during the Performance management will also be a key project in 2013 and this year ended 31 December 2012. The increase, which was in line with will allow us to constantly monitor our staff’s progress throughout market trends, decreased profits in 2012. The industry at large has the year. seen an unprecedented increase in claims, especially from the motor and farming portfolios. Mitigatory strategies against such losses are Appreciation being implemented. I extend my appreciation to the Board members of all Group The Company has adopted a monolithic brand consistent with the Companies for their hard work, provision of direction and support to Group and this has assisted the Company’s market visibility. Executive Management towards achieving our strategic goals.

(iv) CBZ Asset Management (Private) Limited To all staff members, thank you for the hard work and commitment to the common objectives as evidenced by the good results. Let us The Company’s funds under management grew by a healthy 27% remain focused and committed to our performance aspiration. during the year. Growth in the Company’s fee income was however eroded by the negative performance in the Company’s proprietary To the Shareholders, our valued clients and the rest of our investments which fell by about 4% during the year. stakeholders, thank you for your continued support which has seen the Group growing from strength to strength. In addition there has been sustained pressure to reduce fees by our clients resulting in the overall fee rate dropping by about 10% to an average rate of 1% per annum. Hence the Company registered a loss in the year, albeit better than results posted in 2011.

Diversification and product development will be a core part of the investment strategy to avoid reliance on the unpredictable equity investments. Dr John Panonetsa Mangudya Group Chief Executive Officer Social Responsibility Activities 26 February 2013 The Group continues to play a major role in providing community support initiatives and during 2012 the Group undertook various social responsibility activities in the fields of sports, education, health, arts and the under privileged.

11 CBZ Holdings Limited Annual Report 2012 11 GROUP REVIEW REVIEW GROUP Mr PMr Zimunya XXX CBZ BANK MANAGING DIRECTOR

Introduction

The pace of economic growth remained very weak on the global front affected mainly by depressed confidence due to the inherent risks from the Euro-zone and the US economy.

Profit On the local front the economic growth rate for Zimbabwe was up 26% to US$31.0 million. revised downwards from 9.4% initially projected for 2012 to 4.4%. The economy was weighed down by a poor rain season, lack of capital investment and liquidity, revenue under-performance, and a Total assets volatile and fragile global financial environment. up 14% to US$1.12 billion. The absence of a functional interbank market, expensive external credit lines on the back of heightened country risk and the absence of a Lender of Last Resort weighed down heavily on the domestic Deposits operating environment. up 24% from US$0.8 billion. CBZ Bank Performance

Despite these challenges the Bank achieved, once again, a remarkable performance with the following key highlights:

• Profit up 26% to US$31.0 million.

• Total assets up 14% to US$1.12 billion.

• Deposits up 24% from US$0.8 billion.

Capital Adequacy

The Bank has already achieved the revised minimum capital requirements set to take effect in June 2014 with a consolidated core capital position of US$118 million as at 31 December 2012. The Bank, guided by the Group’s Internal Capital Adequacy Assessment Policy, will continue to develop internal capital targets commensurate with the Bank’s risk profile and will actively manage its capital risk in addition to the minimum regulatory standards.

12 CBZ Holdings Limited Annual Report 2012 CBZ Bank Managing Director’s Statement (continued)

Key Developments The Bank is better placed, having accumulated sufficient capital, to concentrate on maximising on the opportunities in the local • The Bank partnered with Econet Wireless to provide enhanced economy. Preservation of value created thus far will be one of the mobile banking services to its clients via the Eco-cash platform. major priorities going forward.

• The Bank launched the Cash-Plus family of savings accounts in Appreciation 2012 which has been resoundingly welcomed on the market. This has provided investment opportunities to our clients The remarkable performance achieved by the Bank in a difficult through high return savings accounts with no attendant charges. operating environment is testimony of a resilient staff, spirited efforts of management, a committed Board, shareholders with faith in the • The Bank maintained its A+ rating by the Global Credit Rating Bank and a supportive client base. Company indicating continued confidence in Bank’s position and future prospects. I would like therefore to thank the entire CBZ family and all our stakeholders for the support provided throughout the year. • The Bank’s deposit book breached the US$1 billion mark signifying the continued growth of the Bank underpinned by the confidence of our key stakeholders.

Risk Management Peter Zimunya Managing Director The Bank continues to ensure that its activities are carried out at acceptable risk levels and that its internal systems are adequately 26 February 2013

equipped to manage the overall risk profile. During the year the GROUP REVIEW Bank undertook comprehensive training in areas of Anti-money laundering so as to continuously remind and equip staff in this area of risk.

Corporate Citizenship

The Bank continues to invest in corporate social activities as we firmly believe that we owe our existence to the society and therefore our aim is to have a positive impact on people and the communities in which we operate from. To this end the Bank made significant contributions to charity, health, sport, and education.

The Bank’s employees, with the Bank’s support, through various units and branches have also embarked on self initiated social activities and this has resulted in greater responsiveness to the needs of the society.

Outlook

The recent significant steps towards finalisation of the constitution, paving way for the referendum and ultimately the general elections provides a degree of certainty essential for future planning. Overall growth is projected to increase to 5% in 2013, underpinned by anticipated output improvements in mining and agriculture. Inflation is expected to average below 5%.

13 CBZ Holdings Limited Annual Report 2012 13 GROUP REVIEW REVIEW GROUP MrMr J SmithXXX CBZ ASSET MANAGEMENT MANAGING DIRECTOR

Introduction

The volatility that characterised the operating environment in 2011 continued unabated in 2012. It is pleasing to note, that in spite of this, the Company’s performance continues to improve. There were a “The prevailing multiple currency number of key factors that arose during the year and these resulted in difficult operating conditions for most businesses in the country. system has continued to bring • Whilst the overall political environment remained essentially with it relative stability to the stable, the continued discourse between the members of the Government of National Unity and uncertainty on the next economy as a whole making it general election continued to hamper investor confidence. The investing public and in particular the foreign investors appeared possible to plan ahead for most to take issue with these uncertainties as they largely pulled back on their investments in the country. This did not augur well for businesses.” the investment markets.

• The lack of foreign investment in 2012 had a knock on effect on the general level of liquidity within the financial sector resulting in the general volume of trades in the market declining significantly. Consequently, the general level of prices for most stocks was determined by the level of available liquidity as opposed to fundamental valuation of these companies. This introduced a significant level of volatility in the equities market with the Industrial index losing 9% of its value in the first half of 2012 before regaining 15% in the second half. This resulted in an overall positive gain of 4% for the year. The mining index was not as fortunate as it ended the year having lost 35% of its value. Interest rates remained stable throughout the period.

• The prevailing multiple currency system has continued to bring with it relative stability to the economy as a whole making it possible to plan ahead for most businesses. Inflation for the year was measured under 3% which was very encouraging. Economic activity remained subdued, however, with the country’s GDP growth being revised downwards to 4.4%.

14 CBZ Holdings Limited Annual Report 2012 Our Finances Our Systems

The Company’s funds under management grew significantly during Risk management is a key consideration in our daily transactions the year to US$ 111 188 502. This represented an increase of 27% especially with the significant volatility being experienced in the which was commendable under the circumstances. Whilst this growth country’s capital markets. The Company’s flat organisational structure in the book had a positive impact on the Company’s fee income, this has meant that the management team has been intimately involved positive performance was nullified by the negative performance in in all key Company transactions thereby reducing the overall level the Company’s proprietary investments which fell about 4% during of risk. With the help of our Internal Audit Department we have the year. In addition, there has been sustained pressure to reduce also spent 2012 reengineering our process flows to best practice fees by our stakeholders resulting in the overall fee rate dropping standards. by about 10% to an average rate of 1% per annum. The Company’s performance did however continue to improve and the overall loss The Company also completed the implementation of new software narrowed to US$ 150 000 compared to a loss of US$ 175 262 in 2011. processing systems known as Ideal Wealth and Ideal Funds supplied This loss predominantly comprised fair value adjustments to the by Credence Analytics which is an Indian based Company. This is the proprietary book. Consequently the Company remained cash neutral single biggest capital investment (US$385 000) undertaken by the during this period. Company and we expect it to greatly improve our overall efficiency as well as the level of service to our clients. The Company continued to diversify its portfolio with the fixed income investments and the property portion of the portfolio The Company’s Board committees have played a vital moderating successfully achieving their investment performance targets. role in ensuring our overall systems are compliant in all respects.

Total expenditure for the Company was 9% above budget arising The Outlook mainly from administration costs. A key cost driver during the year GROUP REVIEW was the Information Technology project, which was successfully The outlook for the year ahead is optimistic. The Company has turned completed in the first half of the year. In addition staff costs rose a corner and is poised to return to profitability in 2013. A number as the Company sought to harmonise overall structures to those of key projects were completed in 2012, which has resulted in the prevailing in the rest of the CBZ Holdings Limited Group. Company’s overall efficiency significantly improving. In addition there are a number of key strategic changes that will be implemented in Cost containment will be a key goal in the year ahead and the 2013. The challenges in the operating environment which existed in management team is already in the process of putting in place 2012 are likely to remain unchanged in the year ahead. The difference, measures to more closely monitor and control the Company’s cost however, is that we have learnt from our experiences in 2012 and base. therefore will craft a strategy that will incorporate the vagaries of our economy. Our goal is to ensure that our clients’ portfolios continue to At the close of 2012 the Company had managed to reduce its overall show real growth in 2013. It is only through the success of our clients staffing levels by 15%. This will have a significant impact on costs in that we will succeed and so all our efforts will be directed to ensuring 2013. our client goals are achieved.

The Company’s capital position remains strong with total equity of I would like to take this opportunity to thank the Board of Directors US$ 1 136 000 against the required Capital of US$ 500 000. who supported all our initiatives in 2012 and gave the Company direction in these turbulent times, our staff, who toiled endlessly Our Clients through the year showing tremendous loyalty and belief in the Company, and last but not least our clients who allowed us the great The Company’s client base continued to grow during 2012, a privilege of participating in the management of their wealth. It is testament to the strength of the brand and its recognition in the because of our clients that we exist and that is something we will market. The Company’s portfolios performed well during the year never lose sight of. returning a positive performance of 8.0%. This compared favourably with the overall stock market performance of 4.48% and the inflation I am confident that the Company is now firmly moving forward and benchmark of 2.91%. In addition, the fixed income portion of the will continue to do so in 2013. book continued to grow as more clients flocked to this sector. The Company’s money market book grew by over 90% during the year.

The Company’s investment philosophy is premised on delivering positive investment performance on a rolling three-year period and to remain in the upper quartile of performance during such periods. Jack Smith We believe that this allows portfolio decision making to be done with Managing Director a long-term view and thus not be distorted by short-term volatility. Our client portfolios have achieved a performance of 156.17% during 26 February 2013 the 45 months since dollarisation allowing us to remain in the upper quartile of investment performance for this period.

Diversification and product development will be a core part of our investment strategy in the year ahead.

15 CBZ Holdings Limited Annual Report 2012 15 GROUP REVIEW REVIEW GROUP Mr NMr Mureriwa XXX CBZ INSURANCE AND CBZ LIFE MANAGING DIRECTOR

CBZ INSURANCE (PRIVATE) LIMITED

Introduction

I am pleased to report on the satisfactory performance of CBZ Insurance in a difficult year in which the company lost its Managing “CBZ Insurance is poised for Director, my predecessor, Mr Joe Whacha, due to his untimely death on 4 August 2012. The Group appreciates and is grateful for the growth as it seeks to consolidate contribution of the late Managing Director and would like to once again wish his family well as they prepare to face the future without its bancassurance strategy his wise counsel.

and revamp its insurance risk The 2012 financial year proved to be a difficult year for short term Insurance players. It was characterised by high loss ratios and falling management methodologies.” margins. The combination of low retention and increasing claims expenses were the major contributing factors to the Company’s low profitability.

Financial highlights

Dec-12 Dec-11

Retention ratio 37% 41%

Loss ratio 41% 29%

Expense ratio 51% 57%

Combined ratio 92% 86%

Solvency ratio 42% 39%

Acquisition commission ratio 10% 12%

Ceding Commission 24% 24%

Despite the difficult operating environment, the Company achieved an after tax profit of US$0.3 million for the year ended 31 December 2012.

The Company’s claims ratio increased from 29% to 41% during the year ended 31 December 2012 and this increase was not peculiar to CBZ Insurance but was in line with market trends hence the decrease in profit in 2012. The industry at large has seen an unprecedented increase in claims, especially motor and farming.

16 CBZ Holdings Limited Annual Report 2012 CBZ Insurance Managing Director’s Statement (continued)

Investment income rose by 51% in 2012 owing to increased premium CBZ LIFE (PRIVATE) LIMITED collection during the period under review. Introduction Total assets stood at US$6.7 million as at 31 December 2012, which was 50% higher than the previous year. I am pleased to report on the commendable performance of CBZ Life in its second year of trading. In addition to growing its assets, Industry Analysis the Company has significantly increased its contribution to the Group`s income and profits. Liquidity constraints continue to slow down the recovery of the Short Term Insurance Industry. In addition, the Zimbabwe insurance Macro-Economic Environment industry faced threats in the form of intense competition and rates undercutting. The industry battled to restore confidence in the sector Zimbabwe has been able to maintain a stable economic recovery after most people lost their insurance and assurance contributions mode in the year ended 31 December 2012, with the inflation due to hyperinflation and the adoption of the multi-currency system rate remaining within single digit levels. Signs of growth and in 2009. The insurance industry recovery is being retarded by the improvements have been noted in many sectors with Mining increase in cases of fraud and the continued escalation of claims playing a pivotal role in spearheading the country`s growth costs. prospects.

Outlook Industry Analysis

The Macro-economic environment in Zimbabwe remains uncertain The Life Assurance industry is continuing on the growth path.

pending the outcome of the elections which are expected later Although Gross Premium Written is on the increase, new business GROUP REVIEW this year. The uncertainties regarding the implementation of the only accounts for approximately 13% premium inflows, a clear Indigenisation and Empowerment Program continues to affect the indication that liquidity constraints continue to hamper growth in country`s ability to attract foreign investment, which is needed to the Insurance sector. increase economic activities across all sectors of the economy. CBZ Life Operations CBZ Insurance is poised for growth as it seeks to consolidate its bancassurance strategy, revamp its insurance risk management The Company is currently offering two products, namely, the methodologies as well as sharpen its sales and marketing thrust in its Credit Life Policy and the Funeral Cash Plan. Despite the challenges drive to increase its share of new business. obtaining in the industry, CBZ Life managed to significantly grow its Funeral book which contributed 37% of total premium income Appreciation from 6% in 2011 with the Credit Life policy weighing in at 63% of the premium income for the year. The Company continued to On behalf of the CBZ Insurance team, I would like to thank the Board consolidate its Bancassurance operations. The Company`s low for their support and guidance in the past year, the staff for their claims experience as well as its low cost business model have dedication and commitment and our sister companies in the Group combined to make CBZ Life a very profitable business operation. for embracing the one CBZ philosophy and enabling us to exploit the internal synergies for the benefit of the entire Group. Financial Perfomance

The Company achieved a profit after tax of US$1.5 million against a budget of US$1 million. This profit was mainly driven by an increased growth in premium income in Credit Life business and the Funeral Cash Plan, with the business mix ensuring a low payout in terms of claims. Norbert Mureriwa Capital Adequacy Managing Director The Company`s Shareholder funds stand at US$2.7 million and is 26 February 2013 therefore in full compliance with the minimum capital requirements of US$2 million well in advance of the 30 June 2014 deadline.

17 CBZ Holdings Limited Annual Report 2012 17 CBZ Life Managing Director’s Statement (continued)

Outlook

The Macro-economic environment of Zimbabwe remains uncertain pending the outcome of the General Elections expected later this year. The lack of clarity and policy uncertainties in respect of the GROUP REVIEW REVIEW GROUP implementation of the Indigenisation and Empowerment Program continues to negatively affect the country`s ability to attract foreign “The Company achieved a profit investment. after tax of US$1.5million against a However, if the fairly stable economic environment persists, an budget of US$1 million. This profit improvement in average capacity utilization is expected to continue. CBZ Life`s business prospects are bright and the introduction of new was mainly driven by an increased products will enhance its growth strategy.

growth in premium income in Appreciation

Credit Life business and the Funeral I would like to express my gratitude and appreciation to the CBZ Life Cash Plan.” Board, Management, and Staff for their resilience, commitment and support in assisting the company to achieve a good set of results. I would also like to express my sincere gratitude to the CBZ Bank team for their outstanding support to CBZ Life.

Norbert Mureriwa Managing Director 26 February 2013

18 CBZ Holdings Limited Annual Report 2012 Report of the STATUTORY INSTRUMENT 183 OF 2009 Independent INSURANCE (AMENDMENT) REGULATIONS, 2009 (No. 14) Actuary Certificate as to the solvency of an insurer, which carries on life insurance business only The following table shows the results of the actuarial valuation of CBZ Life on the published reporting basis in respect of the year ended 31 December 2012.

31 Dec 12 31 Dec 11

US$ US$ Total Assets 4 919 150 2 585 504

Current and other liabilities 677 683 523 344 R eport Policyholder liabilities 1 538 283 891 755 ctuary

Excess Assets 2 703 184 1 170 406 A

The minimum capital requirement is currently US$500 000 and thus CBZ Life’s ratio of excess assets to the minimum requirement is 9.83 (2.53 in December 2011).

I hereby certify that, to the best of my knowledge and belief, at 31 December 2012, the value of the assets in respect of all classes of life business carried out by CBZ Life Limited exceeded the amount of liabilities in respect of those classes of insurance by more than US$ 500 000.

Jonathan Bagg

FELLOW OF THE INSTITUTE OF ACTUARIES

FELLOW OF THE ACTUARIAL SOCIETY OF SOUTH AFRICA

In my capacity as:

ACTUARY TO CBZ Life Limited

10 February 2013

19 CBZ Holdings Limited Annual Report 2012 19 Corporate Social Responsibility CBZ Holdings is strongly dedicated to good corporate citizenship and social investment. We understand that ethical and compliant Report provision of financial services will ensure our success as a business CORPORATE SOCIAL RESPONSIBILITY which in turn will enable us to invest in the various communities in which we operate.

As a leading financial services group with a passion for success, we are cognisant of the fact that our market position as one of Zimbabwe’s financial service institutions brings a level of responsibility to the communities within which we operate.

We have fulfilled our duty to create value for all stakeholders of the financial services group and our most significant contribution to social development is to manage an efficient and profitable business through which many people may benefit, hence our strong belief in “partnerships for success”.

Highlights of our social investment during the period under review include:

32nd Annivessary Donation

As part of its 32nd Anniversary celebrations on 5 December 2012, CBZ Holdings Limited donated a total of US$32 000 on the night of “We have fulfilled our the celebrations. The donation went towards ten charities namely, All Souls Mission Children’s Home, the Family ARC Foundation, Jairos Jiri duty to create value for all Bulawayo, Leonard Cheshire, Ruwa Rehabilitation, Harare Children’s stakeholders.” Home, St Giles Rehabilitation Centre, Fair Field Children’s Home Mutare, Chikurubi Female Prison and Danhiko.

Honourable Vice President Joyce Mujuru with some of the beneficiaries of the US$32 000 inaugural donation from the CBZ Foundation.

20 CBZ Holdings Limited Annual Report 2012 Corporate Social Responsibity Report (continued) Education

Universities

University of Zimbabwe

The University of Zimbabwe was identified as a worthy initiative in 2012, and the Group clearly demonstrated its commitment to education and student welfare. The University of Zimbabwe was working towards creating more reading and working space in its Main Library to cater for the increase in student membership. To assist, the Group sponsored the extension of and buying of new furniture for the reading rooms. In addition we assisted with the provision of SOCIAL RESPONSIBILITY CORPORATE equipment and software for the Disability Resource Centre. Part of the furniture that was donated to the University of Zimbabwe Library

Chinhoyi University of Technology

The Group participated as a co-sponsor of the International Research Conference which brought intellectuals from across the globe to share knowledge and therefore improve the quality of education delivered in tertiary institutions across the world.

Graduation Ceremonies

Several institutions of higher learning were assisted to host their graduation ceremonies and these included Masvingo Polytechnic, Mutare Teachers College, Great Zimbabwe University, University of Zimbabwe, Lupane University and the Midlands State University.

Schools

Chiredzi Christian Primary School, Mafidhi Mnangagwa Primary An exhibition at the Great Zimbabwe University Graduation School, Hwiru Primary School, Chitsere Primary School, Eaglesvale Primary School, Glen View Primary school, Marlborough Primary School, Ngezi High School, St Francis of Assisi, Chibuwe High School, Chiredzi Government High School and Manunure High School were some of the schools that were assisted to host their speech and prize giving day ceremonies mainly with prizes for students who excelled in various disciplines.

Makomborero Trust

An organisation that raises funds to place promising but underprivileged students in well resourced schools was assisted with an annual supply of fuel and service fees for the vehicle they use to transport the students from their centre to their respective schools, which include St George’s and Gateway, among others.

The Makomborero Trust branded Students Shuttle

21 CBZ Holdings Limited Annual Report 2012 21 Corporate Social Responsibity Report (continued) Human Welfare

Chikurubi Female Prison CORPORATE SOCIAL RESPONSIBILITY The Group assisted in the rehabilitation of female prisoners at Chikurubi through a donation of knitting machines and wool for start-up projects which are part of their rehabilitation programmes. Staff from CBZ Bank visited the inmates and made donations to the nursery and preschool used by children of the incarcerated women.

Orphanages

Jairos Jiri Waterfalls and Matthew Rusike Children’s Home were assisted to start and improve income generating projects at their respective centers thereby breaking the cycle of being too dependent on handouts.

Charity Centres Mrs. M. Dingani (Divisional Director Retail Banking) and Mrs. R. Chimbumu The Group partnered with other corporates in fundraising activities. (Senior Manager Quality Service) at a poultry project sponsored by the Group at Some of the corporates included the Grain Marketing Board, ZIMRA Jairos Jiri Waterfalls. and the National Blood Transfusion Service. The Bank contributed by visiting several charity centers to donate food stuffs and clothing which were secured through staff members’ personal savings. Some of the charity centers visited include Rimuka Old People’s Home, Mai Carol Foster Children’s Home, Mother of Peace Orphanage and Mpilo “The Bank contributed Hospital. by visiting several Keeping the Environment Clean charity centers to donate

As part of its Green Initiatives the Group assisted the Proudly food stuffs and clothing Zimbabwe Foundation to roll out clean up campaigns in and around the city of Harare, an initiative which will be carried into 2013. which were secured through staff members’ Sports personal savings. “

Cricket

The Bank sponsored the Best Female Cricketer of the Year and the Rookie of the Year awards for the 2012 National Cricket Awards.

Soccer

The Group sponsored the Benjani Mwaruwari Foundation soccer academy whose main thrust is to identify soccer talent at a tender age.

CBZ also assisted Mzansi 90 who were raising funds for the Zimbabwe Senior men’s Soccer team when they travelled to Angola for the Africa Cup of Nations qualifier and also donated soccer Kits to Pamushana High School.

Gymnastics

Gymnastics Zimbabwe was also provided with financial assistance when they participated in the Zone Six tournament in Ghana.

Mr. S. Chin’anga (Regional Manager - Retail Banking Division) Presenting soccer kits to Pamushana High school in Nyika.

22 CBZ Holdings Limited Annual Report 2012 Corporate Social Responsibity Report (continued) Health

Mpilo Hospital

Mpilo Hospital were supported in their fundraising initiatives towards the improvement of various areas at the hospital, particularly the maternity ward.

Cancer Association

The Cancer Association of Zimbabwe was assisted in its various fundraising initiatives for 2012. CORPORATE SOCIAL RESPONSIBILITY CORPORATE Global Aid

Global Aid, an organisation that assists children living with albinism, received assistance to build their capacity during the period under Mr. E. Mombo (Executive – Organization and Methods, Policy and Procedures and review. Centralized Processing) with some of the beneficiaries of the wheel chairs that were donated to Ruwa Rehabilitation Centre Ruwa Rehabilitation Centre

The Bank’s Operations Division donated wheelchairs and mattresses to Ruwa Rehabilitation Centre using money that was raised by staff members.

“The extensive geographic spread of the Group enabled staff to reach out to communities in Beitbridge, Bulawayo, Mutare and Karoi among other places.”

CBZ Bank Fife Street Branch, Bulawayo, Donated grocery Items to King George National Development Rehabilitation Centre

The Group invested in sponsoring strategic national and international events meant to boost investor confidence in Zimbabwe as well as build capacity of local entrepreneurs. Events which were supported included the Euro Money Conference, Small to Medium Enterprises EXPO, Zimbabwe Mining Indaba, Manufacturing Sector Survey and the Energy and Power Conference.

Staff Volunteering

CBZ personnel from Head Office to Branch staff volunteered in various projects throughout the year and donated their time and resources to make a difference in the lives of the community. The extensive geographic spread of the Group enabled staff to reach out to communities in Beitbridge, Bulawayo, Mutare and Karoi, among other places. CBZ Bank Karoi Branch donated an assortment of items to The Just Children Foundation.

23 CBZ Holdings Limited Annual Report 2012 23 24 CBZ Holdings Limited Annual Report 2012 Corporate Governance

25 CBZ Holdings Limited Annual Report 2012 25 Corporate Governance Statement OUR APPROACH TO CORPORATE GOVERNANCE

CBZ Holdings Limited recognises the need to conduct the affairs of the Company with integrity and in line with best corporate governance practices. To demonstrate this commitment to sound corporate governance the company applies the best practice in corporate governance in managing the affairs of the Group.

The governance of the company is guided by internal policies and external laws, rules, regulations and best practice guidelines including the King Reports and the Reserve Bank of Zimbabwe Corporate Governance Guidelines. The Group is cognizant of its “The governance of the duty to conduct business with due care and in good faith in order company is guided by internal to safeguard all stakeholders’ interests and adheres to the corporate governance structure detailed below: policies and external laws, Corporate governance structure at 31 December 2012

rules, regulations and best BOARD OF DIRECTORS

practice guidelines including BOARD OF DIRECTORS NON-EXECUTIVE DIRECTORS EXECUTIVE DIRECTORS the King reports and the Reserve Mr. Zembe* Dr. Mangudya Mr. Wilde Mr. Nyemudzo Bank of Zimbabwe Corporate Mrs. Pasi Mr. Lowe Mr. Mugamu Governance Guidelines.” Mr. Bere Mr. Mutambara Mr. Nanabawa Mr. Ben Ghali Mr. Dernawi Mrs. Nhamo Mr. Taputaira *Chairman

BOARD COMMITTEES AUDIT & RISK MANAGE- HUMAN IT & BUSINESS FINANCE MENT & RESOURCES & DEVELOPMENT COMPLIANCE REMUNERATION CCORPORATE GOVERNACE Mr. Mugamu** Mrs. Pasi** Mrs. Nhamo** Mr. Taputaira** Mr. Nanabawa Mr. Ben Ghali Mr. Zembe Mr. Zembe Mr. Bere Mr. Bere Mr. Wilde Mr. Ben Ghali Mr. Lowe Mr. Lowe Mr. Bere Mr. Dernawi Mrs. Nhamo Mr. Dernawi Mr. Mutambara Mr. Bere Mrs. Pasi Dr. Mangudya Dr. Mangudya Mr. Mutambara Dr. Mangudya Dr. Mangudya Mr. Nyemudzo **Committee Chairperson

THE MAKING OF AN EFFECTIVE BOARD

Appointment of directors

The Board is authorised by the Company’s Articles of Association to appoint new directors based on recommendations by the Human Resources and Remuneration Committee. Eligibility for appointment as a director is guided by the Director’s Fit and Proper Person test, requirements of the Companies Act [24:03], Banking Act Chapter [24:20] and best practice.

26 CBZ Holdings Limited Annual Report 2012 Corporate Governance Statement (continued)

The Board’s Commitment to Diversity and Inclusion Board Remuneration

The Board firmly believes in the importance of a diverse board Non-executive directors receive fees for their Board membership membership. Currently there is a diverse mix of ethnicity, gender and and committees on which they serve. In line with best practice, experience on the Board, including two women and three different proposals on non-executive directors’ remuneration are made by nationalities. the Human Resources and Remuneration Committee for review by the Board. The remuneration of non-executive directors is submitted Director Induction, Training and Development Programmes to shareholders for approval at the Annual General Meeting held prior to implementation. The Directors’ remuneration is aligned to Training and orientation workshops are held for new and existing best practice and remains competitive with that of other financial directors. The workshops cover topics such as the Group’s business, institutions. corporate governance, fiduciary duties and responsibilities, terms of reference of all board committees, key Company policies, new laws Performance Assessment and regulations and risk management. The Board undertakes a formal and rigorous annual evaluation of its The Group has in place continuous development programmes that own performance and that of its Committees and each director. The are tailored to the needs of the Directors. Development programmes Board, led by the Chairman, uses a detailed questionnaire, completed are arranged for the Board, that focus on their duties, responsibilities, by each director, as the basis of these evaluations. This evaluation powers and potential liabilities as well as governance and the financial is aimed at determining how the board’s effectiveness can be services industry. Training is scheduled throughout the year and may improved. The evaluation process is governed by the Reserve Bank of be provided internally or by external service providers. The Corporate Zimbabwe which is ultimately the custodian of the Board Evaluation Secretariat team plays a pivotal role in assisting the Non-executive Report in line with its Corporate Governance Guidelines. Directors to achieve their development plans and this is tracked and reviewed by the Board annually. Succession Planning

Openness and Transparency The Board’s succession planning process encompasses an evaluation of the skills, knowledge and experience required to implement the The Board has unrestricted access to Company information, records, Group’s business plans and strategy, as well as the need to transform documents and management. Efficient and timely procedures the board and ensure greater diversity. for briefing Board members before Board meetings have been developed and implemented. The information provided to Directors Our Board contains individuals with diverse skills, knowledge and enables them to reach objective and well-informed decisions. experiences and this provides effective board dynamics. The Board continues to focus on the current and future composition of the A range of non-financial information is also provided to the Board Board and its committees and key factors include technical skills, to enable it to consider qualitative performance factors that involve gender and diversity of perspective. broader stakeholder interests. The directors are empowered to obtain independent professional advice at the Group’s expense, should they STRATEGIC LEADERSHIP consider it necessary. The strategic leadership of the company is the responsibility of the Board Meetings Board, comprising two executive directors and twelve non-executive directors as at 31 December 2012. The Board meets quarterly. Board meetings are scheduled well in advance according to a Board calendar which is set and approved The Board manages the Company through a formal schedule of a year in advance. Additional Board meetings, apart from those matters reserved for its decision. These include overall management planned, are convened as circumstances dictate. of the Company, approval of the company’s strategic plans, approval

of the Company’s operating and capital expenditure budgets, GOVERNACE CCORPORATE The Board agenda and meeting structure focus on strategy, approval of the Annual Report and Financial Statements, material performance monitoring, governance and related matters. This agreements, audit and risk management, remuneration, and ensures that the board’s time and energy are appropriately applied. corporate responsibility. Directors may propose additional matters for discussion at Board meetings. The Board has delegated some of its responsibilities to its subcommittees but reserves some areas of responsibility solely for Board meetings are conducted in a manner that encourages open itself. communication, active participation and timely resolution of issues. Sufficient time is provided during Board meetings for thoughtful Board Oversight of Risks and Performance discussions. Board meetings are facilitated, but not overly influenced by the Chairperson. The Board identifies and monitors key risk areas, key performance areas and non-financial aspects relevant to the Group, supported by Board-appointed committees. The Board also considers several key

27 CBZ Holdings Limited Annual Report 2012 27 Corporate Governance Statement (continued)

performance indicators, variance reports and industry trends every necessary. All committees are chaired by independent non-executive quarter. directors.

Internal Financial Control The committees meet quarterly in accordance with their terms of reference and Members of the Executive Committee and other It is the responsibility of the Board to ensure that effective management attend meetings of the various committees by financial controls are implemented in the Group. Internal controls invitation. The Board receives the minutes of each of the committee’s focus on critical risk areas and are based on established policies meetings in advance. In addition, the committee chairpersons and procedures. Adequate segregation of duties are in place to update the full Board on items covered by their committee. enhance the effectiveness of these controls. The Board monitors This framework ensures that there is a balance of power and that the effectiveness of these controls through reviews by the Audit no individual has unlimited decision-making powers. All Board- Committee and independent evaluation by the external auditors. delegated authorities are reviewed and updated annually by the Financial Reporting Board. The Board evaluates the performance and effectiveness of Board committees every year. The Directors are responsible for ensuring that the Group maintains adequate records for reporting on the financial position of the Group At the beginning of the year the Company’s Board committees and the results of its activities with accuracy and reliability. Financial were reconfigured into four key committees as follows: reporting procedures are consistently applied within the Group and all financial and related non-financial information is constantly COMMITTEE RECONSTITUTED COMMITTEE reviewed and remedial action taken, where necessary. Shareholders Audit & Finance and the public are regularly kept up to date through the Annual Audit & Risk Risk Management & Compliance Report, the Consolidated Financial Statements, as well as Interim Human Resources Human Resources & Remuneration Financial Reports. Investments IT & Business Development Compliance

The banking, building society and asset management subsidiaries New Board Structure 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. BOARD As at 31 December 2012 the Group was not involved in any material litigation, disputes or arbitration proceedings which may have had a

Risk Human significant effect on its financial position. IT & Business Audit & Finance Management & Resources & Development Committee Compliance Remuneration Committee Shareholders Committee Committee CCORPORATE GOVERNACE The Board’s primary role is to promote the success of the Company and the interests of shareholders. The Board is accountable to Audit & Finance shareholders for the performance and activities of the Group. The Company recognises the importance of communicating with The Committee’s main objective is to provide effective financial its shareholders to ensure that its strategy and performance are governance in respect of the Group’s financial results, the performance understood. This is achieved principally through the Annual Report of both the internal audit function and the external auditor, and the and the AGM. In addition, a range of corporate information, including management of the Group’s systems of internal control, business all Company announcements and presentations, is available to risks and related compliance activities. investors on the Company’s website. The functions of the Committee include: BOARD COMMITTEES • Review of the Company’s financial statements; The Board has established and delegated specific roles and • Consideration of reports from the external auditors, identifying responsibilities to four standing committees, to assist it in discharging any accounting or judgmental issues requiring its attention; its duties and responsibilities. The terms of reference of each committee are approved by the Board and reviewed annually or as

28 CBZ Holdings Limited Annual Report 2012 Corporate Governance Statement (continued)

• Approval of the audit plans for the external and internal auditors; Human Resources & Remuneration

• Consideration of reports from the Group Internal Audit on The Committee is responsible for the development and the results of internal audit reviews, significant findings, implementation of the Group’s remuneration philosophy and policy management action plans and timeliness of resolution; and and oversight of the compensation of Executive Directors of the Group. • Consideration of the external auditors’ performance. During the Year the Committee’s work included: Risk Management & Compliance • Implementation of programmes to strengthen the safety, health The Committee assists the Board in discharging its responsibilities and wellness culture; and in overseeing, reviewing and recommending to the Board, the establishment of a risk management policy and the management of • Approval of the Group’s Human Resources and Remuneration the Group’s compliance with statutes, directives and internal policies. Philosophy.

The functions of the Committee include: IT & Business Development

• Reviewing of the Company’s risk management and compliance The Role of the Committee is to assist the Board in the discharge of processes; its duties relating the oversight of strategic and tactical investment and business opportunities and the planning, management and • Reviewing of risk and compliance reports and management of organisation of Information, Communications and Technology. risk; and During the year some of the committee’s work included • Reviewing arrangements established by management for compliance with regulatory financial reporting and best practice • Review of the company’s IT Governance structures; and requirements including the requirements and recommendations of relevant regulatory or supervisory bodies. • Approval of the Group IT Strategic Plan. CCORPORATE GOVERNACE CCORPORATE

29 CBZ Holdings Limited Annual Report 2012 29 Corporate Governance Statement (continued) CBZ HOLDINGS LIMITED BOARD COMMITTEE AND BOARD ATTENDANCE REGISTER (January to December 2012)

Risk Management & Human Resources & It & Business Main Audit & Finance Compliance Remuneration Development Board

Mr. T Bere 1 3 2 ** 4 Mr. M I O Ben Ghali 1 3 ** 3 5 Mr. F M Dernawi ** 3 ** 2 5 Mr. A Lowe 3 3 ** ** 4 Mr. E Mugamu 3 ** ** ** 3 Mr. D Mutambara 2 ** 2 2 4 Mr. M H Nanabawa 4 ** ** ** 5 Mrs. R Nhamo 1 2 4 ** 5 Mrs. R Pasi 3 3 ** ** 3 Mr. R J Reid 1 1 ** 1 2 Mr. G Taputaira 1 ** ** 3 5 Mr. R V Wilde ** ** 3 ** 3 Mr. L Zembe ** ** 4 3 6 Dr. J P Mangudya* 3 4 4 3 6 Mr. N Nyemudzo* 4 3 ** 3 5

KEY * Executive Directors ** Not a Member

Committee Number of Meetings Held

Audit Finance 4 Risk Management & Compliance 5

Human Resources & Remuneration 4

IT & Business Development 3

Main Board 6

ADDITIONAL SUPPORT TO THE BOARD determine the board agendas, as well as to formulate governance CCORPORATE GOVERNACE and Board-related issues. Subsidiary Boards STATEMENT OF COMPLIANCE The Board has overall responsibility for the affairs of the Group, however subsidiary boards play an important role in the governance Based on the information set out in this corporate governance of the Group. The Company has created a governance framework statement, the Board believes that throughout the accounting period between the Group and its subsidiaries that allows Directors access under review, the Group complied with the requisite regulatory to subsidiary Board documentation. requirements.

Group Legal Corporate Secretary By order of the Board

All directors have access to the qualified and experienced Group Secretary. The Group Legal Secretary provides guidance to the Board as a whole and to individual directors with regard to how their responsibilities should be discharged in the best interests of the RUMBIDZAYI A JAKANANI Group. Group Legal Corporate Secretary The Group Legal Secretary oversees the induction of new directors 26 February 2013 and assists the Group Chairman and the Group Chief Executive to

30 CBZ Holdings Limited Annual Report 2012 The Directors are responsible for keeping proper accounting records that Statement of Director’s disclose with reasonable accuracy at any time the financial position of the Responsibilities Group and enables them to ensure that the financial statements comply with the Companies Act Chapter (24:03). They have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the Group and to prevent and detect fraud and other irregularities.

The Directors are responsible for preparing the Annual Report and Group financial statements. These statements have been prepared in accordance with International Financial Reporting Statements (IFRS), (promulgated by the International Accounting Standards Board (IASB)), which include standards and interpretations approved by the IASB as well as International Accounting Standards (IAS) and Standing Interpretations Committee (SIC) interpretations issued under previous constitutions), the Companies Act (Chapter 24.03), Banking Act (Chapter 24:20), Insurance Act (Chapter 24:07), the Building Societies Act (Chapter 24:02) and Statutory Instruments (SI 33/99 and SI 62/99).

The Group financial statements are required by law and IFRS to present fairly the financial position of the Group and the performance for that period. In preparation of the Group financial statements, the directors are required to:

• state whether they have been prepared in accordance with IFRS; and “The Directors have assessed • prepared on the going concern basis unless it is inappropriate to the ability of the Group to presume that the Group will continue in business. • select suitable accounting policies and then apply them consistently; continue operating as a going and • make judgements and estimates that are reasonable and prudent. concern and believe that the These financial statements which have been prepared under the historical preparation of these financial cost convention are in agreement with the underlying books and records. The Directors have assessed the ability of the Group to continue operating as a statements on a going concern going concern and believe that the preparation of these financial statements on a going concern basis is still appropriate. The Directors have engaged basis is still appropriate.” themselves to continuously assess the ability of the Group to continue to operate as a going concern and to determine the continued appropriateness of the going concern assumption that has been applied in the preparation of these financial statements.

We confirm that to the best of our knowledge:

• The financial statements, prepared in accordance with the relevant financial reporting framework, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company and the undertakings included in the consolidation taken as a whole; and • The management report, which is incorporated into the Directors’ report, includes a fair review of the development and performance of GOVERNACE CCORPORATE the business and the position of the Company and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face.

By order of the Board

NEVER NYEMUDZO JOHN P MANGUDYA Group Chief Finance Officer Group Chief Executive Officer

26 February 2013 26 February 2013

31 CBZ Holdings Limited Annual Report 2012 31 Report of the Directors SHARE CAPITAL The authorised and issued share capital of the Group is as follows:

Authorised: 1 000 000 000 ordinary shares

Issued and fully paid: 684 144 546 ordinary shares

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 2012 US $ Current year dividends 2 081 397 Retained for future growth 42 943 590 45 024 987 Directorate

Mr. L Zembe Chairman “The Group offers commercial Mr. R V Wilde Vice - Chairman Mr. M I O Ben Ghali Non-independent Non-executive Director banking, mortgage finance, Mr. T Bere Non-independent Non-executive Director Mr. F M Dernawi Non-independent Non-executive Director Mr. A Lowe Independent Non-executive Director asset management, short and Mr. E Mugamu Independent Non-executive Director Mr. D Mutambara Non-independent Non-executive Director long term insurance and other Mr. M H Nanabawa Independent Non-executive Director Mrs. R Nhamo Independent Non-executive Director non financial services.” Mrs. R Pasi Independent Non-executive Director Mr. G Taputaira Independent Non-executive Director Mr. R J Reid Independent Non-executive Director Dr. J P Mangudya* Group Chief Executive Officer Mr. N Nyemudzo* Group Chief Finance Officer

* Executive

R A Jakanani Group Legal Corporate Secretary CCORPORATE GOVERNACE Directors’ interests in shares

As at 31 December 2012 the Directors held the following direct and indirect beneficial interests in the shares of the Company.

J P Mangudya Dr 1 586 366

DIVIDEND ANNOUNCEMENT

The Board has decided to propose the declaration of a final dividend of US$1 178 326 for the year ended 31 December 2012, after having declared an interim dividend of US$ 903 071.

By order of the Board

R A Jakanani

Group Legal Corporate Secretary

26 February 2013

32 CBZ Holdings Limited Annual Report 2012 Board of Directors Introduction The CBZ Holdings Limited Board has an appropriate balance of executive, non-executive and independent directors. It comprises majority of non-executive directors who are independent as defined in the Reserve Bank of Zimbabwe Corporate Governance Guidelines No. 01-2004 and the King Code. The Chairperson of the Board is an independent non-executive director.

Changes in Board Membership during 2012

• Resignation of Mr. R J Reid as a non-executive director

• Retirement of Mr. N J Makuvise as Group Chief Executive Officer

“The Board comprises of a • Appointment of Mr. R V Wilde as Vice Chairperson majority of non-executive • Appointment of Mr. E Mugamu and Mrs. R Pasi as independent non-executive directors who are Directors

independent as defined • Appointment of Dr. J P Mangudya as Group Chief Executive Officer

in the Reserve Bank of • Appointment of Mr. N Nyemudzo as Group Chief Finance Officer

Zimbabwe Corporate Directorate as at 31 December 2012 Governance Guidelines” L Zembe, R V Wilde, A Lowe, E Mugamu, M H Nanabawa, Independent non-executive directors R Nhamo, G Taputaira, R Pasi

Non-independent non-executive T Bere, D Mutambara, R Reid, F M Dernawi, M I O Ben directors (shareholder appointed) Ghali

Executive directors J P Mangudya, N Nyemudzo

Board Committee Chairpersons as at 31 December 2012

Group Audit and Finance Committee E Mugamu

Group Risk Management and R Pasi Compliance Committee Group Human Resources and R Nhamo Remuneration Committee Group IT and Business Development G Taputaira Committee CCORPORATE GOVERNACE CCORPORATE

33 CBZ Holdings Limited Annual Report 2012 33 CBZ Group Limited Board of Directors

Mr L Zembe Dr J P Mangudya Mr M I O Ben Ghali Mr G Taputaira

Qualifications Qualifications Qualifications Qualifications

MBA – Henley International BSc (Economics) – University of 1965 High Commercial, Book-keeping Bachelor of Science - University of Management College (UK) Zimbabwe and Accounting Diploma - Sabrata Zimbabwe Graduate Certificate - Henley Commercial Institute. Management College (UK) MSc (Economics) – University of Masters in Business Administration- Zimbabwe University of Zimbabwe Corporate Governance Certificate – Commonwealth Centre for Corporate PhD (Business Administration) – Governance, Kenya Washington International University, USA

Capacity Capacity Capacity CCORPORATE GOVERNACE Capacity

Chairperson of the Board Group Chief Executive Officer Non-independent non-executive Independent non-executive director Independent non-executive director director Executive Director Year appointed to the Board Year appointed to the Board Year appointed to the Board Year appointed to the Board 2009 2009 2009 2009

Expertise and experience Expertise and experience Expertise and experience Expertise and experience Luxon is a business leader and John joined the CBZ Group in 1999. He Mohammed is the current Deputy Givemore is the former Development management consultant of international is a former Principal Economist of the Manager of the Banking Operations repute. He is the Founder and Managing Projects Director of Zimbabwe Sun Director of Management Solutions Reserve Bank of Zimbabwe and served Department of the Libyan Foreign Limited/African Sun Limited having Group of Companies with subsidiaries in as the Regional Principal Operations Bank. He has held various positions previously served as the Group Management Consultancy and Advisory Manager of the Africa Export-Import in the Central Bank of Libya and the Systems Manager. He is a businessman Services. He is an MBA graduate of Bank (Afreximbank). He commenced his Libyan Foreign Bank. He has a wealth of with expertise in information and Henley Management College, a Certified expansive career as a banker in 1986 and expertise and experience in operations Commonwealth Trainer and Consultant communication technology. was appointed Group Chief Executive of Financial Institutions. in Corporate Governance, ILO Certified Officer of the CBZ Group in April 2012, a Trainer and Consultant in Enterprise and Business Development Services, Human position he currently holds. Capital Development. Luxon is a fellow of the Institute of Directors, Zimbabwe Institute of Management and Chartered fellow of the Institute of Personnel Development in the UK.

34 CBZ Holdings Limited Annual Report 2012 CBZ Group Limited Board of Directors (Continued)

Mr T Bere Mr D Mutambara Mr E Mugamu Mr M H Nanabawa

Qualifications Qualifications Qualifications Qualifications Bachelor of Accounting - Bachelor of Law (Hons) – Masters in Education Certificate – B.A (Hons) Accounting, University of the South Pacific, Fiji Islands University of Zimbabwe University of Zimbabwe Masters of Business Administration - FCCA, Graduate Certificate in Education – Thames Valley University, (UK) CFE CA (Z) University of Zimbabwe Chartered Accountant - (Zimbabwe) Bachelor of Arts Honours Degree – Currently pursuing Doctorate studies in University of Zimbabwe the area of privatisation.

Capacity Capacity Capacity Capacity

Non-independent non-executive Non-independent non-executive Independent non-executive director Independent non-executive director director director

Year appointed to the Board Year appointed to the Board Year appointed to the Board Year appointed to the Board 2009 2009 2012 2009

Expertise and experience Expertise and experience Expertise and experience Expertise and experience

Tino’s area of specialisation is Corporate David is an Executive Director at the Mohammed is a registered Public

Law with emphasis on institutional setup Zimbabwe Business Council on AIDS Elliot is an entrepreneur and is also a Fellow Auditor and sole Practitioner of M. H. GOVERNACE CCORPORATE and advancement, commercial and Ballim Associates. He has over 29 years property practice. He is the Senior Partner (ZBCA). He is a former Chief Executive of the Institute of Chartered Secretaries and Founder of Bere Brothers Legal Officer of the Zimbabwe Institute of and Administrators (ICSA), having of experience as an accountant. He Practioners. Tino is passionate about held many various positions in various Management. satisfied the educational requirements human rights advocacy and training as institutions in Zimbabwe. He was the first well as legal professional governance for CIS membership in Auckland, New to do Articles with Coopers & Lybrand in and continuing legal training. He has Zealand. He brings invaluable experience also become a regular resource person Harare, Zimbabwe. He is a Past President and presenter at many international legal and expertise in Strategic Business of ACCA (Zimbabwe). He was the first conferences organised by among others, Administration and Management. Zimbabwean to represent the ACCA Commonwealth Lawyers Association, International Assembly. Mohammed is World Bar Council, International Bar Association, SADC Lawyers Association, also the Trustee of the Islamic Education Zimbabwe Lawyers for Human Rights Trust in Zimbabwe. and Law Society of Zimbabwe. He is the immediate Past President of the Law Society of Zimbabwe and a retired Councilor of the Law Society of Zimbabwe.

35 CBZ Holdings Limited Annual Report 2012 35 CBZ Group Limited Board of Directors (Continued)

Mrs R Nhamo Mr F M Dernawi Mr A Lowe Mrs R Pasi CCORPORATE GOVERNACE

Qualifications Qualifications Qualifications Qualifications

MBA - Nottingham Trent University (UK) Bachelor of Science in Electrical Cambridge Advanced levels completed Bachelor of Business Administration in Additional Mathematics and with specialization in Marketing Bachelor of Business Studies Honours Engineering – England Economics Communications Degree – University of Zimbabwe Computer Programming COBOL – RPG – Diploma in Marketing Management. Diploma in Personnel Management – London Computer Institute Institute of Personnel Management of Professional Diploma in Computer Zimbabwe Systems – Jordan

Diploma in Banking and Finance – Arab Institute of Banking and Financial Studies CCORPORATE GOVERNACE Capacity Capacity Capacity Capacity

Independent non-executive director Non-independent non-executive Independent non-executive director Independent non-executive director director Year appointed to the Board Year appointed to the Board Year appointed to the Board - Year appointed to the Board 2009 2009 2009 2012

Expertise and experience Expertise and experience Expertise and experience Expertise and experience Andrew is the Principal Partner of Roseline is one of the leading Human Fouad is an engineer with vast experience Serenela Capital (Private) Limited, a Rebecca is the Chief Executive Officer Resources Practitioners in Zimbabwe. in information and communication Private Equity Fund. He is the former of Bechr Holdings (Pvt) Ltd and heads Currently she is the Managing Director technology. He is an Operations Officer CEO (Africa) – Renaissance Group and its subsidiaries namely Bechr Filing of Distinctive Consultancy Services. within the Libyan Foreign Bank. was responsible for all activities of the Roseline has over 16 years of experience Concepts (Pvt) Ltd and Bechr Industries Renaissance Group across Africa, having in human resources management, (Pvt) Ltd. She has a wealth of experience previously been the CEO (East, Central industrial relations and training. She in Business Research Methods, Economics and Southern Africa) – Renaissance designs and facilitates modules for the Group responsible for the development as well as Strategic Management. MBA programme (Part time lecturing) of all business units with the Renaissance and lectures on the Nottingham Southern Africa. This involved the set up Trent University (In Association with of both legal and physical operations for Open Learning Center, Harare) MBA Renaissance, acquisition of a number of Modules (Personal Development key support businesses and orchestration and Effectiveness: Human Resources Management and Business Policy). of key private equity investments.

36 CBZ Holdings Limited Annual Report 2012 CBZ Group Limited Board of Directors (Continued)

Mr N Nyemudzo Mr R V Wilde Ms R A Jakanani

Qualifications Qualifications Qualifications

Bachelor of Accountancy – BA (Economics and Psychology) – LLM University of Warwick (UK) University of Zimbabwe Rhodes University (1964 - 1966)

Postgraduate diploma in Applied BA Honours (Economics) – Rhodes LLB (Hons) University of Zimbabwe Accountancy - University of Zimbabwe University (1967)

Chartered Accountant (Zimbabwe)

Capacity Capacity Capacity

Group Chief Finance Officer Vice Chairperson of the Board Group Legal Corporate Secretary Independent non-executive director

Year appointed to the Board Year appointed to the Board Year appointed to the Board 2012 2012 2012 CCORPORATE GOVERNACE CCORPORATE Expertise and experience Expertise and experience Expertise and experience

Never is a Chartered Accountant with Rumbidzayi is a lawyer by profession, over 12 years banking experience. Richard is a former Deputy Governor having previously worked for Stumbles He commenced his career with BDO of the Reserve Bank of Zimbabwe. and Rowe Legal Practitioners as a civil and Zimbabwe where he trained for his He has headed the Department of criminal lawyer. She worked in her capacity articles and subsequently held senior Economics, Business Studies and as Manager Corporate Governance and financial management roles across a Accounting at both St John’s College Compliance, CBZ Bank Limited (2005) and variety of institutions in Zimbabwe, and the Hellenic Academy where Legal Corporate Secretary (2009) until her including the Reserve Bank of Zimbabwe, appointment as Group Legal Corporate First Banking Corporation and the People’s he has taught the International Secretary in 2012. Own Savings Bank. Baccalaureate Diploma and the Cambridge Advanced level courses in both Economics and Business Studies.

37 CBZ Holdings Limited Annual Report 2012 37 32 Years Annivesary in Pictures CCORPORATE GOVERNACE

38 CBZ Holdings Limited Annual Report 2012 CCORPORATE GOVERNACE CCORPORATE

39 CBZ Holdings Limited Annual Report 2012 39 Report of the Independent Auditors 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 42 to 107, which comprise the consolidated statement of financial position at 31 December 2012, 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 judgment, 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.

REPORT OF REPORT THE INDEPENDENT AUDITOR 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 financial statements present fairly, in all material respects, the financial position of CBZ Holdings Limited at 31 December 2012 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 24:02), 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

26 February 2013

40 CBZ Holdings Limited Annual Report 2012 Group Financial Statement

41 CBZ Holdings Limited Annual Report 2012 41 Consolidated Statement of Comprehensive Income for the year ended 31 December 2012

Notes 31 Dec 2012 31 Dec 2011 US$ US$

Interest income 2 156 861 775 109 563 384 Interest expense 2 (61 523 515) (34 509 502) Net interest income 95 338 260 75 053 882 Non-interest income 3 44 072 651 44 863 445 Underwriting income 4 4 723 220 3 173 779 Total income 144 134 131 123 091 106 Operating expenditure 5 (83 299 535) (69 556 084) Operating income 60 834 596 53 535 022 Charge for impairment 11.5 (4 632 446) (14 437 074) Transfer to Life Fund (646 528) (891 755) Profit before taxation 55 555 622 38 206 193 Taxation 6.1 (10 530 635) (7 862 892) Profit for the year after tax 45 024 987 30 343 301

Other comprehensive income

Gains on property revaluations 5 016 300 3 426 793 FINANCIAL STATEMENTS Fair value adjustment on available-for-sale (AFS) financial instruments 6.3 643 003 (234 166) Income tax relating to components of other comprehensive income 6.3 (596 405) (422 030) Other comprehensive income for the year net of tax 5 062 898 2 770 597 Total comprehensive income for the year 50 087 885 33 113 898

Profit for the year attributable to: Equity holders of parent 44 930 463 30 220 998 Non-controlling interests 94 524 122 303 Profit for the year 45 024 987 30 343 301

Total comprehensive income attributable to: Equity holders of parent 49 993 361 32 991 595 Non-controlling interests 94 524 122 303 Total comprehensive income for the year 50 087 885 33 113 898

Earnings per share (cents): Basic 8 7.39 4.83 Fully diluted 8 7.23 4.83 Headline 8 6.80 4.29

42 CBZ Holdings Limited Annual Report 2012 Consolidated Statement of Financial Position as at 31 December 2012

Notes 31 Dec 2012 31 Dec 2011 US$ US$

ASSETS Balances with banks and cash 7 180 186 510 142 453 856 Money market assets 10 24 896 421 7 958 378 Advances 11 854 689 983 790 340 120 Insurance assets 12 4 706 525 1 521 203 Other assets 13 52 217 859 18 351 278 Investments in equities 14 2 181 257 2 452 858 Investment properties 15 20 335 977 17 821 110 Property and equipment 16 74 248 554 66 501 576 Intangible assets 17 2 090 819 2 537 393 Deferred taxation 18 7 539 322 5 759 724 TOTAL ASSETS 1 223 093 227 1 055 697 496

LIABILITIES Deposits 19 1 032 352 075 829 896 724 Insurance liabilities 20 6 647 107 3 874 334 Other liabilities 21 16 019 797 94 336 878 Current tax payable 5 013 168 5 241 028 Deferred taxation 18 2 383 845 3 099 190 TOTAL LIABILITIES 1 062 415 992 936 448 154

EQUITY AND RESERVES Share capital 22.1 6 841 445 6 841 445 FINANCIAL STATEMENTS FINANCIAL Share premium 22.2 26 708 659 26 708 659 Treasury shares 22.3 (8 195 417) (587 510) Non-distributable reserve 22.4 13 000 000 13 000 000 Revaluation reserve 22.5 20 392 736 15 966 335 Available-for-sale reserve 22.6 - (636 497) Share option reserve 22.7 499 637 - Revenue reserves 22.8 100 943 928 57 565 187

Equity and reserves attributable to equity holders of the parent 160 190 988 118 857 619 Non-controlling interests 23 486 247 391 723 TOTAL EQUITY & RESERVES 160 677 235 119 249 342

TOTAL LIABILITIES, EQUITY AND RESERVES 1 223 093 227 1 055 697 496

L. Zembe Dr J. P. Mangudya R. A. Jakanani CHAIRMAN GROUP CHIEF GROUP LEGAL EXECUTIVE OFFICER CORPORATE SECRETARY

26 February 2013

43 CBZ Holdings Limited Annual Report 2012 43

US$ Total 59 124 499 637 96 706 (756 132) 86 832 452 33 113 898 (1 642 974) (7 613 361) 119 249 342 119 249 342 160 677 235 - - - - - US$ Non- 59 124 210 296 122 303 391 723 391 723 interests 486 247 controlling - - - 91 252 Revenue (756 132) 28 100 321 30 220 998 57 565 187 (1 642 974) 44 930 463 94 524 50 087 885 57 565 187 100 943 928 ------US$ - 636 497 reserve reserve for - sale for (403 713) (232 784) (636 497) (636 497) Available - Available

------499 637 499 637 Share option Share FINANCIAL STATEMENTS

------US$ reserve reserve 3 003 381 12 962 954 15 966 335 15 966 335 20 392 736 Revaluation 4 426 401 - - - - - Non- - - 13 000 13 000 13 000 13 000 ------US$ NDR shares - 5 454 Distributable Treasury (587 510) (587 510) (587 510) (7 613 361) (8 195 417) ------26 708 659 26 708 659 26 708 659 26 708 659 ------US$ Share Share - - capital premium

6 841 445 6 841 445 6 841 445 6 841 445

Consolidated Statement of Changes in Equity Statement Consolidated 2012 ended 31 December the year for

2011 beginning of the year at Balance income comprehensive Total Rights issue Dividends 2011 31 December at Balance 2012 beginning of the year at Balance 2012 31 December at Balance Total comprehensive income income comprehensive Total acquisition shares Treasury disposal shares Treasury option reserve share Employee Dividends

44 CBZ Holdings Limited Annual Report 2012 Consolidated Statement of Cashflows for the year ended 31 December 2012

31 Dec 2012 31 Dec 2011 US$ US$

CASH FLOWS FROM OPERATING ACTIVITIES Profit before taxation 55 555 622 38 206 193 Non cash items: Depreciation 4 784 926 3 834 270 Amortisation 739 911 171 711 Fair value adjustment (2 490 124) (968 887) Impairment on advances 4 632 446 14 437 074 Unrealised gain on foreign currency position (3 328 089) (3 144 505) Profit on disposal of investment properties - (379 406) Unearned premium 259 788 805 928 Claims provision Incurred But Not Reported (IBNR) 517 368 160 961 Loss on disposal of property and equipment 160 793 12 974 Employee share option expense 499 637 - Operating profit before changes in operating assets and liabilities 61 332 278 53 136 313

Changes in operating assets and liabilities Deposits 205 783 442 254 673 677 Advances (68 982 309) (360 171 793) Money market assets (16 938 043) 14 189 759 Insurance assets (3 185 322) (1 220 714) Insurance liabilities 1 995 618 1 619 017 Other assets (33 866 581) (8 569 337) Other liabilities (78 317 081) 82 417 897 6 489 724 (17 061 494)

Corporate tax paid (13 849 844) (11 967 086) STATEMENTS FINANCIAL Net cash inflow from operating activities 53 972 158 24 107 733

CASH FLOWS FROM INVESTING ACTIVITIES Proceeds on disposal of investment property - 456 073 Net change in investments 905 974 (123 508) Purchase of investment properties (16 113) (229 200) Proceeds on disposal of property and equipment 411 297 674 170 Purchase of property and equipment (8 087 695) (10 903 471) Purchase of intangible assets (293 338) (1 883 324) Net cash outflow from investing activities (7 079 875) (12 009 260)

CASHFLOWS FROM FINANCING ACTIVITIES Rights Issue (non-controlling interest’s portion) - 59 124 Treasury shares acquisition (7 613 361) - Treasury shares disposal 96 706 - Dividends paid (1 642 974) (756 132) Net cash outflow from financing activities (9 159 629) (697 008)

NET INCREASE IN BALANCES WITH BANKS AND CASH 37 732 654 11 401 465 Balances with banks and cash at the beginning of the year 142 453 856 131 052 391 Balances with banks and cash at the end of the year 180 186 510 142 453 856

45 CBZ Holdings Limited Annual Report 2012 45 Accounting Policies 1. GROUP ACCOUNTING POLICIES For the year ended 31 December 2012 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, investment property and certain financial instruments stated at fair value.

The financial results are presented in United States dollars (US$).

Basis of consolidation

The Group financial results incorporate the financial statements of the Company and its subsidiaries. Subsidiary undertakings are those companies in which the Group, directly or indirectly, has an interest “The Group financial statements of more than one half of the voting rights and is able to exercise incorporate the financial statements control of the operations. Control exists when the Group has the power, directly or indirectly, to govern the financial and operating of the Company and its subsidiaries. policies of an entity so as to obtain benefits from its activities. The results of subsidiaries acquired or disposed of during the year are Subsidiary undertakings are those incorporated from the dates control was acquired and up to the

FINANCIAL STATEMENTS date control ceased. companies in which the Group, The financial results of the subsidiaries are prepared for the directly or indirectly, has an interest same reporting period as the parent company, using consistent of more than one half of the voting accounting policies. rights and is able to exercise control All intra-group balances, transactions, income and expenses; profits and losses resulting from intra-group transactions that are of the operations.” 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.

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 discounted cash flow techniques. Where discounted cash flow techniques are used, estimated future cash flows are based on management’s best estimates and the

46 CBZ Holdings Limited Annual Report 2012 Acounting Policies (continued) discount rate is market related at the statement of financial Estimation of useful lives of property and equipment position date for an instrument with similar terms and conditions. The determination of estimated useful lives for property and equipment is carried out at each reporting date. The fair value of money market investments has been determined by reference to a valuation model approved by Estimation of residual values of property and Management. equipment

Available-for-sale financial instruments are carried at fair The residual values of property and equipment are value based on their market price at statement of financial determined at each reporting date. position date. The fair value adjustment is made for through Valuation of equity investments the statement of comprehensive income.

Origination fees on loans and advances Investments in equities listed on the Zimbabwe Stock Exchange are valued with reference to the prices as Origination fees are recognised using the effective interest published on the statement of financial position date. rate method over the average life of the underlying asset. Other equity investments which are not actively traded are valued at cost. Impairment on loans and advances Incurred But Not Reported (IBNR) The Group reviews individually significant loans and advances at each statement of financial position date In the process of applying the Group`s accounting policies to assess whether an impairment should be recorded in Management has estimated the incurred but not reported the statement of comprehensive income. In particular, claims (IBNR) at 5% of net written premium for all other judgement by Management is required in the estimation products with the exception of motor, which has been of the amount and timing of future cash flows when estimated at 25% of net written premium. determining the impairment. In estimating these cash 1.3 INVESTMENT PROPERTIES flows, the Group makes judgements about the borrower’s financial situation and the net realisable value of collateral. Recognition criteria These estimates are based on assumptions about a number of factors and actual results may differ, resulting in future Investment properties are those properties held for earning changes to the allowance. rental income and/or for capital appreciation. Some of these properties are partly occupied by the Group for its The Group determines the loan loss provisions as STATEMENTS FINANCIAL business activities. To this extent, the Group’s own use does mandated by the Reserve Bank of Zimbabwe’s (RBZ) not exceed 20%. Banking Regulations, Statutory Instrument 205 of 2000 (part IV). Management exercises judgements in assigning Investment properties are measured initially at cost, loan grades which form the basis of provisioning. including transaction costs. The carrying amount includes the cost of replacing part of an existing investment property The RBZ regulations prescribe minimum percentages to be at the time that cost is incurred if the recognition criteria applied on outstanding loan balances depending on each are met; and excludes the costs of day-to-day servicing of loan’s grading. an investment property. Subsequent to initial recognition, investment properties are stated at fair value, based on IAS 39 requires the assessment of impairment on valuations performed by professional valuers. individually significant loans and portfolio impairment assessments for the remaining loans. Transfers to and from investment properties The Group records the loan loss provision through the Transfers are made to or from investment property only statement of comprehensive income. when there is a change in use. If an investment property becomes more than 20% owner occupied, it is reclassified Balances held with the Reserve Bank of Zimbabwe as property and equipment in accordance with IAS 16 and These balances relate to funds held by the Reserve Bank its fair value at the date of its classification becomes its cost of Zimbabwe. Whilst they carry no agreed terms of for accounting purposes for subsequent recording. settlement, the Directors are of the opinion that they would be available within three months of call and, as such, these have been classified as “balances with banks and cash”.

47 CBZ Holdings Limited Annual Report 2012 47 Acounting Policies (continued)

Derecognition The assets` residual values, useful lives and methods of depreciation are reviewed and adjusted if appropriate at Investment properties are derecognised when either they each financial year end. have been disposed of or when the investment property is permanently withdrawn from use and no future economic Freehold land and buildings are reported at open market benefit is expected from its disposal. The difference between value while subsequent additions between valuation dates the net disposal proceeds and the carrying amount of the are shown at cost. asset is recognised in the statement of comprehensive income in the period of derecognition. Any revaluation surplus is credited to the asset revaluation reserve except to the extent that it reverses a revaluation 1.4 PROPERTY AND EQUIPMENT loss of the same asset previously recognised in statement of comprehensive income in which case the increase is Property and equipment are stated at gross carrying recognised in statement of comprehensive income. amount excluding costs of day-to-day servicing less accumulated depreciation and where applicable A revaluation deficit is recognised in statement of accumulated impairment in value. Such costs include the comprehensive income except where a deficit directly cost of replacing part of such property and equipment offsets a previous surplus on the same asset. This deficit is when that cost is incurred if the recognition criteria are directly offset against the surplus in the asset revaluation met. Gross carrying amount represents either cost or the reserve. revalued amount, in the case of revalued property. 1.5 FOREIGN CURRENCIES An item of property and equipment is derecognised FINANCIAL STATEMENTS upon disposal or when no future economic benefits The presentation and functional currency is United States are expected from its use or disposal. Any gain or loss Dollars (US$). Transactions in foreign currencies are initially arising on derecognition of the asset is included in the recorded at the exchange rate ruling at the date of the statement of comprehensive income in the year the asset transaction. Monetary assets and liabilities denominated is derecognised. in foreign currencies are translated at the rate ruling at statement of financial position date. All exchange gains/ Valuations are done by a professional valuer. losses are taken to the statement of comprehensive income.

Property and equipment are depreciated over their 1.6 TAXATION estimated useful lives on a straight line basis such that the cost or valuations of the assets are reduced to their Deferred taxation estimated residual values. The estimated useful lives at the Deferred income tax is provided using the liability method end of this reporting period are: on temporary differences at the statement of financial Buildings 40 years position date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes. Computer and other equipment 5 years Deferred tax liabilities are recognised for all taxable Furniture 10 years temporary differences except:

Leasehold improvements 10 years • where the deferred tax liability arises from the initial recognition of goodwill or of an asset or liability in a Motor vehicles 3 – 5 years transaction that is not a business combination and at the time of the transaction affects neither the The carrying values of property and equipment are accounting profit nor taxable profit or loss; and reviewed for impairment when events or changes in circumstances indicate that the carrying value may not be • in respect of taxable temporary differences recoverable. associated with investments in subsidiaries, associates and interests in joint ventures where

48 CBZ Holdings Limited Annual Report 2012 Acounting Policies (continued)

the timing of the reversal of the temporary Deferred tax assets and deferred tax liabilities are offset if a differences can be controlled and it is probable that legally enforceable right exists to set off current tax assets the temporary differences will not reverse in the against current tax liabilities and the deferred taxes relate foreseeable future. to the same taxable entity and the same taxation authority.

Deferred tax assets are recognised for all deductible Current taxation temporary differences and unused tax losses to the extent that it is probable that taxable profit will be available against The tax currently payable is based on taxable profit for which the deductible temporary differences and unused tax the year. Taxable profit differs from profit reported in the losses can be utilised except: statement of comprehensive income because it excludes items of income or expense that are taxable or deductible • where the deferred tax asset relating to the in other years, and it further excludes items that are never deductible temporary difference arises from taxable or deductible. The tax rates and tax laws used the initial recognition of an asset or liability in a to compute the amount are those that are enacted or transaction that is not a business combination and substantively enacted at the statement of financial position at the time of the transaction affects neither the date. accounting profit nor taxable profit or loss; and Capital gains tax • in respect of deductible temporary differences associated with investments in subsidiaries, Deferred tax arising on valuation of property and equity associates and interests in joint ventures, deferred investment is computed at the applicable capital gains tax tax assets are recognised only to the extent that it is rates ruling at the statement of financial position date. probable that the temporary differences will reverse Value added tax in the foreseeable future and taxable profit will be available against which the temporary differences Revenue, expenses, and assets are recognised net of Value can be utilised. Added Tax (VAT) except: Deferred taxation • where the VAT incurred on a purchase of assets or STATEMENTS FINANCIAL services is not recoverable from the taxation authority, The carrying amount of deferred tax assets is reviewed at in which case the VAT is recognised as part of the cost each statement of financial position date and reduced to the of the acquisition of the asset or as part of the expense extent that it is no longer probable that sufficient taxable item as applicable, and; profit will be available to allow all or part of the deferred tax asset to be utilised. Unrecognised deferred tax assets are • receivables and payables that are stated with the reassessed at each statement of financial position date and amount of VAT included. are recognised to the extent that it has become probable that future taxable profit will allow the deferred tax asset to 1.7 FINANCIAL ASSETS be recovered. Initial Recognition Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the year when the asset A financial instrument is a contract that gives rise to both is realised or the liability is settled based on tax rates (and a financial asset of one and a financial liability of another tax laws) that have been enacted or substantively enacted enterprise. Financial instruments held by the Group include at the statement of financial position date. balances with banks and cash, money market assets, advances, investments and deposits. Deferred tax relating to items recognised directly in equity is recognised in equity and not in the statement of Financial assets in the scope of IAS 39 are classified as either comprehensive income. financial assets at fair value through profit or loss, loans and receivables, held-to-maturity investments and available for

49 CBZ Holdings Limited Annual Report 2012 49 Acounting Policies (continued)

sale financial assets as appropriate. When financial assets the cumulative amortisation using the effective interest rate are recognised initially they are measured at fair value, plus, method of any difference between the initially recognised in the case of investments not at fair value through profit amount and the maturity amount. This calculation includes or loss, directly attributable transaction costs. The Group all fees and amounts paid or received between parties determines the classification of its financial assets after to the contract that are an integral part of the effective initial recognition and where allowed and appropriate re- interest rate, transaction costs and all other premiums and evaluates this designation at each financial year-end. discounts. For investments carried at amortised cost, gains and losses are recognised in income when the investments All regular way purchases and sales of financial assets are are recognised or impaired as well as the amortisation recognised on the trade date i.e. the date that the Group process. (These include certain investments and money commits to purchase the asset. Regular way purchases or market assets). sales are purchases or sales of financial assets that require delivery of assets within the period generally established Loans and receivables by regulation or convention in the marketplace. Loans and receivables are non-derivative financial assets Subsequent measurement with fixed or determinable payments that are not quoted in an active market. Such assets are carried at amortised cost The subsequent measurement of financial assets depends using the effective interest rate method. Gains and losses on their classification as follows: are recognised in income when the loans and receivables are derecognised or impaired as well as through the Financial assets at fair value through profit or loss amortisation process. (These include advances, insurance

FINANCIAL STATEMENTS Financial assets classified as held for trading are included assets, and other assets). in the category ‘financial assets at fair value through profit Available-for-sale financial assets or loss’. Financial assets are classified as held for trading if they are acquired for the purpose of selling in the near Available-for-sale financial assets are those non-derivative term. Derivatives, where applicable, are also classified as financial assets that are designated as available-for-sale or held for trading unless they are designated and effective are not classified in any of the three preceding categories. hedging instruments. Gains or losses on investments held After initial recognition available-for-sale financial assets for trading are recognised in income. (These include certain are measured at fair value with gains or losses being investments and money market assets). recognised as a separate component of equity until the investment is derecognised or until the investment is Financial assets at fair value through profit or loss are carried determined to be impaired at which time the cumulative in the statement of financial position at fair value with gains gain or loss previously reported in equity is included in or losses recognised in the statement of comprehensive the statement of comprehensive income. (These include income. certain investments and money market assets). Held to maturity investments Fair value of financial instruments Non-derivative financial assets with fixed or determinable The fair value of financial instruments that are actively payments and fixed maturity are classified as held-to- traded in organised financial markets is determined by maturity when the Group has the positive intention and reference to quoted market bid prices at the close of ability to hold to maturity. Investments intended to be business on the statement of financial position date. For held for an undefined period are not included in this financial instruments where there is no active market, classification but other long-term investments that are fair value is determined using valuation techniques. Such intended to be held to maturity such as bonds are included. techniques may include using recent arm’s length market Held-to-maturity instruments are subsequently measured transactions; reference to the current fair value of another at amortised cost. This cost is computed as the amount instrument that is substantially the same; discounted cash initially recognised minus principal payments plus or minus flow analysis or other valuation models.

50 CBZ Holdings Limited Annual Report 2012 Acounting Policies (continued)

Balances with banks and cash Deposits

Balances with banks and cash comprise cash balances Deposits, debt securities issued and subordinated liabilities on hand, cash deposited with the central bank and other are initially measured at fair value plus incremental direct banks. transaction costs, and subsequently measured at their amortised cost using the effective interest rate method Offsetting arrangements except where the Group chooses to carry the liabilities at fair value through profit or loss. Financial assets and liabilities are offset and the net amount Other financial liabilities are measured at amortised cost. presented in the statement of financial position when, and only when, the Group has a legal right to offset the amounts 1.9 Derecognition of financial assets and and intends either to settle on a net basis or to realise the liabilities asset and settle the liability simultaneously. Financial assets 1.8 FINANCIAL LIABILITIES A financial asset (or where applicable a part of a financial Initial recognition asset or part of a group of similar financial assets) is derecognised where: Financial liabilities are recognised initially at fair value and in the case of loans and borrowings, directly attributable • the rights to receive cash flows from the asset have transaction costs are included in the determination of fair expired; value. • the Group retains the right to receive cash flows from Subsequent measurement the asset but has assumed an obligation to pay them in full without material delay to a third party under a The measurement of financial liabilities depend on their ‘pass-through’ arrangement; or classification as follows:

• the Group has transferred its right to receive cash STATEMENTS FINANCIAL Financial liabilities held for trading flows from the asset and either (a) has transferred substantially all the risks and rewards of the asset or Financial liabilities held for trading, comprising financial (b) has neither transferred nor retained substantially all instruments other than derivatives are recorded in the the risks and rewards of the asset but has transferred statement of financial position at fair value. Changes in control of the asset. fair value are recognised in ‘Net trading income’. Interest expense is recorded in ‘Net trading income’ according to the Where the Group has transferred its rights to receive terms of the contract or when the right to the payment has cash flows from an asset and has neither transferred nor been established. (These include money market deposits). retained substantially all the risks and rewards of the asset nor transferred control of the asset, the asset is recognised Financial liabilities designated at fair value through to the extent of the Group’s continuing involvement in profit or loss the asset. Continuing involvement that takes the form of Financial liabilities at fair value through profit or loss are a guarantee over the transferred asset is measured at the recorded in the statement of financial position at fair value. lower of the original carrying amount of the asset and the Interest incurred is accrued in interest expense according maximum amount of consideration that the Group could to the terms of the contract. (These include money market be required to pay. deposits). 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

51 CBZ Holdings Limited Annual Report 2012 51 Acounting Policies (continued)

the Group’s continuing involvement is the amount of the value of estimated future cash flows (excluding future transferred asset that the Group may repurchase except credit losses that have not been incurred) discounted at that in the case of a written put option (including a cash- the financial asset’s original effective interest rate (i.e. the settled option or similar provision) on an asset measured at effective interest rate computed at initial recognition). The fair value the extent of the Group’s continuing involvement amount of the loss shall be recognised in statement of is limited to the lower of the fair value of the transferred comprehensive income. asset and the option exercise price. The Group first assesses whether objective evidence of Financial liabilities impairment exists individually for financial assets that are individually significant, and individually or collectively for A financial liability is derecognised when the obligation financial assets that are not individually significant. If it is under the liability is discharged or cancelled or expires. determined that no objective evidence of impairment exists for an individually assessed financial asset whether Where an existing financial liability is replaced by another significant or not, the asset is included in a group of financial from the same lender on substantially different terms or the assets with similar credit risk characteristics and that group terms of an existing liability are substantially modified, such of financial assets is collectively assessed for impairment. an exchange or modification is treated as a derecognition Assets that are individually assessed for impairment and for of the original liability and the recognition of a new liability which an impairment loss is or continues to be recognised and the difference in the respective carrying amounts is are not included in a collective assessment of impairment. recognised in statement of comprehensive income. If in a subsequent period, the amount of the impairment 1.10 IMPAIRMENT FINANCIAL STATEMENTS decreases and the decrease can be related objectively to The Group assesses at each statement of financial position an event occurring after the impairment was recognised, date whether there is any objective evidence that a financial the previously recognised impairment is reversed. Any asset or a group of financial assets is impaired. A financial subsequent reversal of an impairment is recognised in the asset or a group of financial assets is deemed to be impaired statement of comprehensive income to the extent that the if, and only if, there is objective evidence of impairment as carrying value of the asset does not exceed its amortised a result of one or more events that has occurred after the cost at the reversal date. initial recognition of the asset (an incurred “loss event”) and Assets carried at cost that loss event has an impact on the estimated future cash flows of the financial asset or the group of financial assets If there is objective evidence that an impairment on an that can be reliably estimated. Evidence of impairment may unquoted equity instrument that is not carried at fair include indications that the debtors or a group of debtors value because its fair value cannot be reliably measured or is experiencing significant difficulty, default or delinquency on a derivative asset that is linked to and must be settled in interest or principal payments, the probability that they by delivery of such an unquoted equity instrument has will enter bankruptcy or other financial reorganisation and been incurred. The amount of the loss is measured as the where observable data indicate that there is a measurable difference between the asset’s carrying amount and the decrease in the estimated future cash flows, such changes in present value of estimated future cash flows discounted at arrears or economic conditions that correlate with defaults. the current market rate of return for a similar financial asset.

Assets carried at amortised cost Available-for-sale financial assets

The carrying amount of the asset shall be reduced either If an available-for-sale asset is impaired an amount directly or through use of an allowance account if there is comprising the difference between its cost (net of any objective evidence that an impairment has been incurred. principal payment and amortisation) and its current fair The amount of the loss is measured as the difference value less any impairment loss previously recognised in between the asset’s carrying amount and the present profit or loss is transferred from equity to the statement

52 CBZ Holdings Limited Annual Report 2012 Acounting Policies (continued)

of comprehensive income. Reversals in respect of equity depreciation charge is adjusted in future periods to allocate instruments classified as available-for-sale are not the asset’s revised carrying amount less any residual value recognised in profit. on a systematic basis over its remaining useful life.

Reversals of impairment on debt instruments (loans and The Group complies with the regulatory guidelines in recievables) are reversed through profit or loss if the respect of its impairment policy and considers those increase in fair value of the instrument can be objectively guidelines when assessing impairment in accordance with related to an event occurring after the impairment was the requirements of International Accounting Standard recognised in statement of comprehensive income. (IAS 36 – Impairment).

Other assets 1.11 REVENUE RECOGNITION

The Group assesses at each reporting date whether there Revenue is recognised to the extent that it is probable is an indication that an asset may be impaired. If any such that the economic benefits will flow to the Group and the indication exists or when annual impairment testing for an revenue can be reliably measured and the risks and rewards asset is required, the Group makes an estimate of the asset’s have passed to the Group. recoverable amount. An asset’s recoverable amount is the higher of an asset’s or cash-generating unit’s fair value less Trading income cost to sell and its value in use and is determined for an The Group includes profits or losses and fair value individual asset unless the asset does not generate cash adjustments on held for trading financial instruments both inflows that are largely independent of those from other realised and unrealised in income as earned. assets or group of assets. Where the carrying amount of an asset exceeds its recoverable amount, the asset is considered Interest income impaired and is written down to its recoverable amount. In assessing value in use the estimated future cash flows are Revenue is recognised in the statement of comprehensive discounted to their present value using a pre-tax discount income on an accrual basis using the effective interest rate that reflects market assessments of the time value of rate method, that is the rate that exactly discounts the money and the risks specific to the asset. Impairment losses estimated future cash receipts through the expected life of STATEMENTS FINANCIAL of continuing operations are recognised in the statement the financial instrument to the net carrying amount of the of comprehensive income in those expense categories financial asset. consistent with the function of the impaired asset. Interest expense An assessment is made at each reporting date as to whether there is any indication that previously recognised Interest expense is recorded in the statement of impairment may no longer exist or may have decreased. If comprehensive income according to the terms of the such indication exists the recoverable amount is estimated. contract or when the right to the payment has been A previously recognised impairment is reversed only if established. Interest expense is calculated on a time there has been a change in the estimate used to determine proportion basis using effective interest rate method. the asset’s recoverable amount since the last impairment Commission and fee income was recognised. If that is the case, the carrying amount of the asset is increased to its recoverable amount. That The Group recognises commission and fee income on an increased amount cannot exceed the carrying amount that accruals basis when the service is rendered. Commission would have been determined net of depreciation had no income on acceptances and bills is credited to income impairment been recognised for the asset in prior years. over the lives of the relevant instrument on a time Such reversal is recognised in profit or loss unless the asset apportionment basis. is carried at the revalued amount in which case the reversal is treated as a revaluation increase. After such a reversal the

53 CBZ Holdings Limited Annual Report 2012 53 Acounting Policies (continued)

Services rendered of a risk is recognised at the statement of financial position date calculated on a 1/365 basis. The Group recognises revenue for services rendered to customers based on the estimated outcome of the Basis of accounting for underwriting activities transactions. When the outcome can be reliably estimated, transaction revenue is recognised by reference to the Underwriting results are determined on an annual stage of completion of the transaction at the statement basis whereby the incurred cost of claims, commission of financial position date. The stage of completion is and related expenses is charged against the unearned measured based on the amount of work performed. When proportion of premiums. the outcome cannot be reliably estimated, revenue is Claims recognised only to the extent of the expenses incurred that are recoverable. Claims represent the ultimate cost (net of salvage recoveries) of settling all claims arising from events that have occurred Dividends up to the statement of financial position date. Claims Revenue is recognised when the Group’s right to receive incurred but not reported are claims arising out of events the payment is established. which have occurred by the statement of financial position date but have not yet been reported at that date. Premiums Unexpired risk provision Premiums written comprise the premiums on insurance contracts entered into during the year, irrespective of An unexpired risk provision is made for any deficiencies

FINANCIAL STATEMENTS whether they relate in whole or in part to a later accounting arising when unearned premiums, net of associated period. Premiums are disclosed gross of commission to acquisition costs, are insufficient to meet expected claims intermediaries and exclude taxes and levies based on and expenses likely to arise after the end of the financial premiums. Premiums written include adjustments to year from contracts concluded before that date. The premiums written in prior accounting periods. Outward expected claims are calculated having regard to events that reinsurance premiums are accounted for in the same have occurred prior to the statement of financial position accounting period as the premiums for the related direct date. Unexpired risks, surpluses and deficit, are aggregated insurance or inwards reinsurance business. An estimate where business classes are managed together. is made at the financial reporting date to recognise Liability adequacy test retrospective adjustments to premiums or commissions. At each statement of financial position date, the liability The earned portion of premiums received, including adequacy test is performed to ensure the adequacy of unclosed business, is recognised as revenue. Premiums on the contract liabilities net of Deferred Acquisition Costs unclosed business are brought into account, based upon (DAC). In performing these tests, current best estimates the pattern of booking of renewals and new business. of future contractual cash flows and claims handling and Premiums are earned from the date of attachment of risk, administration costs are used. Any deficiency is immediately over the indemnity period, based on the pattern of risks charged to the statement of comprehensive income initially underwritten. by writing off the DAC and by subsequently establishing a Outward reinsurance premiums are recognised as an provision for losses arising from liability adequacy tests (the expense in accordance with the pattern or reinsurance unexpired risk provision). Any DAC written off as a result of service received. A portion of outwards reinsurance this test is not reinstated. premiums is treated as prepayments. Insurance and investment contracts Commission receivable The Company issues contracts that transfer insurance risk Commission receivable relating to the unexpired portion and / or financial risk.

54 CBZ Holdings Limited Annual Report 2012 Acounting Policies (continued)

Insurance contracts are those that transfer significant effected and immediately recognised in the statement of insurance risk. Significant insurance risk is defined as the comprehensive income. risk of the Company paying benefits on the occurrence of an insured uncertain event. Reversals

Investment contracts are those that transfer financial risk Reversals relate to the voluntary termination of policies by with no significant insurance risk. policyholders. Reversals are recognised immediately in the statement of comprehensive income on a pro-rata basis i.e Insurance contracts are classified as short term and include the unexpired term of a policy. motor, fire, accident, engineering, farming and marine. Premium is recognised over the term of the contract on a Premium taxes proportionate basis. Claims are charged to the statement Outstanding net amounts of levies recoverable from, or of comprehensive income based on an estimated liability payable to, the taxation authorities are included as part for compensation. These claims are not discounted as of receivables or payables in the statement of financial settlement generally occurs within a reasonable period of position. the claim. Co-insurance Insurance assets Included in the gross premium is co-insurance premium These comprise reinsurance receivables and deferred net of co-insurer’s portion. acquisition costs. Claims handling costs Reinsurance contracts held Claims incurred include the cost of all claims incurred Contracts entered into by the Group with the re-insurers during the year including internal and external claims whereby the Group recovers losses on insurance contracts handling costs that are directly related to the processing issued are classified as reinsurance contracts held. and settlement of claims.

The benefits to which the Group is entitled under its STATEMENTS FINANCIAL 1.12 EMPLOYEE BENEFITS reinsurance contracts are recognised as reinsurance assets. The assets consist of short term balances due from re- Employee benefits are the considerations given by the insurers (classified as reinsurance receivables). The amounts Group in exchange for services rendered by employees. In recoverable are measured consistently in accordance with summary such benefits are: the terms of the reinsurance contracts. Short-term benefits Acquisition costs Benefits earned by employees under normal employment Acquisition costs, which represent commission and other terms including salaries, wages, bonuses and leave pay. related expenses, are deferred over the period in which the These are expensed as earned and accordingly provisions related premiums are earned. are made for unpaid bonuses and leave pay.

Lapses and reversals Post-employment benefits

Lapses relate to the termination of policies due to non- i) The Group and employees contribute towards payment of premiums by policyholders. The subsidiary the National Social Security Authority, a defined assesses the ability of an insured to settle outstanding contribution fund. Costs applicable to this scheme amounts at each statement of financial position date. are determined by the systematic recognition of Whenever circumstances or events indicate that the legislated contributions. insured may not pay the outstanding amount, a lapse is

55 CBZ Holdings Limited Annual Report 2012 55 Acounting Policies (continued)

ii) The Group operates a defined contribution 1.13 CONTINGENCIES AND COMMITMENTS scheme, the assets of which are held in a separate trustee-administered fund. The costs are charged to Transactions are classified as contingencies where the the statement of comprehensive income as incurred. Group’s obligations depend on uncertain future events and principally consist of third party obligations underwritten. Employee share option scheme Items are classified as commitments where the Group commits itself to future transactions or if the items will The Company’s Employee Share Options Scheme (“ESOS”) is a result in the acquisition of assets. share-based, equity-settled employee compensation scheme. The ESOS allows the employees of the Company to acquire 1.14 INSTALMENT CREDIT AGREEMENTS the shares of the Company upon fulfilling certain conditions. Leases, instalment credit and rental agreements are The total fair value of share options granted to employees regarded as financing transactions. The capital amounts is recognised as employee costs in the statement of and capitalised interest less repayments are included comprehensive income with the corresponding increase in under advances. Finance charges earned are computed at the share option reserve recognised in the equity section of effective rates of interest inherent in the contracts. the Company over the vesting period of the ESOS taking into account the probability that the ESOS will vest. 1.15 OPERATING SEGMENTS

The fair value of ESOS is measured at Grant Date, taking into An operating segment is a component of the Group that account, if relevant, the market vesting conditions upon engages in business activities from which it may earn which the options were granted but excluding the impact revenues and incur expenses including revenue and FINANCIAL STATEMENTS of any non-market vesting conditions. Non-market vesting expenses that relate to transactions with any of the Group’s conditions are included in the assumptions about the number other components. All operating segments’ operating of options that are expected to become exercisable on Vesting results are reviewed regularly by the Group Chief Executive date. Officer to make decisions about resources to be allocated to the segment and assess its performance, for which discreet At each statement of financial position date, the Company information is available. revises its estimates of the number of options that are expected to become exercisable on the vesting date. It recognises the 1.16 FIDUCIARY ACTIVITIES impact of the revision of the original estimates, if any, in the The Group’s Asset Management subsidiary acts as a trustee statement of comprehensive income, and a corresponding in other fiduciary capacities that result in the holding adjustment to equity over the remaining vesting period. or placing of assets on behalf of individuals, trusts, post The equity amount is recognised in the share option reserve employment benefit plans and other institutions. These until the option is exercised, upon which it will be transferred assets and income arising thereon are excluded from these to the share premium account, or until the option expires, consolidated financial statements as they are not assets of upon which it will be transferred to retained earnings of the the Group. Company. 1.17 FINANCIAL GUARANTEES The proceeds received net of any directly attributable transaction costs are credited to equity when the options are Financial guarantees are contracts that require the Group exercised. 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

56 CBZ Holdings Limited Annual Report 2012 Acounting Policies (continued)

amortised over the life of the financial guarantee. The lease is recognised on the Group’s statement of financial guarantee liability is subsequently carried at the higher position at its fair value. of this amortised amount and the present value of any expected payment (when a payment under the guarantee 1.21 SHARE CAPITAL has become probable). Ordinary share capital 1.18 EARNINGS PER SHARE Ordinary shares are classified as equity. Incremental costs The Group presents basic, diluted and headline earnings directly attributable to the issue of ordinary shares and per share (EPS) data for its ordinary shares. Basic EPS is share options are recognised as a deduction from equity, calculated by dividing the profit or loss attributable to net of any tax effects. ordinary shareholders of the Company by the weighted Repurchase of share capital (treasury shares) average number of ordinary shares outstanding during the period, adjusted for own shares held. Diluted EPS is When share capital recognised as equity is repurchased, the determined by adjusting the profit or loss attributable to amount of the consideration paid, which includes directly ordinary shareholders and the weighted average number attributable costs, net of any tax effects, is recognised as a of ordinary shares outstanding, adjusted for own shares deduction from equity. Repurchased shares are classified held, the effects of all potentially dilutive ordinary shares. as treasury shares and are presented as a deduction from Headline EPS are calculated by dividing net profit for the total equity. When treasury shares are sold or reissued year attributable to ordinary equity holders of the parent subsequently, the amount received is recognised as an after adjustments for excluded re-measurements by the increase in equity, and the resulting surplus or deficit on the weighted average number of ordinary shares outstanding transaction is transferred to/from retained earnings. during the period. 1.22 RELATED PARTIES 1.19 INTANGIBLE ASSETS Parties are considered to be related if one party has the Intangible assets are recorded at cost less any accumulated ability to control the other party or exercise significant amortisation and impairment losses. influence over the other party in making financial STATEMENTS FINANCIAL and operating decisions. The Group has related party The estimated useful life at the end of this reporting period relationships with its shareholders, subsidiaries, associates, for computer software is 3 years. Directors and key management employees, and their close 1.20 LEASED ASSETS family members.

Leases in terms of which the Group assumes substantially 1.23 GOING CONCERN all the risks and rewards of ownership are classified as The Directors have assessed the ability of the Group to finance leases. Upon initial recognition the leased asset is continue operating as a going concern and believe that measured at an amount equal to the lower of its fair value the preparation of these financial statements on a going and the present value of the minimum lease payments. concern basis is still appropriate. The Directors have Subsequent to initial recognition, the asset is accounted engaged themselves to continuously assess the ability for in accordance with the accounting policy applicable to of the Group to continue to operate as a going concern, that asset. All other leases not qualifying as finance leases and the continued appropriateness of the going concern are classified as operating leases. Expenditure relating to assumption that has been applied in the preparation of operating leases is accounted for through the statement of these financial statements. 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

57 CBZ Holdings Limited Annual Report 2012 57 Acounting Policies (continued)

1.24 APPLICATION OF NEW AND REVISED IFRS 9 introduces new requirements for classifying and INTERNATIONAL FINANCIAL REPORTING measuring financial assets, as follows: STANDARDS • debt instruments meeting both a ‘business model’ test and New, revised and amended IFRSs mandatorily a ‘cash flow characteristics’ test are measured at amortised effective at the end of the reporting period with cost (the use of fair value is optional in some limited a material effect on the reported amounts and circumstances); disclosures in the current and prior period • investments in equity instruments can be designated as at There were no new, revised or amended IFRSs mandatorily ‘fair value through other comprehensive income’ with only effective at the end of the reporting period that had a dividends being recognised in profit or loss; material effect on the reported amounts and disclosures in the financial statements. • all other instruments (including all derivatives) are measured at fair value with changes recognised in the New, revised and amended IFRSs in issue, but not profit or loss; and yet mandatorily effective at the end of the reporting period and not yet adopted • the concept of ‘embedded derivatives’ does not apply to financial assets within the scope of the standard and the As at the end of the reporting period, the following IFRS entire instrument must be classified and measured in were in issue, optionally effective, but not early adopted by accordance with the above guidelines. the Group: IFRS 9 Financial Instruments (issued October 2010, FINANCIAL STATEMENTS IAS 27 Separate Financial Statements (issued May effective January 2015) 2011, effective January 2013) This is a revised version of IFRS 9 incorporating revised This is an amended version of IAS 27 which now only deals requirements for the classification and measurement of with the requirements for separate financial statements, financial liabilities, and carrying over the existing derecognition which have been carried over largely unamended from requirements from IAS 39 Financial Instruments: Recognition IAS 27 Consolidated and Separate Financial Statements. and Measurement. Requirements for consolidated financial statements are now contained in IFRS 10 Consolidated Financial The revised financial liability provisions maintain the existing Statements. amortised cost measurement basis for most liabilities. New requirements apply where an entity chooses to measure a The standard requires that when an entity prepares liability at fair value through profit or loss – in these cases, the separate financial statements, investments in subsidiaries, portion of the change in fair value related to changes in the associates, and jointly controlled entities are accounted entity’s own credit risk is presented in other comprehensive for either at cost, or in accordance with IFRS 9 Financial income rather than within profit or loss. Instruments. IAS 39 Financial Instruments: Recognition and The standard also deals with the recognition of dividends, Measurement. certain group reorganisations and includes a number of disclosure requirements. The revised financial liability provisions maintain the existing amortised cost measurement basis for most liabilities. New IFRS 9 Financial Instruments (issued November 2009, requirements apply where an entity chooses to measure a effective January 2013) liability at fair value through profit or loss – in these cases, the portion of the change in fair value related to changes in the

58 CBZ Holdings Limited Annual Report 2012 Acounting Policies (continued)

entity’s own credit risk is presented in other comprehensive its interest in a joint operation (including their share of any income rather than within profit or loss. such items arising).

IFRS 10 Consolidated Financial Statements (issued 12 May • a joint venture is a joint arrangement whereby the parties 2011, effective 1 January 2013) that have joint control of the arrangement (joint venturers) have rights to the net assets of the arrangement. A joint Requires a parent to present consolidated financial statements venturer applies the equity method of accounting for its as those of a single economic entity, replacing the requirements investment in a joint venture in accordance with IAS 28 previously contained in IAS 27 Consolidated and Separate Investments in Associates and Joint Ventures (2011). Unlike Financial Statements and Standing Interpretations Committee IAS 31, the use of ‘proportionate consolidation’ to account (SIC) 12 Consolidation - Special Purpose Entities. for joint ventures is not permitted.

The standard identifies the principles of control, determines how IFRS 12 Disclosure of Interests in Other Entities (issued to identify whether an investor controls an investee and therefore May 2011, effective January 2013) must consolidate the investee, and sets out the principles for the preparation of consolidated financial statements. Requires the extensive disclosure of information that enables users of financial statements to evaluate the nature of, and risks The standard introduces a single consolidation model for all associated with, interests in other entities and the effects of entities based on control, irrespective of the nature of the those interests on its financial position, financial performance investee (i.e. whether an entity is controlled through voting and cash flows. rights of investors or through other contractual arrangements as is common in ‘special purpose entities’). Under IFRS 10, control is In high-level terms, the required disclosures are grouped into based on whether an investor has: the following broad categories:

• Power over the investee; • Significant judgements and assumptions - such as how control, joint control, significant influence has been • Exposure, or rights, to variable returns from its involvement determined; with the investee; and

• Interests in subsidiaries - including details of the structure STATEMENTS FINANCIAL • the ability to use its power over the investee to affect the of the group, risks associated with structured entities, amount of the returns. changes in control, and so on;

IFRS 11 Joint Arrangements (issued May 2011, effective • Interests in joint arrangements and associates - the January 2013) nature, extent and financial effects of interests in joint arrangements and associates (including names, details and Replaces IAS 31 Interests in Joint Ventures. Requires a party to a summarised financial information); and joint arrangement to determine the type of joint arrangement in which it is involved by assessing its rights and obligations and • Interests in unconsolidated structured entities - information then account for those rights and obligations in accordance with to allow an understanding of the nature and extent of that type of joint arrangement. interests in unconsolidated structured entities and to evaluate the nature of, and changes in, the risks associated Joint arrangements are either joint operations or joint ventures: with its interests in unconsolidated structured entities • a joint operation is a joint arrangement whereby the parties IFRS 12 lists specific examples and additional disclosures which that have joint control of the arrangement (joint operators) further expand upon each of these disclosure objectives, and have rights to the assets, and obligations for the liabilities, includes other guidance on the extensive disclosures required. relating to the arrangement. Joint operators recognise their assets, liabilities, revenue and expenses in relation to

59 CBZ Holdings Limited Annual Report 2012 59 Acounting Policies (continued)

IFRS 13 Fair Value Measurement (issued 12 May 2011, comprehensive income, plan amendments, curtailments effective January 2013) and settlements (eliminating the ‘corridor approach’ permitted by the existing IAS 19); Replaces the guidance on fair value measurement in existing IFRS accounting literature with a single standard. • Introducing enhanced disclosures about defined benefit plans; The IFRS defines fair value, provides guidance on how to determine fair value and requires disclosures about fair value • Modifying accounting for termination benefits, including measurements. It does not change the requirements regarding distinguishing benefits provided in exchange for service which items should be measured or disclosed at fair value. and benefits provided in exchange for the termination of employment and affect the recognition and measurement IFRS 13 applies when another IFRS requires or permits fair value of termination benefits; measurements or disclosures about fair value measurements (and measurements, such as fair value less costs to sell, based • Clarifying various miscellaneous issues, including the on fair value or disclosures about those measurements). With classification of employee benefits, current estimates some exceptions, the standard requires entities to classify these of mortality rates, tax and administration costs and risk- measurements into a ‘fair value hierarchy’ based on the nature sharing and conditional indexation features; and of the inputs: • Incorporating other matters submitted to the IFRS • Level 1 - quoted prices in active markets for identical assets Interpretations Committee. or liabilities that the entity can access at the measurement date; IAS 1 Presentation of Financial Statements (amended June FINANCIAL STATEMENTS 2011, effective on annual reporting periods beginning on • Level 2 - inputs other than quoted market prices included or after July 2012) within Level 1 that are observable for the asset or liability, either directly or indirectly; and Amends IAS 1 Presentation of Financial Statements to revise the way other comprehensive income is presented. • Level 3 - unobservable inputs for the asset or liability. The amendments: Entities are required to make various disclosures depending upon the nature of the fair value measurement (e.g. whether it is • Preserve the amendments made to IAS 1 in 2007 to require recognised in the financial statements or merely disclosed) and profit or loss and other comprehensive income, (“OCI”) to be the level in which it is classified. presented together, i.e. either as a single ‘statement of profit or loss and comprehensive income’, or a separate ‘statement IAS 19 Employee Benefits (amended June 2011, effective of profit or loss’ and a ‘statement of comprehensive income’ January 2013) – rather than requiring a single continuous statement as was proposed in the exposure draft; Amends IAS 19 Employee Benefits with revised requirements for pensions and other post-retirement benefits, termination • Require entities to group items presented in OCI based benefits and other changes. on whether they are potentially reclassifiable to profit or loss subsequently. i.e. those that might be reclassified and The key amendments include: those that will not be reclassified; and

• Requiring the recognition of changes in the net defined • Require tax associated with items presented before tax benefit liability (asset) including immediate recognition of to be shown separately for each of the two groups of OCI defined benefit cost, disaggregation of defined benefit cost items (without changing the option to present items of OCI into components, recognition of remeasurements in other either before tax or net of tax).

60 CBZ Holdings Limited Annual Report 2012 Acounting Policies (continued)

IFRS 7 Financial Instruments: Disclosures (amended only the preceding comparative period. Also, amendments December 2011, effective January 2013) to IFRS 11 and IFRS 12 eliminate the requirement to provide comparative information for periods prior to the immediately Amends the disclosure requirements in IFRS 7 Financial preceding period. Instruments: Disclosures to require information about all recognised financial instruments that are set off in accordance Investment Entities (Amendments to IFRS 10, IFRS 12 and with paragraph 42 of IAS 32 Financial Instruments: Presentation. IAS 27) (Issued October 2012, effective January 2014) The amendments also require disclosure of information about recognised financial instruments subject to enforceable master Amends IFRS 10 Consolidated Financial Statements, IFRS 12 netting arrangements and similar agreements even if they are Disclosure of Interests in Other Entities and IAS 27 Separate not set off under IAS 32. Financial Statements to:

IAS 32 Financial Instruments: Presentation (amended • provide ‘investment entities’ (as defined) an exemption from December 2011, effective January 2014) the consolidation of particular subsidiaries and instead require that an investment entity measure the investment Amends IAS 32 Financial Instruments: Presentation to clarify in each eligible subsidiary at fair value through profit or loss certain aspects because of diversity in application of the in accordance with IFRS 9 Financial Instruments or IAS 39 requirements on offsetting, focused on four main areas: Financial Instruments: Recognition and Measurement;

• the meaning of ‘currently’ has a legally enforceable right of • require additional disclosure about why the entity is set-off; considered an investment entity, details of the entity’s unconsolidated subsidiaries, and the nature of relationship • the application of simultaneous realisation and settlement; and certain transactions between the investment entity and its subsidiaries; and • the offsetting of collateral amounts; and • require an investment entity to account for its investment in • the unit of account for applying the offsetting requirements. a relevant subsidiary in the same way in its consolidated and separate financial statements (or to only provide separate

Consolidated Financial Statements, Joint Arrangements STATEMENTS FINANCIAL and Disclosure of Interests in Other Entities: Transition financial statements if all subsidiaries are unconsolidated). Guidance (Issued June 2012, effective January 2013)

Amends IFRS 10 Consolidated Financial Statements, IFRS 11 Joint Arrangements and IFRS 12 Disclosure of Interests in Other Entities, to provide additional transition relief by limiting the requirement to provide adjusted comparative information to

61 CBZ Holdings Limited Annual Report 2012 61 Notes to the Consolidated Financial Statements for the year ended 31 December 2012

1. INCORPORATION AND ACTIVITIES

The consolidated financial statements of the Group for the year ended 31 December 2012 were authorised for issue in accordance with a resolution of the Board of Directors on 26 February 2013. 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 2012 31 Dec 2011 US$ US$

2. INTEREST

Interest Income Bankers acceptances 410 392 364 607 Overdrafts 76 854 234 71 559 792 Loans 49 141 455 29 585 791 Mortgage interest 5 310 280 3 213 668 Staff loans 2 778 451 2 612 136 134 494 812 107 335 994

Short-term money market assets 1 180 915 954 286 Other investments 21 186 048 1 273 104 156 861 775 109 563 384

FINANCIAL STATEMENTS Interest expense Call deposits 68 409 172 536 Savings deposits 6 342 095 7 052 546 Money market deposits 37 862 439 17 103 312 Other offshore deposits 17 250 572 10 181 108 61 523 515 34 509 502

3. NON-INTEREST INCOME

Net income from trading securities 46 247 235 887 Fair value adjustment on financial instruments (8 630) (322 452) Fair value adjustment on investment properties 2 498 754 1 291 339 Net income from foreign currency dealings 4 455 556 6 306 960 Commission and fee income 30 057 188 20 615 763 (Loss)/profit on sale of property and equipment (160 793) 366 432 Other operating income 7 184 329 16 369 516 44 072 651 44 863 445

4. Underwriting INCOME Gross premium insurance 11 754 811 7 554 730 Reinsurance (4 996 096) (3 508 597) Net written premium 6 758 715 4 046 133 Unearned premium (109 782) (53 134) Net earned premium 6 648 933 3 992 999 Net commission (224 031) (81 146) Net claims (1 701 682) (738 074) 4 723 220 3 173 779

62 CBZ Holdings Limited Annual Report 2012 Notes to the Consolidated Financial Statements (continued)

31 Dec 2012 31 Dec 2011 US$ US$

5. OPERATING EXPENDITURE

Staff costs 44 809 023 37 986 959 Administration expenses 32 370 819 27 168 884 Audit fees 594 856 394 260 Depreciation 4 784 926 3 834 270 Amortisation of intangible assets 739 911 171 711 83 299 535 69 556 084

Remuneration of directors and key management personnel (included in staff costs) Fees for services as directors 555 800 592 642 Pension for past and present directors 172 843 96 556 Salaries and other benefits 4 384 954 4 017 256 5 113 597 4 706 454

Other employment benefits NSSA contributions 353 960 342 500 Defined contribution scheme 1 428 872 1 267 918

Operating leases The following is an analysis of expenses related to operating leases: Non cancellable lease rentals are payable as follows: FINANCIAL STATEMENTS FINANCIAL

Less than 1 year 223 551 145 255 Between 1 and 5 years 1 306 579 1 077 368 1 530 130 1 222 623

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 expiry date.

During the year ended 31 December 2012, an amount of US$1 198 268 was recognised as rent expense in statement of comprehensive income.

63 CBZ Holdings Limited Annual Report 2012 63 Notes to the Consolidated Financial Statements (continued)

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.

31 Dec 2012 31 Dec 2011 US$ US$

6.1 Analysis of tax charge in respect of the profit for the year Current income tax charge 13 621 984 13 632 552 Deferred income tax (3 091 349) (5 769 660) Income tax expense 10 530 635 7 862 892

6.2 Tax rate reconciliation % % Notional Tax 25.00 25.00 Aids levy 0.75 0.75 Permanent differences (6.79) (5.17) Effective tax rate 18.96 20.58

6.3 Tax effects relating to comprehensive income Gross revaluation adjustment 5 016 300 3 426 793 Tax expense (589 899) (423 412) Net revaluation adjustment 4 426 401 3 003 381

FINANCIAL STATEMENTS Gross fair value adjustment on AFS financial assets 643 003 (234 166) Tax (expense)/credit (6 506) 1 382 Net fair value adjustment on AFS financial assets 636 497 (232 784) Total taxation 596 405 422 030

7. BALANCES WITH BANKS AND CASH

Balance with the Reserve Bank of Zimbabwe 102 502 494 84 085 995 Statutory reserve - 9 442 548 Current account 102 502 494 74 643 447 Balances with other banks and cash 77 684 016 58 367 861 Cash foreign 38 778 884 33 486 369 Nostro accounts 33 137 879 19 146 027 Interbank clearing accounts 5 767 253 5 735 465 180 186 510 142 453 856

During the year, statutory reserve balances with the Reserve Bank of Zimbabwe were converted to discountable and tradable bills. These balances have been disclosed under money market assets.

64 CBZ Holdings Limited Annual Report 2012 Notes to the Consolidated Financial Statements (continued) 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 by the weighted average number of ordinary shares outstanding during the year plus the weighted average number of ordinary shares adjusted for the effects of all potentially dilutive ordinary shares.

Headline earnings per share amounts are calculated by dividing net profit for the year attributable to ordinary equity holders of the parent after adjustments for excluded re-measurements by the weighted average number of ordinary shares outstanding during the period. 31 Dec 2012 31 Dec 2011

Earnings per share (cents): Basic 7.39 4.83 Fully diluted 7.23 4.83 Headline 6.80 4.29

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

31 Dec 2012 31 Dec 2011 US$ US$

8.1 Earnings

Basic (earnings attributable to holders of parent) 44 930 463 30 220 998 Fully diluted 44 930 463 30 220 998 Headline 41 314 364 26 849 803

Number of shares used in calculations (weighted) FINANCIAL STATEMENTS FINANCIAL

Basic 607 672 081 625 571 851 Fully diluted 621 499 352 625 571 851 Headline 607 672 081 625 571 851

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 (76 472 465) (58 572 695) Weighted average number of shares used for basic EPS 607 672 081 625 571 851 Potentially dilutive shares (Employee Share Options) 13 827 271 - Weighted average number of share used for diluted EPS 621 499 352 625 571 851

8.3 Headline earnings

Profit attributable to ordinary shareholders 44 930 463 30 220 998 Adjusted for excluded re-measurements: Disposal loss/(gain) on property and equipment 160 793 (366 432) Gains on investment properties valuations (5 016 300) (3 426 793) Loss on Available - For - Sale financial instruments reclassified from equity 643 003 - Tax relating to re-measurements 596 405 422 030 41 314 364 26 849 803

65 CBZ Holdings Limited Annual Report 2012 65 Notes to the Consolidated Financial Statements (continued)

31 Dec 2012 31 Dec 2011 US$ US$

9. DIVIDENDS

Interim dividend paid 903 071 820 973 Final dividend proposed 1 178 326 889 388 2 081 397 1 710 361

10. MONEY MARKET ASSETS Agro bills 50 000 40 000 Call placements 13 239 994 7 774 842 Accrued interest 441 992 143 536 Treasury bills 11 164 435 - 24 896 421 7 958 378 10.1 Money market portfolio analysis Held to maturity 1 081 658 2 908 378 Held for trading portfolio 23 814 763 5 050 000 24 896 421 7 958 378 Maturity analysis Between 1 and 3 months 13 989 209 7 390 012 Between 3 months and 1 year 10 800 401 548 031 FINANCIAL STATEMENTS Between 1 and 5 years 106 811 20 335 24 896 421 7 958 378 10.2 Financial assets held for trading

Trading bills and placements 24 896 421 7 958 378

Maturity value 25 014 327 7 960 410 Book value 24 896 421 7 958 378

10.3 Financial assets classification Financial assets held for trading 24 896 421 5 050 000 Financial assets designed as at fair value through profit or loss - 2 908 378 24 896 421 7 958 378

The Group holds Treasury bills from the Reserve Bank of Zimbabwe with a value of US$1 million. The Treasury bills are classified as fair value through profit and loss.

66 CBZ Holdings Limited Annual Report 2012 Notes to the Consolidated Financial Statements (continued)

31 Dec 2012 31 Dec 2011 US$ US$

11. ADVANCES

Overdrafts 488 988 537 437 704 208 Loans 303 554 515 302 849 722 Mortgage advances 89 980 277 64 761 038 882 523 329 805 314 968 Interest accrued 7 621 860 6 692 322 Total gross advances 890 145 189 812 007 290 Impairment (35 455 206) (21 667 170) 854 689 983 790 340 120 11.1 Sectoral analysis % % Private 94 382 701 11 93 207 221 11 Agriculture 266 467 187 30 233 144 973 29 Mining 13 562 452 2 7 209 438 1 Manufacturing 153 521 287 17 114 845 350 14 Distribution 216 351 971 24 184 867 072 23 Construction 4 607 354 1 20 669 243 3 Transport 21 584 514 2 44 413 867 5 Communication 6 636 850 1 5 014 143 1 Services 111 954 128 12 107 625 300 13 Financial organisations 1 076 745 - 1 010 683 - 890 145 189 100 812 007 290 100 11.2 Maturity analysis Demand 524 181 656 439 314 162 Between 1 and 3 months 22 299 913 28 428 127 Between 3 and 6 months 14 543 293 11 446 062 Between 6 months and 1 year 59 863 136 66 610 638 FINANCIAL STATEMENTS FINANCIAL Between 1 and 5 years 169 986 402 226 932 346 More than 5 years 99 270 789 39 275 955 890 145 189 812 007 290 Maturity analysis is based on the remaining period from 31 December 2012 to contractual maturity.

11.3 Loans to directors, key management and employees

Loans to directors and key management Included in advances are loans to executive directors and key management:- Opening balance 3 534 685 1 916 176 Advances made during the year 3 532 272 3 810 362 Repayment during the year (1 073 668) (2 191 853) Balance at end of year 5 993 289 3 534 685

Loans to employees Included in advances are loans to employees:

Opening balance 35 492 076 25 274 085 Advances made during the year 9 281 704 18 917 641 Repayments during the year (6 700 260) (8 699 650) Balance at end of year 38 073 520 35 492 076

67 CBZ Holdings Limited Annual Report 2012 67 Notes to the Consolidated Financial Statements (continued)

31 Dec 2012 31 Dec 2011 US$ US$

11. ADVANCES (continued)

11.4 Non performing advances

Total advances on which interest is suspended 41 861 695 48 022 911

11.5 Impairments

Opening balance 21 667 170 5 127 401 Charge for impairment on advances 4 618 173 14 437 074 Interest in suspense 9 169 863 2 102 695 35 455 206 21 667 170 Provision for doubtful insurance debts 14 273 - Balance at end of year 35 469 479 21 667 170

Comprising: Specific impairments 19 213 448 9 334 561 Portfolio impairments 16 256 031 12 332 609 35 469 479 21 667 170 11.6 Collaterals Notarial general covering bonds 424 078 703 317 736 043 Mortgage bonds 726 740 897 549 288 548 FINANCIAL STATEMENTS 1 150 819 600 867 024 591 12. INSURANCE ASSETS

Reinsurance receivables 4 483 745 1 322 377 Deferred acquisition cost 222 780 198 826 4 706 525 1 521 203 13. OTHER ASSETS

Work in progress 6 808 632 4 440 617 Land and stands inventory 14 894 700 4 410 374 Prepaid bond costs - 3 538 669 Prepayments and deposits 1 536 930 401 401 Receivables 28 977 597 5 560 217 52 217 859 18 351 278

68 CBZ Holdings Limited Annual Report 2012 Notes to the Consolidated Financial Statements (continued)

31 Dec 2012 31 Dec 2011 US$ US$

14. INVESTMENTS IN EQUITIES

Listed investments 1 772 190 2 290 360 Unlisted investments 409 067 162 498 2 181 257 2 452 858

At cost 409 067 162 498 At fair value 1 772 190 2 290 360 2 181 257 2 452 858

Portfolio analysis Trading 2 181 257 - Available for sale - 2 452 858 2 181 257 2 452 858

% % 14.1 Investment in subsidiaries CBZ Bank Limited 21 839 891 100 21 839 891 100 CBZ Asset Management (Private) Limited 1 423 430 100 1 038 430 100 CBZ Building Society 19 114 990 100 19 151 461 100 CBZ Insurance (Private) Limited 374 579 58.5 374 580 58.5 CBZ Properties Limited 4 779 144 100 4 779 144 100 CBZ Life Assurance (Private) Limited 1 388 014 100 1 388 014 100 48 920 048 48 571 520 FINANCIAL STATEMENTS FINANCIAL 15. INVESTMENT PROPERTIES

Opening balance 17 821 110 16 138 587 Additions 16 113 229 200 Disposals - (76 667) Transfer from property and equipment - 238 651 Fair valuation 2 498 754 1 291 339 Closing balance 20 335 977 17 821 110

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 done in accordance with the Royal Institute of Chartered Surveyors Appraisal and Valuation Manual and the Real Estate 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 properties were valued as at 31 December 2012.

The rental income derived from investments properties amounted to US$1 323 864 and direct operating expenses amounted to US$104 083.

69 CBZ Holdings Limited Annual Report 2012 69 Notes to the Consolidated Financial Statements (continued)

16. PROPERTY AND EQUIPMENT

Leasehold Motor Computer and Work in Land Buildings improvements vehicles equipment progress 31 Dec 2012 31 Dec 2011 US$ US$ US$ US$ US$ US$ US$ US$

Opening balance 3 856 402 40 867 284 431 284 3 066 421 16 797 086 7 215 373 72 233 850 59 951 426 Additions - 196 189 142 522 188 294 3 154 281 4 406 409 8 087 695 10 903 471 Revaluation 640 323 3 335 544 - - - - 3 975 867 2 253 782 Disposals - - - (42 800) (515 582) (312 263) (870 645) (874 829) Transfers - 190 482 9 884 27 728 1 390 166 (1 618 260) - - Closing balance 4 496 725 44 589 499 583 690 3 239 643 20 825 951 9 691 259 83 426 767 72 233 850

Accumulated depreciation

Opening balance - - 92 740 967 660 4 671 874 - 5 732 274 3 020 047 Charge for the year - 1 040 433 42 723 699 463 3 002 307 - 4 784 926 3 834 270 Disposals - - - (24 965) (273 589) - (298 554) (187 684) Revaluation - (1 040 433) - - - - (1 040 433) (934 359) Closing balance - - 135 463 1 642 158 7 400 592 - 9 178 213 5 732 274

Net Book Value 4 496 725 44 589 499 448 227 1 597 485 13 425 359 9 691 259 74 248 554 66 501 576

Properties were revalued on an open market basis by an independent professional valuer, Mabikacheche Associates as at 31 December 2012 in accordance with the Royal Institute of Chartered Surveyors Appraisal and Valuation Manual and the Real Estate Institute of Zimbabwe FINANCIAL STATEMENTS Standards.

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 transactions were not exactly comparable in terms of size, quality and location to the properties owned by the Group. • The reasonableness of the market values of commercial properties so determined, per the above point, was assessed by reference to the properties in the transaction. • The values per square metre of lettable space 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 procedure was performed as follows: i. Surveys and data collection on similar past transactions. ii. Analysis of the collected data. • 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 of property and equipment 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 US$27 096 617 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 was identified from the test.

70 CBZ Holdings Limited Annual Report 2012

Notes to the Consolidated Financial Statements (continued)

31 Dec 2012 31 Dec 2011 US$ US$

17. INTANGIBLE ASSETS

Computer software At cost 3 090 662 2 818 128 Accumulated amortisation (999 843) (280 735) 2 090 819 2 537 393 Movement in intangible assets: Opening balance 2 537 393 825 780 Additions 293 337 1 883 324 Amortisation charge (739 911) (171 711) Closing balance 2 090 819 2 537 393

Intangible assets are carried at cost less accumulated amortisation charge. The intangible assets are amortised over a useful life of 3 years.

18. DEFERRED TAXATION

(i)Deferred tax liability Deferred tax related to items charged or credited to statement of other comprehensive income during the period is as follows: Revaluation of property and equipment 589 899 423 412 Fair value adjustment – Available - for - sale financial assets 6 506 (1 382) 596 405 422 030 The deferred tax included in the statement of financial position and changes recorded in the income tax expense are comprised of:

Fair value adjustments 208 547 (12 134) STATEMENTS FINANCIAL Prepayments 144 646 (613 893) Property and equipment 82 385 (234 271) Impairment allowance (1 092 359) - Other (654 969) (299 256) (1 311 750) (1 159 554) Add: Opening balance 3 099 190 3 836 714 Closing balance 2 383 845 3 099 190

(ii) Deferred tax asset Opening balance 5 759 724 1 149 573 Assessed loss 152 162 1 220 010 Impairments and provisions 1 191 116 3 533 357 Other 436 320 (143 216) Closing balance 7 539 322 5 759 724

71 CBZ Holdings Limited Annual Report 2012 71 Notes to the Consolidated Financial Statements (continued)

31 Dec 2012 31 Dec 2011 US$ US$

19. DEPOSITS

Call deposits 5 358 031 26 808 Savings and other deposits 499 758 972 533 077 617 Money market deposits 339 034 158 170 023 086 Offshore deposits 178 842 308 121 750 620 Accrued interest 9 358 606 5 018 593 1 032 352 075 829 896 724

19.1 Deposits by source Banks 36 114 207 85 403 943 Money market 314 843 174 200 611 469 Customers 500 978 085 420 353 838 Offshore deposits 180 416 609 123 527 474 1 032 352 075 829 896 724 19.2 Deposits by type Retail 56 386 272 71 823 976 Corporate 444 591 814 472 057 336 Money market 350 957 380 162 487 938 Offshore deposits 180 416 609 123 527 474 FINANCIAL STATEMENTS 1 032 352 075 829 896 724

19.3 Sectoral analysis % % Private 125 243 743 12 108 813 415 14 Agriculture 33 747 322 3 27 295 950 3 Mining 11 436 926 1 9 415 351 1 Manufacturing 123 793 013 12 99 693 604 13 Distribution 131 278 594 13 105 713 733 14 Construction 23 659 081 2 19 113 509 2 Transport 15 994 662 2 12 885 970 2 Communication 61 966 512 6 49 814 741 6 Services 197 653 496 19 160 768 349 21 Financial organisations 281 568 065 27 206 804 509 20 Investments organisations 26 010 661 3 29 577 593 4 1 032 352 075 100 829 896 724 100

19.4 Maturity analysis Repayable on demand 643 962 477 550 445 283 Between 1 and 3 months 159 132 448 99 207 182 Between 3 months and 6 months 48 834 228 74 200 453 Between 6 months and 1 year 37 016 860 - Between 1 and 5 years 125 737 783 - More than 5 years 17 668 279 106 043 806 1 032 352 075 829 896 724

Maturity analysis is based on the remaining period from 31 December 2012 to contractual maturity.

72 CBZ Holdings Limited Annual Report 2012 Notes to the Consolidated Financial Statements (continued)

31 Dec 2012 31 Dec 2011 US$ US$

20. INSURANCE LIABILITIES

Reinsurance payables 1 058 715 840 582 Gross outstanding claims 1 864 220 315 978 Gross unearned premium reserve 2 845 208 2 383 723 Deferred reinsurance acquisition revenue 878 964 334 051 6 647 107 3 874 334

Gross Reinsurance Net US$ US$ US$

20.1 Insurance contract provisions

20.1 (a) Provision for unearned premiums

Unearned premiums beginning of year 1 630 930 858 720 772 210 Written premiums 7 616 199 4 764 635 2 851 564 Premiums earned during the year (7 304 719) (4 562 937) (2 741 782) Unearned premiums at end of year 1 942 410 1 060 418 881 992

Outstanding claims provision Outstanding claims at beginning of year 195 350 77 169 118 181 Claims incurred 4 097 551 2 879 419 1 218 132 Incurred but not yet reported claims provision 20 845 - 20 845 Claims paid (2 590 999) (1 715 655) (875 344) Outstanding claims at end of year 1 722 747 1 240 933 481 814

STATEMENTS FINANCIAL 3 665 157 2 301 351 1 363 806

Gross Reinsurance US$ US$

20.1 (b) Reinsurance payables Reinsurance payables at beginning of year 840 582 303 859 Premiums ceded during the year 4 764 635 3 491 532 Reinsurance paid (4 546 502) (2 954 809) Reinsurance payables at end of year 1 058 715 840 582

Unearned Deferred Net Commission Acquisition US$ US$ US$

(c) Commissions Unearned at beginning of year 195 090 207 403 (12 313) Written premiums 1 117 638 851 017 266 621 Earned during the year (1 069 250) (821 736) (247 514) Unearned at end of year 243 478 236 684 6 794

73 CBZ Holdings Limited Annual Report 2012 73 Notes to the Consolidated Financial Statements (continued)

31 Dec 2012 31 Dec 2011 US$ US$

20. INSURANCE LIABILITIES (Continued)

20.1 (d) Net claims Gross claims incurred 4 196 622 1 606 827 Reinsurance claims (2 889 002) (1 164 474) Incurred but not yet reported claims 517 368 21 999 Gross outstanding claims 1 575 770 315 978 Reinsurance share of outstanding claims (1 163 764) (77 169) 2 236 994 703 161 (e) Net commissions Commission received 1 189 541 837 889 Commission paid (1 394 464) (724 589) Deferred acquisition costs (19 108) (22 601) Net commission (224 031) 90 699

21. OTHER LIABILITIES

Revenue received in advance 859 007 17 286 586 Sundry creditors 13 087 114 7 859 358 Salaries outward suspense - 33 997 421 RTGS suspense - 28 919 232

FINANCIAL STATEMENTS Other 2 073 676 6 274 281 16 019 797 94 336 878

22. EQUITY AND RESERVES

22.1 Share capital

Authorised 1 000 000 000 ordinary shares of US$ 0.01 each 10 000 000 10 000 000

Issued and fully paid 684 144 546 ordinary shares of US$ 0.01 each 6 841 445 6 841 445

22.2 Share premium

Opening balance 26 708 659 26 708 659 Movement - - Closing balance 26 708 659 26 708 659

22.3 Treasury shares

Opening balance 587 510 587 510 Share buyback 7 613 361 - Disposal of shares (5 454) - Closing balance 8 195 417 587 510

During the year, the Group purchased 68 414 454 shares at an average price of $0.11 per share. The share buyback was in fulfilment of the resolution made at last year’s Annual General Meeting to buy back the Company’s issued share capital.

74 CBZ Holdings Limited Annual Report 2012 Notes to the Consolidated Financial Statements (continued)

31 Dec 2012 31 Dec 2011 US$ US$

22. EQUITY AND RESERVES (Continued)

22.4 Non-distributable reserve

Opening balance 13 000 000 13 000 000 Movement for the year - - Closing balance 13 000 000 13 000 000

22.5 Revaluation reserve

Opening balance 15 966 335 12 962 954 Total comprehensive income 4 426 401 3 003 381 Closing balance 20 392 736 15 966 335

22.6 Available - for - sale reserve

Opening balance (636 497) (403 713) Total comprehensive income 636 497 (232 784) Closing balance - (636 497)

22.7 Share option reserve

Opening balance - - Share options to employees 499 637 - Closing balance 499 637 FINANCIAL STATEMENTS FINANCIAL - Shares under option The Directors are empowered to grant share options to senior executives and staff of the company up to a maximum of 40 000 000 shares. The options are granted for a period of 10 years at a price determined by the middle market price ruling on the Zimbabwe Stock Exchange on the day on which the options are granted. Details of share options outstanding as at 31 December 2012 were as follows:

31 Dec 2012 31 Dec 2011 Shares Shares Balance at beginning of year - - Granted during the year 13 827 271 - Balance at end of year 13 827 271 -

A valuation of the share option scheme was carried out by professional valuers as at 31 December 2012. The estimated fair value of the options granted was determined using the Binomial model in accordance with IFRS2 with the following inputs and assumptions:

Grant date share price (US cents) 8.81 - Exercise price (US cents) 8.81 - Expected volatility (%) 50 - Dividend yield (%) 2.50 - Risk-free interest rate (%) 5.70 -

75 CBZ Holdings Limited Annual Report 2012 75 Notes to the Consolidated Financial Statements (continued) Valuation inputs:

Exercise price The Scheme rules state that the price for the shares comprised in an option shall be the middle market price ruling on the Zimbabwe Stock Exchange on the day on which the options are granted, therefore 8.81 cents, for the options granted during the 2012 financial year.

Expected volatility Expected volatility is a measure of the amount by which the price is expected to fluctuate during a period, for example between grant date and the exercise date.

Volatility was calculated using the geometric Brownian motion process on share prices.

Expected dividends When estimating the fair value of options, the projected valuation of shares is reduced by the present value of dividends expected to be paid during the vesting period. This is because the payment of dividends reduces the value of a company.

Risk free rate of return A risk free rate of return is the interest rate an investor would expect to earn on an investment with no risk which is usually taken to be a government issued security. It is the interest rate earned on a riskless security over a specified time horizon. There are currently no government issued securities in Zimbabwe. Given that the valuation was done in United States dollars, the risk free rate was estimated based on the yield on 10 year treasury bills issued by the Federal Reserve Bank of the United States of America of 2.02%. This value was adjusted for the inflation differential between Zimbabwe and the United States of America.

All options expire, if not exercised, 10 years after the date of grant. 31 Dec 2012 31 Dec 2011 US$ US$ FINANCIAL STATEMENTS

22.8 Revenue reserve

Revenue reserves comprise: Holding company 15 895 428 (2 425 676) Subsidiary companies 88 490 270 63 261 447 Effects of consolidation journals (3 441 770) (3 270 584) 100 943 928 57 565 187

23 Non controlling interests

Non controlling interests comprise: Opening balance 391 723 210 296 Total comprehensive income 94 524 122 303 Rights issue - 59 124 Closing balance 486 247 391 723

76 CBZ Holdings Limited Annual Report 2012 Notes to the Consolidated Financial Statements (continued)

24.CATEGORIES OF FINANCIAL INSTRUMENTS

Held for Available Loans and Financial liabilities Total carrying trading for sale receivables at amortised cost amount US$ US$ US$ US$ US$

December 2012 Financial assets Balances with banks and cash - - 180 186 510 - 180 186 510 Money market assets 24 896 421 - - - 24 896 421 Advances - - 854 689 983 - 854 689 983 Insurance assets - - 4 706 525 - 4 706 525 Investments 2 181 257 - - - 2 181 257 Other assets - - 52 217 859 - 52 217 859 Total 27 077 678 - 1 091 800 877 - 1 118 878 555

Financial liabilities Deposits - - - 1 032 352 075 1 032 352 075 Other liabilities - - - 16 019 797 16 019 797 Current tax payable - - - 5 013 168 5 013 168 Total - - - 1 053 385 040 1 053 385 040

Held for Available Loans and Financial liabilities Total carrying trading for sale receivables at amortised cost amount US$ US$ US$ US$ US$

December 2011 Financial assets Balances with banks and cash - - 142 453 856 - 142 453 856 Money market assets 7 958 378 - - - 7 958 378

Advances - - 790 340 120 - 790 340 120 STATEMENTS FINANCIAL Other assets - - 18 351 278 - 18 351 278 Investments - 2 452 858 - - 2 452 858 Total 7 958 378 2 452 858 951 145 254 - 961 556 490

Financial liabilities Deposits - - - 829 896 724 829 896 724 Other liabilities - - - 94 336 878 94 336 878 Current tax payable - - - 5 241 028 5 241 028 Total - - - 929 474 630 929 474 630

77 CBZ Holdings Limited Annual Report 2012 77 Notes to the Consolidated Financial Statements (continued)

25. 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.

31 Dec 2012 31 Dec 2011 US$ US$

26. CONTINGENCIES AND COMMITMENTS

Contingent liabilities Guarantees 23 220 366 8 518 322 23 220 366 8 518 322

Capital commitments Authorised and contracted for 282 102 2 910 570 Authorised and uncontracted for - - 282 102 2 910 570 The capital commitments will be funded from the Group`s own resources. FINANCIAL STATEMENTS

27. FUNDS UNDER MANAGEMENT

Pension 90 399 455 71 091 528 Private 11 208 428 11 842 171 Unit trust 1 574 283 1 162 372 Money market 7 918 821 4 092 431 111 100 987 88 188 502 28. 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 (Private) Limited Provides fund management services to a wide spectrum of investors through placement of either pooled portfolios or individual portfolios.

CBZ Insurance (Private) Limited Provides short term insurance.

CBZ Properties (Private) Limited Property investment arm of the business.

CBZ Life (Private) Limited Provides long term life insurance.

78 CBZ Holdings Limited Annual Report 2012 78 Notes to the Consolidated Financial Statements (continued)

The following tables present revenue and profit information regarding the Group`s operating segments for the year ended 31 December 2012: Other operations & Commercial Mortgage Asset Property consolidation Banking finance management Insurance Investment adjustments Consolidated US$ US$ US$ US$ US$ US$ US$

28. OPERATING SEGMENTS (continued) 28.1 Segment operational results

31 DECEMBER 2012

Income Income from customers 117 928 150 18 724 227 1 434 948 5 231 622 1 730 357 21 091 510 166 140 814 Elimination of inter segment revenue (22 006 683) (22 006 683) Total Income 144 134 131 Depreciation and amortisation 3 542 186 1 459 770 68 255 156 736 - 297 891 5 524 838

Results Profit / (loss) before taxation 42 316 993 11 311 694 (215 941) 1 897 445 1 687 800 19 752 830 76 750 821 Elimination of inter segment profit (21 195 199) (21 195 199) Profit before taxation 55 555 622 Other material non cash items Impairment of assets (including loan loss provision) 4 242 173 376 000 - 14 273 - - 4 632 446 Reportable segment liabilities 1 019 818 563 86 427 121 1 169 122 7 831 252 1 480 416 (54 310 482) 1 062 415 992

Other operations & Commercial Mortgage Asset Property consolidation Banking finance management Insurance Investment adjustments Consolidated US$ US$ US$ US$ US$ US$ US$ FINANCIAL STATEMENTS FINANCIAL 31 DECEMBER 2011

Income Income from customers 105 784 065 14 422 983 1 134 962 3 347 125 1 394 916 2 597 858 128 681 909 Elimination of inter segment revenue - - - - - (5 590 803) (5 590 803) Total Income 123 091 106 Depreciation and amortisation 2 333 328 1 177 465 64 327 131 297 - 299 564 4 005 981

Results Profit / (loss) before taxation 33 369 113 7 682 912 (238 536) 558 247 1 358 811 (705 113) 42 025 434 Elimination of inter segment profit - - - - - (3 819 241) (3 819 241) Profit before taxation ------38 206 193 Other material non cash items Impairment of assets (including loan loss provision) 13 721 785 729 579 - (14 290) - - 14 437 074 Reportable segment liabilities 903 500 078 74 754 011 1 191 619 4 952 185 2 261 344 (50 211 083) 936 448 154

79 CBZ Holdings Limited Annual Report 2012 79 Notes to the Consolidated Financial Statements (continued) 31 Dec 2012 31 Dec 2011 US$ US$

28. OPERATING SEGMENTS (continued)

28.2 Total segment assets Commercial Banking 1 115 110 169 981 767 058 Mortgage Financing 133 744 951 108 746 772 Asset Management 2 306 100 2 097 576 Insurance 11 706 116 7 066 503 Property Investment 9 957 383 12 840 313 Total segment assets 1 272 824 719 1 112 518 222 Other operations (including consolidation adjustments) (49 731 492) (56 820 726) Total segment assets 1 223 093 227 1 055 697 496

29. 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 on arm’s length terms and in compliance with the relevant Banking Regulations.

31 Dec 2012 31 Dec 2011 US$ US$ FINANCIAL STATEMENTS

Loans and advances to other related parties

Black Brand Investments (Private) Limited 417 178 449 658 MKAY Enterprises (Private) Limited 1 193 069 1 260 847 Mauriberg Investments (Private) Limited 978 960 955 877 TNV Investments (Private) Limited 2 086 286 610 Grisberg Services (Private) Limited 399 619 305 642 Mt Pleasant Paint and Hardware (Private) Limited 197 541 190 229 Rockmount (Private) Limited - 123 326 Valuffin Investments (Private) Limited 44 478 60 494 Mene Development Trust 244 723 23 827 Vimbo Steel (Private) Limited 408 180 48 774 Ranah Trust 48 377 23 827 Blackstone Bookshop 113 412 - Imaldape Investments (Private) Limited 40 766 - Josstick Restaurant (Private) Limited 59 829 - Dernawi Fouadmokhtar 51 500 - 4 199 718 3 729 111 The companies noted above are directly owned or significantly influenced by executive and non executive directors and/or their close family members.

Transactions with Companies owned wholy or partly by Directors of CBZ Holdings Limited and its Subsidiaries Interest income 650 035 501 152 Commission and fee income 101 654 38 720

The above companies are owned wholy 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 5 to the financial statements.

80 CBZ Holdings Limited Annual Report 2012 Notes to the Consolidated Financial Statements (continued)

31 Dec 2012 31 Dec 2011

30. Closing EXCHANGE RATES ZAR 8.4767 8.1734 GBP 1.6158 1.5418 EUR 1.3192 1.2944 FINANCIAL STATEMENTS FINANCIAL

81 CBZ Holdings Limited Annual Report 2012 81 Notes to the Consolidated Financial Statements (continued) Risk Management 31. RISK MANAGEMENT 31.1 Risk overview

CBZ Holdings Board has adopted “High Risk Management and Compliance Culture” as one of its major strategic thrust which is embedded under clearly defined risk appetite in terms of the various key risk exposures. This approach has given direction to the Group’s overall strategic planning and policies. The Group regularly carry out stress testing as well as simulations to ensure that there is congruency or proper alignment between its strategic focus and desired risk appetite. 31.2 Group risk management framework

The Group’s risk management framework looks at enterprise wide risks and recognises that for effective risk management to take effect, it has to be structured in terms of acceptable appetite, defined responsibility, accountability and independent validation of set processes. Business Units, Management and staff are responsible for the management of the risks that fall within their organisational responsibilities. Group Risk Management whose function cuts across the Group is responsible for ensuring that the Business Units risk “CBZ Holdings Board has adopted taking remain within the set risk benchmarks. The Group Internal Audit function provides independent assurance on the adequacy and a High Risk Management and effectiveness of risk management processes. Group Enterprise Wide Compliance Culture as one of its Governance and Compliance Unit evaluate quality of compliance with policy, processes and governance structures. major strategic thrust which is In terms of risk governance, the Group Board has delegated authority FINANCIAL STATEMENTS to the following Group Board Committees whose membership embedded under clearly defined risk consists of non – executive directors of the Group: appetite in terms of the various key Risk Management & Compliance Committee – has responsibility for oversight and review of prudential risks comprising of but not risk exposures.” limited to credit, liquidity, interest rate, exchange, investment, operational, equities, reputational and compliance. Its other responsibilities includes reviewing the adequacy and effectiveness of the Group’s risk management policies, systems and controls as well as the implications of proposed regulatory changes to the Group. It receives consolidated quarterly risk and compliance related reports from Group Executive Management Committee (Group EXCO) and Group Risk Management Sub – Committee. The committee governance structures ensure that approval authority and risk management responsibilities are cascaded down from the Board through to the appropriate business units and functional committees. Its recommendations are submitted to the Group Board.

IT and Business Development Committee – oversees the harmonisation, adequacy, relevance and effectiveness of Group IT systems in delivering services to the Group’s stakeholders. In addition, it looks at the integrity of the Group’s management information systems.

Audit & Finance Committee – manages financial risk related to ensuring that the Group financial statements are prepared in line with the international financial reporting standards. This committee is responsible for capital management policy as well as the adequacy of the Group’s prudential capital requirements given the Group’s risk appetite. The committee is also tasked with the responsibility of

82 CBZ Holdings Limited Annual Report 2012 Notes to the Consolidated Financial Statements (continued) Risk Management (continued) ensuring that efficient tax management systems are in place and that monitoring or exiting of such relationships where restructuring is not the Group is in full compliance with tax regulations. possible.

Human Resources Remuneration Committee – is accountable Credit mitigation for people related risks and ensures that the Group has the Credit mitigation is employed in the Group through taking collateral, optimal numbers, right mix in terms of skills and experience for the credit insurance and other guarantees. The Group is guided by implementation of the Group’s strategy. The committee also looks at considerations related to legal certainty, enforceability, market welfare of Group staff as well as the positive application of the Group valuation and the risk related to the guarantor in deciding which code of ethics. securities to accept from clients. Types of collateral that is eligible for 31.3 Credit risk risk mitigation include cash, mortgages over residential, commercial and industrial property, plant and machinery, marketable securities This is the risk of potential loss arising from the probability of and commodities. borrowers and or counterparties failing to meet their repayment commitments to the Group in accordance with agreed terms. Non – performing loans & advances

Credit risk management framework The Group’s credit policy also covers past due, default, impaired and non–performing loans and advances, as well as specific and portfolio Credit risk is managed through a framework of credit policies impairments. and standards covering the measurement and management of credit risk. These policies are approved by the Board which also Past due refers to a loan or advance that exceeds its limit for delegates credit approvals as well as loans reviews to designated sub fluctuating types of advances or is in arrears by 30 days or more. committees within the Group. Credit origination and approval roles Default is where for example a specific impairment is raised against a are segregated. credit exposure as a result of a decline in the credit quality or where The Group uses an internal rating system based on our internal an obligation is past due for more than 90 days or an obligor has estimates of probability of default over a one year horizon and exceeded a sanctioned limit for more than 90 days. customers are assessed against a range of both quantitative and Impaired loans and advances are defined as loans and advances where qualitative factors. the Group has raised a specific provision or impairment. A specific Credit concentration risk is managed within set benchmarks by impairment is raised where an asset is classified as substandard, counterparty or a group of connected counterparties, by sector, doubtful or loss under the prudential lending guidelines issued maturity and by credit rating. Concentration are monitored and by the regulatory authorities and where collateral held against the reviewed through the responsible risk committees set up by the advance is insufficient to cover the total expected losses. Board. Portfolio impairment, on the other hand, applies under loans and

The Group through credit originating units as well as approving advances that have not yet individually evidenced a loss event i.e. STATEMENTS FINANCIAL committees regularly monitors credit exposures, portfolio advances classified as “Pass” and “Special Mention” under prudential performance and external environmental factors that are likely to lending guidelines issued by the regulatory authorities. For such impact on the credit book. Through this process, clients or portfolios portfolios, the Group calculates general provisions. that exhibit material credit weaknesses are put on watch list for close

83 CBZ Holdings Limited Annual Report 2012 83 Notes to the Consolidated Financial Statements (continued) Risk Management (continued)

31.3. (a) Credit risk exposure

The table below shows the maximum exposure to credit for the components of the statement of financial position.

31 Dec 2012 31 Dec 2011 US$ US$

Cash and balances with Reserve Bank of Zimbabwe 102 502 494 84 085 994

Nostro balances 32 614 382 19 146 027

Due from banks 655 015 610 683

Financial assets held for trading 57 004 893 7 390 012

Loans and advances to customers 854 689 983 790 340 120

Other assets 52 217 859 18 351 278

Total 1 099 684 626 919 924 114

Contingent liabilities 23 220 366 8 518 322

Commitments 282 102 2 910 570

Total 23 502 468 11 428 892

FINANCIAL STATEMENTS Where financial instruments are recorded at fair value the amounts shown above represent the current credit risk exposure but not maximum risk exposure that could arise in the future as a result of changes in value.

The Group held cash equivalents of US$140 615 263 (excluding notes and coins) as at 31 December 2012, which represents its maximum credit exposure on these assets. The cash and cash equivalents are held with the Central Bank, local and foreign banks.

31.3 (b) Aging analysis of past due but not impaired loans (Special Mention Loans):

31 Dec 2012 31 Dec 2011 US$ US$

1 to 3 months 83 169 024 54 621 885

Total 83 169 024 54 621 885

Past due but not impaired loans relate to loans in the special mention category. See definition of special mention category on note number 31.3.1

31.3 (c) Aging analysis of impaired loans (Non performing loans):

3 to 6 months 29 922 752 31 247 457

6 to 12 months 11 938 942 16 775 453

Total 41 861 694 48 022 910

84 CBZ Holdings Limited Annual Report 2012 Notes to the Consolidated Financial Statements (continued) Risk Management (continued)

31.3 (d) An industry sector analysis of the Group’s financial assets before and after taking into account collateral held is as follows:

31 Dec 2012 31 Dec 2012 31 Dec 2011 31 Dec 2011 US$ US$ US$ US$ Gross maximum Net maximum Gross maximum Net maximum exposure exposure (not exposure exposure (not covered by covered by mortgage security) mortgage security)

Private 94 382 701 12 250 926 93 207 221 72 620 263 Agriculture 266 467 187 48 681 925 233 144 973 64 347 431 Mining 13 562 452 1 801 697 7 209 438 2 842 420 Manufacturing 153 521 287 29 115 753 114 845 350 45 437 943 Distribution 216 351 971 49 299 014 184 867 072 72 773 458 Construction 4 607 354 2 280 646 20 669 243 3 375 828 Transport 21 584 514 13 303 576 44 413 867 20 302 173 Communication 6 636 850 - 5 014 143 - Services 111 954 128 20 357 059 107 625 300 30 391 533 Financial organisations 1 076 745 266 745 1 010 683 5 600 608 Gross value at 31 December 890 145 189 177 357 341 812 007 290 317 691 657

31 Dec 2012 31 Dec 2011 US$ US$

Collateral (mortgage security) 726 740 897 549 288 548 Cash cover 26 543 980 31 500 760 Other forms of security including Notarial General Covering Bonds (NGCBs),cessions, etc 397 534 723 286 235 283 1 150 819 600 867 024 591

The Group holds collateral against loans and advances to customers in the form of mortgage interests over property, other registered FINANCIAL STATEMENTS FINANCIAL securities over assets, guarantees, cash cover, and assignment of crop or export proceeds, leasebacks and stop-orders. Estimates of fair value are based on the value of collateral assessed at the time of borrowing, and are regularly updated with trends in the market. 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 2012 31 Dec 2011 US$ US$

Against doubtful* and loss* grades Property 3 583 000 7 864 158 Other 12 534 574 256 020 Against substandard* grade Property 4 982 480 18 885 074 Other 35 315 191 21 248 691 Against special mention* grade Property 70 576 852 60 939 419 Other 40 963 046 26 348 348 Against normal* grade Property 647 598 565 461 599 897 Other 335 265 892 269 882 984 1 150 819 600 867 024 591 *See definition on note 31.3.1

85 CBZ Holdings Limited Annual Report 2012 85 Notes to the Consolidated Financial Statements (continued) Risk Management (continued)

31.3 (e) 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.

Neither past due nor impaired *Doubtful and *Normal *Special mention *Sub- standard Loss grade grade grade grade Total US$ US$ US$ US$ US$

DECEMBER 2012

Due from banks 655 015 - - - 655 015 Loans and Advances to Customers Agriculture 205 106 497 45 540 772 8 094 884 7 725 034 266 467 187 Manufacturing 136 882 592 5 876 761 6 785 432 3 976 502 153 521 287 Commercial 105 367 132 3 949 359 2 578 387 59 250 111 954 128 Individual and households 90 848 606 2 692 997 835 572 5 526 94 382 701 Mining 7 928 034 3 709 321 1 925 097 - 13 562 452 Distribution 186 123 375 21 322 683 8 733 282 172 631 216 351 971 Construction 4 492 674 201 114 479 - 4 607 354 Transport 20 651 966 76 929 855 619 - 21 584 514 Communication 6 636 850 - - - 6 636 850 Financial services 421 730 - - - 421 730 765 114 471 83 169 023 29 922 752 11 938 943 890 145 189 FINANCIAL STATEMENTS 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 US$23 220 366.

Neither past due nor impaired *Doubtful and *Normal *Special mention *Sub- standard Loss grade grade grade grade Total US$ US$ US$ US$ US$

DECEMBER 2011

Due from banks 610 683 - - - 610 683 Loans and Advances to Customers Agriculture 184 616 457 39 270 789 2 336 660 7 243 848 233 467 754 Manufacturing 102 684 603 6 621 4 845 897 7 308 229 114 845 350 Commercial 103 115 734 433 532 4 010 005 66 030 107 625 301 Individual and households 91 760 933 564 975 223 620 334 913 92 884 441 Mining 5 614 526 - 1 594 912 - 7 209 438 Distribution 171 724 418 1 114 490 10 205 731 1 822 433 184 867 072 Construction 12 576 826 61 783 8 030 633 - 20 669 242 Transport 31 244 172 13 169 695 - - 44 413 867 Communication 5 014 143 - - - 5 014 143 Financial services 399 999 - - - 399 999 709 362 494 54 621 885 31 247 458 16 775 453 812 007 290

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 US$8 518 322.

86 CBZ Holdings Limited Annual Report 2012 86 Notes to the Consolidated Financial Statements (continued) Risk Management (continued) Allowances for impairment The Group establishes an allowance for impairment on assets carried Substandard grade at amortised cost or classified as available-for-sale that represents its (i) if the asset in question is past due for more than 90 days estimate of incurred losses in its loan and investment debt security but less than 180 days; or portfolio. The main components of this allowance are a specific (ii) is a renegotiated loan, unless all past due interest is paid loss component that relates to individually significant exposures, by the borrower in cash at the time of renegotiation and and a collective loan loss allowance established for groups of a sustained record of timely repayment of principal and homogeneous assets in respect of losses that have been incurred but interest under a realistic repayment programme has been have not been identified on loans that are considered individually demonstrated for a period of not less than 180 days; or insignificant as well as individually significant exposures that were (iii) whether or not it is past due, is inadequately protected by subject to individual assessment for impairment but not found to be the current sound worth and paying capacity of the obligor individually impaired. by reason of the fact that: yy the primary source of repayment is insufficient to service Write-offs the debt and the institution must look to secondary The Group writes off a loan or an investment debt security balance, sources such as collateral, sale of fixed assets, refinancing and any related allowances for impairment, when the relevant or additional capital injections for repayment; or committees determine that the loan or security is uncollectible. yy there is an unduly long absence of current and This determination is made after considering information such as satisfactory financial information or inadequate collateral the occurrence of significant changes in the borrower’s / issuer’s documentation in regard to the asset; or financial position such that the borrower / issuer can no longer pay yy generally, there is more than a normal degree of risk the obligation, or that proceeds from collateral will not be sufficient attaching to the asset due to the borrower’s unsatisfactory to pay back the entire exposure. For balance standardised loans, financial condition. write-off decisions generally are based on a product-specific past due status. Doubtful: (i) if the asset in question is past due for more than 180 days 31.3.1 Credit quality definations but less than 360 days; or (ii) exhibits all the weaknesses of a substandard asset and, Concentration of credit risk in addition, is not well-secured by reason of the fact that The Directors believe that the concetration risk is limited due to the collection in full, on the basis of currently existing facts, customer base being large and unrelated. The Group is not exposed is highly improbable, but the actual amount of the loss to any customer by more than 10% of the total advances book. is indeterminable due to pending events that have a more than reasonable prospect of mitigating the loss, Normal grade such as a proposed merger, acquisition or liquidation, a FINANCIAL STATEMENTS FINANCIAL If the asset in question is fully protected by the paying capacity of the capital injection, perfecting liens on additional collateral, obligor, is performing in accordance with contractual terms and is refinancing plans, new projects or asset disposal. expected to continue to do so. Loss: Special mention grade (i) if the asset in question is past due for more than 360 days, (i) if the asset in question is past due for more than 30 days but less unless such asset is well secured and legal action has than 90 days; or actually commenced which is expected to result in the (ii) although currently protected, exhibits potential weaknesses timely realisation of the collateral or enforcement of any which may, if not corrected, weaken the asset or inadequately guarantee relating to the asset; or protect the institution’s position at some future date, for (ii) had been characterised as doubtful on account of any example, where: pending event , and the event concerned did not occur yy the asset in question cannot be properly supervised due to an within 360 days, whether or not the event is still pending inadequate loan agreement; or thereafter; or yy the condition or control of the collateral for the asset in question (iii) is otherwise considered uncollectible or of such little value is deteriorating; or that its continuance as an asset is not warranted. yy the repayment capacity of the obligor is jeopardised because of deteriorating economic conditions or adverse trends in the 31.4 Market risk obligor’s financial position; or yy there is an unreasonably long absence of current and satisfactory This is the risk of loss under both the banking book and or financial information or inadequate collateral documentation in trading book arising from unfavourable changes in market regard to the asset: prices such as interest rates, foreign exchanges rates, equity Provided that, generally, a loan or advance shall require special prices, credit spreads and commodity prices, which can mention only if its risk potential is greater than that under which cause substantial variations in earnings and or economic it was originally granted. value of the Group and its SBUs if not properly managed.

87 CBZ Holdings Limited Annual Report 2012 87 Notes to the Consolidated Financial Statements (continued) Risk Management (continued) The Group’s exposure to market risk arises mainly from Market liquidity risk is the risk that the Group cannot cover customer driven transactions. or settle a position without significantly affecting the market price because of limited market depth. 31.4.1. Group market risks management framework Funding risk, on the other hand, is the risk that the Group To manage these risks, there is oversight at Group Board level will not be able to efficiently meet both its expected as through the Group Board Risk Management Committee well as the unexpected current and future cash flow needs which covers Asset and Liability Management processes without affecting the financial condition of the Group. through periodic review of the Group’s Asset and Liability as well as investment policies and benchmarks meant to The Group’s liquidity risk management framework ensures assist in attaining the Group’s liquidity strategic plan. The that limits are set under respective Group SBUs relating Group’s subsidiary (SBU) Boards are responsible for setting to levels of wholesale funding, retail funding, loans to specific market risks strategies for their respective SBU deposit ratio, counter- party exposures as well as prudential and Executive Management implements policy and track liquidity ratio. performance regularly against set benchmarks through use of daily liquidity position reports, investment portfolio mix, The primary source of funding under the Group and its cash flow analysis, liquidity matrix analysis, liquidity gap SBUs is customer deposits made up of current, savings and analysis and liquidity simulations to evaluate ability of the term deposits and these are diversified by customer type SBU to withstand stressed liquidity situations. and maturity. The Group tries to ensure through the Assets and Liabilities Committee processes and balance sheet 31.5 Liquidity risk management that asset growth and maturity are funded Liquidity relates to the Group’s ability to fund its growth by appropriate growth in deposits and stable funding in assets and to meet obligations as they fall due without respectively. incurring unacceptable losses. The Group recognizes two types of liquidity risks i.e. Market liquidity risk and Funding liquidity risk. FINANCIAL STATEMENTS

LIQUIDITY PROFILE AS AT 31 DECEMBER 2012

1 to 3 3 months 1 to 5 Above Demand months to 1 year years 5 years Total US$ US$ US$ US$ US$ US$

31.5.1 Gap analysis

Assets Advances 488 726 450 22 299 913 74 406 430 169 986 402 99 270 788 854 689 983 Balances with banks and cash 96 839 402 83 347 108 - - - 180 186 510 Investment in equities 1 723 718 - 256 769 - 200 770 2 181 257 Money market assets 9 773 025 14 213 170 803 414 106 812 - 24 896 421 Financial guarantees - - - 196 279 - 196 279 Other liquid assets 235 516 11 926 230 3 484 538 - - 15 646 284 Total 597 298 111 131 786 421 78 951 151 170 289 493 99 471 558 1 077 796 734

Liabilities Deposits 643 962 477 159 132 448 85 851 088 125 737 783 17 668 279 1 032 352 075 Current tax payable (724) 5 029 692 - - (15 800) 5 013 168 Other liabilities - 4 647 128 11 042 669 330 000 - 16 019 797 Financial guarantees - - - 23 220 366 - 23 220 366 Total 643 961 753 168 809 268 96 893 757 149 288 149 17 652 479 1 076 605 406

Liquidity gap (46 663 642) (37 022 847) (17 942 606) 21 001 344 81 819 079 1 191 328

Cumulative liquidity gap (46 663 642) (83 686 489) (101 629 095) (80 627 751) 1 191 328 1 191 328

88 CBZ Holdings Limited Annual Report 2012 Notes to the Consolidated Financial Statements (continued) Risk Management (continued)

LIQUIDITY PROFILE AS AT 31 DECEMBER 2011

1 to 3 3 months 1 to 5 Above Demand months to 1 year years 5 years Total US$ US$ US$ US$ US$ US$

Assets Advances 417 646 993 28 428 127 78 056 700 226 932 346 39 275 954 790 340 120 Balances with banks and cash 58 789 018 83 664 838 - - - 142 453 856 Investment in equities - - - - 2 452 858 2 452 858 Money market assets - 7 430 012 508 031 20 335 - 7 958 378 Financial guarantees - - - 8 518 322 - 8 518 322 Total 476 436 011 119 522 977 78 564 731 235 471 003 41 728 812 951 723 534

Liabilities Deposits 550 445 283 99 207 182 74 200 453 106 043 806 - 829 896 724 Current tax payable - 5 241 028 - - - 5 241 028 Other liabilities - - 94 336 878 - - 94 336 878 Financial guarantees - - - 8 518 322 - 8 518 322 Total 550 445 283 104 448 210 168 537 331 114 562 128 - 937 992 952

Liquidity gap (74 009 272) 15 074 767 (89 972 600) 120 908 875 41 728 812 13 730 582

Cumulative liquidity gap (74 009 272) (58 934 505) (148 907 105) (27 998 230) 13 730 582 13 730 582

The table above shows the undiscounted cash flows of the The Group’s SBUs carry out static statement of financial Bank’s non-derivative on and off balance sheet financial position analysis to track statement of financial position assets and liabilities on the basis of their earliest possible growth drivers, the pattern of core banking deposits, contractual maturity and the related period gaps. For issued statement of financial position structure, levels and direction

financial guarantee contracts, the maximum amount of the of the SBU’s maturity mismatch and related funding or liquidity STATEMENTS FINANCIAL guarantee is allocated to the earliest period in which the gap. The Asset and Liability Management Committee (ALCO) guarantee could be called. of the respective SBU comes up with strategies through its monthly meetings to manage these liquidity gaps.

89 CBZ Holdings Limited Annual Report 2012 89 Notes to the Consolidated Financial Statements (continued) Risk Management (continued)

Details of the liquidity ratio for the relevant Group SBUs as at the reporting date and during the reporting period were as follows:

CBZ Bank CBZ Building Limited Society

% % At 31 December 2011 26 10 At 31 December 2012 33 14 Average for the period 30 12 Maximum for the period 34 14 Minimum for the period 22 10

31.6. Interest rate risk monthly analysis of interest re - pricing gaps, monthly interest rate simulations to establish the Group and its SBUs’ ability to This is the possibility of a Banking Group’s interest income sustain a stressed interest rate environment. The use of stress being negatively influenced by unforeseen changes in the testing is an integral part of the interest rate risk management interest rate levels arising from weaknesses related to a framework and considers both the historical market events as banking Group’s trading, funding and investment strategies. well as anticipated future scenarios. The Group and its SBUs denominates its credit facilities in the base currency i.e. the This is managed at both Board and Management level USD in order to minimize cross currency interest rate risk. The through the regular policy and benchmarks which related Group’s interest rate risk profiling is displayed on the next also to interest rate risk management. The major areas of page: intervention involves daily monitoring of costs of funds, FINANCIAL STATEMENTS

90 CBZ Holdings Limited Annual Report 2012 Notes to the Consolidated Financial Statements (continued) Risk Management (continued)

Non- 1 to 3 3 months 1 to 5 Above interest Demand months to 1 year years 5 years bearing Total US$ US$ US$ US$ US$ US$ US$

31.RISK MANAGEMENT (continued)

31.6.1 (a) Interest rate repricing

31 December 2012

Assets Balance with banks and cash 96 839 402 83 347 108 - - - - 180 186 510 Money market assets 9 773 025 14 213 170 803 414 106 812 - - 24 896 421 Advances 488 726 450 22 299 913 74 406 430 169 986 402 99 270 788 - 854 689 983 Insurance assets - - - - - 4 706 525 4 706 525 Other assets 235 516 7 405 492 - - - 44 576 851 52 217 859 Investment in equities - - - - - 2 181 257 2 181 257 Investment properties - - - - - 20 335 977 20 335 977 Property and equipment - - - - - 74 248 554 74 248 554 Deferred taxation - - - - - 7 539 322 7 539 322 Intangible assets - - - - - 2 090 819 2 090 819 Total Assets 595 574 393 127 265 683 75 209 844 170 093 214 99 270 788 155 679 305 1 223 093 227

Liabilities and Equity Deposits 643 962 477 159 132 448 85 851 088 125 737 783 17 668 279 - 1 032 352 075 Insurance liabilities - - - - - 6 647 107 6 647 107 Other liabilities - - - - - 16 019 797 16 019 797 Deferred taxation - - - - - 5 013 168 5 013 168 Current tax payable - 2 400 369 - - - (16 524) 2 383 845 Equity and reserves - - - - - 160 677 235 160 677 235

Total Equity and Liabilities 643 962 477 161 532 817 85 851 088 125 737 783 17 668 279 188 340 783 1 223 093 227 STATEMENTS FINANCIAL

Interest rate repricing gap (48 388 084) (34 267 134) (10 641 244) 44 355 431 81 602 509 (32 661 478) -

Cumulative gap (48 388 084) (82 655 218) (93 296 462) (48 941 031) 32 661 478 - -

91 CBZ Holdings Limited Annual Report 2012 91 Notes to the Consolidated Financial Statements (continued) Risk Management (continued)

Non- 1 to 3 3 months 1 to 5 Above interest Demand months to 1 year years 5 years bearing Total US$ US$ US$ US$ US$ US$ US$

31.RISK MANAGEMENT (continued)

31.6.1 (a) Interest rate repricing

December 2011

Assets Balance with banks and cash 58 789 018 83 664 838 - - - - 142 453 856 Money market assets - 7 430 012 508 031 20 335 - - 7 958 378 Advances 417 646 993 28 428 126 78 056 700 226 932 346 39 275 955 - 790 340 120 Insurance assets - - - - - 1 521 203 1 521 203 Other assets - - - - - 18 351 278 18 351 278 Investment in equities - - - - - 2 452 858 2 452 858 Investment properties - - - - - 17 821 110 17 821 110 Property and equipment - - - - - 66 501 576 66 501 576 Deferred taxation - - - - - 5 759 724 5 759 724 Intangible assets - - - - - 2 537 393 2 537 393 Total Assets 476 436 011 119 522 976 78 564 731 226 952 681 39 275 955 114 945 142 1 055 697 496

Liabilities and Equity FINANCIAL STATEMENTS Deposits 550 445 283 99 207 182 74 200 453 106 043 806 - - 829 896 724 Insurance liabilities - - - - - 3 874 334 3 874 334 Other liabilities - - - - - 94 336 878 94 336 878 Deferred taxation - - - - - 3 099 190 3 099 190 Current tax payable - - - - - 5 241 028 5 241 028 Equity and reserves - - - - - 119 249 342 119 249 342 Total Equity and Liabilities 550 445 283 99 207 182 74 200 453 106 043 806 - 225 800 772 1 055 697 496

Interest rate repricing gap (74 009 272) 20 315 794 4 364 278 120 908 875 39 275 955 (110 855 630) -

Cumulative gap (74 009 272) (53 693 478) (49 329 200) 71 579 675 110 855 630 - -

92 CBZ Holdings Limited Annual Report 2012 Notes to the Consolidated Financial Statements (continued) Risk Management (continued)

31.7 Exchange rate 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.

There is oversight at Board level through the Board Risk Management Committee which covers ALCO processes by way of strategic policy and benchmarking reviews and approval. Management ALCO which is held on a monthly basis reviews performance against set benchmarks embedded under acceptable currencies, currency positions as well as stop loss limits. Derivative contracts with characteristics and values derived from underlying financial instruments, exchange rates which relates to futures, forwards, swaps and options can be used to mitigate exchange risk. The Group had no exposure to derivative transactions under the reporting period.

At 31 December 2012, if foreign exchange rates at that date had weakened or strengthened by 5 percentage points with all other variables held constant, post tax profit for the period would have been US$677 431 higher or lower respectively than the reported position. This arises 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 Bank as at 31 December 2012 is as below:

Foreign currency position as at 31 December 2012

Position expressed in US$ Other foreign Total USD ZAR GBP currencies

Assets Balances with banks and cash 180 186 510 158 103 460 16 858 548 2 597 105 2 627 397 Money market assets 24 896 421 11 731 755 6 339 123 2 161 870 4 663 673 Advances 854 689 983 853 806 685 1 241 611 257 029 (615 342) Insurance assets 4 706 525 4 706 525 - - - Other Assets 52 217 859 50 825 225 1 291 389 53 945 47 300 Investment in equities 2 181 257 2 037 614 - - 143 643 Investment properties 20 335 977 20 335 977 - - - Property and equipment 74 248 554 74 159 315 13 130 - 76 109 FINANCIAL STATEMENTS FINANCIAL Deferred taxation 7 539 322 7 539 322 - - - Intangible assets 2 090 819 2 090 819 - - - Total Assets 1 223 093 227 1 185 336 697 25 743 801 5 069 949 6 942 780

Liabilities and Equity Deposits 1 032 352 075 994 388 628 29 870 209 6 082 124 2 011 114 Insurance liabilities 6 647 107 6 647 107 - - - Other liabilities 16 019 797 2 767 325 6 339 299 2 241 959 4 671 214 Current tax payable 5 013 168 5 013 168 - - - Deferred taxation 2 383 845 2 383 845 - - - Equity and reserves 160 677 235 160 677 235 - - - Total Equity and Liabilities 1 223 093 227 1 171 877 308 36 209 508 8 324 083 6 682 328

93 CBZ Holdings Limited Annual Report 2012 93 Notes to the Consolidated Financial Statements (continued) Risk Management (continued)

31.7.1 Exchange rate risk (continued)

Foreign currency position as at 31 December 2011

Position expressed in US$ Other foreign Total USD ZAR GBP currencies

Assets Balances with banks and cash 142 453 856 118 764 861 17 690 720 2 133 955 3 864 320 Money market assets 7 958 378 7 958 378 - - - Advances 790 340 120 788 211 901 319 898 1 614 925 193 396 Insurance assets 1 521 203 1 521 203 - - - Other Assets 18 351 278 18 062 343 256 375 33 150 (590) Investment in equities 2 452 858 2 348 137 - - 104 721 Investment properties 17 821 110 17 821 110 - - - Property and equipment 66 501 576 66 418 598 6 868 - 76 110 Deferred taxation 5 759 724 5 759 724 - - - Intangible assets 2 537 393 2 537 393 - - - Total Assets 1 055 697 496 1 029 403 648 18 273 861 3 782 030 4 237 957

Liabilities and Equity Deposits 829 896 724 785 825 106 21 220 767 3 937 266 18 913 585

FINANCIAL STATEMENTS Insurance liabilities 3 874 334 3 874 334 - - - Other liabilities 94 336 878 84 000 809 4 019 595 1 773 223 4 543 251 Current tax payable 5 241 028 5 241 028 - - - Deferred taxation 3 099 190 3 099 190 - - - Equity and reserves 119 249 342 119 249 342 - - - Total Equity and Liabilities 1 055 697 496 1 001 289 809 25 240 362 5 710 489 23 456 836

Foreign currency position as at 31 December 2012

Underlying currency in US$ Other foreign ZAR GBP currencies

Assets Cash and short term assets 142 904 856 1 607 318 2 627 397 Advances 10 524 763 159 073 (615 342) Money market asset 51 812 191 - 4 663 674 Other Assets 10 946 709 33 386 47 300 Investments - - 143 643 Total Assets 216 188 519 1 799 777 6 866 672

Liabilities Deposits 253 200 801 3 764 156 2 011 115 Other liabilities 53 736 339 1 387 523 4 671 213 Total liabilities 306 937 140 5 151 679 6 682 328

Net position (90 748 621) (3 351 902) 184 344

94 CBZ Holdings Limited Annual Report 2012 Notes to the Consolidated Financial Statements (continued) Risk Management (continued)

31.7.1 Exchange rate risk (continued)

Foreign Currency Position as at 31 December 2011

Underlying currency in US$ Other foreign ZAR GBP currencies

Assets Cash and short term assets 144 593 328 1 384 067 3 864 320 Advances 2 614 652 1 047 428 193 396 Other Assets 2 095 446 21 501 (588) Investments - - 104 721 Total Assets 149 303 426 2 452 996 4 161 849

Liabilities Deposits 173 445 814 2 553 682 18 913 585 Other liabilities 32 853 755 1 150 099 4 543 251 Total liabilities 206 299 569 3 703 781 23 456 836

Net position (56 996 143) (1 250 785) (19 294 987) FINANCIAL STATEMENTS FINANCIAL

95 CBZ Holdings Limited Annual Report 2012 95 Notes to the Consolidated Financial Statements (continued) Risk Management (continued) 31.8 Operational risk • periodic compliance and awareness training targeting employees in compliance sensitive areas is carried out. This is the potential for loss arising from human error and fraud, inadequate or failed internal processes, systems, non-adherence to 31.11 Reputation risk procedure or other external sources that result in the compromising of the Group and its SBUs revenue or erosion of the Group and its This is the risk of potential damage to the Group’s image that arise SBUs’ statement of financial position value. from the market perception of the manner in which the Group and its SBUs packages and delivers its products and services as well as 31.8.1 Operational risk management framework how staff and management conduct themselves. It also relates to the Group’s general business ethics. This can result in loss of earnings or Group Risk Management Committee exercises adequate oversight adverse impact on market capitalization as a result of stakeholders over operational risks across the Group with the support of SBU adopting a negative view to the Group and its actions. The risk can Boards as well as business and functional level committees. Group further arise from the Group’s inability to address any of its other key Risk Management is responsible for setting and approval of Group risks. This risk is managed and mitigated through: Operational Policies and maintaining standards for operational risk. • continuous improvements of the Group’s operating facilities to ensure that they remain within the taste of the Group’s various The Group Board Audit Committee through Internal Audit function stakeholders; as well as Group Enterprise Wide Governance and Compliance • ensuring that staff subscribe to the Group’s code of conduct, code perform their independent review and assurances under processes of ethics and general business ethics; and and procedures as set under Business Units policies and procedure • stakeholders’ feedback systems that ensures a proactive attention manuals. On the other hand Group Risk Management and Group to the Group’s reputation management. IT Department with assistance from Organization and Methods Department within Group Human Resources ensures processes, 31.12 Money-laundering risk procedures and control systems are in line with variables in the operating environment. This is the risk of financial or reputational loss suffered as a result of

FINANCIAL STATEMENTS transactions in which criminal financiers disguise the origin of funds 31.9 Strategic risk they deposit in the Bank and then use the funds to support illegal activities. The Group manages this risk through: This is the risk that arises where the Group’s strategy may be • adherence to Know Your Customer Procedures; inappropriate to support its long term corporate goals due to • effective use of compliance enabling technology to enhance underlying inadequate strategic planning process, weak decision anti–money laundering program management, communication, making process as well as weak strategic implementation programs. monitoring and reporting; • development of early warning systems; and To mitigate this risk, the Group’s Board, SBU Boards and Management • integration of compliance into individual performance teams craft the strategy which is underpinned to the Group’s corporate measurement and reward structures. goals. Approval of the strategy is the responsibility of the appropriate Board whilst implementation is carried out by Management. On the 31.13 Insurance risk other hand strategy and goal congruency is reviewed monthly by management and quarterly by the appropriate Board. The principal risk the insurance company faces under insurance contracts is that the actual claims and benefit payments or the timing 31.10 Regulatory risk thereof, differ from expectations. This is influenced by the frequency of claims, severity of claims, actual benefits paid and subsequent Regulatory risk is defined as the failure to comply with applicable development of long-term claims. Therefore the objective of the laws and regulations or supervisory requirements, or the exclusion insurance subsidiary is to ensure that sufficient reserves are available of provisions of relevant regulatory requirements out of operational to cover these liabilities. procedures. This risk is managed and mitigated through the Group Board Risk Management Committee and the Group Enterprise Wide The above risk exposure is mitigated by diversification across a large Governance and Compliance unit which ensures that: portfolio of insurance contracts and geographical areas. The variability of risks is also improved by careful selection and implementation of • comprehensive and consistent compliance policies and underwriting strategy guidelines, as well as the use of reinsurance procedures exist covering the Group and its SBUs; arrangements. • a proactive and complete summary statement of the Group and its SBUs position on ethics and compliance; • a reporting structure of the Group Enterprise Wide Compliance Function exits that ensures independence and effectiveness; and that

96 CBZ Holdings Limited Annual Report 2012 Notes to the Consolidated Financial Statements (continued) Risk Management (continued)

The subsidiary also purchases reinsurance as part of its risk mitigation losses. Retention limits for the excess-of-loss reinsurance vary by programme. Reinsurance ceded is placed on both a proportional and product line and territory. non-proportional basis. The majority of proportional reinsurance is quota-share reinsurance which is taken out to reduce the overall The insurance company’s placement of reinsurance is diversified exposure of the company to certain classes of business. Non- such that it is neither dependent on a single reinsurer nor are the proportional reinsurance is primarily excess-of-loss reinsurance operations of the company substantially dependent upon any single designed to mitigate the company’s net exposure to catastrophe reinsurance contract.

31.14 Risk and credit ratings

31.14.1 External credit rating

CBZ Bank Limited

Rating agent 2012 2011 2009 2008 2007 2006 2005

Global Credit Rating (Short Term) ------

Global Credit Rating (Long Term) A+ A+ A A A A A

31.14.2 Reserve Bank Ratings

CAMELS RATING MATRIX Sensitivity Capital Asset Composite Management Earnings Liquidity to market Adequacy Quality risk

CBZ Bank 1 1 2 1 1 2 2 FINANCIAL STATEMENTS FINANCIAL

CBZ Holdings Group 2 2 2 - 2 2 2

Key

1. Strong 2. Satisfactory 3 Fair 4. Substandard 5. Weak

97 CBZ Holdings Limited Annual Report 2012 97 Notes to the Consolidated Financial Statements (continued) 32. CAPITAL ADEQUACY

The capital adequacy is calculated in terms of the guidelines issued by the Reserve Bank of Zimbabwe.

31 Dec 2012 31 Dec 2011 31 Dec 2012 CBZ Building 31 Dec 2011 CBZ Building CBZ Bank Society CBZ Bank Society US$ US$ US$ US$

Risk weighted Assets 780 353 072 125 027 823 753 796 864 101 719 801

Total qualifying capital 100 702 263 46 237 295 83 984 157 33 992 384

Tier 1 Share capital 5 118 180 7 500 000 5 118 180 7 500 000 Share premium 11 198 956 9 028 622 11 198 956 9 028 622 Revenue reserves 65 260 266 19 281 078 50 796 424 8 020 660 Less tier 1 deductions (21 268 004) (4 723 173) (16 273 205) (2 367 818) 60 309 398 31 086 527 50 840 355 22 181 464

Tier 2 Revaluation reserve 13 714 204 11 508 131 11 153 419 9 443 480 General provisions 9 754 413 1 339 440 9 422 461 963 439 23 468 617 12 847 571 20 575 880 10 406 919

Tier 3 Capital allocated for market risk 1 045 058 30 315 880 997 3 223 FINANCIAL STATEMENTS Capital allocated to operations risk 15 879 190 2 272 882 11 686 925 1 400 778 16 924 248 2 303 197 12 567 922 1 404 001

Capital adequacy 12.90% 36.98% 11.14% 33.42%

-Tier 1 7.72% 24 86% 6.74% 21.81% -Tier 2 3.01% 10.28% 2.73% 10.23% -Tier 3 2.17% 1.84% 1.67% 1.38%

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, general provisions and revaluation reserves.

98 CBZ Holdings Limited Annual Report 2012 98 Company Financial Statements

99 CBZ Holdings Limited Annual Report 2012 99 Company’s Statement of Comprehensive Income for the year ended 31 December 2012

Notes 31 Dec 2012 31 Dec 2011 US$ US$

Revenue 2 21 091 510 2 597 858 Operating expenditure 3 (1 338 680) (3 302 971) Profit/(loss) before taxation 19 752 830 (705 113) Taxation 4 211 248 1 001 710 Profit for the year after tax 19 964 078 296 597

Other comprehensive income - - Total comprehensive income for the year 19 964 078 296 597

Profit for the year attributable to: Equity holders of parent 19 964 078 296 597 Total comprehensive income for the year 19 964 078 296 597

Total comprehensive income attributable to: Equity holders of parent 19 964 078 296 597 Total comprehensive income for the year 19 964 078 296 597

Earnings per share (cents): Basic 6.4 3.27 0.05 company Fully diluted 6.4 3.20 0.05 Headline earnings 6.4 3.27 0.05

FINANCIAL STATEMENTS

100 CBZ Holdings Limited Annual Report 2012 Company’s Statement of Financial Position as at 31 December 2012

Notes 31 Dec 2012 31 Dec 2011 US$ US$

ASSETS Balances with banks and cash 5 1 947 070 109 130 Other assets 8 1 656 352 1 904 152 Investments in equities 888 935 780 103 Investment in subsidiaries 9 48 920 048 48 571 520 Property and equipment 393 376 535 036 Intangible assets 351 054 404 522 Deferred taxation 2 185 458 1 984 207 TOTAL ASSETS 56 342 293 54 288 670

LIABILITIES Other liabilities 1 200 543 10 554 873 Deferred taxation 156 607 166 604 TOTAL LIABILITIES 1 357 150 10 721 477

EQUITY AND RESERVES Share capital 6 841 445 6 841 445 Share premium 26 708 659 26 708 659 Treasury shares (7 960 025) (557 234) Non - distributable reserve 13 000 000 13 000 000 Share option reserve 10 499 637 - Revenue reserves 15 895 427 (2 425 677) TOTAL EQUITY AND RESERVES 54 985 143 43 567 193

TOTAL LIABILITIES, EQUITY AND RESERVES 56 342 293 54 288 670 FINANCIAL STATEMENTS FINANCIAL company

101 CBZ Holdings Limited Annual Report 2012 101

499 637 296 597 (756 132) 43 567 193 19 964 078 44 026 728 (7 402 791) (1 642 974) 54 985 143 43 567 193 - - US$ 296 597 Total reserve Revenue (756 132) 19 964 078 (2 425 677) (1 642 974) (1 966 142) 15 895 427 (2 425 677) ------US$ 499 637 reserve 499 637 Share option Share ------Non- company 13 000 13 000 13 000 13 000 FINANCIAL STATEMENTS - - - - - US$ reserve shares (557 234) (557 234) Distributable Treasury (557 234) (7 402 791) (7 960 025) ------26 708 659 26 708 659 26 708 659 26 708 659

------US$ Share Share capital premium 6 841 445 6 841 445 6 841 445 6 841 445 Balance at 31 December 2012 31 December at Balance 2012 of the year the beginning at Balance Income comprehensive Total share Treasury Dividends option reserve share Employee 2011 of the year the beginning at Balance Income comprehensive Total Dividends 2011 31 December at Balance Company Statement of Changes in Equity Statement Company 2012 ended 31 December the year for

102 CBZ Holdings Limited Annual Report 2012 Company’s Statement of Cash Flows for the year ended 31 December 2012

31 Dec 2012 31 Dec 2011 US$ US$

CASH FLOWS FROM OPERATING ACTIVITIES

Profit/(loss) before taxation 19 752 830 (705 113) Non cash items: Depreciation and amortisation 188 516 199 521 Fair value adjustment (72 550) - Profit on sale of property and equipment (5 064) - Employee share option reserve 499 637 - Operating profit/(loss) before changes in operating assets and liabilities 20 363 369 (505 592)

Changes in operating assets and liabilities Other assets 315 449 767 698 Other liabilities (9 354 329) 378 877 (9 038 880) 1 146 575 Corporate tax paid - - Net cash inflow from operating activities 11 324 489 640 983

CASH FLOWS FROM INVESTING ACTIVITIES

Net change in investments (452 459) (146 123) STATEMENTS FINANCIAL Proceeds on disposal of property and equipment 19 802 - Purchase of property and equipment (8 127) (106 056) company Net cash outflow from investing activities (440 784) (252 179)

CASHFLOWS FROM FINANCING ACTIVITIES Treasury shares (7 402 791) - Dividends paid (1 642 974) (756 132) Net cash outflow from financing activities (9 045 765) (756 132)

Net increase/decrease in balances with banks and cash 1 837 940 (367 328) Balances with banks and cash at the beginning of the year 109 130 476 458 Balances with banks and cash at end of the year 1 947 070 109 130

103 CBZ Holdings Limited Annual Report 2012 103 Notes to the Company Financial Statements for the year ended 31 December 2012

1. INCORPORATION AND ACTIVITIES

The financial statements of the Company for the year ended 31 December 2012 were authorised for issue in accordance with a resolution of the Board of Directors on 26 February 2013. The Company has subsidiaries which offer commercial banking, mortgage finance, asset management, short term insurance, life assurance and other financial services and is incorporated in Zimbabwe.

31 Dec 2012 31 Dec 2011 US$ US$

2. REVENUE

Net interest income 33 153 (1 351 077) Fair value adjustments on financial instruments 72 550 (51 065) Dividend income 20 980 743 4 000 000 Profit on sale of property and equipment 5 064 - 21 091 510 2 597 858

3. OPERATING EXPENDITURE Staff costs 499 637 1 311 602 Administration expenses 650 527 1 699 168 Audit fees - 92 679

company Depreciation 135 049 130 015 Amortisation of intangible assets 53 467 69 507 1 338 680 3 302 971 FINANCIAL STATEMENTS

4. 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.

31 Dec 2012 31 Dec 2011 US$ US$

4.1 Analysis of tax charge in respect of the profit for the year Current income tax charge - - Deferred income tax (211 248) (1 001 710) Income tax expense (211 248) (1 001 710)

5. BALANCES WITH BANKS AND CASH Balances with banks 1 947 070 109 130

104 CBZ Holdings Limited Annual Report 2012 Notes to the Company Financial Statements (continued)

6. 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 by the weighted average number of ordinary shares outstanding during the year plus the weighted average number of ordinary shares adjusted for the effects of all potentially dilutive ordinary shares.

Headline earnings per share amounts are calculated by dividing net profit for the year attributable to ordinary equity holders of the parent after adjustments for excluded re-measurements by the weighted average number of ordinary shares outstanding during the period.

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

31 Dec 2012 31 Dec 2011 US$ US$

6.1 Earnings

Basic earnings 19 964 079 296 597 Fully diluted 19 964 079 296 597 Headline 19 959 015 296 597

Number of shares used in calculations (weighted)

Basic 610 137 352 628 421 146

Fully diluted 623 964 623 628 421 146 STATEMENTS FINANCIAL Headline 610 137 352 628 421 146 company 6.2 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 (weighted) (74 007 194) (55 723 400) Weighted average number of shares used for basic EPS 610 137 352 628 421 146 Potentially dilutive shares (employee share options) 13 827 271 - Weighted average number of shares used for diluted EPS 623 964 623 628 421 146

6.3 Headline earnings

Profit attributable to ordinary shareholders 19 964 079 296 597 Adjusted for excluded re-measurements: Disposal (gains)/losses on PPE and intangibles (5 064) - 19 959 015 296 597

6.4 Earningsper share

Basic earnings 3.27 0.05 Fully diluted 3.20 0.05 Headline 3.27 0.05

105 CBZ Holdings Limited Annual Report 2012 105 Notes to the Company Financial Statements (continued)

31 Dec 2012 31 Dec 2011 US$ US$

7. DIVIDENDS

Interim dividend paid 903 071 820 973 Final dividend proposed 1 178 326 889 388 2 081 397 1 710 361

8. OTHER ASSETS

Prepayments - 62 779 Intercompany balances: CBZ Bank - 151 948 CBZ Asset Management 564 519 486 950 CBZ Insurance 68 559 223 685 CBZ Life 528 240 515 816 Sundry 495 034 462 974 1 656 352 1 904 152

9. INVESTMENT IN SUBSIDIARIES

CBZ Bank 21 839 891 21 839 891 CBZ Properties 4 779 144 4 779 144 company CBZ Building Society 19 114 990 19 151 461 CBZ Asset Management 1 423 430 1 038 430 FINANCIAL STATEMENTS CBZ Insurance 374 579 374 580 CBZ Life 1 388 014 1 388 014 48 920 048 48 571 520

9.1 Investment in subsidiaries

CBZ Bank Limited 100% 100% CBZ Asset Management (Private) Limited 100% 100% CBZ Building Society 100% 100% CBZ Insurance (Private) Limited 58.5% 58.5% CBZ Properties Limited 100% 100% CBZ Life 100% 100%

10. SHARE OPTION RESERVE

Opening balance - - Employee share options 499 637 - Closing balance 499 637 -

106 CBZ Holdings Limited Annual Report 2012 Notes to the Company Financial Statements (continued) 10. SHARE OPTION RESERVE (Continued)

Shares under option The Directors are empowered to grant share options to senior executives and staff of the company up to a maximum of 40 000 000 shares. The options are granted for a period of 10 years at a price determined by the middle market price ruling on the Zimbabwe Stock Exchange on the day on which the options are granted. Details of share options outstanding as at 31 December 2012 were as follows:

31 Dec 2012 31 Dec 2011 Shares Shares Balance at beginning of year - - Granted during the year 13 827 271 - Balance at end of year 13 827 271 -

Share capital and reserves A valuation of the share option scheme was carried out by professional valuers as at 31 December 2012. The estimated fair value of the options granted was determined using the Binomial model in accordance with IFRS2 with the following inputs and assumptions:

Grant date share price (US cents) 8.81 - Exercise price (US cents) 8.81 - Expected volatility (%) 50 - Dividend yield (%) 2.50 - Risk-free interest rate (%) 5.70 -

Valuation inputs:

Exercise price The Scheme rules state that the price for the shares comprised in an option shall be the middle market price ruling on the Zimbabwe Stock Exchange on the day on which the options are granted, therefore 8.81 cents, for the options granted during the 2012 financial year.

Expected volatility STATEMENTS FINANCIAL Expected volatility is a measure of the amount by which the price is expected to fluctuate during a period, for example between

grant date and the exercise date. company

Volatility was calculated using the geometric Brownian motion process on share prices.

Expected dividends When estimating the fair value of options, the projected valuation of shares is reduced by the present value of dividends expected to be paid during the vesting period. This is because the payment of dividends reduces the value of a company.

Risk free rate of return A risk free rate of return is the interest rate an investor would expect to earn on an investment with no risk which is usually taken to be a government issued security. It is the interest rate earned on a riskless security over a specified time horizon. There are currently no government issued securities in Zimbabwe. Given that the valuation was done in United States dollars, the risk free rate was estimated based on the yield on 10 year treasury bills issued by the Federal Reserve Bank of the United States of America of 2.02%. This value was adjusted for the inflation differential between Zimbabwe and the United States of America. All options expire, if not exercised, 10 years after the date of grant.

107 CBZ Holdings Limited Annual Report 2012 107 NOTICE TO MEMBERS

Notice is hereby given that the Twenty - Third Annual General Meeting of the members of CBZ Holdings Limited will be held in the Mirabelle Room, Meikles Hotel, Harare, on Tuesday, 30 April 2013 at 15:00 hours.

1. ORDINARY MATTERS

a) To receive and consider the Audited Annual Financial Statements for the year ended 31 December 2012, including the Chairman’s, Group Chief Executive Officer’s, Managing Directors’ Reports and the Report of the External Auditors thereon. b) To confirm the declaration of the final dividend of 0.172 cents per share for the year ended 31 December 2012; following an interim dividend of 0.132 cents per share giving a total dividend of 0.304 cents per share. c) Directorate 1) To confirm the appointment of Messrs Elliot Mugamu, Richard Victor Wilde, Robert James Reid and Mrs Rebecca Pasi during the course of the year. 2) 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 the following Directors are eligible for retirement this year but offer themselves for re-election: Messrs John Panonetsa Mangudya, Mohammed Hanif Nanabawa and Fouad Mokhtar Dernawi. 3) To note the retirement of Mr. Nyasha Makuvise from the Board of Directors of CBZ Holdings Limited and appointment of Dr John Panonetsa Mangudya as the Group Chief Executive Officer. 4) To note the resignation of Mr. Robert James Reid from the Board of Directors of CBZ Holdings Limited. d) To confirm the remuneration paid to the Directors during the year. e) To confirm the appointment during the year of Deloitte & Touche Chartered Accountants (Zimbabwe) as external auditors of the Company and to appoint the Auditors for the ensuing year. They being eligible, offer themselves for re-appointment. f) To authorise the Directors to fix the external auditors’ remuneration for the past year.

2. SPECIAL MATTERS

Share Buy Back

If Members deem it appropriate, they may approve the extension of the following resolution passed by Members at the Annual General Meeting held on 30 May 2012 as a special resolution with or without amendments:

It was Resolved:-

“That the Directors of CBZ Holdings Limited be and are hereby authorised in terms of article 11(b) of the Company’s Articles and subject to sections 78 to 79 of the Companies’ Act (Chapter 24:03) to purchase the Company’s own shares subject to the following:

N otice That the purchase price shall not be lower than the nominal value of the Company’s shares and not greater than 5% or 5% below the weighted average trading price for such ordinary shares traded over 5 business working days immediately preceding the date of the purchase of such shares by the Company. to That the shares secured under this resolution shall be ordinary shares in the Company and the maximum number of shares that may be acquired shall not exceed 68 414 450 M embers shares.

That this authority shall expire on the date of the next Annual General Meeting of the Company.

That the shares purchased shall be held for treasury purposes.”

3. GENERAL

To transact such other business as may be transacted at an Annual General Meeting.

4. 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

R A JAKANANI LLM (Hons) (UK), LLB (Hons) (UZ) GROUP LEGAL CORPORATE SECRETARY

REGISTERED HEAD OFFICE 5th Floor, Union House 60 Kwame Nkrumah Avenue Harare, Zimbabwe Telephone: (263-4) 748 050 - 79 Email: [email protected]

14 March 2013

Directors Luxon Zembe (Chairman), Richard Victor Wilde (Vice-Chairman), Tinoziva Bere, Fouad Moktar Dernawi, Mohamed I Ben Ghali, Andrew Lowe, Elliot Mugamu, David Mutambara, Mohammed Hanif Nanabawa, Roseline Nhamo, Rebecca Pasi, Givemore Taputaira, Never Nyemudzo* (Group Chief Finance Officer) and John Panonetsa Mangudya* (Dr) (Group Chief Executive Officer).

* Executive Director 108 CBZ Holdings Limited Annual Report 2012 SHAREHOLDERS CALENDAR ANTICIPATED DATES

Financial Year End 31 December 2013

Half year’s results to 30 June 2013 August 2013

Full year’s results to 31 December 2013 February 2014

Annual Report and Annual General Meeting April 2014 calender s ’ S hareholder

109 CBZ Holdings Limited Annual Report 2012 109 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 30 April 2013 and at any adjournment thereof.

Signed by me this day of 2013

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 office of the Company at least 48 (forty-eight) hours before the time appointed 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.

110 CBZ Holdings Limited Annual Report 2012