UAP HOLDINGS PLC (FORMERLY UAP HOLDINGS LIMITED)

ANNUAL REPORT & FINANCIAL STATEMENTS 2019

EAST AFRICA IS COVERED IS COVERED

The UAP Group is the East African business of Old Mutual Limited which is a Pan-African Group with a rich heritage of 175 years and presence in 13 African countries.

The Group has operations in , , , and with over 1,400 employees, 3.8M customers, 12 iconic properties and USD 2 Billion in funds under management.

Whether it is , investments, savings or banking, we’ve got you covered. 3

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KENYA IS COVERED Whether it is insurance, investments, savings or banking, UAP Old Mutual has got you covered.

www.uapoldmutual.com/kenya UAP Holdings PLC (formerly UAP Holdings Limited) 2019 Annual Report and Financial Statements 5

CONTENTS

ABOUT US Old Mutual Limited 8 Our purpose, vision and values 9 UAP Old Mutual Group 10 UAP Holdings PLC 11 Our history 12 - 13 UAP Old Mutual Group quick facts 14 Awards and accolades 15

DIRECTORS Board of directors 18 - 19 Director profiles 20 - 25 UAP subsidiaries' directors 26 - 31 UAP Old Mutual East Africa leadership team 32- 33

KEY STATEMENTS Chairman’s statement 34 - 37 Group Chief Executive Officer’s report 38 - 41

CORPORATE GOVERNANCE REPORT 42 - 53 Legal and compliance audit opinion on UAP Holdings PLC 54 [SECTION TO BE CUT OFF] RISK MANAGEMENT REPORT 55 - 58

SUSTAINABILITY REPORT 59 - 71

DIRECTORS’ REPORT 72 - 75 Directors’ remuneration report 76 - 78 Statement of directors responsibilities 79

AUDITED FINANCIAL STATEMENTS Independent auditors’ report to the members of UAP Holdings PLC (formerly UAP Holdings Limited) 81- 86 Consolidated statement of profit or loss 87 Consolidated statement of other comprehensive income 88 Company statement of profits or loss 89 Company statement of other comprehensive income 90 Consolidated statement of financial position 91 Company statement of financial position 92 Consolidated statement of changes in equity 93 Company statement of changes in equity 94 Consolidated statement of cash flows 95 Company statement of cash flows 96 Notes to financial statement 97 - 185

AGM Notice of the 12th AGM 188 - 190 Proxy form 191 - 193 [SECTION TO BE CUT OFF] 7

UGANDA IS COVERED Whether it is insurance, investments or savings UAP Old Mutual has got you covered. www.uapoldmutual.com/uganda UAP Holdings PLC (formerly UAP Holdings Limited) 8 2019 Annual Report and Financial Statements

OLD MUTUAL LIMITED AFRICA

WHO WE ARE Old Mutual was established in Cape Town in 1845 as ’s first mutual life ON 17 MAY 2020 insurance company, offering financial security in uncertain times. OLD MUTUAL TURNED 175. Today, the Group has grown into a premium pan-African financial services Group that offers a broad spectrum of financial solutions to retail and corporate customers This is an incredible across key market segments in 14 countries, with listings on five stock exchanges. milestone that we can be really proud of. It means we We now employ about 30,000 people in our primary operations in South Africa have succeeded in staying and the Rest of Africa, and a niche business in China. relevant to our customers and responsive to their ◊ Africa (South Africa, Namibia, Botswana, Zimbabwe, Kenya, Malawi, Tanzania, changing needs, year after Nigeria, Ghana, Uganda, Rwanda, South Sudan and eSwatini) year for 175 years. ◊ Asia (China)

E

• Kenya • Uganda • Tanzania • Randa • Sout Sudan

• Gana • Nigeria S • Namibia • Botsana • Zimbabe • Malai • Esatini • Sout Africa UAP Holdings PLC (formerly UAP Holdings Limited) 2019 Annual Report and Financial Statements 9

OUR PURPOSE, VISION & VALUES

Our purpose Our vision Championing To be our customers’ most mutually trusted lifetime partner, positive passionate about futures every day. helping them achieve their financial goals. Always act with integrity

Agile innovation Champion the that makes a customer difference

Our values The power of Trust and diversity and inclusion accountability

Respect for each other and communities we serve UAP Holdings PLC (formerly UAP Holdings Limited) 10 2019 Annual Report and Financial Statements

UAP OLD MUTUAL GROUP EAST AFRICA

The UAP Old Mutual Group comprises UAP Holdings PLC and its subsidiaries & Old Mutual Holdings’ and its subsidiaries which include Old Mutual Life Assurance Company, Old Mutual Investment Group and Faulu Microfinance Bank. The Group which operates an integrated financial services business model, is one of the largest in East Africa and offers customers insurance, investment, banking and savings solutions. UAP Old Mutual was formed in 2015 after Old Mutual PLC acquired a controlling stake in Faulu Microfinance Bank in 2014 and UAP Holdings PLC (formerly UAP Holdings Limited) in 2015.

The UAP Old Mutual Group is part of Old Mutual Limited (OML). As part of OML, the Group is able to leverage technology and technical expertise to better serve customers as well as offer broad career growth prospects for employees. The Group operates in Kenya, Uganda, South Sudan, Rwanda and Tanzania.

We remain committed to serving our customers and enabling them to reach their financial goals. We promise to be a certain friend in uncertain times. ARTHUR OGINGA | GROUP CEO, UAP OLD MUTUAL GROUP

11 SUBSIDIARIES

5 COUNTRIES

• INSURANCE • INVESTMENTS • SAVINGS • BANKING UAP Holdings PLC (formerly UAP Holdings Limited) 2019 Annual Report and Financial Statements 11

UAP HOLDINGS PLC EAST AFRICA

UAP Holdings is an East African financial services group which comprises seven subsidiaries that underwrite life and non-life insurance risks in Kenya, Uganda, Tanzania, South Sudan and Rwanda, a stock brokering company in Uganda and two property companies in Uganda and South Sudan.

ORGANISATIONAL STRUCTURE

KENYA OLD MUTUAL HOLDINGS LIMITED

61.93%

KENYA UAP HOLDINGS PLC (38.07% held by other shareholders)

100% 100% 100% 65% 100% 65%

MAURITIUS KENYA KENYA UGANDA KENYA UGANDA UAP Global UAP Life UAP Insurance UAP Financial UAP Properties UAP Old Mutual Services Assurance Company Services Limited Kenya Limited Life Assurance Limited Limited Limited (Dormant) Uganda Limited (33% held by UAP Old Mutual Insurance (35% held by other Uganda & 2% held by shareholders) other shareholders)

100% 55% 100% 53% 100%

SOUTH SUDAN UGANDA UGANDA KENYA UAP Insurance UAP Properties UAP Africa UAP Old Mutual UAP Investments South Sudan Limited (Uganda) Limited Insurance Uganda Limited Limited Limited (Dormant) (45% held by UAP Mutual Insurance Uganda)

70% 100% 60% SOUTH SUDAN RWANDA TANZANIA UAP Properties Limited UAP Insurance UAP Insurance Rwanda Limited Tanzania Limited (South Sudan) (40% held by other Shareholders) UAP Holdings PLC (formerly UAP Holdings Limited) 12 2019 Annual Report and Financial Statements

OUR HISTORY

OUR JOURNEY THROUGH 100 YEARS IN EAST AFRICA & 175 YEARS IN AFRICA

1845 1930 1978 1994 1997

A humble Old Mutual enters UAP is A fruitful Service expansion beginning the Kenyan incorporated merger Asset Management Old Mutual is formed market The Company UAP Insurance and Investment in South Africa as a Directed from incorporates as Company is formed Services are mutual insurance Salisbury until 1930, a Provincial Insurance after the merger of introduced to company by branch is opened in Company of East Union Insurance and customers through John Fairbairn. on Hartridge Africa. Provincial Insurance. the Old Mutual Street (now Kimathi Invesment Services. Street).

1920 1973 1992 1996 2000

UAP enters the Government Faulu’s acquires UAP Proudly Kenyan Market legislation affects inception UAP becomes part Kenyan UAP commences operations Faulu is born as of AXA group, after AXA divests and operations in Kenya. Old Mutual remains a Micro-lending AXA acquires UAP in UAP is acquired by operational program in Mathare France. Kenyan shareholders. but is closed to Slums with a Capital new business of KES. 600,000. acquisition following government legislation on income which reduces concession on life assurance premiums and increases taxation on domestic life offices. UAP Holdings PLC (formerly UAP Holdings Limited) 2019 Annual Report and Financial Statements 13

OUR HISTORY

OUR JOURNEY THROUGH 100 YEARS IN EAST AFRICA & 175 YEARS IN AFRICA

2002 2007 2010 2014 2015

Expansion of Organising the Asserting A significant Bigger private asset business presence in the acquisition & better management UAP Holdings financial industry Recapitalization Old Mutual acquires Old Mutual Asset Limited is formed Old Mutual acquires with KES. 2.7B by a majority 60.66 % Management to consolidate the a controlling stake in Old Mutual, leads controlling stake in becomes largest Group subsidiaries. Nairobi stock broker to acquisition of a UAP Holdings. private asset Reliable Securities. majority 67% stake in Management Faulu Bank. Company with KES. 30B AUM following acquisition of Barclays Trust.

2004 2009 2013 2014 2020

Exploring new Making strides in Expanding to A significant Celebrating territories the industry Tanzania acquisition Milestones UAP enters the Faulu bank converts UAP enters the UAP makes a KES. 2B UAP marks 100 years Uganda Market. to a Deposit Taking Tanzanian market, Corporate Bond issue in East Africa while Microfinance, the same year its and lists on the Fixed Old Mutual Marks 175 regulated by CBK shares start trading Income Securities years in Africa. and with a license over the counter. market segment of to mobilize deposits Also, Faulu converts the NSE. from the public. into a Microfinance Bank. UAP Holdings PLC (formerly UAP Holdings Limited) 14 2019 Annual Report and Financial Statements

UAP OLD MUTUAL GROUP EAST AFRICA

QUICK FACTS AT A GLANCE

CUSTOMER RETAIL AND 1.4K EMPLOYEES SEGMENTS CORPORATE

PROPERTIES IN CUSTOMERS 12 4 COUNTRIES 3.8M

SERVICE OFFERING

The UAP Old Mutual Group provides a one-stop shop solution for all its customers’ financial needs. We believe our collective financial solutions are tailor made to any customer’s short term and / or long term goals.

WE ARE GLAD TO PARTNER WITH INDIVIDUALS AND CORPORATES TO PROVIDE THE FOLLOWING FINANCIAL SERVICES:

GENERAL ASSET LIFE INSURANCE MANAGEMENT INSURANCE BANKING Savings • Medical • Savings Solutions • Education • Loans • Motor • Unit Trusts • Savings • Transactions • Specialty • Pensions • Investments • Trade Credit • Life Covers • Bancassurance • SME Solutions • Critical Illness • • SME Solutions UAP Holdings PLC (formerly UAP Holdings Limited) 2019 Annual Report and Financial Statements 15

AWARDS & ACCOLADES

Association of Kenya Insurers (AKI) Agents of the year awards

General Insurance Group Life Group Life Company of the Year Awards Company of the Year Award Innovation Award Winner 1st Runners Up Winner

FiRe awards 2019 Think Business UAP Holdings PLC awards 2019 Overall Winners - Insurance Category 1st Runners Up Best Insurance Company in Technology application

1st Runners Up Best Insurance Company in Sustainable Corporate Social Responsibility 16

RWANDA IS COVERED Whether it is general insurance or health insurance, UAP Insurance has got you covered. www.uapoldmutual.com/rwanda 17 UAP Holdings PLC (formerly UAP Holdings Limited) 18 2019 Annual Report and Financial Statements

BOARD OF DIRECTORS UAP Holdings PLC (formerly UAP Holdings Limited) 2019 Annual Report and Financial Statements 19

Standing from left to right

Nkirote Mworia Njiru, Richard Treagus, Vincent Rague, Shailesh Devchand, Susan Omanga,

James Muguiyi, Dr. Joseph Barrage Wanjui, Arthur Oginga, Clement Chinaka, Michael J Harper,

George Maina, Robert Mbugua. UAP Holdings PLC (formerly UAP Holdings Limited) 20 2019 Annual Report and Financial Statements

PROFILES OF THE DIRECTORS

Dr. Joseph Barrage Wanjui CBS Chairman

BA Physics and Mathematics, Ohio Wesleyan University. Msc. Engineering, Columbia University.

Year of Birth: 1937

Date of appointment: 8 November 2007

Experience: Dr. Wanjui has been a director within the Group since 1986 and later became Chairman of the UAP Insurance Company Limited Board in 1998.

His prior experience includes being the Chief Executive of East Africa Industries (which later became Unilever), Chairman of CfC Stanbic Bank Limited and Chancellor of the University of Nairobi. Currently, Dr. Wanjui sits as Chairman and board member of a number of other Kenyan and international organizations.

In recognition of his exemplary contributions to positive change in society, he was awarded the Chief of the Order of the Burning Spear (CBS) of the Republic of Kenya.

Michael J Harper Deputy Chairman / Independent Non-Executive Director

MBA and Bsc. Actuarial Science Major, University of Cape Town. Certified Financial Planner, University of Free State. Advanced Management Program, Harvard Business School.

Year of Birth: 1955

Date of appointment: 29 June 2015

Experience: Michael has previously served on The Boards of Old Mutual Unit Trust, Old Mutual Investment Group, Old Mutual International and Old Mutual Africa Holdings. Over the years, Michael has served in several executive positions including Strategy Director for Old Mutual Emerging Markets, leading strategic work across Asia, Latin America, South Africa and Africa markets. He also served as Distribution Executive on the Old Mutual Group Long Term Savings in London.

Having worked in the Old Mutual Group since 1979, Michael was appointed Chairman of Old Mutual Insure (Mutual & Federal) in May 2012 and retired from that role in July 2018. Michael is currently Chairman of MTN SA, South Africa’s second-largest mobile network operator, having been appointed to that board in July 2016. UAP Holdings PLC (formerly UAP Holdings Limited) 2019 Annual Report and Financial Statements 21

PROFILES OF THE DIRECTORS (Continued)

James Muguiyi Non-Executive Director

Fellow of the Institute of Certified Public Accountants of Kenya (ICPAK)

Year of Birth: 1943

Date of appointment: 8 November 2007

Experience: James was the Deputy Managing Director at UAP Insurance between 1988 and 2001. During this time, he oversaw the merger of Provincial Insurance with Union Insurance to form UAP Provisional Insurance in 1994. James later rose to serve as Group Managing Director for the UAP Group until his retirement in 2012. During this period, he oversaw the growth of the Group’s business in Kenya, and the expansion of the Group into neighbouring Uganda in 2004 and South Sudan in 2006. James further, oversaw the demerger of the Life Assurance Business from the General Insurance Business in Kenya.

In 2008, under his leadership, UAP Holdings was registered as the holding company for all the UAP subsidiaries and subsequently listed on the Over-The-Counter market in Kenya. This allowed the company to attract private equity funds to invest as well as open it up to a wider range of local and foreign investors. James has also been instrumental in conceptualizing the various property developments in the Group’s portfolio with UAP Old Mutual Tower and UAP Equatorial Tower, South Sudan being some of the major installations completed under his stewardship.

He chairs the UAP Insurance Kenya, Tanzania and South Sudan Boards and sits on the Uganda Insurance and Properties Boards as a Director.

Vincent Rague Independent Non-Executive Director

MBA, Darden Business School University of Virginia BA (Hons) Economics, Statistics and Government, The University of Nairobi

Year of Birth: 1953

Date of appointment: 1 June 2018

Experience: Vincent is a co-founder of Catalyst Principal Partners, a Nairobi based private Equity Fund Manager. He has over 25 years’ experience in investments, corporate banking, finance and policy advisory work having worked at the National Treasury, the International Finance Corporation (IFC) and the World Bank. He also serves as a Non-Executive Director and Chairman on several corporate boards. UAP Holdings PLC (formerly UAP Holdings Limited) 22 2019 Annual Report and Financial Statements

PROFILES OF THE DIRECTORS (Continued)

George Maina Non-Executive Director

B.Tech (Hons) Aeronautical Engineering and Design, Loughborough University of Technology.

Year of Birth: 1952

Date of appointment: 5 May 2017

Experience: George began his career in Aeronautical Engineering and went on to serve in the capacity of Deputy Managing Director and Marketing Manager for the Shell Company in Jamaica, Ghana and East Africa Markets. Through this experience, George gained expertise in various sectors including: Strategy Development and Implementation, Governance, Organization Development/ Re-engineering and Capacity Building, Change Management, Risk Management, Finance and Investment Management, Mergers, Acquisitions and Exits, as well as Investment banking.

He joined the UAP Holdings Board in May 2017, through Faulu Microfinance Bank where he has served the microfinance business since 2010 and was instrumental in leading the restructuring and divestiture of the bank. George has held directorships in various blue- chip companies. He is currently a director and trustee of various companies / organisations in the financial service sector, sales and marketing, manufacturing, education, health and conservation among others.

George has in the past served as a director of Old Mutual Africa and Old Mutual Emerging Markets. His other directorships include: Chairman - Faulu Microfinance Bank Limited, Chairman - BAT PLC.

Robert Mbugua Independent Non-Executive Director

MBA, Bond University Graduate School of Business Member, Institute of Certified Public Accountants Kenya

Year of Birth: 1967

Date of appointment: 1 July 2017

Experience: Robert started his career at PricewaterhouseCoopers (PwC) in Kenya in 1989 and rose through the ranks. In June 2001, he was admitted to the position of Partner in the Johannesburg office of PwC where he served until the year 2003. Robert joined Standard Bank’s Africa business in 2003 and during his eight-year tenure with the bank, served in various executive director positions including Regional Managing Director responsible for a number of African countries. Robert joined The Board with effect from July 2017. He is a qualified accountant and also chairs the Board of BOC Gases PLC. UAP Holdings PLC (formerly UAP Holdings Limited) 2019 Annual Report and Financial Statements 23

PROFILES OF THE DIRECTORS (Continued)

Susan Omanga Independent Non-Executive Director

Bachelor of Science (BSc) in Business Management with Minor in Advertising, Rocky Mountain College, Montana, Associate of Business Management, North West Community College, USA

Year of Birth: 1960

Date of appointment: 19 August 2015

Experience: Susan is the CEO and Founder of Exclamation Marketing Ltd. She previously served in senior marketing positions at Colgate Palmolive, Boots Kenya, Absa PLC (formerly Barclays Bank Kenya), and Standard Chartered. From 2004 -2012 she served as a Non-Executive Director in the Group Board of KCB where she was also the Chairman of KCB Foundation, Director S & L Mortgages for 2 years, and Director KCB Uganda for 4 years. She also served on the Boards of Longhorn Publishers PLC and KWFT.

Susan currently sits on the Board of UBA Kenya and Kenya Tea Packers Limited (KETEPA). She is also an advisory Board Member at Acumen East Africa, and a member of the Board of Trustee at The President’s Award. She has a membership at the Marketing Society of Kenya, the Public Relations Society of Kenya (PRSK) and the International Advertising Association (IAA).

Richard Treagus Non-Executive Director

Bachelor of Science (Actuarial) from the University of Cape Town and is a Fellow of the Institute of Actuaries

Year of Birth: 1965

Date of appointment: 13 November 2019

Experience: Richard joined the Old Mutual Group in 1989 and has served the Old Mutual business in many different roles. He worked in product development as a junior actuary followed by a short secondment to a reinsurance company in the UK. Since then, he has held positions in Old Mutual as; Finance Actuary for the Individual Life Division, Group Assurance Executive, General Manager of Product Development and General Manager of Savings Solutions.

He is the Chief Risk Officer of Old Mutual Limited and Old Mutual Life Assurance Company (South Africa). UAP Holdings PLC (formerly UAP Holdings Limited) 24 2019 Annual Report and Financial Statements

PROFILES OF THE DIRECTORS (Continued)

Mr. Clement Chinaka Non-Executive Director

Bachelor of Science (Computer Science and Statistics) Degree from the University of Zimbabwe

Year of Birth: 1970

Date of appointment: 4 March 2020

Experience: Clement currently serves as the Old Mutual Managing Director – Rest of Africa having joined the Old Mutual Group in 1992.

He has worked for the Group for the last 28 years in various roles including Head of Corporate Segment at Old Mutual South Africa, Chief Actuary and General Manager of Actuarial at Old Mutual Life Assurance Company of Zimbabwe, Head of Channel Finance and Strategy Executive for OMLACSA’s Retail Affluent segment, Head of Emerging Markets Group Planning and Business Insights at Group Finance and General Manager of Finance and Strategy of Old Mutual Corporate.

Shailesh Devchand Non-Executive Director

Bachelor of Science Degree majoring in Actuarial Science and Mathematical Statistics from the University of Witwatersrand and qualified as a Fellow of the Institute of Actuaries in 1998

Year of Birth: 1972

Date of appointment: 13 November 2019

Experience: Shailesh has over 25 years’ working experience in the insurance and financial services sector where he gained a wealth of experience in the general and life insurance segments, covering distribution channel development, product development, mergers and acquisitions and strategy implementation amongst many others.

He has served in various leadership capacities including director of Asian Markets and director of Strategic Partnerships at Old Mutual as well as having served as Non-Executive Director on several joint venture subsidiaries. He currently serves as the Customer Solutions General Manager, Income and Guaranteed Solutions at Old Mutual. UAP Holdings PLC (formerly UAP Holdings Limited) 2019 Annual Report and Financial Statements 25

PROFILES OF THE DIRECTORS (Continued)

Arthur Oginga Group Chief Executive Officer

Bachelor of Arts Degree (Economics & Sociology) from the University of Nairobi and is a member of the Institute of Certified Public Accountants Kenya (ICPAK) and Institute of Certified Public Accountants Uganda (ICPAU).

Year of Birth: 1970

Date of appointment: 1 May 2020

Experience: Arthur has over 25 years’ experience in executive and leadership positions including serving as the Group Chief Operations Officer and Group Chief Financial Officer, for the Old Mutual Rest of Africa business and the Acting Group Chief Financial Officer of the UAP Old Mutual Group. He has also served in various senior leadership positions within the financial services sector across Africa.

His other directorships include various UAP Old Mutual Group subsidiaries and FDH Bank.

Nkirote Mworia Njeru Company Secretary

LLB University of Reading, LLM Commercial Law, University of Cape Town, Global Executive Masters, Business Administration, USIU & Columbia Business School, Higher National Diploma in Law (Kenya) and Higher National Diploma in Human Resource Management (Kenya).

Year of Birth: 1973

Date of appointment: 17 November 2014

Experience: Nkirote is a lawyer and governance practitioner with a passion for sound governance, standard- setting and policymaking. She is an advocate of the High Court of Kenya, an active member of the Law Society of Kenya and a fellow of the Institute of Certified Secretaries of Kenya where she served as an elected member of the Council and as the Vice Chairman of the Institute.

Besides practising law, Nkirote has worked in various sectors in Kenya including telecommunications, retirement benefits and insurance in a wide range of activities involving setting up governance, legal and operational structures; legal and regulatory risk analysis; legislative and policy development; supervision and capacity building across the East Africa region. UAP Holdings PLC (formerly UAP Holdings Limited) 26 2019 Annual Report and Financial Statements

UAP SUBSIDIARIES’ DIRECTORS

KENYA

James Muguiyi Chairman, UAP Insurance South Sudan, Betty Ann Mboche Director, UAP Old Mutual UAP Insurance Insurance Uganda and UAP Properties Uganda

Lotfi Baccouche Dr. Jaine Mwai UAP Insurance UAP Insurance

David Kuria Gary Voss UAP Insurance and UAP UAP Life Assurance Financial Services Ltd Chairman Uganda

Susan Kasinga UAP Insurance UAP Holdings PLC (formerly UAP Holdings Limited) 2019 Annual Report and Financial Statements 27

UAP SUBSIDIARIES’ DIRECTORS (Continued)

KENYA

Prof. Patrick Weke Hannah - Gitonga Mwangi UAP Life Assurance UAP Life Assurance

Joseph Lesiew Kamau Kuria UAP Life Assurance UAP Life Assurance and UAP Old Mutual Life Assurance Uganda

UGANDA

Prof. G.Wavamunno Andrew Kasirye Chairman UAP Old Mutual Insurance UAP Old Mutual and UAP Properties Insurance and UAP Properties

Dr. George Mutema Suzanne Batwala UAP Old Mutual Insurance UAP Old Mutual Insurance and UAP Properties Uganda UAP Holdings PLC (formerly UAP Holdings Limited) 28 2019 Annual Report and Financial Statements

UAP SUBSIDIARIES’ DIRECTORS (Continued)

UGANDA (Continued)

Mathias Katamba Stephen Chikovore UAP Old Mutual Insurance UAP Old Mutual Insurance

Dr. William Kalema Prof. Sam Sejjaaka UAP Old Mutual Life Assurance UAP Financial Services Chairman and Director Chairman and Director UAP Properties UAP Old Mutual Life Assurance

Sophie Nkuutu Johannes !Gawaxab UAP Old Mutual Life Assurance UAP Old Mutual Life Assurance and UAP Properties

Jerim Otieno Peter Anderson UAP Old Mutual Life Assurance UAP Financial Services UAP Holdings PLC (formerly UAP Holdings Limited) 2019 Annual Report and Financial Statements 29

UAP SUBSIDIARIES’ DIRECTORS (Continued)

SOUTH SUDAN

Prof. Scopas Dima Peter Kimurwa UAP Properties Chairman UAP Insurance and UAP Insurance Director

Philip Coulson John Lako UAP Insurance UAP Properties

Balla Nyerere Wainaina Kenyanjui UAP Properties UAP Insurance, South Sudan UAP Holdings PLC (formerly UAP Holdings Limited) 30 2019 Annual Report and Financial Statements

UAP SUBSIDIARIES’ DIRECTORS

RWANDA

Evangelina Soni Kayinamura Richard Mugisha UAP Insurance UAP Insurance Chairman

Michael Sallu John Bosco Birungi UAP Insurance Rwanda, UAP Insurance Tanzania and Kenya

Dr. Isaac Nzyoka Herbert Kwizera UAP Insurance UAP Insurance

TANZANIA

Moses Kaluwa Joseph Werema UAP Insurance UAP Insurance UAP Holdings PLC (formerly UAP Holdings Limited) 2019 Annual Report and Financial Statements 31

UAP SUBSIDIARIES’ DIRECTORS (Continued)

TANZANIA (Continued)

Charles Washoma Moses Obonyo UAP Insurance UAP Insurance

William Asiko Zawadia Nanyaro UAP Insurance UAP Insurance

MAURITIUS

Assad Abdullatiff Jean – Claude Permal UAP Mauritius UAP Mauritius Chairman UAP Holdings PLC (formerly UAP Holdings Limited) 32 2019 Annual Report and Financial Statements

UAP OLD MUTUAL EAST AFRICA LEADERSHIP TEAM

Executive Management at the UAP Holdings PLC Board

Arthur Oginga Nkirote Mworia Njiru Dr. Isaac Nzyoka Group Chief Executive Officer Group Company Secretary Group Chief Operating Officer & Legal Counsel

East Africa Leadership Team Members

David Kuria Jerim Otieno Peter Anderson Managing Director Group Managing Director Group Managing Director UAP Insurance Kenya Life Assurance Asset Management

Apollo Njoroge David Ndiritu Stephen Chikovore Managing Director Acting Managing Director Managing Director Faulu Microfinance Bank UAP Insurance UAP Old Mutual Insurance South Sudan Uganda UAP Holdings PLC (formerly UAP Holdings Limited) 2019 Annual Report and Financial Statements 33

UAP OLD MUTUAL EAST AFRICA LEADERSHIP TEAM (Continued)

East Africa Leadership Team Members (Continued)

Annie Nibishaka Stephen Lokonyo Mwanzo Moseti Managing Director Managing Director Managing Director UAP Insurance UAP Insurance UAP Life Assurance Rwanda Tanzania Kenya

Simon Mwebaze Harrison Gongo Managing Director Acting Managing Director UAP Financial Services UAP Old Mutual Life Assurance Uganda Uganda UAP Holdings PLC (formerly UAP Holdings Limited) 34 2019 Annual Report and Financial Statements

I hereby present our annual report and financial statements for the year ended 31 December 2019.

CHAIRMAN’S STATEMENT DR. JOSEPH B. WANJUI CBS UAP Holdings PLC (formerly UAP Holdings Limited) 2019 Annual Report and Financial Statements 35

CHAIRMAN’S STATEMENT

Dear Shareholder, I hereby present our annual report and financial statements for the year ended 31 December 2019. The year was challenging in many respects but I am confident that our business has emerged more resilient. Our core businesses have performed better than the prior year due to the persistent efforts by management to improve operational efficiencies and customer service. However, these positive results were dampened by the impact of the subdued property markets in Kenya, Uganda and South Sudan which led to significant fair value write downs on some of the properties in these markets.

Operating environment We remain positive about the economic prospects for East Africa. The East African states continue to maintain peace and stable operating environments for businesses despite occasional challenges. As shown below, growth remained fairly high and inflation was kept in check across the four main countries.

2019 Economic Indicators 10.0% 8.0%

6.0% 4.0% 2.0% 0.0% Kenya Uganda Tanzania Rwanda -2.0% -4.0% -6.0%

GDP Growth Inflation Local Currency (LC) vs US

In 2019 Kenya’s GDP growth rate was 5.4% coming in lower than forecasts which had predicted a range of 5.6% to 6.0%. Growth was also lower than the 6.3% growth rate for 2018 attributable to the effects of drought in the first half of 2019 as well as pest outbreaks in some of the key agricultural supply areas.

Kenya’s capital markets rallied at the end of the year. This was largely driven by the lifting of the interest rate cap which resulted in marked price gains for large cap banking stocks. However, Kenya’s leading indices had mixed performance for the year with the NSE 20 down 6.3% while the NASI and NSE 25 were up 18.5% and 15.5% respectively.

The commercial property market in Nairobi, remains subdued, particularly in Upper Hill area. We expect that with the reduced construction levels, demand will catch up to supply thus stabilize the market.

The Ugandan economy reported strong growth in 2019, estimated at 6.3%, largely driven by the expansion of services. The tensions with Rwanda have eased somewhat and when the countries reopen their borders then the resumption of cross-country trade and travel should prove helpful to the countries’ economies. In the last couple of years, a number of commer-cial properties have come on stream in . Consequently, the supply gap has been narrowed considerably, leading to lower rentals and a pressure from tenants to move from US dollar denominated rent to local currency leases. UAP Holdings PLC (formerly UAP Holdings Limited) 36 2019 Annual Report and Financial Statements

CHAIRMAN’S STATEMENT (Continued)

Real GDP growth in Tanzania was estimated at 6.8% in 2019, financing and the foreign currency mismatches. The board also down slightly from 7% in 2018. A markedly diversified economy, noted the improving occupancy levels across all the markets. We characterized by robust private consumption, substantial pub-lic are committed to turning around this busi-ness line and have spending, strong investment growth, and an upturn in exports provided management with a clear direction to achieve this. underpinned the positive outlook. Inflation declined to an Over the next 12-18 months, we will be looking to strengthening estimated 3.3% in 2019 from 3.6% in 2018 due to an improved the management of the property portfolio while addressing the food supply. overall financing cost and structure of the business lines.

In Rwanda real GDP was estimated to grow at 8.7% in 2019, Our business digitization strategy continues. The board has substantially higher than the regional average. However, compared approved investments in people and systems to realize our digital to Kenya, Tanzania and Uganda, Rwanda’s macros stood out for ambitions. During the year, the Group hired an experienced the exchange rate depreciation against the dollar ~4.4% due to individual to lead a team charged with the task of fast tracking the the growing trade deficit. In keeping with the growth levels of the development of our digital platform. The investment is beginning country, our business in Rwanda now generates more premium to pay off with the speedy response by the team to the changed than Tanzania. operating environment brought on by the COVID-19 pandemic being a good example. The operating environment in South Sudan remained challenging due to the political stand-off between the two main factions. We Dividends are however cautiously optimistic that with the signing of the The Board of Directors do not recommend the payment of a peace agreement and the formation of the transitional agreement dividend with respect to the financial year 2019 (2018: Nil). earlier this year, the focus can shift to the economy and uplifting the lives of the citizens. Changes to The Board of directors In the financial year under review, Dr. Peter Muthoka, Mr. Paul Business performance Truyens, Mr. Iain Williamson and Mr. Jonas Mushosho resigned from The Group registered a loss of KShs3.4bn driven by fair value losses the board. I want to thank them for their immense contribution on our investment proper-ties of KShs4bn (2018: KShs0.6bn). and service to the board as they were instrumental in the formation This write down of investment properties, offset the improved of the UAP Old Mutual Group following the merger in July 2015. performance of our core business with both the general insurance and life assurance businesses reporting significant growth over We also welcomed Mr. Richard Treagus and Mr. Shailesh Devchand 2018. to the board following their appointments as non-executive directors. In our home market of Kenya, the general insurance industry continues to report underwriting losses. As you are aware in the It is with regret that the board accepted the resignation of Peter last four years, our business has pursued a strategy of profitable Mwangi from the position of Group Chief Executive Officer. Peter growth and consequently lost some market share due to price has led the Group since 2015 and is credited with integration of the undercutting. I am how-ever pleased to report that in 2019 not Group and the entrenchment of a strong governance culture. On only was the declining trend in GWP over the last three years behalf of the UAPH PLC Board of Directors, I take this opportunity arrested but our underwriting margins are now amongst the to acknowledge and extend our sincere gratitude to Peter for his highest in the respective insurance industries. visionary leadership, unwavering dedication and service, and wish him every success in his future endeavors. Additionally, I extend a The board conducted a detailed review of the property business warm welcome to Arthur Oginga, the incoming Group CEO, and during a strategic business review in July 2019. The board noted reiterate my support and that of the board. the property market conditions in the three countries, the cost of UAP Holdings PLC (formerly UAP Holdings Limited) 2019 Annual Report and Financial Statements 37

CHAIRMAN’S STATEMENT (Continued)

Outlook In 2020, the UAP OM Group celebrates 100 years of presence in East Africa. Looking back, we are extremely proud of what has been achieved. Our parent company, Old Mutual Limited, this year also celebrates 175 years on the continent. Together, we are confident that the future of the UAP OM Group in East Africa is very bright..

With regards to key risks, the COVID-19 pandemic poses significant risk to the economies in the region and our business and this is addressed in the Group Chief Executive Officers’ report.

I wish to thank our shareholders for their support and my fellow directors for their support and contributions. I thank management and staff and urge them to work hard to drive good performance in 2020 and beyond. I thank our intermediaries, regional regulators, revenue authorities and governments for providing us with a stable operating environment.

Lastly, I thank you the customer for your continued support and reiterate our commitment to providing you with solutions that help you plan your future, grow your investments and savings and protect you and your assets.

Dr. JB Wanjui CBS Chairman

5 May 2020 UAP Holdings PLC (formerly UAP Holdings Limited) 38 2019 Annual Report and Financial Statements

I take this opportunity to present a review of our business performance for the year ended 31 December 2019.

GROUP CEO’S REPORT ARTHUR OGINGA UAP Holdings PLC (formerly UAP Holdings Limited) 2019 Annual Report and Financial Statements 39

GROUP CEO’S REPORT

Dear Shareholder, Investment income was down 78.3% driven by a KShs 4bn property I take this opportunity to present a review of our business valuation write-down. This is explained further below. Our equity performance for the year ended 31 December 2019. The Group and bond portfolios performed well. Equities in particular benefited realized a mixed set of results for the year with significantly from a rally in Kenya towards the end of the year following the improved performance in our core insurance businesses offset repeal of the interest rate cap. However, this performance was by substantial fair value write downs in our property portfolio not enough to offset the impact of the valuation write-downs in driven by underlying market conditions. The overall result was a the investment property portfolio. loss before tax of KShs 3.2bn (2018: loss before tax of KShs 0.5bn). Performance by business line Overview of financial performance The Group recorded a loss before tax of KShs 3.2bn in 2019 compared a) Core business lines to a loss before tax of KShs 0.5bn in the previous year. The result In FY2019, our core businesses registered improved performance was largely driven by fair value write-downs on our investment due to concerted efforts to drive profitable topline, reduce claims property portfolio given the softening of the markets in Kenya ratios and extract operational efficiencies across the Group. and Uganda and prevailing uncertain political environment in The chart below highlights the performance of the core businesses South Sudan. Excluding the property business performance, the – general Insurance, life assurance and asset management – Group achieved a profit before tax of KShs 1.7bn, representing excluding corporate eliminations for Group consolidation. a substantial improvement over 2018 on a comparable basis of KShs 0.8bn. The improvement in performance is in line with the Profit before tax by business line actions we have been taking to improve operating performance. 2,500 2,330 2,129 2,000 At a business line level, the general Insurance business line reported a profit before tax of KShs 2.3bn representing a 133% improvement 1,500 over 2018 while the life assurance business line reported a profit 1,000 1,000 before tax of KShs 391m representing an improvement of 113% 537 over 2018. The properties business on the other hand reported 500 391 a loss before tax of KShs 4.8bn representing a decline of 268%. 185 32 41 0 (19) 2017 2018 2019 Net earned premiums were up by 3.8% in 2019 over 2018 which was 500 partially offset by an 11.8% increase in net claims payable primarily General Insurance Life Assurance Asset Management driven by increased claims cost in our Kenya Health business following the withdrawal of NHIF coverage from several private The above results were driven by slight growth in topline, health institutions and increased reserving across all our Health management of claims, particularly in the non-health general businesses. The increased claims cost in the Health business was insurance and improved investment returns in life assurance. partially offset by improved claims experience and claims costs in the other classes of general insurance (excluding Health). Recovery in topline vis a vis the growth in net earned premium attests to the successful execution of our focus on profitable Operating expenses were up 9.1% largely due to a revaluation loss underwriting. We will properly evaluate all risks before we cover of the owner-occupied investment property portion. In line with them and ensure that we price the risks we assume in a responsible accounting standards (IAS 16 and IAS 40) the portion of investment and profitable manner. The chart below illustrates the significant properties space that is used by the Group is re-classified to improvements we have made in underwriting performance on property, plant and equipment on the balance sheet and any the general insurance business line (excluding Health). related revaluation losses are ac-counted for under operating expenses rather than investment income. Excluding this impact. The progress made in the pure general insurance business our expense growth was below inflation in line with our focus to (excluding Health), is due to the implementation of internal drive increased efficiency from our operations. models for underwriting, set up of own assessment centers, direct procurement of spare parts for motor vehicle claims, among others. UAP Holdings PLC (formerly UAP Holdings Limited) 40 2019 Annual Report and Financial Statements

GROUP CEO’S REPORT (Continued)

These initiatives have led to an appreciable reduction in claims costs has therefore steadily improved over the period. In Nairobi and and the net effect is that we managed to register an underwriting Kampala there has been significant investment over the years profit for the Group driven by the pure General Insurance business in commercial property development. Demand has slowed in of KShs 155Mn. the recent past. In South Sudan, the uncertainties of the political environment has led to postponed investment decisions leading Claims Ratios to dampened demand for office space. The effect of the above is 80% 74% 70% forecasted lower rental yields which has led to write downs totally 70% 68% 66% KShs 4bn across the shareholder property portfolio. 60% 52% 48% 50% 45% 41% Digital initiatives 40% Digitization of our business is integral to our overall business 30% strategy. To this end we have invested in people and systems to 20% drive sales, improve customer service and automate manual and

10% repetitive processes. We have also provided our intermediaries with

0% access to digital portals through which we can more efficiently 2016 2017 2018 2019 interact. The restrictions on interaction and movements imposed

Health P & C by the governments across the region, following the first cases of COVID–19, has led to an acceleration of these efforts. Progress with the Health business was however dampened in 2019 by the decision of the National Hospital Insurance Fund (NHIF) Some of the accomplishments by our digital team include the to remove the rebates at certain private hospitals. That rebate is following: now being fully absorbed by the business in Kenya. Nonetheless, we have implemented measures to mitigate the loss of the NHIF ◊ Provision of end to end digital motor insurance products; rebate through negotiation for discounts with larger vendors and ◊ Provision of end to end digital travel insurance; nudging better customer behavior using our digital app “Go-Plus” ◊ Enhanced our web-based e-commerce platform – amongst other initiatives. “dreamenabler”; ◊ Data maturity assessments have been completed across all b) Properties our businesses; Our shareholder investment property portfolio comprises ◊ Collaboration and alignment with Old Mutual Limited on commercial and residential properties in Kenya, Uganda and the digital development path. South Sudan. The more prominent properties are the UAP Old Mutual Tower in Nairobi, Nakawa Business Park in Kampala and In 2020 we plan to launch a wider array of products across our Equatoria Tower in . The occupancy levels on all these buildings lines of business, introduce enhanced self-service channels and has been steadily rising since their completion. The chart below continue to automate business operations. shows the occupancy levels over the last three years. Occupancy COVID-19 Pandemic 95% On 11th March 2020, COVID–19 (Coronavirus) was declared as a 84% 84% 81% pandemic due to the rising rate and scale of infection observed. 73% 70% The rapid spread of virus since the start of 2020 has caused significant disruption in global markets. 43% 38% Following the various government directives that have led to 23% restricted interaction movements across the region, Management invoked our business continuity plan (BCP) to ensure operations could continue without putting our employees, customers, F2017 F2018 F2019 intermediaries and tenants at risk. The actions taken have so far

UAP OM Tower Nakawa Equatoria en-sured that we have managed to achieve both. UAP Holdings PLC (formerly UAP Holdings Limited) 2019 Annual Report and Financial Statements 41

GROUP CEO’S REPORT (Continued)

Although more data is becoming available on the impact of COVID–19, there are still very many unknowns which businesses are grappling with. It is expected that global growth will decline significantly over the next year. There are however very many different views on how quickly recovery will be achieved. In East Africa we are exposed to economic disruptions from declines in local economic activity due to restrictions on movements, contagion effects of decreased demand for exports from trading partners, significant disruption to tourism, reduced remittances from the diaspora and difficulties in sourcing inputs for local manufacturing.

With regard to our business, we expect the economic slow-down to impact our customers’ ability to renew existing policies. Additionally, we expect some level of withdrawals and surrenders in our life assurance and asset management businesses as the decline in economic activity triggers loss of earnings and reduced savings. In the short term, we expect adverse impacts on the equity markets in Kenya as foreign investors retreat to the safe haven of their home markets, which are in negative territory. While we cannot predict the full impact of the pandemic on our business, we expect a considerably tougher operating environments for businesses.

With regard to our business, we expect the economic slow-down to impact our customers’ ability to renew existing policies. Additionally, we expect some level of withdrawals and surrenders in our life assurance and asset management businesses as the decline in economic activity triggers loss of earnings and reduced savings. In the short term, we expect adverse impacts on the equity markets in Kenya as foreign investors retreat to the safe haven of their home markets. While we cannot predict the full impact of the pandemic on our business, we expect a considerably tougher operating environment.

In addition to the measures put in place to ensure the safety of our staff, customers, intermediaries and tenants, Management has also accelerated the development of our digital channels to ensure that customers and intermediaries are able to stay in contact with us. Liquidity remains strong. However contingency measures were put in place in 2019 which give the Group access to funding lines in the event of any distress. Finally, all our regulated businesses remain solvent and well capitalized.

Outlook As mentioned above, COVID–19 has cast a cloud over 2020. This has of course been exacerbated by the locust invasion which is likely to negatively impact agricultural output in East Africa in 2020. We will remain forecasted on protecting the business against the short-term risks while maintaining a focus on our longer-term strategic plans.

Our strategy is focused on delivering an integrated financial services offering to our customers in East Africa to sustain and improve the performance from our core businesses. We will concentrate on optimizing operating expenses for the investment properties to support execution of our strategy and improved performance of the overall business.

Appreciation I wish to thank Management and staff for their resilience during 2019. I also thank the board of directors for their support and continuous contribution. I wish to thank our intermediaries, partners, regional regulators and government agencies. On behalf of Management and staff I sincerely thank our customers for believing and trusting us to help them realize their financial goals. Finally, I thank our shareholders for their continued support.

Arthur Oginga Group Chief Executive Officer

5 May 2020 42

CORPORATE GOVERNANCE REPORT UAP Holdings PLC (formerly UAP Holdings Limited) 2019 Annual Report and Financial Statements 43

CORPORATE GOVERNANCE REPORT

The Board and Management of UAP Holdings PLC (“UAPH” ◊ Enhanced interactions with our stakeholders through adoption or the “Company”) are committed to maintaining the highest of a Stakeholder Relations Policy and revised our approach standard of corporate governance practices and have devoted towards our stakeholders are proactive, purposeful and value considerable effort to identify and formalize the very best practices exchange driven interactions. in corporate governance. The Board firmly believes that well- ◊ The formal change of name of the Company from UAP articulated governance policies and processes are an indispensable Holdings Limited to UAP Holdings PLC was concluded and component of the smooth, effective and transparent operation of a certificate of change of name received from the Registrar. the Company and its ability to attract investment, protect the rights ◊ Continued to enhance our level of transparency by ensuring of stakeholders and enhance shareholder value in the long term. that our stakeholders are provided with regular and accurate information relating to the Company through semi-annual stakeholder briefings, public announcements placed in the Key Highlights press as well as on the Company’s website. The key governance highlights for the year included: 1. Board Functions and Responsibilities ◊ Undertaking an independent board evaluation exercise to For the financial year ended 31 December 2019, the Board was assess the effectiveness of the Board, the Chairman, the made up of eleven (11) directors, majority of whom are Non- Group Chief Executive Officer, individual directors and board Executive Directors with one (1) Executive Director, with more committees and the Company Secretary. than one-third being independent Non-Executive Directors. The ◊ Monitoring the implementation of the action plans arising Board is responsible for the formulation, implementation and from the 2018 Independent Governance Audit of the Company monitoring of the UAP Old Mutual Group’s (“Group”) strategic to ensure that these are being addressed by Management. plan with the ultimate aim of achieving sustainable, profitable ◊ The annual strategy meeting where The Board reviewed growth for the Group. and discussed the Group’s strategy with key executive management. The Board considers that collectively, the directors have the ◊ Participation in board development programmes touching breadth and depth of skills, knowledge and experience necessary on board evaluation, the East African macroeconomic to direct the Company. The directors on The Board represent a environment and the impact & implementation of the diverse group of nationalities, skills and backgrounds to ensure International Financial Reporting Standard (IFRS) 17. that decisions of The Board encompass views from a wide reach ◊ Review and update of The Board Charter and terms of of stakeholders. reference of each of The Boards’ committees to ensure that they optimally set out the delegated responsibilities of each The Board Charter together with the Articles of Association guide committee and The Boards overall oversight role. The Board of Directors in the discharge of their duties as they set ◊ Annual review of The Board’s and Committees’ composition out the expectation of The Board, Management and their impact and assessment of the independence of directors. on the Company. Every board committee has its own terms of ◊ Convened an Advisory Forum constituted of independent reference that sets out the scope and mandate of the Committee members who advise and co-create with the Management and its responsibilities to The Board. The Charter is reviewed on appropriate solutions that drive our digital first transformation an annual basis to ensure that the principles set out therein are journey. relevant and comply with the applicable laws and regulations. UAP Holdings PLC (formerly UAP Holdings Limited) 44 2019 Annual Report and Financial Statements

CORPORATE GOVERNANCE REPORT (Continued)

◊ Setting the Boards’ agenda while striking a balance between The key functions of The Board include: strategy and performance. ◊ Committees by ensuring that the Committees meet regularly ◊ Approving and monitoring the implementation of the strategic and comprehensively report their activities to the Board. plan and annual business plans including regular review ◊ Ensuring that sufficient time is allowed for discussions on of the Company’s performance against the set objectives. complex, contentious and critical issues and that all directors ◊ Review the financial reports and approve the requisite public engage and contribute to these discussions while ensuring announcements and ensuring that there are adequate that appropriate time and information are provided to directors controls and procedures in place to maintain the integrity of to take sound decisions on such matters. accounting and financial records and statements. ◊ Encouraging active engagement and appropriate challenges ◊ Enhancing long-term shareholder returns whilst having by the Board on the Group’s risk and control environment. regards to the interests of stakeholders including customers, ◊ Facilitating effective communication between the Board and suppliers, employees and the communities in which we the Senior Leadership team inside and outside of the Board operate. meeting framework. ◊ Reviewing and monitoring that the Company maintains an effective system of internal controls, processes and that The Group Chief Executive Officer is responsible for: the Company conducts its operations in accordance with applicable laws and regulations. ◊ Driving the implementation of the strategy and business ◊ Ensuring that a formal risk, compliance and internal as approved by the Board and regularly reporting on the controls assessment is undertaken regularly to ensure the progress on execution. governance and statutory requirements of the Company ◊ Leading and motivating the Executive Leadership team by and its stakeholders are met. ensuring they set annual performance objectives that stretch ◊ Approving key executive appointments and remuneration; their capabilities and monitoring the delivery of the same. monitoring and reviewing executive succession planning ◊ Maintaining and ensuring the effectiveness of the system of reviewing and monitoring the performance of the Group governance adopted across the Group. CEO and the Senior Leadership team. ◊ Managing all matters affecting the operations and ◊ Monitoring the regulated subsidiaries within the Group to performance of the Group within the authority delegated ensure that they carry out their businesses in a financially to him by the Board. sound manner and that they do not fall below the required ◊ Providing timely and accurate information about the Company capital adequacy levels as set out by regulators. and key / material developments to the Board. ◊ Ensuring adherence to the Capital Markets Authority Code of ◊ Communicating with internal and external stakeholders on Corporate Governance for Issuers of Securities to the Public matters affecting the Company. and the Board Charter. ◊ Ensuring that the Company operates in compliance with all ◊ Where required or necessary, seek independent professional relevant laws and regulations. advice. 1.1 Board and Committee Responsibilities The Board of Directors has delegated the day to day operations of the Company to the Management team which is headed by 1.1.1 Main Board the Group Chief Executive Officer and supported by the Senior The Board meets at least once every quarter and may convene Leadership team. The roles and responsibilities of the Board and special meetings from time to time depending on business Management are separate, further, the Chairman of the Board exigencies. All Board meetings are scheduled in advance of the and the Group Chief Executive Officer are different individuals respective year through an annual rolling calendar of Board each having their distinct duties and responsibilities. meetings which facilitates planning and availability of the members. Board Committee meetings are scheduled in advance of The Chairman is responsible for: the Board meeting so that all technical matters are appropriately addressed at the committee level and reported to the Board for ◊ The leadership of the Board and ensuring that the Board ratification or approval. For the year ended 31st December 2019, functions are effectively carried out. the Board met five (5) times. UAP Holdings PLC (formerly UAP Holdings Limited) 2019 Annual Report and Financial Statements 45

CORPORATE GOVERNANCE REPORT (Continued)

The directors are given appropriate and timely information on key activities of the business regularly and on request in order to carry out their roles. Specifically, the directors are provided with all available information in respect of items to be discussed at a meeting of the Board or Committee prior to the meeting.

During the year, the following directors held office and attended meetings as follows:

Attendance at Average Name Role qualifying meetings attendance rate Dr. JB Wanjui* Chairman – Non-Executive Director N/A N/A Michael John Harper Deputy Chairman 5/5 100% Independent Non-Executive Director James Muguiyi Non-Executive Director 5/5 100% Dr. Peter Wanyaga Muthoka Independent Non-Executive Director 1/2 50% (retired 30 June 2019) Paul Truyens Independent Non-Executive Director 2/2 100% (retired 14 June 2019) Robert Mbugua Independent Non-Executive Director 5/5 100% Susan Omanga Independent Non-Executive Director 5/5 100% George Maina Non-Executive Director 5/5 100% Vincent Rague Independent Non-Executive Director 4/5 80% Joseph Wanjui Jr Alternate Director to Dr JB Wanjui 3/5 60% Jonas Mushosho Non-Executive Director 5/5 100% (retired 31 December 2019) Iain Williamson Non-Executive Director 1/1 100% (resigned 13 March 2019) Peter Mwangi Executive Director 5/5 100% (resigned 8 April 2020)

Shailesh Devchand Non-Executive Director N/A N/A (appointed 13 November 2019) Richard Treagus Non-Executive Director N/A N/A (appointed 13 November 2019)

Board Average attendance 90.8%

*The Chairman took a sabbatical in 2019 and the Board has been under the effective leadership of the Deputy Chairman, as such, his personal attendance at Board meetings has not been included in the consolidation but rather that of his alternate. UAP Holdings PLC (formerly UAP Holdings Limited) 46 2019 Annual Report and Financial Statements

CORPORATE GOVERNANCE REPORT (Continued)

The Board has incorporated five (5) standing committees: Board Audit Committee, Risk and Compliance Committee, Remuneration, Nominations and Corporate Governance Committee, Technology, Digital and Innovation Committee and the Committee for Customer Affairs.

The Remuneration Committee and the Corporate Governance & Nominations Committee were merged to form one committee, Remuneration, Nominations and Corporate Governance Committee with effect from 1 August 2019. Additionally, the Technology, Digital and Innovation Committee was constituted on 9 May 2019.

The Board currently has one (1) ad hoc committee which is the Project Saffron Independent Oversight Committee. The UAP Tower ad hoc committee was disbanded with effect from 9 March 2019 having completed its primary mandate to oversee the construction and completion of the iconic UAP Old Mutual Tower and having received the project’s final account from the main contractor. The operational responsibilities of maintaining the building were handed over to the UAP Old Mutual Management team and the Tower is substantially let at 95%.

1.1.2 Audit Committee

Membership during the year Attendance at qualifying meetings Attendance average Robert Mbugua (Chairman) 4/4 100% Paul Truyens 2/2 100% Susan Omanga 4/4 100% George Maina (Appointed a member with effect from 1 August 2019 following 2/2 100% appointment as Chairman of the Board Risk and Compliance committee) Vincent Rague 3/4 75% Committee average attendance 95%

The Audit Committee is constituted with a majority of the members being Independent Non-Executive Directors; the Chairman is a member of good standing with the Institute of Certified Public Accountants in Kenya (ICPAK). The Committee is responsible for monitoring the integrity of the financial statements and any formal announcements relating to the Company’s performance, considering any significant issues and judgements reflected in them before submission to The Board.

The Committee held four (4) meetings in the year and considered the following matters:

◊ The 2018 full-year results and 2019 half-year results and related public announcements; ◊ The External Auditors Report for the year ended 31st December 2019, Interim Review Reports and the External Audit Plan Report; ◊ Implementation of various changes to financial accounting policies and standards, in particular, the Committee receives quarterly reports on the implementation of IFRS 17 and regular updates on IFRS 16; ◊ Quarterly reports on the financial performance of the Group and its subsidiaries; ◊ In line with its oversight mandate, received reports from the subsidiary Board Audit Committees; ◊ Considered and approved the Internal Audit Plan and Charter; ◊ Considered and received a report on the effectiveness of the internal audit function; ◊ Review of the Committee’s terms of reference and committee work plan. ◊ Held an engagement with the auditors without the Management present. UAP Holdings PLC (formerly UAP Holdings Limited) 2019 Annual Report and Financial Statements 47

CORPORATE GOVERNANCE REPORT (Continued)

1.1.3 Risk and Compliance Committee

Attendance at Membership during the year Attendance average qualifying meetings George Maina (Chairman) (Appointed as Chairman on 1 August 2019) 4/4 100% Paul Truyens (Retired as Chairman of the Committee & a director on 14 June 2019) 2/2 100% Robert Mbugua 4/4 100% Peter Mwangi 3/4 75% James Muguiyi 4/4 100% Committee average attendance 95%

The Group’s Risk and Compliance Committee supports The Board by providing oversight on the Group’s risk profile in line with the approved risk appetite and making recommendations regarding future risk appetite and in particular risks or risk management practices.

The Committee met four (4) times in the year and undertook the following matters:

◊ Received and considered reports on key financial and operational risk issues; ◊ Considered and recommend to The Board, the Combined Assurance Plan; ◊ In line with its oversight mandate, received reports from the subsidiary Board Risk Committees; ◊ Received and approved the Committee’s 2020 work plan and Terms of Reference; ◊ Approved risk policies and the Stakeholder Relations Policy for adoption across the Group; ◊ Reviewed reports on material litigation, compliance and forensic matters occurring across the Group; ◊ Received reports on whistleblowing and actions taken in respect of these reports; ◊ Received and considered reports on the legislative and regulatory changes impacting the Group.

1.1.4 Remuneration, Nominations and Corporate Governance Committee (Re-constituted on 1 August 2019) Membership during the year Meetings attended Attendance average Vincent Rague (Chairman) 1/2 50% Michael Harper 2/2 100% James Muguiyi 2/2 100% Jonas Mushosho 2/2 100% Committee average attendance 87.5% UAP Holdings PLC (formerly UAP Holdings Limited) 48 2019 Annual Report and Financial Statements

CORPORATE GOVERNANCE REPORT (Continued)

Following a review of the number of committees constituted by The Board and to ensure there is appropriate optimisation of Board Members’ time and effort, the Corporate Governance and Nominations and Remuneration Committees were merged with effect from 1 August 2019.

Membership and attendance for the previous committees are set out below:

REMUNERATION COMMITTEE CORPORATE GOVERNANCE AND NOMINATIONS COMMITTEE

Membership Attendance at Attendance at Attendance Membership Attendance during the year qualifying qualifying average during the year average meetings meetings Dr. Peter Muthoka 2/2 100% Michael Harper (Chairman) 2/2 100% (Chairman) James Muguiyi 2/2 100% Dr. JB Wanjui 1/2 50% Jonas Mushosho 2/2 100% Dr. Peter Muthoka 1/2 50% Vincent Rague 1/1 100% George Maina 2/2 100%

Committee average attendance 100% Committee average attendance 75%

In line with the CMA Code of Corporate Governance, the Remuneration, Nominations and Corporate Governance Committee is constituted by a majority of Independent Non-Executive Directors. The Committee supports The Board by monitoring the size and composition of boards across the Group including recommending appointments, succession planning for Non-Executive Directors, reviewing board and Committee evaluation and providing oversight to The Board’s professional development program. The Committee also reviews and assesses the Group’s remuneration policies and practices that apply to employees as well as to Non-Executive Directors’ benefits. The combined committee met two (2) times in the year and, overall the following matters were considered by the defunct committees and the current combined committee:

◊ Provided oversight in the development and monitoring of governance-related policies including the review of The Board and committee terms of reference. ◊ Recommended appointments of new directors across the Group; ◊ Considered directors’ competencies and skills matrix to ensure that boards are fit for purpose. ◊ Considered the Company’s corporate governance self-assessment as against CMA’s Code of Corporate Governance including reviewing the reporting template prior to submission to the CMA and monitoring the implementation of the remedial action plan. ◊ Reviewed The Board succession plan to ensure the directors’ pipeline is robust. ◊ Ensured that an independent governance and legal audit were undertaken for the year ended 31 December 2018 and 31 December 2019. ◊ Reviewed the performance of the Group Chief Executive Officer and members of the Senior Leadership team. ◊ Considered and adopted the revised Code of Ethics, Maadili Charter which espouses the ethical aspirations for staff, management, directors and third-party vendors within the East Africa Business. ◊ Considered the Human Capital strategies and business plans.

Areas of Focus in 2020 ◊ Implementation of The Board Evaluation Action Plan; ◊ Review and monitoring of directors’ Interests across the Group; ◊ Monitor the implementation of the Directors Development Program; ◊ Review and monitor Board and Senior Leadership succession planning across the Group to ensure that the plans are robust and support the long-term strategic objectives of the Group; ◊ Monitor the implementation of the automated staff performance management portal and benefits arising therefrom. UAP Holdings PLC (formerly UAP Holdings Limited) 2019 Annual Report and Financial Statements 49

CORPORATE GOVERNANCE REPORT (Continued)

1.1.5 Technology, Digital and Innovation Committee (Constituted on 9 May 2019) Membership during the year Meetings attended Attendance average George Maina (Chairman) 2/2 100%

Giselle Deuchar (co-opted member) 2/2 100%

Dr. Isaac Nzyoka (co-opted member) 2/2 100%

Committee average attendance 100%

The Technology, Digital and Innovation Committee supports The Board in the oversight of the Group’s investments in technology and innovation by ensuring that the Group’s information technology and innovation capabilities are fit for purpose, adequately monitored, secured and meet the regulatory requirements and that the infrastructure of the Group is capable of meeting the business demands in line with the Digital Transformation Strategy of the Group.

The Committee met two (2) times during the year and the following key activities were undertaken:

◊ Review of and recommendations concerning the Terms of Reference of the Committee; ◊ Review of the Group Digital Transformation Strategy Report; ◊ Review of the Quarterly Group ICT Report; ◊ Consideration of proposals for the allocation of capital for investment in technology and innovation in order to achieve digital transformation.

1.1.6 Committee for Customer Affairs Membership during the year Meetings attended Attendance average Michael J Harper (Chairman) 4/4 100%

Paul Truyens 2/2 100%

Jerim Otieno 3/4 75%

Joseph Wanjui Jr 3/4 75%

Susan Omanga (appointed 1 August 2019) 2/2 100%

Gary Voss (co-opted member with effect from 9 May 2019) 1/2 50%

Committee average attendance 83.3%

The Customer Affairs Committee supports The Board by receiving and monitoring of customer trends, customer complaints, products and technology innovations, review of policy documentation and related concerns in a bid to ensure that customers are treated fairly and receive appropriate information based on their literacy levels. The membership of the Committee was reconstituted during the year to notably take into consideration the retirement of the Committee Chairman Mr. Paul Truyens and the appointment of Mr. Michael Harper as the Chairman. Three (3) other members joined the Committee during the year.

The Committee met four (4) times in the year and reviewed:

◊ The Group Customer Strategy as well as reports on customer value metrics and Treating Customers Fairly (TCF) compliance reports. ◊ The implementation of the applicable TCF frameworks across the Group; ◊ The practical results of the implementation of TCF outcomes to ascertain whether they are aligned with the TCF goals; ◊ The market conduct principles and explicit rules underpinning TCF and ensuring that measures implemented by UAP Old Mutual Group pursuant to TCF requirements, generate the benefits envisaged. ◊ The Committee’s 2020 work plan and review of the Committee’s Terms of Reference. UAP Holdings PLC (formerly UAP Holdings Limited) 50 2019 Annual Report and Financial Statements

CORPORATE GOVERNANCE REPORT (Continued)

2. Changes in the Board During the year, the following resignations were received:

1. Mr. Iain Williamson with effect from 13 March 2019 following his appointment to oversee the Asia operations of the Old Mutual Group; 2. Mr. Paul Truyens and Dr. Peter Muthoka, with effect from 14 June 2019 and 30 June 2020 respectively having attained the age of retirement of 70 years in line with the Group Governance framework; and 3. Mr. Jonas Mushosho with effect from 31 December 2019 having attained the age of retirement. 4. Mr. Peter Mwangi as an Executive Director with effect from 8 April 2020.

The Board appointed both Mr. Richard Treagus and Mr. Shailesh Devchand as Non-Executive Directors with effect from 13 November 2019.

Board Induction and Development The Board has in place a formal, detailed induction program to prepare new board or committee members for their role, by providing a foundation of knowledge and understanding, which will enable them to effectively fulfil the functions of the role. The induction program is facilitated and coordinated by the Group Company Secretary who ensures that the new director meets with The Board Chairman, the Group Chief Executive Officer, Senior Leadership team and the Group Company Secretary or designee to obtain practical information pertaining to the company. A director is required to undertake and complete this induction program within six (6) months of their appointment.

In addition, each director is issued with a directors’ compendium which contains their appointment letter, copies of The Board Charter and Terms of Reference of relevant committees, The Board work plan, The Board calendar and relevant board policies.

DIrector Trainings UAP Holdings PLC (formerly UAP Holdings Limited) 2019 Annual Report and Financial Statements 51

CORPORATE GOVERNANCE REPORT (Continued)

The Remuneration, Corporate Governance and Nominations Committee is reviewing The Board development programme to ensure that there is a cohesive and consistent development plan to appraise The Board on key developments and trends. We continue to refine our Board development needs to ensure that training interventions are timely and relevant.

During the year under review, The Board attended training on board evaluation, the East African macroeconomic environment and the impact & implementation of the International Financial Reporting Standard (IFRS) 17 in furtherance of The Board Charter requirements for each director to attend at least twelve hours of board development on matters relevant to corporate governance, legal reform, and commercial/business risk.

Conflict of Interest The Board Charter places an obligation on directors to make declarations on their personal or commercial interests with a view of avoiding any action, position or interest that conflicts or appears to conflict with a Group interest. This is a matter for active and ongoing consideration by all directors, and thus a standard declaration form has been developed for recording and updating directors’ interests as they occur and on an annual basis. The declaration of interest arising from any specific issue on the agenda of a meeting is also provided as standing agenda item for board and committee meetings.

The Board continued to ensure compliance with the Conflict of Interest Policy which formally codifies and augments the procedure adopted by The Board in respect of the review of conflicts.

Group Company Secretary The Group Company Secretary/Legal Counsel (“GCS”) is Ms. Nkirote Mworia Njiru who is a member of the Institute of Certified Secretaries (ICS) in good standing. The Group Company Secretary is responsible for the improvement and monitoring of good corporate governance processes and procedures. The GCS coordinates and ensures that there is an appropriate flow of information from the Management to The Board and vice versa.

All board members have direct access to the Group Company Secretary who ensures that the business of The Board functions optimally and adheres to all statutory requirements, while keeping The Board informed on emerging legal and regulatory requirements developments. UAP Holdings PLC (formerly UAP Holdings Limited) 52 2019 Annual Report and Financial Statements

CORPORATE GOVERNANCE REPORT (Continued)

STATUS OF COMPLIANCE WITH THE CODE OF CORPORATE GOVERNANCE FOR ISSUERS OF SECURITIES TO THE PUBLIC, 2015 The Board and Management continue to put in deliberate efforts towards full compliance with the Code of Corporate Governance Practice for Issuers of Securities to the Public 2015 (the “Code”).

The Company has taken the following steps in 2019 to enhance compliance with Code:

1. Revision of The Board and Committee Charters and Terms of Reference to ensure compliance with the requirements of the Code. 2. Enhancement of the detail of disclosure of directors’ remuneration and the Directors Report as a whole. 3. Facilitation of the annual board evaluation exercise including evaluation of the committees and individual directors through an independent practitioner. 4. Facilitation and conducting of an Independent Governance Audit undertaken by the firm of Maonga Ndonye Associates. 5. A legal audit was completed by the firm of KN Law LLP, and the final report is included in this Report. 6. Enhancement of the detail of disclosure of the information components under the Business Review. 7. Completion of a Stakeholder Mapping Exercise and enactment of a Stakeholder Relations Policy. 8. We continue to review diversity on The Board to ensure a balanced mix of proficient individuals and particularly in respect of gender balance with proposed appointments being considered as part of The Board succession plan.

SHAREHOLDING STRUCTURE At 31 December 2019, the top ten shareholders in the Company were:

31 Dec 2019 31 Dec 2018

Holder Names Shares held % Holding Rank Shares held % Holding Rank Old Mutual Holdings Limited 78,919,889 37.276 1 78,919,889 37.276 1 Old Mutual Life Assurance Company (South Africa) 2 2 Limited 49,332,445 23.301 49,332,445 23.301 Bawan Ltd 43,258,299 20.432 3 43,258,299 20.432 3 James Ngatia Muguiyi 12,611,247 5.957 4 12,611,247 5.957 4 Estate Of The Late William Kimutai Martin 2,341,480 1.106 5 2,341,480 1.106 5 Andrew Stephen Gray Smith 1,789,189 0.845 6 1,789,189 0.845 6 A/C 017 Genghis Nominees 1,544,900 0.73 7 1,544,900 0.73 7 Standard Chartered Nominee A/C 9230 1,403,000 0.663 8 1,403,000 0.663 8 Owen-Burke Timothy Michael John 1,371,562 0.648 9 1,371,562 0.648 9 Sayani Investments Limited 1,194,957 0.564 10 1,194,957 0.564 10

Notes: 1. There was a slight reduction in the % holding for all top ten shareholders following the issuance and allotment of shares to Old Mutual Life Assurance Company shareholders (OMLAC) who opted for a share swap of their shares with UAPH. 2. There were similarly no changes in ranking as compared to the previous year. 3. The formal conclusion of the acquisition of a combined 6% of shares from Bawan Limited and Mr. James Muguiyi by Old Mutual Holdings Limited was completed in 2019, However, the official registration of the changes in shareholding have been concluded in Q1 2020 after the completion of the requisite formalities. 4. The transfer of shares by Old Mutual Life Assurance Company (South Africa) Limited to Old Mutual Holdings Limited was not effected in 2019 and subject to the registration formalities is expected to be concluded in 2020. UAP Holdings PLC (formerly UAP Holdings Limited) 2019 Annual Report and Financial Statements 53

CORPORATE GOVERNANCE REPORT (Continued)

STATUS OF COMPLIANCE WITH THE CODE OF CORPORATE GOVERNANCE FOR ISSUERS OF SECURITIES TO THE PUBLIC, 2015 (Continued)

The distribution of shareholders as at 31 December 2019 is as follows:

Range Shares Shares % Shareholders Shareholders % 1 – 500 45,036 0.02 129 9.48 501 – 5000 1,682,079 0.79 752 55.25 5001 – 10000 971,312 0.46 131 9.63 10001 – 100000 5,057,165 2.39 161 11.83 100001 – 1000000 9,077,011 4.29 26 1.91 >1000000 194,885,428 92.05 11 0.81

TOTALS 211,718,031 100.00 1,210 100.00

Shareholders Analysis by Domicile Industry Shares Shares % Shareholders Shareholders % East African Community Partner States Institutions 131,820,845 62.26 153 12.64 Foreign Institutions 49,347,520 23.31 2 0.17 Foreign Individuals 748,965 0.35 3 0.25 East African Community Partner States Individuals 29,800,701 14.08 1,052 86.94

TOTALS 211,718,031 100.00 1210 100.00 The Directors’ direct and indirect interests in the ordinary share capital of the Company on 31 December 2019 was as follows:

Name Shares % holding 1. Dr. JB Wanjui 43,258,299 20.432 2. James Ngatia Muguiyi 12,611,247 5.957 UAP Holdings PLC (formerly UAP Holdings Limited) 54 2019 Annual Report and Financial Statements

LEGAL AND COMPLIANCE AUDIT OPINION ON UAP HOLDINGS PLC

The Capital Markets Authority’s Code of Corporate Governance for Issuers of Securities to the Public, 2015, requires the Board of a listed company to ensure that: a.) an internal legal and compliance audit is carried out on an annual basis, with the objective of establishing the level of adherence to applicable laws, regulations and standards; b.) a comprehensive independent legal audit is carried out at least once every two years by a legal professional in good standing with the Law Society of Kenya; and c.) the findings from the audits are acted upon and any non-compliance issues arising corrected as necessary.

It is on this basis that the Board of directors of UAP Holdings PLC (Formerly UAP Holdings Limited) commissioned a legal and compliance audit with the aim of assessing the levels of compliance by the Company with the laws, regulations and standards applicable to it. The legal and compliance audit was headed by Mugambi Nandi, Senior Partner, KN Law LLP.

Our responsibility is to express an opinion on the level of compliance with laws, regulations and standards applicable to the Company. We conducted an on-site legal and compliance audit and prepared: a.) Compliance matrices identifying each of the Companies’ compliance obligations arising under the applicable laws, regulations and standards; and b.) Information Request Lists detailing the documents, information or confirmations required from the Company to assess their adherence to the compliance obligations

Using the information requests as the basis for the information gathering and the compliance matrices as the tools to determine compliance, we have made an assessment of the compliance by the Company with the various applicable laws, regulations and standards.

Opinion In our opinion, there were no material incidences of non-compliance by the Company with the laws, regulations and standards applicable to them and in this regard, we issue an unqualified opinion.

Mugambi Nandi Practice No: LSK/2019/00436 KN Law LLP

9 October 2019 55

RISK MANAGEMENT REPORT UAP Holdings PLC (formerly UAP Holdings Limited) 56 2019 Annual Report and Financial Statements

RISK MANAGEMENT REPORT

OUR RISK MANAGEMENT STRATEGY ◊ Avoid risks that cannot be controlled, where exposure could The objective of the UAP Group’s Enterprise Risk Management be very volatile, or the outcome could be extremely adverse. Program is to evaluate and manage business opportunities, ◊ Operational risk should be minimised and mitigated using a uncertainties and threats in a structured, disciplined manner, while risk-based approach, considering the cost versus the benefit ensuring risk and capital implications across the full spectrum of doing so and applicable regulatory requirements. of risks are considered when making strategic and operational decisions. Our program is designed to increase the understanding Our Risk Preferences of risks inherent in the business in order to improve decision- (High, Moderate, Low or Zero) capture the Group’s attitude and making and it includes accepting some levels of risk, considering willingness to take on these risks. Some risks are opportunities we the risk/return trade-off inherent in decision-making. actively seek to create customer and shareholder value while we look to avoid/minimize downside risks that if managed ineffectively The Group’s risk strategy is an integral part of the Group’s business pose significant financial and non-financial obstacles to meeting strategy. It expresses our overall philosophy towards risk taking business objectives our risk preferences are guided by; into consideration what we regard necessary to achieve our vision and reflects the risk elements of our business strategy. An Maintaining Stakeholder Trust important aspect of being our customers’ most trusted financial Our reputation is founded on trust from customers, employees, partner and to deliver on our brand promise, is to be a certain shareholders, regulators and society in general. Protecting our friend in uncertain times. This provides the foundation for our reputation is paramount to evaluating risk-taking opportunities. approach to risk management. Diversification vs Contagion RISK PREFERENCES AND APPETITE Diversification is key for us and is used to avoid excessive risk The UAP Group’s risk preferences and appetite limits are set out concentration. We recognise that we have a highly interconnected in the UAP Old Mutual Risk Strategy document which describes financial institution and that contagion risk must be managed specific risk preferences and metrics. This Risk Strategy is reviewed effectively. at least annually by the Group’s Board. The risk preferences and appetite statements are supplemented by the risk policies of the Tolerance for uncertainty Group’s Risk Policy Suite. Our tolerance for deviations from our targeted business plan objectives (both financial and customer objectives) under distress In general, when considering or deciding on whether to pursue is dependent on the nature and resources of different businesses a strategic opportunity or when making material management within the Group. decisions, the following principles are considered: Risk Adjusted Returns ◊ The balance that must be achieved between shareholder We aim to focus on the risks where the expected return more and customer interests. than compensates us for the risk taken, and we want to avoid ◊ the impact, including the reputational impact, of pursuing those risks where the expected return is too low. an opportunity on all relevant Group stakeholders, both internally and externally. Risk controls and mitigations ◊ Take on risk that can be priced appropriately – so that expected Robust internal processes and mitigation techniques are in place reward exceeds minimum return for shareholders. to reduce the impact of risks to ensure sustainable achievement ◊ Ensure the Group has the required skills in 1st and 2nd Line of business objectives in line with risk appetite. to adequately and effectively monitor and manage the risk. ◊ Prefer risks that are capital-efficient to take on. The impact on Skills and Competitive advantage diversification or concentration with the existing risk profile We aim to focus on risks where we have the skills to understand is also understood and considered. and manage it well, and to avoid risks that are less well known ◊ Consider risks by region, considering available capital, market or understood by the business. maturity, and the type of business and business model, including the nature of the regulatory regime. UAP Holdings PLC (formerly UAP Holdings Limited) 2019 Annual Report and Financial Statements 57

RISK MANAGEMENT REPORT (Continued) RISK PREFERENCES AND APPETITE (Continued)

Our Risk Appetite prescribing the high-level approach on how the Group wishes It captures the degree of uncertainty the Group is willing to accept to manage each particular risk type and Level 2 risk policies in meeting our business objectives. These are assessed using subordinate to each of the Level 1 risk policies. The CEOs, risk quantitative or qualitative risk appetite metrics. sponsors and 2nd Line Control Functions of designated subsidiaries are required periodically to attest to the adherence of their business ◊ Core Risk Appetite metrics (EaR, SCR and Liquidity Coverage to the requirements of these Policies, including identifying the ratios) that are used to manage our overall risk exposures nature and status of any material gaps and the management and to express our tolerance for uncertainty resulting from actions underway or planned to address these gaps. risks we take on. ◊ Risk Limits express the maximum amount of risk the Group is RISK MANAGEMENT PROCESS willing to accept in pursuit of its business objectives, expressed The Group applies a consistent prescribed methodology to identify via risk appetite metrics. and assess risks and risk events that could affect the achievement ◊ Early Warning Thresholds (“EWTs”) are set at a lower level of our strategic objectives and/or impact business operations, of risk exposure than risk limits and function as a trigger for including their reporting obligations and regulatory compliance management to take action to avoid risk limits being breached. commitments. ◊ Risk Targets express the optimal amount of risk exposure the Group aims to take in pursuit of its business objectives, Risks and the adequacy and effectiveness of controls are reviewed which are set at a lower level of risk exposure than the EWT. and reassessed periodically but also dynamically when undertaking business planning, material business transactions, new product development, large implementation projects, outsourcing key RISK GOVERNANCE functions or due to external events, such as significant regulatory changes. Management determines the most appropriate risk Three Lines of Defense: management responses given the business objectives, the nature The UAP Group subscribes to the 3 Lines of Assurance Model, of the available opportunities, the proximity of risk exposures to which establishes clear accountability and ownership for risk risk appetite limits and the potential impact of the risks to the management, the control environment and required mitigating business. management actions enables the effective separation of risk- taking from risk oversight activities. RISK PROFILE The Group’s risk profile is the most visible component of our risk Control Functions: management framework. Assessing, designing and delivering a The Group’s Board Risk Committee prescribes the mandates of target risk profile are key outcomes from the Risk Management the Group’s 2nd line control functions, that is, the Risk, Compliance, Framework. Actuarial and Financial Crime Control Functions. These control functions support the business and assure The Board that the Risk Management and Internal Control Systems are operating effectively. The mandates of the Control Functions are approved by the Group’s Board. The Group Board Risk Committee and designated subsidiary Boards receive and review reports annually on the ability of the Control Functions to fulfil their mandates, including the adequacy of the resources at their disposal, the status of their annual work plans and any changes that need to be made to ensure they can operate effectively.

Risk Policies The Group’s Risk Policy Suite is aligned to the Risk Classification Model. The Risk Policy Suite consists of Level 1 risk policies which are principle-based policies aligned to the Level 1 risk categories, UAP Holdings PLC (formerly UAP Holdings Limited) 58 2019 Annual Report and Financial Statements

RISK MANAGEMENT REPORT (Continued)

The principle risk types the Group is exposed to and our risk preferences for these risks is outlined below

Risk Type Risk Preference

◊ Life liability risk (mortality and disability cover) Risk Preference - HIGH ◊ Non-life liability risk (premium and reserve risk) We readily accept and would like to strongly grow exposure to these ◊ Market risk (asset-based fees) risks, as managing them is a core competency and central to our ◊ Innovation business strategy. We would like to sell and retain as much of this business as possible, subject to such products meeting customer needs and affordability considerations and shareholders’ expectation of return on capital deployed.

◊ Life underwriting (longevity) Risk Preference – MODERATE ◊ Market risk (ALM risk on smoothed bonus and linked We seek to increase exposure to these risks, but on a controlled basis business with guarantees) as they also represent opportunities that can contribute to our success. ◊ Currency translation However, exposure to these risks will be limited through business ◊ Credit risk supporting business strategy processes, depending on the risk manageability. ◊ (Institutional & Retail) ◊ Business (lapse, expenses, business mix) ◊ Business model ◊ Mergers & acquisition

◊ Catastrophe risk (Life and non-Life) Risk Preference – LOW ◊ Market risk (Shareholder capital) We have a low or limited appetite for Operational risk, as these risks have ◊ Credit risk not supporting business strategy a marginal risk/return trade-off in relation to the business objectives. ◊ Credit risk – debtors Where they arise, extra measures will be taken to mitigate them or ◊ Liquidity where appropriate pass them to third parties. ◊ External risk ◊ Business planning & capital allocation While we seek to reduce Operational risk through having effective processes, ◊ Change execution systems and controls, we recognise and accept that a certain level of ◊ Concentration operational loss is inevitable, where the costs of controls would exceed the ◊ Contagion expected benefits. ◊ Investment performance ◊ Legal The Board of directors and Senior Management establish the “tone at the ◊ Tax top” regarding the importance of internal controls including the expected ◊ Market conduct standards of conduct. They have set standards, processes and structures ◊ Information / Cyber security that provide the basis for carrying out internal controls. ◊ Model ◊ People ◊ Process failure ◊ Technology / Systems

◊ Regulatory compliance Risk Preference – ZERO ◊ Reputational risk The Company has no appetite for these risks, as they are not viewed as ◊ Financial crime attractive and not part of the strategy for achieving the mission; but the company does recognise that limited exposures may arise from time to time. 59

SUSTAINABILITY REPORT UAP Holdings PLC (formerly UAP Holdings Limited) 60 2019 Annual Report and Financial Statements

COVERING OUR STAKEHOLDERS

Regulators Customers

Our At the heart of our stakeholder Investors Stakeholders Intermediaries engagement mandate are three core commitments:

Our first commitment is to create value for all our stakeholders. Knowing our stakeholders and understanding their needs is important to us as it forms the basis of all our relationships. Communities Employees Wherever there is shared value, there is lasting commitment to building and growing together.

Our second commitment is to adhere to strong corporate governance in the management of all our relationships. Our groupwide Stakeholder Relations Policy ensures that the standards by which we operate across all our markets are in line with both international best practice and national practices as stipulated by our regulators and respective governments. Our final commitment is to follow a method of structured strategic engagements, allowing us to monitor and evaluate the quality of our relationships and their impact on the communities we serve.

We are proud of the decision we have made as a business to be a responsible social partner within our markets, actively participating in industry bodies and associations that seek to drive financial inclusion in the region. Furthermore, we work together with our regulators and all levels of governments to build stronger economies across East Africa. Whether lending a voice to improving agriculture forums in Tanzania in partnership with the government, creating renewable energy in South Sudan, giving back to the society during Kwibuka in Rwanda in partnership with the government, ensuring our clients remain educated through payment of Life policies in Uganda or partnering with county governments across Kenya to improve public healthcare systems – we remain committed to unlocking shared value for all our stakeholders.

In an increasingly interconnected world, in which we must all play our part, our business continues to demonstrate that the collective practice of responsible business principles yields the most optimal results for all social partners. UAP Holdings PLC (formerly UAP Holdings Limited) 2019 Annual Report and Financial Statements 61

COVERING OUR STAKEHOLDERS (Continued)

Our interaction with stakeholders

Customers Investors Intermediaries

• Innovative and flexible product solutions • Sustainable financial returns and distributions • Support and infrastructure to enable productivity • Competitive and transparent pricing • Clear strategic direction and operational execution • Product and regulatory training • Omnichannel digital experience and ease • Strong governance frameworks and ethics • Fair incentives that reward efforts of use • Experienced management team • Digital applications and tools that save time and • Fast and efficient customer service • Transparent reporting and disclosures are easy to use concerns

Key interest & interest Key • Responsible and appropriate advice • To be treated in a responsible and fair manner

• Tied advisers, independent brokers, agents • Annual and interim reports • Sales conferences and roadshows and consultants in branches, call centres • Annual General Meetings • Digital applications and tools and worksites • Digital and traditional media channels • Digital and traditional media channels • Digital applications and tools • Full and half-year investor briefings

Channels of • Digital and traditional media channels engagement • Annual reports

Employees Communities Regulators

• Fair and competitive remuneration • Skills development and employment opportunities • Compliance with legal and regulatory requirements • Training and development for personal and • Financial education and financial inclusion • Being a responsible taxpayer career advancement • Contribute to social and environmental issues • Contribution to industry and regulatory • An inclusive, diverse and safe working working groups environment • Strong governance oversight

concerns • Being employed by a company that • Treating customers fairly Key interest & interest Key embraces new ways of working in a digital • Meeting capital requirements era

• Employee engagement technology solutions • Community projects and campaigns • Regular engagements with the regulator • Extensive internal communications • Digital and traditional media channels • Participation in industry bodies and public forums • Management roadshows and town hall • Annual reports • Provide input on draft regulations meetings • Quarterly regulatory submissions

Channels of • Annual reports engagement UAP Holdings PLC (formerly UAP Holdings Limited) 62 2019 Annual Report and Financial Statements

2019 EAST AFRICA HIGHLIGHTS

Our responsible business agenda UAP Old Mutual’s Responsible Business philosophy is underpinned by the desire to be a purposeful organisation with a conscience. We believe that creating shared value for our investors, employees, customers and the communities we operate in, will facilitate the long-term sustainability of the Group and enhance our competitiveness. We leverage our role as a leading integrated financial services provider in the region to serve as a catalyst for economic development and contribute to broader social upliftment.

Customers Employees Intermediaries Communities

Claims and Salaries and Fees and Tax: Kshs benefits paid: benefits paid: commissions paid: Kshs Kshs 463M Kshs CSR: Kshs 1.84B 2.57B 2.14B 14.8M

Regulators and industry associations

East Africa: South Sudan: Kenya: Financial Reporting Chamber Quality Association of Kenya Insurance (FiRe) awards: Awards (AKI) Awards: Overall winner Overall winner Overall winner Insurance Insurance General Insurance Company Category Category of the Year Award 1st runner-up Group Life Company of the Year Award UAP Holdings PLC (formerly UAP Holdings Limited) 2019 Annual Report and Financial Statements 63

2019 EAST AFRICA HIGHLIGHTS (Continued)

Our customers

Our customers are at the heart of everything we do. We believe The East Africa business set up a digital garage with the aim of in building life-term partnerships with our clients by assisting incubating new practices and enhancing digital delivery for the them meet their core financial needs and guiding them to business. The result has been an enhanced customer experience achieve their financial goals. In doing so, our staff are guided with the development of several products and solutions such as: by certain frameworks and principles that ensure long term sustainable relationships. • Alternate channel offering to allow customers to request for statements, file claims, request for a call back or invest remotely. One of these is the Treating Customers Fairly (TCF) Principles In Kenya, the following have been launched; WhatsApp (+254) which are firmly embedded across the region resulting in positive 011 945 522, USSD *701# (Safaricom) and Facebook Messenger impact in 2019: chatbot

• Development of end-to-end product onboarding on the digital channels. These include unit trusts, travel and motor insurance in Kenya

End-to-end product onboarding on the digital channels Treating Customers Fairly (TCF) Principles UAP Holdings PLC (formerly UAP Holdings Limited) 64 2019 Annual Report and Financial Statements

2019 EAST AFRICA HIGHLIGHTS (Continued)

Our customers

Our e-commerce platform in Kenya dubbed ‘Dream Enabler’ has Our customer strategies are aimed at ensuring we attract and enjoyed significant growth in online sales from solutions such retain customers across various life stages. This is achieved as unit trusts, travel, medical and motor insurance. The platform through products that deliver value to customers. In Uganda, delivered a more than fivefold growth in sales value over 2018. the Life business paid-out 282 ‘Somesa’ education policies worth UGX 4 billion (USD 1 million). Kenya’s Heath business launched a wellness program delivered via the ‘GoPlus’ app to enable customers maintain a healthy lifestyle.

The homepage of the Dream Enabler.

A customer receiving a claim settlement for a ‘Somesa’ education policy in Uganda.

The Old Mutual Amazing Voices talent show premiered in 2019 across Africa with a key objective to build brand affinity with a younger customer segment. The TV show featured singing groups from 9 cities across the continent. Kenya’s Wanavokali Group were voted in as winners by Kenya’s social media community and received a cash prize of Kshs 10 million.

Key solutions on Dream Enabler. Wanavokali, the Kenyan Group that won 10M at the Old Mutual Amazing Voices. UAP Holdings PLC (formerly UAP Holdings Limited) 2019 Annual Report and Financial Statements 65

2019 EAST AFRICA HIGHLIGHTS (Continued)

Our employees

Staff engagement continues to be instrumental in ensuring that the Group is a ‘great place to work, learn and grow’ while developing a workforce that takes ownership of the Group strategy. We have launched several staff engagement initiatives that have lifted staff retention levels from 76% in 2018 to 86% in 2019. Some of these include:

• Middle-level managers critical in delivering the business strategy attended a leadership program at the Strathmore University (the Aspire leadership program)

• In line with Human Capital best practice which encourages a third of the business leadership to be female, we launched coaching and mentorship for women earmarked for key roles. A deliberate effort has also been made to interest ladies to take up leadership roles during the recruitment process

Staff during an Old Mutual Women’s Network (OWN) meeting. Staff at a heart talk during the World Heart Day.

Staff team at the AKI soccer match. Aspire leadership program. UAP Holdings PLC (formerly UAP Holdings Limited) 66 2019 Annual Report and Financial Statements

2019 EAST AFRICA HIGHLIGHTS (Continued)

Our communities & environment

1. The UAP Old Mutual Foundation - Kenya The UAP Old Mutual Foundation is the responsible business arm of the Group focusing on investing in the communities in which we serve. It has three pillars; healthcare, education and environment.

Investing in healthcare Conserving the environment

The Foundation has partnered with In its 5 years of existence, the Foundation organizations to enhance access to quality has sponsored the planting of 70,000 tree healthcare through the improvement of seedlings in Nyeri, Murang’a, Kisii, Homa medical infrastructure and intervention Bay, Kajiado, and Kiambu counties. This is programmes. In 2019, the Foundation to combat climate change and increase supported: access to clean water. The pillar is also aligned to the national target to achieve • Mama Lucy Kibaki Hospital a 10% tree cover by 2022. The installation of queue management system (QMS) and 120 patients’ benches at the hospital which serves over 1,000 patients daily has resulted in improved patient management and reporting. Before and after images of the queue management The sponsorship which was valued system installed by the Foundation at Mama Lucy at Kshs 5 million and is the fourth Kibaki Hospital. of its kind for the Foundation. Other hospitals supported include; Kenyatta National Hospital (KNH) in 2015, Al Sabbah Children’s Hospital in South Sudan in 2016 and Uasin Gishu County The Chairman, Foundation Management Committee Hospital in 2018. planting trees with his family at the Kereita forest.

• Free medical camps 3,000 members of the society were A member of the community receiving treatment at Education screened in Meru, Bungoma, and Taita a medical camp held in Meru. Taveta Counties in 2019. The medical The Foundation continues to support camps focused-on prostate, cervical Financial Education (FE) as part of the & breast cancer and eye screening, as Group’s thought leadership positioning. well as treatment for general ailments The FE is also conducted digitally via our such as waterborne diseases at an social media channels to reach a wider investment of Kshs 4.5 million. audience.

Voi medical camp. UAP Holdings PLC (formerly UAP Holdings Limited) 2019 Annual Report and Financial Statements 67

2019 EAST AFRICA HIGHLIGHTS (Continued)

Our communities & environment

The UAP Old Mutual Foundation at a glance

Healthcare Environment Education Mama Lucy Kibaki Hospital Queue Management System Installation Counties Covered in tree planting 365,000 initiatives: patients annually Scholarships in : Nyeri Gatanga, Kenyatta National Hospital Sunshine School, A&E Wing Renovation Murang’a Starehe Boys Centre, to serve Starehe Girls Centre, Kiambu Brookhill Academy 180,000 Patients Annually Kisii Provision of Assistive Uasin Gishu District Kajiado Devices for Special Hospital Maternity & Lab Schools in Renovation Homa Bay 5 counties 108,000 Bomet, Kitui, Meru, patients annually Kisumu & Likoni

Al Sabah Children’s Hospital Renovation: Improved services for Provision of Financial Total number of trees Education for over 11,000 planted Admissions & 10,000 participants since 23,000 2016 to date outpatient visits 70,000 UAP Holdings PLC (formerly UAP Holdings Limited) 68 2019 Annual Report and Financial Statements

2019 EAST AFRICA HIGHLIGHTS (Continued)

Our communities & environment

2. Solar power plant - South Sudan

As the developers behind the tallest building in South Sudan, UAP the community around the Juba Tower. Over and above enabling Equatoria Tower Juba, the Group’s environmental sustainability tenants at Equatoria Tower to tap into the long-term economic agenda emphasizes the need to reduce the environmental footprint benefits of utilizing sustainable renewable energy over diesel, of the skyscraper while enhancing sustainability and efficiency. the solar plant also drives our corporate environmental and social responsibility mandate by reducing noise pollution for the In upholding our commitment to minimizing the environmental neighboring community and drastically reducing greenhouse impact of non-renewable energy and enhancing the social and gas emissions. economic benefits of all our operations, the Group has embarked on the development of a solar power plant at UAP Equatoria Tower The solar plant will in the first yearcut back diesel dependency at Juba, projected to produce over 1,000,000 KWh per annum. the Tower by 50% with continuous improvements in conversion efficiency in the subsequent years to fully eliminate dependency The solar power project is driven both by the Group’s sustainability on diesel. Subject to containment of the COVID-19 pandemic, the strategy as well as engagements with key stakeholders within plant is targeted for completion by November 2020.

KWh1,000,000 per annum

Reduction50% in diesel dependency UAP Holdings PLC (formerly UAP Holdings Limited) 2019 Annual Report and Financial Statements 69

2019 EAST AFRICA HIGHLIGHTS (Continued)

Our shareholders

The Group has successfully rolled out several IT initiatives to drive efficiencies across EA resulting in a 12.5% drop in IT costs and an increase in the reliability of our systems in the last three years. These include:

• A single financial management and reporting system on • New systems implemented in our Health business Microsoft Azure Cloud launched across all entities in the region. • Multiple systems consolidated in our Life business This has enabled the business; de-commission three financial • Hardware and network infrastructure redesigned and systems, consolidate financial management & reporting and consolidated implement a new and scalable integration framework

Covering our customers’ assets

Our financial crime initiatives in 2019 saw a total of 76 cases for our businesses in line with our annual fraud risk assessment plan. reported and investigated. By contrast, far more fraud cases were To ensure staff are well equipped with knowledge to assist them in investigated in FY 2018. Internally, six employees were dismissed. the various scenarios they encounter in their daily work routines, Externally, thirteen 13 cases were referred to the police for further they are required to undertake mandatory internal e-learning investigation and prosecution of the alleged culprits. Fraud programmes on anti-money laundering (AML), treating customers awareness training sessions were held through online channels fairly (TCF), cybersecurity and our updated code of conduct, the for all staff and classroom training sessions for staff in ‘Maadili Charter’. high-risk departments. We also conducted fraud risk assessments UAP Holdings PLC (formerly UAP Holdings Limited) 70 2019 Annual Report and Financial Statements

COVID-19 RESPONSE

Humanitarian response to COVID-19

The COVID-19 pandemic has impacted communities vastly in 2020. The Group continues to stand with our stakeholders though this period.

Customers Communities

The Life business made a public commitment to honour all Through partnerships, the Group contributed Kshs 23.5 million to valid Life insurance claims related to COVID-19 with two claims the various initiatives as at May 2020 in support of the COVID-19 paid by May 2020. The Health businesses in Kenya and Uganda national response: enhanced their medical solution to include; ‘Meds on Wheels’, a service that delivers prescription drugs to one’s doors step, Kenya contributed to joint industry initiatives driven by our regulators tele-medicine and tele-counselling services for remote medical - Insurance Regulatory Authority (IRA) and Capital Markets Authority assistance. (CMA). Partnered with Gertrude’s Children’s Hospital to conduct testing of children in high settlement communities, donated Customers across East Africa were encouraged to leverage a shopping vouchers to 434 security guards & casual workers across wide array of convenient cashless payment options. The Kenya the Group’s branch network and provided 26,500 reusable masks business launched alternate channels via USSD, WhatsApp and to Uber drivers, ‘Boda-boda’ (motorbike) riders and support staff. Facebook Messenger Chatbot to complement services available on the UAP Old Mutual website so as to allow customers to Uganda donated 100 hospital beds to various regional referral continue to access services. Virtual 24-hour call centres were hospitals in partnership with the Ministry of Health. South Sudan also set up across the region for customer query support. donated food and PPEs to vulnerable groups such as Juba Children’s Center and new mothers at Al Sabbah Children’s Hospital. The business amplified financial education programs to include financial wellness coaching and health & wellness topics relevant to the period. These initiatives were intended to reassure customers that indeed, UAP Old Mutual remains a certain friend in uncertain times.

UAP Old Mutual’s Head of Administration Employees ‘Boda-boda‘ riders in masks donated and Properties handing over funds to by the Business. support essential workforce on behalf of Staff across the region were facilitated to work from the safety the UAP Old Mutual Foundation. of their homes. They were enabled with infrastructure such as virtual tools that allow for collaborative virtual team meetings and accessibility on their normal telephone extensions to ensure business continuity. Counselling and financial education services were also provided for staff. The Uganda Buiness donating 100 hospital beds in partnership with the Ministry of Health. Partnership with Uber to provide Uber drivers with masks. 71

Humanitarian response to COVID-19 72

DIRECTORS’ REPORT UAP Holdings PLC (formerly UAP Holdings Limited) 2019 Annual Report and Financial Statements 73

DIRECTORS’ REPORT

The Directors submit their report together with the audited continued to focus on underwriting quality business, containing financial statements for the year ended 31 December 2019 which costs and reserving appropriately under the current difficult disclose the state of affairs of UAP Holdings PLC (formerly UAP market environment. Holdings Limited) (the ‘Company’) together with its subsidiaries (the ‘Group’). The key risks surrounding the Group’s businesses are outlined under Note 4 to these financial statements. On 9 March 2020 the Company changed its name from UAP Holdings Limited to UAP Holdings PLC in compliance with the Revenue growth Kenyan Companies Act, 2015. Net Earned Premium (NEP) increased by 3.8% to KShs 16.1b (2018: KShs 15.5b). Regionally, the group registered marginal growth in Principal activities gross written premiums, except in Tanzania where it recorded a The Group is engaged in the business of insurance, premium negative growth. We have encountered difficulties due to pricing financing, investment management, property and stockbroking pressure, undercutting and an overall softening in business services. These activities are carried out through the Group’s conditions which has led to constrained revenue growth. Under subsidiaries in Kenya, Uganda, Tanzania, South Sudan, Mauritius these conditions, the Group has continued to focus on improving and Rwanda. These activities are briefly described below: underwriting performance by retaining and growing quality business. Insurance business: The Group has seven subsidiary undertakings that underwrite all classes of life and non-life insurance risks as Net claims defined by the Insurance Acts in their respective countries of Net claims increased by 11.8% to KShs11.6b (2018: KShs10.4b) domicile. The Group does not underwrite industrial life insurance. attributable to increased claims experience in the medical business The Group also issues investment contracts to provide its customers across the region. For the non-medical lines of business, claims with asset management solutions for their savings and retirement ratios reduced due to concerted efforts to implement claims savings needs, and provides insurance premium financing services. These initiatives and focus on maintaining the overall underwriting quality. operations are carried out in Kenya, Uganda, Tanzania, South Sudan and Rwanda. Operating expenses We managed to maintain our staff costs which were marginally Stockbroking: The Group provides stockbroking services through its above the prior year but movements in depreciation (including subsidiary, UAP Old Mutual Financial Services Limited, a Ugandan Right of Use depreciation which was recognised for the first time based Company. in 2019 following the implementation of IFRS 16: Leases), bank charges and impairment on property and equipment contributed Property: The Group holds investments in two property companies to a 9.1% increase in operating expenses over the previous year based In Uganda and South Sudan. The Company directly owns with FY2019 operating expenses of KShs 6.0b compared to 5.5b commercial property and through its other subsidiaries owns in FY2018. a portfolio of commercial and residential properties in Kenya, Uganda, Rwanda and South Sudan. Underwriting profit and combined ratio Our underwriting results for the General and Health business Business review registered a profit of KShs 0.2b compared to a prior year The Group reported a loss before tax for the year of KShs 3.2b. underwriting loss of KShs 0.6b mainly attributable to a 13.1% The loss is attributed to valuation write-downs for the investment decline in operating expenses and 1.5% growth in net earned properties which totalled to KShs. 4.0b (2018: KShs 0.6b) for UAP premiums. The combined ratio moved in tandem from 104% to Old Mutual Tower (Kenya), Equatoria Tower (South Sudan) and 98.8%, a reduction of 5%. The Life business underwriting profit Nakawa Business Park (Uganda). The impact of the valuation improved by 4.9% to KShs 0.1b on the back of strong revenue write-downs offset improvement in returns from equities and growth and lower operating expenses. fixed income.

Despite the above challenges the performance of the core insurance business performed relatively well as management UAP Holdings PLC (formerly UAP Holdings Limited) 74 2019 Annual Report and Financial Statements

DIRECTORS’ REPORT (Continued)

Investment income Net investment income decreased by 78.3% to KShs 634m mainly due to the impact of property valuation write-downs for UAP Old Mutual Tower, Equatoria Tower and Nakawa Business Park. The total effect was a significant reduction in investment income despite a rally in the final quarter of the year in Kenya’s equity markets because of the repeal of the interest rate cap. The fixed income portfolio also performed well but the net effect was a marked decline in investment income due to the performance of the investment property portfolio.

Directors

The Directors of the Company, who held office during the year and up to the date of this report, are:

Dr JB Wanjui, CBS Kenyan Chairman (Non-Executive Director) Mr Michael J Harper South African Deputy Chairman and Independent Non-Executive Director Mr James Ngatia Muguiyi Kenyan Non-Executive Director Dr Peter W Muthoka, EBS Kenyan Independent Non-Executive Director (retired 14 June 2019) Mr Paul Truyens Dutch Independent Non-Executive Director (retired 14 June 2019) Mrs Susan Omanga Kenyan Independent Non-Executive Director Mr Robert Mbugua Kenyan Independent Non-Executive Director Mr George Maina Kenyan Non-Executive Director Mr Vincent Rague Kenyan Independent Non-Executive Director Mr Jonas Mushosho Zimbabwean Non-Executive Director (retired 1 January 2020) Mr Iain Williamson South African Non-Executive Director (resigned 13 March 2019)

Mr. Shailesh Devchand South African Non-Executive Director (appointed 13 November 2019)

Mr. Richard Treagus South African Non-Executive Director (appointed 13 November 2019)

Mr Joseph Wanjui Kenyan Alternate to Dr JB Wanjui Mr Peter Mwangi Kenyan Executive Director (Group Chief Executive Officer) (resigned 8 April 2020)

The resignation or retirement from office of directors listed above did not relate to the affairs of the company. In particular, Dr. Muthoka, Mr. Truyens and Mr. Mushosho retired from office in line with the Group’s Governance Framework. Further, Mr. Williamson resigned from office following the assignment ofadditional duties within the Old Mutual Group. UAP Holdings PLC (formerly UAP Holdings Limited) 2019 Annual Report and Financial Statements 75

DIRECTORS’ REPORT (Continued)

Results

KShs ‘000 2019 2018

Loss for the year (3,365,500) (517,875) Loss attributable to shareholders of the company (3,013,335) (350,468)

Dividends The directors do not recommend the payment of a dividend (2018: Nil).

Relevant audit information The directors in office at the date of this report confirm that: ◊ There is no relevant audit information of which the Company’s auditor is unaware; and ◊ Each director has taken all the steps that they ought to have taken as a director so as to be aware of any relevant audit information and to establish that the Company’s auditor is aware of that information.

Auditor The Company’s auditor, Messrs KPMG Kenya, has expressed willingness to continue in office in accordance with the Kenyan Companies Act, 2015 for the ensuing financial year.

Approval of the financial statements The financial statements set out on pages 87 to 185 were approved and authorised for issue by The Board of Directors on 5 May 2020.

By order of The Board

Nkirote Mworia Njiru Secretary

5 May 2020 UAP Holdings PLC (formerly UAP Holdings Limited) 76 2019 Annual Report and Financial Statements

DIRECTORS’ REMUNERATION REPORT

The Company has adopted a Remuneration Risk Policy that sets out the guiding principles in respect of remuneration for Executive and Non-Executive Directors as follows:

◊ Remuneration must align to the business drivers, corporate vision and strategic priorities of the Company as approved by the shareholders. The remuneration and incentive model shall support prudent decision-making, be consistent with the risk appetite and shall not induce excessive or inappropriate risk-taking. ◊ Executive remuneration should be fair and responsible in the context of overall employee remuneration. ◊ Remuneration of employees who do similar work and employees whose work is of equal value must be aligned to the principle of Equal Pay for Work of Equal Value. ◊ Remuneration plans and policies must align the interests of executives with those of shareholders by rewarding the delivery of the chosen strategy and sustained performance against agreed financial goals that create long- term shareholder value.

The Board has mandated the Remuneration, Nominations and Corporate Governance Committee (RNCGC) to, inter alia, review the remuneration of Non-Executive Directors and senior management and recommend changes from time to time.

For the financial year ended 31 December 2019, the consolidated directors’ fees and remuneration was KShs 191m (2018: KShs 199m) and Company director fees were KShs 65m (2018: KShs 40m) as detailed below:

Group Company

KShs ‘000 Note 2019 2018 2019 2018 Non-Executive Directors’ fees 110,222 86,743 26,225 39,978

Executive Directors’ remuneration 81,189 111,862 39,137 -

Total Directors’ remuneration 43 (viii) 191,411 198,605 65,362 39,978

Non-Executive Directors The Company offers a selection of financial and non-financial rewards and benefits to Non-Executive Directors. In determining the remuneration structure for Non-Executive Directors, the Company has adopted a remuneration model that takes into account the size and nature of the Group’s business and comparative benchmarks of similar entities within the financial services sector in East Africa. Non-Executive Directors’ (other than the Old Mutual representatives) are entitled to the following fees and benefits in respect of their appointment to The Board:

(i) An annual fee for board membership prorated and paid monthly in arrears. (ii) Sitting allowances for board and committee attendance to compensate them for their time in preparation and attendance in board and committee meetings. Premia apply in respect of payments made to Chairs of boards and committees. (iii) Enrolment to the Non-Executive Directors’ medical and motor private insurance schemes at rates similar to the staff medical cover. (iv) Reimbursement for travel expenses associated with their official duties, where necessary, as well as other direct business-related expenses. (v) Directors’ Liability Cover to provide protection for undertaking their duties in such capacity.

Non-Executive Directors are not covered by the Company’s incentive programs nor do they receive performance- based remuneration. No pension contributions are payable on their fees and no director is entitled to any compensation at the end of their tenure for loss of office. During the year under review, there were no directors’ loans or directors’ shares scheme. UAP Holdings PLC (formerly UAP Holdings Limited) 2019 Annual Report and Financial Statements 77

DIRECTORS’ REMUNERATION REPORT (Continued)

Changes to directors’ remuneration The fees of Non-Executive Directors are reviewed annually in accordance with the relevant corporate governance standards and requirements and are subject to ratification by shareholders at the AGM, exclusive of applicable taxes. In respect of the year ended 31 December 2019, no changes were made to the Non-Executive Director’s structure.

During the financial year ended 31 December 2019, The Board was composed of the following Non-Executive Directors who were remunerated as set out below:

2019 2018 Annual Sitting Annual Sitting KShs ‘000 retainer allowance Total retainer allowance Total Dr. JB Wanjui 4,815 - 4,815 4,815 80 4,895 Michael J Harper 1,835 470 2,305 1,835 370 2,205 James Muguiyi 1,835 480 2,315 1,835 540 2,375 Vincent Rague 1,731 360 2,091 966 140 1,106 Susan Omanga 1,835 420 2,255 1,835 390 2,225 Robert Mbugua 1,835 520 2,355 1,835 480 2,315 George Maina 1,731 570 2,301 1,656 410 2,066 Dr Peter Muthoka 918 40 958 1,835 480 2,315 Paul Truyens 836 330 1,166 1,835 590 2,425 Joseph Wanjui - 210 210 - 60 60 Peter De Beyer - - - 959 300 1,259 AK Maina - - - 1,104 80 1,184 Iain Williamson* ------Jonas Mushosho* ------Shailesh Devchand* ------Richard Treagus* ------17,371 3,400 20,771 20,510 3,920 24,430

*No fees are paid to these directors who represented Old Mutual Limited on The Board of directors in the year under review as they hold contracts of service in their respective jurisdictions.

In the year under review, Mr. De Beyer and Mr. AK Maina did not earn any fees having resigned from office in June and August 2018 respectively. Following Dr. Muthoka and Mr. Truyens’ retirement from office in June 2019, it was necessary to reconstitute The Board committees to fill in the vacancies and optimize the committee’s effectiveness. As such, Mr. Rague and Mr. G Maina were designated as committee chairmen resulting in an increase in their annual retainer. Further details on The Board committee composition and activities undertaken by the various board committees are included in the Corporate Governance Report.

The Board Chairman, Dr. Wanjui, proceeded on a leave of absence and is substantively represented on The Board by his alternate, Mr. Wanjui Jr, in the interim, the Deputy Chairman Mr. Harper took effective leadership of The Board and has taken on the role of chairing board meetings and attendant duties of The Board chairman.

Executive directors As at 31 December 2019, the Company had one Executive Director, Mr. Peter Mwangi who had oversight over all Group subsidiaries. He held a contract of service on permanent and pensionable terms with effect from 1st January 2019 having been transferred from one of the underlying Group entities to the Holding company following a Group re-organization. UAP Holdings PLC (formerly UAP Holdings Limited) 78 2019 Annual Report and Financial Statements

DIRECTORS’ REMUNERATION REPORT (Continued)

The contract provided for a company car, club membership, wireless home internet and had a clause providing that it could be terminated on three (3) months’ notice. As at the date of approval of the financial statements, Mr Peter Mwangi had resigned from the Group.

In accordance with the remuneration policy, Executive Directors are eligible to participate in the Company’s incentive reward scheme - Short Term Incentive (STI) and Long Term Incentive (LTI) awards - upon achieving various targets agreed with The Board. In respect of the year 2019, the performance metrics required to trigger the short- term incentive scheme were not attained and no bonus was paid. Executive Directors participate in the Group Long Term Incentive (LTI) scheme. Annual awards under this scheme are subject to deferral, vesting in equal tranches in year 3,4 and 5 after the award date. The awards are in the form of phantom Old Mutual Limited shares and qualify for dividends over the vesting period.

The LTI awards are subject to Malus (restriction of performance related compensation due to discovery of defective performance) and in some circumstances clawback.

Mr. Mwangi’s remuneration for the year under review was as follows:

Group Company KShs ‘000 2019 2018 2019 2018 Salaries and allowances 32,655 31,401 27,213 - Short term incentive payments* - 12,587 - - Long term incentive payments (including dividends) 9,231 14,863 9,231 - Nedbank & Quilter distributions** - 23,566 - - Retirement funding 3,219 3,104 2,691 -

45,105 85,521 39,135 -

*Includes the performance bonus linked to performance in the 2018 and 2017 financial years.

**On 26 September 2018, Old Mutual Limited, announced the unbundling of its majority shareholding in Nedbank to its shareholders, marking a total distribution to Old Mutual shareholders worth approximately R38.8 billion and the completion of Old Mutual Group’s Managed Separation (the demerger and listing of Quilter plc, the listing of Old Mutual Limited and the unbundling of it majority stake in Nedbank). “Distributions” includes the once-off Quilter and Nedbank distributions (vested immediately) as a result of the Managed Separation to compensate participants for the effect of the unbundling on the value of outstanding awards.

By Order of The Board

Vincent Rague Chairman - Remuneration, Nominations and Corporate Governance Committee

Date: 5 May 2020 UAP Holdings PLC (formerly UAP Holdings Limited) 2019 Annual Report and Financial Statements 79

STATEMENT OF DIRECTORS’ RESPONSIBILITIES

The Directors are responsible for the preparation and presentation of the consolidated and company financial statements of UAP Holdings PLC (formerly UAP Holdings Limited) set out on pages 87 to 185 which comprise the consolidated and company statements of financial position at 31 December 2019, and the consolidated and company statements of profit or loss, consolidated and company statements of other comprehensive income, consolidated and company statements of changes in equity and consolidated and company statements of cash flows for the year then ended and notes to the financial statements, including a summary of significant accounting policies and other explanatory information.

The Directors’ responsibilities include: determining that the basis of accounting described in note 2 is an acceptable basis for preparing and presenting the financial statements in the circumstances, preparation and presentation of financial statements in accordance with International Financial Reporting Standards and in the manner required by the Kenyan Companies Act, 2015 and for such internal control as the directors determine is necessary to enable the preparation of financial statements that are free from material misstatements, whether due to fraud or error.

Under the Kenyan Companies Act, 2015, the Directors are required to prepare financial statements for each financial period which give a true and fair view of the financial position of the Group and Company as at the end of the financial period and of the profit or loss of the Group and Company for that period. It also requires the directors to ensure the Company and its subsidiaries keeps proper accounting records which disclose with reasonable accuracy the financial position of the Group and Company.

The directors accept responsibility for the annual consolidated and separate financial statements, which have been prepared using appropriate accounting policies supported by reasonable and prudent judgments and estimates, in conformity with International Financial Reporting Standards and in the manner required by the Kenyan Companies Act, 2015. The directors are of the opinion that the consolidated and separate financial statements give a true and fair view of the financial position of the Group and Company and of the consolidated and separate profit or loss

The directors further accept responsibility for the maintenance of accounting records which may be relied upon in the preparation of consolidated and separate financial statements, as well as adequate systems of internal financial control.

The directors have made an assessment of the Group and Company’s ability to continue as a going concern and have no reason to believe the Group and/or Company will not be a going concern for at least the next twelve months from the date of this statement.

Approval of the financial statements The financial statements, as indicated above, were approved and authorised for issue by The Board of Directors on 5 May 2020.

Dr JB Wanjui CBS Michael J Harper Chairman Deputy Chairman

Date: 5 May 2020 80

AUDITED FINANCIAL STATEMENTS UAP Holdings PLC (formerly UAP Holdings Limited) 2019 Annual Report and Financial Statements 81

INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF UAP HOLDINGS PLC (FORMERLY UAP HOLDINGS LIMITED)

Report on the audit of the consolidated and separate financial statements

Opinion We have audited the consolidated and separate financial statements of UAP Holdings PLC (formerly UAP Holdings Limited) (the “Group and Company”) set out on pages 87 to 185 which comprise the consolidated and company statements of financial position at 31 December 2019, and the consolidated and company statements of profit or loss, statements of other comprehensive income, statements of changes in equity and statements of cash flows for the year then ended, and notes to the financial statements, including a summary of significant accounting policies and other explanatory information.

In our opinion, the accompanying consolidated and separate financial statements give a true and fair view of the consolidated and separate financial position of UAP Holdings PLC (formerly UAP Holdings Limited) as at 31 December 2019 and of its consolidated and separate financial performance and its consolidated and separate cash flows for the year then ended in accordance with International Financial Reporting Standards (IFRSs) and the Kenyan Companies Act, 2015.

Basis for opinion We conducted our audit in accordance with International Standards on Auditing (ISAs). Our responsibilities under those standards are further described in the Auditor’s Responsibility for the audit of the consolidated and separate financial statements section of our report. We are independent of the Group and Company in accordance with the International Ethics Standards Board for Accountants’ Code of Ethics for Professional Accountants (IESBA Code) together with the requirements that are relevant to our audit of the consolidated and separate financial statements in Kenya, and we have fulfilled our other ethical responsibilities in accordance with these requirements and the IESBA Code. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Key audit matters Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the consolidated and separate financial statements of the current period. These matters were addressed in the context of our audit of the consolidated and separate financial statements as a whole, and in forming our opinion thereon and we do not provide a separate opinion on these matters.

Short term insurance contract liabilities (applicable to the consolidated financial statements)

See Note 27 to the financial statements

The key audit matter How the matter was addressed in our audit

Short term insurance contract liabilities Our audit procedures in this area included, among others: constitute a significant portion of the ◊ Evaluating and testing key controls around the claims handling and reserve setting Group’s total liabilities. Valuation of processes of the Group; these liabilities is highly judgmental, ◊ Checking for any unrecorded liabilities at the end of the period; and requires a number of assumptions ◊ Checking samples of claims reserves by comparing the estimated amount of the to be made that have high estimation reserve to appropriate documentation, such as reports from loss adjusters; uncertainty. UAP Holdings PLC (formerly UAP Holdings Limited) 82 2019 Annual Report and Financial Statements

INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF UAP HOLDINGS PLC (FORMERLY UAP HOLDINGS LIMITED) (Continued)

Report on the audit of the consolidated and separate financial statements (Continued) Key audit matters (Continued)

Short term insurance contract liabilities (applicable to the consolidated financial statements) (Continued)

The key audit matter How the matter was addressed in our audit

This is particularly the case for those liabilities that are ◊ Re-performing reconciliations between the data recorded in the recognised in respect of claims that have occurred, but have financial systems and the data used in the actuarial reserving not yet been reported to the Group. Small changes in the calculations; assumptions used to value the liabilities, particularly those ◊ Using our actuarial specialists to review the reserving methodology relating to the amount and timing of future claims, can lead applied and analytically review the valuation results presented to material impacts on the valuation of insurance liabilities. and movements since the previous year end. We focused on understanding the methodologies applied and examined areas The key assumptions that drive the reserving calculations of judgment such as changes in valuation assumptions; and includes, loss ratios, inflation assumptions and claims expense ◊ Considering the validity of management’s liability adequacy assumptions. The valuation of insurance contract liabilities testing by assessing the reasonableness of the projected cash depends on accurate data about the volume, amount and flows and challenging the assumptions adopted in the context pattern of current and historical claims since they are often of Group and industry experience data and specific product used to form expectations about future claims. If the data used features. in calculating insurance liabilities, or for forming judgments over key assumptions, is not complete and accurate then material impacts on the valuation of insurance liabilities may arise. Consequently, we have determined the valuation of short term insurance contract liabilities to be a key audit matter.

The Group’s accounting policies in respect of short term insurance contract liabilities are included in the Group’s accounting policies while the disclosures are included in Note 27 to the financial statements.

Long term insurance contract liabilities (applicable to the consolidated financial statements) See Note 27 and 28 to the financial statements

The key audit matter How the matter was addressed in our audit

The Group has significant long term insurance contract Our audit procedures in this area included, among others: liabilities and deposit administration liabilities representing ◊ Comparing the assumptions to expectations based on the a significant portion of the Group’s total liabilities. This is an Group’s historical experience, current trends and our own area that involves significant judgment over uncertain future industry knowledge; outcomes, mainly the ultimate total settlement value of long- ◊ Evaluating the governance around the overall Group reserving term policyholder liabilities. process, including the scrutiny applied by the internal and appointed external actuaries. We assessed qualifications and Economic and operating assumptions, such as investment experience of those responsible and examined the output of the returns, mortality and persistency (including consideration reviews to assess the scope and depth of these processes. Our of policyholder behaviour), expenses and expense inflation, evaluation of the methodologies and key assumptions enabled withdrawals and sensitivity analysis are the key inputs used us to assess the quality of the challenge applied through the to estimate these long-term liabilities. Group’s reserving process; UAP Holdings PLC (formerly UAP Holdings Limited) 2019 Annual Report and Financial Statements 83

INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF UAP HOLDINGS PLC (FORMERLY UAP HOLDINGS LIMITED) (Continued)

Report on the audit of the consolidated and separate financial statements (Continued) Key audit matters (Continued)

Long term insurance contract liabilities (applicable to the consolidated financial statements) (Continued) The key audit matter How the matter was addressed in our audit The assumptions to be made have high estimation ◊ Using our actuarial specialists to review the reserving methodology uncertainty and changes in the estimates may lead to applied and analytically reviewing the valuation results presented and material impact on the valuation of the liabilities. The movements since the previous year end. We focused on understanding valuation also depends on accurate data extraction the methodologies applied and examined areas of judgment such as from the information systems. If the data used is not changes in valuation assumptions; complete and accurate then material impacts on the ◊ Considering the validity of management’s liability adequacy testing by valuation of policyholder liabilities may also arise. assessing the reasonableness of the projected cash flows and challenging the assumptions adopted in the context of Group and industry experience Due to the high level of judgment, sensitivity of the data and specific product features; and assumptions used and complexity of the valuation of ◊ Considering whether the Group’s disclosures in relation to the assumptions long term insurance contract liabilities, we considered used in the calculation of insurance contract liabilities are compliant with this to be a key audit matter. the relevant accounting requirements in particular the sensitivities of these assumptions to alternative scenarios and inputs. The Group’s accounting policies in respect of insurance contract and deposit administration liabilities are included in the Group’s accounting policies while the disclosures are included in Notes 27 and 28 to the financial statements.

Valuation of investment properties (applicable to the consolidated and separate financial statements) See Note 17 to the financial statements

The key audit matter How the matter was addressed in our audit

The Group and Company own investment properties Our audit procedures in this area included, among others: which represent the single largest category of assets ◊ Evaluating the qualifications and competence of the external valuers and on the Group and Company statements of financial reading the terms of engagement of the valuers to determine whether position as at 31 December 2019. These investment there were any matters that might affect their objectivity or limited the properties are stated at their fair values based on scope of their work; independent external valuations. ◊ Considering the adequacy of the descriptions in the consolidated and separate financial statements, in describing the inherent degree of Valuation of investment properties is considered subjectivity and key assumptions in the estimates; a key audit matter because the valuation process ◊ Testing the integrity of inputs of the projected cash flows used in the involves significant judgment in determining the valuation to supporting leases and other documents; and appropriate valuation methodology to be used, and ◊ Challenging the capitalisation, discount and terminal yield rates used in estimating the underlying assumptions to be in the valuation by comparing them against available industry data, applied. The valuations are highly sensitive to key taking into consideration comparability and market factors and , holding assumptions applied in deriving at the capitalisation, discussions with the appointed valuers. discount and terminal yield rates and a small change in the assumptions can have a significant impact to the valuation. UAP Holdings PLC (formerly UAP Holdings Limited) 84 2019 Annual Report and Financial Statements

INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF UAP HOLDINGS PLC (FORMERLY UAP HOLDINGS LIMITED) (Continued)

Report on the audit of the consolidated and separate financial statements (Continued) Key audit matters (Continued)

Information Technology (IT) systems and controls (applicable to the consolidated financial statements)

The key audit matter How the matter was addressed in our audit

Many financial reporting controls depend on the In this area our audit procedures included, among others: correct functioning of related elements of the ◊ Testing general IT controls around system access and change management operational and financial IT systems, for example and testing controls over computer operations within specific applications interfaces between policy administration and which are required to be operating correctly to mitigate the risk of financial reporting systems or automated controls misstatement in the financial statements; which are designed to prevent inaccurate or ◊ With the support of our own IT specialists, testing these controls through incomplete transfers of financial information. This examining whether changes made to the systems were appropriately is an area of significant risk in our audit due to the approved, and assessing whether appropriate restrictions were placed on complexity of the IT infrastructure, particularly access to core systems through testing the permissions and responsibilities where systems require increased manual inputs. of those given that access;

There is an inherent risk that automated accounting procedures and related IT dependent manual controls may not be designed and operating effectively. UAP Holdings PLC (formerly UAP Holdings Limited) 2019 Annual Report and Financial Statements 85

INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF UAP HOLDINGS PLC (FORMERLY UAP HOLDINGS LIMITED) (Continued)

Report on the audit of the consolidated and separate financial statements (Continued)

Other information The Directors are responsible for the other information. The The Directors are responsible for overseeing the Group’s and other information comprises the Directors’ Report, Directors’ Company’s financial reporting process. Remuneration Report, Statement of Directors’ Responsibilities and Business Review which we obtained prior to the date of this Auditor’s responsibility for the audit of the consolidated auditor’s report, and the other information to be included in and separate financial statements the Published Annual Report and Financial Statements, which Our objectives are to obtain reasonable assurance about whether is expected to be made available to us after that date. Other the consolidated and separate financial statements as a whole are information does not include the consolidated and separate free from material misstatement, whether due to fraud or error, and financial statements and our Auditor’s report thereon. to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that Our opinion on the consolidated and separate financial statements an audit conducted in accordance with ISAs will always detect a does not cover the other information and we do not and will not material misstatement when it exists. Misstatements can arise express any form of assurance conclusion thereon. from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence In connection with our audit of the consolidated and separate the economic decisions of users taken on the basis of these financial statements, our responsibility is to read the other consolidated and separate financial statements. information identified above and, in doing so, consider whether the other information is materially inconsistent with the consolidated As part of an audit in accordance with ISAs, we exercise professional and separate financial statements or our knowledge obtained in judgment and maintain professional skepticism throughout the the audit, or otherwise appears to be materially misstated. audit. We also:

If, based on the work that we have performed on the other ◊ Identify and assess the risks of material misstatement of the information that we have obtained prior to the date of this Auditor’s consolidated and separate financial statements, whether report, we conclude that there is a material misstatement of this due to fraud or error, design and perform audit procedures other information, we are required to report that fact. We have responsive to those risks, and obtain audit evidence that is nothing to report in this regard. sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting Directors’ responsibility for the consolidated and separate from fraud is higher than for one resulting from error, as financial statements fraud may involve collusion, forgery, intentional omissions, As stated on page 79, the Directors are responsible for the misrepresentations, or the override of internal control. preparation of the consolidated and separate financial statements ◊ Obtain an understanding of internal control relevant to the that give a true and fair view in accordance with International audit in order to design audit procedures that are appropriate Financial Reporting Standards and in the manner required by in the circumstances, but not for the purpose of expressing the Kenyan Companies Act, 2015 and for such internal control, an opinion on the effectiveness of the Group’s and Company’s as the directors determine necessary to enable the preparation internal control. of the consolidated and separate financial statements that are ◊ Evaluate the appropriateness of accounting policies used free from material misstatements, whether due to fraud or error. and the reasonableness of accounting estimates and related disclosures made by the Directors. In preparing the consolidated and separate financial statements, ◊ Conclude on the appropriateness of the Directors’ use of the directors are responsible for assessing the Group’s and Company’s going concern basis of accounting and, based on the audit ability to continue as a going concern, disclosing, as applicable, evidence obtained, whether a material uncertainty exists matters related to going concern and using the going concern related to events or conditions that may cast significant doubt basis of accounting unless the directors either intends to liquidate on the Group’s and Company’s ability to continue as a going the Group and/or Company or to cease operations, or have no concern. If we conclude that a material uncertainty exists, realistic alternative but to do so. we are required to draw attention in our auditor’s report to UAP Holdings PLC (formerly UAP Holdings Limited) 86 2019 Annual Report and Financial Statements

INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF UAP HOLDINGS PLC (FORMERLY UAP HOLDINGS LIMITED) (Continued)

Report on the audit of the consolidated and separate financial statements (Continued) Auditor’s responsibility for the audit of the consolidated and separate financial statements (Continued)

the related disclosures in the consolidated and separate financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Group and/or Company to cease to continue as a going concern. ◊ Evaluate the overall presentation, structure and content of the consolidated and separate financial statements, including the disclosures, and whether the consolidated and separate financial statements represent the underlying transactions and events in a manner that achieves fair presentation. ◊ Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion.

We communicate with the directors regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.

We also provide the directors with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.

From the matters communicated with the directors, we determine those matters that were of most significance in the audit of the consolidated and separate financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.

Report on other legal and regulatory requirements As required by the Kenyan Companies Act, 2015, we report to you based on our audit, that:

(i) In our opinion, the information in the directors’ report on pages 73 to 75 is consistent with the consolidated and separate financial statements; and (ii) Our report on the consolidated and separate financial statements is unqualified.

The signing partner responsible for the audit resulting in this independent auditor’s report is CPA Alexander Mbai – P/2172.

KPMG Kenya Certified Public Accountants PO Box 40612 – 00100 Nairobi

Date: 5 May 2020 UAP Holdings PLC (formerly UAP Holdings Limited) 2019 Annual Report and Financial Statements 87

CONSOLIDATED STATEMENT OF PROFIT OR LOSS

KShs ‘000 Note 2019 2018 *Represented Gross written premium 5 (b) (i) 18,822,265 18,770,446 Gross earned premium 5 (b) (i) 19,339,103 18,618,939 Reinsurance ceded 5 (b) (ii) (3,231,721) (3,096,094) Net earned premium 16,107,382 15,522,845 Investment income 6 (a) 3,681,547 3,888,070 Fair value losses 6 (a) (3,047,683) (968,317) Net Investment Income 6 (a) 633,864 2,919,753 Commissions earned 5 (b) (iii) 748,206 881,472 Other income 7 (a) 136,816 124,423 Net impairment release/(provision) on financial assets 4 (b) (iv) 169,602 (779,922) Total income 17,795,870 18,668,571 Claims and policy owners’ benefits payable 8 (13,191,926) (12,078,268) Less: Amount recoverable from reinsurers 5 (b) (ii) 1,580,945 1,689,462 Net claims payable (11,610,981) (10,388,806) Operating and other expenses 9 (a) (5,981,547) (5,485,107) Commissions payable 5 (b) (iii) (2,143,159) (2,265,141) Total expenses and commissions (8,124,706) (7,750,248) Finance costs – interest on borrowings 31 (a) (1,229,538) (1,009,268) Finance costs – leases 44 (b) (59,620) - Loss before tax (3,228,975) (479,751) Income tax expense 11 (a) (136,525) (38,124) Loss for the year (3,365,500) (517,875) Loss attributable to: Owners of the parent (3,013,335) (350,468) Non-controlling interest 45 (352,165) (167,407) Loss for the year (3,365,500) (517,875) Basic and diluted EPS (KShs) 13 (14.23) (1.66)

The notes on pages 97 to 185 are an integral part of these financial statements.

* See note 46 UAP Holdings PLC (formerly UAP Holdings Limited) 88 2019 Annual Report and Financial Statements

CONSOLIDATED STATEMENT OF OTHER COMPREHENSIVE INCOME

KShs ‘000 Note 2019 2018

Loss for the year (3,365,500) (517,875)

Other comprehensive income that will be recycled to profit or loss:

Exchange differences on translating foreign operations (23,475) (215,122) Total items that will be recycled to profit or loss (23,475) (215,122)

Items that will not be recycled to profit or loss: Gains/(losses) on revaluation of equity investments: Remeasurement of retirement benefit obligations 26 5,192 20,697

(Loss)/gains on revaluation of property and equipment 15 (a) (25,751) 38,448 Total items that will not be recycled to (loss)/profit (20,559) 59,145

Total other comprehensive income for the year, net of tax (44,034) (155,977) Total comprehensive income for the year (3,409,534) (673,852)

Total comprehensive income attributable to: Owners of the parent (3,065,874) (458,090) Non-controlling interests 45 (343,660) (215,762)

Total comprehensive income (3,409,534) (673,852)

The notes on pages 97 to 185 are an integral part of these financial statements. UAP Holdings PLC (formerly UAP Holdings Limited) 2019 Annual Report and Financial Statements 89

COMPANY STATEMENT OF PROFIT OR LOSS

KShs ‘000 Note 2019 2018 Represented*

Investment income 6 (b) 2,051,075 1,067,379 Less: Fair value impairments 6 (b) (1,272,670) (109,996) Net investment income 778,405 957,383 Other income 7 (b) 1,193,026 720,164 Net impairment release on financial assets 4 (b) (iv) 4,518 2,438 Total income 1,975,949 1,679,985

Operating and other expenses 9 (b) (1,636,264) (1,564,085) Finance costs – interest on borrowings 31 (b) (1,166,265) (705,893) Finance costs – leases 44 (d) (4,243) - Loss before tax (830,823) (589,993) Income tax (charge)/credit 11 (b) (14,896) 170,222

Loss for the year (845,719) (419,771)

The notes on pages 97 to 185 are an integral part of these financial statements.

* See note 46 UAP Holdings PLC (formerly UAP Holdings Limited) 90 2019 Annual Report and Financial Statements

COMPANY STATEMENT OF OTHER COMPREHENSIVE INCOME

KShs ‘000 Note 2019 2018

Loss for the year (845,719) (419,771) Other comprehensive income - -

Total comprehensive income for the year (845,719) (419,771)

The notes on pages 97 to 185 are an integral part of these financial statements. UAP Holdings PLC (formerly UAP Holdings Limited) 2019 Annual Report and Financial Statements 91

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

Note 2019 2018 Assets Represented* Goodwill and other intangible assets 14 (a) 251,202 166,295 Property and equipment 15 (a) 2,322,563 2,716,812 Right of use assets 16 (a) 486,099 - Investment properties 17 (a) 16,012,712 19,756,714 Deferred tax assets 12 (a) 1,109,575 1,049,551 Equity investments 19 4,035,923 3,293,090 Deferred acquisition costs 20 453,859 445,985 Reinsurers share of policyholder liabilities 21 3,001,085 3,276,959 Loans and advances 22 313,149 306,412 Current income tax recoverable 11 (a) 233,384 145,854 Receivables arising from direct insurance arrangements 4 (b) (iv) 1,452,956 1,850,411 Receivables arising from reinsurance arrangements 4 (b) (iv) 1,342,007 1,294,978 Other receivables 23 (a) 1,082,297 2,060,149 Amounts due from related parties 43 (v) 245,936 17,165 Investments and government securities 24 16,573,945 15,697,451 Cash and cash equivalents 25 (a) 7,923,915 6,598,237 Total assets 56,840,607 58,676,063 Liabilities Insurance contract liabilities 27 13,746,305 12,370,988 Payables under deposit administration contracts 28 4,940,271 4,441,210 Unit linked investment contracts 29 828,256 859,754 Borrowed funds 31 (a) 11,412,672 11,098,307 Lease liabilities 44 506,392 - Unearned premiums 32 6,490,536 7,021,818 Deferred tax liabilities 12 (a) 678,196 969,700 Current income tax payable 11 (a) 117,057 - Creditors from reinsurance arrangements 33 1,057,647 1,175,563 Other payables 34 (a) 2,805,685 2,974,392 Amounts due to related parties 43 (iv) 27,168 95,849 Dividends payable 35 443,086 473,103 Total liabilities 43,053,271 41,480,684 Net assets 13,787,336 17,195,379 Shareholders’ equity Share capital 36 1,058,590 1,057,099 Share premium 36 4,612,626 4,612,626 Retained earnings 37 7,197,981 10,206,124 Fair value reserve for equity investments 38 513 513 Translation reserve 39 (i) (202,240) (170,260) Statutory reserve 39 (ii) 415,542 415,542 Revaluation surplus 39 (iii) 42,682 68,433 Shareholders’ funds 13,125,694 16,190,077 Non-controlling interest 45 661,642 1,005,302 Total equity 13,787,336 17,195,379

The financial statements on pages 87 to 185 were approved and authorized for issue by The Board of directors on 5 May 2020.

Dr JB Wanjui CBS Michael J Harper Chairman Deputy Chairman

The notes on pages 97 to 185 are an integral part of these financial statements.

* See note 46 UAP Holdings PLC (formerly UAP Holdings Limited) 92 2019 Annual Report and Financial Statements

COMPANY STATEMENT OF FINANCIAL POSITION

KShs’000 Note 2019 2018 Assets Represented* Intangible assets 14 (b) 177,938 97,124 Property and equipment 15 (b) 185,563 156,234 Right of use assets 16 (b) 37,014 - Investment properties 17 (b) 5,788,497 7,090,983 Investment in subsidiaries 18 5,522,655 5,216,368 Deferred tax asset 12 (b) 507,025 521,921 Current income tax recoverable 11 (b) 93,373 42,915 Amounts due from related parties 43 (v) 4,345,252 4,306,166 Other receivables 23 (b) 1,380,976 1,051,833 Cash and cash equivalents 25 (b) 94,160 462,806

Total assets 18,132,453 18,946,350 Liabilities

Borrowed funds 31 (b) 10,463,883 9,887,108 Amounts due to related parties 43 (iv) 626,247 1,489,970 Lease Liabilities 44 39,112 - Other payables 34 (b) 625,314 317,130 Dividends payable 35 443,086 473,103

Total liabilities 12,197,642 12,167,311

Net assets 5,934,811 6,779,039 Shareholders’ equity Share capital 36 1,058,590 1,057,099 Share premium 36 4,612,626 4,612,626 Retained earnings 37 263,595 1,109,314

Total equity 5,934,811 6,779,039

The financial statements on pages 87 to 185 were approved and authorised for issue by The Board of directors on 5 May 2020.

Dr JB Wanjui CBS Michael J Harper Chairman Deputy Chairman

The notes on pages 97 to 185 are an integral part of these financial statements.

*See note 46 UAP Holdings PLC (formerly UAP Holdings Limited) 93 2019 Annual Report and Financial Statements

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

Attributable to owners of the parent

For the year ended 31 December 2019 Share capital & Reval- Non- KShs ‘000 Share Fair value Retained Proposed Translation Statutory uation controlling Total Notes premium reserves earnings dividends reserves reserve surplus Total interest equity

Balance as at 1 January 2019 5,669,725 513 10,206,124 - (170,260) 415,542 68,433 16,190,077 1,005,302 17,195,379

Loss for the year - - (3,013,335) - - - - (3,013,335) (352,165) (3,365,500)

Other comprehensive income

Re-measurement of retirement benefit obliga- 26 - - 5,192 - - - - 5,192 - 5,192 tions

Loss on revaluation of Property & Equipment 15(a) ------(25,751) (25,751) - (25,751) Currency translation differences - - - - (31,980) - - (31,980) 8,505 (23,475) Total other comprehensive income for the year - - 5,192 - (31,980) - (25,751) (52,539) 8,505 (44,034) Total comprehensive income for the year - - (3,008,143) - (31,980) - (25,751) (3,065,874) (343,660) (3,409,534) Transactions with owners 36 1,491 ------1,491 - 1,491 Issue of shares

Balance at 31 December 2019 5,671,216 513 7,197,981 - (202,240) 415,542 42,682 13,125,694 661,642 13,787,336

Balance as at 1 January 2018 5,669,725 513 10,555,121 359,414 (3,493) 404,006 29,985 17,015,271 1,213,374 18,228,645

Loss for the year - - (350,468) - - - - (350,468) (167,407) (517,875)

Other comprehensive income Re-measurement of retirement benefit 26 - - 20,697 - - - - 20,697 - 20,697 obligations Gains on revaluation of Property & Equipment 15 (a) ------38,448 38,448 - 38,448

Currency translation differences - - - - (166,767) - - (166,767) (48,355) (215,122)

Total other comprehensive income for the year - - 20,697 - (166,767) - 38,448 (107,622) (48,355) (155,977)

Total comprehensive income for the year - - (329,771) - (166,767) - 38,448 (458,090) (215,762) (673,852)

Transfer to statutory reserve 39 (19,226) 11,536 (7,690) 7,690 -

Transactions with owners ------

2017 Dividend declared 35 - - - (359,414) - - - (359,414) - (359,414)

Total transactions with owners - - - (359,414) - - - (359,414) - (359,414)

Balance at 31 December 2018 5,669,725 513 10,206,124 - (170,260) 415,542 68,433 16,190,077 1,005,302 17,195,379

The notes on pages 97 to 185 are an integral part of these financial statements. UAP Holdings PLC (formerly UAP Holdings Limited) 94 2019 Annual Report and Financial Statements

COMPANY STATEMENT OF CHANGES IN EQUITY

Share capital & Share Retained Proposed KShs ‘000 Notes premium Earnings Dividends Total

For the year ended 31 December 2019:

Balance at at 1 January 2019 5,669,725 1,109,314 - 6,779,039 Loss for the year (845,719) (845,719) Other comprehensive income - - - - Total comprehensive income for the year - (845,719) - (845,719) Transactions with owners Issue of shares 36 1,491 - - 1,491 Balance at 31 December 2019 5,671,216 263,595 - 5,934,811

For the year ended 31 December 2018: Balance as at 1 January 2018 5,669,725 1,529,085 359,414 7,558,224 Loss for the year - (419,771) - (419,771) Other comprehensive income - - - - Total comprehensive income for the year - (419,771) - (419,771) Transactions with owners 2017 Dividend payable 35 - - (359,414) (359,414) Balance at 31 December 2018 5,669,725 1,109,314 - 6,779,039

The notes on pages 97 to 185 are an integral part of these financial statements. UAP Holdings PLC (formerly UAP Holdings Limited) 2019 Annual Report and Financial Statements 95

CONSOLIDATED STATEMENT OF CASH FLOWS

2019 2018

Note KShs’000 KShs’000

Cash flow from operating activities Cash generated from operations 40(a) 1,198,715 (47,355) Tax paid 11(a) (463,398) (511,239)

Net cash generated from/(used in) operating activities 735,317 (558,594)

Cash flow from investing activities Purchase of intangible assets 14(a) (144,038) (37,568) Purchase of property and equipment 15(a) (339,929) (368,542) Additions to investment properties 17(a) (347,784) (237,013) Purchase of equity investments 19(b) (195,739) (329,266) New staff loans advanced 22 (54,034) (172,149) Staff loans repaid 22 47,215 222,330

Proceeds from sale of equity investments 198,365 254,154

Net purchase/(redemption) of corporate bonds 24(a) 661,365 45,932 Net purchase of government securities 24(b) (1,914,873) (2,234,226)

Proceeds from disposal of fixed assets 3,021 10,974

Rent, interest and dividends received 6(a) 3,730,958 3,546,861

Net cash generated from investing activities 1,644,527 701,488

Cash flow from financing activities Settlement of borrowings 31(a) (910,663) (733,304) Payment of lease liability 44 (113,486) - Dividends paid 35 (30,017) (172,320)

Net cash used in financing activities (1,054,166) (905,624)

Increase/(decrease) in cash and cash equivalents 1,325,678 (762,730)

Movement in cash and cash equivalents

At 1 January 6,598,237 7,360,967

Increase/(Decrease) during the year 1,325,678 (762,730)

At 31 December 25 7,923,915 6,598,237

The notes on pages 97 to 185 are an integral part of these financial statements. UAP Holdings PLC (formerly UAP Holdings Limited) 96 2019 Annual Report and Financial Statements

COMPANY STATEMENT OF CASH FLOWS

KShs ‘000 Notes 2019 2018

Cash flow from operating activities Cash generated from operations 40(b) (1,169,609) (2,443) Tax paid 11(b) (50,458) (42,915) Net cash used in operating activities (1,220,067) (45,358) Cash flow from investing activities Purchase of intangible assets 14(b) (139,981) (40,089) Purchase of property and equipment 15(b) (99,901) (67,075) Transfer of property from/(to) related party 15(b) - 95,154 Investments in subsidiaries 18 (306,287) (156,209) Proceeds on sale of property and equipment - 989 Rent, interest and dividends received 6(b) 2,020,804 1,066,230

Net cash generated from investing activities 1,474,635 899,000 Cash flow from financing activities Net proceeds from borrowings 31(b) (589,490) (848,640) Payment of lease liabilities 44(d) (5,198) - Dividends paid 35 (30,017) (172,320) Proceeds from issue of shares 36 1,491 - Net cash used in financing activities (623,214) (1,020,960)

Decrease in cash and cash equivalents (368,646) (167,318) Movement in cash and cash equivalents At 1 January 462,806 630,124 Decrease during the year (368,646) (167,318) At 31 December 25 94,160 462,806

The notes on pages 97 to 185 are an integral part of these financial statements. UAP Holdings PLC (formerly UAP Holdings Limited) 2019 Annual Report and Financial Statements 97

NOTES TO THE FINANCIAL STATEMENTS

1. General information at the measurement date. When measuring the fair value of an The Company is incorporated in Kenya under the Kenyan asset or a liability, the company uses market observable data Companies Act, 2015 as a public limited liability company, and as far as possible. If the fair value of an asset or a liability is not is domiciled in Kenya. The address of its registered office is UAP directly observable, it is estimated by the company using valuation Old Mutual Tower, Upper Hill Road, P.O. Box 43013 - 00100 Nairobi. techniques that maximise the use of relevant observable inputs and minimise the use of unobservable inputs (e.g., by use of the The Company has seven subsidiaries that operate as insurance market comparable approach that reflects recent transaction companies and two property companies in Uganda and South prices for similar items or discounted cash flow analysis). Inputs Sudan. Four of the Company’s insurance subsidiaries are short used are consistent with the characteristics of the asset / liability term including health insurance companies, two are long term that market participants would take into account. (“Life”) insurance companies and one is a composite insurance company selling both General and Life Insurance. Long term Fair values are categorised into three levels of fair value hierarchy business comprises Life Assurance business, deposit administration based on the degree to which the inputs to the measurements business and investment contracts. Life Assurance business relates are observable and the significance of the inputs to the fair value to the underwriting of risks relating to death of an insured person, measurement in its entirety. See note 4 (d). and includes contracts subject to the payment of premiums for a term dependent on the termination or continuance of the life (ii) Use of estimates of an insured person. Short term insurance business relates to The preparation of financial statements in conformity with IFRS, all other categories of insurance business, analysed into several requires the use of certain critical accounting estimates. It also sub-classes of business based on the nature of the assumed requires management to exercise its judgment in the process risks. The Group also holds investments in UAP Financial Services of applying the group’s accounting policies. The areas involving Limited Uganda that provides stock broking services and fund a higher degree of judgment or complexity, or areas where management services. UAP Properties (Uganda) Limited and UAP assumptions and estimates are significant to the consolidated Properties (South Sudan) Limited are property holding companies financial statements are disclosed in note 3. for Nakawa Business Park and Equatoria Towers which are located in Kampala and Juba respectively. UAP Investments Kenya ceased (iii) Statement of compliance its operations in stock brokerage and fund management and is For Kenyan Companies Act, 2015 reporting purposes in these currently a dormant entity. financial statements, the balance sheet is represented by the statement of financial position and the profit and loss account 2. Summary of significant accounting policies is presented in the statement of profit or loss to these financial The principal accounting policies adopted in the preparation statements. of these financial statements are set out below. These policies have been consistently applied to all years presented, unless (iv) Going concern otherwise stated. As at 31 December 2019, the Group and Company incurred a net loss after tax of KShs 3,366m and KShs 846m respectively (2018: Net (a) Basis of preparation loss of KShs 518m and KShs 420m respectively) and as of that date The financial statements are prepared in compliance with the Group’s and Company’s total assets exceeded total liabilities International Financial Reporting Standards (IFRSs) and in the by KShs 13,793m and KShs 5,941m (2018: total assets of the Group manner required by the Kenyan Companies Act, 2015. and Company exceeded total liabilities by KShs 17,195m and KShs 6,779m respectively). The loss in 2019 is largely attributable to mark (i) Basis of measurement to market movements on the property portfolios. As markets The measurement basis used is the historical cost basis except recover, the directors expect that these losses will be recouped. where otherwise stated in the accounting policies below. The Company has a loan from Nedbank (incorporated in South For those assets and liabilities measured at fair value, fair value is Africa) maturing in September 2020. As at 31 December 2019 the the price that would be received to sell an asset or paid to transfer balance on the loan was US$31m. After year end, the Company a liability in an orderly transaction between market participants has repaid US$4m and expects to repay another US$3m before UAP Holdings PLC (formerly UAP Holdings Limited) 98 2019 Annual Report and Financial Statements

NOTES TO THE FINANCIAL STATEMENTS (Continued) 2. Summary of significant accounting policies (Continued) (a) Basis of preparation (Continued) (iv) Going concern (Continued)

maturity date. The Nedbank facility is guaranteed by Old Mutual Emerging Markets Limited. The company also has a loan from Stanbic Bank of KShs 2.2b maturing in January 2021. In addition there are two loans in aggregate of KShs 5.1b due to Old Mutual Holdings Limited which were due to mature in March and April 2020 respectively.The directors and shareholders have instituted the following measures:

◊ By mutual agreement with the directors of Old Mutual Holdings Limited, the maturity date of the outstanding loans has been extended to 2021 as the directors make arrangements to settle the loan; ◊ Put in place arrangements to refinance the maturing balance of the Nedbank and Stanbic bank loans. These negotiations include negotiations with its bankers and the ultimate parent; ◊ Provision of a letter of support from Old Mutual Holdings Limited to the Company covering at least twelve months from the financial statements approval date; and ◊ The loan from Old Mutual Holdings Limited is subordinated to other creditors.

The directors, having taken into account the initiatives above and information at hand and on the strength of the actions above, are of the opinion that the Group and Company will be a going concern in the subsequent financial period and that the going concern assumption is appropriate in the preparation of these consolidated and separate financial statements.

The consolidated and separate financial statements have therefore been prepared on the basis of accounting policies applicable to a going concern. This basis presumes that funds will be available to finance future operations and that the realisation of assets and settlement of liabilities will occur in the ordinary course of business.

(b) Changes to standards and new interpretations effective in the year 2019

(i) New standards, amendments and interpretation effective and adopted during the year by the Group and Company The Group and Company adopted the following new standards and amendments during the year ended 31 December 2019, including consequential amendments to other standards with the date of initial application by the Group and Company being 1 January 2019. The nature and effects of the changes are explained below:

New standard or amendments Effective for annual periods beginning on or after IFRS 16 Leases 1 January 2019 IFRIC 23 Uncertainty over income tax treatments 1 January 2019 IFRS 9 Prepayment Features with negative compensation 1 January 2019 IAS 28 Long-term Interests in associates and joint ventures 1 January 2019 Annual improvements cycle (2015-2017) 1 January 2019 IAS 19 Plan amendment, curtailment or settlement (amendments to IAS 19) 1 January 2019

IFRS 16 Leases On 13 January 2016 the IASB issued IFRS 16 Leases, completing the IASB’s project to improve the financial reporting of leases. IFRS 16 replaces the previous leases standard, IAS 17 Leases, and related interpretations.

IFRS 16 sets out the principles for the recognition, measurement, presentation and disclosure of leases for both parties to a contract, i.e. the customer (‘lessee’) and the supplier (‘lessor’). The standard defines a lease as a contract that conveys to the customer (‘lessee’) the right to use an asset for a period of time in exchange for consideration.

The Group adopted IFRS 16 with a date of transition of 1 January 2019, which resulted in changes in accounting policies and adjustments UAP Holdings PLC (formerly UAP Holdings Limited) 2019 Annual Report and Financial Statements 99

NOTES TO THE FINANCIAL STATEMENTS (Continued) 2. Summary of significant accounting policies (Continued) (b) Changes to standards and new interpretations effective in the year 2019 (Continued) IFRS 16 Leases (Continued) to the amounts previously recognised in the financial statements. ◊ their carrying amount as if IFRS 16 had been applied since the The Group did not early adopt IFRS 16 in previous periods. commencement date, discounted using the Group’s incremental In accordance with the transition provisions in IFRS 16 the new borrowing rate at the date of initial application; or rules have been adopted prospectively with the cumulative effect ◊ an amount equal to the lease liability, adjusted by the amount of initially applying the new standard recognised on 1 January of any prepaid or accrued lease payments: the Group applied 2019. Comparatives for the 2018 financial year have not been this approach. represented. The Group used a number of practical expedients when applying IFRS A. Definition of a lease 16 to leases previously classified as operating leases under IAS 17. In Previously, the Group determined at contract inception whether an particular, the Group: arrangement was or contained a lease under IFRIC 4 Determining whether an Arrangement contains a Lease. The Group now ◊ did not recognise right-of-use assets and liabilities for leases assesses whether a contract is or contains a lease based on the for which the lease term ends within 12 months of the date of definition of a lease. initial application; ◊ did not recognise right-of-use assets and liabilities for leases of On transition to IFRS 16, the Group elected to apply the simplified low value assets; approach in the assessment of which transactions are leases. ◊ for all contracts entered into before the date of initial application, The Group applied IFRS 16 only to contracts that were previously the company grandfathered the previous assessment of existing identified as leases. Contracts that were not identified as leases lease contracts. Grandfathering allows the application of IFRS 16 under IAS 17 and IFRIC 4 were not reassessed for whether there only to those contracts in which a lease was previously identified is a lease under IFRS 16. Therefore, the definition of a lease under in accordance with IAS 17 and IFRIC 4; IFRS 16 was applied only to contracts entered into or changed on ◊ provided a single discount rate to a portfolio of leases with or after 1 January 2019. reasonably similar characteristics; ◊ excluded initial direct costs from the measurement of the right- B. As a lessee of-use asset at the date of initial application; and As a lessee, the Group leases many assets including property ◊ used hindsight when determining the lease term. and office equipment. The Group previously classified leases as operating or finance leases based on its assessment of whether the On adoption of IFRS 16, the Group recognised lease liabilities in lease transferred significantly all of the risks and rewards incidental relation to leases which had previously been classified as ‘operating to ownership of the underlying asset to the Group. Under IFRS leases’ under the principles of IAS 17 Leases. These liabilities were 16, the Group recognises right-of-use assets and lease liabilities measured at the present value of the remaining lease payments, for most of these leases – i.e., these leases are on-balance sheet. discounted using the lessee’s incremental borrowing rate as of 1 January 2019. At commencement or on modification of a contract that contains a lease component, the Group allocates the consideration in ii. Leases classified as finance leases under IAS 17 the contract to each lease component on the basis of its relative The Group did not have any finance leases under IAS 17 and stand-alone price. The Group has therefore elected to separate therefore there was no need to make any adjustments to the non-lease components and account for the lease and associated accounting for finance leases as a result of the adoption of IFRS 16. non-lease components as a single lease component. C. As a lessor i. Leases classified as operating leases under IAS 17 The Group leases out its investment property, including own Previously, the Group classified property leases as operating leases property and right-of-use assets. The Group has classified these under IAS 17. On transition, for these leases, lease liabilities were leases as operating leases. The Group is not required to make measured at the present value of the remaining lease payments, any adjustments on transition to IFRS 16 for leases in which it discounted at the Group’s incremental borrowing rate as at 1 acts as a lessor. January 2019. Right-of-use assets are measured at either: UAP Holdings PLC (formerly UAP Holdings Limited) 100 2019 Annual Report and Financial Statements

NOTES TO THE FINANCIAL STATEMENTS (Continued) 2. Summary of significant accounting policies (Continued) (b) Changes to standards and new interpretations effective in the year 2019 (Continued) IFRS 16 Leases (Continued)

D. Impact on financial statements Under IFRS 16, the lease liability is initially recognized at the commencement day and measured at an amount equal to the present value of the lease payments during the lease term that are not yet paid. The right-of-use asset is initially recognized at the commencement day and measured at cost, consisting of the amount of the initial measurement of the lease liability, plus any lease payments made to the lessor at or before the commencement date less any lease incentives received. The initial estimate of restoration costs were initially recognized and added to the lease liability, however, any initial direct costs incurred by the lessee were excluded.

The initial date of application of IFRS 16 for the Group is 1 January 2019. Management determined an incremental cost of borrowing for each of the countries within East Africa to compute the impact of IFRS 16 on the financial statements.

The table below shows the discount rates used per country:

Country Discount Rate Computation Discount Rate Currency Kenya Central Bank Rate (9%) + risk margin (3%) 12.00% Kenya Shillings Uganda Central Bank Rate (10%) + country margin (6%) + risk margin (1%) 17% Uganda Shillings US$ Borrowing rate (7%) + risk margin (1%) 8% United States Dollars Tanzania Commercial banks market borrowing rate = 15.35% 15.35% Tanzania Shillings Rwanda Commercial banks market borrowing rate = 17% 17.00% Rwandese Francs South Sudan US$ Borrowing rate (6%) + 6-month LIBOR (2.5%) 8.50% United States Dollars

The following procedures were performed by management for transitioning purposes:

◊ Calculating the present value of the remaining lease payments for each lease contract as at 1 January 2019 assuming the applicable incremental cost of borrowing; ◊ Calculating the restoration costs which have been estimated at one month’s lease rental; ◊ Booking a Right of use Asset equal to the present value of remaining lease payments and an estimate of the restoration costs; ◊ Booking a lease liability equal to the present value computed above; ◊ Booking a provision on the restoration costs computed above; ◊ All prepayments were added to the Right of Use Asset which was established on the date of transition; and ◊ Applying the practical expedients where possible. UAP Holdings PLC (formerly UAP Holdings Limited) 2019 Annual Report and Financial Statements 101

NOTES TO THE FINANCIAL STATEMENTS (Continued) 2. Summary of significant accounting policies (Continued) (b) Changes to standards and new interpretations effective in the year 2019 (Continued) IFRS 16 Leases (Continued)

The impact on transition is summarised below: D. Impact on financial statements Lease liabilities Reconciliation - Group a) Group KShs’000 2019 Amounts recognised in the statement of financial position: Operating lease commitments at 31 December 2018 as disclosed under IAS 17 in the Group’s KShs’000 2019 consolidated financial statements 712,295 Right of use asset 503,683 Discounted using the incremental borrowing rate at 1 January 2019 489,594 Deferred tax asset - Finance lease liabilities recognised as at 31 Lease liability 489,594 December 2018 - Restoration provision 14,089 ◊ Recognition exemption for leases of low- Impact on opening retained earnings - value assets - Amounts recognised in the statement of profit or loss: ◊ Recognition exemption for leases with less than 12 months of lease term at transition - KShs’000 2019 ◊ Extension options reasonably certain to be Depreciation charge on right of use assets 89,080 exercised - Interest expense (included in finance costs) 59,620 Lease liabilities recognised at 1 January 2019 489,594 Expenses related to short term leases - Expenses related to leases on low value assets - Lease liabilities Reconciliation - Company b) Company KShs’000 2019 Amounts recognised in the statement of financial position: Operating lease commitments at 31 December 2018 as disclosed under IAS 17 in the Company’s KShs’000 2019 consolidated financial statements 115,952 Right of use asset 11,548 Discounted using the incremental borrowing rate 11,270 at 1 January 2019 Deferred tax asset - Lease liability 11,270 Finance lease liabilities recognised as at 31 December 2018 - Restoration provision 278 ◊ Recognition exemption for leases of low- Impact on opening retained earnings - value assets - Amounts recognised in the statement of profit or loss: ◊ Recognition exemption for leases with less than 12 months of lease term at transition - KShs’000 2019 Depreciation charge on right of use assets 4,500 ◊ Extension options reasonably certain to be Interest expense (included in finance costs) 4,243 exercised -

Expenses related to short term leases - Lease liabilities recognised at 1 January 2019 11,270 Expenses related to leases on low value assets -

When measuring lease liabilities for leases that were classified as operating leases, the Group discounted lease payments using the applicable incremental borrowing rates at 1 January 2019. UAP Holdings PLC (formerly UAP Holdings Limited) 102 2019 Annual Report and Financial Statements

NOTES TO THE FINANCIAL STATEMENTS (Continued) 2. Summary of significant accounting policies (Continued) (b) Changes to standards and new interpretations effective in the year 2019 (Continued)

IFRIC 23 Clarification on accounting for income tax exposures comprehensive income (FVOCI) if they meet the other relevant requirements of IFRS 9. IFRIC 23 clarifies the accounting for income tax treatments that have yet to be accepted by tax authorities, whilst also aiming to The amendments apply for annual periods beginning on or after 1 enhance transparency. January 2019 with retrospective application. The adoption of these amendments did not have a significant impact on the financial IFRIC 23 explains how to recognise and measure deferred and statements of the Group. current income tax assets and liabilities where there is uncertainty over a tax treatment. Long-term Interests in Associates and Joint Ventures (Amendment to IAS 28) An uncertain tax treatment is any tax treatment applied by an The amendments clarify that an entity applies IFRS 9 to long-term entity where there is uncertainty over whether that treatment interests in an associate and joint venture that form part of the will be accepted by the tax authority. net investment in the associate or joint venture but to which the equity method is not applied. If an entity concludes that it is probable that the tax authority will accept an uncertain tax treatment that has been taken or The amendments apply for annual periods beginning on or after is expected to be taken on a tax return, it should determine its 1 January 2019. accounting for income taxes consistently with that tax treatment. If an entity concludes that it is not probable that the treatment will The adoption of these amendments did not have a significant be accepted, it should reflect the effect of the uncertainty in its impact on the financial statements of the Group. income tax accounting in the period in which that determination is made. Uncertainty is reflected in the overall measurement of IAS 19 Plan amendment, curtailment or settlement tax and separate provision is not allowed. (amendments to IAS 19)

The entity is required to measure the impact of the uncertainty The amendments clarify that: using the method that best predicts the resolution of the ◊ on amendment, curtailment or settlement of a defined benefit uncertainty (that is, the entity should use either the most likely plan, a Group now uses updated actuarial assumptions to amount method or the expected value method when measuring determine its current service cost and net interest for the an uncertainty). period; and ◊ the effect of the asset ceiling is disregarded when calculating The entity will also need to provide disclosures, under existing the gain or loss on any settlement of the plan and is dealt disclosure requirements, about: with separately in other comprehensive income (OCI).

(a) judgments made; Consistent with the calculation of a gain or loss on a plan (b) assumptions and other estimates used; and amendment, entities will now use updated actuarial assumptions (c) potential impact of uncertainties not reflected. to determine the current service cost and net interest for the period. Previously, entities would not have updated the calculation The new Standard was effective for annual periods beginning on of these costs until the year-end. Further, if a defined benefit or after 1 January 2019. plan is settled, any asset ceiling would be disregarded when determining the plan assets as part of the calculation of gain or The adoption of this standard did not have a significant impact loss on settlement. on the financial statements of the Group. The amendments apply for plan amendments, curtailments or Prepayment features with negative compensation settlements that occur on or after 1 January 2019, or the date on (amendments to IFRS 9) which the amendments are first applied. The amendments clarify that financial assets containing prepayment features with negative compensation can now The adoption of this standard did not have a significant impact be measured at amortised cost or at fair value through other on the financial statements of the Group. UAP Holdings PLC (formerly UAP Holdings Limited) 2019 Annual Report and Financial Statements 103

NOTES TO THE FINANCIAL STATEMENTS (Continued) 2. Summary of significant accounting policies (Continued) (b) Changes to standards and new interpretations effective in the year 2019 (Continued)

Annual improvement cycle (2015 – 2017) – various standards

Standards Amendments

IFRS 3 Business Clarifies how a Group accounts for increasing its interest in a joint operation that meets the definition Combinations and IFRS of a business: 11 Joint Arrangements ◊ If a party maintains (or obtains) joint control, then the previously held interest is not remeasured. ◊ If a party obtains control, then the transaction is a business combination achieved in stages and the acquiring party remeasures the previously held interest at fair value.

IAS 12 Income taxes Clarifies that all income tax consequences of dividends (including payments on financial instruments classified as equity) are recognised consistently with the transactions that generated the distributable profits – i.e. in profit or loss, OCI or equity.

IAS 23 Borrowing costs Clarifies that the general borrowings pool used to calculate eligible borrowing costs excludes only borrowings that specifically finance qualifying assets that are still under development or construction. Borrowings that were intended to specifically finance qualifying assets that are now ready for their intended use or sale – or any non-qualifying assets – are included in that general pool.

As the costs of retrospective application might outweigh the benefits, the changes are applied prospectively to borrowing costs incurred on or after the date an entity adopts the amendments.

The amendments are effective for annual reporting periods beginning on or after 1 January 2019. The adoption of these amendments did not significantly affect the amounts and disclosures of the Group’s financial statements.

(ii) New and amended standards and interpretations in issue but not yet effective for the year ended 31 December 2019

A number of new standards, amendments to standards and interpretations have been issued but are not yet effective for the year ended 31 December 2019, and have not been applied in preparing these financial statements.

The Group does not plan to adopt these standards early. These are summarized below;

New standards Effective for annual periods beginning on or after IFRS 17 Insurance contracts 1 January 2023 IFRS 3 Definition of a business 1 January 2020 Amendments to IAS 1& IAS 8 Definition of material 1 January 2020 Amendments to references to conceptual framework in IFRS standards 1 January 2020 Sale or contribution of assets between an investor and its associate or To be determined company (Amendments to IFRS 10 and IAS 28). UAP Holdings PLC (formerly UAP Holdings Limited) 104 2019 Annual Report and Financial Statements

NOTES TO THE FINANCIAL STATEMENTS (Continued) 2. Summary of significant accounting policies (Continued) (ii) New and amended standards and interpretations in issue but not yet effective or the year ended 31 December 2019 (Continued)

IFRS 17 Insurance Contracts other comprehensive income, and to assess the risks the Group IFRS 17 Insurance Contracts sets out the requirements that an faces from issuing insurance contracts. entity should apply in reporting information about insurance contracts it issues and reinsurance contracts it holds. An entity IFRS 17 replaces IFRS 4 Insurance Contracts. IFRS 17 is effective for shall apply IFRS 17 Insurance Contracts to: financial periods commencing on or after 1 January 2023. An entity shall apply the standard retrospectively unless impracticable. A a) insurance contracts, including reinsurance contracts, it issues; Group can choose to apply IFRS 17 before that date, but only if it b) reinsurance contracts it holds; and also applies IFRS 9 Financial Instruments and IFRS 15 Revenue c) investment contracts with discretionary participation features from Contracts with Customers. it issues, provided the entity also issues insurance contracts The adoption of these changes is expected to have a significant IFRS 17 requires an entity that issues insurance contracts to report impact on the amounts and disclosures of the Group’s financial them on the statement of financial position as the total of: statements. Management is currently evaluating the impact upon adoption of the standard. a) the fulfilment cash flows — the current estimates of amounts that the entity expects to collect from premiums and pay out Sale or contribution of assets between an Investor and its for claims, benefits and expenses, including an adjustment associate or company (amendments to IFRS 10 and IAS 28) for the timing and risk of those amounts; and The amendments require the full gain to be recognised when b) the contractual service margin — the expected profit for assets transferred between an investor and its associate or providing insurance coverage. The expected profit for providing Group meet the definition of a ‘business’ under IFRS 3 Business insurance coverage is recognised in profit or loss over time Combinations. Where the assets transferred do not meet the as the insurance coverage is provided. definition of a business, a partial gain to the extent of unrelated investors’ interests in the associate or Company is recognised. IFRS 17 requires an entity to recognise profits as it delivers insurance The definition of a business is key to determining the extent of services, rather than when it receives premiums, as well as to the gain to be recognised. provide information about insurance contract profits that the Group expects to recognise in the future. IFRS 17 requires an entity The effective date for these changes has now been postponed to distinguish between groups of contracts expected to be profit until the completion of a broader review. The adoption of these making and groups of contracts expected to be loss making. Any changes will not significantly affect the amounts and disclosures expected losses arising from loss- making, or onerous, contracts of the Group and Company financial statements. are accounted for in profit or loss as soon as the Group determines that losses are expected. IFRS 17 requires the entity to update IFRS 3 Definition of a business the fulfilment cash flows at each reporting date, using current With a broad business definition, determining whether a estimates of the amount, timing and uncertainty of cash flows transaction results in an asset or a business acquisition has long and of discount rates. The entity: been a challenging but important area of judgement. These amendments to IFRS 3 Business Combinations seek to clarify this a) accounts for changes to estimates of future cash flows from matter as below however, complexities still remain. one reporting date to another either as an amount in profit or loss or as an adjustment to the expected profit for providing Optional concentration test insurance coverage, depending on the type of change and The amendments include an election to use a concentration test. the reason for it; and This is a simplified assessment that results in an asset acquisition if b) chooses where to present the effects of some changes in discount substantially all of the fair value of the gross assets is concentrated rates—either in profit or loss or in other comprehensive income. in a single identifiable asset or a group of similar identifiable assets.

IFRS 17 also requires disclosures to enable users of financial statements to understand the amounts recognised in the entity’s statement of financial position and statement of profit or loss and UAP Holdings PLC (formerly UAP Holdings Limited) 2019 Annual Report and Financial Statements 105

NOTES TO THE FINANCIAL STATEMENTS (Continued) 2. Summary of significant accounting policies (Continued) (ii) New and amended standards and interpretations in issue but not yet effective or the year ended 31 December 2019 (Continued) IFRS 3 Definition of a business (Continued)

Substantive process threshold of ‘could influence’ to ‘could reasonably be expected If an entity chooses not to apply the concentration test, or the to influence’ as below. test is failed, then the assessment focuses on the existence of a substantive process. “Information is material if omitting, misstating or obscuring it could reasonably be expected to influence decisions that the The definition of a business is now narrower and could result in primary users of general purpose financial statements make on fewer business combinations being recognised. the basis of those financial statements, which provide financial information about a specific reporting entity.” The amendment applies to businesses acquired in annual reporting periods beginning on or after 1 January 2020. Earlier application is However, the amendment has also removed the definition of permitted. The adoption of this standard will not have an impact material omissions or misstatements from IAS 8 Accounting on the financial statements of the Group. Policies, Changes in Accounting Estimates and Errors.

Amendments to references to the conceptual framework The amendments are effective from 1 January 2020 but may be in IFRS Standards applied earlier. The Group is assessing the potential impact on its This amendment sets out amendments to IFRS Standards financial statements resulting from the application of the refined (Standards), their accompanying documents and IFRS practice definition of materiality. statements to reflect the issue of the International Accounting Standards Board (IASB) revised Conceptual Framework for Financial (c) Insurance contracts Reporting in 2018 (2018 Conceptual Framework). Classification Some Standards, their accompanying documents and IFRS The Group issues contracts that transfer insurance risk. Insurance practice statements contain references to, or quotations from, contracts are those contracts that transfer significant insurance the IASC’s Framework for the Preparation and Presentation of risk. As a general guideline, the group defines as significant Financial Statements adopted by the IASB in 2001 (Framework) insurance risk, the possibility of having to pay benefits on the or the Conceptual Framework for Financial Reporting issued in occurrence of an insured event that are at least 10% more than 2010. Amendments to References to the Conceptual Framework in the benefits payable if the insured event did not occur. IFRS Standards updates some of those references and quotations so that they refer to the 2018 Conceptual Framework, and makes Insurance contracts are classified into two main categories, other amendments to clarify which version of the Conceptual depending on the duration of risk and as per the provisions of Framework is referred to in particular documents. the Insurance Act: long term insurance business and short term insurance business. These amendments are based on proposals in the Exposure Draft Updating References to the Conceptual Framework, published (i) Long term insurance business in 2015, and amend Standards, their accompanying documents Includes business of all or any of the following classes, namely; and IFRS practice statements that will be effective for annual group life business, ordinary life business, deposit administration reporting periods beginning on or after 1 January 2020. business and unit linked business.

The adoption of these changes will not significantly affect the Life insurance business means the business of, or in relation to, the amounts and disclosures of the Group’s financial statements. issuing of, or the undertaking of liability to pay money on death (not being death by accident or in specified sickness only) or on IAS 1 and IAS 8 Definition of material the happening of any contingency dependent on the termination The amendment refines the definition of Material to make it easier or continuance of human life (either with or without provision for to understand and aligning the definition across IFRS Standards a benefit under a continuous disability insurance contract), and and the Conceptual Framework. include a contract which is subject to the payment of premiums for term dependent on the termination or continuance of human The amendment includes the concept of ‘obscuring’ to the life and any contract securing the grant of an annuity for a term definition, alongside the existing references to ‘omitting’ and dependent upon human life. ‘misstating’. Additionally, the amendments also adds the increased UAP Holdings PLC (formerly UAP Holdings Limited) 106 2019 Annual Report and Financial Statements

NOTES TO THE FINANCIAL STATEMENTS (Continued) 2. Summary of significant accounting policies (Continued) (c) Insurance contracts (Continued) (i) Long term insurance business (Continued)

Superannuation business means life assurance business, being terms of policies in force at the financial reporting date, and is business of, or in relation to, the issuing of or the undertaking computed using the 365ths method. Premiums are shown before of the liability under superannuation, group life and permanent deduction of commission and are gross of any taxes or duties health insurance policy. levied on premiums.

(ii) Short term insurance business (ii) Claims Means insurance business of any class or classes not being long For long term insurance business, benefits are recorded as an term insurance business. Classes of general insurance include expense when they are incurred. Claims arising on maturing aviation insurance, engineering insurance, fire insurance - domestic policies are recognised when the claim becomes due for payment. risks, fire insurance - industrial and commercial risks, liability Death claims are accounted for on notification. Surrenders are insurance, marine insurance, motor insurance-private vehicles, accounted for on payment. motor insurance - commercial vehicles, personal accident insurance, theft insurance, workmen’s compensation and employer’s liability For short term insurance business, claims incurred comprise claims insurance and miscellaneous insurance (i.e. class of business not paid in the year and changes in the provision for outstanding claims. included under those listed above). Claims paid represent all payments made during the year, whether arising from events during that or earlier years. Outstanding claims Motor insurance business means the business of affecting and represent the estimated ultimate cost of settling all claims arising carrying out contracts of insurance against loss of, or damage to, from incidents occurring prior to the financial reporting date, but or arising out of or in connection with the use of, motor vehicles, not settled at that date. Outstanding claims are computed on the inclusive of third party risks but exclusive of transit risks. basis of the best information available at the time the records for the year are closed, and include provisions for claims incurred but Personal accident insurance business means the business of not reported (“IBNR”). Outstanding claims are not discounted. affecting and carrying out contracts of insurance against risks of the persons insured sustaining injury as the result of an accident or of (iii) Commissions payable and deferred acquisition costs an accident of a specified class or dying as the result of an accident (“DAC”) or of an accident of a specified class or becoming incapacitated Commissions payable are based on the premium written and are in consequence of disease or of disease of a specified class. recorded as an expense in the period in which they are incurred.

Fire insurance business means the business of affecting and A proportion of commission payable is deferred and amortised carrying out contracts of insurance, otherwise than incidental to over the period in which the related premium is earned. Deferred some other class of insurance business against loss or damage acquisition costs represent a proportion of acquisition costs that to property due to fire, explosion, storm and other occurrences relate to policies that are in force at the period end. customarily included among the risks insured against in the fire insurance business. (iv) Liability adequacy test At each financial reporting date, liability adequacy tests are Recognition and measurement performed to ensure the adequacy of the insurance contract liabilities net of related DAC. In performing these tests, current best (i) Premium income estimates of future contractual cash flows and claims handling For long term insurance business, premiums are recognised and administration expenses, as well as investment income from as revenue when they become payable by the contract holder. the assets backing such liabilities, are used. Any deficiency is Premiums are shown before deduction of commission. immediately charged to profit or loss.

For short term insurance business, premium income is recognised (v) Reinsurance contracts held on assumption of risks, and includes estimates of premiums Contracts entered into by the Group with reinsurers under which due but not yet received less unearned premium. Unearned the Group is compensated for losses on one or more contracts premiums represent the proportion of the premiums written in issued by the Group and that meet the classification requirements periods up to the accounting date that relates to the unexpired UAP Holdings PLC (formerly UAP Holdings Limited) 2019 Annual Report and Financial Statements 107

NOTES TO THE FINANCIAL STATEMENTS (Continued) 2. Summary of significant accounting policies (Continued) (c) Insurance contracts (Continued) (v) Reinsurance contracts held (Continued) for insurance contracts are classified as reinsurance contracts damaged) property acquired in settling a claim (for example, held. Contracts that do not meet these classification requirements salvage). The Group may also have the right to pursue third are classified as financial assets. Insurance contracts entered into parties for payment of some or all costs (for example, subrogation). by the Group under which the contract holder is another insurer Estimates of salvage recoveries are included as an allowance in (inwards reinsurance) are included with insurance contracts. the measurement of the insurance liability for claims, and salvage property is recognised in other assets when the liability is settled. The benefits to which the Group is entitled under its reinsurance The allowance is the amount that can reasonably be recovered contracts held are recognised as reinsurance assets. These assets from the disposal of the property. Subrogation reimbursements consist of short-term balances due from reinsurers, as well as are also considered as an allowance in the measurement of the longer term receivables that are dependent on the expected insurance liability for claims and are recognised in other assets claims and benefits arising under the related reinsured insurance when the liability is settled. The allowance is the assessment of contracts. Amounts recoverable from or due to reinsurers are the amount that can be recovered from the action against the measured consistently with the amounts associated with the liable third party. reinsured insurance contracts and in accordance with the terms of each reinsurance contract. Reinsurance liabilities are primarily (d) Revenue recognition premiums payable for reinsurance contracts and are recognised (i) Insurance premium revenue as an expense when due. The revenue recognition policy relating to insurance contracts is set out under note 2 (c) above. The Group assesses its reinsurance assets for impairment on a quarterly basis. If there is objective evidence that the reinsurance (ii) Commissions asset is impaired, the Group reduces the carrying amount of Commissions receivable are recognised as income in the period the reinsurance asset to its recoverable amount and recognises in which they are earned. that impairment loss in profit or loss. The Group gathers the objective evidence that a reinsurance asset is impaired using (iii) Interest income the same process adopted for financial assets held at amortised Interest income is recognised on a time proportion basis that takes cost. The impairment loss is also calculated following the same into account the effective yield on the asset. When a receivable is method used for these financial assets. These processes are set impaired, the Group reduces the carrying amount to its recoverable out under Note 2(k). amount, being the estimated future cash flow discounted at the original effective interest rate of the instrument, and continues (vi) Receivables and payables related to insurance unwinding the discount as interest income. contracts and investment contracts Receivables and payables are recognised when due. These include (iv) Dividend income amounts due to and from agents, brokers and insurance contract Dividends are recognised as income in the period in which the holders. right to receive payment is established.

If there is objective evidence that the insurance receivable is (v) Rental income impaired, the Group reduces the carrying amount of the insurance Rental income is recognised as income in the period in which receivable accordingly and recognises that impairment loss in it is earned. All investment income is stated net of investment the income statement. The Group gathers the objective evidence expenses. that an insurance receivable is impaired using the same process adopted for financial assets classified at amortised cost. The (vi) Fee income impairment loss is also calculated under the same method used Fee income consists primarily of administration fees arising for these financial assets. These processes are described under from services rendered in relation to the issue and management Note 2 (k). of deposit administration and investment contracts. Fees are recognised in the accounting period in which the services are (vii) Salvage and subrogation reimbursements rendered and are presented in the income statement within Some insurance contracts permit the Group to sell (usually ‘other income’. UAP Holdings PLC (formerly UAP Holdings Limited) 108 2019 Annual Report and Financial Statements

NOTES TO THE FINANCIAL STATEMENTS (Continued) 2. Summary of significant accounting policies (Continued) (d) Revenue recognition (Continued)

(vii) Service income the expected life of the financial instrument or, when appropriate, Service income relates to recharges issued by the Holding Company a shorter period if the holder has the option to redeem the to subsidiaries of the Group for the distribution of shared service instrument earlier than maturity. costs. The Group re-estimates at each reporting date the expected future (e) Investment contracts cash flows and recalculates the carrying amount of the financial The Group issues investment contracts without fixed terms (unit- liability by computing the present value of estimated future cash linked) and investment contracts with fixed and guaranteed flows using the financial liability’s original effective interest rate. terms (fixed interest rate). The investment contracts include Any adjustment is immediately recognised as income or expense funds administered for a number of retirement benefit schemes. in the profit or loss.

Investment contracts without fixed terms are financial liabilities (f) Property and equipment whose fair value is dependent on the fair value of underlying All categories of property and equipment are initially recorded at financial assets, and are designated at inception as at fair value cost and subsequently stated at historical cost less depreciation through profit or loss. The Group designates these investment and impairment losses. Historical cost includes expenditure that contracts to be measured at fair value through profit or loss because is directly attributable to the acquisition of the items. it eliminates or significantly reduces a measurement or recognition inconsistency (sometimes referred to as ‘an accounting mismatch’) Subsequent costs are included in the asset’s carrying amount that would otherwise arise from measuring assets or liabilities or recognised as a separate asset, as appropriate, only when it is or recognising the gains and losses on them on different bases. probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured The best evidence of the fair value of these financial liabilities reliably. All other repairs and maintenance costs are charged to at initial recognition is the transaction price (i.e., the fair value the income statement during the financial period in which they received) unless the fair value of that instrument is evidenced by are incurred. comparison with other observable current market transactions in the same instrument or based on a valuation technique whose Depreciation is calculated using the straight line method to variables include only data from observable markets. When such write-down their cost to their residual values over their estimated evidence exists, the Group recognises profit at inception. useful lives, as follows:

The fair value of financial liabilities for investment contracts without ◊ Motor vehicles – 5 years fixed terms is determined using the current unit values in which ◊ Computers & computer equipment – 3 years the contractual benefits are denominated. These unit values ◊ Office equipment – 5 years reflect the fair values of the financial assets contained within the ◊ Furniture & fittings – 8 years Group’s unitised investment funds linked to the financial liability. The fair value of the financial liabilities is obtained by multiplying The assets’ residual values and useful lives are reviewed, and the number of units attributed to each contract holder at the adjusted if appropriate, at each financial reporting date. An asset’s financial reporting date by the unit value for the same date. carrying amount is written down immediately to its estimated recoverable amount if the asset’s carrying amount is greater than For investment contracts with fixed and guaranteed terms, the its estimated recoverable amount. Gains and losses on disposal of amortised cost basis is used. In this case, the liability is initially property and equipment are determined by comparing proceeds measured at its fair value less transaction costs that are incremental with carrying amount and are included in the income statement. and directly attributable to the acquisition or issue of the contract. With the introduction of IFRS 16: Leases, Right of Use depreciation is applied over the lease tenure using the straight line method. Subsequent measurement of investment contracts at amortised cost uses the effective interest method. This method requires (g) Investment properties the determination of an interest rate (the effective interest rate) Buildings, or part of a building, (freehold or held under a lease) and that exactly discounts to the net carrying amount of the financial land (freehold or held under a lease) held for long term rental yields liability, the estimated future cash payments or receipts through and/or capital appreciation and are not occupied by the Group UAP Holdings PLC (formerly UAP Holdings Limited) 2019 Annual Report and Financial Statements 109

NOTES TO THE FINANCIAL STATEMENTS (Continued) 2. Summary of significant accounting policies (Continued) (g) Investment properties (Continued)

are classified as investment property under non-current assets. expediture that do not meet these criteria are recognised as an Investment property is carried at fair value, representing open expense as incurred. Development costs that have been expensed market value determined annually by external valuers. Properties are not recognised as an asset in a subsequent period. under construction and development sites with projected use as investment properties are valued at projected fair values taking Computer software development costs recognised as assets are into account current market conditions, outstanding investment amortised over their estimated useful lives (not exceeding three costs and a risk loading according to the progress of the project. years). Costs associated with maintaining computer software Changes in fair values are included in investment income in the programmes are recognised as an expense as incurred. income statement. (i) Impairment of non-financial assets On a consolidated basis, the business evaluated the proportion Assets that have an indefinite useful life are not subject to of the properties that are owner occupied and reclassified them amortisation and are tested annually for impairment. Assets to Property and Equipment as disclosed in note 15. that are subject to amortisation are reviewed for impairment whenever events or changes in circumstances indicate that the The Group evaluates the impairment for goodwill on an annual carrying amount may not be recoverable. An impairment loss is basis using the discounted cashflow method. Any impairment recognised for the amount by which the asset’s carrying amount is recognized in the statement of profit and loss. exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell and value in use. (h) Intangible assets For the purposes of assessing impairment, assets are grouped at The Group’s intangible assets relate to computer software and the lowest levels for which there are separately identifiable cash goodwill (note 14). flows (cash-generating units). Non-financial assets other than goodwill that suffered an impairment are reviewed for possible Acquired computer software licences are capitalised on the basis reversal of the impairment at each reporting date. of the costs incurred to acquire and bring to use the specific software. These costs are amortised over their estimated useful (j) Financial Instruments lives of three years. Recognition and de-recognition Development costs that are directly associated with the production Financial assets are recognised when the Group becomes a party of identifiable and unique software products controlled by the to the contractual provisions of the asset. Initial Group, and that will probably generate economic benefits recognition of financial asset is at fair value plus, for all financial exceeding costs beyond one year, are recognised as intangible assets except those carried at fair value through profit or loss, assets if:- transaction costs. Financial assets are derecognised when the rights to receive cash flows from the financial assets have expired or ◊ It is technically feasible to complete the software product so where the Group has transferred substantially all risks and rewards that it will be available for use; of ownership. Financial liabilities are recognised at amortised cost ◊ Management intends to complete the software product with the exception of unit-linked investment contracts which are and use or sell it; measured at fair value. ◊ There is an ability to use or sell the software product; ◊ It can be demonstrated how the software product will generate Equity investments are carried at fair value. Gains and losses probable future economic benefits; arising from changes in the fair value of equity investments are ◊ Adequate technical, financial and other resources to complete recognised in profit and loss and other comprehensive income. the development and use or sell it are available; and, When equity investments are derecognised, the cumulative gain ◊ The expenditure attributable to the software product during or loss previously recognised in other comprehensive income are its development can be reliably measured. transferred to retained earnings. Dividends on equity instruments are recognised in the income statement when the Group’s right Direct costs include the software development, employee costs and to receive payment is established. an appropriate portion of relevant overheads. Other development UAP Holdings PLC (formerly UAP Holdings Limited) 110 2019 Annual Report and Financial Statements

NOTES TO THE FINANCIAL STATEMENTS (Continued) 2. Summary of significant accounting policies (Continued) (j) Financial Instruments (Continued)

Fair values of quoted investments in active markets are based on conditions and forecasts of forward-looking economic conditions. current bid prices. Fair values for unlisted equity securities are estimated The ECL model is dependent on the availability of relevant and using valuation techniques. These include the use of recent arm’s accurate data to determine whether a significant increase in credit length transactions, discounted cash flow analysis and other valuation risk occurred since initial recognition, the probability of default techniques commonly used by market participants. (PD), the loss given default (LGD) and the possible exposure at default (EAD). Of equal importance is sound correlation between Classification and measurement these parameters and forward-looking economic conditions. The Group classifies its financial assets as subsequently measured at either amortised cost or fair value on the basis of both the ECL reflects an entity’s own expectations of credit losses. However, Group’s business model for managing the financial assets and when considering all reasonable and supportable information the contractual cash flow characteristics of the financial asset. that is available without undue cost or effort in estimating ECL, A financial asset is measured at amortised cost if both of the an entity should also consider observable market information following conditions are met: about the credit risk of the particular financial instrument or similar financial instruments. ◊ the asset is held within a business model whose objective is to hold assets in order to collect contractual cash flows. In the absence of sufficient depth of data, management apply ◊ the contractual terms of the financial asset give rise on expert judgment within a governance framework to determine specified dates to cash flows that are solely payments of the required parameters. The expert judgement process is based principal and interest on the principal amount outstanding. on available internal and external information.

The Group’s corporate bonds, government securities, receivables, Forward-looking information includes, but is not limited to macro- mortgage loans, cash at bank and deposits with financial economic conditions expected in the future. Forward looking institutions are classified at amortised cost. The carrying values information used in the ECL calculation should reflect the nature of various categories of Financial asset and Financial liabilities and characteristics of the credit risk exposures. All reasonable are shown in note 4 (b). All financial assets that do not meet the and supportable information that is available should be used above criteria are measured at fair value. Equity investments when incorporating forward-looking information into the ECL for life business are classified at fair value through profit or loss. allowance. Forward looking assessments can be performed on Equity investment for non-life business are classified at fair value an individual or collective basis. through other comprehensive income (note 19). Forward-looking factors should be aligned with risk factors used Financial assets and financial liabilities are offset and the net in risk assessments, stress testing, budgeting as well as strategy amount presented in the statement of financial position when, and pricing decisions. Relevant factors include factors intrinsic to and only when the Group has a legally enforceable right to set the entity and its business or derived from external conditions. off the amounts and intends to settle them on a net basis or to realise the asset and settle the liability simultaneously. Estimates regarding credit risk parameters and the impact of forward-looking information used in the calculation of the ECL loss (k) Impairment of financial assets amount should be reviewed at each reporting date and updated IFRS 9 uses the ‘expected credit loss’ (ECL) model and results in if necessary. The ECL loss amount depends on the specific stage credit losses being recognised earlier. The impairment model where the financial instrument has been allocated to within the applies to financial assets measured at amortised cost. The ECL model: company uses the impairment methodology under IFRS 9 for each of the classes of assets measured at amortised cost.

The ECL impairment loss allowance is an unbiased, probability- weighted amount determined by evaluating a range of possible outcomes that reflects reasonable and supportable information that is available without undue cost or effort of past events, current UAP Holdings PLC (formerly UAP Holdings Limited) 2019 Annual Report and Financial Statements 111

NOTES TO THE FINANCIAL STATEMENTS (Continued) 2. Summary of significant accounting policies (Continued) (k) Impairment of financial assets (Continued)

◊ Stage 1: At initial recognition a financial instrument is allocated life of the financial instrument. This requires a measurement of the into stage 1, except for purchased or originated credit impaired probability of default at initial recognition and at the reporting date. financial instruments. ◊ Stage 2: A financial instrument is allocated to stage 2 if there has The maximum period considered when estimating ECLs is the been a significant increase in credit risk since initial recognition maximum contractual period over which the Group is exposed to of the financial instrument. credit risk. Details on the impact of adoption of IFRS 9 impairment ◊ Stage 3: A financial instrument is allocated to stage 3 if the of financial instruments is outlined in note 4 (d). financial instrument is in default or is considered to be credit impaired. (l) Cash and cash equivalents Cash and cash equivalents includes cash in hand, deposits held at Under IFRS 9, impairment loss allowances are measured on either call with banks, other short term highly liquid investments with of the following bases: original maturities of three months or less, and bank overdrafts.

◊ 12-month ECLs: these are ECLs that result from possible default (m) Employee benefits events within the 12 months after the reporting date; and ◊ Lifetime ECLs: these are ECLs that result from all possible default (i) Retirement benefit obligations events over the expected life of a financial instrument. The Group operates a defined benefit scheme for employees. A defined benefit plan is a pension plan that defines an The Group measures loss allowances at an amount equal to amount of pension benefit that an employee will receive lifetime ECLs, except for the following, which are measured as on retirement, usually dependent on one or more factors 12-month ECLs: such as age, years of service and compensation amount of pension benefit that an employee will receive on retirement, ◊ Financial assets that are determined to have low credit risk at usually dependent on one or more factors such as age, years the reporting date; and of service and compensation. ◊ Financial assets where credit risk (i.e. the risk of default occurring over the expected life of the financial instrument) has not The liability recognised in the statement of financial position in increased significantly since initial recognition. respect of defined benefit pension plans is the present value of the defined benefit obligation at the end of the reporting When determining whether the credit risk of a financial asset has period less the fair value of plan assets. The defined benefit increased significantly since initial recognition and when estimating obligation is calculated annually by independent actuaries ECLs, the Group considers quantitative and qualitative information, using the projected unit credit method. The present value of based on the Group’s historical experience, credit assessment the defined benefit obligation is determined by discounting including forward-looking information. The Group’s assessment of the estimated future cash outflows using interest rates of a significant increase in credit risk from initial recognition consists government bonds that are denominated in the currency of a primary and secondary risk driver as follows: in which the benefits will be paid, and that have terms to maturity approximating to the terms of the related pension ◊ The primary risk driver aligns to the quantitative credit risk obligation. assessments performed, such as the credit score, credit rating, probability of default or arrears aging of a financial instrument. Actuarial gains and losses arising from experience adjustments ◊ The secondary risk assessment considers a broad range of and changes in actuarial assumptions are charged or credited qualitative risk factors based on a forward looking view such as to equity in other comprehensive income in the period in which economic and sector outlooks. The secondary risk assessment they arise. Past-service costs are recognised immediately can be performed on a portfolio basis as opposed to a quantitative in income. assessment at a financial instrument level.

When making a quantitative assessment, the Group uses the change in the probability of default occurring over the expected UAP Holdings PLC (formerly UAP Holdings Limited) 112 2019 Annual Report and Financial Statements

NOTES TO THE FINANCIAL STATEMENTS (Continued) 2. Summary of significant accounting policies (Continued) (m) Employee benefits (Continued)

(ii) Other entitlements current tax liabilities and when the deferred income taxes assets Employee entitlements to long service awards are recognised and liabilities relate to income taxes levied by the same taxation when they accrue to employees. A provision is made for the authority on either the same taxable entity or different taxable estimated liability for such entitlements as a result of services entities where there is an intention to settle the balances on a rendered by employees up to the financial reporting date. net basis.

The estimated monetary liability for employees’ accrued (o) Functional currency and translation of foreign currencies annual leave entitlement at the financial reporting date is recognised as an expense accrual. (i) Functional and presentation currency Items included in the financial statements of each of the (n) Current and deferred tax Group’s entities are measured using the currency of the The tax expense for the period comprises current and deferred primary economic environment in which the entity operates income tax. Tax is recognised in the profit or loss except to the (‘the functional currency’). The consolidated financial extent that it relates to items recognised in other comprehensive statements are presented in ‘Kenyan Shillings (KShs), which is income or directly in equity. In this case, the tax is also recognised the Group’s presentation currency, rounded up to the nearest in other comprehensive income or directly in equity, respectively. thousands (KShs ‘000).

The current income tax charge is calculated on the basis of (ii) Transactions and balances the tax enacted or substantively enacted at the reporting date. Foreign currency transactions are translated into the functional Management periodically evaluates positions taken in tax returns currency using exchange rates prevailing at the dates of with respect to situations in which applicable tax regulation is the transactions or valuation where items are re-measured. subject to interpretation. It establishes provisions where appropriate Foreign exchange gains and losses resulting from the on the basis of amounts expected to be paid to the tax authorities. settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities Deferred income tax is provided in full, using the liability method, denominated in foreign currencies are recognised in profit on all temporary differences arising between the tax bases of assets or loss. and liabilities and their carrying values for financial reporting purposes. However, if the deferred income tax arises from the Foreign exchange gains and losses that relate to borrowings initial recognition of an asset or liability in a transaction other and cash and cash equivalents are presented in profit or loss than a business combination that at the time of the transaction within ‘finance income or cost’. All other foreign exchange affects neither accounting nor taxable profit nor loss, it is not gains and losses are presented in profit or loss within ‘other accounted for. Deferred income tax is determined using tax income’ or ‘other expenses’. rates and laws that have been enacted or substantively enacted at the financial reporting date and are expected to apply when Translation differences related to changes in amortised cost the related deferred income tax liability is settled. are recognised in profit or loss, and other changes in carrying amount are recognised in other comprehensive income. Deferred income tax assets are recognised only to the extent that it is probable that future taxable profits will be available against Translation differences on non-monetary financial assets and which the temporary differences can be utilised. Deferred income liabilities, such as equities held at fair value through profit or tax is provided on temporary differences arising on investments loss, are recognised in profit or loss as part of the fair value in subsidiaries and associates, except where the timing of the gain or loss. Translation differences on non-monetary financial reversal of the temporary difference is controlled by the Group assets, such as equities classified as available-for-sale financial and it is probable that the temporary difference will not reverse assets, are included in other comprehensive income. in the foreseeable future.

Deferred income tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against UAP Holdings PLC (formerly UAP Holdings Limited) 2019 Annual Report and Financial Statements 113

NOTES TO THE FINANCIAL STATEMENTS (Continued) 2. Summary of significant accounting policies (Continued) (o) Functional currency and translation of foreign currencies (Continued)

(iii) Group balances The group applies the acquisition method to account for The results and financial position of all the Group entities (none business combinations. The consideration transferred for of which has the currency of a hyperinflationary economy) that the acquisition of a subsidiary is the fair values of the assets have a functional currency different from the presentation transferred, the liabilities incurred to the former owners of currency are translated into the presentation currency as the acquiree and the equity interests issued by the group. follows: The consideration transferred includes the fair value of any asset or liability resulting from a contingent consideration ◊ assets and liabilities for each statement of financial arrangement. Identifiable assets acquired and liabilities and position presented are translated at the closing rate at contingent liabilities assumed in a business combination are the end of the reporting period; measured initially at their fair values at the acquisition date. ◊ income and expenses for each income statement The Group recognises any non-controlling interest in the amount are translated at average exchange rates (unless acquiree on an acquisition-by-acquisition basis, either at fair this average is not a reasonable approximation of the value or at the non-controlling interest’s proportionate share of cumulative effect of the rates prevailing on the transaction the recognised amounts of acquiree’s identifiable net assets. dates, in which case income and expenses are translated Acquisition-related costs are expensed as incurred. at the dates of the transactions); and ◊ all resulting exchange differences are recognised in If the business combination is achieved in stages, the acquisition other comprehensive income. date carrying value of the acquirer’s previously held equity interest in the acquiree is re-measured to fair value at the Goodwill and fair value adjustments arising on the acquisition of acquisition date; any gains or losses arising from such re- a foreign entity are treated as assets and liabilities of the foreign measurement are recognised in profit or loss. entity and translated at the closing rate. Exchange differences arising are recognised in equity. Any contingent consideration to be transferred by the Group is recognised at fair value at the acquisition date. Subsequent (p) Share capital changes to the fair value of the contingent consideration that Ordinary shares are classified as share capital in equity. Any is deemed to be an asset or liability is recognised in accordance premium received over and above the par value of the shares is with IFRS 9 either in profit or loss or as a change to other classified as share premium in equity. Incremental costs directly comprehensive income. Contingent consideration that is attributable to the issue of new ordinary shares are shown in classified as equity is not re-measured, and its subsequent equity as deductions from the proceeds. settlement is accounted for within equity.

(q) Dividends The excess of the consideration transferred the amount of any Dividends payable to the Group’s shareholders are charged to non-controlling interest in the acquiree and the acquisition- equity in the period in which they are declared. Proposed dividends date fair value of any previous equity interest in the acquiree are shown as a separate component of equity until declared. over the fair value of the identifiable net assets acquired is recorded as goodwill. If the total of consideration transferred, (r) Consolidation non-controlling interest recognised and previously held interest measured is less than the fair value of the net assets of the (i) Subsidiaries subsidiary acquired in the case of a bargain purchase, the Subsidiaries are all entities (including structured entities) over difference is recognised directly in the income statement. which the group has control. The group controls an entity when the group is exposed to, or has rights to variable returns from its Inter-company transactions, balances and unrealised gains involvement with the entity and has the ability to affect those on transactions between Group companies are eliminated. returns through its power over the entity. Subsidiaries are fully Unrealised losses are also eliminated. When necessary amounts consolidated from the date on which control is transferred reported by subsidiaries have been adjusted to conform with to the Group. They are deconsolidated from the date that the Group’s accounting policies. control ceases. UAP Holdings PLC (formerly UAP Holdings Limited) 114 2019 Annual Report and Financial Statements

NOTES TO THE FINANCIAL STATEMENTS (Continued) 2. Summary of significant accounting policies (Continued) (r) Consolidation (Continued)

(ii) Changes in ownership interests in subsidiaries receivables, the group does not recognise further losses, without 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. The Group determines at in loss of control are accounted for as equity transactions – each reporting date whether there is any objective evidence that is, as transactions with the owners in their capacity as that the investment in the associate is impaired. If this is owners. The difference between fair value of any consideration the case, the Group calculates the amount of impairment paid and the relevant share acquired of the carrying value as the difference between the recoverable amount of the of net assets of the subsidiary is recorded in equity. Gains associate and its carrying value and recognises the amount or losses on disposals to non-controlling interests are also adjacent to ‘share of profit/(loss) of associates in the income recorded in equity. statement. Profits and losses resulting from upstream and downstream transactions between the group and its associate (iii) Disposal of subsidiaries are recognised in the group’s financial statements only to When the Group ceases to have control any retained interest the extent of unrelated investor’s interests in the associates. in the entity is remeasured to its fair value at the date when Unrealised losses are eliminated unless the transaction control is lost, with the change in carrying amount recognised provides evidence of an impairment of the asset transferred. in profit or loss. The fair value is the initial carrying amount Accounting policies of associates have been changed where for the purposes of subsequently accounting for the retained necessary to ensure consistency with the policies adopted by interest as an associate, joint venture or financial asset. the group. Dilution gains and losses arising in investments in In addition, any amounts previously recognised in other associates are recognised in the income statement. Currently comprehensive income in respect of that entity are accounted the Group doesn’t have any investments in associates. for as if the group had directly disposed of the related assets or liabilities. This may mean that amounts previously recognised (s) Goodwill in other comprehensive income are reclassified to profit or loss. Goodwill arises on the acquisition of subsidiaries, associates and joint ventures and represents the excess of the consideration (iv) Associates transferred over the Company’s interest in net fair value of the Associates are all entities over which the group has significant net identifiable assets, liabilities and contingent liabilities of the influence but not control, generally accompanying a acquiree and the fair value of the non-controlling interest in the shareholding of between 20% and 50% of the voting rights. acquiree. Investments in associates are accounted for using the equity method of accounting. Under the equity method, For the purpose of impairment testing, goodwill acquired in a the investment is initially recognised at cost, and the carrying business combination is allocated to each of the Cash Generating amount is increased or decreased to recognise the investor’s Units (CGUs), or groups of CGUs, that is expected to benefit from share of the profit or loss of the investee after the date of the synergies of the combination. Each unit or group of units acquisition. The Group’s investment in associates includes to which the goodwill is allocated represents the lowest level goodwill identified on acquisition. within the entity at which the goodwill is monitored for internal management purposes. Goodwill is monitored at the operating If the ownership interest in an associate is reduced but segment level. significant influence is retained, only a proportionate share of the amounts previously recognised in other comprehensive Goodwill impairment reviews are undertaken annually or more income is reclassified to profit or loss where appropriate. The frequently if events or changes in circumstances indicate a Group’s share of post-acquisition profit or loss is recognised potential impairment. The carrying value of goodwill is compared in the income statement, and its share of post-acquisition to the recoverable amount, which is the higher of value in use movements in other comprehensive income is recognised and the fair value less costs to sell. Any impairment is recognised in other comprehensive income with a corresponding immediately as an expense and is not subsequently reversed. adjustment to the carrying amount of the investment. When the group’s share of losses in an associate equals or exceeds its interest in the associate, including any other unsecured UAP Holdings PLC (formerly UAP Holdings Limited) 2019 Annual Report and Financial Statements 115

NOTES TO THE FINANCIAL STATEMENTS (Continued) 2. Summary of significant accounting policies (Continued)

(t) Segmental reporting in improvements in longevity in excess of those allowed for in the Operating segments are reported in a manner consistent with the estimates used to determine the liability for contracts where the internal reporting provided to the chief operating decision- maker Group is exposed to longevity risk. (CODM). The CODM is the person or group that allocates resources to and assesses the performance of the operating segments of an For contracts without fixed terms and with discretionary entity. The group has determined the UAP Holdings PLC (formerly participation in profits, it is assumed that the Group will be able UAP Holdings Limited) Board of Directors to be its CODM. to increase mortality risk charges in future years in line with emerging mortality experience. Estimates are also made as to All transactions between business segments are conducted on future investment income arising from the assets backing long- an arm’s length basis, with intra-segment revenue and costs term insurance contracts. These estimates are based on current being eliminated in head office. Income and expenses directly market returns as well as expectations about future economic and associated with each segment are included in determining financial developments. The average estimated rate of investment business segment performance. return is 11.1 % p.a.(2018: 12.5% p.a.).

(u) Comparatives (ii) Claims reserving and determination of IBNR Where necessary, comparative figures have been represented to The estimation of future contractual cash flows in relation to conform to changes in presentation in the current year. reported losses and losses Incurred But Not Reported (IBNR) is a key accounting estimate. There are several sources of uncertainty 3. Critical accounting estimates and judgments that need to be considered in the estimate of the liability that in applying accounting policies the Group will ultimately pay for such claims. Case estimates are The Group makes estimates and assumptions that affect the computed on the basis of the best information available at the reported amounts of assets and liabilities within the next financial time the records for the year are closed. Further details on the year. Estimates and judgements are continually evaluated and process used to estimate claims incurred but not reported and based on historical experience and other factors, including amounts recorded as liabilities at the end of the current and expectations of future events that are believed to be reasonable previous year are set out in note 30 of the financial statements. under the circumstances. (iii) Fair value of financial assets (i) Future benefit payments from long-term insurance Fair values of certain financial assets recognised in the financial contracts statements are determined using valuation techniques based The estimation of future benefit payments from long-term on assumptions that are not supported by prices from current insurance contracts is one of the Group’s most critical accounting market transactions or observable market data. estimates. There are several sources of uncertainty that need to be considered in the estimate of the liability that the Group will The fair values of financial instruments that are not quoted in active ultimately pay for such claims. Note 34 contains further details markets are determined by using valuation techniques. Where on this process. valuation techniques (for example models) are used to determine fair values, they are validated and periodically independently The determination of the liabilities under long-term insurance reviewed by qualified senior personnel. All models are certified contracts is dependent on estimates made by the Group. Estimates before they are used, and models are calibrated to ensure that are made as to the expected number of deaths for each of the outputs reflect actual data and comparative market prices. To years in which the Group is exposed to risk. The Group bases the extent practical, models use observable data, However, areas these estimates on standard mortality tables that reflect historical such as credit risk (both own and counterparty), volatilities and mortality experience. The estimated number of deaths determines correlations require management to make estimates. the value of the benefit payments and the value of the valuation premiums. The main source of uncertainty is that epidemics (iv) Recoverable amount of receivables such as AIDS could result in future mortality being significantly Critical estimates are made by the directors in determining the worse than in the past for the age groups in which the Group recoverable amount of impaired receivables. This process is set has significant exposure to mortality risk. However, continuing out in note 2(k). The carrying amounts of receivables are shown improvements in medical care and social conditions could result on note 4(b). UAP Holdings PLC (formerly UAP Holdings Limited) 116 2019 Annual Report and Financial Statements

NOTES TO THE FINANCIAL STATEMENTS (Continued) 3. Critical accounting estimates and judgments in applying accounting policies (Continued)

(v) Goodwill impairment ◊ Manage risk profile to ensure that specific financial deliverables Critical estimates have been made by Directors in determining remain possible under a range of adverse business conditions; and whether the goodwill is impaired. The residual amount in the ◊ Help executives improve the control and co-ordination of risk goodwill account relates to the Uganda CGU. In 2019, no goodwill taking across the business. impairment was applied as the assessment done did not yield the need for an impairment. In 2018, based on discounted cash flows Our risk management strategy defines the extent of the risks we are with a discount factor of 19.5%, the directors deemed goodwill to prepared to incur for our clients and shareholders. The development be impaired relating to investment in Tanzania (UAP Insurance of our risk strategy is embedded in the annual planning cycle and Tanzania). These assumptions are disclosed on note 14. hence in our business strategy. That is, Integrating Strategy, Risk and Performance management takes place at strategy setting, (vi) Treatment of Leases under IFRS 16 first with a full Executive management consensus on clearly In accordance with IFRS 16, the Group has considered that the defined business objectives. Once Executive management have lease commencement date is the date on which the lessor makes defined the objectives, they then identify the key risks that may the underlying asset available for use by the lessee. The lease term present an opportunity to pursue those business objectives, or is deemed to include the non- cancellable period for which the impede their ability to achieve them. lessee has the right to use the underlying asset. Periods covered by an option to extend the lease term are thus included in the Organisational structure lease term where there is reasonable certainty of renewing the Our Risk Management supervises risk management Group-wide lease. The same rationale has been applied to lease termination with the support of decentralized structures in all units of the options. Restoration costs have been based on estimates provided Group. It is headed by the Group Risk and Compliance Manager by our Properties team to restore a premises where the terms of (GCRM), who is supported by interdisciplinary teams of highly the lease stipulate that restorative works should be done. qualified staff. The Group’s activities expose it to a variety of risks, including insurance risk and financial risk. 4. Risk Governance and risk management system Risk management objectives The Group’s overall risk management programme focuses on the Risk management is a central part of the Group’s strategic identification and management of risks and seeks to minimise management process hence we continuously seek to enhance potential adverse effects on its financial performance, by use of the risk management capabilities of the Group. It is anticipated underwriting guidelines and capacity limits, reinsurance planning, that our risk management practices will increase the probability of credit policy governing the acceptance of clients, and defined success, and reduce both the potential of failure and the uncertainty criteria for the approval of intermediaries and reinsurers. Investment associated with achieving the group’s overall objectives. policies are in place which help manage liquidity, and seek to maximise return within an acceptable level of interest rate risk. The objectives of the Group’s risk management activities are to Management Framework ensure that staff in our risk management achieve sustained competitive advantage via a rigorous, Group- structure and the Group as a whole are kept informed of our risk wide risk management system that is fully aligned to the Group strategy, organisation and processes, enabling the risks incurred values, strategic business initiatives and processes. At a strategic to be actively controlled. level, our risk management objectives are to: Risk Management Framework ◊ Identify the Group’s significant risks in relation to the corporate In order to achieve its mission and objectives, the Group has strategies pursued; developed an Enterprise Risk Management (ERM) framework ◊ Formulate the Group’s risk appetite and ensure that business to provide a guide within which key risks affecting the group profile and plans are consistent with it; are identified, measured and managed. This risk management ◊ Optimise risk/return decisions by taking them as closely as possible framework also provides management with proven risk to the business, while establishing strong and independent review management guidelines that support their decision-making and challenge structures; responsibilities and processes, together with managing the risks ◊ Ensure that business growth plans are properly supported by that impact on the objectives of the Group. effective risk infrastructure; UAP Holdings PLC (formerly UAP Holdings Limited) 2019 Annual Report and Financial Statements 117

NOTES TO THE FINANCIAL STATEMENTS (Continued) 4. Risk Governance and risk management system Risk management objectives (Continued) Risk Management Framework (Continued)

At the heart of the risk management framework is a governance consistently to the individual business units and legal entities, process with clear responsibilities for taking, managing, taking account of their individual risk tolerance. The section monitoring and reporting risks. The Group articulates the roles and below summarises the significant risks faced by the group and responsibilities for risk management throughout the organization, how they are managed. from The Board of Directors and the Group Chief Executive Officer (GCEO) to its businesses and functional areas, thus embedding (a) Insurance risk risk management in the business. The risk under any one insurance contract is the possibility that the insured event occurs and the uncertainty of the amount of The UAP Risk Management Framework is the Group’s main the resulting claim. By the very nature of an insurance contract, risk governance document; it specifies the Group’s Target Risk this risk is random and therefore unpredictable. For a portfolio Management Operating Model including Risk management of insurance contracts where the theory of probability is applied authorities and responsibilities, procedures and reporting to pricing and provisioning, the principal risk that the Group requirements. The risk management framework also classifies faces under its insurance contracts is that the actual claims and the risks the Group faces into broad risk categories. The Group benefit payments exceed the carrying amount of the insurance regularly enhances the Enterprise Risk Management Framework liabilities. This could occur because the frequency or severity of to reflect new insights and changes in the Group’s environment. claims and benefits are greater than estimated. Insurance events are random and the actual number and amount of claims and One of the key elements of the Group’s risk management benefits will vary from year to year from the level established framework is to foster risk transparency by establishing risk using statistical techniques. Experience shows that the larger the reporting standards throughout the Group. The Group regularly portfolio of similar insurance contracts, the smaller the relative reports on its risk profile, current risk issues, adherence to its risk variability about the expected outcome will be. policies and improvement actions both at a local and on a Group level. The Group has procedures in place for the timely referral In addition, a more diversified portfolio is less likely to be affected by of risk issues to senior management and The Board of Directors. a change in any subset of the portfolio. The Group has developed its insurance underwriting strategy to diversify the type of insurance The implementation of the framework is driven by a risk risks accepted and within each of these categories to achieve a management culture and awareness that permeates throughout sufficiently large population of risks to reduce the variability of the the Group and is supported by a set of policies and procedures; expected outcome. Factors that aggravate insurance risk include Tools; and a robust reporting mechanism. The Group continues lack of risk diversification in terms of type and amount of risk, to consciously take risks for which it expects an adequate return. geographical location and type of industry covered. This approach requires sound judgment and an acceptance that certain risks can and will materialize in the future. The following tables disclose the concentration of insurance risk by the class of business in which the contract holder operates Significant risks and by the maximum insured loss limit included in the terms According to our classification, significant risks are risks that of the policy. The amounts are the maximum insured loss limit could have a long-term adverse effect on the Group’s assets, of the insurance liabilities (gross and net of reinsurance) arising financial situation or profitability. We have applied this definition from insurance contracts. UAP Holdings PLC (formerly UAP Holdings Limited) 118 2019 Annual Report and Financial Statements

NOTES TO THE FINANCIAL STATEMENTS (Continued)

4. Risk Governance and risk management system (continued) (a) Insurance risk (continued)

Maximum insured loss Total KShs 0-15m KShs 15-250m KShs 250-1000m KShs’000 For the year ended 31 December 2019: General insurance business Motor Gross 58,217,362 27,811,321 111,767,698 197,796,381 Net 54,277,496 19,080,681 16,497,341 89,855,518 Fire Gross 30,114,175 138,230,833 404,227,412 572,572,420 Net 29,788,550 131,861,275 111,002,777 272,652,602 Accident Gross 16,699,481 36,836,537 17,651,779 71,187,797 Net 10,594,379 13,476,620 4,415,597 28,486,596 Other Gross 26,359,229 81,503,610 8,385,464,416 8,493,327,255 Net 29,101,321 66,620,452 38,236,744 133,958,517 Life assurance business Ordinary life Gross 8,317,650 1,655,984 - 9,973,634 Net 8,317,650 1,655,984 - 9,973,634 Group life Gross 16,382,767 13,099,849 434,345,636 463,828,252 Net 11,582,818 3,691,089 244,257,452 259,531,359

Total Gross 156,090,664 299,138,134 9,353,456,941 9,808,685,739 Net 143,662,214 236,386,101 414,409,911 794,458,226 UAP Holdings PLC (formerly UAP Holdings Limited) 2019 Annual Report and Financial Statements 119

NOTES TO THE FINANCIAL STATEMENTS (Continued)

4. Risk Governance and risk management system (Continued) (a) Insurance risk (continued)

Maximum insured loss Total KShs 0-15m KShs 15-250m KShs 250-1000m KShs’000 For the year ended 31 December 2018: General insurance business Motor Gross 56,826,401 58,169,650 267,564,352 382,560,403 Net 57,403,300 48,187,234 12,803,145 118,393,679 Fire Gross 28,559,409 127,793,134 492,258,886 648,611,429 Net 28,811,264 125,471,341 302,678,790 456,961,395 Accident Gross 16,300,667 32,052,572 33,598,990 81,952,229 Net 10,267,792 12,428,583 8,375,521 31,071,896 Other Gross 30,930,380 117,002,465 16,330,340,002 16,478,272,847 Net 31,417,804 84,310,506 33,208,748 148,937,058 Life assurance business Ordinary life Gross 8,567,265 1,352,359 - 9,919,624 Net 8,567,265 495,403 - 9,062,668 Group life Gross 24,790,964 48,528,220 739,335,992 812,655,176 Net 21,292,013 29,279,954 406,547,118 457,119,085 Total Gross 165,975,086 384,898,400 17,863,098,222 18,413,971,708 Net 157,759,438 300,173,021 763,613,322 1,221,545,781

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

(b) Financial risk investment contracts. The principal technique is to match assets The Group is exposed to financial risk through its financial to the liabilities arising from insurance and investment contracts assets, financial liabilities (investment contracts and borrowings), by reference to the type of benefits payable to contract holders. reinsurance assets and insurance liabilities. In particular the key For each distinct category of liabilities, a separate portfolio of financial risk is that the proceeds from its financial assets are not assets is maintained. sufficient to fund the obligations arising from its insurance and investment contracts. The most important types of risk are credit Market risk risk, liquidity risk and market risk. Market risk includes currency risk, interest rate risk, equity price risk and other price risks. (i) Foreign exchange risk The Group underwrites some short term insurance policies These risks arise from open positions in interest rate, currency contracted in US dollars and maintains foreign currency and equity prices, all of which are exposed to general and specific denominated current accounts with local banks. Additionally, market movements. The risks that the Group primarily faces due the group invests in offshore stock exchange markets and places to the nature of its investments and liabilities are liquidity rate deposits in local financial institutions denominated in foreign risk and equity price risk. currencies. This exposes the group to onward foreign exchange risk arising from the various currency exposures, primarily with The Group manages these risks through policies set out by the respect to the Uganda shillings, US dollar, Euro and Sterling Finance and Investment Committee of The Board (FIC). These Pound. Foreign exchange risk arises from future commercial policies have been developed to achieve long-term investment transactions and recognised assets and liabilities. returns in excess of the Group’s obligations under insurance and UAP Holdings PLC (formerly UAP Holdings Limited) 120 2019 Annual Report and Financial Statements

NOTES TO THE FINANCIAL STATEMENTS (Continued)

4. Risk Governance and risk management system (Continued) (b) Financial risk (Continued) (i) Foreign exchange risk (Continued)

At 31 December 2019, if the Shilling had weakened/strengthened higher/lower with all other variables held constant, post-tax loss by 10% against the US dollar with all other variables held constant, for the year would have been KShs 171 million higher/lower. the post-tax loss for the year would have been KShs 126 million (31 December 2018: KShs 87 million) higher/lower, mainly as a result (iv) Credit risk of US dollar earnings. At 31 December 2019, and 31 December The Group has exposure to credit risk, which is the risk that a 2018, the Group had no significant exposure with respect to any counterparty will be unable to pay amounts in full when due. Key other currencies. areas where the Group is exposed to credit risk are:

(ii) Price risk ◊ Receivables arising out of direct insurance arrangements; The Group is exposed to equity securities price risk because of ◊ Receivables arising out of reinsurance arrangements; investments in quoted and unquoted shares classified either as ◊ Reinsurers’ share of insurance liabilities; fair value through profit or loss or other comprehensive income. ◊ Corporate bonds; The Group is not exposed to commodity price risk. To manage its ◊ Government securities; price risk arising from investments in equity securities, the Group ◊ Deposits with financial institutions; diversifies its portfolio. Diversification of the portfolio is done in ◊ Cash and bank balances; accordance with policies set out by The Board. All quoted shares ◊ Mortgage loans recoverable; and held by the Group are traded on the various Stock Exchanges ◊ Other receivables. across the region. The Group has no significant concentrations of credit risk. The At 31 December 2019, if the NSE and USE Indices had increased/ Group structures the levels of credit risk it accepts by placing limits decreased by 10% with all other variables held constant and all on its exposure to a single counterparty, or groups of counterparty, the Group’s equity instruments moved according to the historical and to geographical and industry segments. Such risks are subject correlation to the indices, equity would have been KShs 360 million to an annual or more frequent review. Limits on the level of higher/ lower (31 December 2018: KShs 278 million). There was no credit risk by category and territory are approved quarterly by concentration of price risk. The Board of Directors.

(iii) Interest rate risk Reinsurance is used to manage insurance risk. This does not, Fixed interest rate financial instruments expose the Company However, discharge the Group’s liability as primary insurer. If a and Group to fair value interest rate risk. Variable interest rate reinsurer fails to pay a claim for any reason, the Group remains financial instruments expose the company to cash flow interest liable for the payment to the policyholder. The creditworthiness rate risk. The Group’s fixed interest rate financial instruments of reinsurers is considered on an annual basis by reviewing their are government securities, deposits with financial institutions financial strength prior to finalisation of any contract. and borrowings. The Company’s variable interest rate financial instruments are quoted corporate bonds, which are always the The exposure to individual counterparties is also managed by other treasury bills rate plus some basis points. No limits are placed mechanisms, such as the right of offset where counterparties are on the ratio of variable rate financial instruments to fixed rate both debtors and creditors of the Group. Management information financial instruments. reported to the Group includes details of provisions for impairment on loans and receivables and subsequent write-offs. Finance and Investment contracts with fixed and guaranteed terms, government Investment committee of the Group Board makes regular reviews securities and deposits with financial institutions held to maturity to assess the degree of compliance with the Group procedures are accounted for at amortised cost and their carrying amounts on credit. Exposures to individual policyholders and groups of are not sensitive to changes in the level of interest rates. At 31 policyholders are collected within the ongoing monitoring by December 2019, if interest rates on bonds had been 2% higher/ the management credit committee. lower with all other variables held constant, post-tax loss for the year would have been KShs 4 million (31 December 2018: KShs The credit quality of financial assets that are neither past due nor 26 million) higher/lower, mainly as a result of the movements in impaired can be assessed by reference to external credit ratings interest income on floating rate quoted corporate bonds. If interest if available or historical information about counterparty default rates on loans pegged on the LIBOR plus margin had been 2% rates. None of the Group’s credit risk counter parties are rated UAP Holdings PLC (formerly UAP Holdings Limited) 2019 Annual Report and Financial Statements 121

NOTES TO THE FINANCIAL STATEMENTS (Continued)

4. Risk Governance and risk management system (Continued) (b) Financial risk (Continued) (iv) Credit risk (Continued) except the Governments in which subsidiary companies are registered. The Company classifies corporates that have issued Corporate Bonds. 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.

No collateral is held for any of the above assets other than for staff mortgage loans and car loans included in 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. The fair value of this collateral was KShs 385 million (2018: KShs 387 million) and no collateral had been repossessed as at 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.

Maximum exposure to credit risk before collateral held – Group

Credit rating/ KShs’000 Note classification 2019 2018

Receivables arising out of direct insurance arrangements 4 (b) (iv) Group 2 1,452,956 1,850,411 Receivables arising out of reinsurance arrangements 4 (b) (iv) Group 2 1,342,007 1,294,978 Reinsurers’ share of insurance liabilities 21 Group 2 3,001,085 3,276,959 Other receivables 23 (a) Group 2 1,082,297 2,060,149 Amounts due from related parties 43 (v) Group 2 245,936 17,165 Government securities 24 B+ rating 16,351,305 14,411,180 Corporate bonds 24 Group 2 222,640 1,286,271 Loans and advances 22 Group 2 313,149 306,412 Deposits with financial institutions 25 (a) Group 2 6,622,475 4,841,184 Cash at bank 25 (a) Group 2 1,301,440 1,757,053

31,935,290 31,101,762

Credit rating/ KShs’000 Note classification 2019 2018

Cash and bank 25 (b) Group 2 22,426 19,414 Deposits with financial institutions 25 (b) Group 2 71,734 443,392 Amounts due from subsidiaries 43 (iv) Group 2 4,345,252 4,306,166 Other receivables 23 (b) Group 2 1,380,976 1,051,833 5,820,388 5,820,805

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. UAP Holdings PLC (formerly UAP Holdings Limited) 122 2019 Annual Report and Financial Statements

NOTES TO THE FINANCIAL STATEMENTS (Continued)

4. Risk Governance and risk management system (Continued) (b) Financial risk (Continued) (iv) Credit risk (Continued)

Receivables arising from Receivables arising direct insurance from reinsurance arrangements arrangements Credit rating/ KShs’000 classification 2019 2018 2019 2018 Past due but not impaired: - by up to 30 days Group 2 101,492 459,003 382,755 580,343 - by 31 to 60 days Group 2 407,398 319,831 28,509 19,238 - by 61 to 150 days Group 2 383,432 272,948 772,383 564,129 - by 151 to 365 days Group 2 560,634 798,629 158,360 131,268 Total past due but not impaired 1,452,956 1,850,411 1,342,007 1,294,978 Past due and impaired: - Carrying amount before provision for impairment 1,235,649 1,535,400 25,506 25,506 - Provision for impairment loss (1,235,649) (1,535,400) (25,506) (25,506)

Net carrying amount 1,452,956 1,850,411 1,342,007 1,294,978

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:

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

KShs’000 2019 2018 At 1 January 1,535,400 1,215,744 (Recovery)/provision in the period (299,751) 319,656

As at 31 December 1,235,649 1,535,400

The individually impaired receivables mainly relate to receivables arising out of direct insurance arrangements, the following amounts have been individually assessed:

KShs’000 2019 2018 Brokers 684,702 627,779 Agents 472,452 637,828 Insurance Companies 43,922 127,194 Direct Clients 34,573 142,599 As at 31 December 1,235,649 1,535,400 UAP Holdings PLC (formerly UAP Holdings Limited) 2019 Annual Report and Financial Statements 123

NOTES TO THE FINANCIAL STATEMENTS (Continued)

4. Risk Governance and Risk Management System (continued) (b) Financial risk (Continued) (iv) Credit risk (Continued) i) Group

IFRS 9 impairment provision – Movement between 1 January 2019 and 31 2019 allowance for ECL at 31 December 2019 December 2019

KShs’000 Stage 1 Stage 2 Stage 3 Total Stage 1 Stage 2 Stage 3 Total Treasury bonds 26,384 - - 26,384 6,766 - - 6,766 Treasury bills 1,381 - - 1,381 (4,348) - - (4,348) Bank deposits 26,363 53,079 50,000 129,442 (40,903) 23,263 50,000 32,360 Corporate bonds 1,116 - 368,265 369,381 (4,024) (21,223) - (25,247) Other receivables at amortized cost 91,062 78,279 1,239,056 1,408,497 38,932 78,279 (296,344) (179,032) Total 146,306 131,358 1,657,321 1,934,985 (3,577) 80,319 (246,344) (169,602)

IFRS 9 impairment provision – Movement between 1 January 2018 and 31 2018 allowance for ECL at 31 December 2018 December 2018 KShs’000 Stage 1 Stage 2 Stage 3 Total Stage 1 Stage 2 Stage 3 Total Treasury bonds 19,618 - - 19,618 11,238 - - 11,238

Treasury bills 5,729 - - 5,729 5,675 - - 5,675 Bank deposits 67,266 29,816 - 97,082 34,280 29,816 - 64,096

Corporate bonds 5,140 21,223 368,265 394,628 (33,845) (4,861) 368,265 329,559

Other receivables at amortized cost 52,130 - 1,535,400 1,587,530 49,698 - 319,656 369,354

Total 149,883 51,039 1,903,665 2,104,587 67,046 24,955 687,921 779,922

ii) Company

2019 IFRS 9 impairment provision – Movement between 1 January 2019 and 31 allowance for ECL at 31 December 2019 December 2019 KShs’000 Stage 1 Stage 2 Stage 3 Total Stage 1 Stage 2 Stage 3 Total Cash and bank balances 11,202 - - 11,202 3,487 - - 3,487 Other receivables at amortized cost 2,062 - - 2,062 1,031 - - 1,031

Total 13,264 - - 13,264 4,518 - - 4,518 UAP Holdings PLC (formerly UAP Holdings Limited) 124 2019 Annual Report and Financial Statements

NOTES TO THE FINANCIAL STATEMENTS (Continued)

4. Risk Governance and risk management system (Continued) (b) Financial risk (Continued) (iv) Credit risk (Continued)

IFRS 9 impairment provision – Movement between 1 January 2018 and 31 2018 allowance for ECL at 31 December 2018 December 2018 KShs’000 Stage 1 Stage 2 Stage 3 Total Stage 1 Stage 2 Stage 3 Total Cash and bank balances 7,715 - - 7,715 (2,507) - - (2,507) Other receivables at amortized cost 1,031 - - 1,031 69 - - 69 Total 8,746 - - 8,746 2,438 - - 2,438

Corporate bonds at amortised cost Under IFRS 9, an entity shall recognize a loss allowance for expected credit losses on a financial asset that is measured at amortised cost or at fair value through other comprehensive income. The Group and Company has measured the loss allowance for corporate bonds, at each reporting date, at an amount equal to the lifetime expected losses if the credit risk on that financial instrument has increased significantly since initial recognition and if the credit risk has not increased significantly at an amount equal to the 12 month expected losses. Summary of the expected credit loss impairments are as below: i) Group

31 December 2019 31 December 2018

12 month Lifetime expected 12 month Lifetime expected expected credit losses expected credit losses credit Not credit Credit credit Not credit Credit-im- KShs’000 losses impaired impaired Total losses impaired paired Total Gross value 162,251 - 368,265 530,516 650,975 - 228,486 879,461 Loss allowance (1,116) - (368,265) (369,381) (166,142) - (228,486) (394,628)

Amortised cost 161,135 - - 161,135 484,833 - - 484,833

(ii) Company UAP Holdings PLC (formerly UAP Holdings Limited) 2019 Annual Report and Financial Statements 125

NOTES TO THE FINANCIAL STATEMENTS (Continued) 4. Risk Governance and Risk Management System (continued) (b) Financial risk (continued) (iv) Credit risk (continued) The Company does not have investments in corporate bonds.

Government securities at amortised cost Under IFRS 9, an entity shall recognize a loss allowance for expected credit losses on a financial asset that is measured at amortised cost or at fair value through other comprehensive income. The Group has measured the loss allowance for government securities, at each reporting date, at an amount equal to the lifetime expected losses if the credit risk on that financial instrument has increased significantly since initial recognition and if the credit risk has not increased significantly at an amount equal to the 12 month expected losses. Summary of the expected credit loss impairments are as below: i) Group 31 December 2019 31 December 2018 Lifetime expected Lifetime expected 12 month credit losses credit losses expect- 12 month Not ed credit Not credit Credit expected credit Credit (KShs’000) losses impaired impaired Total credit losses impaired impaired Total Gross value 15,613,640 - - 15,613,640 13,800,780 - - 13,800,780 Loss allowance (27,765) - - (27,765) (25,347) - - (25,347) Amortised cost 15,585,875 - - 15,585,875 13,775,433 - - 13,775,433 ii) Company The Company does not have investments in government securities.

Deposits with financial institutions: Under IFRS 9, an entity shall recognize a loss allowance for expected credit losses on a financial asset that is measured at amortized cost or at fair value through other comprehensive income. The Group and Company has measured the loss allowance for fixed deposits with financial institutions, at each reporting date, at an amount equal to the lifetime expected losses if the credit risk on that financial instrument has increased significantly since initial recognition and if the credit risk has not increased significantly at an amount equal to the 12 month expected losses. Summary of the expected credit loss impairments are as below: i) Group 31 December 2019 31 December 2018

Lifetime expected Lifetime expected credit losses 12 month credit losses 12 month ex- Not expected pected credit credit Credit credit Not credit Credit (KShs’000) losses impaired impaired Total losses impaired impaired Total Gross value 6,642,571 - 50,000 6,692,571 4,765,622 - 143,201 4,908,823 Loss allowance (20,096) - (50,000) (70,096) (51,730) - (15,909) (67,639) Amortised cost 6,622,475 - - 6,622,475 4,713,892 - 127,292 4,841,184 ii) Company Gross value 72,942 - - 72,942 450,936 - - 450,936 Loss allowance (1,208) - - (1,208) (7,544) - - (7,544) Amortised cost 71,734 - - 71,734 443,392 - - 443,392 UAP Holdings PLC (formerly UAP Holdings Limited) 126 2019 Annual Report and Financial Statements

NOTES TO THE FINANCIAL STATEMENTS (Continued) 4. Risk Governance and Risk Management System (continued) (b) Financial risk (continued) (iv) Credit risk (continued)

Cash and bank balances at amortised cost: Under IFRS 9, an entity shall recognize a loss allowance for expected credit losses on a financial asset that is measured at amortized cost or at fair value through other comprehensive income. The Group and Company has measured the loss allowance for cash and bank balances, at each reporting date, at an amount equal to the lifetime expected losses if the credit risk on that financial instrument has increased significantly since initial recognition and if the credit risk has not increased significantly at an amount equal to the 12 month expected losses. Summary of the expected credit loss impairments are as below: i) Group 31 December 2019 31 December 2018

12 month Lifetime expected 12 month Lifetime expected credit expected credit losses expect- losses credit Not credit Credit ed credit Not credit Credit (KShs’000) losses impaired impaired Total losses impaired impaired Total Gross value 1,360,786 - - 1,360,786 1,645,783 - 111,270 1,757,053 Loss allowance (59,346) - - (59,346) (15,536) - (13,907) (29,443) Amortised cost 1,301,440 - - 1,301,440 1,630,247 - 97,363 1,727,610 ii) Company Gross value 22,651 - - 22,651 19,585 - - 19,585 Loss allowance (225) - - (225) (171) - - (171) Amortised cost 22,426 - - 22,426 19,414 - - 19,414 UAP Holdings PLC (formerly UAP Holdings Limited) 2019 Annual Report and Financial Statements 127

NOTES TO THE FINANCIAL STATEMENTS (Continued) 4. Risk Governance and Risk Management System (continued) (b) Financial risk (continued) (iv) Credit risk (continued)

Other receivables and amounts due from related parties at amortised cost: Under IFRS 9, an entity shall recognize a loss allowance for expected credit losses on a financial asset that is measured at amortized cost or at fair value through other comprehensive income. The Group and Company has measured the loss allowance for other receivables and amounts due from related parties, at each reporting date, at an amount equal to the lifetime expected losses if the credit risk on that financial instrument has increased significantly since initial recognition and if the credit risk has not increased significantly at an amount equal to the 12 month expected losses. Summary of the expected credit loss impairments are as below:

i) Group 31 December 2019 31 December 2018 Lifetime expected Lifetime expected credit losses 12 month credit losses 12 month Not expected Not expected credit Credit credit credit Credit (KShs’000) credit losses impaired impaired Total losses impaired impaired Total Gross value 1,500,981 - - 1,500,981 2,115,713 - - 2,115,713 Loss allowance (172,748) - - (172,748) (52,130) - - (52,130)

Amortised cost 1,328,233 - - 1,328,233 2,063,583 - - 2,063,583 ii) Company Gross value 4,348,047 - - 4,348,047 4,307,197 - - 4,307,197 Loss allowance (2,795) - - (2,795) (1,031) - - (1,031) Amortised cost 4,345,252 - - 4,345,252 4,306,166 - - 4,306,166

Receivables arising from direct insurance arrangements i) Group 31 December 2019 31 December 2018 Lifetime expected Lifetime expected 12 month credit losses 12 month credit losses expected Not expected Not credit credit Credit credit credit Credit (KShs’000) losses impaired impaired Total losses impaired impaired Total

Gross value - - 2,688,605 2,688,605 - - 3,385,811 3,385,811

Loss allowance - - (1,235,649) (1,235,649) - - (1,535,400) (1,535,400)

Amortised cost - - 1,452,956 1,452,956 - - 1,850,411 1,850,411 ii) Company The Company does not have receivables arising from direct insurance arrangements.

(v) Liquidity risk Liquidity risk is the risk that the Group and Company 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 and Company 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. UAP Holdings PLC (formerly UAP Holdings Limited) 128 2019 Annual Report and Financial Statements

NOTES TO THE FINANCIAL STATEMENTS (Continued) 4. Risk Governance and Risk Management System (continued) (b) Financial risk (Continued) (v) Liquidity risk (Continued)

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

Group Contractual Cashflows Carrying Upto 1 Over 5 KShs’000 Amount Total month 1-3 months 3-12 months 1-5 years years

Liabilities Insurance contract liabilities 13,746,305 13,746,305 1,004,907 698,534 1,466,577 5,855,527 4,720,760 Payable under deposit administration contracts 4,940,271 4,940,271 37,927 48,038 211,669 1,208,870 3,433,767 Unit-linked investment contracts 828,256 828,256 120,201 17,477 127,136 384,661 178,781 Borrowed funds 11,412,672 11,412,672 1,667 17,451 2,948,722 8,444,832 - Lease Liabilities 506,392 1,441,127 13,257 39,770 106,054 511,045 771,001 Creditors arising from reinsurance arrangements 1,057,647 1,057,647 367,475 143,406 311,369 235,397 - Other payables 2,832,853 2,832,853 555,736 992,174 1,053,517 231,303 123 Total financial liabilities as at 31 December 2019 35,324,396 36,259,131 2,101,170 1,956,850 6,225,044 16,871,635 9,104,432

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.

Group Contractual Cashflows

Carrying Upto 1 Over 5 KShs’000 Amount Total month 1-3 months 3-12 months 1-5 years years

Liabilities

Insurance contract liabilities 12,370,988 12,370,988 1,244,380 824,905 2,218,743 5,133,369 2,949,591 Payable under deposit 4,441,210 4,441,210 28,958 39,509 182,716 1,063,582 3,126,445 administration contracts Unit-linked investment 859,754 859,754 54,346 13,479 71,928 424,310 295,691 contracts Borrowed funds 11,098,307 11,098,307 - - 3,001,396 8,081,432 15,479 Creditors arising from 1,175,563 1,175,563 542,646 102,746 388,029 142,142 - reinsurance arrangements Other payables 3,070,241 3,070,241 677,137 767,616 939,506 685,853 129 Total financial liabilities as at 31 December 2018 33,016,063 33,016,063 2,547,467 1,748,255 6,802,318 15,530,688 6,387,335 UAP Holdings PLC (formerly UAP Holdings Limited) 2019 Annual Report and Financial Statements 129

NOTES TO THE FINANCIAL STATEMENTS (Continued) 4. Risk Governance and Risk Management System (Continued) (b) Financial risk (Continued) (v) Liquidity risk (Continued)

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 than 1 Greater year than 1 year KShs’000 2019 2019 Amounts due to related parties (Note 43(iv)) 626,247 - Other payables 625,036 - Lease Liabilities 39,390 - Borrowed funds 8,263,883 2,200,000

As at 31 December 2019 9,554,556 2,200,000

Less than 1 Greater year than 1 year KShs’000 2018 2018 Amounts due to related parties (Note 43(iv)) 1,489,970 - Other payables 317,130 - Borrowed funds 2,109,628 7,777,480

As at 31 December 2018 3,916,728 7,777,480

(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 stakeholders; 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 36. 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 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. Appropriate measures, including capital injection and business turn-around initiatives, have been instituted to resolve the solvency gap in this entity. UAP Holdings PLC (formerly UAP Holdings Limited) 130 2019 Annual Report and Financial Statements

NOTES TO THE FINANCIAL STATEMENTS (Continued) 4. Risk Governance and Risk Management System (Continued) (c) Capital management (Continued)

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.

As at 31 December 2019: South Kenya Sudan Uganda Rwanda Tanzania General Life Composite General Life General General KShs’000 insurance Assurance insurance insurance Assurance insurance insurance Regulatory capital requirements 600,000 400,000 456,075 110,621 82,966 164,069 100,953 Amount of paid up capital 1,000,000 1,585,456 342,709 214,939 827,674 1,175,625 1,003,026 Required solvency 3,080,394 953,935 456,014 360,000 4,129,975 164,069 101,514 Solvency margin by Company 6,340,772 1,995,502 3,027,392 461,522 4,238,284 461,024 271,166

Surplus over required margin 3,260,378 1,041,567 2,571,378 101,522 108,309 296,955 169,652

As at 31 December 2018: South Kenya Sudan Uganda Rwanda Tanzania General Life Composite General Life General General KShs’000 insurance Assurance insurance insurance Assurance insurance insurance Regulatory capital requirements 600,000 400,000 458,010 109,856 82,392 194,260 107,278 Amount of paid up capital 1,000,000 1,585,456 342,709 214,939 521,609 1,175,625 940,720 Required solvency 4,451,952 660,080 458,010 320,545 2,860,090 194,260 128,193 Solvency margin by Company 6,633,731 1,530,626 2,294,453 408,193 2,380,845 414,196 138,070 Surplus/(deficit) over required margin 2,181,779 870,546 1,836,443 87,648 ( 479,245) 219,936 9,877

The fair value of government securities at 31 December 2019 is estimated at KShs 11,446 million (2018: Shs 10,156 million) compared to the carrying value KShs 16,351 million (2018: Shs 14,411 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.

(d) Fair values of financial assets and liabilities

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). UAP Holdings PLC (formerly UAP Holdings Limited) 2019 Annual Report and Financial Statements 131

NOTES TO THE FINANCIAL STATEMENTS (Continued) 4. Risk Governance and Risk Management System (Continued) (d) Fair values of financial assets and liabilities (Continued)

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

As at 31 December 2019 KShs’000 Level 1 Level 2 Level 3 Total

Assets Equity investments 3,918,961 - 116,962 4,035,923 Government securities 765,430 - - 765,430 Corporate bonds 61,505 - - 61,505 Investment Properties - - 16,012,712 16,012,712

Total 4,745,896 - 16,129,674 20,875,570

As at 31 December 2018 KShs’000 Level 1 Level 2 Level 3 Total

Assets Equity investments 3,174,843 - 118,247 3,293,090 Government securities 635,747 - - 635,747 Corporate bonds 801,437 - - 801,437 Investment Properties - - 19,756,714 19,756,714 Total 4,612,027 - 19,874,961 24,486,988

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

As at 31 December 2019 KShs’000 Level 1 Level 2 Level 3 Total

Assets Investment Properties - - 5,788,497 5,788,497 Total - - 5,788,497 5,788,497

As at 31 December 2018 KShs’000 Level 1 Level 2 Level 3 Total

Assets Investment Properties - - 7,090,983 7,090,983 Total - - 7,090,983 7,090,983 UAP Holdings PLC (formerly UAP Holdings Limited) 132 2019 Annual Report and Financial Statements

NOTES TO THE FINANCIAL STATEMENTS (Continued) 4. Risk Governance and Risk Management System (Continued) (d) Fair values of financial assets and liabilities (Continued)

The fair value of financial instruments traded in active market is based on quoted market prices at the end of each reporting period. A market is regarded as active if quoted prices are readily and regularly available from an exchange, dealer, broker, industry group, pricing service, or regulatory agency, and those prices represent actual and regularly occurring market transactions on an arm’s length basis. The quoted market price used for financial assets held by the company is the current bid price. These instruments are included in level 1. Instruments included in level 1 comprise of primarily equity investments quoted on the Nairobi Securities Exchange and the Uganda Stock Exchange.

Financial instruments measured at fair value that are not traded in active market relate to Group’s investment in the holding company for an investment property and investments in equities that aren’t traded in active markets. Fair value estimate is based on the Group’s share of the net asset of the investee company and on use of rental income and a capitalization rate of 8.42%. As the investment property of the investee company is measured at their fair value, the net asset value of the investee company approximates its fair value. This estimate is classified as level 3. There were transfers out of level 3 during the year amounting to KShs 1.4 bn (2018: KShs 1.8bn) due to the reclassification of owner occupied investment property to property and equipment.

5. Segmental information Management has determined the operating segments based on the reports reviewed by the Group’s Board of Directors that are used to make strategic decisions.

The Group reviews its operating segments (business units) by type of business and by geography. Based on this, the group’s operating segments comprise of General Insurance, Life Assurance, Property, Investment Management and related Financial Services. The Group currently has operations in five countries namely Kenya, Uganda, South Sudan, Rwanda and Tanzania.

The reportable operating segments derive their revenue primarily from the underwriting of classes and non-life risks as defined by the Insurance Act and investment property.

Other services offered by the Group that are included within the Kenya and Uganda segments include stock brokerage, investment management and related financial advisory services. The results of these operations are included in the other segments column as they are not material to the Group.

The Group Board of Directors assesses the performance of the reporting segments based on a measure of revenue and profitability.

The segment information provided to the Group Board of Directors for the reportable segments for the year ended 31 December 2019 is as follows: UAP Holdings PLC (formerly UAP Holdings Limited) 2019 Annual Report and Financial Statements 133 NOTES TO THE FINANCIAL STATEMENTS (Continued)

5 Segmental information (continued) (a) Segmental information by business line

General insurance Life assurance Property Year ended 31 Dec 2019

South Sub- South Sub- South Sub- Other KShs’m Kenya Uganda Tanzania Rwanda Kenya Uganda Kenya Uganda Total Sudan total Sudan total Sudan total Segments

Gross written premium 9,371 3,060 1,290 738 1,245 15,704 1,656 1,309 153 3,118 - - - 18,822 Gross earned premium 9,474 3,303 1,409 808 1,182 16,176 1,703 1,309 151 3,163 - - - 19,339 Net earned premium 8,297 2,333 1,316 566 882 13,394 1,407 1,246 60 2,713 - - - 16,107 Interest income 686 215 287 127 130 1,445 964 477 17 1,458 - - (307) 2,596 Other investment income 510 5 225 (3) - 737 544 (7) 11 548 (959) (468) (2,311) (3,738) 491 (1,962) Commissions & other income 330 175 14 60 51 630 171 51 20 242 - - 13 885 Net impairment on financial 191 (17) (7) 50 (26) 191 43 1 (6) 38 - 1 1 (60) 170 assets Total revenue 10,014 2,711 1,835 800 1,037 16,397 3,129 1,768 102 4,999 (959) (468) (2,310) (3,737) 137 17,796 Claims & policyholders’ benefits (5,549) (1,399) (559) (207) (533) (8,247) (2,157) (1,175) (32) (3,364) - - - - (11,611) payable Depreciation (101) (42) (115) (27) (15) (300) (24) (23) - (47) (17) (34) (51) 25 (373) Amortisation 2 - - - - 2 - (1) - (1) - - (60) (59) Commissions & other operating (3,051) (762) (550) (630) (357) (5,350) (716) (411) (50) (1,059) (74) (101) (76) (251) (915) (7,693) expenses Finance costs (67) (14) (73) (10) (8) (172) (13) (6) - (19) (294) (189) (358) (841) (257) (1,289) Profit/(loss) before tax 1,248 494 538 (74) 124 2,330 219 152 20 391 (1,327) (775) (2,778) (4,880) (1,070) (3,229) Tax (278) (154) - 19 - (413) (52) (55) - (107) - 124 194 318 65 (137) Profit/(loss) after tax 970 340 538 (55) 124 1,917 167 97 20 284 (1,327) (651) (2,584) (4,562) (1,005) (3,366) Attributable to: - Parent 970 180 538 (33) 124 1,779 167 51 20 238 (1,327) (513) (1,809) (3,649) (1,382) (3,014) - Non-controlling interest - 160 - (22) - 138 - 46 - 46 - (138) (775) (913) 377 (352) Profit/(loss) after tax 970 340 538 (55) 124 1,917 167 97 20 284 (1,327) (651) (2,584) (4,562) (1,005) (3,366) Other comprehensive income 5 12 (13) (3) (30) (29) - (1) (1) (2) - 8 8 16 (29) (44) Total comprehensive income 975 352 525 (58) 94 1,888 167 96 19 282 (1,327) (643) (2,576) (4,546) (1,034) (3,410)

Statement of financial position Additions: Property & equipment 29 7 10 6 4 56 2 11 - 13 - - 170 170 101 340 Investment property ------1 347 348 - 348 Intangible assets 2 - - - 1 3 ------141 144 Total assets 15,914 5,743 5,691 2,209 1,907 31,464 12,721 4,326 486 17,533 - 3,736 2,402 6,138 1,706 56,841 Total equity 7,119 1,824 2,818 733 643 13,137 2,043 252 210 2,505 - 692 (2,025) (1,333) (522) 13,787 UAP Holdings PLC (formerly UAP Holdings Limited) 134 2019 Annual Report and Financial Statements

NOTES TO THE FINANCIAL STATEMENTS (Continued) 5 Segmental information (continued) (a) Segmental information by business line (Continued)

General insurance Life assurance Property Year ended 31 Dec 2018 South Sub- South Sub- South Sub Other KShs’m Kenya Uganda Sudan Tanzania Rwanda total Kenya Uganda Sudan total Kenya Uganda Sudan total Segments Total Gross written premium 9,255 3,044 1,580 967 1,244 16,090 1,373 1,150 157 2,680 - - - - - 18,770 Gross earned premium 9,282 2,911 1,422 1,072 1,201 15,888 1,440 1,150 141 2,731 - - - - - 18,619 Net earned premium 8,141 2,141 1,263 749 908 13,202 1,166 1,088 67 2,321 - - - - - 15,523 Interest income 723 189 7 109 115 1,143 908 273 23 1,204 - - - - (38) 2,309 Other investment income 12 30 370 - - 412 (29) (11) 1 (39) (248) 328 (245) (165) 403 611 Commissions & other income 333 238 18 82 86 757 168 20 37 225 - - - - 24 1,006 Net impairment on financial assets (443) 11 3 (170) (27) (626) (113) 25 - (88) - - - - (66) (780) Total revenue 8,766 2,609 1,661 770 1,082 14,888 2,100 1,395 128 3,623 (248) 328 (245) (165) 323 18,669 Claims & policyholders’ benefits payable (5,396) (1,177) (514) (526) (586) (8,199) (1,194) (978) (18) (2,190) - - - - - (10,389) Depreciation (38) (15) (34) (12) (6) (105) (13) (4) - (17) (18) (13) (31) (83) (236) Amortisation ------(1) - (1) - - - - (38) (38) Commissions & other operating expenses (3,032) (1,025) (583) (487) (414) (5,541) (642) (534) (54) (1,230) (165) (94) (111) (370) (335) (7,476) Finance costs - - (43) - - (43) - - - - (255) (203) (303) (761) (205) (1,009) Profit/(loss) before tax 300 392 487 (255) 76 1,000 251 (122) 56 185 (668) 13 (672) (1,327) (338) (480) Tax (128) (94) - 73 - (149) (134) - - (134) (4) 56 52 193 (38) Profit/(loss) after tax 172 298 487 (182) 76 851 117 (122) 56 51 (668) 9 (616) (1,275) (145) (518) Attributable to: - Parent 172 158 487 (109) 76 784 117 (65) 56 108 (668) 7 (431) (1,092) (150) (350) - Non-controlling interest - 140 - (73) - 67 - (57) - (57) 2 (185) (183) 5 (168) Profit/(loss) after tax 172 298 487 (182) 76 851 117 (122) 56 51 (668) 9 (616) (1,275) (145) (518) Other comprehensive income 21 (36) (23) (41) (22) (101) - - (2) (2) - (43) (19) (62) 9 (156) Total comprehensive income 193 262 464 (223) 54 750 117 (122) 54 49 (668) (34) (635) (1,337) (136) (674)

Statement of financial position Additions Property & equipment 148 8 9 12 1 178 25 3 - 28 - 10 88 98 65 369 Investment property ------115 122 237 - 237 Intangible assets (5) ------3 - 3 - - - - 40 38 Total assets 15,641 5,506 4,696 2,427 1,868 30,138 11,430 3,134 444 15,008 - 4,557 4,338 8,895 4,636 58,677 Total equity 7,443 1,527 2,293 729 550 12,542 1,875 (151) 191 1,915 - 1,336 552 1,888 851 17,196 UAP Holdings PLC (formerly UAP Holdings Limited) 2019 Annual Report and Financial Statements 135

NOTES TO THE FINANCIAL STATEMENTS (Continued)

5. Segmental information (continued) (b) Segmental information by country (i) Revenue by source

31 December 2019 31 December 2018

South South KShs’000 Kenya Uganda Sudan Rwanda Tanzania Total Kenya Uganda Sudan Rwanda Tanzania Total

Short - term insurance

Gross written premium 9,371,847 3,059,824 1,289,950 1,245,074 737,619 15,704,314 9,255,347 3,044,041 1,580,356 1,244,192 967,287 16,091,223

Gross earned premium 9,474,267 3,302,822 1,408,940 1,182,269 807,463 16,175,761 9,282,159 2,910,959 1,422,203 1,201,349 1,072,243 15,888,913

Net earned premium 8,296,675 2,333,410 1,315,717 881,624 567,244 13,394,670 8,140,782 2,140,900 1,262,869 907,821 748,927 13,201,299

Long - term business

Gross written premium 1,655,919 1,309,044 152,988 - - 3,117,951 1,372,590 1,149,535 157,098 - - 2,679,223

Gross earned premium 1,703,035 1,309,044 151,263 - - 3,163,342 1,439,668 1,149,535 140,823 - - 2,730,026

Net earned premium 1,407,371 1,245,557 59,784 - - 2,712,712 1,166,481 1,088,478 66,587 - - 2,321,546

Total

Gross written premium 11,027,766 4,368,868 1,442,938 1,245,074 737,619 18,822,265 10,627,937 4,193,576 1,737,454 1,244,192 967,287 18,770,446

Gross earned premium 11,177,302 4,611,866 1,560,203 1,182,269 807,463 19,339,103 10,721,827 4,060,494 1,563,026 1,201,349 1,072,243 18,618,939

Net earned premium 9,704,046 3,578,967 1,375,501 881,624 567,244 16,107,382 9,307,263 3,229,378 1,329,456 907,821 748,927 15,522,845

Investment income 459,454 714,242 (793,471) 129,665 123,974 633,864 1,670,156 868,302 156,161 115,749 109,385 2,919,753

Commission earned 388,995 180,308 34,896 83,961 60,046 748,206 432,659 243,143 54,196 69,891 81,583 881,472

Other income 110,280 58,956 - (32,420 ) - 136,816 80,444 27,791 - 16,188 - 124,423

Net impairment loss on financial assets 238,341 (79,037) (13,021) (26,210 ) 49,528 169,602 (553,088) (32,882) 3,374 (27,304) (170,022) (779,922)

Total revenue 10,901,117 4,453,436 603,905 1,036,620 800,792 17,795,870 10,937,434 4,335,732 1,543,187 1,082,345 769,873 18,668,571

(ii) Asset allocation by country

31 December 2019 31 December 2018

South South KShs’000 Kenya Uganda Sudan Rwanda Tanzania Total Kenya Uganda Sudan Rwanda Tanzania Total

Property and equip- ment 1,126,177 478,429 665,243 10,161 42,553 2,322,563 1,297,241 538,507 818,372 13,319 49,373 2,716,812

Investment property 8,156,129 4,287,897 3,568,686 - - 16,012,712 10,678,607 4,678,127 4,399,980 - - 19,756,714

Intangible assets 183,350 614 - 1,410 161 185,535 98,574 2,054 - - - 100,628

Total assets 28,836,848 14,331,224 9,556,477 1,907,395 2,208,663 56,840,607 31,611,589 13,292,106 9,477,835 1,867,839 2,426,694 58,676,063

Total equity 7,181,925 3,248,662 1,980,344 643,385 733,020 13,787,336 10,087,758 2,794,087 3,035,325 549,564 728,645 17,195,379 UAP Holdings PLC (formerly UAP Holdings Limited) 136 2019 Annual Report and Financial Statements

NOTES TO THE FINANCIAL STATEMENTS (Continued)

5. Segmental information (continued)

(b) By class of insurance (i) Gross premiums

The premium income of the Group can be analysed between the main classes of business as shown below:-

Gross written premium Gross earned premium KShs’000 2019 2018 2019 2018 Short term insurance business Engineering 462,547 622,709 735,654 609,144 Fire 1,544,047 1,562,732 1,526,891 1,618,109 Liability 229,636 270,049 229,644 271,958 Marine 249,921 279,617 262,280 303,348 Motor 3,149,437 3,496,053 3,333,289 3,636,660 Workmen’s compensation 239,974 291,893 260,284 294,648 Personal accident 464,286 422,717 482,215 429,204 Theft 449,699 528,213 451,105 541,690 Medical 8,745,767 8,291,123 8,654,850 7,844,311 Others 169,000 326,118 239,548 339,841 Short term business 15,704,314 16,091,224 16,175,760 15,888,913 Long term business Ordinary life 1,866,642 1,517,233 1,866,643 1,517,234 Group life 1,251,309 1,161,989 1,296,700 1,212,792

Long term business 3,117,951 2,679,222 3,163,343 2,730,026 Total 18,822,265 18,770,446 19,339,103 18,618,939

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. UAP Holdings PLC (formerly UAP Holdings Limited) 2019 Annual Report and Financial Statements 137

NOTES TO THE FINANCIAL STATEMENTS (Continued)

5 Segmental information (continued)

(b) By class of insurance (continued)

(ii) Reinsurance ceded and amounts recoverable from reinsurers

Amounts recoverable Reinsurance ceded from reinsurers

KShs’000 2019 2018 2019 2018

Short term insurance business Engineering 595,974 483,975 140,997 467,430

Fire 945,187 989,294 59,038 383,540

Liability 117,127 121,917 36,472 46,015

Marine 143,615 153,976 38,259 186,205

Motor 111,388 68,175 317,922 117,651

Workmen’s compensation 9,596 9,061 47,105 95,543

Personal accident 92,898 57,569 26,167 34,464

Theft 182,751 213,019 67,230 (10,597)

Medical 384,476 340,087 415,938 442,783

Others 198,079 250,541 214,476 (132,692)

Short term business 2,781,091 2,687,614 1,363,604 1,630,342

Long term business 450,630 408,480 217,341 59,120

Total 3,231,721 3,096,094 1,580,945 1,689,462

(iii) Commissions earned and commissions payable

Commissions earned Commissions payable

KShs’000 2019 2018 2019 2018 Short-term business 638,714 715,776 1,814,219 1,917,837

Long-term business 101,310 163,208 328,940 347,304

Brokerage/Investment management 8,182 2,488 - -

Total 748,206 881,472 2,143,159 2,265,141 UAP Holdings PLC (formerly UAP Holdings Limited) 138 2019 Annual Report and Financial Statements

NOTES TO THE FINANCIAL STATEMENTS (Continued)

6. Investment income

(a) Group

KShs’000 2019 2018 Interest from government securities 2,028,605 1,865,856

Bank deposit interest 541,963 408,627

Loan interest receivable 25,679 34,162

Rental income from investment properties 935,081 1,085,469

Dividends receivable from equity investments 199,630 152,747

Gross investment income 3,730,958 3,546,861 Loss on sale of equities (37,526) (14,860)

Profit on sale of property and equipment 2,537 3,775

Miscellaneous (costs)/income (14,422) 352,294

Rent, interest, dividends received and other investment income 3,681,547 3,888,070 Fair value losses on investment properties (note 17) (4,073,598) (581,266) Fair value gains/(losses) on equity investments at fair value through profit or loss (note 772,081 (478,049) 19(b)) Fair value gains on government securities assets at fair value through profit or loss 25,252 26,759

Foreign exchange gains 228,582 64,239

Fair value losses (3,047,683) (968,317)

Net Investment Income 633,864 2,919,753 UAP Holdings PLC (formerly UAP Holdings Limited) 2019 Annual Report and Financial Statements 139

NOTES TO THE FINANCIAL STATEMENTS (Continued)

6. Investment income (Continued)

(b) Company

KShs’000 2019 2018 Bank deposit interest 19,064 14,472 Loan interest receivable 193,909 190,631 Rental income from investment properties 317,276 183,648 Dividends receivable from equity investments 1,490,555 677,479 Rent, interest and dividends received 2,020,804 1,066,230 Profit on sale of property and equipment - 962 Income from sublease 1,169 - Miscellaneous income 29,103 187 Rent, interest, dividends received and other investment income 2,051,075 1,067,379 Fair value losses on investment properties (note 17) (1,302,486) (95,348) Foreign exchange gains 29,816 (14,648) Fair value losses (1,272,670) (109,996) Net Investment Income 778,405 957,383

7. Other income

(a) Group

KShs’000 2019 2018 Fee income 96,881 33,196 Other income 39,935 91,227

Total 136,816 124,423

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.

(b) Company

KShs’000 2019 2018

Shared services and direct cost recoveries 1,193,026 720,164

Total 1,193,026 720,164 UAP Holdings PLC (formerly UAP Holdings Limited) 140 2019 Annual Report and Financial Statements

NOTES TO THE FINANCIAL STATEMENTS (Continued)

8. Claims and policyholder benefits payable

(a) Group

KShs’000 2019 2018 Short term insurance

Engineering 164,531 509,775

Fire 180,762 526,323 Liability 48,211 110,045 Marine 59,040 226,329 Motor 2,116,240 2,413,539 Workmen’s compensation 38,597 130,590 Personal accident 86,210 126,892 Theft 110,642 98,276 Medical 6,555,071 5,707,905 Others 251,337 (20,881)

Short term insurance 9,610,641 9,828,793

Long term insurance business 2019 2018 Death, maturity and benefits payable 1,160,565 791,221

Increase in policy owners’ liabilities 1,780,145 1,337,776

Interest payable on deposit administration and unit linked investments contracts 640,575 120,478

Long term insurance business 3,581,285 2,249,475

Total 13,191,926 12,078,268 UAP Holdings PLC (formerly UAP Holdings Limited) 2019 Annual Report and Financial Statements 141

NOTES TO THE FINANCIAL STATEMENTS (Continued)

9. Operating and other expenses

(a) Group

KShs’000 2019 2018 Staff costs (Note 10 (a)) 2,572,550 2,430,879

Office running costs 605,391 817,885

Bank charges and other related expenses 400,423 444,986

Publicity and marketing expenses 380,423 409,779

Depreciation – Property & equipment (Note 15 (a)) 283,507 236,012

Depreciation – Right of use asset (Note 16 (a)) 89,080 -

Impairment loss on property, plant & equipment (Note 15 (a)) 469,115 24,640

Consultancy fees and expenses 301,304 235,378

Software costs 204,602 185,466

Premium tax costs 200,776 180,092

Directors expenses 141,759 150,413

Recurrent property costs 124,975 144,013

Travel costs 96,960 91,491

Licenses costs 20,761 60,739

Amortisation of intangible assets (Note 14) 59,147 38,681

Repairs & maintenance costs 16,930 13,760

Subscriptions costs 8,694 10,869

Other insurance expenses 5,150 10,024

Total 5,981,547 5,485,107

UAP Holdings PLC (formerly UAP Holdings Limited) 142 2019 Annual Report and Financial Statements

NOTES TO THE FINANCIAL STATEMENTS (Continued)

9. Operating and other expenses

(b) Company

KShs’000 2019 2018 Bank charges and other expenses* 539,736 658,460 Staff costs (Note 10 (a)) 581,594 450,953 Software costs 142,556 117,094 Consultancy fees and expenses 87,029 41,480 Depreciation – Property & equipment (Note 15 (b)) 70,572 41,121 Depreciation - Right of use asset depreciation (Note 16 (b)) 4,500 - Amortisation of intangible assets (Note 14) 59,167 37,165 Office running costs 42,233 122,494 Publicity and marketing expenses 39,091 14,985 Directors expenses 26,225 39,978 Travel costs 19,090 13,130 Repairs and maintenance costs 15,940 7,824 Licenses costs 5,089 17,095 Subscriptions costs 3,442 2,306

Total 1,636,264 1,564,085

*Other expenses include an amount of KShs. 6.2 million relating to impairment of the investment in UAP Investment Kenya which is 100% owned by UAP Holdings PLC.

10. Staff costs

KShs’000 2019 2018 a) Group Salaries and wages 1,999,311 2,072,085 Social security benefits costs 95,346 116,924 Retirement benefit costs: Defined benefits scheme (Note 26) 5,192 7,776 Defined contribution scheme 140,553 115,903 Other staff costs 332,148 118,191 Total 2,572,550 2,430,879 b) Company Salaries and wages 535,932 424,285 Social security benefits costs 45,662 26,668 Total 581,594 450,953 UAP Holdings PLC (formerly UAP Holdings Limited) 2019 Annual Report and Financial Statements 143

NOTES TO THE FINANCIAL STATEMENTS (Continued)

11. Income tax expense

(a) Group

KShs’000 2019 2018 Current income tax 492,925 322,590 Deferred tax (Note 12) (358,826) (284,712) Prior year over-provision of deferred tax (Note 12) 2,426 246 Total 136,525 38,124

The tax on the Group’s loss before income tax differs from the theoretical amount that would arise using the statutory income tax rate as follows:

KShs’000 2019 2018 Loss before tax (3,228,975) (479,751) Tax calculated at statutory tax rate (968,693) (143,925) Less: tax effect of income not subject to tax (813,697) (631,633) Add: tax effect of expenses not deductible for tax purposes 1,921,341 813,928 Prior year over-provision of deferred tax (2,426) (246) Total 136,525 38,124

Movement in the tax (payable)/recoverable account is as follows:

KShs’000 2019 2018 At 1 January 145,854 (42,795) Taxation charge (492,925) (322,590) Taxation paid 463,398 511,239 At end of the year 116,327 145,854 Disclosed as follows: Current income tax recoverable 233,384 145,854 Current income tax payable (117,057) - Total 116,327 145,854 UAP Holdings PLC (formerly UAP Holdings Limited) 144 2019 Annual Report and Financial Statements

NOTES TO THE FINANCIAL STATEMENTS (Continued)

11. Income tax expense (Continued)

(b) Company

KShs’000 2019 2018 Current income tax - - Deferred tax (Note 12) 14,906 (170,222) Under /(over) provision (10) - Total 14,896 (170,222)

The tax on the Company’s profit before income tax differs from the theoretical amount that would arise using the statutory income tax rate as follows:

KShs’000 2019 2018 Loss before tax (830,823) (589,993) Tax calculated at a tax rate of 30% (2018: 30%); (249,247) (176,998) Less: tax effect of income not subject to tax (709,107) (377,732) Add: tax effect of expenses not deductible for tax purposes 973,260 384,508 Under/(over) provision (10) - Total 14,896 (170,222)

Movement in the tax payable account is as follows:

KShs’000 2019 2018 At 1 January 42,915 - Taxation charge - - Taxation paid 50,458 42,915 At end of the year 93,373 42,915

Disclosed as follows; Current income tax recoverable 93,373 42,915 Current income tax payable - - Total 93,373 42,915 UAP Holdings PLC (formerly UAP Holdings Limited) 2019 Annual Report and Financial Statements 145

NOTES TO THE FINANCIAL STATEMENTS (Continued)

12. Deferred income tax Deferred tax is calculated, in full, on all temporary differences under the liability method using a principal tax rate of 30% (2018: 30%). The movement on the deferred income tax account is as follows:

(a) Group

KShs’000 2019 2018 At start of year: (79,851) 224,399 Credit to profit or loss (Note 11(a)) (358,826) (284,712) Prior year under provision 2,426 246 Translation difference 4,872 (19,784) Total (431,379) (79,851)

Disclosed as follows;

Deferred tax asset (1,109,575) (1,049,551) Deferred tax liability 678,196 969,700 Total (431,379) (79,851)

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

Year ended 31 December 2019 As at 31 (Charge)/ Translation Under/ December KShs’000 1 Jan 2019 credited reserves (Over) 2019

Property and equipment: - on historical cost basis (410,646) 575 (30) - (410,101)

Investment property fair value gains/(losses) (1,054,493) 214,423 (6,048) - (846,118)

Tax losses 1,331,425 659,752 - - 1,991,177

Other provisions 213,565 (515,924) 1,206 (2,426) (303,579)

Net deferred tax assets 79,851 358,826 (4,872) (2,426) 431,379 UAP Holdings PLC (formerly UAP Holdings Limited) 146 2019 Annual Report and Financial Statements

NOTES TO THE FINANCIAL STATEMENTS (Continued) 12. Deferred income tax (continued)

Year ended 31 December 2018 As at 31 (Charge)/ Translation Under/ December KShs’000 1 Jan 2018 credited reserves (Over) 2018 Property and equipment: - on historical cost basis (415,445) 4,573 226 - (410,646)

Investment property fair value gains/(losses) (1,135,545) 50,442 30,610 - (1,054,493)

Tax losses 670,180 661,245 - - 1,331,425

Other provisions 656,411 (431,548) (11,052) (246) 213,565

Net deferred tax (liability)/asset (224,399) 284,712 19,784 (246) 79,851

Unutilised tax losses that have an expiry limit relate to Kenya and these expire after ten (10) years under current Kenya tax legislation. The ageing of the tax losses that are recognised under the deferred tax assets at 31 December 2019 are as disclosed under note 12(d).

(b) Company

KShs’000 2019 2018 At start of year: (521,921) (351,699) Charge/(credit) to profit or loss (Note 11) 14,906 (170,222) Under/(Over) provision (10) - Total (507,025) (521,921) Disclosed as follows: Deferred tax asset (507,025) (521,921) Deferred tax liability - - Total (507,025) (521,921)

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

Year ended 31 December 2019 As at 31 As at (Charge)/ Under/ December KShs’000 1 Jan 2019 credited (Over) 2019 Property and equipment: - on historical cost basis 865,815 433,508 - 1,299,323 Investment property fair value gains 24,495 (65,124) - (40,629) Unrealized exchange gains - 9,436 - 9,436 Deferred tax liabilities 890,310 377,820 - 1,268,130 Provisions (10,404) (16,984) - (27,388) Unrealized exchange losses (3,931) 3,931 - - Tax losses (1,397,896) (349,861) (10) (1,747,267) Deferred tax assets (1,412,231) (362,914) (10) (1,775,155) Net deferred tax assets (521,921) 14,906 (10) (507,025) UAP Holdings PLC (formerly UAP Holdings Limited) 2019 Annual Report and Financial Statements 147

NOTES TO THE FINANCIAL STATEMENTS (Continued) 12 Deferred income tax (continued) (b) Company (continued)

Year ended 31 December 2018: Deferred tax liabilities

As at (Charge)/ As at 31 KShs’000 1 Jan 2018 credited Under/ (Over) December 2018 Property and equipment: - on historical cost basis 424,785 441,030 - 865,815

Investment property fair value gains 28,782 (4,287) - 24,495

Unrealized exchange gains - - - -

Total deferred tax liabilities 453,567 436,743 - (890,310) Deferred tax assets Provisions (35,426) 35,176 - (10,404)

Unrealized exchange losses - (3,931) - (3,931) Tax losses (769,840) (638,210) - (1,397,896)

Total deferred tax liabilities (805,266) (606,965) - (1,412,231) Under/(over) provision - - - - Net deferred tax asset (351,699) (170,222) - (521,921)

In Kenya, the unutilized tax losses expire after 10 years under current tax legislation. The ageing of the tax losses that are recognised under the deferred tax assets at 31 December 2019 was as follows:

Year of origin Amount of tax losses Year of expiry 2017 and prior 1,558,015,454 2026 2018 2,093,133,652 2027 2019 2,173,074,227 2028

Total 5,824,223,333

13 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.

2019 2018 Loss attributable to equity holders of the company (KShs’000) (3,013,335) (350,468) Number of shares in issue (in thousands) 211,718 211,420 Basic and diluted earnings per share (KShs) (14.23) (1.66) UAP Holdings PLC (formerly UAP Holdings Limited) 148 2019 Annual Report and Financial Statements

NOTES TO THE FINANCIAL STATEMENTS (Continued) 13 Earnings per share (Continued)

In 2019, 298,000 UAP Holdings PLC (formerly UAP Holdings Limited) shares worth approximately KShs 1.49 million were issued at par value (i.e., KShs 5.00) for the distribution of shares to Old Mutual Life Assurance Company (OMLAC) minorities. This was part of a share swap arrangement which was an incentive scheme to encourage OMLAC minorities to cede their shares in the Company.

There were no potentially dilutive shares outstanding at 31 December 2019 or 31 December 2018.Diluted earnings per share are therefore the same as basic earnings per share.

14 Goodwill and other intangible assets

(a) Group Computer software Work in KShs’000 Goodwill In use progress Total

Cost

Balance as at 1 January 2018 240,030 649,807 10,201 900,038 Additions - 37,568 - 37,568

Translation differences - (25) - (25)

Balance as at 31 December 2018 240,030 687,350 10,201 937,581 Additions - 144,038 - 144,038

Translation differences - 16 - 16

Balance as at 31 December 2019 240,030 831,404 10,201 1,081,635

Amortisation and impairment losses

Balance as at 1 January 2018 - 558,242 - 558,242 Amortisation charge for the year - 38,681 - 38,681

Impairment losses 174,363 - - 174,363

Balance as at 31 December 2018 174,363 596,923 - 771,286 Amortisation charge for the year - 59,147 - 59,147

Balance as at 31 December 2019 174,363 656,070 - 830,433

Net carrying value as at: 31 December 2018 65,667 90,427 10,201 166,295

31 December 2019 65,667 175,334 10,201 251,202

The goodwill arose from acquisition of UAP Century Tanzania in 2013 (KShs 174m) and UAP Insurance Uganda Limited in 2004 (KShs 66m) and is therefore all allocated to the Tanzania and Uganda Cash Generating Units (CGUs) for the purposes of impairment assessment.

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 goodwill impairment of KShs 174m in 2018 relates to the Tanzania CGU, which was written down to zero. UAP Holdings PLC (formerly UAP Holdings Limited) 2019 Annual Report and Financial Statements 149

NOTES TO THE FINANCIAL STATEMENTS (Continued)

14 Goodwill and other intangible assets (Continued)

The key assumptions used for the value in use calculations are:

2019 2018 Discount rate % 21.4% 19.5% Growth rate % 3% 4%

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. Work in Progress relates to software developments done for the Group which have not yet been completed.

(b) Company KShs’000 2019 2018 As at 1 January 97,124 94,200 Additions 139,981 40,089 Amortisation charge for the year (59,167) (37,165) At end of year 177,938 97,124 The above balances relate to computer software. UAP Holdings PLC (formerly UAP Holdings Limited) 150 2019 Annual Report and Financial Statements

NOTES TO THE FINANCIAL STATEMENTS (Continued)

15. Property and equipment

(a) Group Included in equipment are assets with a gross value of KShs 670m (2018 – KShs 630m) which are fully depreciated and still in use. Such assets would have attracted a notional depreciation of KShs 178m (2018 – KShs 162m). The revaluation deficit in buildings relates to the portion of fair value losses on investment properties which is owner occupied. The owner occupied portion of investment property was transferred to buildings as detailed below and in note 17.

Tele- Office Capital phone furniture & Motor work in equip- KShs’000 Buildings equipment vehicles progress ment Total Cost At 1 January 2019 2,006,095 1,798,157 105,919 104,848 106,548 4,121,567 Additions - 262,874 29,458 45,256 2,341 339,929 Disposals - (1,890) (7,828) - - (9,718) Transferred from investment property (Note 17) 45,179 - - - - 45,179 Transferred from work in progress - 14,738 - (14,738) - - Revaluation loss (25,751) - - - - (25,751) Translation difference - (2,560) (413) (260) (106) (3,339) At 31 December 2019 2,025,523 2,071,319 127,136 135,106 108,783 4,467,867

Depreciation At 1 January 2019 135,750 1,049,586 109,709 16,119 93,591 1,404,755 Charge for the year 39,229 226,328 9,448 2,168 6,334 283,507 Accumulated depreciation on disposals - (1,406) (7,828) - - (9,234) Impairment loss 469,115 - - - - 469,115 Translation difference - 12,498 (419) (14,811) (107) (2,839) At 31 December 2019 644,094 1,287,006 110,910 3,476 99,818 2,145,304

1,381,429 784,313 16,226 131,630 8,965 2,322,563 Net book value as at 31 December 2019 UAP Holdings PLC (formerly UAP Holdings Limited) 2019 Annual Report and Financial Statements 151

NOTES TO THE FINANCIAL STATEMENTS (Continued) 15 Property and equipment (continued) (a) Group (continued)

Tele- Office Capital phone furniture & Motor work in equip- KShs’000 Buildings equipment vehicles progress ment Total Cost At 1 January 2018 1,946,108 1,450,417 125,270 225,015 102,904 3,849,714 Additions - 350,068 3,577 12,709 2,188 368,542 Disposals - (19,175) (20,590) (371) 1,970 (38,166) Transferred from investment property (Note 17) 21,539 - - - - 21,539 Transferred from/(to) related company - - - (95,154) - (95,154) Transfer from work in progress - 35,351 - (35,351) - - Revaluation surplus 38,448 - - - - 38,448 Translation difference - (18,504) (2,338) (2,000) (514) (23,356) At 31 December 2018 2,006,095 1,798,157 105,919 104,848 106,548 4,121,567

Depreciation At 1 January 2018 71,311 891,852 123,134 - 84,834 1,171,131 Charge for the year 39,799 176,432 8,091 1,972 9,718 236,012 Accumulated depreciation on disposals - (10,816) (19,630) - (521) (30,967) Impairment loss 24,640 - - - 24,640 Translation difference - (7,882) (1,886) 14,147 (440) 3,939 At 31 December 2018 135,750 1,049,586 109,709 16,119 93,591 1,404,755

1,870,345 748,571 (3,790) 88,729 12,957 2,716,812 Net book value as at 31 December 2018 UAP Holdings PLC (formerly UAP Holdings Limited) 152 2019 Annual Report and Financial Statements

NOTES TO THE FINANCIAL STATEMENTS (Continued) 15 Property and equipment (continued)

(b) Company Office Capital furniture & Computer Motor work in Telephone KShs’000 equiment equipment vehicles progress equipment Total Cost At 1 January 2019 89,015 233,002 5,804 - 41,106 368,927 Additions 1,628 52,341 26,373 17,998 1,561 99,901 Disposals ------Transfers ------Transfer from/(to) related party ------At 31 December 2019 90,643 285,343 32,177 17,998 42,667 468,828

Depreciation At 1 January 2019 12,653 163,146 5,804 - 31,090 212,693 Charge for the year 15,476 46,321 3,827 - 4,948 70,572 Disposals ------At 31 December 2019 28,129 209,467 9,631 - 36,038 283,265

Net book value as at 31 December 2019 62,514 75,876 22,546 17,998 6,629 185,563

Cost At 1 January 2018 22,590 201,413 8,899 130,505 36,781 400,188 Additions 31,074 31,676 - - 4,325 67,075 Disposals - (87) (3,095) - - (3,182) Transfers 35,351 - (35,351) - - Transfer from/(to) related party - - - (95,154) - (95,154) At 31 December 2018 89,015 233,002 5,804 - 41,106 368,927

Depreciation At 1 January 2018 8,629 130,428 8,899 - 26,771 174,727 Charge for the year 4,024 32,778 - - 4,319 41,121 Disposals - (60) (3,095) -- - (3,155) At 31 December 2018 12,653 163,146 5,804 - 31,090 212,693 Net book value as at 31 December 2018 76,362 69,856 - - 10,016 156,234

Included in equipment are assets with a gross value of KShs 148m (2018: KShs 145m) which are fully depreciated and still in use. Such assets would have attracted a notional depreciation of KShs 48m (2018: KShs 46m). UAP Holdings PLC (formerly UAP Holdings Limited) 2019 Annual Report and Financial Statements 153

NOTES TO THE FINANCIAL STATEMENTS (Continued)

16 Right of use assets

(a) Group KShs’000 Buildings Office equipment Total Cost At 1 January 2019 - - - Recognition of Right of use asset on initial application of IFRS 16 503,683 - 503,683

Adjusted balance as at 1 January 2019 503,683 - 503,683 Additions 43,896 29,966 73,862 Translation difference (3,350) - (3,350) At 31 December 2019 544,229 29,966 574,195 Amortisation At 1 January 2019 - - - Charge for the year 85,646 3,434 89,080 Translation difference (984) - (984)

At 31 December 2019 84,662 3,434 88,096 Net book amount At 31 December 2019 459,567 26,532 486,099

(b) Company

KShs’000 Buildings Office equipment Total Cost At 1 January 2019 - - - Recognition of Right of use asset on initial application of IFRS 16 11,548 - 11,548

Adjusted balance as at 1 January 2019 11,548 - 11,548 Additions - 29,966 29,966 At 31 December 2019 11,548 29,966 41,514 Amortisation At 1 January 2019 - - - Charge for the year 1,066 3,434 4,500 At 31 December 2019 1,066 3,434 4,500 Net book amount At 31 December 2019 10,482 26,532 37,014 UAP Holdings PLC (formerly UAP Holdings Limited) 154 2019 Annual Report and Financial Statements

NOTES TO THE FINANCIAL STATEMENTS (Continued)

17. Investment properties a) Group KShs’000 2019 2018 At start of year 19,756,714 20,360,418 Additions 347,784 237,013 Unrealised fair value losses (4,073,598) (581,266) Translation difference 26,991 (237,912) Transferred to Property and equipment (Note 15) (45,179) (21,539)

At end of year 16,012,712 19,756,714

b) Company KShs’000 2019 2018 At start of year 7,090,983 7,186,331 Fair value losses unrealised (1,302,486) (95,348)

At end of year 5,788,497 7,090,983

The Group’s investment properties were revalued in December 2019 and 2018 by Knight Frank Valuers Limited, professional independent valuers in Kenya, South Sudan, Rwanda and Uganda respectively on the basis of open market and the comparative and income approach. 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 935 million (2018: KShs 1,085 million). Direct operating expenses arising on investment properties amounted to KShs 125 million (2018: KShs 144 million). All investment properties are classified as non-current assets. Transfers of investment property to property and equipment in 2019 and 2018 and relates to the reclassification of the owner occupied portions of the properties.

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

KShs’000 2019 2018 Level 3 16,012,712 19,756,714

Fair value as at 31 December 2019 16,012,712 19,756,714

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

KShs’000 2019 2018 Level 3 5,788,497 7,090,983 At end of year 5,788,497 7,090,983 UAP Holdings PLC (formerly UAP Holdings Limited) 2019 Annual Report and Financial Statements 155

NOTES TO THE FINANCIAL STATEMENTS (Continued)

17. Investment properties (continued)

The carrying value of the investment properties is the fair value of the property as determined by a registered independent valuer having an appropriate recognized professional qualification and experience in the category of the property being valued.

The investment properties are leased to third parties under operating leases as well as being partly occupied by companies of the Group though the owner occupied portion (occupied by the UAP Group) has been reclassified to property and equipment. No contingent rents are charged.

There is neither restriction on the realisability of the investment properties nor are there contractual obligations pegged to the investment properties. All investment properties as at 31 December 2019 are measured at fair value. The table below shows the valuation methodology used in measuring fair value of investment property as well as significant considerations used.

Valuation Methodology Valuation Considerations Valuation Bases The Income Approach was used to value the investment 1. Passing Rents Market Value is defined within properties. 2. Yield of asset class RICS Valuation – Professional 3. Existing lease terms Standards / International Valu- The Income approach is predicated on the principal of 4. Estimated occupancy levels over ation Standards as: anticipation which holds that the present value is indi- the holding period cated by the expectations of future benefits. 5. Estimated reversionary rent “The estimated amount for This method is used for valuation of income producing 6. Estimated yield on reversion which an asset or liability properties. Given a known or estimated stream of net 7. 10 year holding period should exchange on the valu- rental income, the end value is thus driven by the rate 8. Estimated rentals for vacant space ation date between a willing of return that is expected. The choice of return is made 9. Irrecoverable landlord expenses buyer and a willing seller in an by comparison with such other investments as bear 10. Estimated market growth rate and arm’s length transaction after the nearest relationship in such matters as the physical rent terms on expiry of current proper marketing and where characteristics, use and degree of risk and life of the leases the parties had each acted investment. knowledgeably, prudently and without compulsion.” For the Income Approach market value can be ex- pressed in a formula: Market Value = Annual Income/ Rate of Return or the capitalization rate (MV=A/R) UAP Holdings PLC (formerly UAP Holdings Limited) 156 2019 Annual Report and Financial Statements

NOTES TO THE FINANCIAL STATEMENTS (Continued)

18 Investments in subsidiaries

Country of Interest 2019 2018 incorporation held KShs’000 KShs’000 UAP Insurance Company Limited Kenya 100% 600,000 600,000 UAP Life Assurance Limited Kenya 100% 1,510,791 1,510,791 UAP Insurance Limited S.Sudan 100% 339,442 339,442 UAP Insurance Limited Uganda 53% 202,507 202,507 UAP Financial Services Limited Kenya 100% - - UAP Financial Services Limited Uganda 89% 140,861 140,861 UAP Properties Limited Uganda 79% 488,743 488,743 UAP Investments (Kenya) Limited Kenya 100% - 6,179 UAP Insurance Tanzania Limited Tanzania 60% - - UAP Rwanda Limited Rwanda 100% - - UAP Life Uganda Limited Uganda 53% 640,538 390,215 UAP Properties Limited S.Sudan 70% - - UAP Africa Limited Mauritius 100% 1,599,773 1,537,630 UAP Global Services Limited Mauritius 100% - - 5,522,655 5,216,368

During the year, the Company increased/(impaired) its investments in subsidiaries as follows:

Country of KShs’000 Incorporation 2019 2018 UAP Africa Limited Mauritius 62,143 (441,753) UAP Investments (Kenya) Limited Kenya (6,179) - UAP Life Uganda Limited Uganda 250,323 - Total 306,287 (441,753)

In 2019, the business made additional investments in UAP Insurance Tanzania Limited of KShs62m and UAP Life Assurance Uganda Limited of KShs 250m. The investments in UAP Insurance Tanzania Limited was made through UAP Africa Limited (Mauritius). The additional investment in UAP Life Assurance Uganda Limited was through the issue of preference shares to the Company. These preference shares do not hold voting rights, are to be held for a minimum of 5 years and thereafter redeemable at the discretion of UAP Life Assurance Uganda and have no rights to the residual assets of the company on liquidation. Management thus considers these to be non-dilutive in nature.

Annual assessments of goodwill are carried out for the Cash Generating Units (CGU’s) acquired. UAP Holdings PLC (formerly UAP Holdings Limited) 2019 Annual Report and Financial Statements 157

NOTES TO THE FINANCIAL STATEMENTS (Continued)

19. 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, as follows:

(a) Equity investments at fair value through other comprehensive income

KShs’000 2019 2018 At 1 January - 1,684,260 Transfer to fair value through profit or loss - (1,684,260) At end of the year - -

(b) Equity investments at fair value through profit or loss

KShs’000 2019 2018 At 1 January 3,293,090 2,050,670 Transfer to fair value through profit or loss - 1,684,260 Additions 195,739 329,266 Disposals (235,891) (269,014) Fair value gains/(losses) charged to profit or loss 772,081 (478,049) Translation difference 10,904 (24,043) At end of the year 4,035,923 3,293,090

For purpose of the cashflow statement, the proceeds from sale of equity investments are KShs 198m (2018: KShs 254m) being the disposal amounts in note 19 (b) above plus (loss) on sale of equities of KShs 38m (2018: KShs 15m) as per note 6 (a).

(c) Equity investments (listed and unlisted)

KShs’000 2019 2018 (i) Listed securities At 1 January 3,174,843 3,616,764 Additions 195,739 317,069 Disposals (234,384) (259,110) Fair value gains charged to other comprehensive income - - Fair value gains charged to profit or loss 772,081 (478,049) Translation difference 10,682 (21,831)

At end of the year 3,918,961 3,174,843 UAP Holdings PLC (formerly UAP Holdings Limited) 158 2019 Annual Report and Financial Statements

NOTES TO THE FINANCIAL STATEMENTS (Continued)

19. Equity investments (Continued) (c) Equity investments (listed and unlisted) (Continued)

(ii) Unlisted securities 2019 2018 At 1 January 118,247 118,166 Additions - 12,197 Disposals (1,507) (9,904) Fair value gains charged to other comprehensive income - - Translation difference 222 (2,212)

At end of the year 116,962 118,247 Total equity investment (listed and unlisted) 4,035,923 3,293,090

20. Deferred acquisition costs KShs’000 2019 2018 At 1 January 445,985 502,565 Additions 388,934 302,866 Amortisation charge (381,023) (353,369) Translation difference (37) (6,077)

At end of the year 453,859 445,985

21. Reinsurers’ share of policyholder liabilities (Group)

KShs’000 2019 2018

Reinsurers’ share of: Unearned premium (Note 32) 1,175,873 1,441,813

Notified claims outstanding: - short term insurance (Note 30) 1,105,904 1,243,914

- long term insurance contract liabilities (Note 30) 156,343 206,011

Claims incurred but not reported short term insurance (Note 30) 562,965 385,221

At end of the year 3,001,085 3,276,959

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 27 and 30. UAP Holdings PLC (formerly UAP Holdings Limited) 2019 Annual Report and Financial Statements 159

NOTES TO THE FINANCIAL STATEMENTS (Continued)

22. Loans and advances (Group)

KShs’000 2019 2018 At 1 January 306,412 356,774 Loans advanced 54,034 172,149 Loan repayments (47,215) (222,330) Translation difference (82) (181)

At end of the year (Note 43(iii)) 313,149 306,412

Maturity profile of loans

KShs’000 2019 2018 Loans maturing: Within 1 year 23,453 4,773 In 1-5 years 103,345 64,561 In over 5 years 186,351 237,078

At end of the year (Note 43(iii)) 313,149 306,412

There is no concentration of credit risk with respect to the loans and advances.

23. Other receivables and other assets

(a) Group KShs’000 2019 2018 Prepayments 163,682 209,791 Accrued income 774,167 624,003 Staff debtors 105,394 154,175 Others 39,054 1,072,180

As at 31 December 1,082,297 2,060,149

(b) Company KShs’000 2019 2018 Prepayments 60,733 49,847 Accrued income 770,840 604,302 Staff debtors 944 1,064 Others* 548,459 396,620

As at 31 December 1,380,976 1,051,833

UAP Holdings PLC (formerly UAP Holdings Limited) 160 2019 Annual Report and Financial Statements

NOTES TO THE FINANCIAL STATEMENTS (Continued)

23. Other receivables and other assets (Continued)

* Others include bank balances held in Chase Bank (K) Limited (in Receivership) amounting to KShs 124m (2018: KShs 278m). The Bank was put under receivership on 7 April 2016 by the Central Bank of Kenya and was re-opened on 27 April 2016 under statutory management by the Kenya Deposit Insurance Corporation (KDIC). In 2018, State Bank of Mauritius (SBM) acquired Chase Bank (IR) and undertook to release 75% of customer deposits while 25% of the deposits were provided for. In 2019, the Group received KShs 160m with KShs 124m remaining under moratorium while the Company received KShs 30m out of KShs 45m held under moratorium. Under IFRS 9, all financial instruments have been re-evaluated under the expected credit loss model and adequately impaired in the financial statements.

24. Investments and government securities

(a) Corporate bonds KShs’000 2019 2018 At 1 January 1,286,271 1,543,914 Redemptions (661,365) (45,932) Fair value losses charged to profit or loss (402,266) (211,711)

As at 31 December 222,640 1,286,271 Corporate bonds – fair value 61,505 801,438 Corporate bonds – amortised cost 161,135 484,833

As at 31 December 222,640 1,286,271

(b) Government securities

KShs’000 2019 2018 Treasury bills and bonds maturing: Within 91 days - - 91 days to 1 year 1,223,362 1,038,144 In 1-5 years 4,040,053 4,934,911 After 5 years 11,087,890 8,438,125

As at 31 December 16,351,305 14,411,180 At 1 January 14,411,180 12,150,195 Purchases 1,914,873 2,234,226 Fair value losses charged to profit or loss 25,252 26,759

As at 31 December 16,351,305 14,411,180 Government securities – fair value 765,430 635,747 Government securities – amortised cost 15,585,875 13,775,433

As at 31 December 16,351,305 14,411,180 Investments & government securities at 31 December 16,573,945 15,697,451 UAP Holdings PLC (formerly UAP Holdings Limited) 2019 Annual Report and Financial Statements 161

NOTES TO THE FINANCIAL STATEMENTS (Continued)

25. Cash and cash equivalents

For the purposes of the statement of cash flows, cash and cash equivalents comprise the following:

(a) Group KShs’000 2019 2018 Cash and bank balances 1,360,786 1,786,496 Impairment losses (59,346) (29,443)

Net cash and bank balances 1,301,440 1,757,053 Deposits with financial institutions 6,692,571 4,908,823 Impairment losses (70,096) (67,639)

Net deposits with financial institutions 6,622,475 4,841,184 As at 31 December 7,923,915 6,598,237

(b) Company KShs’000 2019 2018 Cash and bank balances 22,651 19,585 Impairment losses (225) (171) Net cash and bank balances 22,426 19,414 Deposits with financial institutions 72,942 450,936 Impairment losses (1,208) (7,544) Net deposits with financial institutions 71,734 443,392

As at 31 December 94,160 462,806

26. Retirement benefit obligation

Description of plan The Group operates a funded final salary defined benefit pension scheme. The Fund is closed to new members with effect from 31 December 2014 and to future accrual of benefits with effect from 30 June 2016. All employees now contribute to the UAP Staff Pension (DC) Scheme (“the DC Scheme”). These Disclosures are in respect of the Fund and exclude the DC Scheme. The Fund is established under irrevocable trust. The Fund assets are invested in quoted equities, government securities, corporate bonds, fixed deposits and in a guaranteed fund. UAP Holdings PLC (formerly UAP Holdings Limited) 162 2019 Annual Report and Financial Statements

NOTES TO THE FINANCIAL STATEMENTS (Continued)

26. Retirement benefit obligation (continued)

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

KShs’000 2019 2018 Opening retirement benefit asset - 12,921 Adjustments through statement of profit or loss Expected Return on Assets (48,674) (104,273) Current and past service cost 4,875 5,606 Year 2019 - Interest cost 48,991 106,443

Total adjustment through profit or loss 5,192 7,776 Adjustments through other comprehensive income Actuarial (loss)/gain due to experience/financial assumptions (39,421) (151,595) Settlement loss 27,387 129,249 Return on plan assets 6,842 1,649

Total adjustment through other comprehensive income (5,192) (20,697) Present value of over/under-funding - -

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

KShs’000 2019 2018 At start of year 310,774 1,186,723 Current service cost 4,875 5,606 Interest cost 32,189 106,443 Remeasurements - - Actuarial Loss due to change in financial assumptions - 8,543 Actuarial (Gain)/Loss due to experience (39,421) (160,138) Benefits paid (131,209) (836,403)

As at 31 December 177,208 310,774

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

KShs’000 2019 2018 At start of year 440,023 1,173,802 Interest on scheme assets 48,674 104,273 Actuarial gains/(losses) (6,842) (1,649) Benefits paid (131,209) (836,403)

As at 31 December 350,646 440,023 UAP Holdings PLC (formerly UAP Holdings Limited) 2019 Annual Report and Financial Statements 163

NOTES TO THE FINANCIAL STATEMENTS (Continued)

26. Retirement benefit obligation (continued)

Plan assets comprise:

KShs’000 2019 2018 At start of year 10,722 3.06% 9,219 2.10% Interest on scheme assets 275,395 78.54% 271,648 61.73% Benefits paid 64,529 18.40% 159,156 36.17%

As at 31 December 350,646 100% 440,023 100%

The amounts recognised in the profit or loss for the year are as follows:

KShs’000 2019 2018 Current service cost net of contributions 4,875 5,606 Net interest cost 48,991 106,443 Return on scheme assets (excluding interest) (48,674) (104,273)

Change in effects of asset ceiling - - Total change included in employee benefit expense (note 10 (a)) 5,192 7,776

Financial Assumptions The principal actuarial assumptions used were as follows:

KShs’000 2019 2018 Discount rate 13% 13% Expected rate of return on scheme assets 13% 13% Future salary increases 8% 8% Future pension increases 3% 6%

Demographic Assumptions The principal demographic assumptions used were as follows:

a) Mortality ◊ Pre-retirement: A1949/52 mortality table (as per the previous valuation) was assumed ◊ Post-retirement: The a(55) life table was assumed. ◊ AIDS: No allowance for additional deaths due to the impact of AIDS has been made.

b) Retirement ◊ It was assumed that members will retire at their Normal Retirement Date. No allowance for ill-health retirement, early retirement or late retirement was made. UAP Holdings PLC (formerly UAP Holdings Limited) 164 2019 Annual Report and Financial Statements

NOTES TO THE FINANCIAL STATEMENTS (Continued)

26. Retirement benefit obligation (continued)

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 obligations

2019

Discount rate 12.5% 13% 13.5% Total accrued liability 178,094 177,208 176,322 Change 1% - 0.50%

2018 Discount rate 12.5% 13% 13.5% Total accrued liability 312,328 310,774 440,023 Change 1% - 0.5%

27. Insurance contract liabilities

KShs’000 2019 2018 Short term insurance contracts - claims reported and claims handling expenses 4,140,212 4,570,720 - claims incurred but not reported 1,924,205 1,783,717

As at 31 December 6,064,417 6,354,437 Long term contracts - claims reported and claims handling expenses 7,681,888 6,016,551

As at 31 December 13,746,305 12,370,988

Movements in insurance liabilities and reinsurance assets are shown in Note 30.

(i) Short term insurance contracts liabilities Gross claims reported, claims handling expense 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 2019 and 31 December 2018 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. UAP Holdings PLC (formerly UAP Holdings Limited) 2019 Annual Report and Financial Statements 165

NOTES TO THE FINANCIAL STATEMENTS (Continued) 27. Insurance contract liabilities (Continued)

Accident year KShs’000 2015 2016 2017 2018 2019 Total Estimate of ultimate claims costs

At end of accident year 5,328,118 5,386,950 5,824,211 6,796,967 7,971,208 31,307,454 One years later 7,260,578 8,452,694 6,538,297 9,015,590 - 31,267,159 Two years later 6,583,233 8,504,866 6,396,857 - - 21,484,956 Three years later 6,563,167 8,569,145 - - - 15,132,312 Four years later 6,561,781 - - - - 6,561,781 Current estimate of cumulative claims 6,561,781 8,569,145 6,396,857 9,015,590 7,971,208 38,514,581 Less: Cumulative payments to date (6,333,845) (8,098,471) (5,775,338) (8,060,365) (6,959,456) (35,227,475) Liability in the Balance sheet 227,936 470,674 621,519 955,225 1,011,752 3,287,106 Liability in respect of prior years - - - - 948,911 948,911 Incurred but not reported - - - - 1,828,400 1,828,400

Total gross claims liability 227,936 470,674 621,519 955,225 3,789,063 6,064,417 included in the balance sheet

(ii) Long term business contracts The Group determines its liabilities on long term insurance contracts by conducting Actuarial Valuations 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 Appointed Actuaries and actuarial valuations are carried out on an annual basis.

Actuarial valuation assumptions The latest actuarial valuations of the life funds were carried out as at 31 December 2019 by the Internal Actuarial Function and reviewed by QED Actuaries & Consultants (Pty) Ltd and Zamara Actuaries, Administrators & Consultants Ltd.

The valuation of the UAP Life Kenya Ltd (UAPLK) life fund has been conducted on two bases; the Published/Internal Reporting Basis (PRB) and the Statutory RBC basis. Both are discounted cash flow GPV bases with ASSA SAP104 (version 9) margins applied on the published basis and IRA margins applied on the Statutory RBC as required by the Insurance Act (as amended).

The valuation of the UAP Old Mutual Life Assurance Uganda Ltd (UAPLUG) life fund has been conducted on a single basis which is a discounted cashflow basis with ASSA SAP104 (version 9) margins applied.

The Gross Premium valuation (GPV) method places a realistic value (with an appropriate allowance for margins) on the liabilities of a life insurance Company. This method is based on a discounted cash flow approach taking into account the expected cash flows from existing in-force 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: UAP Holdings PLC (formerly UAP Holdings Limited) 166 2019 Annual Report and Financial Statements

NOTES TO THE FINANCIAL STATEMENTS (Continued) 27. Insurance contract liabilities (Continued)

(ii) Long term business contracts (Continued)

;ݹݹ Mortality – The Company used the following tables as base tables of standard mortality

I. UAP Life Kenya Published Basis - SA56-62 (2018: SA56-62) II. UAP Life Kenya Statutory Basis - KE07-10 (2018: KE07-10) III. UAP Old Mutual Life Uganda - SA85-90 (2018: SA85-90)

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(90) (2018: a(90)) life table was used as a base; no allowance is made for future mortality improvements.

ݹݹ Persistency – The Company 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 largely according to the experience observed (by the Appointed Actuary) in the Company’s data.

ݹݹ Investment return assumptions are derived with reference to the expected return on long term fixed interest investments available and adjusted to reflect the actual underlying mix of assets. For the current valuation, the base discount rates used are;

◊ UAP Life Kenya - 11.1%p.a. (2018: 12.5% p.a.) for the published basis and the prevailing NSE yield curve as at 31st December 2019 with a margin of 3.2% used to value annuity contracts. ◊ UAP Life Kenya RBC basis - The prevailing NSE Yield curve as at 31st December 2019 was used as per the amended act and RBC guidelines. ◊ UAP Life Uganda – 12% (2018: 12%)

ݹݹ Expenses, tax and inflation – The current level of renewal expenses was taken to be an appropriate expense base. Expenses pertaining to business establishment and expansion were excluded from the valuation assumption. The expense inflation applied for the UAP Life Kenya valuation on both bases is assumed to be 7.5%p.a. (2018: 8.6% p.a.) while for UAP Life Uganda the inflation rate assumed is 7% (2018: 7%). It has been assumed that the current tax legislation and rates continue unaltered.

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.

Increase in Increase in Change in liability 2019 liability 2018 variable KShs’000 KShs’000 Contracts with fixed and guaranteed terms – Variable cost Worsening of mortality +10% 433,834 39,192 Lowering of investment returns p.a. -1% 2,788,763 174,615 Worsening of expense inflation rate +1% 366,714 37,040 Worsening of lapse rate +10% ( 684,734) ( 9,164) 2,904,577 241,683 UAP Holdings PLC (formerly UAP Holdings Limited) 2019 Annual Report and Financial Statements 167

NOTES TO THE FINANCIAL STATEMENTS (Continued)

28. 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 9% for the year (2018: 2 %).

KShs’000 2019 2018 At start of year 4,441,210 4,520,777 Pension fund deposits received 901,721 987,507 Surrenders and annuities paid (1,003,802) (1,183,039) Interest payable to policyholders 495,287 79,146 Administration fees - (1,337) Other movements 102,220 53,737 Translation difference 3,635 (15,581)

As at 31 December 4,940,271 4,441,210

29. 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.

KShs’000 2019 2018 At start of year 859,754 865,276 Premium received 29,670 87,020 Interest credited 145,287 120,272 Liabilities released for payment (174,063) (190,758) Other movements (32,800) (20,363) Translation difference 408 (1,693) As at 31 December 828,256 859,754

Other movements relate to increase in actuarial liabilities. UAP Holdings PLC (formerly UAP Holdings Limited) 168 2019 Annual Report and Financial Statements

NOTES TO THE FINANCIAL STATEMENTS (Continued)

30. Movements in insurance liabilities and reinsurance assets

31 December 2019 31 December 2018 KShs’000 Gross Reinsurance Net Gross Reinsurance Net Short term insurance business Notified claims 4,685,946 (1,243,914) 3,442,032 4,647,392 (1,390,115) 3,257,277 Incurred but not reported 1,668,491 385,221) 1,283,270 1,772,951 (352,792) 1,420,159 Total at beginning of year 6,354,437 (1,629,135) 4,725,302 6,420,343 (1,742,907) 4,677,436 Cash paid for claims settled in year (4,723,933) 624,277 (4,099,656) 3,380,190 (336,964) 3,043,226 Increase in liabilities - arising from current year claims 1,528,360 (180,076) 1,348,284 (4,027,452) 403,409 (3,624,043) - arising from prior year claims 2,925,256 (492,248) 2,433,008 665,189 14,665 679,854 Translation difference (19,703) 8,313 (11,390) (83,833) 32,662 (51,171) As at 31 December 6,064,417 (1,668,869) 4,395,548 6,354,437 (1,629,135) 4,725,302 Notified claims 4,258,704 (1,105,904) 3,152,800 4,685,946 (1,243,914) 3,442,032 Incurred but not reported 1,805,713 (562,965) 1,242,748 1,668,491 (385,221) 1,283,270 As at 31 December 6,064,417 (1,668,869) 4,395,548 6,354,437 (1,629,135) 4,725,302 Long term insurance business At 1 January 6,016,551 (206,011) 5,810,540 5,048,803 (365,055) 4,683,748 Premium received/valuation premium 2,398,812 (295,664) 2,103,148 2,152,053 (273,187) 1,878,866 Liabilities released for payments and interest credited (748,419) 345,273 403,146 (1,137,136) 432,086 (705,050) Translation difference 14,944 58 15,002 (47,169) 145 (47,024) As at 31 December 7,681,888 (156,344) 7,525,544 6,016,551 (206,011) 5,810,540 Total as at 31 December 13,746,305 (1,825,213) 11,921,092 12,370,988 (1,835,146) 10,535,842

31. Borrowed funds

(a) Group KShs’000 2019 2018 At start of year 11,098,307 10,839,592 (Repayments)/proceeds from borrowings (910,663) (733,304) Interest cost payable 1,229,538 1,009,268 Unrealised forex loss on borrowings (70,936) (40,344) Translation difference 66,426 23,095 As at 31 December 11,412,672 11,098,307 UAP Holdings PLC (formerly UAP Holdings Limited) 2019 Annual Report and Financial Statements 169

NOTES TO THE FINANCIAL STATEMENTS (Continued)

31. Borrowed funds (Continued)

The breakdown of the borrowings is shown below:

2019 2018 Lender Borrower Maturity KShs’000 KShs’000 Corporate Bond UAP Holdings PLC (formerly UAP Holdings Limited) 2019 - 2,109,628 Old Mutual Holdings Limited UAP Holdings PLC (formerly UAP Holdings Limited) 2020 5,078,132 4,623,299 Nedbank Group UAP Holdings PLC (formerly UAP Holdings Limited) 2020 3,141,432 3,154,181 Stanbic Bank Limited UAP Holdings PLC (formerly UAP Holdings Limited) 2021 2,247,104 - State Finance Corporation (SFC) UAP Insurance South Sudan 2021 243,240 305,340 Trade and Development Bank (formerly PTA Bank) UAP Properties Uganda 2022 230,257 295,245 Norfund UAP Properties South Sudan 2023 236,023 305,307 International Finance Corporation (IFC) UAP Properties South Sudan 2023 236,484 305,307 As at 31 December 11,412,672 11,098,307

(b) Company KShs’000 2019 2018 At start of year 9,887,108 10,029,855 (Repayments)/proceeds from borrowings, net of transaction costs (589,490) (848,640) Finance costs – interest on borrowings 1,166,265 705,893 As at 31 December 10,463,883 9,887,108 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 notes were fully repaid on 22 July 2019 using a loan from Stanbic Bank Limited. The loan from Stanbic Bank Limited is an 18-month KShs 2.2b facility at an interest rate of Central Bank Rate (CBR) + 1.5%.

The short term finance from Old Mutual Holdings Kenya comprises three facilities of: US$ 16.5 million which bears an interest rate of 3 months LIBOR plus 7.5%; US$ 13.7m at an interest rate of 3 months LIBOR + 8.45% and KShs 1 billion at interest rate of 12.5%.

The Nedbank loan is a US$ 31 million 4 year loan at an interest of 3 months LIBOR plus 3.5%.

Construction of Nakawa Park, a project undertaken by UAP Properties Uganda, is partly financed through PTA Bank. The borrowings are repayable in 8 years (from 31 May 2015 to 30 April 2023) and bear an interest rate of 8.75%.

Construction of UAP Equatoria Tower, a project undertaken by UAP Properties South Sudan, is partly financed through Norwegian Investment Fund for Development (Norfund) – US$ 5 million and International Finance Corporation (IFC) - US$ 5 million. The borrowings are repayable in 7 years beginning 2017 and bear an interest rate of LIBOR plus 6.5% payable semi-annually. UAP Insurance South Sudan has taken a 5 year loan with SFC Finance Limited which is a US$ 6 million facility at an interest rate of 9.5%.

Breaches During the year, a breach was recorded for the Norfund and IFC facilities in UAP Properties South Sudan. The terms of the facilities require that the Debt Service Cover Ratio be greater than 1.4 times. As at 31 December 2019, both facilities had a Debt Service Cover Ratio of 0.01 times. The balance outstanding on the two facilities as at 31 December 2019 was United States dollars (US$) 4.66 million split equally between both lenders. Repayments continue to be made on the loans timeously. To remedy the breach, management is engaging the lenders to renegotiate the covenants. UAP Holdings PLC (formerly UAP Holdings Limited) 170 2019 Annual Report and Financial Statements

NOTES TO THE FINANCIAL STATEMENTS (Continued)

32. Unearned premium reserve 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 December 2019 31 December 2018 KShs’000 Gross Reinsurance Net Gross Reinsurance Net At beginning of the year 7,021,818 (1,441,813) 5,580,005 6,455,560 (1,254,963) 5,200,597

Increase in the year (528,471) 265,848 (262,623) 59,560 (161,681) (102,121)

Translation difference (2,811) 92 (2,719) 506,698 (25,169) 481,529 As at 31 December 6,490,536 (1,175,873) 5,314,663 7,021,818 (1,441,813) 5,580,005

33. Creditors arising from reinsurance arrangements

KShs’000 2019 2018 At start of year 1,175,563 881,684 Additions / (repayments) (108,312) 123,612 Life balance - 185,107 Translation difference (9,604) (14,840) As at 31 December 1,057,647 1,175,563

34. Other payables and other liabilities

(a) Group KShs’000 2019 2018 Deferred income 170,575 87,554 Accrued expenses 928,498 693,688 Accrued leave 70,232 67,423 Withheld taxes 210,551 350,574 Other liabilities 1,425,829 1,775,153 As at 31 December 2,805,685 2,974,392

There are no individually significant items under other liabilities category.

(b) Company KShs’000 2019 2018 Accrued expenses 77,076 177,212 Accrued leave 22,463 15,481 Other liabilities 525,775 124,437

Total 625,314 317,130 There are no individually significant items under other liabilities category. UAP Holdings PLC (formerly UAP Holdings Limited) 2019 Annual Report and Financial Statements 171

NOTES TO THE FINANCIAL STATEMENTS (Continued)

35. Dividends KShs’000 2019 2018 At beginning of the year 473,103 286,009 Increase in the year - 359,414 Payments (30,017) (172,320) Total 443,086 473,103

The Directors do not recommend the payment of a dividend (2018: Nil). Payment of dividends is subject to withholding tax at a rate of either 0%, 5% or 10% depending on the nature and residence of the respective shareholders.

36. Ordinary share capital and share premium account The total authorised number of ordinary shares is 220 million (2018: 220 million) with a par value of KShs 5 per share. At 31 December 2019, 212 million ordinary shares were in issue and were fully paid.

Number of shares Ordinary shares Share premium (thousands) KShs’000 KShs’000 Balance at 1 January 2019 211,420 1,057,099 4,612,626 Additional shares issued (Note 13) 298 1,491 -

At 31 December 2019 211,718 1,058,590 4,612,626

The holders of ordinary shares are entitled to receive dividends as declared from time to time, and are entitled to one vote per share at meetings of the Company. All shares rank equally with regard to the Company’s residual assets. Ordinary shares are classified as share capital in equity. Any premium received over and above the par value of the shares is classified as share premium.

In 2019, 298,000 UAP Holdings PLC (formerly UAP Holdings Limited) shares worth approximately KShs 1.49 million were issued at par value (i.e., KShs 5.00) for the distribution of shares to Old Mutual Life Assurance Company (OMLAC) minorities. This was part of a share swap arrangement availed to OMLAC minorities.

37. Retained earnings The retained earnings balance represents the amount available for dividend distribution to the shareholders of the Company, except for cumulative fair value profit on the investment properties of KShs 1,373 million (31 December 2018 : KShs 5,420 million) whose distribution is subject to restrictions imposed by regulation.

38. 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.

39. Other reserves (i) Translation reserve The translation reserve compiles all foreign currency differences arising from the translation of the financial statements of foreign opera- tions. The translation reserve is not distributable to shareholders unless the foreign operation is abandoned or closed. UAP Holdings PLC (formerly UAP Holdings Limited) 172 2019 Annual Report and Financial Statements

NOTES TO THE FINANCIAL STATEMENTS (Continued) 39. Other reserves (Continued)

ii) Statutory reserve The statutory reserve represents amounts set up in the Group’s Ugandan insurance based subsidiaries 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 Insurance Uganda Limited. ◊ 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. In addition, the Insurance Act in Tanzania requires that a minimum capital is maintained which is the higher of 50% of Net Written Premiums and the minimum statutory requirement. Further the act requires that a contingent reserve be established which is:

◊ the higher of 3% of net written premium and ◊ 20% of net profit.

As at 31st December 2019, the subsidiaries held a contingent reserve of KShs 416m (2018: KShs 416m). iii) Revaluation Surplus The revaluation surplus represents upward movement in the proportion of owner occupied Investment Properties transferred to Property and Equipment. The surplus in 2019 relates to properties in Uganda.

40. Cash generated from operations Reconciliation of profit before tax to cash generated from operations

(a) Group KShs’000 2019 2018 Loss before tax (3,228,975) (479,751) Adjustments for: Investment income (Note 6 (a)) (633,864) (2,919,753) Depreciation - Property & equipment (Note 15) 283,507 236,012 Depreciation - Right of use asset (Note 16) 89,080 - Impairment loss (Note 15) 469,115 24,640 Amortisation (Note 14) 59,147 38,681 Interest cost - borrowings (Note 31) 1,229,538 1,009,268 Interest cost - lease liability (Note 44) 59,620 - Miscellaneous income (Note 6 (a)) (14,422) 352,293 Goodwill impairment (Note 14) - 174,363 Net impairment on financial assets (Note 4(b)) (169,602) 779,922 Changes in: Insurance contract liabilities (net) 1,375,317 901,840 Deposit administration contracts 499,061 (79,567) Unit-linked contracts (31,498) (5,522) Unearned premium (net) (531,282) 52,492 Re-insurance and other payables (355,304) 402,818 Direct insurance, re-insurance and other receivables (including foreign exchange movements) 2,101,959 (599,447) Deferred acquisition costs (7,874) 56,580 Retirement benefit asset 5,192 7,776 Cash generated from operations 1,198,715 (47,355) UAP Holdings PLC (formerly UAP Holdings Limited) 2019 Annual Report and Financial Statements 173

NOTES TO THE FINANCIAL STATEMENTS (Continued)

40. Cash generated from operations (continued)

(b) Company

KShs’000 2019 2018 Loss before tax (830,823) (589,993) Adjustments for: Investment income (Note 6 (b)) (778,405) (957,383) Depreciation – right of use (Note 16 (b)) 4,500 - Depreciation (Note 15 (b)) 70,572 41,121 Amortisation (Note 14 (b)) 59,167 37,165 Interest costs (Note 31 (b)) 1,166,265 705,893 Interest costs – lease liability (Note 44) 4,243 - Miscellaneous income (Note 6 (b)) 29,103 187 Impairment of Investment in subsidiaries (Note 18) - 597,962 Net impairment loss on financial assets (Note 4(b)) - (2,438) Changes in: Other payables (1,419,541) (609,422) Other receivables (including foreign exchange movements) (299,327) (614,935) Net movements in related party balances 824,637 1,398,146 Adjusting closing impairment on bank deposits and receivables (Note 4 (b)) - (8,746) Cash generated from operations (1,169,609) (2,443)

41. Contingent liabilities

Legal Proceedings The holding Company, UAP Holdings PLC (formerly UAP Holdings Limited), has a pending legal suit against the Company seeking a declaration that the sale of the property known as Land Reference No. 209/13453 Upper hill, Nairobi and on which the development known as UAP Old Mutual Towers sits, is null and void. Management, based on legal advice, do not foresee the suit being successful and has therefore made no provision in the financial statements.

Tax contingent liabilities In 2016, the Kenya Revenue Authority (KRA) carried out an audit of UAP Life Assurance Company Limited’s tax affairs for the periods January 2011 to December 2014 and issued an assessment of KShs 68 million under the tax heads of Excise Duty, Pay As You Earn (PAYE) and Corporation Tax. UAP Life Assurance Company Limited resolved to pay the principal tax amounts of the Corporation Tax and Excise Duty but has objected on the PAYE assessment. The matter is still in litigation and the exposures and assessments relate to industry-wide tax issues which are yet to be conclusively resolved.

UAP Insurance Tanzania Limited has six pending suits against different parities arising from its ordinary course of trading. The contingent liability is estimated as being the amount claimed by the parties in terms of general and special damages without interest. Based on legal advice management does not foresee any of the suits being successful and has therefore made no provision in the financial statements. UAP Holdings PLC (formerly UAP Holdings Limited) 174 2019 Annual Report and Financial Statements

NOTES TO THE FINANCIAL STATEMENTS (Continued)

41. Contingent liabilities (Continued)

Tax contingent liabilities (Continued)

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.

42. Financial instruments by category (a) Financial assets i) Group

The Group’s financial assets are summarised by measurement category in the table below:

KShs’000 2019 2018 At amortised cost 31,108,355 29,650,847 At fair value 4,862,858 4,730,274 As at 31 December 35,971,213 34,381,121

(i) Financial assets at amortised cost Government securities 15,585,875 13,775,433 Corporate bonds 161,135 484,834 Receivables arising out of direct insurance arrangements 1,452,956 1,850,411 Receivables arising out of reinsurance arrangements 1,342,007 1,294,978 Reinsurers’ share of insurance liabilities 3,001,085 3,276,959 Other receivables 1,082,297 2,046,418 Amounts due from related parties 245,936 17,165 Deposits with financial institutions 6,622,475 4,841,184 Cash and bank balances 1,301,440 1,757,053 Mortgage loans receivable 313,149 306,412 As at 31 December 31,108,355 29,650,847

(ii) Financial assets at fair value

Equity investments: At fair value through profit or loss 4,035,923 3,293,090 Corporate bonds 61,505 801,437 Government securities 765,430 635,747 As at 31 December 4,862,858 4,730,274 ii) Company The Company’s financial assets are summarised by measurement category in the table below:

KShs’000 2019 2018 At amortised cost 1,568,509 1,557,554 At fair value - - As at 31 December 1,568,509 1,557,554 UAP Holdings PLC (formerly UAP Holdings Limited) 2019 Annual Report and Financial Statements 175

NOTES TO THE FINANCIAL STATEMENTS (Continued)

42. Financial instruments by category (Continued)

KShs’000 2019 2018

(i) Financial assets at amortised cost Other receivables 1,474,349 1,094,748 Deposits with financial institutions 71,734 443,392 Cash and bank balances 22,426 19,414 As at 31 December 1,568,509 1,557,554

The Company does not have financial assets held at fair value.

(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 2019 and 2018 is shown in note 4(b).

43. Related party transactions The Group is controlled by Old Mutual Limited incorporated in South Africa being the ultimate parent of the Group. There are other companies that are related to UAP Holdings PLC (formerly UAP Holdings Limited) through common shareholdings or common directorships.

The following transactions were carried out with related parties:

KShs’000 2019 2018

i) Administration of staff pension scheme - Group Contributions paid 184,196 144,056 Benefits paid 94,423 53,821 ii) Balances with related parties - Company Interest paid to UAP Insurance Kenya 52,027 55,708 Interest received from UAP Properties South Sudan 28,860 24,250 Interest received from UAP Properties Uganda 165,049 166,381 iii) Balances with related parties - Group Nedbank loan (note 31) 3,141,432 3,154,181 Old Mutual Holdings Limited (note 31) 5,083,084 4,623,299 Loans and advances (note 22) 313,149 306,412 8,537,665 8,083,892

Mortgages to staff are fully secured on the mortgage properties and are charged interest at 6% (2019: 6%). UAP Holdings PLC (formerly UAP Holdings Limited) 176 2019 Annual Report and Financial Statements

NOTES TO THE FINANCIAL STATEMENTS (Continued)

43. Related party transactions (Continued)

i) Payables to related parties - Group 2019 2018 Faulu Micro Finance Bank 27,168 41,227 Old Mutual Life Assurance Company Limited - 51,552 Old Mutual Investment Group - 3,070 As at 31 December 27,168 95,849 iv) Payables to related parties - Company UAP Insurance Kenya 599,079 1,349,549 UAP Insurance Uganda - 44,256 UAP Investments Kenya - 316 As at 31 December 599,079 1,394,121 Total payable to related parties 626,247 1,489,970

KShs’000 2019 2018

ii) Receivable from related parties - Group Old Mutual Investment Group 34,974 - Old Mutual Life Assurance Company Limited 13,606 - Old Mutual Africa Holding 28,428 - Old Mutual Holdings Limited 152,711 9,125 Old Mutual Investment Services 16,217 8,040 As at 31 December 245,936 17,165

v) Receivable from related parties - Company UAP Life Assurance Kenya 62,051 71,479 UAP Life Assurance Uganda 963 117 UAP Insurance South Sudan 110,794 15,126 UAP Properties Uganda 2,176,728 2,081,878 UAP Insurance Uganda 11,990 - UAP Properties South Sudan 147,749 318,972 UAP Insurance Rwanda 16,458 22,596 UAP Investments Kenya 1,480 - UAP Global Services Mauritius 1,459,334 1,759,539 UAP Africa Mauritius 14,716 13,938 UAP Insurance Tanzania 97,053 5,356 As at 31 December 4,099,316 4,289,001 Total receivable from related parties 4,345,252 4,306,166

The amounts payable to related parties have no specific repayment date. UAP Holdings PLC (formerly UAP Holdings Limited) 2019 Annual Report and Financial Statements 177

NOTES TO THE FINANCIAL STATEMENTS (Continued)

43. Related party transactions (continued)

KShs’000 2019 2018 i) Loans to directors At start of year 19,559 21,752 Loan advanced during the year - - Loan repayments received - (2,193) As at 31 December 19,559 19,559 ii) Key management compensation – Group Salaries (including Executive Directors salaries) 623,047 588,416 Retirement benefits costs 59,377 49,094 682,424 637,510 vii) Key management compensation - Company Salaries (including Executive Directors salaries) 178,438 145,079 Retirement benefits costs 14,144 7,810 192,582 152,889 viii) Directors emoluments - Group Executive salaries (included in key management compensation above) 81,189 111,862 Fees 102,507 80,811 Other remuneration 7,715 5,932 191,411 198,605 viii) Directors emoluments - Company Executive salaries (included in key management compensation above) 39,137 - Fees 21,362 31,212 Other remuneration 4,863 8,766 65,362 39,978 UAP Holdings PLC (formerly UAP Holdings Limited) 178 2019 Annual Report and Financial Statements

NOTES TO THE FINANCIAL STATEMENTS (Continued)

43. Related party transactions (continued)

KShs’000 2019 2018 ix) Leases – Group Old Mutual Investment Group 4,886 4,519 Old Mutual Life Assurance Company Limited 30,930 28,610 Old Mutual Services Limited 9,185 8,497 Faulu Micro Finance Bank 180 -

45,181 41,626 ix) Leases – Company Old Mutual Investment Group 4,886 4,519 Old Mutual Life Assurance Company Limited 30,930 28,610 Old Mutual Services Limited 9,185 8,497 Faulu Micro Finance Bank 180 - UAP Insurance Kenya Limited 43,590 40,320 UAP Life Assurance Limited 9,432 8,724

98,203 90,670

44. Operating lease agreements

(a) The Group as a lessor Rental income earned during the year was KShs 935m (2018: KShs 1,085m). At the reporting date, the Group had contracted with tenants for future lease receivables.

The following table sets out the maturity analysis shows the undiscounted lease settlements from tenants to be received after the reporting date.

Operating leases under IFRS 16

KShs’000 2019 Less than one year 836,333 One to two years 1,248,356 Two to three years 618,705 Three to four years 499,633 Four to five years 478,723 More than five years 184,273

3,866,023 UAP Holdings PLC (formerly UAP Holdings Limited) 2019 Annual Report and Financial Statements 179

NOTES TO THE FINANCIAL STATEMENTS (Continued)

44. Operating lease agreements (Continued)

(a) The Group as a lessor (Continued)

Operating leases under IAS 17 KShs’000 2018 Within one year 757,741 In second to fifth year inclusive 1,906,512 After five years 135,698 2,799,951 Leases are negotiated for an average term of 6 years and rentals are reviewed every two years. The leases are cancellable with a penalty when the tenants do not give three months’ notice to vacate the premises.

(b) The Group as a lessee At the reporting date, the Group had outstanding commitments which fall due as follows:

Operating leases under IFRS 16 KShs’000 2019 Less than one year 159,081 One to two years 182,050 Two to three years 119,575 Three to four years 101,648 Four to five years 107,772 More than five years 771,001 1,441,127

Operating leases under IAS 17 KShs’000 2018 Within one year 258,947 In second to fifth year inclusive 437,403 After five years 15,945 712,295

Operating lease payments represent rentals payable by the Company for its branch premises. Leases are negotiated for an average term of 5 years.

Lease liabilities movement for the year was; Lease Restoration KShs’000 Total liability provisions At 1 January 2019 - - - Recognition of right of use asset on initial application of IFRS 16 489,594 14,089 503,683 Adjusted balance as at 1 January 2019 489,594 14,089 503,683 Interest charge 59,620 - 59,620 Additions to right of use assets 72,573 1,289 73,862 Payment (113,486) - (113,486) Translation ( 1,909) ( 162) ( 2,071) At 31 December 2019 506,392 15,216 521,608 UAP Holdings PLC (formerly UAP Holdings Limited) 180 2019 Annual Report and Financial Statements

NOTES TO THE FINANCIAL STATEMENTS (Continued)

44. Operating lease agreements (Continued)

(c) The Company as a lessor Rental income earned during the year was KShs 317m (2018: KShs 184m). At the reporting date, the company had contracted with ten- ants for the following future lease receivables:

Operating leases under IFRS 16 KShs’000 2019 Less than one year 364,494 One to two years 380,625 Two to three years 390,105 Three to four years 408,902 Four to five years 393,754 More than five years 162,234 Total 2,100,114

Operating leases under IAS 17 KShs’000 2018 Within one year 204,242 In second to fifth year inclusive 1,374,405 After five years 135,698 Total 1,714,345 Leases are negotiated for an average term of 6 years and rentals are reviewed every two years. The leases are cancellable with a penalty when the tenants do not give three months’ notice to vacate the premises.

(d) The Company as a lessee At the reporting date, the Company had outstanding commitments under operating leases which fall due as follows:

KShs’000 2019 2018 Less than one year 19,316 20,486 One to two years 41,510 95,466 Two to three years 23,940 - Total 84,766 115,952

Operating lease payments represent rentals payable by the Company for its branch premises. Leases are negotiated for an average term of 5 years. Lease liabilities movement for the year was;

Lease Restoration KShs’000 liability provisions Total At 1 January 2019 - - - Recognition of right of use asset on initial application of IFRS 16 11,270 278 11,548 Adjusted balance as at 1 January 2019 11,270 278 11,548 Interest charge 4,243 - 4,243 Additions to right of use assets 29,966 - 29,966 Sub lease payment (1,169) - (1,169) Payment (5,198) - (5,198) At 31 December 2019 39,112 278 39,390 UAP Holdings PLC (formerly UAP Holdings Limited) 2019 Annual Report and Financial Statements 181

NOTES TO THE FINANCIAL STATEMENTS (Continued)

45. Non-controlling interest (NCI)

The following table summarizes the information relating to each of the Group subsidiaries that has material NCI before any intra-group eliminations.

UAP UAP UAP Life Financial UAP Insurance Assurance Services Properties UAP Proper- UAP Limited Limited Limited Limited ties Limited Insurance Intra-group KShs ‘000’ (Uganda) (Uganda) (Uganda) (Uganda) (Sudan) (Tanzania) eliminations Total NCI Percentage 47.00% 47.00% 11.35% 21.15% 30.00% 40.00% - - Assets 5,742,588 4,325,568 139,735 4,123,333 3,379,722 2,208,663 - 19,919,609 Liabilities 3,918,928 4,073,899 45,592 3,044,144 4,427,182 1,475,643 - 16,985,388 Net assets 1,823,660 251,669 94,143 1,079,189 (1,047,460) 733,020 - 2,934,221 Net assets attributable to NCI 857,121 118,284 10,685 228,248 (314,238) 293,208 (531,666) 661,642 Revenue 2,728,923 1,767,295 117,509 (81,254) (1,333,070) 751,264 - 3,950,667 Profit/(loss) 339,735 96,895 25,895 (265,173) (1,607,465) (54,991) - (1,465,104) OCI 12,064 (645) 579 8,203 8,380 (2,941) - 25,640

Comprehensive income Profit/(loss) allocated to NCI 159,675 45,541 2,939 (56,084) (482,240) (21,996) - (352,165) OCI allocated to NCI 5,669 (303) 66 1,735 2,514 (1,176) - 8,505 Total comprehensive income 165,344 45,238 3,005 (54,349) (479,726) (23,172) - (343,660) cash flows from operating activities 491,289 2,134,568 58,420 99,356 307,130 129,330 - - cash flows from investment activities 299,180 (1,018,926) (19,934) (301) (170,800) (35,677) - - cash flows from financing activities (dividends to NCI: nil) (88,766) 45,912 (15,590) (29,452) (135,133) 589 - - Net increase/ (decrease) in cash and cash equivalents as at 31 December 2019 701,703 1,161,554 22,896 69,603 1,197 94,242 - - UAP Holdings PLC (formerly UAP Holdings Limited) 182 2019 Annual Report and Financial Statements

NOTES TO THE FINANCIAL STATEMENTS (Continued)

45. Non-controlling interest (continued)

UAP UAP UAP Life Financial UAP Insurance Assurance Services Properties UAP Proper- UAP Intra-group Limited Limited Limited Limited ties Limited Insurance elimina- KShs ‘000’ (Uganda) (Uganda) (Uganda) (Uganda) (Sudan) (Tanzania) tions Total NCI Percentage 47.00% 47.00% 11.35% 21.15% 30.00% 40.00% - - Assets 5,506,091 3,133,941 95,368 4,556,705 4,338,149 2,426,694 - 20,056,948 Liabilities 3,978,919 3,284,583 27,701 3,220,546 3,786,525 1,698,049 - 15,996,323 Net assets 1,527,172 (150,642) 67,667 1,336,159 551,624 728,645 - 4,060,625 Net assets attributable to NCI 717,771 (70,802) 7,680 282,598 165,487 291,458 (388,890) 1,005,302 Revenue 2,598,339 1,369,984 72,595 327,696 (245,332) 939,896 - 5,063,178 Profit/(loss) 297,724 (122,331) 53,084 8,946 (616,440) (182,066) - (561,083) OCI (36,457) (379) 88 (42,678) (19,174) (40,682) - (139,282) Comprehensive income Profit/(loss) allocated to NCI 139,930 (57,496) 6,025 1,892 (184,932) (72,826) - (167,407) OCI allocated to NCI (17,136) (178) 10 (9,026) (5,752) (16,273) - (48,355) Total comprehensive income 122,794 (57,674) 6,035 (7,134) (190,684) (89,099) - (215,762) cash flows from operating activities 358,424 898,125 27,091 73,850 351,264 (181,420) - - cash flows from investment activities (201,472) (921,647) (14,996) (9,671) (209,794) 299,511 - - cash flows from financing activities (dividends to NCI: nil) (54,928) - (11,452) (99,620) (135,707) - - - Net increase/(decrease) in cash and cash equivalents as at 31 December 2018 102,024 (23,522) 643 (35,441) 5,763 118,091 - - UAP Holdings PLC (formerly UAP Holdings Limited) 2019 Annual Report and Financial Statements 183

NOTES TO THE FINANCIAL STATEMENTS (Continued)

46. Classification changes in prior year financial statements The Group and Company have aligned the presentation of results in line with the Old Mutual Group. This has resulted in changes to classification of some assets in the presentation. These changes did not have an overall impact on the financial position, performance and cash flows of the Group and Company. Below is a summary of the classification changes:

(a) Group

The following presentation changes in classification were adopted for the Group:

Year ended 31 December 2018 As previously Effect of As KShs’000 presented classification Represented

Statement of profit or loss Investment income 2,919,753 968,316 3,888,069 Fair value losses - (968,316) (968,316) 2,919,753 - 2,919,753

As at 31 December 2018 As previously Effect of As KShs’000 presented classification Represented

Statement of financial position

Assets Goodwill 65,667 (65,667) - Intangible assets 100,628 (100,628) - Goodwill and other intangible assets - 166,295 166,295 166,295 - 166,295

Deposits with financial institutions 4,841,184 (4,841,184) - Cash and bank balances 1,757,053 (1,757,053) - Cash and cash equivalents - 6,593,237 6,598,237 6,598,237 - 6,598,237

Other receivables 2,077,314 (17,165) 2,060,149 Amounts due from related parties - 17,165 17,165 2,077,314 - 2,077,314

Liabilities Other payables 3,070,241 (95,849) 2,974,392

Amounts due to related parties 95,849 95,849

3,070,241 - 3,070,241 UAP Holdings PLC (formerly UAP Holdings Limited) 184 2019 Annual Report and Financial Statements

NOTES TO THE FINANCIAL STATEMENTS (Continued)

46. Classification changes in prior year financial statements (Continued)

(b) Company The following changes in classification were adopted for the Company:

Year ended 31 December 2018 As previously Effect of As KShs’000 presented classification Represented

Statement of profit or loss Investment income 957,383 (109,034) 1,066,417 Fair value losses - 109,034 (109,034) 957,383 - 957,383

Statement of financial position Assets Deposits with financial institutions 450,936 450,936 - Cash and bank balances 11,870 11,870 - Cash and cash equivalents - (462,806) 462,806 462,806 - 462,806

Current income tax recoverable - (42,915) 42,915 Other Receivables 1,094,748 42,915 1,051,833 1,094,748 - 1,094,748

47. Holding company The ultimate holding company is Old Mutual Limited, a company incorporated and domiciled in South Africa.

48. Subsequent events

Novel Coronavirus (COVID-19) Update On 11 March 2020, the World Health Organisation (WHO) declared the novel Coronavirus (COVID-19) outbreak a pandemic in recognition of its rapid spread across the globe. The number of countries reporting cases of infected persons and fatalities associated with the pandemic is rising by the day. UAP Holdings PLC (formerly UAP Holdings Limited) 2019 Annual Report and Financial Statements 185

NOTES TO THE FINANCIAL STATEMENTS (Continued) 48. Subsequent events (Continued)

Measures taken to mitigate the spread of the COVID-19 In order to mitigate risk of infection, the following measures were taken by respective Governments in East Africa, which affected the UAP Old Mutual Group:-1. Partial or total lockdown in Uganda and Rwanda which involved complete suspension of all movement apart from those offering essential services as defined by the respective Governments. 2. Implementation of curfews commencing from 7 pm in Kenya and South Sudan limiting night time movement. 3. Regional suspension of all international flights with the exception of cargo flights whose crew were required to observe strict guidelines. 4. Strict guidelines issued for the public transport sector with all public service vehicles required to adhere to strict directives issued by respective government agencies. 5. The suspension of social gatherings including religious gatherings, weddings, funerals and closure of places of social gatherings which were restricted to immediate family members only regionally. 6. The implementation of guidelines on basic hygiene and social distancing.

Economic Impacts The economic impacts of these measures include:

◊ Disruption to business operations in ‘significantly impacted countries’ that have high and/or rapidly increasing infection rates. ◊ A significant increase in economic uncertainty, evidenced by more volatile asset prices and currency exchange rates, and a significant decline in long-term interest rates in developed economies.

Impact on the Group The above measures have impacted the Group and its subsidiaries in the following ways:

◊ Business interruption arising from travel restrictions and logistics disruption. ◊ Changes in equity or debt securities prices, foreign exchange rates or interest rates after the reporting date that will significantly impact the measurement of assets and liabilities in future periods. ◊ Potential for liquidity strain should the situation persist for a prolonged period.

The Group’s messages have to date deliberately been aligned to the Governments’ COVID-19 communications to focus on proper hygiene protocols and follow strict social distancing. The Group management team will continue to undertake scenario based planning should the pandemic spread more widely across the countries where the Group has a presence.

The Group is closely monitoring the situation which is understandably, rapidly evolving. Except for the uncertainty associated with the global COVID-19 pandemic, the Directors were not aware of any matter or circumstances arising since the end of the financial year, not otherwise dealt with in the financial statements, which would significantly affect the financial position of the Group and Company and results of its operation as laid out in these financial statements (2018: Nil). 186

TANZANIA IS COVERED For your general insurance needs, UAP insurance has got you covered. www.uapoldmutual.com/tanzania UAP Holdings PLC (formerly UAP Holdings Limited) 2019 Annual Report and Financial Statements 187

NOTICE OF THE 12TH ANNUAL GENERAL MEETING

NOTICE IS HEREBY GIVEN that the Twelfth Annual General Meeting of the shareholders of UAP Holdings PLC (formerly UAP Holdings Limited) will be held on Thursday, 25th June 2020 at 11.00 a.m. via electronic

1. Reading of Notice The Secretary to read the notice convening the meeting, table the proxies and to confirm the presence of quorum.

2. Confirmation of Minutes Confirmation of the Minutes of the 11th Annual General Meeting held on 14th June 2019.

ORDINARY BUSINESS

3. Consideration of Reports To receive, consider and if thought fit, adopt the Audited Financial Statements for the year ended 31 December 2019 and the Reports of the Chairman, Directors’ and Auditors’ thereon.

4. Declaration of Dividend To note that the Directors do not recommend the payment of a dividend in respect of the financial year ended 31 December 2019.

5. Directors’ Remuneration Report To approve the directors’ remuneration report for the year ended 31 December 2019 as provided for in the Financial Statements.

6. Rotation of Directors To approve that the directors below, be re-elected and appointed as directors of the Company in accordance with the Company’s Articles of Association: i) Ms. Susan Omanga, retires by rotation at the dissolution of the meeting and being eligible, offers herself for re-election in accordance with Articles 119, 120 and 121 of the Company’s Articles of Association. ii) Mr. Robert Mbugua retires by rotation at the dissolution of the meeting and being eligible, offers himself for re- election in accordance with Articles 119, 120 and 121 of the Company’s Articles of Association. iii) Mr. George Maina, retires by rotation at the dissolution of the meeting and being eligible, offers himself for re-election in accordance with Articles 119, 120 and 121 of the Company’s Articles of Association.

7. Election of Directors To approve that: i) Mr. Richard Treagus, who was appointed to fill a casual vacancy in accordance with Article 116 of the Articles of Association of the Company and being eligible, offers himself for re-election as a director of the Company. ii) Mr. Shailesh Devchand, who was appointed to fill a casual vacancy in accordance with Article 116 of the Articles of Association of the Company and being eligible, offers himself for re-election as a director of the Company. iii) Mr. Clement Chinaka, who was appointed to fill a casual vacancy in accordance with Article 116 of the Articles of Association of the Company and being eligible, offers himself for re-election as a director of the Company. iv) Ms. Maria Shipiri, who was appointed to fill a casual vacancy in accordance with Article 116 of the Articles of Association of the Company and being eligible, offers herself for re- election as a director of the Company.

8. Retirement of Director To note the retirement of Mr. Jonas Mushosho as a director in accordance with Articles 120 and 121 of the Articles of Association of the Company. UAP Holdings PLC (formerly UAP Holdings Limited) 188 2019 Annual Report and Financial Statements

NOTICE OF THE 12TH ANNUAL GENERAL MEETING (Continued)

9. Appointment of Executive Directors To note the appointment of Mr. Arthur Oginga as an Executive Director on the board of directors with effect from 1 May 2020 in place of Mr. Peter Kingori Mwangi who resigned as an Executive Director on 8 April 2020.

10. Board Audit Committee In accordance with the provisions of Section 769 of the Companies Act, 2015, the following directors being members of the Board Audit Committee be elected to continue to serve as members of the Committee: i) Mr. Robert Mbugua – Chairman ii) Mr. Vincent Rague iii) Ms. Susan Omanga iv) Mr. George Maina

11. Appointment of External Auditor To note that the auditors Messrs KPMG Kenya, being eligible and having expressed their willingness, will continue in office in accordance with Section 721(2) of the Companies Act, 2015 and to authorize the directors to fix their remuneration in accordance with Section 724(2) of the Companies Act, 2015

SPECIAL BUSINESS

12. Amendments to the Articles of Association of the Company That the following Articles of Association of the Company’s be amended so as to read as follows:

Article 71 No business shall be transacted at any General Meeting unless a quorum is present when the Meeting proceed to business. Save as otherwise provided by these Articles, not less than five Members holding on aggregate, not less than fifty one (51%) of the entire issued share capital of the Company present in person or by proxy or by attorney or, in the case of a corporation, represented in accordance with Article 99 shall be a quorum, provided that one Member holding the proxy of one or more other members or one person holding the proxies of two or more Members shall not constitute a quorum. For the purpose of this Article, a Member shall be deemed to be present at any meeting of the Members if he is able to hear the proceedings of the meeting and simultaneously be heard by all present or deemed present by way of telephone conference, video conferencing or other suitable means of communication or communication facilities”

Article 78 At any General meeting, a resolution put to the vote of the Meeting shall be decided on by a show of hands and/or voting through the Company’s online platform unless (before or on the declaration of the result of the show of hands) a poll is demanded by the chairman of the Meeting or by any Member present in person or proxy or, in case of corporation, represented in accordance with Article 99 representing not less than onetenth of the total voting rights of all the Members having the right to vote in the meeting. Unless a poll is duly demanded and the demand is not withdrawn, a declaration by the chairman of the Meeting that a resolution has been carried or carried unanimously or by a particular majority or not carried by a particular majority or lost, and an entry to that effect in the minute book shall be conclusive evidence of the fact without proof of the number or proportion of the votes recorded in favour of or against such resolution.

Article 86 Subject to any special terms as to voting upon which any shares may be issued or may for the time being be held, every Memberwho is present whether in person or by online/electronic means or by a proxy or, being corporation, is present by a representative appointed in accordance with the Article 99 shall have one vote. On a poll every Member shall have one vote for each share of which he is the holder. UAP Holdings PLC (formerly UAP Holdings Limited) 2019 Annual Report and Financial Statements 189

NOTICE OF THE 12TH ANNUAL GENERAL MEETING (Continued)

ANY OTHER BUSINESS

13. Any other Business To transact any other business which may be properly transacted at an annual general meeting and for which a valid notice has been issued in accordance with the Articles of Association of the Company.

By Order of The Board

Nkirote Mworia Njiru Group Company Secretary 19 May 2020

Notes: We are cognizant of Legal Notice No. 36 of 2020 issued by the Government of Kenya prohibiting public gatherings, as such, it will not be feasible to hold a physical general meeting of the shareholders as the health and safety of our shareholders and staff remains paramount. As such, the AGM shall be held virtually via electronic platforms as set out below:

1. Due to the ongoing Government of Kenya restrictions on public gatherings, shareholders will not be able to attend the meeting in person. As such, the AGM shall be held virtually via electronic platforms and shareholders will be able to register to follow the meeting, vote electronically or by proxy and may ask questions in the manner detailed under the Shareholder Circular Virtual AGM 2020 Instructions’ available on the Company’s website: www.uapoldmutual.com/investor-relations.

2. The company has convened and is conducting this virtual annual general meeting following receipt of a No Objection from the Capital Markets Authority which can be viewed on our: website www.uapoldmutual.com.

3. In accordance with section 298(1) of the Companies Act, 2015, every member entitled to vote at the above meeting is entitled to appoint a proxy to attend and vote on his/her behalf. A proxy must be signed by the appointor or his attorney duly authorized in writing. If the appointer is a body corporate, the instrument appointing the proxy shall be given under its common seal or under the hand of an officer or duly authorized attorney of such body corporate. A proxy need not be a member of the Company. A form of proxy is available on the company website “www.uapoldmutual.com”. A completed form of proxy should be emailed to “[email protected]” or delivered to Custody and Registrars Services Ltd, at IKM Place, Tower B, 1st Floor, 5th Ngong Avenue, so as to be received not later than Tuesday, 23rd June 2020 at 12.00 noon. When nominating a proxy the ID/Passport No, email and/or mobile number details of the proxy must be submitted to facilitate registration. Any proxy registration that is rejected will be communicated to the shareholder concerned no later than Wednesday 24th June 2020 to allow time to address any issues. UAP Holdings PLC (formerly UAP Holdings Limited) 190 2019 Annual Report and Financial Statements

FORM OF PROXY

I/WE______being a member* / members of UAP HOLDINGS PLC hereby appoint:

______of P.O. Box ______Proxy’s mobile No.______Proxy’s Email address:______or failing him/her______of P.O. Box ______, Proxy’s mobile No:______Proxy’s Email address:______or failing him/herand failing him/her the Chairman of the meeting to be my/our Proxy, to vote for me/us at an Annual General Meeting of the company to be held on Thursday, 25th June 2020 at the Company’s Registered Offices via electronic means at 11:00 a.m. or at any adjournment thereof. As witness by my/our hands this_____day of ______2020.

Signed ______

Please indicate with a tick in the appropriate block how you wish your vote to be cast: Agenda Ordinary Business For Against item 2 To confirm the minutes of the Annual General Meeting held on 14 June 2019 3 To receive, consider and adopt the Annual Report and Audited Financial Statements for the year ended 31 December 2019 together with the Chairman’s, Directors’ and Auditors’ reports thereon 4 To note that the Directors do not recommend the payment of a dividend in respect of the Financial Year ended 31 December 2019 5 To consider and approve the Directors’ remuneration for the year ended 31 December 2019 as provided in the financial statements and to authorize the Board to fix the remuneration of Directors for the current year

6 Rotation Directors To approve that the directors below, be re-elected and appointed as directors of the Company in accordance with the Company’s Articles of Association: i. Ms. Susan Omanga, retires by rotation at the dissolution of the meeting and being eligible, offers herself for re-election in accordance with Articles 119, 120 and 121 of the Company’s Articles of Association. ii. Mr. Robert Mbugua retires by rotation at the dissolution of the meeting and being eligible, offers himself for re-election in accordance with Articles 119, 120 and 121 of the Company’s Articles of Association. iii. Mr. George Maina, retires by rotation at the dissolution of the meeting and being eligible, offers himself for re-election in accordance with Articles 119, 120 and 121 of the Company’s Articles of Association. UAP Holdings PLC (formerly UAP Holdings Limited) 2019 Annual Report and Financial Statements 191

FORM OF PROXY (Continued)

7 Election of Directors To approve that: i)i) Mr. Richard Treagus, who was appointed to fill a casual vacancy in accordance with Article 116 of the Articles of Association of the Company and being eligible, offers himself for re-election as a director of the Company. ii) Mr. Shailesh Devchand, who was appointed to fill a casual vacancy in accordance with Article 116 of the Articles of Association of the Company and being eligible, offers himself for re-election as a director of the Company. iii) Mr. Clement Chinaka, who was appointed to fill a casual vacancy in accordance with Article 116 of the Articles of Association of the Company and being eligible, offers himself for re-election as a director of the Company. iv) Ms. Maria Shipiri, who was appointed to fill a casual vacancy in accordance with Article 116 of the Articles of Association of the Company and being eligible, offers herself for re-election as a director of the Company.

10 Board Audit Committee In accordance with the provisions of Section 769 of the Companies Act, 2015, the following directors being members of the Board Audit Committee be elected to continue to serve as members of the Committee:

i) Mr. Robert Mbugua – Chairman ii) Mr. Vincent Rague iii) Ms. Susan Omanga iv) Mr. George Maina

11 To note that the auditors Messrs KPMG Kenya, being eligible and having expressed their willingness, will continue in office in accordance with Section 721(2) of the Companies Act, 2015 and to authorize the directors to fix their remuneration in accordance with Section 724(2) of the Companies Act, 2015. UAP Holdings PLC (formerly UAP Holdings Limited) 192 2019 Annual Report and Financial Statements

FORM OF PROXY (Continued)

12 Amendment of the Articles of Association of the Company To amend Article 71 of the Articles of Association of the Company by adding the following sentence immediately after: “For the purpose of this Article, a Member shall be deemed to be present at any meeting of the Members if he is able to hear the proceedings of the meeting and simultaneously be heard by all present or deemed present by way of telephone conference, video conferencing or other suitable means of communication or communication facilities.

Article 78 At any General meeting, a resolution put to the vote of the Meeting shall be decided on by a show of hands and/or voting through the Company’s online platform unless (before or on the declaration of the result of the show of hands) a poll is demanded by the chairman of the Meeting or by any Member present in person or proxy or, in case of corporation, represented in accordance with Article 99 representing not less than one-tenth of the total voting rights of all the Members having the right to vote in the meeting. Unless a poll is duly demanded and the demand is not withdrawn, a declaration by the chairman of the Meeting that a resolution has, on a show of hands, been carried or carried unanimously or by a particular majority or not carried by a particular majority or lost, and an entry to that effect in the minute book shall be conclusive evidence of the fact without proof of the number or proportion of the votes recorded in favour of or against such resolution.

Article 86 Subject to any special terms as to voting upon which any shares may be issued or may for the time being be held, on a show of hands every Member who is present whether in person or by online/electronic means or by a proxy or, being corporation, is present by a representative appointed in accordance with the Article 99 shall have one vote. On a poll every Member shall have one vote for each share of which he is the holder.

Notes: In accordance with section 298(1) of the Companies Act, 2015, every member entitled to vote at the above meeting is entitled to appoint a proxy to attend and vote on his/her behalf. A proxy need not be a member of the Company. A completed form of proxy should be emailed to “[email protected]” or delivered to Custody and Registrars Services Ltd, at IKM Place, Tower B, 1st Floor, 5th Ngong Avenue, so as to be received not later than Tuesday, 23rd June 2020 at 12.00 noon. When nominating a proxy the ID/Passport No, email and/or mobile number details of the proxy must be submitted to facilitate registration. Any proxy registration that is rejected will be communicated to the shareholder concerned no later than Wednesday 24th June 2020 to allow time to address any issues.

NB: A proxy who wishes to view the livestream AGM please register by logging in to https://digital.candrgroup.co.ke/ or want to listen to the AGM on phone at no charge dial *384*042# and register account as a proxy. UAP Holdings PLC (formerly UAP Holdings Limited) 2019 Annual Report and Financial Statements 193

NOTES 194

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