UAP HOLDINGS LIMITED 2014 Annual Report & Financial Statements

A Pan-African Financial Services Group - Building Partnerships for Business Success.

Kenya • Uganda • South Sudan • Rwanda • DR Congo • Tanzania

UAP HOLDINGS LIMITED Annual Report & Financial Statements 2014

Our focus lies in building solid foundations for solid partnerships Kenya • Uganda • South Sudan • Rwanda • DR Congo • Tanzania 3 UAP HOLDINGS LIMITED Annual Report & Financial Statements 2014

Contents

Chairman’s Statement Business Review

Vision, Mission & Values 05 20 Board Members 06 Subsidiary Directors 11 UAP Executive Management 14 Chairman’s Statement 20 Group Managing Director’s Report 23 Group Managing Sustainability and Corporate Social 29 Director's Report Responsibility Report Five Year Financial Highlights 33

Corporate 23 Governance Corporate Governance Statement 35 Directors’ Report 43 Statement of Directors’ Responsibility 44 Sustainability and Corporate Report of the Independent Auditor 45 Social Responsibility Report Financial Statements

Consolidated Statement of 46 29 Profit or Loss Consolidated Statement of Other 47 Comprehensive Income Consolidated Statement of 48 Financial Financial Position Company Statement of Financial Position 49 Statements Consolidated Statement of Changes 50 in Equity Company Statement of Changes in 52 Equity Consolidated Statement of Cash Flows 53 46 Notes to Financial statements 54

4 Kenya • Uganda • South Sudan • Rwanda • DR Congo • Tanzania UAP HOLDINGS LIMITED Annual Report & Financial Statements 2014

Where we are going To be Africa’s revolutionary Who we are financial services group.

UAP Group (UAP) is a Pan-African What we focus on Financial Services Group with To enhance quality of life by delivering peace interests in Insurance, Investment of mind and financial freedom through an Management, Property Development exceptionally motivated team that delivers what & Investments, Securities Brokerage customers want, when and where they want it. and Financial Advisory. Currently, UAP Group has 12 businesses operating in What we care about Kenya, Uganda, South Sudan, Rwanda, • We build life long relationships DR Congo and Tanzania. • We do what we say and say what we do • We are a pleasure to deal with • We are passionate about our work - and it shows! 90+ YEARS AND STILL COUNTING

Kenya • Uganda • South Sudan • Rwanda • DR Congo • Tanzania 5 UAP HOLDINGS LIMITED Annual Report & Financial Statements 2014 Board of Directors

Left to Right: Susan Omanga, Susan Wakhungu-Githuku • James Wambugu • Joyce Anne Wainaina • Lotfi Baccouche• Dr. JB Wanjui CBS, Skander Oueslati • James Muguiyi • Davinder Sikand • Peter G. Njoka • Dominic Kiarie • Nkirote Mworia • Jonas Armtoft • George Odo

Kenya • Uganda • South Sudan • Rwanda • DR Congo • Tanzania UAP HOLDINGS LIMITED Annual Report & Financial Statements 2014

Profiles of Board of Directors of UAP Group

Dr. Joseph Barrage Wanjui, CBS Chairman (78) Dr. Wanjui, the Chairman of the Board has a long and illustrious career in the Kenyan corporate scene, the most prominent being the Chief Executive of East Africa Industries (which later became Unilever). He is a graduate of Ohio Wesleyan University, (BA Physics and Mathematics) and Columbia University, (MSC Engineering). Dr. Wanjui was the Chancellor of the University of Nairobi and was previously the Chairman of CfC Stanbic Bank Limited. He is also chairman and Board member of a number of other Kenyan and international organizations. Dr. Wanjui has been a director of the Company since 1986 and the Chairman of the Board since 1998. In recognition of his exemplary contributions to positive change in society, he received the Chief of the Order of the Burning Spear (CBS) of the Republic of Kenya award.

Dominic Kiarie Group Managing Director (44) Mr. Kiarie is the Group Managing Director of UAP Holdings Limited. He joined the Group on 1st August 2011 having worked with the British-American Group for the past 7 years as the founding Chief Executive Officer & Managing Director of British-American Asset Managers. Prior to that, he worked in the Investment Banking and Investment Management fields in United Kingdom, South Africa and Kenya, and has served in Executive Directorship roles in the Financial Services Sector for over 8 years. Mr. Kiarie holds a Masters of Philosophy (M. Phil) Degree in Finance from the University of Cambridge, United Kingdom, a Bachelor of Science Degree in Actuarial Science from The Sir John Cass Business School, City University, London, a Diploma in Actuarial Techniques and a Certificate in Finance and Investments both from the Institute of Actuaries, London. He has also attended numerous courses locally and abroad on leadership, strategy, corporate finance and investments, amongst others.

James Muguiyi Non-Executive Director (71) Mr. Muguiyi is a Non-Executive Director at UAPHL, having previously served as Group Managing Director. During this time he has overseen the growth of the Group’s business in Kenya and expansion into Uganda in 2004 and South Sudan in 2006. He has presided over the group restructuring in 2008 and the demerger of the Life Insurance Business from General Insurance Business in Kenya. Between 1988 and 2001, he was the Deputy Managing Director. During this time, he oversaw the merger of Provincial Insurance with Union Insurance to form UAP Provisional Insurance in 1994. Mr. Muguiyi is a director of several other companies and is Chairman of Centum Investment Company Limited, a company listed on the Nairobi Securities Exchange. He is a Fellow of the Institute of Certified Public Accountants of Kenya (FCPA (K)) where he was at one time the Chairman. He is also a Certified Company Secretary (CPS (K)) and a Chartered Management Accountant (ACMA).

Lotfi Baccouche Independent Non-Executive Director (52) Mr. Baccouche is a Senior Partner – Insurance Markets at Parker Fitzgerald, UK. He is a seasoned insurance executive and consultant with over 17 years of in depth industry experience garnered from Bermuda, Europe, USA, Australia, Tunisia and the United Kingdom. Mr. Baccouche has worked with both the European and United Kingdom insurance regulators and has advised senior management teams and the boards of directors at major insurance companies in Europe and United Kingdom on implementation of key strategies for multinational companies. He holds an MSc in Engineering from Cornell University, New York, USA and a BSc in Industrial & Operations Engineering from University of Michigan, Michigan, USA. Kenya • Uganda • South Sudan • Rwanda • DR Congo • Tanzania 7 UAP HOLDINGS LIMITED Annual Report & Financial Statements 2014

Profiles of Board of Directors of UAP Group (continued)

Susan Nkirote Omanga Independent Non-Executive Director (55) Susan is the CEO and founder of Exclamation Marketing Ltd. She previously served in senior marketing positions at Colgate Palmolive, Boots Kenya, Barclays Bank, and Standard Chartered. From 2004 -2012 she served as a non-executive Director in the Group Board of KCB where she was also Chairman of KCB Foundation, Director S & L Mortgages for 2 years and Director KCB Uganda for 4 years.

Susan sits on the Board of Longhorn Publishers and Kenya Tea Packers Limited (KETEPA). She is also an advisory board Member at the University of Nairobi’s Green Horn Mentorship programme, a member of the Marketing Society of Kenya, the Public Relations Society of Kenya (PRSK) and the International Advertising Association (IAA). Susan holds an Associate of Applied Science Degree in Business Management from North West Community College, Powel, Wyoming and a Bachelor of Science Degree in Business Management with a Minor in Advertising from Rocky Mountain College in Billings Montana.

Jonas Armtoft Non-Executive Director (52) Jonas was appointed to the Board in March 2013 as an additional director. Jonas is a senior investment manager at Swedfund International AB and is currently heading the Swedfund Regional Office in Nairobi, Kenya. Jonas has a legal background and holds a Masters of Laws degree (LLM) from the University of Lund and a Law degree from the Queen Mary and Westfield College in London. Jonas has been working with investments and project finance since 1994 primarily in Kenya and Ethiopia but also in Latin America and Eastern Europe.

Susan Wakhungu-Githuku Independent Non-Executive Director (55) Susan, a former Fortune 100 Corporate Executive turned entrepreneur, is the Founder and CEO of Human Performance Dynamics Africa, a boutique Organizational Development & Human Resources consulting firm based in Nairobi, Kenya.

Before establishing HPD Africa, Susan worked at the Coca-Cola Company and was until December 2008 the Eurasia & Africa Group Director for Coca-Cola University. Prior to this role, she served as the Coca-Cola Africa Group HR Director based in London and Johannesburg.

Susan spent 10 years working at a senior level in international nongovernmental agencies including CARE, AERC and USAID and is knowledgeable in this sector. She is also the Founder and Publisher of Footprints Press Limited, an independent Kenyan based publishing house specializing in photographic coffee table books on Africa. She holds a Master’s Degree in Development Economics from Strathclyde University, Glasgow, Scotland and Bachelor’s Degrees in Economics and Psychology from St. Lawrence University, New York, USA. She serves on the Board of Diageo - East Africa Breweries and previously served on the Board of Kenya Women’s Finance Trust and Zawadi Educational Trust. Susan is the Chairman of the Remuneration and Human Resource Committee.

8 Kenya • Uganda • South Sudan • Rwanda • DR Congo • Tanzania UAP HOLDINGS LIMITED Annual Report & Financial Statements 2014

Profiles of Board of Directors of UAP Group (continued)

Peter Gichuru Njoka Non-Executive Director (43) Mr. Njoka was appointed to the Board on 12 April, 2012 and is Managing Director at The Abraaj Group. He has 16 years’ private equity and corporate finance experience in East Africa. Since joining AKML in 1999, he has been responsible for recommending investments and working with a number of companies, across various sectors, in which Aureos Africa Fund (AAF), Aureos East Africa Fund (AEAF) and ACACIA Fund have participated. He holds a B.Sc. in Mathematics and Physics from the University of Nairobi. Mr. Njoka is also Chairman of Deacons Kenya Ltd, a Director of Athi River Steel Plant Ltd, Seven Seas Technologies Ltd and Micro Africa Ltd, as well as other private companies.

Joyce Anne Wainaina Non-Executive Director (Alternate for Dr. J.B. Wanjui) (48) Joyce-Ann Wainaina is the Citi Country Officer (CCO) for Citibank Zambia, a position she was appointed to in 2011. At Citibank Zambia, Joyce-Ann is responsible for Citi’s business, heads the Management Committees and is an executive member of the Board of Directors. Prior to this role, Joyce-Ann was Citi Transaction Services head for East Africa covering Kenya, Uganda, Tanzania and Zambia, responsible for Treasury and Trade solutions in the region. She previously headed the corporate bank in Kenya.

She has had an extensive career at Citibank in Kenya, South Africa and Zambia covering corporate banking, product management, operations and controls. She joined Citibank in 1990 as an executive trainee / relationship manager. Joyce-Ann serves on several boards including the Junior Achievement Zambia and is the Vice Chairperson for the Bankers Association of Zambia (BAZ). She is also a founding trustee of the J. B Wanjui Education Trust Fund and a Mentor with the Global Give Back Circle (GGBC). She was a former Chairperson of Junior Achievement Kenya, Vice President of the America Chamber of Commerce Kenya and winner of the prestigious Company of the Year Awards 2006, “Manager of the Year” by the Kenya Institute of Management. Joyce-Ann holds B.S Finance from Duquesne University Pittsburgh, USA and M.S Financial Economics, University of London (SOAS).

Davinder Sikand Non-Executive Director (Alternate for Peter Gichuru Njoka) (56) Mr. Sikand is a Senior Partner –Africa with Aureos Capital. He is also managing US$ 40 million Aureos East Africa Fund, fully invested with 14 investments across East Africa and now in exit mode. Mr. Sikand previously managed the Acacia Fund, a US$20 million fund for SME’s in Kenya. Mr. Sikand has been with Aureos since its inception in 2001 and has 24 years’ experience in private equity and investment banking gained in the United States, Europe and East Africa. He holds an MBA from Kellogg School of Business, Northwestern University, USA and qualified with Association of Chartered Certified Accountants (UK).

Kenya • Uganda • South Sudan • Rwanda • DR Congo • Tanzania 9 UAP HOLDINGS LIMITED Annual Report & Financial Statements 2014

Profiles of Board of Directors of UAP Group (continued)

Skander Oueslati Non-Executive Director (42) Mr. Oueslati was appointed to the Board on 7th May, 2012 and is a Senior Partner with AfricInvest- Tuninvest Group, a Pan-African private equity fund manager, with a primary responsibility for East Africa. He joined AfricInvest in 2008. Prior to that, he was head of Structured Finance at BMCE International in London, which he joined after spending eight years working for the International Finance Corporation (IFC) in Washington, DC, USA. During his time at the IFC, he focused on investments in Telecoms and Infrastructure and executed IFC’s first CFA denominated bond issue in West Africa. Mr. Oueslati holds a Master’s Degree from Massachusetts Institute of Technology (MIT) based in Cambridge, USA and Engineering Degrees from France’s Ecole Polytechnique and Ecole Nationale des Ponts et Chaussees.

George Odo Non-Executive Director (Alternate for Skander Oueslati) (48) George Odo is the Managing Director of AfricInvest in East Africa and the alternate director to Skander Oueslati. He was appointed to the Board in May 2012 and carries over 20 years’ experience in the fields of financial services, private equity, venture capital, agri-business and small and medium enterprise (SME) development. He serves on several Boards across various sectors including Brookhouse International School Limited Kenya, Alios Leasing Finance Zambia, Abacus Parenteral Drugs Limited Uganda, Kiboko Enterprise Limited Uganda, EFC MFI Tanzania, and the Danish Refugee Council for the Horn of Africa. George Odo holds an executive MBA from USIU/Columbia University, and a Bachelor of Commerce degree from Rani Durgavati in India. He is a Certified Public Accountant of Kenya and holds a Partnership Broker Accreditation from the United Kingdom.

James Wambugu Executive Director (48) James Wambugu is the Managing Director of UAP Insurance Kenya and an Executive Director of UAP Holdings. Mr. Wambugu joined UAP in July 2003 and has been involved in the development of the Group’s risk and quality management systems, business expansion and strategy development. He previously worked for PricewaterhouseCoopers in Kenya and the UK, Lonrho Africa and African Lakes Corporation in the fields of audit, transaction structuring and support and risk management.

Mr. Wambugu has extensive experience across many countries in Africa. He holds an MBA and Bachelor of Commerce degrees from the University of Nairobi and a diploma in Advanced Management Programme (AMP) from IESE Business School, Barcelona and Strathmore Business School, Nairobi. He is a Qualified Risk Manager (MIRM) and a Certified Public Accountant of Kenya (CPA (K)).

10 Kenya • Uganda • South Sudan • Rwanda • DR Congo • Tanzania UAP HOLDINGS LIMITED Annual Report & Financial Statements 2014 UAP Subsidiaries Directors’ UAP Insurance Kenya

Ms. Betty-Ann Mboche Hon. Ngenye Kariuki Prof. J.H. Kimura Mr. James Wambugu Kenyan Kenyan Kenyan Kenyan Managing Director

UAP Life Assurance Kenya

Mr. Kamau Kuria Prof. Patrick Weke Kenyan Kenyan Board Chairman

Mrs. Hannah Mr. Faisal Jiwa Mr. Joseph Lesiew Gitonga-Mwangi Kenyan Kenyan Kenyan

UAP Investments Kenya

Mr. Joseph Mucheru Ms. Mary Ann Musangi Mr. Jackson Theuri Kenyan Kenyan Kenyan

Kenya • Uganda • South Sudan • Rwanda • DR Congo • Tanzania 11 UAP HOLDINGS LIMITED Annual Report & Financial Statements 2014 UAP Subsidiaries Directors’ (Continued)

UAP Insurance South Sudan UAP RDC

Prof. Scopas Dima Mr. Wainaina Kenyanjui Sudanese Kenyan

Ms. Rosemary Wanjiku Mungai Kenyan Managing Director

Mr. Kiriga Kunyiha Mr. Philip Coulson Mr. David Kuria Kenyan Kenyan Kenyan Managing Director

UAP Life

Assurance Uganda Dr. William Kalema Mr. Kamau Kuria Dr. Sam Sejjaaka Ugandan Kenyan Ugandan Chairman

Mr. Faisal Jiwa Mr. Kiriga Kunyiha Anthony Githuka Kenyan Kenyan Managing Director

12 Kenya • Uganda • South Sudan • Rwanda • DR Congo • Tanzania UAP HOLDINGS LIMITED Annual Report & Financial Statements 2014 UAP Subsidiaries Directors’ (Continued) UAP Insurance Uganda

Prof. Gordon Wavamunno Mr. Andrew Kasirye Dr. George Mutema Ms. Zipporah Mungai Ugandan Ugandan Ugandan Kenyan Chairman Managing Director

UAP Financial Services Uganda

Ms. Zipporah Mungai Dr. Sam Sejjaaka Mr. Faisal Jiwa Mr. Kiriga Kunyiha Kenyan Ugandan Kenyan Kenyan

UAP Insurance UAP Insurance Rwanda Tanzania

Mr. Moses Stewart Kaluwa Tanzanian

Mr. Richard Mugisha Ms. Peace Masozera Rwandese Rwandese Deputy Chairman

Mr. Joseph Werema Ms. Perece Kirigiti Tanzanian Tanzanian Kenya • Uganda • South Sudan • Rwanda • DR Congo • Tanzania 13 UAP HOLDINGS LIMITED Annual Report & Financial Statements 2014 UAP Executive Management

UAP Holdings

Nkirote Mworia Dominic Kiarie Jackson Theuri Group Company Secretary Group Managing Director Group Chief Financial Officer & General Counsel

Thomas Kong’ong’o Winnie Pertet Eric Kisaka Amy Mokaya Group Chief Information Officer Group Human Resource Manager Group Risk and Compliance Manager Group Actuarial Manager

Catherine Obwino Gerishon Mwangi Sophia Muoni Simon Muigai Group Marketing & Group Internal Audit Manager Group Property Manager Group Facilities Manager Communications Manager

UAP Investments Kenya

Peter Ng’eno Joyce Gitau General Manager Head of Business Development

Felistus Karanja James Mose Andrew Gachanja Manager, Fund Services Portfolio Manager Portfolio Manager 14 Kenya • Uganda • South Sudan • Rwanda • DR Congo • Tanzania UAP HOLDINGS LIMITED Annual Report & Financial Statements 2014 UAP Executive Management (Continued)

UAP Insurance Kenya

James Wambugu Isaac Nzyoka Robert Mbugua Managing Director General Manager, Medical Corporate Business Manager Business & Customer Service

Agnes Mutahi Rose Wahome Esther Kiome Gideon Githaiga Finance Manager Human Resource Manager Claims Manager General Manager, Consumer Lines and Mass Distribution

UAP Life Assurance Kenya

Mwanzo Moseti Ben Ireri Ag. Principal Officer and CEO General Manager, Retail Business

Evans Nyagah Evans Ndirangu Wanja Kung’u General Manager, Ag. Finance Manager Human Resource Manager Corporate Business

Kenya • Uganda • South Sudan • Rwanda • DR Congo • Tanzania 15 UAP HOLDINGS LIMITED Annual Report & Financial Statements 2014 UAP Executive Management (Continued)

UAP Insurance Tanzania

Nick Itunga Samson Mwangi Grace Tesha Managing Director Finance Manager Human Resource Manager

Michael Emmanuel Ally Athumani Itimu Kiruti Raymond Komanga Claims Manager Underwriting Manager General Manager, Operations Business Development Manager

UAP Insurance Uganda

Zipporah Mungai Angella Tusaba Simon Waibale Paul Nagemi Managing Director Country Finance Manager Country ICT Manager Assistant GM, Medical Insurance

16 Kenya • Uganda • South Sudan • Rwanda • DR Congo • Tanzania UAP HOLDINGS LIMITED Annual Report & Financial Statements 2014 UAP Executive Management (Continued)

UAP Life Assurance Uganda

Anthony Githuka Musoke Allan Kyambadde Managing Director Chief Accountant

Joseph Kibuuka Allan Lwanga Patrick Abaalo Sales Manager - Individual Life Sales Manager Senior Underwriter Corporate Business

UAP RDC

Rosemary Wanjiku Mungai Kally Kazedi Kalala Managing Director Finance and Administration Officer

Kenya • Uganda • South Sudan • Rwanda • DR Congo • Tanzania 17 UAP HOLDINGS LIMITED Annual Report & Financial Statements 2014 UAP Executive Management (Continued)

UAP Insurance South Sudan

David Kuria Kris Mbaya Antony Mwangi Managing Director Finance Manager Head of Marketing & Distribution

Patrick Waweru Rose Atemo Kimanzi Kyalo Business Claims Manager Underwriting & Development Reinsurance Manager Manager

Pauline Wanjohi Annie Nibishaka CEO Head of Marketing and Distribution UAP Insurance Rwanda Claudine Mukakibibi Jackson Koome Customer Service Head of Medical and Complaints Business Handling Manager

18 Kenya • Uganda • South Sudan • Rwanda • DR Congo • Tanzania UAP HOLDINGS LIMITED Annual Report & Financial Statements 2014

The strategic involvement in UAP by Old Mutual will add significant value to our staff, customers and shareholders.

Dr. Joseph B. Wanjui CBS - Chairman UAP HOLDINGS LIMITED Annual Report & Financial Statements 2014

Chairman's Statement

Introduction Sub-Saharan Africa continues to post accelerated growth I am pleased to present to you our 2014 Annual Report and Sub-Saharan Africa’s growth improved to 4.5% in 2014 compared Financial Statements. 2014 was another successful year with our to 4.2% in 2013. This Improvement was as a result of infrastructure gross premium revenues increasing by 16% to Kshs 14.2 billion. investment and increased agriculture production. Excluding South Contribution from our regional businesses continues to grow in line Africa, the average growth for the rest of the region was 5.6%. with our strategy to diversify our earnings and reduce concentration This is a faster pace than other developing regions, excluding China. risk on the Kenyan Market. In 2014, our business outside Kenya Despite headwinds, growth is projected to pick up to 5.1% by contributed 36% of our total income compared to 28% in 2013. 2017, lifted by infrastructure investment, increased agriculture production, and buoyant services. The positive outlook is subject to I am pleased with the progress that are making towards achieving downside risks arising from a renewed spread of the Ebola epidemic, our vision of building a pan-African Financial Services Group. The violent insurgencies, lower commodity prices (particularly oil), and recent acquisition of a 23% stake in the company by Old Mutual gives volatile global financial conditions. us an opportunity to accelerate this vision through wider availability of UAP services in more countries, enhanced technical and financial The GDP Growth in the Greater Eastern and Central African countries resources and increase in UAP product offering to include banking that we operate in was relatively stable with Kenya (5.5%), Uganda services. Old Mutual has entered into an agreement to increase its (3.1%), South Sudan (13.1%), Rwanda (5.9%), DRC (9.5%) and Tanzania strategic investment in UAP to 60% through planned acquisition of (6.8%) all recording GDP growth. shares that are currently held by 3 Private Equity Investors, subject to regulatory approvals. I will discuss the rationale for this transaction This growth presents a significant opportunity for continued in further detail in this report. expansion of our businesses.

Highlights Overall performance I would like to reflect on the key aspects that shaped our 2014 The Group recorded a 16% growth in total insurance premium financial performance and provide an overview of the overall from Kshs 12.7 billion to Shs 14.8 billion. Total income increased strategic direction that the group will take going forward. by 31% from Kshs 12.7 billion to Shs 16.7 billion. Profit before tax increased by 4% from Kshs 2.2 billion to Kshs 2.3 billion. We Global view of economic and continued to diversify our business in line with our strategy which business environment resulted in contribution from our Life Assurance, Property and Asset Management operations contributing 28% of our income up from Uneven global economic recovery as the shift in world economic 22% in 2013. power continues In 2014, mature economies continued to recover from the financial The Group’s total comprehensive income was Kshs 2.8 billion and economic crisis of 2008-2009. However, this recovery remained excluding gains of Shs 1.9 billion that arose from disposal of shares uneven with a number of setbacks. The US exceeded growth held by our non-life business. expectations while most other economies grew at a slower rate than previously assumed. Lower oil prices boosted the global The Group’s net assets increased from Kshs 14.7 billion to Kshs 17.1 economic growth but the positive effect of lower oil prices was off- billion and our total assets increased from Kshs 33.1 billion to Kshs set by stagnation in the Euro area and Japan, geopolitical events 42.1 billion as a result of the good financial performance during the such as the emergence of Islamic state and other security threats year. across the world, increased market volatility and lower investments. The global economy grew by 3.3%. Emerging Markets and Shareholding changes Developing Economies posted a higher growth rate (4.4%) than Two of our anchor shareholders, Centum Investment Company and Advanced Economies which grew at 1.8%. This trend is expected Dr Chris Kirubi sold their combined 23.3% stake in the company to continue into the future with China expected to replace the US to Old Mutual in January 2015. This sale was to enable Chris and as the world largest economy (by purchasing power parity) in 2015. Centum obtain funds for significant large scale projects that they On current trends, the aggregate purchasing power of the ‘E7’ are currently undertaking. Old Mutual has wishes to make a strategic emerging economies – Brazil, China, India, Indonesia, Mexico, Russia investment in UAP and has subsequent to the transaction entered and Turkey – will overtake that of the G7 by 2030. into an agreement with the 3 Private Equity funds which hold 37.3% of UAP Shares (Aureos, Africinvest and Swedfund) to purchase their shares which will increase Old Mutual’s share holding to 60%.

20 Kenya • Uganda • South Sudan • Rwanda • DR Congo • Tanzania UAP HOLDINGS LIMITED Annual Report & Financial Statements 2014

Chairman's Statement (Continued)

Your board of directors is of the view that this strategic investment All the new directors in the Group went through board induction by Old Mutual will add significant value to UAP staff, customers and programme designed to not only introduce them to UAP Group, shareholders in the following areas: but also provide them with necessary tools to better execute their corporate governance mandate. More details on the operations of • Our staff will now have opportunities to benefit from world the board is provided in the statement on corporate governance on class training offered by Old Mutual and also secondment page 35 opportunities to learn new skills in Old Mutual Operations around the world; Results and dividends • Our customers will benefit from increased technical The Group’s profit after tax and non-controlling interest is Kshs 1.7 capabilities as UAP will be able to draw on greater technical billion. The board recommends a final dividend of Kshs 1.70 per skills and experiences from other Old Mutual markets. Our share (2013: Kshs 1.7per share) amounting to Kshs 359 million (2012: customers will also benefit from a wider product offering Kshs 359 million). This is based on your board’s assessment that (including banking solutions from Old Mutual investee we need to continue providing a cash return to our shareholders companies) and a wider distribution network that will bring while retaining enough resources in the business to fund expected our services closer to our customers; and growth in order to maximize both present and future returns to • Our shareholders will benefit from co-investing with a our shareholders. Therefore, Kshs 1.3 billion will be retained in the partner who has significant technical capability and financial business for this purpose. resources to accelerate investments in new innovations, technology platforms and accelerated business expansion. Future prospects and strategy Our strategic partnership with Old Mutual provides significant I would like to take this opportunity to thank Chris and Centum for opportunities that were previously not available to UAP. In particular, their significant contribution to the growth of UAP from a Kenya this partnership will enable us increase the range and coverage based Insurance Company to a regional Financial Services Group. of our bancassurance products and services and also, following regulatory approvals cross sell our products to existing Old Mutual I am confident that our partnership with Old Mutual puts UAP in a insurance, investment management and banking customers. very strong position to take advantage of growth opportunities in African Markets whilst providing greater capabilities to respond to In order to fully take advantage of these opportunities, we will emerging competitive challenges. review our business model subsequent to regulatory approval of the shareholder transactions and re-align our business to fully take Governance and board performance advantage of these opportunities. This will be a priority project for Your board has continued to discharge its duties diligently with UAP. the support of the company’s subsidiary company boards. All the boards effectively carried out their board work plan for 2014 in We will also review our employee management processes to create accordance with the board charter and work plan for each board. additional global mobility and career development opportunities for our employees. This will enable our employees benefit from During the year, Sir Gordon Wavamunno retired from his position significant skills transfer and training opportunities available at Old as a UAP Holdings Limited board member to enable him focus on Mutual based on Old Mutual experience from their operations in his role as the Chairman of UAP Insurance Uganda. Our businesses markets outside Africa. This is a big step towards becoming a world in Uganda have grown significantly and we expect that closer focus class financial services operator. by Gordon will lead our business there to greater heights. Gordon was replaced by James Wambugu, the Managing Director for Lastly, we will jointly review our technology platforms and adopt UAP Insurance Kenya, on the Group Board. James has significant the best in class platforms to enable UAP offer world class customer experience in risk management and business strategy areas and his experience and create an even greater opportunity for innovative addition to the group board will add significant value to our various customer solutions. businesses. Appreciation I take this opportunity to thank Gordon for his significant I would like to thank our customers for giving us an opportunity to contribution and formally welcome James to the Group Board. serve them, our shareholders for their continued support, my fellow directors for their wise counsel and the Management and staff for their hard work that is taking the UAP Group forward.

Dr. JB Wanjui CBS Chairman 27 March 2015

Kenya • Uganda • South Sudan • Rwanda • DR Congo • Tanzania 21 UAP HOLDINGS LIMITED Annual Report & Financial Statements 2014

The Group recorded a 31% growth in total revenues on the back of strong growth in all our business units. Dominic Kiarie - Group Managing Director

22 Kenya • Uganda • South Sudan • Rwanda • DR Congo • Tanzania UAP HOLDINGS LIMITED Annual Report & Financial Statements 2014

Group Managing Director’s Report

It is my pleasure to present to you a review of the UAP Group’s performance and operations for the year ended 31 December 2014. 2014 was another monumental year in our Group’s history: • The Group’s total revenues increased by 31% to exceed Kshs 15 billion for the first time in the Group’s history; • Contribution from our businesses outside Kenya increased from 28% to 36% of total revenues; • Our Tanzania business which was acquired in 2013 broke even; and • Our Life Assurance business in Kenya’s market share improved from position 8 to position 7.

Financial Performance The group recorded a 31% growth in total revenues on the back of strong growth in all our business units. In particular: • Gross insurance premium revenue was up 16% to Kshs 14.8 billion from Kshs 12.7 billion. • Total income increased by 31% to Kshs 16.7 billion from Kshs 12.7 billion. • Profit before tax increased by 4% to Kshs 2.3 billion from Kshs 2.2 billion. This increase excludes Kshs 1.9 billion realised from sale of equity investments held by our general insurance businesses • Total assets were up 27% to Kshs 42.1 billion from Kshs 33.1 billion.

During the last 5 years, the Group has achieved a 26% Compounded Annual Growth Rate (CAGR) in gross insurance premium revenues, while total income grew at 31% CAGR over the same period. The growth in the Group’s revenues has been driven by focussed execution of growth strategies in our core insurance operations supported by business diversification to new geographies and new business units such as properties and investment management. I will detail these initiatives further in this report.

Outlined below are the key performance highlights:

Business Unit Performance

Total Total Compre Compre hensive hensive Revenues Revenues Income Income 2014 2013 Growth PBT 2014 PBT 2013 Growth 2014 2013 Growth (Kshs’M) (Kshs’M) % (Kshs’M) (Kshs’M) % (Kshs’M) (Kshs’M) % General Insurance 11,948 9,899 21% 1,449 1,441 1% 2,305 2,856 -19% Life Assurance 2,965 2,173 36% (275) 315 -187% (313) 360 -187% Property 1,177 573 105% 768 486 58% 482 349 38% Investment Management/other 598 96 523% 354 (30) 1280% 322 (23) 1500% Total 16,688 12,741 31% 2,296 2,212 4% 2,796 3,542 -21%

Performance Highlights by Geography

Total Total Compre Compre hensive hensive Revenues Revenues Income Income 2014 2013 Growth PBT 2014 PBT 2013 Growth 2014 2013 Growth (Kshs’M) (Kshs’M) % (Kshs’M) (Kshs’M) % (Kshs’M) (Kshs’M) % Kenya 10,751 9,167 17% 1,266 1,559 -19% 2,122 2,983 -29% Uganda 3,369 2,209 53% 710 637 11% 295 542 -46% South Sudan 1,538 996 54% 487 72 576% 525 66 695% Tanzania 775 299 159% 11 33 -67% 32 40 -20% Rwanda 255 70 264% (178) (89) -100% (178) (89) -100% Total 16,688 12,741 31% 2,296 2,212 4% 2,796 3,542 -21%

Kenya • Uganda • South Sudan • Rwanda • DR Congo • Tanzania 23 UAP HOLDINGS LIMITED Annual Report & Financial Statements 2014

Group Managing Director’s Report (Continued)

* Total comprehensive income excludes Kshs 1.9 billion gains this enhanced website will improve the level of customer realised on sale of equity investments held in our general convenience and availability of our solutions to our insurance portfolios which were transferred directly to customers across the region; retained earnings in accordance with the Group’s accounting • We commenced the implementation of a Customer Service policy. Index for all UAP business Units across all territories. This index will supplement the customer experience surveys Update on Strategy Implementation that we carry out in our various business units enable us track our customer experience on a more real-time basis; Business Growth and Expansion Initiatives • We improved the functionality of our Customer Relationship During the year, we focussed on consolidating our presence in the Management (CRM) technology to make it easier for our countries where we currently have operations and therefore did not staff and financial advisers to engage with our customers; enter new markets. We view this consolidation as an important step • We invested in a world class Investment Management in positioning our business for the next growth phase. We achieved System for our Investment Management business, UAP the following key milestones during the year: Investments. This system has unique capabilities such as e-statement generation which will improve our engagement with our customers. • Full integration of our Tanzania business which was acquired in 2013 to UAP’s ICT systems. This integration improved the Human Capital business monitoring and control activities and culminated We recognise that as a service business, the quality and commitment in the first full year break-even of our Tanzania business; of UAP staff is paramount to providing relevant and exceptional • Launch of Collective Investment Schemes (CIS) and service to our customers. We also recognise the importance of structured investment products by our Investment ensuring that the interests of our employees, shareholders and other Management Business in Kenya following approval by the stakeholders are properly aligned. With this in mind, the UAP Group Capital Markets Authority (CMA); Board recognised that in order to sustain a fast growing business, • Demerger of the Life Assurance operations in Uganda from we need to have in place a robust leadership pipeline. Towards this, UAP Insurance Uganda to a new subsidiary, UAP Life we achieved the following key initiatives in 2014: Assurance Uganda. This demerger will enable a dedicated management team and Board of Directors in our Uganda i) Launch of a Graduate Development Programme (GDP) in business focus on growing our Life business to market order to create a pool of talent to support the growth of the leadership position; business. The GDP Programme has been rolled out in all the • Commencement of Life Assurance operations in South 6 countries that we are currently operating in. Sudan as part of our Composite Insurance Business in that market. ii) Development of a Leadership training focussed on the business leaders for all UAP businesses focussing on key All our underlying business units in general insurance, life assurance, business leadership areas such as financial management property and investment management business units posted and people management. strong growth. Further details on each of these business units are set out in the segmental analysis section of my report. We also recruited additional management staff to strengthen key positions at both the Group and subsidiary company level, taking Customer Experience Initiatives into account the increased business complexity. We continue to focus on initiatives aimed at continuously improving our customer experience in line with the UAP mission of delivering Systems and Process Improvements peace of mind and financial freedom to our customers. During We continue to review regularly our internal business processes the year, we implemented the following key initiatives aimed at so as to run an efficient and effective business. Key areas of focus improving customer experience: in 2014 were the implementation of our core systems in new markets (Tanzania and Rwanda), the implementation of a new • We enhanced our web capability through the launch of system for pension business and the enhancement of our core an enhanced UAP website with not only e-Commerce Insurance and Financial Systems to improve processing efficiency. capability, but also other customer ‘self-service’ options We also enhanced our support infrastructure to improve regional including enabling our customers to track the progress connectivity and processing speeds. of their claims among other capabilities. We believe that

24 Kenya • Uganda • South Sudan • Rwanda • DR Congo • Tanzania UAP HOLDINGS LIMITED Annual Report & Financial Statements 2014

Group Managing Director’s Report (Continued)

Segmental Performance

General Insurance We continue to operate general (i.e. non-life) insurance business in Kenya, Uganda, South Sudan, Rwanda and Tanzania. Our General Insurance business unit, which also includes Medical Insurance business, accounts for 72% (2013: 78%) of our total income. UAP Insurance Kenya accounts for 59% (2013: 67%) of our general insurance gross insurance premium. Our General Insurance business grew by 12% in 2014 and has grown by a Compounded Annual Growth Rate (CAGR) of 24% in the last 5 years as set out below:

GENERAL INSURANCE PREMIUMS (KSHS M)

24% CAGR

1,5000 12,715 11,388 10,000 8,139 6,617 5,393 5000

0

2010 2011 2012 2013 2014 General Insurance Premiums (Kshs M)

During the year, we focussed on the integration and turn-around of our newly acquired business in Tanzania, implementation of the Group ICT platforms in Tanzania and Rwanda and the enhancement of management teams across the region.

The key performance highlights of our General Insurance business are set out below:

Gross Insurance Premium Revenue Underwriting Profit

2014 2013 % 2014 2013 % General insurance (Kshs’M) (Kshs’M) Growth (Kshs’M) (Kshs’M) Growth UAP Insurance Kenya 7,533 7,686 -2% 303 682 -56% UAP Insurance Uganda 2,438 1,895 29% 148 119 24% UAP Insurance South Sudan 1,183 1,009 17% 108 14 671% UAP Insurance Rwanda 359 138 160% (217) (142) -53% UAP Insurance Tanzania 1,202 591 103% (20) 20 -200% Total general insurance 12,715 11,318 12% 322 693 -54%

Notes: - Tanzania business results for 2013 were for 8 months following acquisition by UAP.

Life Insurance Life Insurance business is currently carried out in Kenya by UAP Life Assurance Kenya, in Uganda through UAP Life Assurance Uganda and in South Sudan through UAP Insurance South Sudan. In 2014, we concluded the demerger of our Life Assurance business in Uganda from UAP Insurance Uganda. Our Life Assurance business premiums grew by 49% with the individual life business recording a 64% growth compared to 59% for corporate business. The higher growth in Life Assurance business when compared with General Insurance is in line with our business diversification strategy.

Kenya • Uganda • South Sudan • Rwanda • DR Congo • Tanzania 25 UAP HOLDINGS LIMITED Annual Report & Financial Statements 2014

Group Managing Director’s Report (Continued)

Our Life Assurance business has grown by a CAGR of 49% in the last 5 years as shown below:

LIFE ASSURANCE PREMIUMS

49% CAGR

2,500 2,117 2,000

1,500 1,419

1,000 916 634 500 425

0

2010 2011 2012 2013 2014 Life Assurance Premiums (Kshs M)

Key achievements of the Life Assurance business in 2014 include the successful completion of the demerger process in Uganda and successful strengthening of our management teams across the region through the recruitment of highly talented teams. We expect this investment to contribute to significant business growth in the future.

Outlined below is the performance of the life insurance business:

Gross Premium Revenue Profit before tax

2014 2013 % 2014 2013 % Life Assurance (Kshs’M) (Kshs’M) Growth (Kshs’M) (Kshs’M) Growth UAP Life Kenya 1,706 1,171 46% (228) 329 -169% UAP Life Uganda 331 178 86% (28) (15) -87% UAP Insurance South Sudan 80 70 14% (19) - - Total Life Assurance 2,117 1,419 49% (275) 314 -188%

The Life Assurance business posted a loss in 2014 due to high increase in actuarial reserves caused by significant growth in new individual life and annuity businesses. However, the value of in-force business increased by over Kshs 100 million which indicates that the reserves increases will result in increases in future profitability.

Investment Management Investment Management business is carried out through UAP Investments in Kenya and UAP Financial Services in Uganda. UAP Investments Kenya commenced operations in 2013 and obtained CIS fund management licenses in 2014. In addition to managing UAP Group investment portfolios to enhance the returns, our Investment Management businesses also provide investment management and advisory services to third parties. In the short period since the launch of these businesses, they have made significant contribution to the management of the Group’s Investment portfolios resulting in market beating investment returns that have supplemented our underwriting results.

26 Kenya • Uganda • South Sudan • Rwanda • DR Congo • Tanzania UAP HOLDINGS LIMITED Annual Report & Financial Statements 2014

Group Managing Director’s Report (Continued)

Performance highlights- Investment Management:

Total Income Profit before tax

2014 2013 % 2014 2013 % (Kshs’M) (Kshs’M) Growth (Kshs’M) (Kshs’M) Growth UAP Investments- Kenya 90 12 650% (2) (35) 94% UAP Financial Services- Uganda 11 7 57% (35) (27) 30% Total Investment Management 101 19 432% (37) (62) 40%

Property Investments and Development Our Property business is carried out through UAP property companies in Kenya, Uganda and South Sudan. During the year, we focussed on letting space at UAP Nakawa Business Park and the completion of the 33-storey UAP Tower in Nairobi and the 15-storey UAP Equatoria Tower in Juba. The contribution of property to group profits increased from 22% in 2013 to 33% in 2014.

Total Income Profit before tax

2014 2013 % 2014 2013 % (Kshs’M) (Kshs’M) Growth (Kshs’M) (Kshs’M) Growth UAP Properties Uganda 868 511 70% 541 455 19% UAP Properties South Sudan 309 62 398% 227 31 632% Total 1,177 573 105% 768 486 58% Future Prospects and Strategic Initiatives We expect UAP businesses to take advantage of continued growth in the economies that we are currently operating in to post significant growth. In order to prepare the Group for this growth, we continue to invest in highly skilled management teams, robust business processing and distribution platforms and new product innovation initiatives.

The partnership between UAP and Old Mutual provides significant opportunities for the UAP Group to expand its customer base and product offering across various markets in Africa. It also accelerates the achievement of our pan-African strategy through ability to offer seamless service across various African markets. UAP will also be able to draw on experiences that Old Mutual has in markets outside Africa and, when combined with our local knowledge and expertise, will enable us develop innovative solutions for our customers.

We will continuously review our business structure and processes to ensure that we remain agile and efficient in order to continue offering excellent services to our customers. Appreciation I would like to thank all our staff for the support, commitment and effort made in achieving the performance. I also recognise and appreciate the Board’s input, guidance and wise counsel in running our business effectively. I would like to pay tribute to all our business partners including our intermediaries who continue to support us in a great way. We appreciate this and assure them of our best service at all times. I also wish to thank all our esteemed customers for the faith they have in the UAP brand and the support provided during the year. We look forward to meeting and exceeding all your expectations. Finally, I wish to appreciate and thank all our shareholders for their continued support to the growth of our businesses and assure them of our strong commitment to deliver outstanding value on their investment.

Dominic Kiarie Group Managing Director 27 March 2015

Kenya • Uganda • South Sudan • Rwanda • DR Congo • Tanzania 27 UAP HOLDINGS LIMITED Annual Report & Financial Statements 2014

Serenity of the Ndakaini Dam

28 Kenya • Uganda • South Sudan • Rwanda • DR Congo • Tanzania UAP HOLDINGS LIMITED Annual Report & Financial Statements 2014

Sustainability and CSR Report 2014

Our Approach Making Things Better • Education / Child Welfare UAP’s sustainability agenda and social obligation has been Transforming lives through education is a key objective at UAP, and driven by our promise to engender a Better. Simple. Life. for our as such, we provide long term education sponsorship for bright clients, employees, shareholders and the society at large through and needy children every year. The program supports a number sustainable corporate social responsibility practices. of children who are at various educational levels from primary to university. Health, Environment, Education/ Child Welfare and Sports continue to be the four thematic areas of focus through which we influence a Over and above sponsoring the students, some of the UAP staff visit better life for our stakeholders. the students in the schools and even participate in parent - teacher meetings. We also assign staff as mentors to the children to guide As a key player in the Financial Services sector, we continue to seek them through the academic journey and life at large. ways of enhancing our offering by embedding progressive solutions throughout the region. In order to give back to the community in a meaningful manner, we work with business and community partners to make the process very consultative and engage our staff Testimonials: in these endeavours. ‘I am pleased to inform you that Michael successfully completed secondary school education at the end of 2013. He obtained a Making Things Better • Health mean grade of B+ in the KCSE. On his behalf we are very grateful We go beyond offering health insurance services to our customers and the community by supporting various medical initiatives aimed to UAP for the great support that you offered to Michael. at improving the general livelihood of communities around the He has obtained avery good educational foundation and region. This we achieve through direct initiatives and by partnering has qualified to join university.’ with like-minded organizations to offer meaningful solutions to varied health care concerns including the support of medical Stephen Tabiro, Sponsorship Officer, Starehe Boys Centre (2014). camps, walks/runs, fund raisers and wellness clinics which have addressed such concerns as eye treatment, heart ailments, cancer, HIV and general wellness awareness.

These initiatives have directly benefitted over 10,000 people in Staff Training various ways such as receipt of medication, eye care, and counseling. We also believe investing in our work force better contributes to Children with congenital heart conditions receive funding through our business success and motivates our teams. We have therefore key umbrella institutions. We also engaged in the collective consistently offered training platforms that allow our employees mitigation of maternal deaths through our contribution to training access to practical programs both internally and externally. As of midwives and improvement of access to pre-natal care in urban a testament to our continued commitment in this regard, we and rural Kenya. recently rolled out an e-learning portal to enhance ease of access to generalist and specialist up-skilling programs. It is through this process of development of shared value that we take pride in what we do. Child Welfare Child Welfare is a key complementary support to education. In line with this, the UAP teams in Kenya, Uganda and South Sudan have identified with key children initiatives which include children’s homes and talent development centres to which they provide material and moral support to enable the upbringing of homeless Education is the most powerful children and nurturing of talent in disabled or disadvantaged children. weapon which you can use to change the world. Nelson Mandela

Kenya • Uganda • South Sudan • Rwanda • DR Congo • Tanzania 29 UAP HOLDINGS LIMITED Annual Report & Financial Statements 2014

Sustainability and CSR Report 2014 (Continued)

Enhancing Life • Environment Sustainable Supply of Clean Water UAP has been involved in the Ndakaini Dam conservation for the past 11 years. We saw a great opportunity to directly impact the lives of millions of people through the provision of clean water supply, while improving the water catchment in the area around the dam.

Geared towards attaining the restoration and care for the environment, our support of the Ndakaini conservation initiative has been driven through a very close collaborative working relationship with the community that is represented by the Ndakaini Dam Environment Conservation Association (NDEKA). The UAP Uganda team during a youth development program through sports Under this initiative, we have been able to drive tree planting Making Things Simple • Financial Literacy initiatives, as well as organize and execute the popular UAP Ndakaini UAP has championed initiatives aimed at creating financial Half Marathon to raise funds to support the conservation effort. awareness through its investments channels that have so far seen most communities and social groupings embrace the culture of • Why Ndakaini Dam? financial planning. By making it fun, interactive and delivering As the old adage goes “Water is Life”; the Ndakaini water reservoir, financial advice to the consumer in a practical and personalized built by the government, provides over 70% of the water manner, we have kept to our long term strategy of ensuring a decent consumed in Nairobi and its environs. By supporting this initiative, level of financial awareness for all our stakeholders. It’s through this we are able to directly impact the lives of millions of consumers objective that more partnerships have been realized and more and through the provision of fresh water. more customers have been empowered to make sound financial decisions and investments. Furthermore, the improvement of the water catchment within Ndakaini’s environs also enables us further impact positively the In order to build an early savings and investments culture fostered lives of Ndakaini residents who get a good supply of rainfall that is by understanding, we also kicked off training programs and essential in the agricultural area. partnership initiatives for the younger generation in collaboration with child-focused institutions. • Our Contribution UAP in conjunction with NDEKA have worked to go beyond conservation and have given rise to developing socio-economic enterprises associated with the dam and thereby promote Ndakaini as a ‘destination’. Coupled with the enhanced rainfall in the area, the socio-economic well-being of this region has advanced considerably.

Our long term tree planting target is to plant 250,000 trees around the reservoir. To this end, we plant tree seedlings with every rainy season, with the main tree planting drive taking place in April each year. Through the effort of our staff and various organizations that join hands to support the afforestation initiative, about 110,000 tree seedlings have now been planted around the dam.

• Our Ambition UAP and the conservation teams have their sights on a greater ambition to plant trees in the larger Mau region & into the School children enjoy some fun and games during an educational Aberdare ranges, as our commitment to sustainable wellness program at their school environmental conservation is clearly underpinned here.

30 Kenya • Uganda • South Sudan • Rwanda • DR Congo • Tanzania UAP HOLDINGS LIMITED Annual Report & Financial Statements 2014

Sustainability and CSR Report 2014 (Continued)

Fruit tree planting in Uganda at Ntinda School A snap shot of the area surrounding the dam, with much improved tree cover since the inception of the conservation initiative.

UAP employees and their families took part at the annual tree planting event UAP employees and their families took part at the annual tree planting event

We have extended the environmental conservation effort to the youth across the region, through our provision of well-funded and region through our various teams, and UAP Uganda has been at structured initiatives to nurture their talent. Our areas of support the forefront of tree planting. They took on the unique initiative of have included athletics, rugby and football, amongst others. planting 400 fruit trees at Ntinda School of the deaf in partnership with other local companies. The choice of fruit trees was informed Athletics by the fact that the trees would provide fruits for the children in due The UAP Ndakaini Half Marathon has also been an avenue of course as well as shade, whilst conserving the environment. developing Kenya’s athletics talent, and Athletics Kenya officially recognized it as a worthy course to conquer. It is one of the toughest Enhancing Life • Sports courses in the world, which makes it one of the courses most Kenyan With a good mix of business and sports, we build on our values of athletes competing globally desire to participate in. maintaining lifelong relationships and demonstrate our passion about our work even outside our business parameters, by not only Some of the renowned athletes who have participated in the UAP sponsoring sports, but also actively participating in the same. Ndakaini Half Marathon include the late Samuel Wanjiru, Catherine The sporting activities have seen the active involvement of the Ndereba, Abel Kirui, Sylvia Kibet and Faith Chepng’etich. youth which has thus enabled us have a positive social impact on the Kenya • Uganda • South Sudan • Rwanda • DR Congo • Tanzania 31 UAP HOLDINGS LIMITED Annual Report & Financial Statements 2014

Sustainability Corporate Social Responsibility (Continued)

The marathon has also continued to nurture sporting talent in the country, and also promote healthy living by espousing the need for healthy choices such as exercise and correct eating habits. These are promoted through the various marathon preparation sessions including aerobics, zumba, wellness clinics, just to mention a few.

Gladys Chesir, winner of the 21km women’s race at the 2014 event

The Cabinet Secretary for Environment, Water and Natural Resources, Prof Judy Wakhungu awards winners of the Men’s 21km race at the 2014 event. The Family Fun Run Rugby UAP Kifaru are the 2014 Bamburi Rugby Super Series champions! The franchise team of local university students clinched the 10th edition of the competition in a complete show of fun and commitment to their goal. By always supporting and encouraging the boys in their journey to achieving the fete by attending various matches, practice sessions and providing the requisite material support. UAP employees also shared in their joy and victory igniting true emotion and testimony of sporting bonds.

Participants at the 11th edition of the Half Marathon

The UAP Ndakaini Half Marathon course has seen participants increase from 297 in 2004 to over 3,000 in 2014, with well over 10,000 others gracing the event as spectators and well-wishers.

The marathon standards have also continued to improve and in 2014 we introduced the Radio-frequency identification (RFID) system in line with world class standards of managing events. RFID is the wireless use of electromagnetic fields to transfer data, for the purposes of automatically identifying and tracking tags – in this case there was a chip attached to runners vests to enable accurate recording of finishing times. UAP Kifaru, the 2014 Bamburi Rugby Super Series Champions celebrate their victory with UAP staff 32 Kenya • Uganda • South Sudan • Rwanda • DR Congo • Tanzania UAP HOLDINGS LIMITED Annual Report & Financial Statements 2014

Five Year Financial Highlights

2014 2013 2012 2011 2010 Kshs ‘000 Kshs ‘000 Kshs ‘000 Kshs ‘000 Kshs ‘000

Gross written insurance premium 14,832,735 12,737,286 9,054,770 7,253,140 5,818,851 Gross earned premium 14,158,444 11,559,860 8,462,797 6,602,606 5,374,107 Net earned premium 11,263,533 9,014,382 6,533,244 5,194,451 4,147,757 Investment and other income 5,424,470 3,726,954 2,957,379 1,558,619 1,467,755

Total income 16,688,003 12,741,336 9,490,623 6,753,070 5,615,512

Net claims and policy holder benefits payable (8,074,794) (5,754,811) (3,938,295) (2,926,773) (2,424,829) Commissions and other operating expenses (6,316,980) (4,774,785) (3,804,377) (2,614,602) (2,397,257) Share of loss of associate - - - (1,783) (3,572)

Profit before income tax 2,296,229 2,211,740 1,747,951 1,209,912 789,854 Income tax expense (629,042) (401,339) (366,920) (290,228) (110,979)

Profit after income tax 1,667,187 1,810,401 1,381,031 919,684 678,875 Non-controlling interests (181,211) (152,825) (99,025) (37,469) (150,602)

NET PROFIT ATTRIBUTABLE TO SHAREHOLDERS 1,485,976 1,657,576 1,282,006 882,215 528,273

Other comprehensive income/(loss) 1,128,625 1,730,955 735,900 (691,470) 531,304

Total comprehensive income / (loss) 2,795,812 3,541,356 2,116,931 228,214 1,210,179

Dividends 359,414 359,414 419,130 204,000 204,000 Total distributions 359,414 359,414 419,130 204,000 204,000

Total assets 42,083,725 33,109,989 24,657,973 14,510,400 12,419,344

Total equity 17,198,048 14,761,650 11,620,312 4,647,300 4,633,744

Kshs Kshs 16.7 % 42.1 BILLION 31 BILLION

The Group’s total The increase in Group’s The Group’s total income in 2014 total income in 2014 assets as at the end of 2014

Kenya • Uganda • South Sudan • Rwanda • DR Congo • Tanzania 33 UAP HOLDINGS LIMITED Annual Report & Financial Statements 2014

Five Year Financial Highlights

We see significant opportunities in the markets UAP operates in, and have Future invested in highly experienced management teams to enable UAP businesses Outlook design customer solutions that take advantage of these opportunities.

The Group’s profit before tax increased The Group’s insurance premium revenue by 4% to Kshs 2.3 billion. increased by 16% to Kshs 14.8 billion.

The Group’s total income increased by 31% to Total assets increased by 27% to Kshs 42.1 billion Kshs 16.7 billion on account of strong growth in revenues.

34 Kenya • Uganda • South Sudan • Rwanda • DR Congo • Tanzania UAP HOLDINGS LIMITED Annual Report & Financial Statements 2014

Corporate Governance Report for the Financial Year Ended 31 December 2014

In the year under review the Board of Directors focused on implementing the recommendations of the comprehensive corporate governance review carried out in the year ended 31 December 2013. The rationalization of the corporate governance structures and tools resulted in increased commitment to good corporate governance, strengthening of Board and Management accountability, increased shareholder value, interest by investors in the UAP Group and overall public confidence in the Group.

Board of Directors The UAP Groups’ management vests in its Board of Directors as prescribed in the Memorandum and Amended Articles of Association. The Board’s main objective is to establish and monitor the strategic direction for the Group; ensuring competent management of the business; establish and oversee adequate internal control systems; monitor compliance with laws and regulations and report performance to shareholders.

The composition of the Board in the year under review was targeted toward ensuring fair representation of all the major shareholders, as well as, optimization of the appropriate skill, experience, diversity and geographical mix to facilitate effective execution of its mandate. During the year under review, one (1) member of the Board retired and was replaced by an Executive Director. The composition of the Group Board was as follows:

NO. NAME OF BOARD MEMBER MEMBERSHIP NATIONALITY PROFESSION 1. Dr. Joseph Barrage Wanjui Chairman Kenyan Engineer/Entrepreneur 2. Dr. Christopher J. Kirubi* Non-Executive Member Kenyan Entrepreneur 3. Mr. James Muguiyi Non-Executive Member Kenyan Finance/Insurer 4. Mr. James Mworia* Non-Executive Member Kenyan Financial Analyst/Lawyer 5. Mr. Peter Njoka Non-Executive Member Kenyan Investment 6. Mr. Skander Oueslati Non-Executive Member Tunisian Engineer/Investment 7. Mr. Jonas Armtoft Non-Executive Member Swedish Lawyer 8. Mr. Lotfi Baccouche Independent, Non-Executive Member British Engineer/Insurer/Risk Management 9. Ms. Susan Omanga Independent, Non-Executive Member Kenyan Marketing 10. Ms. Susan Githuku Independent, Non-Executive Member Kenyan Human Resource 11. Mr. Dominic Kiarie Executive Member Kenyan Investment/Business 12. Mr. James Wambugu Executive Member Kenyan Audit and Risk Management 13. Mr. Davinder Sikand Alternate to Peter Njoka Kenyan Investment 14. Mr. George Odo Alternate to Skander Oueslati Kenyan Finance

The following changes took place in the period under review:

1) Prof. Gordon Wavamunno ceased to be a Non-executive Member of the Board by resignation on 12 July 2014. 2) Mr. James Wambugu was appointed an Executive Member of the Board on 28 August 2014.

*On 8th January 2015 UAP Holdings Limited (UAPHL) received a notification from Centum Investment Company Limited (“Centum”) and Dr. Christopher John Kirubi (“Dr. Kirubi”) that they have entered into an agreement with Old Mutual for the sale of their respective shares in UAPHL. Centum and Dr. Kirubi together held 23.33% of the issued shares of the company. Subsequently a notice of resignation was received from Dr. Kirubi and the representative of Centum on the Board of Directors (Mr. James Mworia) with effect from 27th January 2015.

Kenya • Uganda • South Sudan • Rwanda • DR Congo • Tanzania 35 UAP HOLDINGS LIMITED Annual Report & Financial Statements 2014

Corporate Governance Report for the Financial Year Ended 31 December 2014

Board Appointments Board Committees All directors have a fixed tenure of office and are required to retire at The Board has delegated its authority to the standing Board least every three years with a provision for re-election subject to a Committees to enable it effectively carry out its mandate. These favourable performance evaluation by the Board. Committees of the Board are listed below and each has its own Terms of Reference setting forth the purposes, goals and responsibilities of Board Charter the Committee as well as qualifications for committee membership, The Board Charter adopted by the Group defines the Board’s roles procedures for committee member appointment and removal, and responsibilities as well as functions and structures in a way committee structure, operations and it’s reporting to the Board. that supports the members in carrying out their strategic oversight During the period under review, the Board Committee membership function. Board Members have been made aware of their individual was as follows: and collective roles with the purpose of ensuring the Company maximizes long term value for all its stakeholders. (i) Finance & Investment Committee The Finance & Investments Committee has the responsibility to Key components of the Charter are as follows: oversee and advise the Board on: • Terms of Reference of the Board. a. the investment strategy framework of the Company’s • Independence of Directors. investment portfolios; • Authorities of the Board and its’ structure. • The Terms of Reference of the Chairman of the b. the current global investment portfolio allocations, Board and those of the Managing Director. including asset type and geographical location, and • Procedures for dealing with related party transactions. ensure these remain consistent with the Company’s • Board committees and their Terms of Reference. current strategy, risk framework and risk appetite; c. recommendation for major investment and divestiture Conflict of Interest proposals; Board Members are required to deal at arms-length in any matter d. the operational framework of the global investment that relates to the Group and to disclose any conflict of interest in portfolios of the Company, including the use of both relation to matters that are brought before them for deliberation. internal and external fund management resources; A director must refrain from discussion or voting on matters of e. the performance generated by the investment assets of potential conflict of interests. The Board has implemented strict the Company, both in absolute terms and relative to guidelines which require that all directors declare their interests benchmark targets; and a register of interests will be maintained by the Group Company f. proposed changes in investment strategy that would Secretary. Individual Board members are also required to declare lead to the disposition of the Company’s investment their interest before participating in board meetings and are portfolios that were outside the limits established by the excluded from deliberations in the case of any potential conflicts of Risk Committee; and interest. g. financing mechanisms and vehicles of the investment Separation of Role of Chairman portfolios of the Company. from Managing Director The Committee meets at least four (4) times a year or at such other The Group Chairman is responsible for managing the Board and times as the Chairman of the Committee shall require. providing leadership to the Group while the Group Managing During the period under review the Members of the Committee Director is responsible to the Board for strategically overseeing were: and managing the business units in the UAP Group in accordance with instructions given by the Board. The Group Managing Director 1. Mr. James Mworia (Chairman) directs the implementation of Board decisions and instructions and 2. Mr. Skander Oueslati the general management of the business units with the assistance 3. Mr. James Muguiyi of the chief executives and management teams. 4. Ms. Susan Omanga 5. Mr. Davinder Sikand 6. Mr. Dominic Kiarie 36 Kenya • Uganda • South Sudan • Rwanda • DR Congo • Tanzania UAP HOLDINGS LIMITED Annual Report & Financial Statements 2014

Corporate Governance Report for the Financial Year Ended 31 December 2014

(ii) Audit Committee The Committee meets at least four times a year or at such other The delegated role of the Committee is to assist the Board in the times as the Chairman of the Committee shall require. During the oversight of: period under review the Members of the Committee were: a. The integrity of the financial statements. 1. Mr. Lotfi Baccouche (Chairman) b. The auditor’s qualifications and independence. 2. Mr. Peter Njoka c. The performance of the Groups internal audit function and 3. Mr. George Odo the external auditors. 4. Mr. Philip Coulson d. The compliance by the Group with legal and regulatory 5. Mr. James Wambugu requirements. 6. Ms. Zipporah Mungai e. The effective management by the Group of financial and 7. Mr. Dominic Kiarie non-financial risks. f. Review the adequacy and effectiveness of UAP’s internal (iv) Nominations, Remuneration and Human Resource Committee control, financial controls and risk management systems; The delegated role of the Committee is to: g. Coordination with the Risk and Governance Committee of a. The regular review of the structure, size and composition the Board in relation to the governance of risk. (including the skills, knowledge, experience and diversity) of the Board, making recommendations to the Board with The Committee meets at least four times a year or at such other regard to any changes. times as the Chairman of the Committee shall require. During the b. The review of the leadership needs of the organisation, period under review the Members of the Committee were: both executive and non-executive, with a view to ensuring 1. Mr. George Odo (Chairman) the continued ability of the organisation to compete 2. Mr. Kamau Kuria effectively in the marketplace. 3. Mr. Lotfi Baccouche c. The regular review of the structure, size and composition of 4. Ms. Susan Omanga subsidiary boards, assessing the optimum mix of skills, knowledge, experience, diversity as well as local regulatory (iii) Risk and Governance Committee requirements. The Terms of Reference of the Committee are to oversee and advise d. Determining the high level policy for succession planning the Board on: within UAP Group, ensuring that UAP executives possess a. the Company’s overall risk appetite, tolerance, limits, and necessary skills and experience required to enable UAP to their alignment with the Company’s strategy; complete effectively in the market and deliver its strategic plan. b. identification and measurement of material risks requirements inherent in the Company’s strategy; e. Overseeing development and implementation of UAP’s strategy for being regarded as ethnically and gender c. systems of risk management, internal control and inclusive and consider setting specific targets in terms of compliance and their adequacy to identify assess, mitigate numbers, grades and gender in fulfilment of this objective. and reports risks; f. Approving the training and human capital development d. reviewing reports on any material breaches of risk limits strategy for UAP Group. and the adequacy of proposed action; g. Approving the UAP Policy on remuneration, benefits and e. reviewing the Company’s risk culture and management end of service payments for employees below the grade of initiatives to strengthen it; senior management. f. reviewing annually the Company’s Corporate Governance practices and policies, submitting a report to the Board on its findings which may include proposals for amendments; g. considering possible conflicts of interest between the Company’s Directors and UAP, including Directors’ related party transactions with UAP Group companies, and make relevant proposals to the Board. Kenya • Uganda • South Sudan • Rwanda • DR Congo • Tanzania 37 UAP HOLDINGS LIMITED Annual Report & Financial Statements 2014

Corporate Governance Report for the Financial Year Ended 31 December 2014

The Committee meets at least four (4) times a year or at such other Board Oversight times as the Chairman of the Committee shall require. During the The Board is responsible for the formulation, implementation and period under review the Members of the Committee were: monitoring of the Group’s Strategic Plan thus providing appropriate 1. Ms. Susan Githuku (Chairman) strategic direction for the Group. In the same vein, the Board defines

2. Dr. J. B Wanjui CBS the Vision, Mission and Core Values to enable realisation of the set 3. Mr. James Muguiyi strategic plan. 4. Mr. Peter Njoka The Board has delegated the day to day operations of the Group to 5. Mr. Jonas Armtoft the Management which is headed by the Group Managing Director. 6. Mr. Dominic Kiarie The Group’s business is therefore conducted in accordance with a 7. Mr. George Odo carefully formulated strategy, annual business plans and budgets which set out clear objectives. Roles and responsibilities have Board Meetings and Information to Directors been clearly defined with approved authority being delegated. Performance against the objectives is reviewed and discussed The Board meets at least once every quarter but the business may monthly and quarterly by the management teams in the Group. warrant the convening of special meetings from time to time. All Board meetings are scheduled in advance of the respective year The Managing Directors/General Managers and their respective through an Annual Calendar of Board Meetings including a rolling Management teams prepare annual business review report which calendar, which facilitates planning and availability of the members. is presented to the Group Board during its annual retreat for Board Committee meetings are scheduled in advance of the Board consideration and approval. Each subsidiary board is expected to Meeting so that all technical matters are appropriately addressed monitor the performance of each subsidiary. Consolidation of the and reported to the Board for ratification or approval. financial position is undertaken on a quarterly basis and presented to the Board. This way performance trends, forecasts as well as The directors are given appropriate and timely information on actual performance against budgets and prior periods are closely key activities of the business regularly and on request in order to monitored. carry out their roles. Specifically the directors are provided with all available information in respect of items to be discussed at The Board ensures that the Group espouses proper corporate a meeting of the Board or Committee prior to the meeting. They governance practices by confirming that the requisite codes of may also seek independent professional advice, at the Company’s conduct, procedures and practices are existent, relevant and expense, concerning the affairs of the Group in consultation with adhered to. The Board also achieves this by ensuring that the Group the Group Managing Director and the Group Company Secretary. complies with all the statutory requirements.

Board Attendance The Board is responsible for managing the Group’s risks and the During the Financial Year seven (7) Board Meetings and thirty one Board and Management have been trained on risk management. (31) Committee Meetings were held. A review of attendance to meetings by individual members during the period under review The Board recognises and honours its responsibility to its indicates that all members gave sufficient time and attention to the stakeholder and in this case Board Members are fully aware of affairs of the Board. The highest level of individual attendance was their responsibility to discharge their function in good faith, with 100% of eligible board meetings and the lowest level of attendance prudence, diligence and due care. was 25% of eligible meetings, with an average of 67.35% attendance across the membership. Performance and Evaluation The Board has put in place a performance evaluation system to The Board members gave prior notice of inability to attend and enable it set its objectives and review its performance annually gave meaningful input on the agenda items as appropriate. against these objectives. An evaluation exercise was conducted on Friday, 28th November 2014. The evaluation was conducted by an independent evaluator and the results communicated to the Board through the approved process.

38 Kenya • Uganda • South Sudan • Rwanda • DR Congo • Tanzania UAP HOLDINGS LIMITED Annual Report & Financial Statements 2014

Corporate Governance Report for the Financial Year Ended 31 December 2014

Board Development The Board continues to abide by its Charter, the internal codes of Board development programmes were carried out during the conduct, the Memorandum and Amended Articles of Association period under review in accordance with the needs identified and/ of the Company and the Terms of Reference of Board Committees. or analysed for each Member and for the Board as a whole. The The Group continues to comply with all the statutory requirements Board was developed in accordance with the Board induction and relevant to its operation as a body corporate and complies with development plan to address areas of improvement for individual relevant regulatory guidelines as issued from time to time. members and to provide up to date information on new areas of business and risk for the group including:- corporate governance Group Company Secretary training, risk management training as well as actuarial and solvency The Group Company Secretary co-ordinates the Board activities and computation training. ensures, in conjunction with the Chairman and Group Managing Director, that the Board meetings are held procedurally. The Board Remuneration Group Company Secretary links flow of information between the The Board is remunerated in accordance with the approved Board Management and the Board as well as ensures the Board receives Remuneration Policy which encompasses Directors Fees, Sitting adequate and timely information and that Management receives Allowance and Directors’ Medical Cover. feedback in a similar manner.

Statement of Compliance All Board Members have direct access to the Group Company Secretary who is also responsible for implementing and monitoring The Board is satisfied that the Group has, to the best of their good corporate governance practices at the Board. The Secretary knowledge, complied with all applicable laws and conducted its ensures that the business of the Board meets all statutory business affairs in accordance within the law. To the knowledge requirements, keeps all legal and regulatory requirements under of the Board no director, employee or agent of the Group acted review and briefs the Board accordingly about these developments. or committed any indictable offence under the Anti-Corruption laws in conducting the business of the Group nor been involved or In the year under review, the Group Company Secretary assisted by been used as a conduit for money laundering or any other activity the Deputy Group Company Secretary performed this function. incompatible with the relevant laws.

Kenya • Uganda • South Sudan • Rwanda • DR Congo • Tanzania 39 UAP HOLDINGS LIMITED Annual Report & Financial Statements 2014

Corporate Governance Report for the Financial Year Ended 31 December 2014

Shareholding At 31 December 2014, the top ten shareholders in the Company were:

No. of shares Holdings % 1 BAWAN LTD 43,258,299 20.46% 2 AFRICINVEST FUND II LLC 29,660,547 14.03% 3 CENTUM INVESTMENT COMPANY LTD 29,070,637 13.75% 4 AUREOS AFRICA FUND LLC 28,796,810 13.62% 5 KIRUBI CHRISTOPHER JOHN 20,261,808 9.58% 6 SWEDFUND INTERNATIONAL 14,901,179 7.05% 7 MUGUIYI JAMES NGATIA 12,611,247 5.97% 8 AFRICINVEST FINANCIAL SECTOR FUND LIMITED 5,561,353 2.63% 9 ESTATE OF THE LATE WILLIAM KIMUTAI MARTIN 3,495,480 1.65% 10 SMITH ANDREW STEPHEN GRAY 1,789,189 0.85%

The shareholders profile as at 31 December 2014 was as follows:

No. of share No. of holders shares Holdings % Shares Range 001 to 100,000 946 6,475,940 3.06% 100,001 to 1,000,000 36 11,317,481 5.35% Above 1,000,000 13 193,626,468 91.58% 995 211,419,889 100%

No. of share No. of holder shares Holdings % Individual investors Kenyan 816 50,614,007 23.94% East African 40 256,000 0.12% Foreign 14 90,400 0.04% 870 50,960,407 24.10% Corporate investors Kenyan 119 81,490,393 38.54% East African 2 49,200 0.02% Foreign 4 78,919,889 37.33% 125 160,459,482 75.90%

The directors’ direct and indirect interest in the ordinary share capital of the Company on 31 December 2014 was as follows:

No. of shares Holdings % 1 Dr JB Wanjui CBS 43,258,299 20.46% 2 Centum Investment Company Limited 29,660,547 14.03% 3 Dr. CJ Kirubi EBS 25,778,670 12.19% 4 JN Muguiyi 12,611,247 5.97% 5 Dominic Kiarie 112,500 0.05%

40 Kenya • Uganda • South Sudan • Rwanda • DR Congo • Tanzania UAP HOLDINGS LIMITED Annual Report & Financial Statements 2014

Annual General Meeting

NOTICE IS HEREBY GIVEN that the Seventh Annual General Meeting (b) In accordance with Article 99 of the Company’s Articles of of the shareholders of UAP Holdings Limited will be held on Friday, Association Mr. James Wambugu, appointed as a director to fill a 19th June 2015 at 10.00 a.m. at the Sarova Panafric Hotel, Nairobi to casual vacancy, retires by rotation at the dissolution of the meeting transact the following business: and being eligible, offers himself for re-election.

Ordinary Business Special Business 1. The Secretary to read the notice convening the meeting, table 7. Appointment of External Auditor the proxies and to confirm the presence of quorum. To consider the following Special Notice having been received under sections 142, 159 and 160 of the Companies’ Act (Cap. 2. Confirmation of Minutes 486 of the Laws of Kenya) and pass with or without modification To confirm the minutes of the Sixth Annual General Meeting the following as an ordinary resolution: held on 13th June 2014. “RESOLVED that KPMG East Africa Limited be appointed 3. Consideration of Reports Auditors of the Company, in place of the retiring Auditors To receive, consider and if thought fit, adopt the audited Messrs. PricewaterhouseCoopers, to hold office until the next Financial Statements for the year ended 31st December 2014 Annual General Meeting, and that the Directors are hereby and the Reports of the Chairman, Directors’ and Auditors’ authorized to fix their remuneration.” thereon. 8. To transact any other business which may be properly 4. Declaration of Dividend transacted at an annual general meeting and for which a valid To consider and if thought fit, adopt the recommendation to notice has been issued in accordance with the Articles of pay a final dividend of Kes 1.70/= for each ordinary share of Kes Association of the Company. 5/= on the issued share capital of the Company in respect of the year ended 31st December 2014. By order of the Board 5. Remuneration Report To approve the directors’ remuneration for the year ended 31st December 2014 as provided for in the Financial Statements. Nkirote Mworia Njiru 6. Election of Directors Secretary 20th May 2015 (a) In accordance with Article 101 of the Company’s Articles of Association and Section 186 (2) of the Companies Act (Cap 486):- Note: In accordance with Section 136(2) of the Companies Act (Cap. 486) (i) Mr. Peter Gichuru Njoka, retires by rotation at the every member entitled to vote at the above meeting is entitled to dissolution of the meeting and being eligible, offers appoint a proxy to attend and vote on his/her behalf. A proxy need himself for re-election in accordance with Article 103 of not be a member of the Company. the Company’s Articles of Association. A form of proxy is enclosed and should be returned to the Company (ii) Mr. Skander Khalil Oueslati, retires by rotation at the Secretary, P.O. Box 43013 – 00100, Nairobi, to arrive no later than 48 dissolution of the meeting and being eligible, hours before the meeting or any adjournment thereof. offers himself for re-election in accordance with Article 103 of the Company’s Articles of Association.

(iii) Mr. Lotfi Baccouche, retires by rotation at the dissolution of the meeting and being eligible, offers himself for re-election in accordance with Article 103 of the Company’s Articles of Association. Kenya • Uganda • South Sudan • Rwanda • DR Congo • Tanzania 41 UAP HOLDINGS LIMITED Annual Report & Financial Statements 2014

We engage with key stakeholders for business success 42 Kenya • Uganda • South Sudan • Rwanda • DR Congo • Tanzania UAP HOLDINGS LIMITED Annual Report & Financial Statements 2014

Directors’ report

The directors submit their report together with the audited financial Directors statements for the year ended 31 December 2014 which disclose the The directors of the Company, who held office to the date of this state of affairs of the Company and the Group. report, are:-

Principal activities Dr. JB Wanjui CBS The Group is engaged in the business of insurance, premium Chairman financing, investment management, insurance brokerage, property Mr.Dominic Kiarie and stock broking services. These activities are carried out through Group Managing Director the Group’s subsidiaries in Kenya, Uganda, Tanzania, Southern Sudan, Rwanda and Democratic Republic of Congo. These activities Dr. CJ Kirubi EBS – Resigned on 26 January 2015 are briefly described below: Sir. G Wavamunno – Resigned on 11 July 2014 Insurance business:- The Group has seven subsidiary undertakings that underwrite all classes of life and non-life insurance risks as Mr.JN Muguiyi defined by the Kenyan Insurance Act, other than industrial life insurance. They also issue investment contracts to provide their Mr.James Mworia – Resigned on 26 January 2015 customers with asset management solutions for their savings and retirement needs, and provide premium financing services. These Mr.Lotfi Baccoucche operations are carried out in Kenya, Uganda South Sudan and Rwanda. Mrs.Susan Omanga The Group also operates an insurance brokerage business in the Democratic Republic of Congo. Mrs.Susan Wakhungu Githuku Premium Financing: - One of the Group’s subsidiaries, UAP Credit Mr.Jonas Armtoft Services Limited, provides insurance premium financing services to the customers of the Group’s Kenyan insurance subsidiaries. Mr.Peter Gichuru Njoka (Alternate Davinder Sikand) Stock broking: - The Group has a subsidiary - UAP Financial Services Mr.Skander Oueslati Limited, a Ugandan based Company that provides stock broking (Alternate George Odo) services. Mr.James Wambungu – Appointed on 28 August 2014 Property: - The Group holds investment in three property companies

based In Kenya, Uganda and South Sudan.

2014 2013 Auditor Kshs ’000 Kshs ’000 The Company’s auditor, PricewaterhouseCoopers, has expressed Profit for the year 1,667,187 1,810,401 willingness to continue in office in accordance with Section 159(2) Profit attributable to of the Companies Act. shareholders of the company 1,485,976 1,657,576

By order of the Board During the year, no interim dividend was paid (2013: Nil). The directors recommend the payment of a final dividend of Kshs 359 million (2013: Kshs 359 million). …………………………

Nkirote Mworia Secretary 27 March 2015

Kenya • Uganda • South Sudan • Rwanda • DR Congo • Tanzania 43 UAP HOLDINGS LIMITED Annual Report & Financial Statements 2014

Statement of Directors’ Responsibilities

The Kenyan Companies Act requires the directors to prepare financial (ii) Selecting and applying appropriate accounting policies; statements for each financial year that give a true and fair view of (iii) Making accounting estimates and judgments that are the state of affairs of the group and company as at the end of the reasonable in the circumstances. financial year and of the group’s profit. It also requires the directors to ensure that the company maintains proper accounting records The directors are of the opinion that the financial statements that disclose, with reasonable accuracy, the financial position of the give a true and fair view of the financial position of the group and group. The directors are also responsible for safeguarding the assets company at 31 December 2014 and of the group and company’s of the group. financial performance and cash flows for the year then ended in accordance with International Financial Reporting Standards and The directors accept responsibility for the preparation and fair the requirements of the Kenyan Companies Act. presentation of financial statements that are free from material misstatements whether due to fraud or error. They also accept Nothing has come to the attention of the directors to indicate that responsibility for: the Company and its subsidiaries will not remain a going concern for at least twelve months from the date of this statement. (i) Designing, implementing and maintaining internal control as they determine necessary to enable the preparation of Approved by the board of directors on 27 March 2015 and signed financial statements that are free from material misstatements, on its behalf by: whether due to fraud or error.

………………………… ………………………… Dr JB Wanjui CBS Dominic Kiarie Chairman Group Managing Director

44 Kenya • Uganda • South Sudan • Rwanda • DR Congo • Tanzania UAP HOLDINGS LIMITED Annual Report & Financial Statements 2014

Report of The Independent Auditor to The Members of UAP Holdings Limited

Report on the financial statements In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of We have audited the accompanying consolidated financial the financial statements in order to design audit procedures that statements of UAP Holdings Limited (the ‘Company’) and its are appropriate in the circumstances, but not for the purpose of subsidiaries (together, the ‘Group’) set out on pages 46 to 113. expressing an opinion on the effectiveness of the entity’s internal These financial statements comprise the consolidated statement control. An audit also includes evaluating the appropriateness of of financial position at 31 December 2014 and the consolidated accounting policies used and the reasonableness of accounting statement of profit or loss, consolidated statements of other estimates made by the directors, as well as evaluating the overall comprehensive income, changes in equity and cash flows for the presentation of the financial statements. year then ended, together with the statement of financial position of the company standing alone at 31 December 2014, the statement We believe that the audit evidence we have obtained is sufficient of changes in equity of the company for the year then ended and a and appropriate to provide a basis for our opinion. summary of significant accounting policies and other explanatory notes. Opinion Directors’ responsibility for the In our opinion the accompanying financial statements give a true financial statements and fair view of the state of financial affairs of the group and of the company at 31 December 2014 and of the financial performance The directors are responsible for the preparation and fair and cash flows of the group for the year then ended in accordance presentation of these financial statements in accordance with with International Financial Reporting Standards and the Kenyan International Financial Reporting Standards and with the Companies Act. requirements of the Companies Act and for such internal control, as the directors determine necessary to enable the preparation of financial statements that are free from material misstatements, Report on other legal requirements whether due to fraud or error. As required by the Kenyan Companies Act, we report to you based on our audit, that: Auditor’s responsibility i) we have obtained all the information and explanations which to the best of our knowledge and belief were necessary for the Our responsibility is to express an opinion on the financial statements purposes of our audit; based on our audit. We conducted our audit in accordance with ii) in our opinion proper books of account have been kept by the International Standards on Auditing. Those standards require that company, so far as appears from our examination of we comply with ethical requirements and plan and perform our those books; audit to obtain reasonable assurance that the financial statements iii) the company’s statement of financial position and statement are free from material misstatement. of profit or loss are in agreement with the books of account. An audit involves performing procedures to obtain audit evidence The engagement partner responsible for the audit resulting in this about the amounts and disclosures in the financial statements. The independent auditor’s report is FCPA Richard Njoroge – P/No 1244. procedures selected depend on the auditor’s judgement, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error.

Certified Public Accountants 2nd April, 2015 Nairobi

PricewaterhouseCoopers CPA. PwC Tower, Waiyaki Way/Chiromo Road, Westlands P O Box 43963 – 00100 Nairobi, Kenya • T: +254 (20)285 5000 F: +254 (20)285 5001 • www.pwc.com/ke Partners: A Eriksson • K Muchiru • M Mugasa • F Muriu • P Ngahu • A Njeru • R Njoroge • B Okundi • K Saiti • R Shah Kenya • Uganda • South Sudan • Rwanda • DR Congo • Tanzania 45 UAP HOLDINGS LIMITED Annual Report & Financial Statements 2014

Consolidated Statement of Profit or Loss for the year ended 31 December

2014 2013 Notes Kshs’000 Kshs’000

Gross written premium 5 (b) 14,832,735 12,737,286

Gross earned premium 5 (b) 14,158,444 11,559,860 Reinsurance ceded (2,894,911) (2,545,478) Net earned premium 11,263,533 9,014,382

Investment income 6 4,603,772 2,863,255 Commissions earned 790,499 793,121 Other income 7 30,199 70,578 Total Income 16,688,003 12,741,336

Claims and policy owners’ benefits payable 8 (9,071,155) (6,628,059) Less: Amount recoverable from reinsurers 996,361 873,248 Net claims payable (8,074,794) (5,754,811) Operating and other expenses 9 (4,375,071) (3,259,358) Commissions payable (1,648,599) (1,454,086) Total expenses & commissions (6,023,670) (4,713,444) Finance costs 36 (a) (293,310) (61,341) Profit before tax 2,296,229 2,211,740 Income tax expense 11 (629,042) (401,339)

Profit for the year (of which Kshs 905,142,000 (2013: Kshs 341,080,000) has been dealt with in the accounts of the company) 1,667,187 1,810,401

Profit attributable to: Owners of the parent 1,485,976 1,657,576 Non-controlling interest 181,211 152,825 Profit for the year 1,667,187 1,810,401

Basic and diluted EPS 12 7.03 7.84

The notes on pages 54 to 113 are an integral part of these financial statements.

46 Kenya • Uganda • South Sudan • Rwanda • DR Congo • Tanzania UAP HOLDINGS LIMITED Annual Report & Financial Statements 2014

Consolidated Statement of Other Comprehensive Income for the year ended 31 December

2014 2013 Notes Kshs’000 Kshs’000

Profit for the year 1,667,187 1,810,401

Other comprehensive income Items that will be recycled to profit or loss Exchange differences on translating foreign operations (35,418) 56,970 Total items that will be recycled to profit or loss (35,418) 56,970 Items that will not be recycled to profit or loss Gains on revaluation of equity investments: Listed ordinary shares 24 1,111,897 1,752,990 Unlisted ordinary shares 24 1,337 (304) Remeasurement of retirement benefit obligations 50,809 (78,701) Total items that will not be recycled to profit or loss 1,164,043 1,673,985

Total other comprehensive income for the year, net of tax 1,128,625 1,730,955

Total comprehensive income for the year 2,795,812 3,541,356

Total comprehensive income attributable to: Owners of the parent 2,640,935 3,357,627 Non-controlling interests 154,877 183,729

Total 2,795,812 3,541,356

The notes on pages 54 to 113 are an integral part of these financial statements.

Kenya • Uganda • South Sudan • Rwanda • DR Congo • Tanzania 47 UAP HOLDINGS LIMITED Annual Report & Financial Statements 2014

Consolidated Statement of Financial Position as at 31 December

2014 2013 CAPITAL EMPLOYED Notes Kshs’000 Kshs’000 Share capital 13 1,057,099 1,057,099 Share premium 13 4,612,626 4,612,626 Fair value reserve for equity investments 14 2,254,205 3,061,717 Retained earnings 15 7,646,416 4,646,298 Proposed dividend 16 359,414 359,414 Translation reserve (132,272) (127,088) Statutory reserve 17 346,011 294,392 Shareholders’ funds 16,143,499 13,904,458 Non-controlling Interest 1,054,549 857,192 Total equity 17,198,048 14,761,650 REPRESENTED BY: Assets Goodwill 18 240,030 240,030 Property and equipment 19 (a) 436,361 358,455 Intangible assets 20 (a) 112,987 179,592 Investment properties 21 (a) 15,122,307 11,412,346 Deferred income tax asset 22 83,640 133,202 Retirement benefit asset 23 285,918 184,927 Equity investment at fair value through other comprehensive income 24 (a) 3,734,740 4,140,484 Equity investment at fair value through profit or loss 24 (b) 2,353,888 1,366,024 Mortgage loans receivable 26 255,437 228,307 Current income tax recoverable 11 113,477 27,614 Reinsurers’ share of insurance liabilities 27 2,509,829 2,230,060 Deferred acquisition cost 28 428,748 323,527 Receivables arising out of direct insurance arrangements 2,486,192 2,317,694 Receivables arising out of reinsurance arrangements 706,371 472,759 Other receivables 29 (a) 1,550,187 1,165,599 Corporate bonds 1,588,613 449,025 Government securities 30 5,875,753 4,566,442 Deposits with financial institutions 31 3,173,707 1,972,751 Cash and bank balances 31 1,025,540 1,341,151 Total assets 42,083,725 33,109,989 Liabilities Deferred income tax liability 22 720,786 380,015 Insurance contract liabilities 32 7,720,435 5,267,880 Payable under deposit administration contracts 33 3,633,021 2,812,089 Unit-linked investment contracts 34 1,040,828 923,296 Borrowings 36 (a) 3,981,001 2,079,719 Provision for unearned premium 37 5,364,573 4,775,498 Current income tax payable 11 42,063 75,777 Creditors arising from reinsurance arrangements 884,799 1,079,659 Other payables 38 (a) 1,498,171 954,406 Total liabilities 24,885,677 18,348,339

Net Assets 17,198,048 14,761,650 The notes on pages 54 to 113 are an integral part of these financial statements. The financial statements on pages 46 to 113 were approved for issue by the board of directors on 27 March 2015 and signed on its behalf by:

Dr JB Wanjui CBS (Chairman) Dominic Kiarie (Group Managing Director)

48 Kenya • Uganda • South Sudan • Rwanda • DR Congo • Tanzania UAP HOLDINGS LIMITED Annual Report & Financial Statements 2014

Company Statement of Financial Position as at 31 December

Notes 2014 2013 Kshs’000 Kshs’000

CAPITAL EMPLOYED Share capital 13 1,057,099 1,057,099 Share premium 13 4,612,626 4,612,626 Retained earnings 756,137 210,409 Proposed Dividend 16 359,414 359,414 Total equity 6,785,276 6,239,548

REPRESENTED BY: Assets Property and equipment 19 (b) 91,423 79,684 Intangible assets 20 (b) 61,936 131,087 Investment properties 21 (b) 3,635,242 2,275,274 Investment in subsidiaries 25 3,199,099 2,912,417 Amounts due from subsidiaries 43 2,186,511 1,617,577 Other receivables 29 (b) 696,711 275,887 Deposits with financial institutions 1,248,062 703,325 Cash and bank balances 16,862 5,219 Total assets 11,135,846 8,000,470

Liabilities

Borrowings 36 (b) 2,078,647 - Amounts due to subsidiaries 43 1,991,496 1,608,870 Other payables 38 (b) 280,427 152,052

Total liabilities 4,350,570 1,760,922

Net Assets 6,785,276 6,239,548

The notes on pages 54 to 113 are an integral part of these financial statements.

Kenya • Uganda • South Sudan • Rwanda • DR Congo • Tanzania 49 UAP HOLDINGS LIMITED Annual Report & Financial Statements 2014

Consolidated Statement of Changes in Equity

For the year ended 31 December 2013

Attributable to owners of the parent Share Capital & Non- Share Fair value Retained Proposed Translation Statutory controlling Total premium Reserves Earnings Dividends Reserves Reserve Total Interest Equity Notes Kshs’000 Kshs’000 Kshs’000 Kshs’000 Kshs’000 Kshs’000 Kshs’000 Kshs’000 Kshs’000 Balance at 1 January 2013 as previously reported 5,669,725 1,367,361 3,647,353 317,130 (166,105) 136,563 10,972,027 605,324 11,577,351 Prior year adjustment Re-measurement of retirement benefit obligations - - 42,961 - - - 42,961 - 42,961 As restated on 1 January 2013 5,669,725 1,367,361 3,690,314 317,130 (166,105) 136,563 11,014,988 605,324 11,620,312 Profit for the year - - 1,657,576 - - - 1,657,576 152,825 1,810,401 Other comprehensive income Re-measurement of retirement benefit obligations - - (78,701) - - - (78,701) - (78,701) Gains/(losses) on revaluation of equity investments: Quoted ordinary shares 24 (c) - 1,740,039 - - - - 1,740,039 12,951 1,752,990 Unquoted ordinary shares 24 (c) - (304) - - - - (304) - (304) Transfer of realised gains on sale of shares - (45,379) 45,379 ------Currency translation differences - - - - 39,017 - 39,017 17,953 56,970 Total other comprehensive income for the year - 1,694,356 (33,322) - 39,017 - 1,700,051 30,904 1,730,955 Total comprehensive income for the year - 1,694,356 1,624,254 - 39,017 - 3,357,627 183,729 3,541,356 Transfer to statutory reserve 17 - - (181,093) - - 157,829 (23,264) 23,264 - Transactions with owners Non-controlling interest acquired in the year - - (127,763) - - - (127,763) 58,408 (69,355) 2012 Dividend paid 16 - - - (317,130) - - (317,130) (13,533) (330,663) 2013 Final dividend proposed 16 - - (359,414) 359,414 - - - - - Total transactions with owners - - (487,177) 42,284 - - (444,893) 44,875 (400,018)

Balance at 31 December 2013 5,669,725 3,061,717 4,646,298 359,414 (127,088) 294,392 13,904,458 857,192 14,761,650

The notes on pages 54 to 113 are an integral part of these financial statements.

Kenya • Uganda • South Sudan • Rwanda • DR Congo • Tanzania 50 UAP HOLDINGS LIMITED Annual Report & Financial Statements 2014

Consolidated Statement of Changes in Equity (continued)

For the year ended 31 December 2014

Attributable to owners of the parent

Share Capital & Non- Share Fair value Retained Proposed Translation Statutory controlling Total premium Reserves Earnings Dividends Reserves Reserve Total Interest Equity Notes Kshs’000 Kshs’000 Kshs’000 Kshs’000 Kshs’000 Kshs’000 Kshs’000 Kshs’000 Kshs’000 Balance at 1 January 2014 5,669,725 3,061,717 4,646,298 359,414 (127,088) 294,392 13,904,458 857,192 14,761,650 Profit for the year - - 1,485,976 - - - 1,485,976 181,211 1,667,187 Other comprehensive income Re-measurement of retirement benefit obligations - - 50,809 - - - 50,809 - 50,809 Gains/(losses) on revaluation of equity investments: - - Quoted ordinary shares 24 (c) - 1,107,997 - - - - 1,107,997 3,900 1,111,897 Unquoted ordinary shares 24 (c) - 1,337 - - - - 1,337 - 1,337 Transfer of realised gains on sale of shares - (1,916,846) 1,916,846 ------Currency translation differences - - - - (5,184) - (5,184) (30,234) (35,418) Total other comprehensive income for the year - (807,512) 1,967,655 - (5,184) - 1,154,959 (26,334) 1,128,625 Total comprehensive income for the year - (807,512) 3,453,631 - (5,184) - 2,640,935 154,877 2,795,812 Transfer to statutory reserve 17 - - (94,099) - - 51,619 (42,480) 42,480 - Transactions with owners 2013 Dividend paid 16 - - - (359,414) - - (359,414) (359,414) 2014 Final dividend proposed 16 - - (359,414) 359,414 - - - - - Total transactions with owners - - (359,414) - - - (359,414) - (359,414)

Balance at 31 December 2014 5,669,725 2,254,205 7,646,416 359,414 (132,272) 346,011 16,143,499 1,054,549 17,198,048

The notes on pages 54 to 113 are an integral part of these financial statements.

Kenya • Uganda • South Sudan • Rwanda • DR Congo • Tanzania 51 UAP HOLDINGS LIMITED Annual Report & Financial Statements 2014

Company Statement of Changes in Equity for the year ended 31 December 2014

Share Capital & Share Retained Proposed premium Earnings Dividends Total Notes Kshs’000 Kshs’000 Kshs’000 Kshs’000

Balance at 1 January 2013 5,669,725 228,743 317,130 6,215,598 Profit for the year - 341,080 - 341,080 Other comprehensive income - - - - Total comprehensive income for the year - 341,080 - 341,080 Transactions with owners 2012 Dividend paid 16 - - (317,130) (317,130) 2013 Final dividend proposed 16 - (359,414) 359,414 - Total transactions with owners - (359,414) 42,284 (317,130) Balance at 31 December 2013 5,669,725 210,409 359,414 6,239,548

Balance at 1 January 2014 5,669,725 210,409 359,414 6,239,548 Profit for the year - 905,142 - 905,142 Other comprehensive income - - - - Total comprehensive income for the year - 905,142 - 905,142 Transactions with owners 2013 Dividend paid 16 - - (359,414) (359,414) 2014 Final dividend proposed 16 - (359,414) 359,414 - Total transactions with owners - (359,414) - (359,414) Balance at 31 December 2014 5,669,725 756,137 359,414 6,785,276

The notes on pages 54 to 113 are an integral part of these financial statements.

52 Kenya • Uganda • South Sudan • Rwanda • DR Congo • Tanzania UAP HOLDINGS LIMITED Annual Report & Financial Statements 2014

Consolidated Statement of Cash Flows for the year ended 31 December

2014 2013 Notes Kshs’000 Kshs’000 Cash flow from operating activities Cash generated from operations 39 1,290,811 1,879,697 Tax paid 11 (371,270) (253,611) Net cash generated from operating activities 919,541 1,626,086 Cash flow from investing activities Purchase of property and equipment 19 (a) (212,763) (271,639) Purchase of intangible assets 20 (a) (49,066) (73,816) Net purchase of government securities (1,176,179) (1,747,121) Purchase of equity investments 24 (2,138,982) (430,626) Net purchase of corporate bonds (1,084,377) (26,250) Additions to investment properties 21 (1,350,067) (1,949,069) Mortgage loans advanced 26 (110,784) (94,929) Mortgage loans repaid 26 85,236 14,036 Proceeds from sale of equity investments 24 3,036,057 648,943 Rent, interest and dividends received 1,714,173 1,250,039 Net cash used in investing activities (1,286,752) (2,680,432) Cash flow from financing activities Dividends paid 16 (359,414) (317,130) Proceeds from borrowings 36 (a) 1,938,326 1,095,767 Repayments on loan and interest costs on borrowings 36 (a) (301,231) (254,114) Net cash generated from / (used in) financing activities 1,277,681 524,523

Increase in cash and cash equivalents 910,470 (529,823) Movement in cash and cash equivalents At 1 January 3,386,123 3,915,946 Increase during the year 910,470 (529,823) At 31 December 31 4,296,593 3,386,123

The notes on pages 54 to 113 are an integral part of these financial statements.

Kenya • Uganda • South Sudan • Rwanda • DR Congo • Tanzania 53 UAP HOLDINGS LIMITED Annual Report & Financial Statements 2014

Notes to The Financial Statements

1 General information participants at the measurement date. When measuring the fair value of an asset or a liability, the The Company is incorporated in Kenya under the Companies company uses market observable data as far as possible. If the Act as a limited liability company, and is domiciled in Kenya. fair value of an asset or a liability is not directly observable, it The address of its registered office is Bishops Garden Towers, is estimated by the company using valuation techniques that Bishops Road, P.O. Box 43013 - 00100 Nairobi. maximise the use of relevant observable inputs and minimise the use of unobservable inputs (e.g. by use of the market The Company has seven subsidiary companies that operate comparable approach that reflects recent transaction prices as insurance companies and one subsidiary company, UAP for similar items or discounted cash flow analysis). Inputs used Credit Services Limited that provides insurance premiums are consistent with the characteristics of the asset / liability financing services. The Company also holds investments in that market participants would take into account. three property holding Companies in Kenya, Uganda and South Sudan. Four of the Company’s insurance subsidiaries Fair values are categorised into three levels of fair value are short term (“general”) insurance companies, two are long hieracrchy based on the degree to which the inputs to the term (“life”) insurance companies and one is a composite measurements are observable and the significance of the insurance company selling both general and life insurance. inputs to the fair value measurement in its entirety. Long term business comprises life assurance business, deposit See note 4 (e). administration business and investment contracts. Life assurance business relates to the underwriting of risks relating (b) Use of estimates to death of an insured person, and includes contracts subject to the payment of premiums for a term dependent on the The preparation of financial statements in conformity with termination or continuance of the life of an insured person. IFRS requires the use of certain critical accounting estimates. Short term (general) insurance business relates to all other It also requires management to exercise its judgment in the categories of short term insurance business, analysed into process of applying the group’s accounting policies. The several sub-classes of business based on the nature of the areas involving a higher degree of judgment or complexity, or assumed risks. UAP Credit Services Limited provides premium areas where assumptions and estimates are significant to the financing services to policyholders of the Group’s Kenyan consolidated financial statements are disclosed in note 3. insurance companies. The Group also holds an investment in UAP Financial Services Limited, a Ugandan based Company Changes to standards and new interpretations that provides stock broking services. UAP Properties (Kenya) effective in 2014 Limited; UAP Properties (Uganda) Limited and UAP Properties (South Sudan) Limited are property holding companies for New and amended standards adopted by the Group UAP Tower, Nakawa Business Park and Equatoria Towers which The standards overleaf have been adopted by the Group for are located in Nairobi, Kampala and South Sudan respectively. the first time for the financial year beginning on 1 January 2014 and none has a material impact on the Group. 2 Summary of significant accounting policies The principal accounting policies adopted in the preparation Amendment to IAS 32, ‘Financial instruments: Presentation’ of these financial statements are set out below. These policies on offsetting financial assets and financial liabilities. This have been consistently applied to all years presented, unless amendment clarifies that the right of set-off must not be otherwise stated. contingent on a future event. It must also be legally enforceable for all counterparties in the normal course of business, as (a) Basis of preparation well as in the event of default, insolvency or bankruptcy. The amendment also considers settlement mechanisms. The The financial statements are prepared in compliance with amendment does not have a significant effect on the Group’s International Financial Reporting Standards (IFRS). financial statements. (a) Basis of measurement Amendments to IAS 36, ‘Impairment of assets’, on the The measurement basis used is the historical cost basis except recoverable amount disclosures for non-financial assets. This where otherwise stated in the accounting policies below. amendment removed certain disclosures of the recoverable For those assets and liabilities measured at fair value, fair value amount of CGUs which had been included in IAS 36 by the is the price that would be received to sell an asset or paid to issue of IFRS 13. transfer a liability in an orderly transaction between market

54 Kenya • Uganda • South Sudan • Rwanda • DR Congo • Tanzania UAP HOLDINGS LIMITED Annual Report & Financial Statements 2014

Notes to The Financial Statements (Continued)

2 Summary of significant accounting policies present changes in fair value in OCI not recycling. There is now (continued) a new expected credit losses model that replaces the incurred loss impairment model used in IAS 39. For financial liabilities (a) Basis of preparation (continued) there were no changes to classification and measurement except for the recognition of changes in own credit risk in New and amended standards adopted by the Group (continued) other comprehensive income, for liabilities designated at fair value through profit or loss. IFRS 9 relaxes the requirements Amendment to IAS 39, ‘Financial instruments: Recognition for hedge effectiveness by replacing the bright line hedge and measurement’ on the novation of derivatives and the effectiveness tests. It requires an economic relationship continuation of hedge accounting. This amendment considers between the hedged item and hedging instrument and for the legislative changes to ‘over-the-counter’ derivatives and ‘hedged ratio’ to be the same as the one management actually the establishment of central counterparties. Under IAS 39 use for risk management purposes. Contemporaneous novation of derivatives to central counterparties would result documentation is still required but is different to that currently in discontinuance of hedge accounting. The amendment prepared under IAS 39. The standard is effective for accounting provides relief from discontinuing hedge accounting when periods beginning on or after 1 January 2018. Early adoption is novation of a hedging instrument meets specified criteria. The permitted. In 2009, the Group early adopted IFRS 9 provisions amendment has no significant impact on the Group’s financial relating to the classification and measurement of financial statements as a result. assets. In 2010, IFRS 9 provisions relating to the classification and measurement of financial liabilities were released and IFRIC 21, ‘Levies’ , sets out the accounting for an obligation to early adopted by the Group. The Group has not yet adopted pay a levy if that liability is within the scope of IAS 37 ‘Provisions’ the full version issued in 2014. . The interpretation addresses what the obligating event is that gives rise to pay a levy and when a liability should be There are no other IFRSs or IFRIC interpretations that are not recognised. The Group is not currently subjected to significant yet effective that would be expected to have a material impact levies so the impact on the Group is not material. on the Group.

Other standards, amendments and interpretations which are effective for the financial year beginning on 1 January 2014 are (b) Insurance contracts not material to the Group. Classification New standards and interpretations not yet adopted The Group issues contracts that transfer insurance risk. Insurance contracts are those contracts that transfer A number of new standards and amendments to standards significant insurance risk. As a general guideline, the group and interpretations are effective for annual periods beginning defines as significant insurance risk, the possibility of having to after 1 January 2014, and have not been applied in preparing pay benefits on the occurrence of an insured event that are at these financial statements. None of these is expected to have least 10% more than the benefits payable if the insured event a significant effect on the financial statements of the Group did not occur. except the following set out below:

Insurance contracts are classified into two main categories, IFRS 9, ‘Financial instruments’, addresses the classification, depending on the duration of risk and as per the provisions measurement and recognition of financial assets and financial of the Insurance Act: long term insurance business and short liabilities. The complete version of IFRS 9 was issued in July term insurance business. 2014. It replaces the guidance in IAS 39 that relates to the classification and measurement of financial instruments. i Long term insurance business IFRS 9 retains but simplifies the mixed measurement model and establishes three primary measurement categories for Includes business of all or any of the following classes, financial assets: amortised cost, fair value through OCI and namely; group life business, ordinary life business, deposit fair value through P/L. The basis of classification depends on administration business and unit linked business. the entity’s business model and the contractual cash flow characteristics of the financial asset. Investments in equity instruments are required to be measured at fair value through profit or loss with the irrevocable option at inception to

Kenya • Uganda • South Sudan • Rwanda • DR Congo • Tanzania 55 UAP HOLDINGS LIMITED Annual Report & Financial Statements 2014

Notes to The Financial Statements (Continued)

2 Summary of significant accounting policies to some other class of insurance business against loss or (continued) damage to property due to fire, explosion, storm and other occurrences customarily included among the risks insured (b) Insurance contracts (continued) against in the fire insurance business.

i Long term insurance business (continued) Recognition and measurement Life insurance business means the business of, or in relation i Premium income to, the issuing of, or the undertaking of liability to pay money on death (not being death by accident or in specified sickness For long term insurance business, premiums are recognised as only) or on the happening of any contingency dependent on revenue when they become payable by the contract holder. the termination or continuance of human life (either with or Premiums are shown before deduction of commission. without provision for a benefit under a continuous disability For short term insurance business, premium income is insurance contract), and include a contract which is subject recognised on assumption of risks, and includes estimates of to the payment of premiums for term dependent on the premiums due but not yet received less unearned premium. termination or continuance of human life and any contract Unearned premiums represent the proportion of the premiums securing the grant of an annuity for a term dependent upon written in periods up to the accounting date that relates to the human life. unexpired terms of policies in force at the financial reporting date, and is computed using the 365ths method. Premiums Superannuation business means life assurance business, are shown before deduction of commission and are gross of being business of, or in relation to, the issuing of or the any taxes or duties levied on premiums. undertaking of the liability under superannuation, group life and permanent health insurance policy. ii Claims For long term insurance business, benefits are recorded as an ii Short term insurance business expense when they are incurred. Claims arising on maturing Means insurance business of any class or classes not being long policies are recognised when the claim becomes due for term insurance business. Classes of general insurance include payment. Death claims are accounted for on notification. aviation insurance, engineering insurance, fire insurance - Surrenders are accounted for on payment. domestic risks, fire insurance - industrial and commercial risks, liability insurance, marine insurance, motor insurance-private For short term insurance business, claims incurred comprise vehicles, motor insurance - commercial vehicles, personal claims paid in the year and changes in the provision for accident insurance, theft insurance, workmen’s compensation outstanding claims. Claims paid represent all payments made and employer’s liability insurance and miscellaneous insurance during the year, whether arising from events during that or (i.e. class of business not included under those listed above) earlier years. Outstanding claims represent the estimated ultimate cost of settling all claims arising from incidents Motor insurance business means the business of affecting and occurring prior to the financial reporting date, but not settled carrying out contracts of insurance against loss of, or damage at that date. Outstanding claims are computed on the basis of to, or arising out of or in connection with the use of, motor the best information available at the time the records for the vehicles, inclusive of third party risks but exclusive of transit year are closed, and include provisions for claims incurred but risks. not reported (“IBNR”). Outstanding claims are not discounted.

Personal accident insurance business means the business iii Commissions payable and deferred acquisition of affecting and carrying out contracts of insurance against costs (“DAC”) risks of the persons insured sustaining injury as the result of Commissions payable are based on the premium written and an accident or of an accident of a specified class or dying as are recorded as an expense in the period in which they are the result of an accident or of an accident of a specified class incurred. or becoming incapacitated in consequence of disease or of disease of a specified class. A proportion of commissions payable is deferred and amortised over the period in which the related premium is Fire insurance business means the business of affecting and earned. Deferred acquisition costs represent a proportion of carrying out contracts of insurance, otherwise than incidental acquisition costs that relate to policies that are in force at the period end. 56 Kenya • Uganda • South Sudan • Rwanda • DR Congo • Tanzania UAP HOLDINGS LIMITED Annual Report & Financial Statements 2014

Notes to The Financial Statements (Continued)

2 Summary of significant accounting policies vi Receivables and payables related to insurance contracts (continued) and investment contracts Receivables and payables are recognised when due. These (b) Insurance contracts (continued) include amounts due to and from agents, brokers and insurance contract holders. Recognition and measurement (continued) If there is objective evidence that the insurance receivable iv Liability adequacy test is impaired, the Group reduces the carrying amount of At each financial reporting date, liability adequacy tests are the insurance receivable accordingly and recognises that performed to ensure the adequacy of the insurance contract impairment loss in the income statement. The Group gathers liabilities net of related DAC. In performing these tests, current the objective evidence that an insurance receivable is impaired best estimates of future contractual cash flows and claims using the same process adopted for financial assets classified handling and administration expenses, as well as investment at amortised cost. The impairment loss is also calculated income from the assets backing such liabilities, are used. Any under the same method used for these financial assets. These deficiency is immediately charged to profit or loss. processes are described under Note 2 (j).

v Reinsurance contracts held vii Salvage and subrogation reimbursements Contracts entered into by the Group with reinsurers under Some insurance contracts permit the Group to sell (usually which the Group is compensated for losses on one or more damaged) property acquired in settling a claim (for example, contracts issued by the Group and that meet the classification salvage). The Group may also have the right to pursue requirements for insurance contracts are classified as third parties for payment of some or all costs (for example, reinsurance contracts held. Contracts that do not meet these subrogation). Estimates of salvage recoveries are included as classification requirements are classified as financial assets. an allowance in the measurement of the insurance liability Insurance contracts entered into by the Group under which for claims, and salvage property is recognised in other assets the contract holder is another insurer (inwards reinsurance) when the liability is settled. The allowance is the amount that are included with insurance contracts. can reasonably be recovered from the disposal of the property.

The benefits to which the Group is entitled under its reinsurance Subrogation reimbursements are also considered as an contracts held are recognised as reinsurance assets. These allowance in the measurement of the insurance liability for assets consist of short-term balances due from reinsurers, claims and are recognised in other assets when the liability is as well as longer term receivables that are dependent on settled. The allowance is the assessment of the amount that the expected claims and benefits arising under the related can be recovered from the action against the liable third party. reinsured insurance contracts. Amounts recoverable from or due to reinsurers are measured consistently with the amounts (c) Revenue recognition associated with the reinsured insurance contracts and in accordance with the terms of each reinsurance contract. i Insurance premium revenue Reinsurance liabilities are primarily premiums payable for The revenue recognition policy relating to insurance contracts reinsurance contracts and are recognised as an expense when is set out under note 2 (b) above. due. ii Commissions The Group assesses its reinsurance assets for impairment Commissions receivable are recognised as income in the on a quarterly basis. If there is objective evidence that the period in which they are earned. reinsurance asset is impaired, the Group reduces the carrying amount of the reinsurance asset to its recoverable amount and iii Interest income recognises that impairment loss in profit or loss. The Group Interest income is recognised on a time proportion basis that gathers the objective evidence that a reinsurance asset is takes into account the effective yield on the asset. When a impaired using the same process adopted for financial assets receivable is impaired, the Group reduces the carrying amount held at amortised cost. The impairment loss is also calculated to its recoverable amount, being the estimated future cash following the same method used for these financial assets. flow discounted at the original effective interest rate of the These processes are set out under Note 2(j) instrument, and continues unwinding the discount as interest

income. Kenya • Uganda • South Sudan • Rwanda • DR Congo • Tanzania 57 UAP HOLDINGS LIMITED Annual Report & Financial Statements 2014

Notes to The Financial Statements (Continued)

2 Summary of significant accounting policies The fair value of financial liabilities for investment contracts (continued) without fixed terms is determined using the current unit values in which the contractual benefits are denominated. (c) Revenue recognition (continued) These unit values reflect the fair values of the financial assets contained within the Group’s unitised investment funds linked iv Dividend income to the financial liability. The fair value of the financial liabilities is obtained by multiplying the number of units attributed to Dividends are recognised as income in the period in which the each contract holder at the financial reporting date by the unit right to receive payment is established. value for the same date. v Rental income For investment contracts with fixed and guaranteed terms, Rental income is recognised as income in the period in which the amortised cost basis is used. In this case, the liability is it is earned. All investment income is stated net of investment initially measured at its fair value less transaction costs that expenses. are incremental and directly attributable to the acquisition or issue of the contract. vi Fee income Fee income consists primarily of administration fees arising Subsequent measurement of investment contracts at from services rendered in relation to the issue and management amortised cost uses the effective interest method. This method of deposit administration and investment contracts. Fees are requires the determination of an interest rate (the effective recognised in the accounting period in which the services are interest rate) that exactly discounts to the net carrying amount rendered and are presented in the income statement within of the financial liability, the estimated future cash payments or ‘other income’. receipts through the expected life of the financial instrument or, when appropriate, a shorter period if the holder has the (d) Investment contracts option to redeem the instrument earlier than maturity. The Group issues investment contracts without fixed terms (unit-linked) and investment contracts with fixed The Group re-estimates at each reporting date the expected and guaranteed terms (fixed interest rate). The investment future cash flows and recalculates the carrying amount of the contracts include funds administered for a number of financial liability by computing the present value of estimated retirement benefit schemes. future cash flows using the financial liability’s original effective interest rate. Any adjustment is immediately recognised as Investment contracts without fixed terms are financial income or expense in the income statement. liabilities whose fair value is dependent on the fair value of underlying financial assets, and are designated at inception as (e) Property and equipment at fair value through profit or loss. The Group designates these All categories of property and equipment are initially investment contracts to be measured at fair value through recorded at cost and subsequently stated at historical cost profit or loss because it eliminates or significantly reduces less depreciation. Historical cost includes expenditure that is a measurement or recognition inconsistency (sometimes directly attributable to the acquisition of the items. referred to as ‘an accounting mismatch’) that would otherwise arise from measuring assets or liabilities or recognising the Subsequent costs are included in the asset’s carrying amount gains and losses on them on different bases. or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the The best evidence of the fair value of these financial liabilities item will flow to the Group and the cost of the item can be at initial recognition is the transaction price (i.e. the fair value measured reliably. All other repairs and maintenance costs are received) unless the fair value of that instrument is evidenced charged to the income statement during the financial period by comparison with other observable current market in which they are incurred. transactions in the same instrument or based on a valuation technique whose variables include only data from observable markets. When such evidence exists, the Group recognises profit at inception.

58 Kenya • Uganda • South Sudan • Rwanda • DR Congo • Tanzania UAP HOLDINGS LIMITED Annual Report & Financial Statements 2014

Notes to The Financial Statements (Continued)

2 Summary of significant accounting policies - It is technically feasible to complete the software product (continued) so that it will be available for use; - Management intends to complete the software product (e) Property and equipment (continued) and use or sell it; - There is an ability to use or sell the software product; Depreciation is calculated using the straight line method - It can be demonstrated how the software product will to write down their cost to their residual values over their generate probable future economic benefits; estimated useful lives, as follows: - Adequate technical, financial and other resources to complete the development and use or sell it are - Motor vehicles – 5 years available; and, - Computers & computer equipment – 3 years - The expenditure attributable to the software product - Office equipment – 5 years during its development can be reliably measured. - Furniture & fittings – 8 years

Direct costs include the software development, employee The assets’ residual values and useful lives are reviewed, and costs and an appropriate portion of relevant overheads. Other adjusted if appropriate, at each financial reporting date. development expediture that do not meet these criteria are An asset’s carrying amount is written down immediately to its recognised as an expense as incurred. Development costs estimated recoverable amount if the asset’s carrying amount that have been expensed are not recognised as an asset in a is greater than its estimated recoverable amount. Gains and subsequent period. losses on disposal of property and equipment are determined by comparing proceeds with carrying amount and are Computer software development costs recognised as assets included in the income statement. are amortised over their estimated useful lives (not exceeding

(f) Investment properties three years). Costs associated with maintaining computer software programmes are recognised as an expense as Buildings, or part of a building, (freehold or held under a incurred. finance lease) and land (freehold or held under an operating lease) held for long term rental yields and/or capital (h) Impairment of non-financial assets appreciation and are not occupied by the Group are classified Assets that have an indefinite useful life are not subject to as investment property under non-current assets. Investment amortisation and are tested annually for impairment. Assets property is carried at fair value, representing open market that are subject to amortisation are reviewed for impairment value determined annually by external valuers. Properties whenever events or changes in circumstances indicate that under construction and development sites with projected use the carrying amount may not be recoverable. An impairment as Investment properties are valued at projected fair values loss is recognised for the amount by which the asset’s carrying taking into account current market conditions, outstanding amount exceeds its recoverable amount. The recoverable investment costs and a risk loading according to the progress amount is the higher of an asset’s fair value less costs to sell and of the project. Changes in fair values are included in investment value in use. For the purposes of assessing impairment, assets income in the income statement. are grouped at the lowest levels for which there are separately (g) Intangible assets identifiable cash flows (cash-generating units). Non-financial assets other than goodwill that suffered an impairment are The Group’s intangible assets relate to computer software and reviewed for possible reversal of the impairment at each goodwill (note 2(r)). reporting date.

Acquired computer software licences are capitalised on (i) Financial assets the basis of the costs incurred to acquire and bring to use the specific software. These costs are amortised over their Classification and measurement estimated useful lives of three years. The Group classifies its financial assets as subsequently measured at either amortised cost or fair value on the basis of Development costs that are directly associated with the both the Group’s business model for managing the financial production of identifiable and unique software products assets and the contractual cash flow characteristics of the controlled by the Group, and that will probably generate financial asset. A financial asset is measured at amortised cost economic benefits exceeding costs beyond one year, are if both of the following conditions are met: recognised as intangible assets if:- Kenya • Uganda • South Sudan • Rwanda • DR Congo • Tanzania 59 UAP HOLDINGS LIMITED Annual Report & Financial Statements 2014

Notes to The Financial Statements (Continued)

2 Summary of significant accounting policies (j) Impairment of financial assets (continued) Assets carried at amortised cost: (i) Financial assets (continued) The Group assesses at each financial reporting date whether there is objective evidence that a financial asset or a group Classification and measurement (continued) of financial assets measured at amortised cost is impaired. a. the asset is held within a business model whose A financial asset or a group of financial assets is impaired objective is to hold assets in order to collect and impairment losses are incurred only if there is objective contractual cash flows. evidence of impairment as a result of one or more events that occurred after initial recognition of the asset (a ‘loss event’) b. the contractual terms of the financial asset give rise on specified dates to cash flows that are solely and that loss event (or events) has an impact on the estimated payments of principal and interest on the principal future cash flows of the financial asset or group of financial amount outstanding. assets that can be reliably estimated. Objective evidence that a financial asset or group of assets is The Group’s corporate bonds, government securities, impaired includes observable data that comes to the attention receivables, mortgage loans, cash at bank and deposits with of the Group about the following loss events: financial institutions are classified at amortised cost. The carrying values of various categories of Financial asset and a. significant financial difficulty of the borrower; Financial liabilities are shown in note 42. b. a breach of contract, such as default or delinquency All financial assets that do not meet the above criteria are in interest or principal repayments; measured at fair value. Equity investments for life c. the Group granting to the borrower, for economic business are classified at fair value through profit or loss. or legal reasons relating to the borrower’s financial Equity investment for non life business are classified at fair difficulty, a concession that the Group would not value through other comprehensive income (note 24). otherwise consider;

Recognition and de-recognition d. it becoming probable that the borrower will enter Financial assets are recognised when the Group becomes bankruptcy or other financial reorganisation; a party to the contractual provisions of the asset. Initial recognition of financial asset is at fair value plus, for all financial e. the disappearance of an active market for that assets except those carried at fair value through profit or loss, financial asset because of financial difficulties; or transaction costs. Financial assets are derecognised when f. observable data indicating that there is a measurable the rights to receive cash flows from the financial assets have decrease in the estimated future cash flows from a expired or where the Group has transferred substantially all group of financial assets since the initial recognition risks and rewards of ownership. of those assets, although the decrease cannot yet be identified with the individual financial assets in Equity investments are carried at fair value. Gains and losses the Group, including: arising from changes in the fair value of equity investments are recognised in other comprehensive income. When - adverse changes in the payment status equity investments are derecognised, the cumulative gain or of borrowers in the Group; or loss previously recognised in other comprehensive income - national or local economic conditions that are transferred to retained earnings. Dividends on equity correlate with defaults on the assets in instruments are recognised in the income statement when the the Group Group’s right to receive payment is established. The estimated period between a loss occurring and its Fair values of quoted investments in active markets are based identification is determined by management for each on current bid prices. Fair values for unlisted equity securities identified portfolio. are estimated using valuation techniques. These include the use of recent arm’s length transactions, discounted cash flow The Group first assesses whether objective evidence of analysis and other valuation techniques commonly used by impairment exists individually for financial assets that are market participants. individually significant, and individually or collectively for

60 Kenya • Uganda • South Sudan • Rwanda • DR Congo • Tanzania UAP HOLDINGS LIMITED Annual Report & Financial Statements 2014

Notes to The Financial Statements (Continued)

2 Summary of significant accounting policies experience is adjusted on the basis of current observable data (continued) to reflect the effects of current conditions that did not affect the period on which the historical loss experience is based and (j) Impairment of financial assets (continued) to remove the effects of conditions in the historical period that do not exist currently. financial assets that are not individually significant. If the Group determines that no objective evidence of impairment When a loan is uncollectible, it is written off against the related exists for an individually assessed financial asset, whether provision for loan impairment. Such loans are written off significant or not, it includes the asset in a group of financial after all the necessary procedures have been completed and assets with similar credit risk characteristics and collectively the amount of the loss has been determined. Subsequent assesses them for impairment. Assets that are individually recoveries of amounts previously written off decrease the assessed for impairment and for which an impairment loss is amount of the provision for loan impairment in the income or continues to be recognised are not included in a collective statement. assessment of impairment.

If, in a subsequent period, the amount of the impairment loss If there is objective evidence that an impairment loss on decreases and the decrease can be related objectively to an financial assets carried at amortised cost has been incurred, event occurring after the impairment was recognised (such as the amount of the loss is measured as the difference between an improvement in the debtor’s credit rating), the previously recognised impairment loss is reversed by adjusting the the asset’s carrying amount and the present value of estimated allowance account. The amount of the reversal is recognised future cash flows (excluding future credit losses that have in the income statement. not been incurred) discounted at the financial instrument’s original effective interest rate. The carrying amount of the Loans that are either subject to collective impairment asset is reduced through the use of an allowance account assessment or individually significant and whose terms and the amount of the loss is recognised in the income have been renegotiated are no longer considered to be past statement. If a loan has a variable interest rate, the discount due but are treated as new loans. In subsequent years, the rate for measuring any impairment loss is the current effective renegotiated terms apply in determining whether the asset is interest rate determined under the contract. As a practical considered to be past due. expedient, the Group may measure impairment on the basis of an instrument’s fair value using an observable market price. (k) Accounting for leases The calculation of the present value of the estimated future Leases of property and equipment where the Group assumes cash flows of a collateralised financial asset reflects the cash substantially all the risks and rewards of ownership are flows that may result from foreclosure less costs for obtaining classified as finance leases. and selling the collateral, whether or not foreclosure is probable. Assets acquired under finance leases are capitalised at the inception of the lease at the lower of their fair value and the For the purposes of a collective evaluation of impairment, estimated present value of the underlying lease payments. financial assets are grouped on the basis of similar credit risk Each lease payment is allocated between the liability and characteristics (i.e. on the basis of the Group’s grading process finance charges so as to achieve a constant rate on the finance that considers asset type, industry, geographical location, balance outstanding. The corresponding rental obligations, collateral type, past-due status and other relevant factors). net of finance charges, are included in non-current liabilities. Those characteristics are relevant to the estimation of future The interest element of the finance charge is charged to cash flows for groups of such assets by being indicative of the income statement over the lease period. Property and the debtors’ ability to pay all amounts due according to the equipment acquired under finance leases is depreciated over contractual terms of the assets being evaluated. the estimated useful life of the asset.

Future cash flows in a group of financial assets that are Leases in which a significant portion of the risks and rewards of collectively evaluated for impairment are estimated on the ownership are retained by the lessor are classified as operating basis of the contractual cash flows of the assets in the Group leases. Payments made under operating leases are charged to and historical loss experience for assets with credit risk the income statement on a straight-line basis over the period characteristics similar to those in the Group. Historical loss of the lease.

Kenya • Uganda • South Sudan • Rwanda • DR Congo • Tanzania 61 UAP HOLDINGS LIMITED Annual Report & Financial Statements 2014

Notes to The Financial Statements (Continued)

2 Summary of significant accounting policies (n) Current and deferred income tax (continued) The tax expense for the period comprises current and deferred income tax. Tax is recognised in the profit or loss (l) Cash and cash equivalents except to the extent that it relates to items recognised in Cash and cash equivalents includes cash in hand, deposits held other comprehensive income or directly in equity. In this case, at call with banks, other short term highly liquid investments the tax is also recognised in other comprehensive income or with original maturities of three months or less, and bank directly in equity, respectively. overdrafts. The current income tax charge is calculated on the basis of (m) Employee benefits the tax enacted or substantively enacted at the reporting date. Management periodically evaluates positions taken in i Retirement benefit obligations tax returns with respect to situations in which applicable tax The Group operates a defined benefit scheme for employees. regulation is subject to interpretation. It establishes provisions A defined benefit plan is a pension plan that defines an where appropriate on the basis of amounts expected to be amount of pension benefit that an employee will receive on paid to the tax authorities. retirement, usually dependent on one or more factors such Deferred income tax is recognised, using the liability method, i Retirement benefit obligations (continued) on temporary differences arising between the tax bases of as age, years of service and compensation d an amount of assets and liabilities and their carrying values in the financial pension benefit that an employee will receive on retirement, statements. However, if the deferred tax liabilities are not usually dependent on one or more factors such as age, years recognised if they arise from the initial recognition of goodwill; of service and compensation. deferred income tax is not accounted for if it arises from initial recognition of an asset or liability in a transaction other than The liability recognised in the statement of financial position a business combination that at the time of the transaction in respect of defined benefit pension plans is the present value affects neither accounting nor taxable profit or loss. Deferred of the defined benefit obligation at the end of the reporting income tax is determined using tax rates and laws that have period less the fair value of plan assets. The defined benefit been enacted or substantively enacted at the reporting date obligation is calculated annually by independent actuaries and are expected to apply when the related deferred income using the projected unit credit method. The present value of tax liability is settled. the defined benefit obligation is determined by discounting the estimated future cash outflows using interest rates of Deferred income tax assets are recognised only to the extent government bonds that are denominated in the currency that it is probable that future taxable profits will be available in which the benefits will be paid, and that have terms to against which the temporary differences can be utilised. maturity approximating to the terms of the related pension Deferred income tax is provided on temporary differences obligation. arising on investments in subsidiaries and associates, except

Actuarial gains and losses arising from experience adjustments where the timing of the reversal of the temporary difference is and changes in actuarial assumptions are charged or credited controlled by the Group and it is probable that the temporary to equity in other comprehensive income in the period in which difference will not reverse in the foreseeable future. they arise. Past-service costs are recognised immediately in income. Deferred income tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets ii Other entitlements against current tax liabilities and when the deferred income Employee entitlements to long service awards are recognised taxes assets and liabilities relate to income taxes levied by the when they accrue to employees. A provision is made for the same taxation authority on either the same taxable entity or estimated liability for such entitlements as a result of services different taxable entities where there is an intention to settle rendered by employees up to the financial reporting date. the balances on a net basis.

The estimated monetary liability for employees’ accrued annual leave entitlement at the financial reporting date is recognised as an expense accrual. 62 Kenya • Uganda • South Sudan • Rwanda • DR Congo • Tanzania UAP HOLDINGS LIMITED Annual Report & Financial Statements 2014

Notes to The Financial Statements (Continued)

2 Summary of significant accounting policies (ii) income and expenses for each income statement amount (continued) are translated at average exchange rates (unless this average is not a reasonable approximation of the (o) Functional currency and translation of foreign cumulative effect of the rates prevailing on the transaction dates, in which case income and expenses are translated currencies at the dates of the transactions); and

i Functional and presentation currency (iii) all resulting exchange differences are recognised in other Items included in the financial statements of each of the comprehensive income. Group’s entities are measured using the currency of the primary economic environment in which the entity operates Goodwill and fair value adjustments arising on the acquisition (‘the functional currency’). The consolidated financial of a foreign entity are treated as assets and liabilities of the statements are presented in ‘Kenyan Shillings (Kshs), which is foreign entity and translated at the closing rate. Exchange the Group’s presentation currency. differences arising are recognised in equity.

ii Transactions and balances (p) Dividends Foreign currency transactions are translated into the Dividends payable to the Group’s shareholders are charged functional currency using exchange rates prevailing at the to equity in the period in which they are declared. Proposed dates of the transactions or valuation where items are re- dividends are shown as a separate component of equity until measured. Foreign exchange gains and losses resulting from declared. the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities (q) Consolidation denominated in foreign currencies are recognised in profit or loss. (i) Subsidiaries Subsidiaries are all entities (including structured entities) Foreign exchange gains and losses that relate to borrowings over which the group has control. The group controls an and cash and cash equivalents are presented in profit or loss entity when the group is exposed to, or has rights to variable within ‘finance income or cost’. All other foreign exchange returns from its involvement with the entity and has the ability gains and losses are presented in profit or loss within ‘other to affect those returns through its power over the entity. income’ or ‘other expenses’. Subsidiaries are fully consolidated from the date on which control is transferred to the group. They are deconsolidated Translation differences related to changes in amortised cost from the date that control ceases. are recognised in profit or loss, and other changes in carrying amount are recognised in other comprehensive income. The group applies the acquisition method to account for business combinations. The consideration transferred for Translation differences on non-monetary financial assets and the acquisition of a subsidiary is the fair values of the assets liabilities, such as equities held at fair value through profit or transferred, the liabilities incurred to the former owners of the loss, are recognised in profit or loss as part of the fair value acquiree and the equity interests issued by the group. gain or loss. Translation differences on non-monetary financial assets, such as equities classified as available-for-sale financial The consideration transferred includes the fair value of any assets, are included in other comprehensive income. asset or liability resulting from a contingent consideration arrangement. Identifiable assets acquired and liabilities and iii Group balances contingent liabilities assumed in a business combination The results and financial position of all the Group entities are measured initially at their fair values at the acquisition (none of which has the currency of a hyperinflationary date. The group recognises any non-controlling interest in economy) that have a functional currency different from the the acquiree on an acquisition-by-acquisition basis, either at presentation currency are translated into the presentation fair value or at the non-controlling interest’s proportionate currency as follows: share of the recognised amounts of acquiree’s identifiable net assets. (i) assets and liabilities for each statement of financial position presented are translated at the closing rate at the end of the reporting period; Kenya • Uganda • South Sudan • Rwanda • DR Congo • Tanzania 63 UAP HOLDINGS LIMITED Annual Report & Financial Statements 2014

Notes to The Financial Statements (Continued)

2 Summary of significant accounting policies (iii) Disposal of subsidiaries (continued) When the group ceases to have control any retained interest in the entity is remeasured to its fair value at the date when (q) Consolidation (continued) control is lost, with the change in carrying amount recognised in profit or loss. The fair value is the initial carrying amount (i) Subsidiaries (continued) for the purposes of subsequently accounting for the retained If the business combination is achieved in stages, the interest as an associate, joint venture or financial asset. acquisition date carrying value of the acquirer’s previously In addition, any amounts previously recognised in other held equity interest in the acquiree is re-measured to fair value comprehensive income in respect of that entity are accounted at the acquisition date; any gains or losses arising from such for as if the group had directly disposed of the related assets or re-measurement are recognised in profit or loss. liabilities. This may mean that amounts previously recognised in other comprehensive income are reclassified to profit or Any contingent consideration to be transferred by the group loss. is recognised at fair value at the acquisition date. Subsequent changes to the fair value of the contingent consideration (iv) Associates that is deemed to be an asset or liability is recognised in Associates are all entities over which the group has significant accordance with IAS 39 either in profit or loss or as a change to influence but not control, generally accompanying a other comprehensive income. Contingent consideration that shareholding of between 20% and 50% of the voting rights. is classified as equity is not re-measured, and its subsequent Investments in associates are accounted for using the equity settlement is accounted for within equity. method of accounting. Under the equity method, the investment is initially recognised at cost, and the carrying The excess of the consideration transferred the amount of any amount is increased or decreased to recognise the investor’s non-controlling interest in the acquiree and the acquisition- share of the profit or loss of the investee after the date of date fair value of any previous equity interest in the acquiree acquisition. The group’s investment in associates includes over the fair value of the identifiable net assets acquired is goodwill identified on acquisition. recorded as goodwill. If the total of consideration transferred, non-controlling interest recognised and eviously held interest If the ownership interest in an associate is reduced but measured is less than the fair value of the net assets of the significant influence is retained, only a proportionate share of subsidiary acquired in the case of a bargain purchase, the the amounts previously recognised in other comprehensive difference is recognised directly in the income statement. income is reclassified to profit or loss where appropriate. The group’s share of post-acquisition profit or loss is recognised Inter-company transactions, balances and unrealised gains in the income statement, and its share of post-acquisition on transactions between group companies are eliminated. movements in other comprehensive income is recognised Unrealised losses are also eliminated. When necessary in other comprehensive income with a corresponding amounts reported by subsidiaries have been adjusted to adjustment to the carrying amount of the investment. When conform with the group’s accounting policies. the group’s share of losses in an associate equals or exceeds its interest in the associate, including any other unsecured (ii) Changes in ownership interests in subsidiaries without receivables, the group does not recognise further losses, change of control unless it has incurred legal or constructive obligations or made Transactions with non-controlling interests that do not result payments on behalf of the associate. in loss of control are accounted for as equity transactions – that is, as transactions with the owners in their capacity as owners. The group determines at each reporting date whether there The difference between fair value of any consideration paid is any objective evidence that the investment in the associate and the relevant share acquired of the carrying value of net is impaired. If this is the case, the group calculates the amount assets of the subsidiary is recorded in equity. Gains or losses of impairment as the difference between the recoverable on disposals to non-controlling interests are also recorded in amount of the associate and its carrying value and recognises equity. the amount adjacent to ‘share of profit/(loss) of associates in the income statement Profits and losses resulting from upstream and downstream transactions between the group and its associate are recognised in the group’s financial statements only to the extent of unrelated investor’s interests in the associates. 64 Kenya • Uganda • South Sudan • Rwanda • DR Congo • Tanzania UAP HOLDINGS LIMITED Annual Report & Financial Statements 2014

Notes to The Financial Statements (Continued)

2 Summary of significant accounting policies All transactions between business segments are conducted on (continued) an arm’s length basis, with intra-segment revenue and costs being eliminated in head office. Income and expenses directly (q) Consolidation (continued) associated with each segment are included in determining business segment performance. (iv) Associates (continued) 3 Critical accounting estimates and Unrealised losses are eliminated unless the transaction provides evidence of an impairment of the asset transferred. judgments in applying accounting policies Accounting policies of associates have been changed where The Group makes estimates and assumptions that affect the necessary to ensure consistency with the policies adopted by reported amounts of assets and liabilities within the next the group.Dilution gains and losses arising in investments in financial year. Estimates and judgements are continually associates are recognised in the income statement. evaluated and based on historical experience and other factors, including expectations of future events that are (r) Goodwill believed to be reasonable under the circumstances. Goodwill arises on the acquisition of subsidiaries, associates and i Future benefit payments from long-term joint ventures and represents the excess of the consideration insurance contracts transferred over the Company’s interest in net fair value of the net identifiable assets, liabilities and contingent liabilities of The estimation of future benefit payments from long- the acquiree and the fair value of the non-controlling interest term insurance contracts is one of the Group’s most critical in the acquiree. accounting estimates. There are several sources of uncertainty that need to be considered in the estimate of the liability that For the purpose of impairment testing, goodwill acquired the Group will ultimately pay for such claims. Note 32 contains in a business combination is allocated to each of the CGUs, further details on this process. or groups of CGUs, that is expected to benefit from the synergies of the combination. Each unit or group of units to The determination of the liabilities under long-term insurance which the goodwill is allocated represents the lowest level contracts is dependent on estimates made by the Group. within the entity at which the goodwill is monitored for Estimates are made as to the expected number of deaths for internal management purposes. Goodwill is monitored at the each of the years in which the Group is exposed to risk. The operating segment level. Group bases these estimates on standard mortality tables that reflect historical mortality experience. The estimated number Goodwill impairment reviews are undertaken annually of deaths determines the value of the benefit payments or more frequently if events or changes in circumstances and the value of the valuation premiums. The main source indicate a potential impairment. The carrying value of of uncertainty is that epidemics such as AIDS could result in goodwill is compared to the recoverable amount, which is the future mortality being significantly worse than in the past for higher of value in use and the fair value less costs to sell. Any the age groups in which the Group has significant exposure to impairment is recognised immediately as an expense and is mortality risk. not subsequently reversed. However, continuing improvements in medical care and social (s) Segmental reporting conditions could result in improvements in longevity in excess of those allowed for in the estimates used to determine the Operating segments are reported in a manner consistent liability for contracts where the Group is exposed to longevity with the internal reporting provided to the chief operating risk. For contracts without fixed terms and with discretionary decision- maker (CODM). The CODM is the person or group participation in profits, it is assumed that the Group will be that allocates resources to and assesses the performance able to increase mortality risk charges in future years in line of the operating segments of an entity. The group has with emerging mortality experience. Estimates are also made determined the UAP Holdings Board of Directors to be its as to future investment income arising from the assets backing CODM. This function is executed through the Board’s Finance long-term insurance contracts. These estimates are based on and Investment Committee (FIC) current market returns as well as expectations about future economic and financial developments. The average estimated

rate of investment return is 12.25% p.a.(2013:13.5% p.a.).

Kenya • Uganda • South Sudan • Rwanda • DR Congo • Tanzania 65 UAP HOLDINGS LIMITED Annual Report & Financial Statements 2014

Notes to The Financial Statements (Continued)

3 Critical accounting estimates and judgments 4 Risk Governance and Risk Management in applying accounting policies (continued) System

ii Claims reserving and determination of IBNR Risk management objectives The estimation of future contractual cash flows in relation to Risk management is a central part of the Group’s strategic reported losses and losses incurred but not reported is a key management process hence we continuously seek to accounting estimate. There are several sources of uncertainty enhance the risk management capabilities of the Group. It is that need to be considered in the estimate of the liability that anticipated that our risk management practices will increase the Group will ultimately pay for such claims. Case estimates the probability of success, and reduce both the potential of are computed on the basis of the best information available failure and the uncertainty associated with achieving the at the time the records for the year are closed. Further details group’s overall objectives. on the process used to estimate claims incurred but not reported and amounts recorded as liabilities at the end of the The objectives of the Group’s risk management activities are current and previous year are set out in note 32 of the financial to achieve sustained competitive advantage via a rigorous, statements. group wide risk management system that is fully aligned to the Group values, strategic business initiatives and processes. iii Fair value of financial assets At a strategic level, our risk management objectives are to: Fair values of certain financial assets recognised in the financial statements are determined using valuation techniques based • Identify the Group’s significant risks in relation to the corporate strategies pursued; on assumptions that are not supported by prices from current market transactions or observable market data. • Formulate the Group’s risk appetite and ensure that business profile and plans are consistent with it; The fair values of financial instruments that are not quoted in active markets are determined by using valuation techniques. • Optimise risk/return decisions by taking them as Where valuation techniques (for example models) are used closely as possible to the business, while establishing to determine fair values, they are validated and periodically strong and independent review and challenge structures; independently reviewed by qualified senior personnel. • Ensure that business growth plans are properly supported iii Fair value of financial assets (continued) by effective risk infrastructure;

All models are certified before they are used, and models • Manage risk profile to ensure that specific financial are calibrated to ensure that outputs reflect actual data and deliverables remain possible under a range of adverse comparative market prices. To the extent practical, models business conditions; and use observable data, however, areas such as credit risk (both own and counterparty), volatilities and correlations require • Help executives improve the control and co-ordination of management to make estimates. risk taking across the business.

iv Recoverable amount of receivables Our risk management strategy defines the extent of the risks Critical estimates are made by the directors in determining the we are prepared to incur for our clients and shareholders. The recoverable amount of impaired receivables. This process is development of our risk strategy is embedded in the annual set out in note 2(j). The carrying amounts of receivables are planning cycle and hence in our business strategy. That is, shown on note 4(b). Integrating Strategy, Risk and Performance management takes place at strategy setting, first with a full Executive v. Goodwill impairment management consensus on clearly defined business objectives. Once Executive management have defined the Critical estimates have been made by directors in determining objectives, they then identify the key risks that may present an whether the goodwill is impaired. These assumptions are opportunity to pursue those business objectives, or impede disclosed on note 18. their ability to achieve them.

66 Kenya • Uganda • South Sudan • Rwanda • DR Congo • Tanzania UAP HOLDINGS LIMITED Annual Report & Financial Statements 2014

Notes to The Financial Statements (Continued)

4 Risk Governance and Risk Management authorities and responsibilities, procedures and reporting System (continued) requirements. The risk management framework also classifies the risks the Group faces into broad risk categories. The Group Organisational structure regularly enhances the ERM Framework to reflect new insights and changes in the Group’s environment. To ensure that our risk management operates efficiently and effectively, we have established a specific risk management One of the key elements of the Group’s risk management function within UAP Global Services as a Shared Service framework is to foster risk transparency by establishing for the entire Group. Our Risk Management supervises risk risk reporting standards throughout the Group. The Group management Group-wide with the support of decentralised regularly reports on its risk profile, current risk issues, structures in all units of the Group. It is headed by the Group adherence to its risk policies and improvement actions both at Risk and Compliance Manager (GCRM), who is supported by a local and on a Group level. The Group has procedures in place interdisciplinary teams of highly qualified staff. The Group’s for the timely referral of risk issues to senior management and activities expose it to a variety of risks, including insurance risk the Board of Directors. and financial risk.

The implementation of the framework is driven by a risk The Group’s overall risk management programme focuses management culture and awareness that permeates on the identification and management of risks and seeks throughout the Group and is supported by a set of policies and to minimise potential adverse effects on its financial procedures; Tools; and A robust reporting mechanisms The performance, by use of underwriting guidelines and capacity Group continues to consciously take risks for which it expects limits, reinsurance planning, credit policy governing the an adequate return. This approach requires sound judgment acceptance of clients, and defined criteria for the approval of and an acceptance that certain risks can and will materialize in intermediaries and reinsurers. Investment policies are in place the future. which help manage liquidity, and seek to maximise return within an acceptable level of interest rate risk. Management Significant risks Framework ensure that staff in our risk management structure and the Group as a whole are kept informed of our risk strategy, According to our classification, significant risks are risks that organisation and processes, enabling the risks incurred to be could have a long-term adverse effect on the Group’s assets, actively controlled. financial situation or profitability. We have applied this definition consistently to the individual business units and Risk Management Framework legal entities, taking account of their individual risk tolerance. The section below summarises the significant risks faced by In order to achieve its mission and objectives, the Group has the group and how they are managed. developed an Enterprise Risk management framework to provide a guide within which key risks affecting the group are identified, measured and managed. (a) Insurance risk The risk under any one insurance contract is the possibility that This risk management framework also provides management the insured event occurs and the uncertainty of the amount of with proven risk management guidelines that support their the resulting claim. By the very nature of an insurance contract, decision-making responsibilities and processes, together with this risk is random and therefore unpredictable. For a portfolio managing the risks that impact on the objectives of the Group. of insurance contracts where the theory of probability is applied to pricing and provisioning, the principal risk that the At the heart of the risk management framework is a governance Group faces under its insurance contracts is that the actual process with clear responsibilities for taking, managing, claims and benefit payments exceed the carrying amount of monitoring and reporting risks. The Group articulates the the insurance liabilities. roles and responsibilities for risk management throughout the organization, from the Board of Directors and the Chief This could occur because the frequency or severity of claims Executive Officer (CEO) to its businesses and functional areas, and benefits are greater than estimated. Insurance events are thus embedding risk management in the business random and the actual number and amount of claims and benefits will vary from year to year from the level established The UAP Risk Management Framework is the Group’s main using statistical techniques. Experience shows that the larger risk governance document; it specifies the Group’s Target Risk the portfolio of similar insurance contracts, the smaller the Management Operating Model including Risk management relative variability about the expected outcome will be. Kenya • Uganda • South Sudan • Rwanda • DR Congo • Tanzania 67 UAP HOLDINGS LIMITED Annual Report & Financial Statements 2014

Notes to The Financial Statements (Continued)

4 Risk Governance and Risk Management System (continued)

(a) Insurance risk (continued) In addition, a more diversified portfolio is less likely to be affected by a change in any subset of the portfolio.

The group has developed its insurance underwriting strategy to diversify the type of insurance risks accepted and within each of these categories to achieve a sufficiently large population of risks to reduce the variability of the expected outcome. Factors that aggravate insurance risk include lack of risk diversification in terms of type and amount of risk, geographical location and type of industry covered.

The following tables disclose the concentration of insurance risk by the class of business in which the contract holder operates and by the maximum insured loss limit included in the terms of the policy. The amounts are the maximum insured loss limit of the insurance liabilities (gross and net of reinsurance) arising from insurance contracts.

Year ended 31 December 2014

Class of business

Maximum insured loss Total Kshs Kshs Kshs Kshs’ (Amounts presented in Kshs ‘000) 0-15m 15-250m 250-1000m 000 General insurance business Motor Gross 4,408,647 9,706,147 29,801,063 43,915,857 Net 3,008,472 4,338,726 1,401,268 8,748,466 Fire Gross 1,953,844 22,035,557 465,136,394 489,125,795 Net 1,941,969 12,926,165 424,428,386 439,296,520 Accident Gross 3,416,087 18,279,058 136,641,696 158,336,841 Net 2,986,386 12,114,477 12,714,023 27,814,886 Other Gross 1,729,969 18,428,253 280,998,139 301,156,361 Net 1,546,671 5,266,738 159,691,031 166,504,440 Life assurance business Ordinary life Gross 5,480,030 76,472 - 5,556,502 Net 5,480,030 76,472 - 5,556,502 Group life Gross 156,624,959 289,952,470 1,573,376,035 2,019,953,464 Net 144,927,847 140,592,989 166,487,878 452,008,714 Total Gross 173,613,536 358,477,957 2,485,953,327 3,018,044,820 Net 159,891,375 175,315,567 764,722,586 1,099,929,528

68 Kenya • Uganda • South Sudan • Rwanda • DR Congo • Tanzania UAP HOLDINGS LIMITED Annual Report & Financial Statements 2014

Notes to The Financial Statements (Continued)

4 Risk Governance and Risk Management System (continued)

(a) Insurance risk (continued) Year ended 31 December 2013 Class of business Maximum insured loss Total Kshs Kshs Kshs Kshs’ (Amounts presented in Kshs ‘000) 0-15m 15-250m 250-1000m 000 General insurance business Motor Gross 168,476,154 42,999,496 27,657,719 239,133,369 Net 71,202,059 24,288,847 24,088,914 119,579,820 Fire Gross 50,865,749 181,956,950 1,878,497,428 2,111,320,127 Net 48,277,183 149,503,666 524,052,869 721,833,718 Accident Gross 57,480,314 121,019,174 131,355,729 309,855,217 Net 42,617,920 73,100,208 100,927,152 216,645,280 Othe Gross 44,516,137 104,901,481 364,827,237 514,244,855 Net 35,480,283 54,091,446 22,825,828 112,397,557 Life assurance business Ordinary life Gross 3,495,236 41,472 - 3,536,708 Net 3,495,236 41,472 - 3,536,708 Group life Gross 103,763 6,014,209 23,434,506 29,552,478 Net 99,717 5,320,810 15,951,543 21,372,070 Total Gross 324,937,353 456,932,782 2,425,772,619 3,207,642,754 Net 201,172,398 306,346,449 687,846,306 1,195,365,153

The concentration by sector or maximum insured loss at the end of the year is broadly consistent with the prior year.

(b) Financial risk

The Group is exposed to financial risk through its financial assets, financial liabilities (investment contracts and borrowings), reinsurance assets and insurance liabilities. In particular the key financial risk is that the proceeds from its financial assets are not sufficient to fund the obligations arising from its insurance and investment contracts. The most important types of risk are credit risk, liquidity risk and market risk. Market risk includes currency risk, interest rate risk, equity price risk and other price risks.

These risks arise from open positions in interest rate, currency and equity prices, all of which are exposed to general and specific market movements. The risks that the Group primarily faces due to the nature of its investments and liabilities are liquidity rate risk and equity price risk.

The Group manages these risks through policies set out by the Finance and Investment Committee of the Board (FIC). These policies have been developed to achieve long-term investment returns in excess of the Group’s obligations under insurance and investment contracts. The principal technique is to match assets to the liabilities arising from insurance and investment contracts by reference to the type of benefits payable to contract holders. For each distinct category of liabilities, a separate portfolio of assets is maintained.

Kenya • Uganda • South Sudan • Rwanda • DR Congo • Tanzania 69 UAP HOLDINGS LIMITED Annual Report & Financial Statements 2014

Notes to The Financial Statements (Continued)

4 Management of insurance and financial risk Investment in shares of Centum Investment Company Limited (Continued) at 31 December 2014 comprised of 32% (31 December 2013: 22%) respectively of the Group’s total equity portfolio. There (b) Financial risk (continued) was no other concentration of price risk.

Market risk iii Interest rate risk Fixed interest rate financial instruments expose the Company i Foreign exchange risk and Group to fair value interest rate risk. Variable interest rate The group underwrites some short term insurance policies financial instruments expose the company to cash flow interest contracted in US dollars and maintains foreign currency rate risk. The Group’s fixed interest rate financial instruments denominated current accounts with local banks. Additionally, are government securities, deposits with financial institutions the group invests in offshore stock exchange markets and and borrowings. The Company’s variable interest rate financial places deposits in local financial institutions denominated in instruments are quoted corporate bonds, which are always the foreign currencies. This exposes the group to onward foreign treasury bills rate plus some basis points. No limits are placed exchange risk arising from the various currency exposures, on the ratio of variable rate financial instruments to fixed rate primarily with respect to the Uganda shillings, US dollar, Euro financial instruments. and Sterling Pound. Foreign exchange risk arises from future commercial transactions and recognised assets and liabilities. Investment contracts with fixed and guaranteed terms, government securities and deposits with financial institutions At 31 December 2014, if the Shilling had weakened/ held to maturity are accounted for at amortised cost and their strengthened by 10% against the US dollar with all other carrying amounts are not sensitive to changes in the level of variables held constant, the post-tax profit for the year would interest rates. At 31 December 2014, if interest rates on quoted have been Kshs 39 million (31 December 2013: Kshs 53.3 corporate bonds had been 2% higher/lower with all other million) higher/lower, mainly as a result of US dollar bank variables held constant, post-tax profit for the year would balances. At 31 December 2014, and 31 December 2013, the have been Kshs 29 milion (31 December 2013: Kshs 6.3 million) group had no significant exposure with respect to Uganda lower/higher, mainly as a result of higher/lower interest Shillings, Euro and the Sterling Pound. income on floating rate quoted corporate bonds.

ii Price risk Credit risk The group is exposed to equity securities price risk because of The Group has exposure to credit risk, which is the risk that a investments in quoted and unquoted shares classified either counterparty will be unable to pay amounts in full when due. as fair value through profit or loss or other comprehensive Key areas where the Group is exposed to credit risk are: income. The group is not exposed to commodity price risk. To manage its price risk arising from investments in equity • Receivables arising out of direct insurance arrangements; securities, the group diversifies its portfolio. Diversification • Receivables arising out of reinsurance of the portfolio is done in accordance with policies set out arrangements; by the Finance & Investment committee of Board. All quoted • Reinsurers’ share of insurance liabilities; • Corporate bonds; shares held by the group are traded on the Nairobi Securities • Government securities; and Exchange (NSE) and Uganda Stock Exchange (USE). • Mortgage loans receivable.

At 31 December 2014, if the NSE Index had increased/decreased The Group has no significant concentrations of credit risk. The by 10% with all other variables held constant and all the Group structures the levels of credit risk it accepts by placing Group’s equity instruments moved according to the historical limits on its exposure to a single counterparty, or groups of correlation to the index, equity would have been Kshs 597 counterparty, and to geographical and industry segments. million higher/ lower (31 December 2013: Kshs 544 million). Such risks are subject to an annual or more frequent review. Movement in the USE would not have had a material impact Limits on the level of credit risk by category and territory are on the Group’s equity 31 December 2014 and 31 December approved quarterly by the Board of Directors. 2013 as investments in the USE Index are not material. Reinsurance is used to manage insurance risk. This does not, however, discharge the Group’s liability as primary insurer.

70 Kenya • Uganda • South Sudan • Rwanda • DR Congo • Tanzania UAP HOLDINGS LIMITED Annual Report & Financial Statements 2014

Notes to The Financial Statements (Continued)

4 Management of insurance and financial risk (Continued) (b) Financial risk (continued) Credit risk (Continued) If a reinsurer fails to pay a claim for any reason, the Group remains liable for the payment to the policyholder. The creditworthiness of reinsurers is considered on an annual basis by reviewing their financial strength prior to finalisation of any contract.

The exposure to individual counterparties is also managed by other mechanisms, such as the right of offset where counterparties are both debtors and creditors of the Group. Management information reported to the Group includes details of provisions for impairment on loans and receivables and subsequent write-offs. Finance and Investment committee of the Group Board makes regular reviews to assess the degree of compliance with the Group procedures on credit. Exposures to individual policyholders and groups of policyholders are collected within the ongoing monitoring by the management credit committee.

The credit quality of financial assets that are neither past due nor impaired can be assessed by reference to external credit ratings if available or historical information about counterparty default rates. None of the group’s credit risk counter parties are rated except the Government of Kenya, the issuer of the Group’s government securities which has B+ rating. The Company classifies counterparties without an external credit rating as below:

Group 1 - new customers/related parties. Group 2 - existing customers/related parties with no defaults in the past. Group 3 - existing customers/related parties with some defaults in the past. All defaults were fully recovered.

Maximum exposure to credit risk before collateral held - Group

31-Dec 31-Dec Credit rating/ 2014 2013 Classification Kshs ’000 Kshs ’000 Receivables arising out of reinsurance arrangements Group 2 706,371 472,759 Receivables arising out of direct insurance arrangements Group 2 2,486,192 2,317,694 Reinsurers’ share of insurance liabilities Group 2 2,509,829 2,230,060 Other receivables Group 2 1,550,187 1,165,599 Government securities Group 2 5,875,753 4,566,442 Corporate bonds Group 2 1,588,613 449,025 Mortgage loans receivable Group 2 255,437 228,307 Deposits with financial institutions Group 2 3,173,707 1,972,751 Cash at bank Group 2 1,025,540 1,341,151 Total 19,171,629 14,743,788

Maximum exposure to credit risk before collateral held - Company

31-Dec 31-Dec Credit rating/ 2014 2013 Classification Kshs ’000 Kshs ’000 Cash at bank Group 2 16,862 5,219 Deposits with financial institutions Group 2 1,248,062 703,325 Amount due from subsidiaries Group 2 2,186,511 1,617,577 Other receivables Group 2 696,711 275,887 Total 4,148,146 2,602,008

No collateral is held for any of the above assets other than for staff mortgage loans and car loans included under other receivables. Properties in relation to staff mortgage loans and motor vehicles in relation to staff car loans are charged to the group as collateral.

Kenya • Uganda • South Sudan • Rwanda • DR Congo • Tanzania 71 UAP HOLDINGS LIMITED Annual Report & Financial Statements 2014

Notes to The Financial Statements (Continued)

4 Management of insurance and financial risk (Continued) (b) Financial risk (continued) Credit risk (continued) The fair value of this collateral was Kshs 226 million (2013: Kshs 216 million) and no collateral had been repossessed at as the end of the year.

All receivables that are neither past due or impaired are within their approved credit limits, and no receivables have had their terms renegotiated. All receivables are classified in group 2.

None of the above assets are either past due or impaired except for the following amounts in the Group’s receivables under direct insurance and reinsurance arrangements.

Credit rating / Receivables arising from direct Receivables arising from classification insurance arrangements re-insurance arrangements 31-Dec 31-Dec 31-Dec 31-Dec 2014 2013 2014 2013 Kshs ’000 Kshs ’000 Kshs ’000 Kshs ’000 Past due but not impaired: - by up to 30 days Group2 1,079,359 395,889 159,657 13,217 - by 31 to 60 days Group2 306,514 400,283 8,496 84,783 - by 61 to 150 days Group2 573,732 675,380 424,403 308,302 - by 151 to 360 days Group2 526,587 846,142 113,815 66,457 Total past due but not impaired 2,486,192 2,317,694 706,371 472,759

Receivables individually determined to be impaired: Carrying amount before provision for impairment 820,011 800,817 - - Provision for impairment loss (820,011) (800,817) - - Net carrying amount 2,486,192 2,317,694 706,371 472,759

No collateral is held in respect of the receivables that are past due but not impaired. Movements on the provision for impairment of receivables arising on direct insurance arrangements are as follows:

31-Dec 31-Dec 2014 2013 Kshs ’000 Kshs ’000

At start of year 800,817 624,898 Provision in the year 19,194 175,919 At end of year 820,011 800,817

All receivables past due by more than 365 days are considered to be impaired, and are carried at their estimated recoverable value.

72 Kenya • Uganda • South Sudan • Rwanda • DR Congo • Tanzania UAP HOLDINGS LIMITED Annual Report & Financial Statements 2014

Notes to The Financial Statements (Continued)

4 Management of insurance and financial risk (Continued) (b) Financial risk (continued) Credit risk (Continued) The individually impaired receivables mainly relate to receivables arising out of direct insurance arrangements, the following amounts have been individually assessed: Direct insurance arrangements 31-Dec-14 31-Dec-13 Kshs ’000 Kshs ’000 Individually assessed impaired receivables

Brokers 204,965 143,856 Agents 231,113 198,991 Insurance companies 156,095 120,145 Direct clients 227,838 337,825 At end of year 820,011 800,817

Liquidity risk Liquidity risk is the risk that the Group is unable to meet its payment obligations associated with its financial liabilities as they fall due and to replace funds when they are withdrawn.

The Group is exposed to daily calls on available cash resources for claims settlement and other administration expenses. The Group does not maintain cash resources to meet all of these needs as experience shows that a minimum level of reinvestment of maturing funds can be predicted with a high level of certainty. The Finance and Investment Committee sets limits on the minimum level of cash balances.

The table below presents the cash flows payable by the Group under financial liabilities by remaining contractual maturities (other than insurance contract liabilities which are based on expected maturities) at the financial reporting date.

Up to 1 1 to 3 3 to 12 1 to 5 Over 5 month month month years years Total As at 31 December 2014 Kshs ’000 Kshs ’000 Kshs ’000 Kshs ’000 Kshs ’000 Kshs ’000 Liabilities Insurance contract liabilities 2,034,163 1,274,855 1,602,524 2,486,621 322,272 7,720,435 Creditors arising from r einsurance arrangements 474,025 77,156 194,569 139,049 - 884,799 Payable under deposit administration contracts 3,542,067 820 9,331 79,165 1,638 3,633,021 Unit-linked investment contracts 1,001,699 - 4,268 34,861 - 1,040,828 Other payables 9,386 107,885 1,165,161 215,739 - 1,498,171 Borrowings 3,480 44,351 31,323 3,901,847 - 3,981,001

Total financial liabilities 7,064,820 1,505,067 3,007,176 6,857,282 323,910 18,758,255

Kenya • Uganda • South Sudan • Rwanda • DR Congo • Tanzania 73 UAP HOLDINGS LIMITED Annual Report & Financial Statements 2014

Notes to The Financial Statements (Continued)

4 Management of insurance and financial risk (continued) (b) Financial risk (continued) Liquidity risk (continued)

Up to 1 1 to 3 3 to 12 1 to 5 Over 5 month month month years years Total As at 31 December 2013 Kshs ’000 Kshs ’000 Kshs ’000 Kshs ’000 Kshs ’000 Kshs ’000 Liabilities Insurance contract liabilities 925,793 872,426 886,428 1,062,158 1,521,075 5,267,880 Creditors arising from reinsurance arrangements 418,032 208,754 426,612 26,261 - 1,079,659 Payable under deposit administration contracts 2,812,089 - - - - 2,812,089 Unit-linked investment contracts 8,490 6,520 39,918 301,309 567,059 923,296 Other payables 71,752 121,226 733,937 27,491 - 954,406 Borrowings 7,988 20,039 40,893 55,996 1,954,803 2,079,719

Total financial liabilities 4,244,144 1,228,965 2,127,788 1,473,215 4,042,937 13,117,049

Investment contracts and deposit administration contracts can be surrendered before maturity for a cash surrender value specified in the contractual terms and conditions. Prudent liquidity risk management includes maintaining sufficient cash balances to cover anticipated surrenders before the contractual maturity dates. In addition, the Group invests only a limited proportion of its assets in investments that are not actively traded. The Group’s listed securities are considered readily realisable, as they are actively traded on the Nairobi Securities Exchange and Uganda Stock Exchange.

The table below presents the cash flows payable by the company under financial liabilities by remaining contractual maturities at the financial reporting date.

Less Greater than 1 year than 1 year Kshs ’000 Kshs ’000 At 31 December 2014: Amounts due to subsidiaries (Note 43(iv)) 1,991,496 - Other payables 280,427 - Borrowings 252,898 1,825,749 2,524,821 1,825,749 At 31 December 2013: Amounts due to subsidiaries (Note 43(iv)) 1,608,870 - Other payables 152,052 - 1,760,922 -

74 Kenya • Uganda • South Sudan • Rwanda • DR Congo • Tanzania UAP HOLDINGS LIMITED Annual Report & Financial Statements 2014

Notes to The Financial Statements (Continued)

4 Management of insurance and financial risk (continued) (c) Capital management

The Group’s objectives when managing capital, which is a broader concept than the ‘equity’ on the statement of financial position, are:

• to comply with the capital requirements as set out in the regulations of the jurisdictions in which the Group entities operate in;

• to comply with regulatory solvency requirements as set out in legislation in the jurisdictions in which the Group entities operate in;.

• to safeguard the Group’s ability to continue as a going concern, so that it can continue to provide returns to shareholders and benefits for other stake holders; and

• to provide an adequate return to shareholders by pricing insurance and investment contracts commensurately with the level of risk.

The Group’s paid up capital comprises share capital as disclosed on note 13. The Group manages the minimum paid up capital and regulatory Capital (solvency) held in each subsidiary as capital. Capital adequacy and solvency margin are monitored regularly by the Board of Directors. The required information is filed with the respective authorities.

During the year, the Group held the minimum paid up share capital required. The Group entities also met the solvency margins required in the jurisdictions in which they operate, except for the Life Assurance (Kenya) and General Insurance (Rwanda and Tanzania) subsidiaries. Appropriate measures, including capital injection and business turn-around initiatives, have been instituted to resolve the solvency gaps in these entities.

The table below summarises the capital requirements of the Group’s entities in the various jurisdictions in which the Group operates and the amount of capital held.

31-Dec-14 Kenya Uganda

General Life General Life insurance Assurance Sudan insurance Insurance Rwanda Tanzania Kshs ’000 Kshs ’000 Kshs ’000 Kshs ’000 Kshs ’000 Kshs ’000 Kshs ’000 Regulatory capital requirements 300,000 150,000 341,190 70,006 100,000 - - Amount of paid up capital 600,000 644,093 342,710 241,950 199,780 393,567 328,569 Required solvency margin 8,046,000 400,000 389,000 293,000 424,000 64,000 171,000 Solvency margin by Company 12,322,000 287,000 1,184,000 387,000 503,000 (18,000) (316,000) Surplus/(deficit) over required margin 4,276,000 (113,000) 795,000 94,000 79,000 (82,000) (487,000)

Kenya • Uganda • South Sudan • Rwanda • DR Congo • Tanzania 75 UAP HOLDINGS LIMITED Annual Report & Financial Statements 2014

Notes to The Financial Statements (Continued)

4 Management of insurance and financial risk (continued) (c) Capital management (continued) 31-Dec-13 Kenya General Life insurance Assurance Sudan Uganda Rwanda Tanzania Kshs ’000 Kshs ’000 Kshs ’000 Kshs ’000 Kshs ’000 Kshs ’000 Regulatory capital requirements 300,000 150,000 341,190 70,006 - Amount of paid up capital 600,000 644,093 342,710 241,950 169,486 328,569 Required solvency margin 7,389,394 282,993 - 220,472 64,516 828,997 Solvency margin by Company 9,399,945 572,490 596,546 579,527 42,366 593,396 Surplus over required margin 2,010,551 289,497 596,546 359,055 (22,150) (235,601) (d) Fair values of financial assets and liabilities The fair value of government securities at 31 December 2014 is estimated at Kshs 2,959 million (2013: Shs 3,705 million) compared to the carrying value Kshs 5, 875 million (2013: Shs 4,566 million). The fair values of the Group’s other financial assets and liabilities approximate the respective carrying amounts, due to the generally short periods to contractual repricing or maturity dates as set out above. Fair values are based on discounted cash flows using a discount rate based upon the borrowing rate that the directors expect would be available to the Group at the financial reporting date.

(e) Fair values estimation IFRS 7 and IFRS 13 require disclosure of fair value measurements by the following levels of hierarchy for financial instruments that are measured in the statement of financial position at fair value: • Quoted prices (unadjusted) in active markets for identical assets or liabilities (level 1). • Inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (that is, as prices) or indirectly (that is, derived from prices) (level 2). • Inputs for the asset or liability that are not based on observable market data (that is, unobservable inputs) (level 3).

The following table presents the Group’s assets that are measured at fair value at the end of the year.

Year ended 31 December 2014 Total Level 1 Level 2 Level 3 balance Kshs ’000 Kshs ’000 Kshs ’000 Kshs ’000 Assets Equity investments 5,998,957 - 89,671 6,088,628 Government securities 742,791 - - 742,791 Total 6,741,748 - 89,671 6,831,419

Year ended 31 December 2013 Total Level 1 Level 2 Level 3 balance Kshs ’000 Kshs ’000 Kshs ’000 Kshs ’000 Assets Equity investments 5,444,107 - 62,401 5,506,508 Government securities 705,091 - - 705,091 Total 6,149,198 - 62,401 6,211,599

76 Kenya • Uganda • South Sudan • Rwanda • DR Congo • Tanzania UAP HOLDINGS LIMITED Annual Report & Financial Statements 2014

Notes to The Financial Statements (Continued)

4 Management of insurance and financial risk 5 (a) Segmental information (continued) Management has determined the operating segments based on the reports reviewed by the Group’s Board of Directors (e) Fair values estimation (continued) through its Finance and Investment Committee (FIC) that are The fair value of financial instruments traded in active markets used to make strategic decisions. is based on quoted market prices at the end of each reporting period. A market is regarded as active if quoted prices are The Group reviews its operating segments (business units) by readily and regularly available from an exchange, dealer, type of business and by geography. Based on this, the group’s broker, industry group, pricing service, or regulatory agency, operating segments comprise of General Insurance, Life and those prices represent actual and regularly occurring Assurance, Property, Investment management and related market transactions on an arm’s length basis. The quoted Financial Services. The group currently has operations in six market price used for financial assets held by the company countries namely Kenya, Uganda, South Sudan, Rwanda, is the current bid price. These instruments are included in Tanzania and Democratic Republic of Congo (DRC). level 1. Instruments included in level 1 comprise of primarily equity investments quoted at Nairobi Securities Exchange and The reportable operating segments derive their revenue Uganda Stock Exchange. primarily from the underwriting of classes and non-life risks as defined by the Insurance Act and investment property. Financial instruments measured at fair value that are not traded in active markets relate to Group’s investment in the Other services offered by the Group that are included within holding company for an investment property. Fair value the Kenya and Uganda segments include stock brokerage, estimate is based on the Group’s share of the net asset of the investment management and related financial advisory investee company. As the investment property of the investee services. The results of these operations are included in the all company is measured at their fair value, the net asset value other segments column as they are not material to the Group. of the investee company approximates its fair value. This estimate is classified as level 3. There were no transfers into or The Group Board of Directors assesses the performance of out of level 3 during the year (2013: Nil) the reporting segments based on a measure of revenue and profitability.

Kenya • Uganda • South Sudan • Rwanda • DR Congo • Tanzania 77 UAP HOLDINGS LIMITED Annual Report & Financial Statements 2014 Notes to The Financial Statements (Continued) 5 (a) Segmental information (continued)

Year ended 31 December 2014 Kenya South Sudan Uganda Rwanda Tanzania

All other segments & General Life General General Life General General intragroup Insurance Assurance Insurance Life Property Insurance Assurance Property Insurance Insurance eliminations Total Kshs ’000 Kshs ’000 Kshs ’000 Kshs ’000 Kshs ’000 Kshs ’000 Kshs ’000 Kshs ’000 Kshs ’000 Kshs ’000 Kshs ’000 Kshs ’000 Gross written premium (external) 7,532,999 1,705,679 1,183,301 80,182 - 2,438,419 331,414 - 358,831 1,201,910 - 14,832,735 Gross earned premium 7,600,587 1,656,142 1,134,900 (4,225) - 2,139,184 331,414 - 261,154 1,039,288 - 14,158,444 Net earned premium 6,063,039 1,342,882 958,774 12,194 - 1,710,070 314,786 - 213,370 648,418 - 11,263,533 Interest income 412,246 509,749 2,096 - 228 69,317 37,242 - 15,370 31,482 (48,016) 1,029,714 Other investment income 725,978 588,592 177,174 5,095 308,871 211,252 1,369 865,528 - - 690,199 3,574,058 Commissions and other income 387,254 133,066 57,221 16,280 - 143,330 3,325 2,238 26,738 95,035 (43,789) 820,698 Total income 7,588,517 2,574,289 1,195,265 33,569 309,099 2,133,969 356,722 867,766 255,478 774,935 598,394 16,688,003 Claims and policy owners’ benefits payable (4,100,385) (2,144,673) (371,902) (7,257) - (853,976) (148,523) - (182,130) (265,948) - (8,074,794) Finance cost (3,535) - (8,914) - - - - (229,721) - (1,200) (49,940) (293,310) Depreciation (33,340) (9,524) (25,993) - - (5,489) (2,239) (80) (9,351) (9,604) (37,323) (132,943) Amortisation (2,122) - - - - - (56) - (3,740) (6,838) (104,368) (117,124) Commissions and other operating expenses (2,345,064) (648,033) (509,540) (45,184) (82,588) (1,042,351) (234,219) (96,550) (237,820) (480,118) (52,136) (5,773,603) Profit before tax 1,104,071 (227,941) 278,916 (18,872) 226,511 232,153 (28,315) 541,415 (177,563) 11,227 354,627 2,296,229 Income tax expense (249,503) 5,314 - - (46,331) (65,226) (41,899) (190,800) - 17,704 (58,301) (629,042) Profit or (loss) after tax for the year 854,568 (222,627) 278,916 (18,872) 180,180 166,927 (70,214) 350,615 (177,563) 28,931 296,326 1,667,187 Profit attributable to shareholders of the parent 854,568 (222,627) 278,916 (18,872) 126,126 88,471 (37,213) 276,460 (177,563) 17,357 300,353 1,485,976 Profit attributable to Non-controlling interests - - - - 54,054 78,456 (33,001) 74,155 - 11,574 (4,027) 181,211 Profit or (loss) after tax for the year 854,568 (222,627) 278,916 (18,872) 180,180 166,927 (70,214) 350,615 (177,563) 28,931 296,326 1,667,187 Other comprehensive income 1,131,992 - 59,094 (571) 26,516 (40,425) (796) (75,205) (90) 2,686 25,424 1,128,625 Total comprehensive income 1,986,560 (222,627) 338,010 (19,443) 206,696 126,502 (71,010) 275,410 (177,653) 31,617 321,751 2,795,812 Additions: Property and equipment 19,199 23,841 19,473 2,230 - 8,032 11,363 - 22,902 10,695 95,028 212,763 Investment property - - - - 502,551 - 16,909 129,027 - - 701,580 1,350,067 Intangible assets 880 - - - - - 183 - 3,826 12,416 31,761 49,066 Total assets 15,939,479 8,573,351 1,937,048 266,256 1,750,017 3,705,065 598,084 4,403,116 493,379 1,376,744 3,041,186 42,083,725 Total equity 8,814,706 575,714 825,894 63,326 629,969 1,157,741 91,808 1,657,559 92,160 95,451 3,193,720 17,198,048

Kenya • Uganda • South Sudan • Rwanda • DR Congo • Tanzania 78 UAP HOLDINGS LIMITED Annual Report & Financial Statements 2014

Notes to The Financial Statements (Continued) 5(a) Segmental information (continued)

Year ended 31 December 2013 Kenya South Sudan Uganda Rwanda Tanzania All other segments General Life General General Life General General & intragroup Insurance Assurance Insurance Property Insurance Assurance Property Insurance Insurance eliminations Total Kshs ’000 Kshs ’000 Kshs ’000 Kshs ’000 Kshs ’000 Kshs ’000 Kshs ’000 Kshs ’000 Kshs ’000 Kshs ’000 Kshs ’000 Gross written premium (external) 7,686,031 1,170,675 1,078,699 - 1,894,602 178,390 - 137,564 591,325 - 12,737,286 Gross earned premium 7,161,061 1,128,844 1,003,888 - 1,632,135 178,390 - 57,903 397,639 - 11,559,860 Net earned premium 5,744,426 840,921 846,275 - 1,163,994 169,598 - 49,447 199,721 - 9,014,382 Interest income 299,879 370,152 2,149 - 103,204 30,563 - 18,186 12,589 53,500 890,222 Other investment income 635,979 566,931 46,903 62,184 114,947 829 511,035 - - 34,225 1,973,033 Commissions and other income 426,940 192,231 38,679 - 106,584 2,033 - 2,385 86,252 8,595 863,699 Total income 7,107,224 1,970,235 934,006 62,184 1,488,729 203,023 511,035 70,018 298,562 96,320 12,741,336 Claims and policy owners’ benefits payable (3,478,611) (1,201,113) (350,024) - (509,315) (65,417) - (34,638) (115,693) - (5,754,811) Finance cost (10,099) - (16,939) (31,338) - - (2,965) - - - (61,341) Depreciation (29,958) (6,898) (19,953) - (4,644) - - (5,437) (6,686) (15,541) (89,117) Amortisation (1,238) ------(1,375) (106,235) (108,848) Commissions and other operating expenses (2,354,102) (432,846) (505,891) 222 (751,673) (152,159) (52,753) (117,911) (143,474) (4,892) (4,515,479) Profit before tax 1,233,216 329,378 41,199 31,068 223,097 (14,553) 455,317 (89,343) 32,709 (30,348) 2,211,740 Income tax expense (199,132) (473) 7,129 (11,673) (101,428) 40,841 (136,603) - - - (401,339) Profit or (loss) after tax for the year 1,034,084 328,905 48,328 19,395 121,669 26,288 318,714 (89,343) 32,709 (30,348) 1,810,401 Profit attributable to Non-controlling interests - - - 5,819 57,184 12,355 67,408 - 13,084 (3,025) 152,825 Profit attributable to shareholders of the parent 1,034,084 328,905 48,328 13,576 64,485 13,933 251,306 (89,343) 19,625 (27,323) 1,657,576 Profit or (loss) after tax for the year 1,034,084 328,905 48,328 19,395 121,669 26,288 318,714 (89,343) 32,709 (30,348) 1,810,401 Other comprehensive income 1,617,551 - 28,317 (30,002) 55,990 4,888 40,525 - (6,804) 20,490 1,730,955 Total comprehensive income 2,651,635 328,905 76,645 (10,607) 177,659 31,176 359,239 (89,343) 25,905 (9,858) 3,541,356 Additions: Property and equipment 60,842 - 42,200 - 12,118 4,709 549 37,363 2,554 111,304 271,639 Investment property - - 148,450 368,373 - - 675,682 - - 756,564 1,949,069 Intangible assets 7,074 ------7,476 6,290 52,976 73,816 Total assets 13,755,132 6,458,175 1,726,760 1,178,082 3,143,088 381,105 3,584,282 289,959 1,180,938 1,412,468 33,109,989 Total equity 7,248,146 798,341 596,546 423,273 959,285 62,003 1,382,149 120,678 63,835 3,107,394 14,761,650

Kenya • Uganda • South Sudan • Rwanda • DR Congo • Tanzania 79 UAP HOLDINGS LIMITED Annual Report & Financial Statements 2014 Notes to The Financial Statements (Continued) 5 (a) Segmental information (continued)

Premiums by source country 31-Dec-14 31-Dec-13 Kenya Uganda Sudan Rwanda Tanzania Total Kenya Uganda Sudan Rwanda Tanzania Total Kshs ’000 Kshs ’000 Kshs ’000 Kshs ’000 Kshs ’000 Kshs ’000 Kshs ’000 Kshs ’000 Kshs ’000 Kshs ’000 Kshs ’000 Kshs ’000 Short - term insurance Gross written premium 7,532,999 2,438,419 1,183,301 358,831 1,201,910 12,715,460 7,686,031 1,894,602 1,008,803 137,564 591,325 11,318,325 Gross earned premium 7,600,587 2,139,184 1,134,900 261,154 1,039,288 12,175,113 7,161,061 1,632,135 976,517 57,903 397,639 10,225,255 Net earned premium 6,063,039 1,710,070 958,774 213,370 648,418 9,593,670 5,744,426 1,163,994 841,075 49,447 199,721 7,998,663 Long - term business - Gross written premium 1,705,679 331,414 80,182 - - 2,117,275 1,170,675 178,390 69,896 - - 1,418,961 Gross earned premium 1,656,142 331,414 (4,225) - - 1,983,331 1,128,844 178,390 27,371 - - 1,334,605 Net earned premium 1,342,882 314,313 12,194 - - 1,669,389 840,921 169,598 5,200 - - 1,015,719 Total Gross written premium 9,238,678 2,769,833 1,263,483 358,831 1,201,910 14,832,735 8,856,706 2,072,992 1,078,699 137,564 591,325 12,737,286 Gross earned premium 9,256,729 2,470,598 1,130,675 261,154 1,039,288 14,158,444 8,289,905 1,810,525 1,003,888 57,903 397,639 11,559,860 Net earned premium 7,405,921 2,024,856 970,968 213,370 648,418 11,263,533 6,585,347 1,333,592 846,275 49,447 199,721 9,014,382

Investment income 2,877,162 1,186,294 493,464 15,370 31,482 4,603,772 1,960,609 760,635 111,236 18,186 12,589 2,863,255 Commission earned 453,211 143,773 73,501 24,979 95,035 790,499 564,365 101,781 38,679 2,044 86,252 793,121 Other income 21,689 6,751 - 1,759 - 30,199 56,795 13,442 - 341 - 70,578 Total income 10,757,983 3,361,674 1,537,933 255,478 774,935 16,688,003 9,167,116 2,209,450 996,190 70,018 298,562 12,741,336

Kenya • Uganda • South Sudan • Rwanda • DR Congo • Tanzania 80 UAP HOLDINGS LIMITED Annual Report & Financial Statements 2014

Notes to The Financial Statements (Continued) 5 (a) Segmental information (continued)

Asset allocation by country

31-Dec-14 31-Dec-13 Kenya Uganda Sudan Rwanda Tanzania Other Total Kenya Uganda Sudan Rwanda Tanzania Other Total Kshs ’000 Kshs ’000 Kshs ’000 Kshs ’000 Kshs ’000 Kshs ’000 Kshs ’000 Kshs ’000 Kshs ’000 Kshs ’000 Kshs ’000 Kshs ’000 Kshs ’000 Kshs ’000 Property and equipment 241,434 37,457 52,963 46,061 52,472 5,974 436,361 232,411 21,220 56,006 32,094 9,532 7,192 358,455 Investment property 7,967,942 4,816,942 2,337,423 - - - 15,122,307 5,983,974 4,020,483 1,370,597 - 37,292 - 11,412,346 Intangible assets 66,530 164 - 6,268 9,744 30,281 112,987 136,923 - - 6,145 4,212 32,312 179,592

Total assets 35,758,404 8,722,357 3,953,321 493,379 1,376,744 (8,220,480) 42,083,725 20,304,821 7,136,217 2,904,842 289,959 1,180,938 1,293,212 33,109,989 Total equity 16,257,589 2,900,820 1,519,189 92,160 95,451 (3,667,161) 17,198,044 10,349,916 2,421,148 1,019,819 120,678 63,836 786,253 14,761,650

Kenya • Uganda • South Sudan • Rwanda • DR Congo • Tanzania 81 UAP HOLDINGS LIMITED Annual Report & Financial Statements 2014

Notes to The Financial Statements (Continued)

5 (b) Gross earned premium The premium income of the Group can be analysed between the main classes of business as shown below:-

Gross Written Premium Gross Earned Premium

2014 2013 2014 2013 Kshs’000 Kshs’000 Kshs’000 Kshs’000 Short term insurance business Engineering 793,243 576,189 569,681 473,670 Fire 1,407,321 1,607,940 1,554,979 1,442,785 Liability 296,944 334,962 295,855 293,139 Marine 247,183 301,233 255,828 281,797 Motor 3,569,014 3,295,959 3,483,676 3,016,792 Workmen’s Compensation 407,971 330,418 379,967 332,435 Personal Accident and medical 408,268 281,512 339,672 269,887 Theft 626,785 477,240 580,687 477,267 Medical 4,513,218 3,883,917 4,253,805 3,427,923 Others 445,513 228,955 460,963 209,560 Total 12,715,460 11,318,325 12,175,113 10,225,255

Long term business Ordinary life 1,169,172 716,093 1,169,172 716,093 Group life 948,103 702,868 814,159 618,512 Total 2,117,275 1,418,961 1,983,331 1,334,605

Total 14,832,735 12,737,286 14,158,444 11,559,860

Gross written premium represents the total premiums receivable by the Group before adjusting for the unearned proportion of the premiums. It is reported in the income statement for information purposes only. Revenue comprises gross earned premiums. All revenue is earned from external customers.

82 Kenya • Uganda • South Sudan • Rwanda • DR Congo • Tanzania UAP HOLDINGS LIMITED Annual Report & Financial Statements 2014

Notes to The Financial Statements (Continued)

6 Investment income 2014 2013 Kshs ’000 Kshs ’000 Interest from government securities 690,049 520,790 Bank deposit interest 282,077 343,917 Loan interest receivable 57,588 25,515 Rental income from investment properties 422,007 271,048 Miscellaneous income 51,133 5,310 Gain/(loss) in foreign exchange 81,025 (43,298) Profit/(loss) on sale of equities (11,592) 116,621 Fair value gains on investment properties (note 21) 2,493,175 1,140,556 Fair value gains on equity assets at fair value through profit or loss (note 24(b)) 368,005 469,722 Dividends receivable from equity investments 134,418 147,706 Fair value gains on government securities assets at fair value through profit or loss 35,887 11,455 Investment fees - (146,087) Total 4,603,772 2,863,255

7 Other income 2014 2013 Kshs ’000 Kshs ’000 Fee income 26,656 22,991 Others 3,543 47,587

Total 30,199 70,578

Fee income relates to administration fees arising from services rendered in relation to the issue and management of deposit administration and other investment contracts. There are no individually significant items included in other category.

Kenya • Uganda • South Sudan • Rwanda • DR Congo • Tanzania 83 UAP HOLDINGS LIMITED Annual Report & Financial Statements 2014

Notes to The Financial Statements (Continued)

8 Claims and policyholder benefits payable

i) Short term insurance business 2014 2013 Kshs ’000 Kshs ’000

Engineering 98,461 28,109 Fire 419,961 397,211 Liability 153,066 -10,139 Marine 126,666 105,572 Motor 2,241,260 1,633,706 Workmen’s compensation 204,651 118,108 Personal accident 116,608 67,070 Thef t 116,218 207,238 Medical 2,933,862 2,478,555 Others 208,139 240,642 Total 6,618,892 5,266,072

ii) Long term insurance business 2014 2013 Kshs ’000 Kshs ’000 Death, maturity and benefits payable 516,515 599,466 Increase in policy owners’ liabilities 1,736,854 689,141 Interest payable on deposit administration and unit linked investments contracts 198,894 73,380 Total 2,452,263 1,361,987

Total 9,071,155 6,628,059

84 Kenya • Uganda • South Sudan • Rwanda • DR Congo • Tanzania UAP HOLDINGS LIMITED Annual Report & Financial Statements 2014

Notes to The Financial Statements (Continued)

9 Operating and other expenses 2014 2013 Kshs ’000 Kshs ’000 Staff costs (Note 10) 1,497,541 1,291,191 Auditor’s remuneration 10,773 10,003 Depreciation (Note 19) 132,943 89,117 Amortisation of intangible assets (Note 20) 117,124 108,848 Impairment charge on receivables arising out of direct insurance arrangements (Note 4) 19,194 175,919 Operating lease rentals 234,934 179,215 Repairs and maintenance 156,015 167,694 Travelling costs 117,685 58,171 Directors’ expenses 96,262 35,817 Professional fees 147,904 81,995 Software maintenance and printing costs 142,485 232,632 Marketing and branding 299,516 138,747 Communication costs 89,767 48,313 Insurance related expenses 196,493 116,434 Other expenses 1,116,435 525,262 Total 4,375,071 3,259,358

There are no individually significant items included in other category.

10 Staff costs 2014 2013 Kshs ’000 Kshs ’000

Salaries and wages 1,333,137 1,200,432 Social security benefits costs 36,461 21,192 Retirement benefit costs: Defined benefits scheme (Note 23) 63,875 18,705 Defined contribution scheme 64,068 50,862 Total 1,497,541 1,291,191

Kenya • Uganda • South Sudan • Rwanda • DR Congo • Tanzania 85 UAP HOLDINGS LIMITED Annual Report & Financial Statements 2014

Notes to The Financial Statements (Continued)

11 Income tax expense 2014 2013 Kshs ’000 Kshs ’000

Current income tax 251,693 343,446 Deferred tax (Note 22) 377,349 57,893

Total 629,042 401,339

The tax on the Group’s profit before income tax differs from the theoretical amount that would arise using the statutory income tax rate as follows: 2014 2013 Kshs ’000 Kshs ’000

Profit before tax 2,296,229 2,211,736 Tax calculated at a tax rate of 30% (2013: 30%); (15% (2013:15%) for UAP South-Sudan) 926,744 653,888 Less: tax effect of income not subject to tax (588,257) (260,509) Add: tax effect of expenses not deductible for tax purposes 290,555 7,960

Total 629,042 401,339

Movement in the tax (payable) / recoverable account is as follows: 2014 2013 Kshs ’000 Kshs ’000

At the beginning of the year (48,163) 41,672 Taxation charge (251,693) (343,446) Taxation paid 371,270 253,611

At end of the year 71,414 (48,163)

Disclosed as follows; 31-Dec 31-Dec 2014 2013 Kshs ’000 Kshs ’000

Current income tax recoverable 113,477 27,614 Current income tax payable (42,063) (75,777)

Total 71,414 (48,163)

86 Kenya • Uganda • South Sudan • Rwanda • DR Congo • Tanzania UAP HOLDINGS LIMITED Annual Report & Financial Statements 2014

Notes to The Financial Statements (Continued)

12 Earnings per share Basic earnings per share are calculated by dividing the profit attributable to equity holders of the Company by the weighted average number of ordinary shares outstanding during the year. 2014 2013 Kshs’000 Kshs’000 Profit attributable to equity holders of the company 1,485,976 1,657,576 Number of shares in issue 211,420 211,420 Basic earnings per share 7.03 7.84 Diluted earnings per share 7.03 7.84

There were no potentially dilutive shares outstanding at 31 December 2014 or 31 December 2013. Diluted earnings per share are therefore the same as basic earnings per share. There was no change in number of shares during the year ended 31 December 2014. There were no shares issued in 2014 thus no weighting done. 13 Share capital The total authorised number of ordinary shares is 220 million (2013: 220 million) with a par value of Kshs 5 per share. At 31 December 2014, 211 million ordinary shares were in issue and were fully paid.

Number Ordinary Share of shares shares premium Kshs ’000 Kshs ’000 Kshs ’000 Balance at 1 January 2013, 1 January 2014 and 31 December 2014 211,420 1,057,099 4,612,626

14 Fair value reserve for equity investments The fair value reserves relate to unrealised gains or losses on the Group’s equity investments that are carried at fair value through other comprehensive income. This reserve is not distributable. 15 Retained earnings The retained earnings balance represents the amount available for dividend distribution to the shareholders of the Company, except for cumulative fair value gains on the investment properties of Kshs 6,703 million (31 December 2013:Kshs 4,210 million) whose distribution is subject to restrictions imposed by regulation. 16 Dividends During the year, no interim dividend (2013: Nil) was paid to shareholders in the company register. The Directors recommend the payment of a final dividend of Kshs 1.7 per share (2013; Kshs 1.7 per share) amounting to Kshs. 359 million (2013: Kshs 359 million). Payment of dividends is subject to withholding tax at a rate of either 5% or 10% depending on the residence of the respective shareholders.

17 Statutory reserve The statutory reserve represents amounts set up in the Group’s Ugandan subsidiary in accordance with the Ugandan Insurance Act, which requires the following amounts to be appropriated from earnings:

• a contingency reserve calculated at the higher of 2% of gross premium and 15% of net profits of UAP Uganda. • a capital reserve, calculated at 5% of net profits of UAP Insurance Uganda Limited.

The reserve is available for distribution to the extent that the minimum amounts required by the Uganda Insurance Act are maintained.

Kenya • Uganda • South Sudan • Rwanda • DR Congo • Tanzania 87 UAP HOLDINGS LIMITED Annual Report & Financial Statements 2014

Notes to The Financial Statements (Continued)

18 Goodwill The goodwill arose from acquisition of UAP Century Tanzania in 2013 and UAP Insurance Uganda Limited in 2004 and is therefore all allocated to the Tanzania and Uganda Cash Generating Units (CGUs) for the purposes of impairment assessment.

31-Dec 31-Dec 2014 2013 Kshs ’000 Kshs ’000

At start of year: 240,030 65,667 Arising from acquisition of UAP Insurance Tanzania - 174,363 Total 240,030 240,030

The recoverable amount of a CGU is determined based on value-in-use calculations. These calculations use cash flow projections based on financial budgets approved by management covering a 5 year period. The growth rates do not exceed the long-term average growth rates for the respective businesses in which CGUs operate.

The key assumptions used for the value in use calculations are: 31 31 December December 2014 2013

Growth rate % 22 22 Discount rate % 13 13

Management determined budgeted profit from operating activities based on past performance and its expectations for the market developments. The weighted average growth rates used are consistent with the forecasts included in industry reports. The discount rates used are pre-tax and reflect specific risks relating to the Tanzania and Uganda segment.

Goodwill is classified as a non-current asset.

88 Kenya • Uganda • South Sudan • Rwanda • DR Congo • Tanzania UAP HOLDINGS LIMITED Annual Report & Financial Statements 2014

Notes to The Financial Statements (Continued)

19 Property and equipment (a) Group Office Capital furniture and Computer Motor work-in Telephone equipment equipment Vehicles progress equipment Total Kshs’000 Kshs’000 Kshs’000 Kshs’000 Kshs’000 Kshs’000 Year ended 31 December 2014 Cost At 1 January 2014 364,390 333,306 102,223 13,698 70,413 884,030

Additions 66,595 66,569 13,935 58,939 6,725 212,763 Capitalised 9,566 1,564 - (11,130) - - Disposals (5,864) (63) (13,450) - - (19,377) Translation difference 1,038 (1,322) 1,868 (1,295) 58 347 At 31 December 2014 435,725 400,054 104,576 60,212 77,196 1,077,763 Depreciation At 1 January 2014 210,090 248,593 40,758 - 26,134 525,575 Charge for the year 41,181 48,169 26,080 - 17,513 132,943 Accumulated depreciation on disposals (3,164) (55) (13,149) - - (16,368) Translation difference (12) (1,280) 389 - 155 (748) At 31 December 2014 248,095 295,427 54,078 - 43,802 641,402 Net book amount At 31 December 2014 187,630 104,627 50,498 60,212 33,394 436,361 Year ended 31 December 2013 Cost At 1 January 2013 260,055 243,323 46,531 - 68,326 618,235

Additions 102,231 87,510 66,401 13,698 1,799 271,639 Disposals - (117) (10,989) - - (11,106) Translation difference 2,104 2,590 280 - 288 5,262 At 31 December 2013 364,390 333,306 102,223 13,698 70,413 884,030 Depreciation At 1 January 2013 179,647 215,097 32,771 - 14,657 442,172 Charge for the year 28,374 30,823 18,446 - 11,474 89,117 Accumulated depreciation on disposals - (20) (10,772) - - (10,792) Translation difference 2,069 2,693 313 - 3 5,078 At 31 December 2013 210,090 248,593 40,758 - 26,134 525,575 Net book amount 154,300 84,713 61,465 13,698 44,279 358,455

Kenya • Uganda • South Sudan • Rwanda • DR Congo • Tanzania 89 UAP HOLDINGS LIMITED Annual Report & Financial Statements 2014

Notes to The Financial Statements (Continued)

19 Property and equipment (b) Company Office furniture and Computer Motor Telephone equipment equipment Vehicles equipment Total Kshs’000 Kshs’000 Kshs’000 Kshs’000 Kshs’000 Year ended 31 December 2014 Cost At 1 January 2014 7,122 38,726 13,810 33,148 92,806 Additions 7,832 34,708 - 73 42,613

At 31 December 2014 14,954 73,434 13,810 33,221 135,419 Depreciation At 1 January 2014 781 4,505 674 7,162 13,122 Charge for the year 1,695 20,867 3,454 4,858 30,874

At 31 December 2014 2,476 25,372 4,128 12,020 43,996 Net book amount At 31 December 2014 12,478 48,062 9,682 21,201 91,423

Year ended 31 December 2013 Cost At 1 January 2013 1,035 2,173 - 32,145 35,353 Additions 6,087 36,553 13,810 1,003 57,453 At 31 December 2013 7,122 38,726 13,810 33,148 92,806 At 31 December 2013 Depreciation At 1 January 2013 265 323 - 2,376 2,964 Charge for the year 516 4,182 674 4,786 10,158

At 31 December 2013 781 4,505 674 7,162 13,122

Net book amount 6,341 34,221 13,136 25,986 79,684

Property and equipment are classified as non-current assets.

90 Kenya • Uganda • South Sudan • Rwanda • DR Congo • Tanzania UAP HOLDINGS LIMITED Annual Report & Financial Statements 2014

Notes to The Financial Statements (Continued)

20 Intangible assets (a) Group Computer Work in software progress Total Kshs ’000 Kshs ’000 Kshs ’000 Year ended 31 December 2014: Cost At 1 January 2014 450,939 19,031 469,970 Additions 49,066 - 49,066 Transfers 19,031 (19,031) - Translation difference 1,453 - 1,453 At 31 December 2014 520,489 - 520,489 Depreciation At 1 January 2014 290,378 - 290,378 Charge for the year 117,124 117,124 At 31 December 2014 407,502 - 407,502 Net book amount At 31 December 2014 112,987 - 112,987

Year ended 31 December 2013: Cost At 1 January 2013 398,188 - 398,188 Additions 54,785 19,031 73,816 Transfers (2,078) - (2,078) Transfer from work in progress 44 - 44 At 31 December 2013 450,939 19,031 469,970 Depreciation At 1 January 2013 181,530 - 181,530 Charge for the year 108,848 - 108,848 At 31 December 2013 290,378 - 290,378 Net book amount 160,561 19,031 179,592

Kenya • Uganda • South Sudan • Rwanda • DR Congo • Tanzania 91 UAP HOLDINGS LIMITED Annual Report & Financial Statements 2014

Notes to The Financial Statements (Continued)

20 Intangible assets (continued)

(b) Company 2014 2013 Kshs ’000 Kshs ’000 Carrying value At start of year 131,087 215,130 Additions 26,531 3,161 Work in progress - Additions - 19,031 Amortisation charge for the year (95,682) (106,235)

At end of year 61,936 131,087

The intangible assets for the company relate to computer software. All intangible assets are classified as non-current assets.

21 Investment properties (a) Group 2014 2013 Kshs ’000 Kshs ’000

At start of year 11,412,346 8,119,908 Additions 1,350,067 1,949,069 Fair value gains 2,493,175 1,140,556 Translation difference (133,281) 202,813

At end of year 15,122,307 11,412,346

(b) Company 2014 2013 Kshs ’000 Kshs ’000

At start of year 2,275,274 1,520,000 Additions 738,872 718,900 Fair value gains 621,096 36,374

At end of year 3,635,242 2,275,274

The Group’s investment properties were revalued in December 2014 and 2013 by Knight Frank Valuers, professional independent valuers in Kenya, South Sudan and Bageine & Company in Uganda respectively on the basis of open market. The open market value of all properties was determined using recent market prices. The rental income earned by the Group from its investment properties leased out under operating leases amounted to Kshs 484 million (2013: Kshs 295 million). Direct operating expenses arising on investment properties amounted to Kshs 62 million (2013: Kshs 24 million). All investment properties are classified as non-current assets.

92 Kenya • Uganda • South Sudan • Rwanda • DR Congo • Tanzania UAP HOLDINGS LIMITED Annual Report & Financial Statements 2014

Notes to The Financial Statements (Continued)

21 Investment properties (continued)

Details of the Group’s investment properties and information about fair value hierarchy as at 31 December 2014 are as follows:

2014 2013 Kshs ‘000 Kshs ‘000 Level 1 - - Level 2 - - Level 3 15,122,307 11,412,346

Fair value as at 31 December 15,122,307 11,412,346

22 Deferred income tax

Deferred tax is calculated, in full, on all temporary differences under the liability method using a principal tax rate of 30% (2013: 30%). The movement on the deferred income tax account is as follows:

31-Dec 31-Dec 2014 2013 Kshs ’000 Kshs ’000

At start of year: 246,813 195,900 Profit or loss (Note 11) 377,349 57,893 Translation difference 12,984 (6,980) Total 637,146 246,813

Disclosed as follows;

31-Dec 31-Dec 2014 2013 Kshs ’000 Kshs ’000

Deferred tax asset (83,640) (133,202) Deferred tax liability 720,786 380,015

Total 637,146 246,813

Kenya • Uganda • South Sudan • Rwanda • DR Congo • Tanzania 93 UAP HOLDINGS LIMITED Annual Report & Financial Statements 2014

Notes to The Financial Statements (Continued)

22 Deferred income tax (continued) Deferred tax assets and liabilities and deferred tax charge/(credit) in the income statement are attributable to the following items:

Year ended 31 December 2014 1-Jan (Charged) Translation 31-Dec 2014 / credited Reserves 2014 Kshs ’000 Kshs ’000 Kshs ’000 Kshs ’000

Property and equipment: - on historical cost basis 16,151 (100,534) 3 (84,380) Investment property fair value gains (466,485) (411,491) (9,926) (887,902) Other provisions 203,521 134,676 (3,061) 335,136

Net deferred tax liability (246,813) (377,349) (12,984) (637,146)

Year ended 31 December 2013 1-Jan (Charged) Translation 31-Dec 2013 / credited Reserves 2013 Kshs ’000 Kshs ’000 Kshs ’000 Kshs ’000

Property and equipment: - on historical cost basis 16,020 (1,949) 2,080 16,151 Investment property fair value gains (253,913) (231,032) 18,460 (466,485) Other provisions 41,993 175,088 (13,560) 203,521

Net deferred tax liability (195,900) (57,893) 6,980 (246,813)

Deferred income tax liabilities are classified as non-current liabilities.

94 Kenya • Uganda • South Sudan • Rwanda • DR Congo • Tanzania UAP HOLDINGS LIMITED Annual Report & Financial Statements 2014

Notes to The Financial Statements (Continued)

23 Retirement benefit obligation

Description of plan The Group operates a funded defined benefit plan for all employees. The Scheme is open to new entrants. Scheme members’ contributions are a fixed percentage of pensionable pay with the Group responsible for the balance of the cost of benefits accruing. The Scheme is established under trust. The Scheme funds are invested by a fund manager in a variety of asset classes comprising government securities (Treasury bills and bonds), stocks and shares and commercial paper.

The amounts recognized in the statement of financial position are determined as follows:

2014 2013 Kshs’000 Kshs’000

Present value of funded obligations 651,907 609,232 Fair value of plan assets 937,825 794,159

Present value of over-funding (285,918) (184,927)

The movement in the fair value of funded obligations is as follows:

2014 2013 Kshs’000 Kshs’000 At start of year 609,232 455,896 Current service cost 84,110 47,607 Interest cost 85,082 66,084 Remeasurements (67,475) 104,731 Benefits paid (59,042) (65,086)

At end of year 651,907 609,232

The movement in the fair value of the plan assets is as follows:

2014 2013 Kshs’000 Kshs’000 At start of year 794,159 646,596 Interest on scheme assets 105,317 94,986 Remeasurements (16,666) 26,030 Employer contribution 73,694 58,425 Employee contribution 40,363 33,208 Benefits paid (59,042) (65,086)

At end of year 937,825 794,159

Kenya • Uganda • South Sudan • Rwanda • DR Congo • Tanzania 95 UAP HOLDINGS LIMITED Annual Report & Financial Statements 2014

Notes to The Financial Statements (Continued)

23 Retirement benefit obligation (continued)

Plan assets compromise: 2014 2013 Kshs’000 %age Kshs’000 %age Equity instruments 277,197 29.56% 217,408 27.36% Debt instruments 525,530 56.04% 446,631 56.23% Other 135,098 14.40% 130,120 16.41%

At end of year 937,825 100% 794,159 100%

The amounts recognised in the income statement for the year are as follows:

2014 2013 Kshs’000 Kshs’000 Current service cost 84,110 47,607 Net Interest cost 86,891 (24,410) Return on scheme assets (excluding interest) (107,126) (4,492)

Net charge for the year included in staff costs (note 10) 63,875 18,705

The principal actuarial assumptions used were as follows: 2014 2013 - discount rate 12.9% 12.8% - expected rate of return on scheme assets 12.9% 12.8% - future salary increases 7.0% 11.8% - future pension increases 2.4% 4.9%

Sensitivity analysis of the above actuarial assumptions

The sensitivity of the defined benefit obligation to the financial assumptions has been assessed by increasing and decreasing the discount rate assumption by 0.5%.

Defined benefit obligation

Discount rate 12.4% 12.9% 13.4% Total accrued liability 656,758 651,907 648,906 Change 0.7% (0.5%)

96 Kenya • Uganda • South Sudan • Rwanda • DR Congo • Tanzania UAP HOLDINGS LIMITED Annual Report & Financial Statements 2014

Notes to The Financial Statements (Continued)

24 Equity investments The Group’s equity investments are measured at fair value with fair value changes recorded through either other comprehensive income or income statements for different portfolios of equity investments, following early adoption of IFRS 9, as follows:

(a) Equity investments at fair value through other comprehensive income 2014 2013 Kshs ’000 Kshs ’000

At start of year 4,140,484 2,699,667 Additions 1,086,343 37,596 Disposals (2,603,431) (345,351) Fair value gains recognised in equity 1,113,234 1,752,686 Translation difference (1,890) (4,114) At end of the year 3,734,740 4,140,484

(b) Equity investments at fair value through profit or loss At start of year 1,366,024 806,764 Additions 1,052,639 393,030 Disposals (432,626) (303,592) Fair value gains charged to income statement 368,005 469,722 Translation difference (154) 100 At end of the year 2,353,888 1,366,024

Total 6,088,628 5,506,508

(c) Equity investments 2014 2013 Kshs ’000 Kshs ’000 (i) Listed securities At start of year 5,444,107 3,452,704 Additions 2,111,630 421,441 Disposals (3,036,057) (648,943) Fair value gains charged to other comprehensive income 1,111,897 1,752,990 Fair value gains charged to income statement (note 6) 368,005 469,722 Translation difference (625) (3,807) At the end of year 5,998,957 5,444,107

Kenya • Uganda • South Sudan • Rwanda • DR Congo • Tanzania 97 UAP HOLDINGS LIMITED Annual Report & Financial Statements 2014

Notes to The Financial Statements (Continued)

(c) Equity investments (continued)

(ii) Unlisted securities 2014 2013 Kshs’000 Kshs’000 At start of year 62,401 53,727 Additions 27,352 9,185 Fair value gains charged to other comprehensive income 1,337 (304) Translation difference (1,419) (207)

At the end of year 89,671 62,401 Total 6,088,628 5,506,508

25 Investments in subsidiaries Country of 2014 2013 Incorporation Interest held Kshs’000 Kshs’000

UAP Insurance Company Limited (Kenya) Kenya 100% 600,000 600,000 UAP Life Assurance Limited (Kenya) Kenya 100% 560,791 560,791 UAP Insurance Limited (Sudan) Sudan 100% 339,442 339,442 UAP Insurance Limited (Uganda) Uganda 53% 202,507 202,507 UAP Financial Services Limited (Kenya) Kenya 100% 10,000 10,000 UAP Financial Services Limited (Uganda) Uganda 89% 65,370 46,277 UAP Properties Limited (Uganda) Uganda 79% 488,743 488,743 UAP SPRL RDC DRC 100% 52,691 32,691 UAP Investments (Kenya) Kenya 100% 125,000 100,000 UAP Century Tanzania Tanzania 60% 275,016 275,016 UAP Rwanda Rwanda 100% 406,950 256,950 UAP Life Uganda Uganda 53% 72,589 -

Total 3,199,099 2,912,417

During the year, the company increased its investments in subsidiaries as follows: Country of 2014 2013 Incorporation Kshs’000 Kshs’000

UAP Life Assurance Limited (Uganda) Uganda 72,589 - UAP Financial Services Limited (Uganda) Uganda 19,093 10,000 UAP SPRL RDC DRC 20,000 28,472 UAP Investments (Kenya) Kenya 25,000 80,000 UAP Century Tanzania Tanzania - 275,016 UAP Rwanda Rwanda 150,000 256,950

Total 286,682 650,438 The investment in subsidiaries is classified as a non-current asset.

98 Kenya • Uganda • South Sudan • Rwanda • DR Congo • Tanzania UAP HOLDINGS LIMITED Annual Report & Financial Statements 2014

Notes to The Financial Statements (Continued)

25 Investments in subsidiaries (continued)

The investments in UAP Century Tanzania, UAP SPRL RDC and UAP Rwanda have been made through UAP Africa Limited (Mauritius).

Summarised financial information on subsidiaries with material non-controlling interests

Set out below are the summarised financial information for each subsidiary that has non-controlling interests that are material to the group.

Summarised balance sheet

UAP Insurance Uganda UAP Life Assurance Uganda UAP Insurance Tanzania

2014 2013 2014 2013 2014 2013 Kshs’000 Kshs’000 Kshs’000 Kshs’000 Kshs’000 Kshs’000

Assets 3,705,065 3,143,088 598,084 381,105 1,376,744 1,180,938 Liabilities 2,547,323 2,183,802 506,275 319,101 1,281,293 1,117,102 Net assets 1,157,741 959,285 91,809 62,004 95,451 63,836

Summarised income statement Revenue 2,438,419 1,894,602 331,414 178,390 1,201,910 591,325 Profit before income tax 232,153 223,097 (28,315) (14,553) 11,225 32,709 Income tax expense/income (65,226) (101,428) (41,899) 40,841 17,704 - Post-tax profit 166,927 121,669 (70,214) 26,288 28,929 32,709 Other comprehensive income (40,425) 55,990 (796) 4,888 2,686 6,803 Total comprehensive income 126,502 177,659 (71,010) 31,176 31,615 39,512 Total comprehensive income allocated to non-controlling interest 59,456 83,500 (33,375) 14,653 12,646 15,805

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Notes to The Financial Statements (Continued)

25 Investments in subsidiaries (continued) Summarised cash flows UAP Insurance Uganda UAP Life Assurance Uganda UAP Insurance Tanzania

2014 2013 2014 2013 2014 2013 Kshs’000 Kshs’000 Kshs’000 Kshs’000 Kshs’000 Kshs’000 Cash flows from operating activities Cash generated from operations 17,110 471,145 125,370 112,687 2,715 (43,360) Income tax paid (18,535) (49,773) - - - (786) Net cash generated from operating activities (1,425) 421,372 125,370 112,687 2,715 (44,146) Net cash used in investing activities (59,986) (132,756) (122,109) (36,749) (229,701) (31,979) Net cash used in financing activities (29,436) (29,436) 100,815 - (3,207) 258,711 Increase in cash and cash equivalents (90,847) 259,180 104,076 75,938 (230,193) 182,586 At 1 January 609,103 349,922 240,727 164,789 325,123 142,537 Increase during the year (90,847) 259,180 104,076 75,938 (230,193) 182,586 At 31 December 518,256 609,102 344,803 240,727 94,930 325,123

The information above is the amount before inter-company eliminations. 26 Mortgage loans receivable 2014 2013 Kshs’000 Kshs’000 At start of year 228,307 147,367 Loans advanced 110,784 94,929 Loan repayments (85,236) (14,036) Translation difference 1,582 47

At end of year 255,437 228,307

Maturity profile of loans 2014 2013 Kshs’000 Kshs’000 Loans maturing Within 1 year - In 1-5 years 29,196 32,121 In over 5 years 226,241 196,186

255,437 228,307

There is no concentration of credit risk with respect to mortgage loans. Loans maturing within 1 year are classified as current assets while those with a maturity period of more than 1 year are classified as non-current assets.

100 Kenya • Uganda • South Sudan • Rwanda • DR Congo • Tanzania UAP HOLDINGS LIMITED Annual Report & Financial Statements 2014

Notes to The Financial Statements (Continued)

27 Reinsurers’ share of insurance liabilities 2014 2013 Kshs’000 Kshs’000 Reinsurers’ share of: Unearned premium (Note 37) 1,155,712 1,063,508 Notified claims outstanding: - short term insurance (Note 35) 982,207 840,637 - long term insurance contract liabilities (Note 35) 248,620 161,896 Claims incurred but not reported short term insurance (Note 35) 123,290 164,019

At end of year 2,509,829 2,230,060

Amounts due from reinsurers in respect of claims already paid by the Group on contracts that are reinsured are included in receivables arising out of reinsurance arrangements on the statement of financial position. Movements in the above reinsurance assets are shown in note 35 and 37. Reinsurers’ share of insurance liabilities is classified as a current asset. 28 Deferred acquisition costs 2014 2013 Kshs’000 Kshs’000 At start of year 323,527 258,863 Additions 304,718 64,281 Amortisation charge (196,256) (3,987) Translation difference (3,241) 4,370

At end of year 428,748 323,527

Deferred acquisition costs are classified as current assets. 29 Other receivables and prepayments (a) Group 2014 2013 Kshs ’000 Kshs ’000

Prepayments 960,260 472,416 Accrued income 7,601 14,348 Staff debtors 106,754 104,018 Others 475,572 574,817

1,550,187 1,165,599

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Notes to The Financial Statements (Continued)

29 Other receivables and prepayments (continued) (b) Company 2014 2013 Kshs ’000 Kshs ’000

Prepayments 688,065 228,297 Others 8,646 47,590

Total 696,711 275,887 Due from related party (note 43 (iv)) 2,186,511 1,617,577

There are no individually significant items under others category. 30 Government securities 2014 2013 Kshs ’000 Kshs ’000 (i) At fair value through profit or loss:

Treasury bills and bonds maturing: After 5 years 742,791 705,091

At end of the year 742,791 705,091

(ii) At amortised cost:

Treasury bills and bonds maturing: Within 91 days 97,346 72,221 91 days to 1 year 274,283 355,836 In 1-5 years 1,006,820 433,038 After 5 years 3,754,513 3,000,256

At end of the year 5,132,962 3,861,351

At end of the year 5,875,753 4,566,442

Government securities with a maturity period of up to 1 year are classified as current assets while those with a maturity profile of more than 1 year are classified as non-current assets.

102 Kenya • Uganda • South Sudan • Rwanda • DR Congo • Tanzania UAP HOLDINGS LIMITED Annual Report & Financial Statements 2014

Notes to The Financial Statements (Continued)

31 Cash and cash equivalents For the purposes of the statement of cash flows, cash and cash equivalents comprise the following: 2014 2013 Kshs ’000 Kshs ’000

Cash and bank balances 1,025,540 1,341,151 Deposits with financial institutions 3,173,707 1,972,751 Treasury bills maturing within 91 days (note 30) 97,346 72,221

At end of the year 4,296,593 3,386,123

Cash and cash equivalents are classified as current assets.

32 Insurance contract liabilities 2014 2013 Kshs ’000 Kshs ’000

Short term insurance contracts - claims reported and claims handling expenses 3,417,187 3,004,698 - claims incurred but not reported 941,485 442,210

At end of the year 4,358,672 3,446,908

Long term contracts - claims reported and claims handling expenses 3,361,763 1,820,972

Total gross insurance liabilities 7,720,435 5,267,880

Insurance contract liabilities are classified as current liabilities. Movements in insurance liabilities and reinsurance assets are shown in Note 35.

(i) Short term insurance contracts liabilities Gross claims reported, claims handling expenses liabilities and the liability for claims incurred but not reported are net of expected recoveries from salvage and subrogation. The expected recoveries at the end of 31 December 2014 and 31 December 2013 are not material.

The Group uses chain-ladder techniques to estimate the ultimate cost of claims and the IBNR provision. Chain ladder techniques are used as they are an appropriate technique for mature classes of business that have a relatively stable development pattern. This involves the analysis of historical claims development factors and the selection of estimated development factors based on this historical pattern. The selected development factors are then applied to cumulative claims data for each accident year that is not fully developed to produce an estimated ultimate claims cost for each accident year.

The development of insurance liabilities provides a measure of the Groups’ ability to estimate the ultimate value of claims. The table below illustrates how the Groups’ estimate of total claims outstanding for each accident year has changed at successive year ends.

Kenya • Uganda • South Sudan • Rwanda • DR Congo • Tanzania 103 UAP HOLDINGS LIMITED Annual Report & Financial Statements 2014

Notes to The Financial Statements (Continued)

32 Insurance contract liabilities (continued)

(i) Short term insurance contract liabilities (continued) Year ended 31 December 2014

Accident year 2010 2011 2012 2013 2014 Total Kshs’000 Kshs’000 Kshs’000 Kshs’000 Kshs’000 Kshs’000 Estimate of ultimate claims costs At end of accident year 1,268,690 1,649,336 1,978,566 2,430,124 3,471,792 10,798,508 One years later 1,021,792 1,491,445 1,505,116 2,056,163 - 6,074,516 Two years later 971,169 1,164,324 1,615,601 - - 3,751,094 Three years later 980,909 1,241,655 - - - 2,222,564 Four years later 1,012,120 - - - - 1,012,120

Current estimate of cumulative claims 1,012,120 1,241,655 1,615,601 2,056,163 3,471,792 9,397,331 Less: Cumulative payments to date (922,190) (1,046,266) (796,515) (1,664,175) (2,328,419) (6,757,565)

Liability in the statement of financial position 89,930 195,389 819,086 391,988 1,143,373 2,639,766 Liability in respect of prior years - - - - 777,421 777,421 Incurred but not reported - 12,860 17,892 25,160 885,573 941,485

Total gross claims liability included in the statement of financial position 89,930 208,249 836,978 417,148 2,806,367 4,358,672

(ii) Long term business contracts The Group determines its liabilities on long term insurance contracts based on assumptions in relation to future deaths, voluntary terminations, investment returns and administration expenses. A margin for risk and uncertainty is added to these assumptions. The liabilities are determined on the advice of the consulting actuary and actuarial valuations are carried out on an annual basis.

Actuarial valuation assumptions The latest actuarial valuation of the Life Fund was carried out as at 31 December 2014 by QED Actuaries and Consultants, using the Net Premium Valuation method (and basis) prescribed by the Kenyan Insurance Act, 1988, as amended, and the Gross Premium Valuation (GPV) method for the universal and unit-linked policies for which it was not possible to use the NPV method. The GPV method is generally accepted in the actuarial industry as an appropriate method to place realistic value (with an appropriate allowance for margins) on the liabilities of a life Company. This method is based on a discounted cashflow approach taking into account the expected cashflows from the existing inforce business. By setting appropriate assumptions this method determines liabilities which are consistent with the value of assets included in the accounts.

The more significant valuation assumptions are summarised below. The assumptions used for the previous year-end valuation are shown in brackets:

104 Kenya • Uganda • South Sudan • Rwanda • DR Congo • Tanzania UAP HOLDINGS LIMITED Annual Report & Financial Statements 2014

Notes to The Financial Statements (Continued)

32 Insurance contract liabilities (continued)

(ii) Long term business contracts (continued)

Actuarial valuation assumptions (continued) a) Mortality – The Group used SA56-62 (2013: SA56-62) as a base table of standard mortality for the GPV valuation and KE01-03 (2013: A1949/52) for the NPV basis. Statistical methods are used to adjust the rates reflected in the table based on the Company’s experience. An allowance for AIDS is made based on the Actuarial Society of South Africa’s 2003 AIDS tables. For contracts insuring survivorship the a(55) (2013: a(55)) life table was used as a base; no allowance is made for future mortality improvements.

b) Persistency – The Group does not have sufficient historical data to allow statistical methods to be used to determine an appropriate persistency rate. The persistency rates used in the valuation were set according to the experience observed (by the actuary) in the Group’s data.

c) Investment returns are derived with reference to the return on long term fixed interest investments available in Kenya and adjusted to reflect the actual underlying mix of assets. For the current valuation, the rate of return was 12.5% p.a. (2013: 12.25% p.a.) for the GPV basis and 4% p.a (2013: 4% p.a) for the NPV basis.

d) Expenses, tax and inflation – The current level of renewal expenses were taken to be an appropriate expense base. Expenses pertaining to business establishment and expansion were excluded from the valuation assumption. Expense inflation is assumed to be 10% p.a. (2013:10% p.a.). It has been assumed that the current tax legislation and rates continue unaltered. Under the NPV method it is not possible to model expenses, tax and inflation explicitly.

Sensitivity analysis The following table presents the sensitivity of the value of long term insurance liabilities to movements in key assumptions used in the estimation of liabilities. For liabilities under insurance contracts with fixed and guaranteed terms, key assumptions are unchanged for the duration of the contract. For long term insurance contracts without fixed terms and with discretionary participation in profits, the liability is set approximately equal to the value of the underlying asset of the contract. Hence, there is no sensitivity analysis for these types of contracts.

Change in Increase / Increase / variable (decrease) in (decrease) in liability 2014 liability 2013 Contracts with Fixed and Guaranteed Terms – Variable: Kshs ’000 Kshs ’000 Worsening of mortality +10% (19,913) 16,992 Lowering of investment returns p.a. -1% 197,549 58,239 Worsening of expense inflation rate +1% 8,113 13,384 Worsening of lapse rate +10% (20,638) (3,777)

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Notes to The Financial Statements (Continued)

33 Amounts payable under deposit administration contracts Deposit administration contracts are recorded at amortized cost. Movements in amounts payable under deposit administration contracts during the period were as shown below. The liabilities are shown inclusive of interest accumulated to the end of the reporting period. Interest was declared and credited to the customers’ accounts at a weighted average rate of 12 % for the year (2013: 13 %).

2014 2013 Kshs ’000 Kshs ’000

At start of year 2,812,089 2,202,817 Pension fund deposits received 830,861 606,489 Surrenders and annuities paid (341,949) (277,634) Interest payable to policyholders 346,078 287,340 Administration fees (12,121) (9,071) Translation difference (1,937) 2,148

At end of the year 3,633,021 2,812,089

Other movements relate to a release of excess liabilities recognised following reconciliation of the deposit administration policyholders accounts in the year. Amounts payable under deposit administration contracts are classified as current liabilities.

34 Unit-linked investment contracts The benefits offered under these contracts are based on the return of a portfolio of equities and debt securities. The maturity value of the financial liabilities is determined by the fair value of the linked assets. There will be no difference between the carrying amount and the maturity amount at maturity date.

2014 2013 Kshs ’000 Kshs ’000

At start of year 923,296 847,364 Premium received 114,620 124,360 Interest credited 198,894 70,296 Liabilities released for payment (158,336) (94,003) Other movements (36,030) (26,500) Translation difference (1,616) 1,779

At end of the year 1,040,828 923,296

Unit linked investment contracts are classified as current liabilities. Other movements relate to increase in actuarial liabilities.

106 Kenya • Uganda • South Sudan • Rwanda • DR Congo • Tanzania UAP HOLDINGS LIMITED Annual Report & Financial Statements 2014

Notes to The Financial Statements (Continued)

35 Movements in insurance liabilities and reinsurance assets

31-Dec-14 31-Dec-13

Gross Reinsurance Net Gross Reinsurance Net Kshs ’000 Kshs ’000 Kshs ’000 Kshs ’000 Kshs ’000 Kshs ’000 Short term insurance business At beginning of year

Notified claims 3,004,698 (840,637) 2,164,061 2,013,441 (580,128) 1,433,313

Incurred but not reported 442,210 (164,019) 278,191 343,390 (74,033) 269,357

Total at beginning of year 3,446,908 (1,004,656) 2,442,252 2,356,831 (654,161) 1,702,670

Cash paid for claims settled in year (2,636,889) 877,382 (1,759,507) (2,393,647) 570,020 (1,823,627) Increase in liabilities

- arising from current year claims 2,467,830 (729,378) 1,738,452 2,532,304 (653,718) 1,878,586

- arising from prior year claims 1,080,823 (248,845) 831,978 951,420 (266,797) 684,623

Total at end of year 4,358,672 (1,105,497) 3,253,175 3,446,908 (1,004,656) 2,442,252

Notified claims 3,417,187 (982,207) 2,434,980 3,004,698 (840,637) 2,164,061

Incurred but not reported 941,485 (123,290) 818,195 442,210 (164,019) 278,191

Total at end of year 4,358,672 (1,105,497) 3,253,175 3,446,908 (1,004,656) 2,442,252

Long term insurance business

At beginning of year 1,820,972 (161,896) 1,659,076 1,037,004 (171,667) 865,337

Premium received /valuation premium 1,957,069 (329,789) 1,627,280 1,110,751 (298,320) 812,431

Liabilities released for payments (416,278) 243,065 (173,213) (326,783) 308,091 (18,692)

Total at end of year 3,361,763 (248,620) 3,113,143 1,820,972 (161,896) 1,659,076

Total at end of year 7,720,435 (1,354,117) 6,366,318 5,267,880 (1,166,552) 4,101,328

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Notes to The Financial Statements (Continued)

36 Borrowings 2014 2013 Kshs ’000 Kshs ’000 (a) Group At start of year 2,079,719 1,124,572 Proceeds from borrowings 1,938,326 1,095,767 Interest cost payable 293,310 61,341 Loan and Interest paid (301,231) (254,114) Translation difference (29,123) 52,153

At end of the year 3,981,001 2,079,719

2014 2013 Kshs ’000 Kshs ’000 (b) Company At start of year - - Proceeds from borrowings, net of transaction costs 1,967,524 - Interest cost payable 111,123 -

At end of the year 2,078,647 -

Bank borrowings are repayable on demand and bear an average interest rate of equivalent to the 91-day treasury bill rate plus 1.5% -2% per annum (2013: 91-day treasury bill rate plus 1.5% -2% per annum).

Bank borrowings are classified as current liabilities. The carrying amounts of borrowings approximate to their fair value.

On 28 July 2014, the group issued Kshs 2 billion 13% Kenya Shilling medium term notes to finance its expansion programme and working capital requirements. The related transaction costs amounting to Kshs 36 million have been netted off against the proceeds and amortised over the tenure of the notes. The notes are repayable on 28 July 2019.

None of the borrowings was in default at any time during the year. 37 Unearned premium Unearned premium represents the liability for short term business contracts where the Group’s obligations are not expired at the year end. Movements in the reserve are shown below:

31-Dec-14 31-Dec-13 Gross Reinsurance Net Gross Reinsurance Net Kshs ’000 Kshs ’000 Kshs ’000 Kshs ’000 Kshs ’000 Kshs ’000

At beginning of the year 4,775,498 (1,063,508) 3,711,990 3,378,507 (698,853) 2,679,654 Increase in the year 589,075 (92,204) 496,871 1,396,991 (364,655) 1,032,336

At end of year 5,364,573 (1,155,712) 4,208,861 4,775,498 (1,063,508) 3,711,990

Unearned premiums are classified as current liabilities.

108 Kenya • Uganda • South Sudan • Rwanda • DR Congo • Tanzania UAP HOLDINGS LIMITED Annual Report & Financial Statements 2014

Notes to The Financial Statements (Continued)

38 Other payables (a) Group 2014 2013 Kshs ’000 Kshs ’000

Deferred income 19,019 20,552 Accrued expenses 350,021 560,068 Accrued leave 93,118 72,797 Withheld taxes 122,752 35,107 Other liabilities 913,261 265,882 At end of the year 1,498,171 954,406

Other payables are classified as current liabilities. There are no individually significant items under other liabilities category.

(b) Company 2014 2013 Kshs ’000 Kshs ’000 Accrued expenses 66,525 131,357 Other liabilities 213,902 20,695 Total 280,427 152,052 Due to related parties (Note 43 (iv)) 1,991,496 1,608,870

There are no individually significant items under others category.

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Notes to The Financial Statements (Continued)

39 Cash generated from operations Reconciliation of profit before tax to cash generated from operations 2014 2013 Khs ’000 Ksh’000

Profit before tax 2,296,229 2,211,740 Adjustments for: Investment income (Note 6) (4,603,772) (2,863,255) Depreciation (Note 19) 132,943 89,117 Amortisation (Note 20) 117,124 108,848 Finance costs (Note 36) 293,310 61,341 Gain on disposal of property and equipment (1,347) (2,171) Changes in: Insurance contract liabilities (net) 2,172,786 1,168,666 Deposit administration contracts 820,932 609,272 Unit-linked contracts 117,532 75,932 Unearned premium (net) 589,075 1,396,991 Re-insurance and other payables 348,905 196,659 Direct insurance, re-insurance and other receivables (786,694) (1,114,552) Deferred acquisition costs (105,221) (64,664) Retirement benefit asset (100,991) 5,773

Cash generated from operations 1,290,811 1,879,697

40 Contingent liabilities In common with the insurance industry in general, the Group’s insurance subsidiaries are subject to litigation arising in the normal course of insurance business. The directors are of the opinion that this litigation will not have a material effect on the financial position or profits of the Group. 41 Commitments Capital expenditure committed but not contracted for at financial reporting date is as follows: 2014 2013 Kshs ’000 Kshs ’000

Capital expenditure 2,746,404 3,681,918

The capital expenditure committed but not contracted relates to three major contracts for the construction of investment properties in Kenya, Uganda and Sudan. These projects are estimated to cost approximately Kshs 7.4 billion. They are estimated to take 24 months to complete.

110 Kenya • Uganda • South Sudan • Rwanda • DR Congo • Tanzania UAP HOLDINGS LIMITED Annual Report & Financial Statements 2014

Notes to The Financial Statements (Continued)

42 Financial instruments by category a) Financial assets The Group’s financial assets are summarised by measurement category in the table below.

2014 2013 Kshs ’000 Kshs ’000

At amortised cost 18,428,835 14,038,697 At fair value 6,831,419 6,211,599

25,260,254 20,250,296

2014 2013 Kshs ’000 Kshs ’000 (i) Financial assets at amortised cost

Government securities 5,132,962 3,861,351 Corporate bonds 1,588,613 449,025 Receivables arising out of direct insurance arrangements 2,486,192 2,317,694 Receivables arising out of reinsurance arrangements 706,368 472,759 Reinsurers’ share of insurance liabilities 2,509,829 2,230,060 Other receivables 1,550,187 1,165,599 Deposits with financial institutions 3,173,707 1,972,751 Cash and bank balances 1,025,540 1,341,151 Mortgage loans receivable 255,437 228,307

18,428,835 14,038,697

(ii) Financial assets at fair value

Equity investments: At fair value through other comprehensive income 3,734,740 4,140,484 At fair value through profit or loss 2,353,888 1,366,024 Government securities 742,791 705,091

6,831,419 6,211,599 b) Financial liabilities

Except for unit-linked investment contracts, which are measured at fair value, the Group’s financial liabilities are measured at amortised cost. The carrying value of the Group’s and the Company’s financial liabilities at the end of 2013 and 2014 is shown in note 4(b).

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Notes to The Financial Statements (Continued)

43 Related party transactions The Group is controlled by UAP Holdings Company Ltd incorporated in Kenya being the ultimate parent of the Group. There are other companies that are related to UAP Holdings Limited through common shareholdings or common directorships The following transactions were carried out with related parties: 2014 2013 Kshs ’000 Kshs ’000 i) Administration of staff pension scheme- Group Contributions paid 73,694 58,645 Benefits paid (59,042) (65,086)

ii) Transactions with related parties - Company Interest paid to UAP Insurance Kenya 149,791 134,455

Interest received from UAP Properties South Sudan 15,467 12,780 Interest received from UAP Properties Uganda 30,858 17,931 Investment management fees paid to UAP Investments Kenya 78,924 -

iii) Outstanding balances with related parties - Group Mortgage loans receivable (note 26) 255,437 228,307

Mortgages to staff are fully secured on the mortgage properties and are charged interest at 6% (2013: 6%).

iv) Outstanding balances with related parties - Company 2014 2013 Kshs ’000 Kshs ’000 Payable to related parties: UAP Insurance Kenya 1,957,926 1,589,284 UAP Insurance Uganda 33,570 19,586 At end of year 1,991,496 1,608,870

Receivable from related parties: UAP Insurance Kenya 170,500 170,500 UAP Life Assurance Kenya 90,650 5,859 UAP Life Assurance Uganda 85 68 UAP Insurance South Sudan 69,131 18,954 UAP Insurance Uganda 13,261 - UAP Financial Services Uganda 949 14,798 UAP Properties Uganda 570,417 258,500 UAP Properties South Sudan 199,227 183,760 UAP Insurance Rwanda 7,160 7,157 UAP SPRL RDC 49,246 48,410 UAP Investments Kenya 9,620 19,595 UAP Global Services Mauritius 991,890 885,409 UAP Africa Mauritius 4,883 2,822 UAP Properties Limited (Mauritius) 3,516 673 UAP Insurance Tanzania 4,187 451 UAP Investments (Mauritius) 1,789 621 At end of year 2,186,511 1,617,577

The amounts payable to related parties have no specific repayment date.

112 Kenya • Uganda • South Sudan • Rwanda • DR Congo • Tanzania UAP HOLDINGS LIMITED Annual Report & Financial Statements 2014

Notes to The Financial Statements (Continued)

43 Related party transactions (continued)

2014 2013 Kshs ’000 Kshs ’000

v) Loan to directors At start of year 35,804 39,249 Loan advanced during the year 5,077 - Loans repayments received (3,184) (3,445)

At end of year 37,697 35,804 Loans to directors are fully secured and are charged interest at 6% (2013: 6%).

vii) Key management compensation (a) Group Salaries (Including executive directors salaries) 445,821 399,585 Retirement benefits costs 110,462 32,764

556,283 432,349

(b) Company Salaries (Including executive directors salaries) 105,997 106,148 Retirement benefits costs 7,327 10,403

113,324 116,551

vi) Directors’ emoluments (a) Group Executive salaries (included in key management compensation above) 110,135 169,962 Fees 69,155 48,470 Other remuneration 19,152 11,705

198,442 230,137

(b) Company Executive salaries (included in key management compensation above) 50,643 73,515 Fees 10,748 10,913 Other remuneration 12,250 6,170

73,641 90,598

Kenya • Uganda • South Sudan • Rwanda • DR Congo • Tanzania 113 UAP HOLDINGS LIMITED Annual Report & Financial Statements 2014

Contacts

KENYA Life NAKURU GULU MUSANZE BISHOPS GARDEN - HEAD OFFICE Giddo Plaza - George Morara Road Bomain Insurance Agency Insurance & Life Northern Province UAP HOLDINGS LTD P. O. Box 14116 - 20100 Nakuru, Kenya Atanas Mbogo - 0722 897 359, 065 - 32872 Plot 16, Awich Road, Gulu Insurance Musanze Branch - OM Building Registered Office Tel: +254 711 065 175 [email protected] Telephone: +256 - 471 – 432017 Tel +250 788 306 563 Bishops Garden Towers, Bishops Road E-mail: [email protected] 1st Flr, Rm 12 Mima Centre Nyahururu Email: [email protected] Northern Province P.O. Box 43013 - 00100, Nairobi, Kenya Email: [email protected] Tel: + 254 20 2850000 THIKA KISUMU Muhanga - Southern Province Mobile: + 254 711 065 000 Insurance Daiga Insurance Agency Insurance Muhanga Branch - BK Building Fax: + 254 20 2719 030 Twin Oak Plaza - 1st Floor, John Chomba Wachira - 0720075263 SOUTH SUDAN Tel +250 788 426 661 E-mail: [email protected] Kwame Nkrumah Road [email protected] JUBA Southern Province Website: www.uap-group.com P. O. Box 4280 - 01000, Thika, Kenya 3rd Flr, Ingonyera Plaza, Kisumu-Busia Rd UAP INSURANCE Email: [email protected] Tel: +254 67 20243/46 SOUTH SUDAN LIMITED UAP INSURANCE COMPANY LTD Fax: +254 67 20242 Elians Insurance Agency UAP Plaza, Hai Cinema KIGALI Bishops Garden Towers, Bishops Road E-mail: [email protected] Ann Kiganya - 0721917512 Opposite Al-Sabah Children Hospital Insurance P.O. Box 43013 - 00100, Nairobi, KENYA [email protected] P.O. Box 201 Juba, South Sudan Nyabugogo Satellite Tel: + 254 20 2850 000 Life 1st Flr, Tharau Building, Kakamega Tel: +211 959 000000 / 977 296555 Cooperative INKUNDAMAHORO Building Mobile: + 254 711 065 000 Zuhura Place 2nd floor, Opp Tuskys, E-mail: [email protected] Tel +250 788 492 042 Fax: + 254 20 2719 030 Kenyatta Avenue ELDORET City of Kigali E-mail: [email protected] Tel: +254 67 11185 Eden Rock Insurance Brokers Ltd WAU Email: [email protected] E-mail: [email protected] [email protected] Insurance & Life UAP LIFE ASSURANCE LTD Grd. Flr, Pent house - Kitale Suk Wau, Opposite Ivory Bank KIGALI Bishops Garden Towers, Bishops Road NYERI Tel: +211 959 000002 Insurance P.O. Box 23842 – 00100, Nairobi, KENYA Insurance & Life EMBU South Sudan Remera Satellite Tel: +254 20 2850 300 Sohan Plaza, Ground Floor UAP (our satelite) E-mail: [email protected] YYUSSA PLAZA Building Mobile: +254 711 065 300 P. O. Box 1231 - 10100 Nyeri, Kenya Linet Njagi - Ext 11184 Tel +250 788 304 577 Fax: + 254 20 2719 030 Fax: +254 61 2032941 [email protected] YAMBIO City of Kigali E-mail: [email protected] E-mail: [email protected] Grd Flr, Uchumi Supermarket – Embu Insurance & Life Email: [email protected] E-mail: [email protected] Opposite Yambio FM, Next to MTN Antena UAP PROPERTIES KENYA LIMITED Tel: +211 959 000001, South Sudan Bishops Garden Towers, Bishops Road MERU E-mail: [email protected] P.O. Box 43013 - 00100, Nairobi - Kenya Insurance & Life UGANDA DR CONGO Tel: + 254 20 2850 000 Hart Towers KAMPALA RUMBEK KINSHASA Mobile: + 254 711 065 000 P. O. Box 3258 - 60200 Meru, Kenya UAP INSURANCE UGANDA LIMITED Insurance & Life UAP INSURANCE RDC Fax: + 254 20 2719 030 Tel: +254 064 3130089 Fax: +254 064 30094 UAP Insurance Building Opposite freedom square, UAP RDC, Sarl - courtier d’Assurances/ E-mail: [email protected] Wireless: +254 20 2423190 Plot 1 Kimathi Avenue Next to Traffic police station Insurance brokers E-mail: [email protected] P.O. Box 7185, Kampala - Uganda Tel: +211 959 100051, South Sudan Bureau n° 3-0-B12, Kavali Center, n° 10/13 UAP INVESTMENTS LIMITED E-mail: [email protected] Tel: +256 - 414 - 332 700 Email: [email protected] Croisement des Av. Mutombo Katshi et I&M Building, 3rd Floor, 2nd Ngong Avenue Fax: +256 - 414 - 256 388 Equateur Kinshasa/Gombe, RDC P. O. BOX 43013 – 00100, Nairobi, Kenya KISII Email: [email protected] BENTIU Tel +243 975 33 88 33 Tel: + 254 20 2850 000 Insurance & Life Insurance & Life Email: [email protected] Mobile: + 254 711 065 000 Ouru Complex - Ground Floor UAP FINANCIAL SERVICES LIMITED West of Kalibelek Market Fax: + 254 20 2719 030 P. O. Box 209 - 40200, Kisii, Kenya UAP Nakawa Business Park Tel: ++211 959 000003, South Sudan E-mail: [email protected] Tel: +254 58 2031851 Tower 1, 6th Floor E-mail: [email protected] E-mail: [email protected] Plot 3-5 New Portbell Road, TANZANIA QUEENSWAY E-mail: [email protected] P.O. Box 1610, Kampala - Uganda NIMULE DAR ES SALAAM Insurance Tel +256 414 332 700 Insurance & Life UAP INSURANCE TANZANIA LTD Queensway Hse 3rd Floor Kaunda Street MACHAKOS Fax: +256 414 256 388 Opposite Rock city parking yard, Nimule Barclays House, 4th Floor, Ohio Street P. O. Box 43013 - 00100 Nairobi, Kenya Insurance & Life Email: [email protected] customs along Nimule Juba High way P.O. Box 71009 Dar Es Salaam, Tanzania. Tel: +254 20 2228070, 2229521 KCB Building, 1st floor, Machakos Tel: +211 959 100052, South Sudan Tel: +255 22 213 7324 / 5 Fax: +254 20 222 7659 P. O. Box 1092 - 90100 Machakos, Kenya UAP PROPERTIES LIMITED E-mail: [email protected] Fax: +255 22 213 7308 E-mail: [email protected] Tel: +254 44 2020011/21462 UAP Nakawa Business Park Email: [email protected] E-mail: [email protected] Block C, Lower Ground Floor TORIT WESTLANDS E-mail: [email protected] Plot 3-5 New Portbell Road, Insurance & Life ARUSHA Life P.O. Box 7185, Kampala - Uganda Opposite Old Market Insurance Woodvale Place, 2nd Floor SATELLITE CONTACTS Tel +256 414 332 700 Behind New Life Medical Care NSSF Mafao House, 4th Floor, Woodvale Groove Street NAIROBI Fax: +256 414 256 388 Tel: +211 959 100054, South Sudan Old Moshi Road Tel: +254 20 4456219/20 Trojan Insurance Agency E-mail: [email protected] E-mail: [email protected] P.O.Box 13123, Arusha, Tanzania E-mail: [email protected] Mutisya - 0721 206 540, Tel: +255 (027) 252 0133 Florence - 0712 904 602 UAP LIFE ASSURANCE UGANDA LTD MALAKAL Fax: +255 (027) 252 0134 MOMBASA [email protected] UAP Nakawa Business Park Insurance & Life E-mail: [email protected] Insurance & Life Grd Flr, Milele Centre - Kitengela Tower 1, 6th Floor Opposite Malakal County Offices, Tea House, Ground Floor, Plot 3-5 New Portbell Road, Near Suk Sebit DODOMA Behind Sairose Chinese Restaurant, Rone Insurance Agency P.O Box 1610, Kampala - Uganda Tel: +211 959 100053, South Sudan Insurance off Nyerere Avenue, Ndegwa - 0722 522 723, Telephone: +256 - 414 – 332722 E-mail: [email protected] Plot No. 47, Block 6, Nyerere Road P. O. Box 81612 - 80100 Mombasa, Kenya Florence - 0724 456 674 Email: [email protected] Opp. Nyerere Square Tel: +254 041 2223777/8 [email protected] BOR P.O.Box 753, Dodoma, Tanzania Fax: +254 41 2315888 3rd Flr, Tyme Arcade -Ongata Rongai MBARARA Insurance & Life Tel: +255 (026) 232 0999 E-mail: [email protected] Insurance & Life Marol Market, Next to Equity Bank Fax: +255 (026) 232 1998 E-mail: [email protected] Sari & Silverguard Insurance Agency Plot 23, High Street, Tel: +211 959 100050, South Sudan E-mail: [email protected] Kudoi - 0721 561 299, Nancy - 0720 725 943 P.O Box 1171, Mbarara. Email: [email protected] KISUMU [email protected] Telephone: +256 - 4854 - 21422 MWANZA Insurance & Life 2nd Flr, Jeda Plaza -Roysambu Email: [email protected] AWEIL Insurance Tivoli Centre, Ground Floor Court Road Insurance & Life AICT Building, Uhuru/Ushirika Road P.O. Box 3379 - 40100 Kisumu, Kenya Proffer Insurance Agency MBALE Hai Ayuong, Next to Catholic Church, P.O.Box 644, Mwanza Tel: +254 57 2020119/019 Karanja - 0723 081 004 Insurance & Life Opposite Aweil Central Hotel Tel: +255 (028) 254 2423 Fax: +254 57 2024488 [email protected] Plot 58, Republic Street, Tel: +211959 100090, South Sudan E-mail: [email protected] E-mail: [email protected] 3rd Flr, 24/7 Building - Kiambu P.O Box 423, Mbale. Email: [email protected] E-mail: [email protected] Telephone: +256 - 454 - 34568 MTWARA James Kabuu Insurance Agency Email: [email protected] KUAJOK Insurance ELDORET James - 0722 374 241, Insurance & Life Mahakama Road Insurance Susan - 0724 734 419 JINJA Opposite Freedom square, Next to KCB P.O Box 983 Mtwara Imperial Court, Ground Floor, Uganda Road, [email protected] Insurance & Life Tel: +211 959 100091, South Sudan Tel.: +255 23 23 34 750 P. O. Box 707 - 30100 Eldoret, Kenya Above Barclays bank - Kikuyu Plot 32/34, Main Street, Email: [email protected] Fax.: +255 23 23 34 751 Tel: +254 53 2061437/8 P.O Box 1747, Jinja. E-mail: [email protected] Fax: +254 53 2061437 Jane Mureu Insurance Agency Telephone: +256 - 434 – 120047 E-mail: [email protected] Jane - 0722 759 763, Email: [email protected] MBEYA Esther - 0700 446 625 RWANDA Insurance Life [email protected] ARUA KIGALI Opposite General Post Office Imperial Court, 1st Floor, Uganda Road, 1st flr, Watedi Plaza - Buruburu Insurance & Life UAP INSURANCE RWANDA LTD P.O Box 6155 Mbeya P. O. Box 707 - 30100 Eldoret, Kenya Safecourt Insurance Agency Plot 47 Adumi Road Grand Pension Plaza - 7th Floor, Tel: +255 25 250 4144 Tel: +254 53 2061437/8 Maina - 0722 701 999, Mobile: +256 - 772 - 903 – 442 Avenue de la Paix Fax: +255 25 250 4164 Fax: +254 53 2061437 Njeri - 0724 638 277 Email: [email protected] B.P 6644 Kigali, Rwanda, E-mail: [email protected] E-mail: [email protected] [email protected] Tel: +250 25 2500905-7 4th Flr, Central Tower - Ruiru NAKAWA Fax: +250 25 2500908 NAKURU Insurance & Life Email: [email protected] Insurance UAP (our satelite) Soliz House, Lumumba Avenue - Prestige Mall Joseph - 0724 459 202, Ground Floor Insurance P. O. Box 14116 - 20100 Nakuru, Kenya Timothy - 0725 562 071, Telephone: +256 - 414 - 332740. Customer Service Center Tel: +254 51 2212910 Maureen 0720 671 473 Email: [email protected] Grand Pension Plaza - Lower Ground Floor Fax: +254 51 2214563 [email protected] Avenue de la Paix E-mail: [email protected] Grd Flr Prestige Plaza - Ngong Rd B.P 6644 KIGALI- RWANDA Tel +250 25 2500905-7, Fax +250 25 2500908 Email: [email protected] 114 Kenya • Uganda • South Sudan • Rwanda • DR Congo • Tanzania UAP HOLDINGS LIMITED Annual Report & Financial Statements 2014

UAP HOLDINGS LIMITED

FORM OF PROXY

I/WE

being a member / members* of UAP Holdings Limited hereby appoint:

of P.O. Box

and failing him / her the Chairman of the meeting to be my / our proxy, to vote for me /us at the Annual General Meeting of the Company to be held on Friday 19th June 2015 at Sarova Panafric Hotel, Valley Road, Nairobi, at 10:00am or at any adjournment thereof. As witness my/ our hand/ hands this day of:

2015

Signed:

Note: The Completed Proxy Form by member must be lodged at the office of the Group Company Secretary, 8 th Floor, Bishops Garden Towers, Bishops Road, P.O.Box 43013 - 00100 Nairobi, so as to reach the Company not later than 48 hours before the meeting.

Kenya • Uganda • South Sudan • Rwanda • DR Congo • Tanzania 115 UAP HOLDINGS LIMITED Annual Report & Financial Statements 2014

UAP HOLDINGS LIMITED Your Notes

116 Kenya • Uganda • South Sudan • Rwanda • DR Congo • Tanzania UAP HOLDINGS LIMITED Annual Report & Financial Statements 2014

UAP HOLDINGS LIMITED Your Notes

Kenya • Uganda • South Sudan • Rwanda • DR Congo • Tanzania 117 UAP HOLDINGS LIMITED Annual Report & Financial Statements 2014

UAP HOLDINGS LIMITED Your Notes

118 Kenya • Uganda • South Sudan • Rwanda • DR Congo • Tanzania

UAP HOLDINGS LIMITED Annual Report & Financial Statements 2014

www.uap-group.com

General Insurance • Life Assurance • Medical Insurance • Investment Management Property Development • Financial Advisory • Securities Brokerage

120 Kenya • Uganda • South Sudan • Rwanda • DR Congo • Tanzania