ANNUAL REPORT
FBC Holdings Limited strength • diversity • service FBC Holdings Limited strength • diversity • service
Contents
Group Structure 1
Destiny, Cause & Calling 2
General Information 3
Financial Review Summary 5
Chairman's Statement 6
Group Chief Executive's Report 9
Directors' Report 11
Board of Directors 14
Corporate Governance 16
Auditors' Report 28
Financial Statements 29
Shareholders’ Information 74
Notice of AGM 76
Proxy Form 77
ANNUAL REPORT 2006 FBC Holdings Limited strength • diversity • service
Group Structure
FBC Holdings Limited strength • diversity • service
FBC Bank Limited - (100%) (Registered Commercial Bank)
The FBC Group is a financial FBC Reinsurance Limited - (100%) powerhouse whose most valuable product is service. We provide you with strong counsel, diversity and innovative thinking. We listen to you, understand your challenges and share in your success. FBC Building Society - (60%) (Registered Building Society)
FBC Securities (Private) Limited - (100%)
1 ANNUAL REPORT 2006 FBC Holdings Limited strength • diversity • service
Destiny, Cause & Calling
Destiny
To be Africa’s trendsetters in financial and risk management.
Cause
To secure individual and corporate wealth. Calling
To create value through a passionate commitment to partnerships.
ANNUAL REPORT 2006 2 FBC Holdings Limited strength • diversity • service
General Information
REGISTERED OFFICE AUDITORS Old Reserve Bank Building KPMG Chartered Accountants, Zimbabwe 76 Samora Machel Avenue Old Mutual Gardens P O Box 1227, Harare Emerald Hill Zimbabwe P O Box 6, Harare Telephone :263 -04 - 700312/797770 Zimbabwe :263 -04 - 708071/2 Telephone :263 -04 - 302600
Telex :24512 FIRSTB ZW Swift :FBCPZWHA Fax :263 - 04 - 700761 ATTORNEYS E-mail :[email protected] Dube Manikai & Hwacha Legal Practitioners Web site :http://www.fbc.co.zw Eastgate Building 6th Floor, Goldbridge, Southwing Cnr S. Nujoma/Robert Mugabe Road P O Box CR 36, Cranborne, Harare TRANSFER SECRETARIES Telephone :263 - 04 - 780351/2 First Transfer Secretaries (Private) Limited 4th Floor, Gold Bridge Costa & Madzonga Legal Practioners Eastgate 4th Floor P O Box 11 Three Anchor House Harare Jason Moyo Telephone :263-04-773744/47 773750/1 Harare Fax :263-04-749048 Telephone : 263-04- 77145/5 Fax : 263-04-737575
FBC Bank Branches
Batanai Gardens Branch Belgravia Private Banking Cnr Jason Moyo/1st Street, Mezannine Floor, No. 2 Lanark road, Belgravia, Harare Harare, P O Box BE 818, Belvedere, Harare P O Box A852, Avondale, Harare
Telephone :263-04-752929 Telephone :263-04-251975 :263-04-775390 :263-04-251976 Fax :263-04-775395 Fax :263-04-253556
Chinhoyi Branch Gweru Branch Stand 5309 71 - Sixth Street Magamba Way, P O Box 1220 P O Box 1833, Gweru Chinhoyi Telephone :263-054-26491 Telephone :263-067-24086 :263-054-26493/7 Fax :263-067-26162 Fax :263-054-26498
3 ANNUAL REPORT 2006 FBC Holdings Limited strength • diversity • service
General Information (cont’d)
Jason Moyo Avenue Branch Kwekwe Branch Asbestos House 44a/b Robert Mugabe Way Jason Moyo Avenue Kwekwe P O Box 2910, Bulawayo P O Box 1963, Kwekwe Telephone :263-09-76079 Telephone :263-055-24116 :263-09-76371 :263-055-24160 Fax :263-09-67536 Fax :263-055-24208
Masvingo Branch Mutare Branch 58/59 Hellet Street 50 B Herbert Chitepo Masvingo P O Box 2797 Telephone :263-039-64415/6 Mutare Fax :263-039-64415/6 Telephone :263-020-62586 :263-020-62114 Nelson Mandela Avenue Branch Fax :263-020-60543 Nelson Mandela Avenue P O Box BE 818, Belvedere Samora Machel Avenue Branch Telephone :263-04-750946 Old Reserve Bank Building :263-04-753608 76 Samora Machel Avenue Fax :263-04-775395 P O Box GD 450, Greendale, Harare Telephone :263-04-700372 Southerton Branch :263-04-700044 Highfield Junction Shop Fax :263-04-793799 P.O. Box St495 Southerton Victoria Falls Branch Harare Shop 4 Galleria De Falls Telephone :263-04-759712 P.O Box 225 :263-04-759392 Victoria Falls Fax :263-04-759567 Telephone :263-013-45996/5 Fax :263-013-5995/6 Zvishavane Branch Robert Mugabe Way FBC Reinsurance P O Box 91, Zvishavane Head Office Telephone :263-051-2176 P O Box 4282, Harare :263-051-2177 6th Floor Fidelity Life Tower Fax :263-051-3327 Raleigh Street, Harare Telephone :263-04-772703/7 FBC Building Society Head Office Fax :263-04772701 P O Box 4041, Harare 113 Leopold Takawira Way, Harare FBC Reinsurance Telephone :263-04-756811/6 Bulawayo Office Fax :263-04-772743 5th Floor West Wing, Pioneer House 14 branches: Harare: Highglen Shopping Centre; Corner Fife/8th Avenue Fidelity House; Leopold Takawira; Bulawayo; P O Box 2199 ZBS House; 109 Robert Mugabe Way; Bulawayo Beitbridge; Chipinge; Gweru; Kadoma; Kwekwe; Marondera; Masvingo; Mutare; Rusape; Zvishavane Telephone :263-09-888344 Fax :263-09-888560 FBC Securities (Private) Limited 2nd Floor, 99 Jason Moyo Ave. P.O.Box 1227 Harare Telephone : 263 -04 -797782 – 3 Fax : 263 -04 -704 758
ANNUAL REPORT 2006 4 FBC Holdings Limited strength • diversity • service
Financial Review Summary 31 December 2006
Historical
2006 2005 2004 $'M $'M $'M
Income
Profit before taxation 28 028 868 152 Profit after taxation 20 522 562 95
Balance Sheet
Shareholders' funds 31 550 778 118 Total assets 92 066 3 218 529
Share Statistics
Shares in issue - actual (m) 348 341 340 Shares in issue - weighted (m) 342 337 324 Basic earnings per share - (Z$) 52,16 1,54 0,29 Headline earnings per share - (Z$) 52,46 1,54 0,29 Diluted earnings per share - (Z$) 49,41 1,45 0,27 Dividend per share - Ordinary (Z$) 15,60 0,055 0,015 Share market price - Z$ (31/12/06) 95 2,2 0,026
Ratios
Return on shareholders' funds 65% 72% 80% Cost income ratio 28% 38% 51% Capital adequacy ratio (Bank) 39% 39% 35%
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Chairman's Statement
As widely predicted in the previous year, the economic environment remained extremely challenging, with the Group businesses having to focus on opportunities arising from limited business sources. It is against this background that I am pleased to report that the FBC Group has once again, made significant strides in the year 2006 to consolidate its place in the market. The Group has been particularly adept at making the most out of a fluid trading environment, resulting in all the subsidiaries recording profits and growth well above the rate of inflation. The sustained growth in the performance of the Group over the last few years has put it in a strong position to take advantage of future opportunities as and when a conducive trading environment returns. The real growth is highlighted below bearing in mind the average inflation for the year of 1 033%.
Financial Highlights - Historical
• Profit before tax up 3 129% to $28 billion from $868 million in 2005.
• Profit after tax rose 3 552% to $21 billion from $562million in 2005.
• Basic earnings per share attributed to equity holders of the company up 3 287% at $52,16 from $1,54 last year.
• Capital adequacy ratios - 39% and 93% at the Bank and Building Society respectively against a prescribed minimum of 10%.
• Group cost income ratio improved to 28% from 38% in 2005.
• Assets increased by 2 761% to $92 billion from $3 billion last year.
• Shareholders’ funds excluding minority interest increased by 3 744% to $27,4 billion.
• Proposed dividend of $15,60 per share up from $0,055.
We are fully aware and cognisant that the performance and contribution from traditional financial services, loans and overdrafts, mortgages, foreign exchange business, and insurance underwriting continued to be constrained by a very difficult macro-economic environment. The Group will naturally continue to take advantage of available opportunities to ensure sustained growth of income whilst at the same time developing and sustaining the infrastructure for traditional financial services in preparation for the return of a stable economic environment.
Rebranding
The successful consolidation, repositioning and rebranding of the Group was confirmed by numerous independent surveys and accolades from the media, including the awarding of the 'Best Turnaround Trophy' for Zimbabwe Stock Exchange listed companies (co-sponsored by the Premier Group and the Financial Gazette). The Group is well positioned to continue consolidating and enhancing its brand. The flagship subsidiary - FBC Bank celebrates its tenth anniversary in 2007, to join FBC Reinsurance and FBC Building Society which have been in existence for more than a decade. The Group will continue focusing on client service to augment the brand consolidation.
ANNUAL REPORT 2006 6 FBC Holdings Limited strength • diversity • service
Chairman's Statement (cont’d)
Hyperinflation
The removal of three digits on the currency and the introduction of higher denominated bearer cheques in August 2006 improved transacting convenience in the economy. However, the rate of inflation which had initially slowed down in the month of September in response to the monetary authorities initiatives, picked up again in October peaking at 1 281,1% in December 2006. We are encouraged by the monetary authorities' resolve to address the fundamental causes of the current economic malaise. The high rate of inflation has hampered business capacity to plan in advance, to borrow at commercial rates to finance growth and increase productivity.
Credit Rating
The Bank, Building Society and Reinsurance companies have maintained the investor grade status accorded by an international rating agency. This has boosted our relations with customers, stakeholders and correspondent financial institutions. It is our view, that our credit rating should continue to improve in the future.
Regulatory Environment
The highly volatile economic environment has translated into a policy regime that is not as predictable as it should be, thereby resulting in severe planning difficulties. The Group companies will continue to ensure compliance with regulatory requirements. In this connection the Bank and the Building Society have always comfortably exceeded the minimal capital requirements set by the authorities over the years. We shall continue to maintain sustainable reserves in our businesses to address any capital requirements that may be set in future.
Share Price Performance
Whilst our share price traded at a discount for most of the year under review, we are pleased to note that the share trading performance improved significantly during the last quarter of 2006, towards reflecting the true value embedded in the business.
Corporate Social Investment
The Group was more active in supporting the community in the areas of health, education, sport and charitable organizations around the country. The Group looks forward to a significant increase of its corporate social investment in line with improved performance and growth in 2007 and beyond. The Group firmly believes it has a material role to play in making the environment better through ploughing back profits into the community in different areas of social endeavour.
Corporate Headquarters
We are pleased to report that the Group will relocate to more spacious headquarters at FBC Centre in the first half of 2007. Other than being a milestone achievement, the new offices will facilitate speedy interaction, consolidate team working and decision-making and focus of the different businesses in a common direction.
Directorate
Mr Kumbirai Chiimba Katsande resigned from the Board of FBC Holdings Limited with effect from 15 May 2006 due to pressing work commitments. I would like to thank Mr Katsande for his valued contributions to the FBC Group and would like to take this opportunity to wish him well for the future. We were deeply saddened by the untimely passing away in November 2006 of Mr Christopher Gomwe, the well liked founding Managing Director of FBC Reinsurance, who had contributed immensely to the Group before his resignation in September 2006.
7 ANNUAL REPORT 2006 FBC Holdings Limited strength • diversity • service
Chairman's Statement (cont’d)
Dividend
In line with the Group's dividend policy of three times cover, the directors are recommending a final dividend of $15,60 per share, to be paid by 17 April 2007.
Outlook
The trading environment is likely to remain challenging, with the near term being dependent on the 2006/7 agricultural season output and the will to resolve the issues indicated by the monetary and fiscal authorities. We are encouraged by the Central Bank's new resolve to work with all sectors of the economy to address the fundamental causes of our current malaise.
Appreciation
The excellent performance of the Group signifies the sustained and focused teamwork of all stakeholders at FBC. Management and staff have maintained their energetic and collective delivery of stirling results as they have done in the past. The guidance and support of non-executive directors deserves special mention and encouragement. The support of FBC clients across all businesses remains fundamental to the long term success of the Group and needs to be continually nurtured and rewarded.
Herbert Nkala Chairman FBC Holdings Limited 14 February 2007.
ANNUAL REPORT 2006 8 FBC Holdings Limited strength • diversity • service
Group Chief Executive’s Report
Group Chief Executive's Review
I am pleased to report on another successful year of performance by the FBC Group. Our businesses took appropriate measures to adapt to the new challenges and environment to post very good results, by any standards, for the year ended December 2006. The success of the FBC Group is underpinned by committed and competent staff and the enabling and supportive environment created by a professional and well balanced Board of Directors. The FBC brand has made its mark on the Zimbabwe financial services market, a position that is confirmed by favourable outcomes from independent survey groups and awards from the media.
Operations Review
FBC Bank
As the flagship business of the Group, the Bank continued on a sustained path of strong profitability that has remained consistently above the rate of inflation. The business has stood its ground and significantly narrowed the gap between FBC Bank and leading mainstream competitors. The strengthening brand has created opportunities for the corporate banking segment of the Bank, which has grown its market in this sector. The business will in the ensuing year seek to broaden convenience value and service delivery in a manner that positively impacts the cost income ratio. There is currently no merit for expansion of the distribution network but the need to move towards consolidation with a view to improving vertical consumption of the bank's offering as well as appealing to new market segments. The authorities' monetary policy direction will continue to have a huge impact on the trading strategies of the Bank.
FBC Building Society
The Society contributed 24% in profit before tax, compared to a contribution of 13% last year. The growth in the Society's surplus, bears testimony to the fact that it is now well positioned to effectively compete with other more established competitors. I am pleased to advise that the Society was accorded an investment grade rating by an international rating agency Global Credit Rating. Whilst all FBC businesses are internationally rated, this development is an independent confirmation of the successful turnaround of the Society. The Society, in the near term, will seek to consolidate through structured mortgage facilities, and set itself as a clear leader in that segment. The move should see the Society reduce the gap with competitors in the sector, while leveraging retail business through a stronger brand. The Society is set to unlock the opportunities in middle income segments through repositioning in those segments.
FBC Reinsurance Limited
FBC Re's capital base was significantly boosted in September 2006 through fresh liquid capital injection by FBC Holdings. This enhanced FBC Re's underwriting capacity ahead of the 2007 treaty renewal. Furthermore FBC Re's highly liquid balance sheet allows it to improve on its service delivery and provide stronger security to its clientele. Foreign exchange denominated business risk is significantly high and FBC Re will cautiously trade -off to ensure viability of such underwriting. The business will as always endeavour to sustain profitable relationships that have delivered value and have been proven over time.
FBC Securities
The stockbroking business FBC Securities has held its own, taking advantage of the more or less predictable flow of funds between the money and stock market. Activity on the stock market is expected to continue increasing and FBC Securities will seek to increase its share of the increase in transactions.
9 ANNUAL REPORT 2006 FBC Holdings Limited strength • diversity • service
Group Chief Executive’s Report (cont’d)
Strategy
The Group will implement a grow-and-consolidate strategy in the local market. The macroeconomic environment and policy direction will remain key determinants of the Group's thrust. The Group remains keen to look at businesses that can be leveraged of value at acceptable risk.
Electronic Commerce
The Group is seeking to take advantage of electronic platforms for the delivery of service to clients and markets. FBC Bank has implemented e-delivery channels which should avail numerous options for clients to transact at a time and place of their choosing. This should in the medium to long term reduce service delivery costs whilst extending convenience. The deployment of such solutions will pervade all the businesses as it has a material impact on overall cost of delivery and market development.
Cost Income Ratio
The aggregate cost income ratio of the Group has improved significantly to 28% from 38%. The Group will continue to pursue operational strategies that ensure this index continues to improve.
People and Organisational Development
People are the greatest asset of FBC, and their development ensures maximum return on the rest of the business capital. FBC is an equal opportunity employer and invests in staff development and training as well as rewarding good performance. In 2004 the Group embarked on integration programmes that sought to gel the Group and optimize the synergy benefits. The first group of Management and Leadership development programme graduands completed their studies in 2006. The Group will continue to explore and implement continuous improvement programmes to maintain our cutting edge status.
Service Delivery
Service delivery remains one of the Group's biggest customer value delivery priorities in the near term. It is the Group's belief that the brand will be strengthened on a solid and consistent service reputation across all businesses.
Risk Management
The Group continued to reinforce its risk management systems to better manage the varied risks posed by diversified businesses. The Group put in place a compliance management structure which independently but closely monitors key policy issues which have a material bearing on the organisation's risk profile. The Group is currently well positioned to take and manage more diversified risks that add value to our businesses.
Appreciation
I wish to express my appreciation to the FBC Team comprising the Board of Directors, Management and Staff for their continued support and a job well done. My sincere gratitude extends to our customers and stakeholders who have demonstrated their well placed confidence in us over the years and we look forward to welcoming new customers and stakeholders in the year 2007 and beyond.
Livingstone T. Gwata Group Chief Executive 14 February 2007.
ANNUAL REPORT 2006 10 FBC Holdings Limited strength • diversity • service
Directors' Report 31 December 2006
Historical
Your directors have pleasure in submitting their third annual report and accounts, for the financial year ended 31 December 2006, for FBC Holdings Limited.
1. ACTIVITIES AND INCORPORATION
The Company is incorporated in Zimbabwe and is an investment holding company. The Group comprises of three wholly-owned subsidiaries and one 60% controlled subsidiary. The Group through its subsidiaries provide a wide range of commercial banking, mortgage finance related financial services, stockbroking and reinsurance services.
2. AUTHORISED AND ISSUED SHARE CAPITAL
The authorised share capital of the Company was $800 000, divided into 800 000 000 ordinary shares of 0,1 cents each as at 31 December 2006.
The issued and fully paid shares were $348 001,78 made up of 348 001 777 ordinary shares of 0,1 cents each.
3. RESERVES
The Group's total shareholders' funds attributable to equity holders of the company as at 31 December 2006 was $27 409 000 000. Further details of the movement in reserves are shown on the statement of changes in equity.
4. ACCOUNTS 2006 $'M The results reflected a profit before taxation for the year of 28 028 Taxation 7 506
Profit after taxation 20 522
Attributable to: Equity holders of the company 17 838 Minority interest 2 684
20 522
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Directors' Report (cont’d) 31 December 2006
5. DIRECTORS' INTERESTS
As at 31 December 2006, the Directors' interest in the issued shares of the company directly or indirectly are shown below:
Directors' shareholding
Director Direct Shareholding Indirect Shareholding
L. T. Gwata (Group Chief Executive) 3 843 120 9 584 034 W. Rusere (Executive Director) 100 000 - T. Kufazvinei (Executive Director) 360 844 3 408 956 J. Mushayavanhu (Executive Director) 1 655 944 9 233 098 G. G. Nhemachena (Non Executive Director) 1 020 - S. Kudenga (Executive Director) 100 000 -
6 060 928 22 226 088
The other directors have no shareholding in the company.
6. DIRECTORATE
Details of Directors are reflected on pages 14 to 15.
The following appointment was made during the year ended 31 December 2006. Mr Stanley Kudenga was appointed to the Board on 1 October 2006 as an Executive Director.
The appointment will be confirmed at the Annual General meeting on 21 June 2007.
Messrs Kumbirayi Chiimba Katsande and the late Christopher Matarirano Gomwe resigned from the Board of Directors on 15 May 2006 and 30 September 2006 respectively. I would like to thank them for their valued contribution.
In accordance with the Articles of Association Mr Herbert Nkala and Mr Godfrey Gaviro Nhemachena retire from the Board by rotation and being eligible offer themselves for re-election.
7. CAPITAL ADEQUACY
At 31 December 2006, the Bank subsidiary capital adequacy ratio computed under the Reserve Bank of Zimbabwe rules was 39%, and that of FBC Building Society was 93%.
8. DIVIDEND ANNOUNCEMENT
The Board on 14 February 2007, proposed a final dividend of $15,60 per share on 348 001 777 shares. The dividend is payable to shareholders registered in the books of the company on 30th March 2007. The transfer books and register of members will be closed from 31st March 2007 to the 10th April 2007. Dividend cheques will be posted to shareholders on or about the 17th of April 2007.
ANNUAL REPORT 2006 12 FBC Holdings Limited strength • diversity • service
Directors' Report (cont’d) 31 December 2006
9 DIRECTORS' RESPONSIBILITY STATEMENT
The Directors are responsible for the preparation and the integrity of the financial statements that fairly present the state of the affairs of the Group at the end of the financial year and the income statement account and cash flow for that period and other information contained in this report. The consolidated financial statements have been prepared in accordance with the International Financial Reporting Standards (IFRSs) and interpretations adopted by the International Accounting Standards Board (IASB), and the requirements of the Companies Act (Chapter 24:03) and the Banking Act (Chapter 24:20), Insurance Act (Chapter 24:07), Zimbabwe Stock Exchange Act (Chapter 24:18) and the Building Societies Act (Chapter 24:02).
To enable the Directors to meet the above requirements, the Directors are responsible for maintaining adequate accounting records and internal controls to safeguard the assets of the Group and to prevent and detect fraudulent activities.
The Directors are of the opinion that the Group will be a going concern in the year ahead. Accordingly, the financial statements continue to be prepared on a going concern basis.
The financial statements which appear on pages 29 to 73 were approved by the Board on 14 February 2007.
10. AUDITORS
Messrs. KPMG have expressed their willingness to continue in office and shareholders will be asked to confirm their re-appointment at the forthcoming Annual General Meeting and to fix their remuneration for the past year.
By order of the Board
Tichaona K. Mabeza Secretary 14 February 2007
13 ANNUAL REPORT 2006 FBC Holdings Limited strength • diversity • service
Board of Directors 31 December 2006
HERBERT NKALA, B.Sc. Hons, MBA (CHAIRMAN)
Appointed to the Board of Directors of First Banking Corporation Ltd in February 1997. He is the Chairman and director of several other companies, which are listed on the Zimbabwe Stock Exchange.
LIVINGSTONE TAKUDZWA GWATA - B. Admin. CAIB, FIBZ (GROUP CHIEF EXECUTIVE)
Appointed to the Board of First Banking Corporation Ltd in July 1998 as Managing Director. Appointed Group Chief Executive in August 2004. He is a director of several companies. He is also a past Chairman and President of the Institute of Bankers of Zimbabwe.
KENZIAS CHIBOTA - B.Acc(Hons), CA(Z) (NON-EXECUTIVE DIRECTOR)
Appointed to the Board of FBC Holdings Ltd in August 2004. He is the Chief Executive Officer of Destiny Electronics (Private) Limited and director of several other companies.
PHILLIP MHARIDZO CHIRADZA (MSC - Strategic Management), Dip (Gen Management) (NON -EXECUTIVE DIRECTOR)
Appointed to the Board of Directors of FBC Holdings Ltd in June 2005. He is the former Managing Director of Beverley Building Society and is a director of several other companies.
STANLEY KUDENGA - B.Acc(Hons), CA(Z) MBL (EXECUTIVE DIRECTOR)
Appointed to the Board of Directors of First Banking Corporation Ltd in June 2002 as Executive Director, Investment Banking. He is the Managing Director of FBC Reinsurance Company Limited.
TRYNOS KUFAZVINEI - B.Acc(Hons), CA(Z), MBA (GROUP FINANCE DIRECTOR)
Appointed to the Board of First Banking Corporation Ltd in October 2003 and was appointed Group Finance Director in August 2004. He is responsible for the financial and administration matters of the Group. He has over 15 years experience in finance and administration.
SHINGIRAI ALBERT MUNYEZA - B.Compt, Dip Applied Accountancy, IMM (NON- EXECUTIVE DIRECTOR)
Appointed to the Board in June 2004 and is the Vice Chairman of the Board of Directors of FBC Holdings Ltd, Mr Munyeza is the Group Chief Executive of Zimbabwe Sun Limited and a director of several other companies.
JOHN MUSHAYAVANHU - AIBZ, Dip Management, MBA (EXECUTIVE DIRECTOR)
Appointed to the Board of Directors of First Banking Corporation Ltd in October 1997 and was appointed Managing Director of FBC Bank Ltd in August 2004. Appointed to the Board of FBC Holdings Ltd in August 2004. He is a director of several companies.
ANNUAL REPORT 2006 14 FBC Holdings Limited strength • diversity • service
Board of Directors (cont’d) 31 December 2006
JOHNSON REX MAWERE (NON-EXECUTIVE DIRECTOR)
Appointed to the Board of FBC Holdings Ltd in August 2004. He is the former Mayor of the City of Kwekwe and is a director of several other companies.
GODFREY GAVIRO NHEMACHENA - BSc. Soc (NON-EXECUTIVE DIRECTOR)
Appointed to the Board of Directors of First Banking Corporation Ltd in June 2002. He holds directorships in a number of other companies. He is the former Town Clerk for the City of Gweru and is the Chairman of the Local Authorities Pension Fund.
MS NANCY SAUNGWEME (NON-EXECUTIVE DIRECTOR)
Appointed to the Board of FBC Holdings Ltd in July 2005. She is an entrepreneur and a former diplomat.
WEBSTER RUSERE (AIBZ, MBA) (EXECUTIVE DIRECTOR)
Appointed to the Board of Directors of FBC Holdings Ltd in June 2005. He is the Managing Director of FBC Building Society. He is a career banker and has worked for a number of financial institutions.
15 ANNUAL REPORT 2006 FBC Holdings Limited strength • diversity • service
Corporate Governance 31 December 2006
THE BOARD
FBC Holdings' Board is committed to the principles of openness, integrity and accountability. It recognises the developing nature of corporate governance and assesses its compliance with local and international generally accepted corporate governance practices on an ongoing basis through its various subcommittees. Guidelines issued by the Reserve Bank of Zimbabwe from time to time are strictly adhered to and compliance check lists are continuously reviewed.
The Board of Directors comprises of five executive directors and seven non-executive directors. The composition of the Board of FBC Holdings Limited shows a good mix of skill, experience as well as succession planning. The Group derives tremendous benefit from the diverse level of skills and experience of its Board of Directors.
The Board is responsible to the shareholders for setting the direction of the Group through the establishment of strategies, objectives and key policies. The Board monitors the implementation of these policies through a structured approach to reporting and accountability.
BOARD ATTENDANCE Name Quarter 1 Quarter 2 Quarter 3 Quarter 4 Herbert Nkala Livingstone T. Gwata Kenzia Chibota Philip M. Chiradza Stanley Kudenga N/A N/A N/A Trynos Kufazvinei Singira A. Munyeza John Mushayavanhu Johnson R. Mawere Godfrey G. Nhemachena Nancy Saungweme Webster Rusere
Key: Attended Apologies N/A Not applicable
The Board meets regularly, with a minimum of four scheduled meetings annually. To assist the Board in the discharge of its responsibilities a number of committees have been established, of which the following are the most significant:
BOARD FINANCE AND STRATEGY COMMITTEE
K. Chibota (Chairman) P.M. Chiradza L.T. Gwata S. Kudenga T. Kufazvinei J. Mushayavanhu W. Rusere N. Saungweme
The Board Finance Committee has written terms of reference. It is chaired by a non-executive director. Meetings of the Committee are attended by invitation, by other senior executives. This committee is constituted at Group level and overseas the subsidiary companies. The committee meets at least four times a year to review the following: • The Group's performance against agreed benchmarks, • The Group's Strategy and budget, • The Group's financial statements, and accounting policies, • The adequacy of the Group's management information systems.
ANNUAL REPORT 2006 16 FBC Holdings Limited strength • diversity • service
Corporate Governance (cont’d) 31 December 2006
BOARD HUMAN RESOURCES AND REMUNERATION COMMITTEE
H. Nkala (Chairman) L.T. Gwata P.M. Chiradza S.A. Munyeza
The committee is chaired by a non-executive director and comprises mainly of non-executive directors except for the Group Chief Executive of FBC Holdings. Meetings of the committee are attended by invitation, by the Divisional Director of Human Resources and the subsidiary managing directors. This committee is constituted at Group level and overseas the subsidiary companies.
The committee's primary objective is to ensure that the right calibre of management is attracted and retained. To achieve this it ensures that the Directors, Senior Managers and other staff are appropriately rewarded for their contributions to the Group's performance.
The committee is also responsible for the Group's Human Resources Policy issues, terms and conditions of service.
Non-Executive Directors are remunerated by fees and do not participate in any performance-related scheme.
BOARD CREDIT COMMITTEE
G. Bera (Chairman) B.N. Kumalo L.T. Gwata S.M. Mutangadura J. Mushayavanhu
This committee falls directly under the Bank. It sets the Bank's Credit Policy and also approves credit applications above Management's authorised limits. The committee is responsible for the overall quality of the Bank's credit portfolio. The committee is chaired by a non-executive director. The Divisional Director of Credit and Risk Management attends the committee meetings by invitation.
BOARD LOANS REVIEW COMMITTEE
S.A. Munyeza (Chairman) D. Birch P.F. Chimedza
The committee falls directly under the Bank, has terms of reference and comprises non-executive directors only. Meetings of the committee are attended by invitation, by the Managing Director of the Bank, the Divisional Director of Credit and Risk Management and the Group Chief Executive.
The committee is responsible for ensuring that the Bank's loan portfolio and lending abide by the approved credit policy as approved by the Board of Directors and is in compliance with RBZ requirements. It also ensures that problem loans are properly identified, classified and placed on non-accrual in accordance with the Reserve Bank guidelines. The committee also ensures that adequate provisions are made for potential losses and write-offs of losses identified are made in the correct period.
17 ANNUAL REPORT 2006 FBC Holdings Limited strength • diversity • service
Corporate Governance (cont’d) 31 December 2006
BOARD AUDIT COMMITTEE
S. Munyeza (Chairman) J.R. Mawere G.G. Nhemachena N. Saungweme
The committee is chaired by a non-executive director and comprises of non-executive directors only. The Group Chief Executive, Divisional Director of Internal Audit, the Managing Directors of the subsidiaries, the Group Finance Director attend the committee by invitation. The committee is constituted at Group level and overseas subsidiary companies.
The committee meets regularly to:
• Review compliance with statutory regulations • Review the effectiveness of internal controls • Review and approve the audited annual financial statements • Review reports of both internal and external auditors findings, instituting special investigations where necessary.
BOARD RISK AND COMPLIANCE COMMITTEE
G. G. Nhemachena (Chairman) K. Chibota P. M. Chiradza L.T. Gwata J. Mushayavanhu W. Rusere
The committee is constituted at group level and is responsible for the Group Risk Management function. It is chaired by a non executive director.
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Corporate Governance (cont’d) 31 December 2006
BOARD ASSET AND LIABILITY COMMITTEE
B.N. Kumalo (Chairman ) G.T. Bera D.W. Birch L.T. Gwata J. Mushayavanhu S.M. Mutangadura
The committee falls directly under the bank and is chaired by a non executive director. It is responsible for the continuous monitoring of the bank's assets and liabilities.
INTERNAL FINANCIAL CONTROLS
The Directors are responsible for the Groups' internal control system, which incorporates procedures that have been designed to provide reasonable assurance that assets are safeguarded, proper accounting records are maintained and financial information is reliably reported.
The key procedures which the Board considers essential to provide effective control include:
i) Decentralized organisation structure with strong management working within defined limits of responsibility and authority.
ii) An annual budgeting process with quarterly re-forecasts to reflect changing circumstances, and the identification of key risks and opportunities.
iii) Detailed monthly management accounts with comparisons against budget through a comprehensive variance analysis.
Nothing has come to the attention of the directors to indicate that any material breakdown in the functioning of these internal control procedures and systems has occurred during the year under review.
EXECUTIVE COMMITTEE
The operational management of the Group is delegated to the executive committee, which is chaired by the Group Chief Executive.
The committee comprises:
The Group Chief Executive Managing Director (FBC Bank Limited) Managing Director (FBC Reinsurance) Managing Director (FBC Building Society) Managing Director (FBC Securities) Group Finance Director Group Company Secretary
It meets fortnightly or more frequently if necessary and acts on behalf of the Board.
INTERNAL AUDIT
The internal audit department examines and evaluates the company's activities with the aim of assisting management with the effective discharge of their responsibilities. It reviews the reliability and integrity of financial and operating information, the systems of internal control, the efficient management of the Group's resources, the conduct of operations and the means of safeguarding assets.
The Divisional Director of Internal Audit reports to the Chairman of the Audit Committee.
19 ANNUAL REPORT 2006 FBC Holdings Limited strength • diversity • service
Corporate Governance (cont’d) 31 December 2006
RISK MANAGEMENT AND CONTROL
(a) Introduction and overview
Managing risk effectively in a diverse and complex financial institution such as FBC Holdings Group requires a comprehensive risk management governance structure that promotes the following elements of a sound risk management framework: • Sound Board and Senior Management oversight. • Adequate policies, procedures and limits. • Adequate risk monitoring and management information systems (MIS). • Adequate internal controls.
FBC Holdings manages risk through a comprehensive framework of risk principles, organizational structure and risk processes that are closely aligned with the activities of the four entities under the Group.
The most important risks that the Group is exposed to are listed below: • Reputational risk • Strategic Risk • Credit risk • Liquidity risk • Market risk • Operational risk • Compliance risk
In addition to the above, there are also specific business risks that arise from the Group's Reinsurance Company's core activities.
Risk management framework
In line with the Group's risk strategy, size and complexity of its activities, the Board established a risk governance structure and responsibilities that are adequate to meet the requirements of a sound risk management framework.
The Group's Board of Directors has the ultimate responsibility for ensuring that an adequate and effective system of internal controls are established and maintained. The Board delegates its responsibilities to the following Management Committees through its respective Board Committees:
• Group Risk and Compliance Committee
• Group Audit Committee
• Group Human Resources and Remuneration Committee
• Group Finance and Strategy Committee
• Credit Committees for the Bank and Building Society
• Loans Review Committee for the Bank and Building Society
• Risk and Investment Committee for the Securities Company
• Assets Liabilities Committees (ALCO) for the Bank and Building Society
ANNUAL REPORT 2006 20 FBC Holdings Limited strength • diversity • service
Corporate Governance (cont’d) 31 December 2006
RISK MANAGEMENT AND CONTROL (cont’d)
The specific duties delegated to each committee of the Board and its respective Management Committee are outlined in the terms of reference for the specific committees.
In addition to the above committees, the following three risk related functions are directly involved in Group-wide risk management:
• Group Credit and Risk Management function
• Group Internal Audit
• Group Compliance
Group Credit and Risk Management Division assumes a central role in oversight of, and management of all risks that the Group is exposed to in its various activities. The Divisional Director, Group Credit and Risk Management is responsible for setting a framework that ensures the effective management and alignment of credit risk within the Group. The Group Risk Manager who reports to the Divisional Director, is responsible for the process of identifying, quantifying, communicating, mitigating, monitoring, and planning for effective risk management.
Group compliance is an independent core risk management activity that is headed by the Group Compliance Officer who reports administratively to the Group Chief Executive and directly to the Group Risk and Compliance Committee. The Group Compliance Officer has unrestricted access to the Chairman of the Board.
Group Internal Audit independently audits the adequacy and effectiveness of the Group's risk management, control and governance processes. The Divisional Director, Group Internal Audit who reports administratively the Group Chief Executive provides independent assurance to the Group Audit Committee and has unrestricted access to the Chairman of the Board.
(b) Credit risk
Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet its contractual obligations, and arises principally from the Group's loans and advances to customers and other banks and investment securities. For risk management reporting purposes, the Group considers and consolidates all elements of credit risk exposure (such as individual obligor default risk and sector risk).
For risk management purposes, credit risk arising on trading securities is managed independently, but reported as a component of market risk exposure.
21 ANNUAL REPORT 2006 FBC Holdings Limited strength • diversity • service
Corporate Governance (cont’d) 31 December 2006
RISK MANAGEMENT AND CONTROL (cont’d)
Management of credit risk
The Board of Directors has delegated responsibility for the management of credit risk to its Board Credit Committee. An independent Group Credit and Risk Management Division is responsible for oversight of the Group's credit risk, including:
• Formulating credit policies in consultation with business units, covering collateral requirements, credit assessment, risk grading and reporting, documentary and legal procedures, and compliance with regulatory and statutory requirements. • Establishing the authorisation structure for the approval and renewal of credit facilities. All credit facilities require the approval of either the Board Credit Committee, Management Credit Committee or Group Credit and Risk Management depending on the level of the facility. • Reviewing and assessing credit risk. Group Credit and Risk Management assesses all credit exposures prior to facilities being committed to customers by the business unit concerned. Any renewal of facilities is subject to the same review process. • Limiting concentrations of exposure to counterparties, geographies and industries (for loans and advances), and by issuer, credit rating band and market liquidity and country (for investment securities). • Developing and maintaining the Group's risk grades in order to categorise exposures according to the degree of risk of financial loss faced and to focus management on the attendant risks. The risk grading system is used in determining where impairment provisions may be required against specific credit exposures. The Group uses the Reserve Bank of Zimbabwe risk grading framework which consists of five grades reflecting varying degrees of risk of default and the availability of collateral or other credit risk mitigation. The responsibility for setting risk grades lies with the responsible business unit managers in conjunction with Group Credit and Risk Management who carry out regular reviews. • Reviewing compliance of business units with agreed exposure limits, including those for selected industries and product types. Regular reports are provided to Group Credit and Risk Management on the credit quality of local portfolios and appropriate corrective action is taken. • Providing advice, guidance and specialist skills to business units to promote best practice throughout the Group in the management of credit risk.
Each business entity is required to implement Group credit policies and procedures and is also responsible for the quality and performance of its credit portfolio as well as monitoring and controlling all credit risks in its portfolios.
Regular audits of business entities and Group Credit processes are undertaken by Group Internal Audit.
Impaired loans and securities
Impaired loans and securities are loans and securities for which the Group determines that it is probable that it will be unable to collect all principal and interest due according to the contractual terms of the loan/securities agreement(s). These loans are graded C to E in the Group's internal credit risk grading system.
Past due but not impaired loans
Loans and securities where contractual interest or principal payments are past due but the Group believes that impairment is not appropriate on the basis of the level of security/collateral available and/or the stage of collection of amounts owed to the Group.
Loans with renegotiated terms
Loans with renegotiated terms are loans that have been restructured due to deterioration in the borrower's financial position and where the Group has made concessions that it would not otherwise consider. Once the loan is restructured it remains in this category independent of satisfactory performance after restructuring.
ANNUAL REPORT 2006 22 FBC Holdings Limited strength • diversity • service
Corporate Governance (cont’d) 31 December 2006
RISK MANAGEMENT AND CONTROL (cont’d)
(b) Credit risk (Cont'd)
Allowances for impairment
The Group establishes an allowance for impairment losses that represents its estimate of incurred losses in its loan portfolio. The main components of this allowance are a specific loss component that relates to individually significant exposures, and a collective loan loss allowance established for groups of homogeneous assets in respect of losses that have been incurred but have not been identified on loans subject to individual assessment for impairment.
Write-off policy
The Group writes off a loan/security balance (and any related allowances for impairment losses) when Group Credit determines that the loans/securities are uncollectible. This determination is reached after considering information such as the occurrence of significant changes in the borrower/issuer's financial position such that the borrower/issuer can no longer pay the obligation, or that proceeds from collateral will not be sufficient to pay back the entire exposure. For smaller balance standardised loans, charge off decisions generally are based on a product specific past due status.
The Group holds collateral against loans and advances to customers in the form of mortgage interest over property, other registered securities over assets, and guarantees. Estimates of fair value are based on the value of collateral assessed at the time of borrowing, and generally are not updated except when a loan is individually assessed as impaired. Collateral generally is not held over loans and advances to banks, except when securities are held as part of reverse repurchase and securities borrowing activity. Collateral usually is not held against investment securities, and no such collateral was held as at period end.
(c) Settlement risk
The Group's activities may give rise to risk at the time of settlement of transactions and trades. Settlement risk is the risk of loss due to the failure of a company to honour its obligations to deliver cash, securities or other assets as contractually agreed.
For certain types of transactions the Group mitigates this risk by conducting settlements through a settlement/clearing agent to ensure that a trade is settled only when both parties have fulfilled their contractual settlement obligations. Settlement limits form part of the credit approval/limit monitoring process described earlier. Acceptance of settlement risk on free settlement trades requires transaction specific or counterparty specific approvals from Group Risk.
(d) Liquidity risk
Liquidity risk is the risk that the Group has insufficient funds or marketable assets available to fulfil its maturing obligation to a counterparty. Liquidity risk can result from mismatches between maturing assets and liabilities within the Group's business entities and from an obligators' failure to meet a maturing commitment. The management of liquidity risk for FBC Bank and FBC Building Society has been delegated by the Board to the FBC Bank Management ALCO and FBC Building Society Management ALCO respectively. Both Committees have the mandate to ensure adequate cash flow management.
FBC Securities manages liquidity risk through the Risk and Investment Committee. The Reinsurance Company manages this risk through its Management Committee.
In addition to the above, the day to day managing of liquidity risk is the responsibility of the respective Heads of Treasury divisions within the Group's entities, with Group Risk Management providing independent checks.
23 ANNUAL REPORT 2006 FBC Holdings Limited strength • diversity • service
Corporate Governance (cont’d) 31 December 2006
RISK MANAGEMENT AND CONTROL (cont’d)
Management of liquidity risk
The Group's approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Group's reputation.
When an operating subsidiary is subject to a liquidity limit imposed by its local regulator, the subsidiary is responsible for managing its overall liquidity within the regulatory limit in co-ordination with the respective Management Committee such as the Assets Liability Committee. Group Credit and Risk Management monitors compliance of all operating subsidiaries with local regulatory limits on a daily basis.
The daily liquidity position is monitored and regular liquidity stress testing is conducted under a variety of scenarios covering both normal and more severe market conditions. All liquidity policies and procedures are subject to annual reviews and approvals by the respective entities' Asset Liabilities Committees. Contingency liquidity plans are also reviewed in line with the prevailing operating environment.
Exposure to liquidity risk
The key measure used by the Group for managing liquidity risk is the ratio of net liquid assets to deposits from customers. For this purpose net liquid assets are considered as including cash and cash equivalents and investment grade debt securities for which there is an active and liquid market less any deposits from banks, debt securities issued, other borrowings and commitments maturing within the next month. A similar, but not identical, calculation is used to measure the Group's compliance with the liquidity limit established by the Group's lead regulator, the Reserve Bank of Zimbabwe.
(e) Market risks
Market risk is the risk that changes in market prices, such as interest rate, equity prices, foreign exchange rates and credit spreads (not relating to changes in the obligor's/issuer's credit standing) will affect the Group's income or the value of its holdings of financial instruments. The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while optimising the return on risk.
Management of market risks
The Group separates its exposure to market risk between trading and non-trading portfolios. Trading portifolio include positions arising from market making and proprietary position taking, together with financial assets and liabilities that are managed on a fair value basis.
All foreign exchange risk within the Group is managed by the Bank's Treasury unit. Accordingly, the foreign exchange position is treated as part of the Group's trading portfolios for risk management purposes.
Overall authority for market risk is vested in ALCO. Group Risk is responsible for the development of detailed risk management policies (subject to review and approval by ALCO) and for the day-to-day review of their implementation. The entities' treasury functions are responsible for the day to day management of market risks.
ANNUAL REPORT 2006 24 FBC Holdings Limited strength • diversity • service
Corporate Governance (cont’d) 31 December 2006
RISK MANAGEMENT AND CONTROL (cont’d)
Exposure to interest rate risk - non-trading portfolios
The principal risk to which non-trading portfolios are exposed to is the risk of loss from fluctuations in the future cash flows or fair values of financial instrument because of a change in market interest rates. Interest rate risk is managed principally through monitoring interest rate gaps and by having pre-approved limits for repricing bands. The ALCO is the monitoring body for compliance with these limits and is assisted by Group Risk Management in its day-to-day monitoring activities.
The management of interest rate risk against interest rate gap limits is supplemented by monitoring the sensitivity of the Group's financial assets and liabilities to various standard and non-standard interest rate scenarios. Standard scenarios that are considered on a monthly basis include a 100% fall or rise in all yield curves countrywide and a 50% rise or fall in the greater than 12-month portion of all yield curves. Overall non-trading interest rate risk positions are managed by respective subsidiary treasury departments, which use investment securities, advances to banks and deposits from banks to manage the overall position arising from the Group's non-trading activities.
Exposure to other market risks - non-trading portfolios
Credit spread risk (not relating to changes in the obligor/issuer's credit standing) on debt securities held by respective treasury departments and equity price risk is subject to regular monitoring by Group Risk, but is not currently significant in relation to the overall results and financial position of the Group.
(f) Operational risks
Operational risk is the risk of loss resulting from inadequate or failed internal processes, people and systems, or from external events whether deliberate, accidental or natural. It includes potential risk from fraud or errors, processing disruptions, control breaches or failure and information weakness. Operational risks arise from all of the Group's operations and are faced by all business entities.
The ultimate responsibility for operational risk management rests with the Group's Board of Directors which manages operational risks through Board Risk and Compliance Committees. Group Risk Management which reports to Management Group Risk and Compliance Committee through the Divisional Director, Group Credit and Risk Management is responsible for operational risk identification, measuring, monitoring and control in liaison with the business units.
The Group's Board and Senior Management realize the need to establish a sound and effective system to manage operational risk as a distinct class of risk and have therefore adopted an operational risk management framework consisting of the following components:
• Board and senior management oversight; • Operational risk management strategy, policies and procedures; • Sound internal controls and reviews; and • Adequate management information systems.
Group Risk Management is responsible for ensuring that all the Group entities implement the Group Operational Risk Policy. Group Internal Audit provides quality assurance through periodic reviews in addition to the following operational risk assessments conducted by Group Risk Management:
• Self Risk Assessments • On Site Risk Assessments • Offsite or Report Based Risk Assessments
Operational risk is controlled and mitigated through comprehensive, ongoing risk management practices which include formal internal control procedures, training, segregation of duties, delegated authorities and contingency planning.
25 ANNUAL REPORT 2006 FBC Holdings Limited strength • diversity • service
Corporate Governance (cont’d) 31 December 2006
RISK MANAGEMENT AND CONTROL (cont’d)
Each of the Group's entities has policies and procedures that govern their operations as is documented in the respective policy and procedure manuals. The policies and procedures clearly delineate accountability and lines of authority across the Group.
(g) Capital management
Regulatory capital
Regulatory authorities set and monitor capital requirements for the Group as a whole. The parent company and individual banking operations are directly supervised by the Reserve Bank of Zimbabwe (RBZ).
In implementing current capital requirements the RBZ requires the Group to maintain a prescribed ratio of total capital to total risk-weighted assets.
The Group's regulatory capital is analysed into two tiers:
• Tier 1 capital, which includes ordinary share capital, share premium, retained earnings, and minority interests after deductions for goodwill and intangible assets, and other regulatory adjustments relating to items that are included in equity but are treated differently for capital adequacy purposes. • Tier 2 capital, which includes qualifying subordinated liabilities, collective impairment allowances and the element of the fair value reserve relating to unrealised gains on equity instruments classified as available-for-sale.
Various limits are applied to elements of the capital base. Qualifying tier 2 capital cannot exceed tier 1 capital; and qualifying term subordinated loan capital may not exceed 50 percent of tier 1 capital.
Banking operations are categorised as either trading book or banking book, and risk-weighted assets are determined according to specified requirements that seek to reflect the varying levels of risk attached to assets and off-balance sheet exposures.
The Group's policy is to maintain a strong capital base so as to maintain investor, creditor and market confidence and to sustain future development of the business. The impact of the level of capital on shareholders' return is also recognised and the Group recognises the need to maintain a balance between the higher returns that might be possible with greater gearing and the advantages and security afforded by a sound capital position.
The Group and its individually regulated operations have complied with all externally imposed capital requirements throughout the period.
There have been no material changes in the Group's management of capital during the period.
Capital allocation
The allocation of capital between specific operations and activities is, to a large extent, driven by optimisation of the return achieved on the capital allocated. The amount of capital allocated to each operation or activity is based primarily upon the regulatory capital, but in some cases the regulatory requirements do not reflect fully the varying degree of risk associated with different activities. In such cases the capital requirements may be flexed to reflect differing risk profiles, subject to the overall level of capital to support a particular operation or activity not falling below the minimum required for regulatory purposes.
The process of allocating capital to specific operations and activities is undertaken independently of those responsible for the operation, by Group Risk and Group Credit, and is subject to review by the Group Credit Committee or ALCO as appropriate.
ANNUAL REPORT 2006 26 FBC Holdings Limited strength • diversity • service
Corporate Governance (cont’d) 31 December 2006
RISK MANAGEMENT AND CONTROL (cont’d)
Although maximisation of the return on risk-adjusted capital is the principal basis used in determining how capital is allocated within the Group to particular operations or activities, it is not the sole basis used for decision making. Account also is taken of synergies with other operations and activities, the availability of management and other resources, and the fit of the activity with the Group's longer term strategic objectives. The Group's policies in respect of capital management and allocation are reviewed regularly by the Board of Directors.
(h) Reputational risk
This is the potential that negative publicity regarding the Group, whether true or not will cause a decline in the customer base, costly litigation or revenue reductions.
The Board through the Group Executive Committee ensures effective reputational risk management through inter-alia; Codes of Conduct, staff training, policies and independent oversight of functions. Reviews of the Group business practices are done periodically by the Group Internal Audit, the Group Compliance Officer and Risk Management.
(i) Compliance risk
Compliance risk is the current and prospective risk to earnings or capital arising from violations of, or non-conformance with laws, rules, regulations, prescribed practices, internal policies and procedures or ethical standards.
Management is accountable to the Board for designing, implementing and monitoring the process of risk management and integrating it with the day to day activities of the Group subsidiaries.
27 ANNUAL REPORT 2006 Independent Auditors' Report
TO THE MEMBERS OF FBC HOLDINGS LIMITED
We have audited the accompanying inflation adjusted financial statements of FBC Holdings Limited, set out on pages 29 to 73, which comprise of the balance sheet as at 31 December 2006, the income statement, statement of changes in equity and cash flow statement for the year then ended, and a summary of significant accounting policies and other explanatory notes.
Management's responsibility for the financial statements
Management is responsible for the preparation and fair presentation of these financial statements in accordance with International Financial Reporting Standards. This responsibility includes: designing, implementing and maintaining internal controls relevant to the preparation and fair presentation of the financial statements that are free from material misstatements, whether due to fraud or error; selecting and applying appropriate accounting policies; and making estimates that are reasonable in the circumstance.
Auditors responsibility
Our responsibility is expressing an opinion on these inflation adjusted financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance as to whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor's judgment, including the assessment of risk of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers the internal control relevant to the entity's preparation and fair presentation of its financial statements in order to design audit procedures that are appropriate in the circumstance, but not for the purpose of expressing an opinion on the effectiveness of the internal controls in place. An audit also includes evaluating the appropriateness of accounting policies used and reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence that we have obtained is sufficient and appropriate to provide a basis for our opinion.
Opinion
In our opinion the inflation adjusted financial statements present fairly, in all material respects, the financial position of FBC Holdings Limited as of December 31 2006, and of its financial performance and its cash flows for the year then ended in accordance with International Financial Reporting Standards. The financial statements have been properly drawn up in accordance with the relevant provisions of the Companies Act [Chapter 24:03], the Banking Act [Chapter 24:20], Insurance Act [Chapter 24.07], Zimbabwe Stock Exchange Act [Chapter 24:18] and the Building Societies Act [Chapter 24.02].
Other matters
The historical cost accounts are given as supplementary information and do not form part of the financial statements.
KPMG Chartered Accountants (Zimbabwe) Harare 14 February 2007
28 FBC Holdings Limited strength • diversity • service
Consolidated Balance Sheet As at 31 December 2006
Inflation adjusted Historical
Notes 2006 2005 2006 2005 $'M $'M $'M $'M
EQUITY
Share capital and share premium 3.3 7 019 7 018 22 21 Retained earnings 18 127 7 471 18 244 565 Other reserves 4 10 181 165 9 143 127
Total equity attributable to equity holders of the company 35 327 14 654 27 409 713
Minority interests 4 898 1 078 4 141 65
Total equity 40 225 15 732 31 550 778
LIABILITIES Deposits from customers 5.1 35 239 19 264 35 239 1 332 Deposits from banks 5.2 8 409 160 8 409 12 Other liabilities 5.3 8 928 10 555 9 026 763 Current tax liabilities 4 071 1 753 4 071 127 Deferred tax liabilities 15.1 4 873 3 856 3 771 206
61 520 35 588 60 516 2 440
101 745 51 320 92 066 3 218
ASSETS Cash and cash equivalents 6 11 422 10 389 11 422 752 Trading assets 7.1 11 531 14 709 11 531 1 065 Pledged assets 7.2 6 234 2 872 6 234 208 Investment securities 7.3 493 568 493 42 Bonds held to maturity 7.4 7 598 - 7 598 - Loans and advances to customers 8.1 5 664 3 573 5 664 259 Other assets 8.2 35 796 7 339 34 784 517 Investment in associate 8.5 2 690 883 805 21 Property and equipment 9.1 19 137 9 473 13 482 322 Intangible assets 9.2 1 180 1 514 53 32
101 745 51 320 92 066 3 218
29 ANNUAL REPORT 2006 FBC Holdings Limited strength • diversity • service
Consolidated Income Statement For the year ended 31 December 2006
Inflation adjusted Historical
Notes 2006 2005 2006 2005 $'M $'M $'M $'M
Interest income 10 124 655 38 717 46 999 1 245
Interest expense 11 38 549 12 335 14 017 396
Net interest income 86 106 26 382 32 982 849
Fee and commission income 3 394 3 885 1 264 121
Dealing profits, trading and foreign exchange income 1 549 9 051 563 276
Other operating income 12 8 989 4 380 3 773 125
Total income 100 038 43 698 38 582 1 371
Impairment loss on financial assets 8.9 19 509 19 37 Depreciation and armotisation 9 2 334 1 869 59 10 Personnel expenses 13.1 19 107 9 985 6 965 297 Other expenses 13.2 9 898 5 916 3 898 177 Operating lease payments 46 27 15 1 Monetary loss 49 075 18 100 - -
Operating profit 19 559 7 292 27 626 849
Share of results of associate 1 425 615 402 19
Profit before taxation 20 984 7 907 28 028 868
Taxation 14 8 607 5 187 7 506 306
Profit after taxation 12 377 2 720 20 522 562
Atrributable to: Equity holders of the company 10 815 2 386 17 838 517 Minority interest 1 562 334 2 684 45
12 377 2 720 20 522 562
Earnings per share ($)
Basic 31.62 7.08 52.16 1.54 Diluted 29.96 6.70 49.41 1.46
ANNUAL REPORT 2006 30 FBC Holdings Limited strength • diversity • service
Consolidated Statement of Changes in Equity For the year ended 31 December 2006
Inflation adjusted
Ord. Retained Share Share Revaluation Minority Total shares profit premium Option Reserves Interest Reserve $'M $'M $'M $'M $'M $'M $'M
Balance at 1 January 2005 restated 4 7 338 6 887 5 52 - 14 286 Profit for the period - 2 386 - - - 334 2 720 Loss on available for sale assets - (43) - - - - (43) Employee share option scheme: - value of employee services - - - 33 - - 33 - share options exercised ------Dividend paid - (2 210) - - - - (2 210) Revaluation - - - - 75 - 75 Share issue - - 127 - - 744 871
Shareholders' equity at 31 December 2005/1 January 2006 4 7 471 7 014 38 127 1 078 15 732 Profit for the period - 10 815 - - - 1 562 12 377 Employee share option scheme - value of employee service - - - 1 519 - - 1 519 - share options exercised ------General provisions - (159) - - - - (159) Revaluation - - - - 8 497 846 9 343 Share issue - - 1 - - 1 412 1 413
Shareholders' equity at 31 December 2006 4 18 127 7 015 1 557 8 624 4 898 40 225
Historical
Balance at 1 January 2005 restated - 95 20 - 3 - 118 Profit for the period - 517 - - - 45 562 Loss on available for sale assets - (3) - - - - (3) Employee share option scheme - value of employee service - - - 3 - - 3 - share options exercised ------Dividend paid - (44) - - - - (44) Revaluation - - - - 121 15 136 Share issue - - 1 - - 5 6
Shareholder's equity at 31 December 2005/1 January 2006 - 565 21 3 124 65 778 Profit for the period - 17 838 - - - 2 684 20 522 Employee share option scheme - value of employee service ------share options exercised - - - 550 - - 550 General provisions - (159) - - - - (159) Revaluation - - - - 8 466 1 168 9 634 Share issue - - 1 - - 224 225
- 18 244 22 553 8 590 4 141 31 550
31 ANNUAL REPORT 2006 FBC Holdings Limited strength • diversity • service
Consolidated Cash Flow Statement For the year ended 31 December 2006
Inflation adjusted Historical
2006 2005 2006 2005 $'M $'M $'M $'M
CASH FLOWS FROM INVESTING ACTIVITIES Profit before taxation 20 984 7 907 28 028 868 Adjustments for: Depreciation and amortization 2 334 1 869 59 10 Impairment of non-financial assets Impairment of loans and advances 19 509 19 37 Other non cash flow items (263) (1 449) 170 (51)
Net cash generated before changes in operating assets and liabilities 23 074 8 836 28 276 864
Change in trading assets 3 178 ( 7 059) (10 466) (1 054) Change in pledged assets (3 362) 313 (6 026) (51) Change in loans and advances to customers (2 269) 14 496 (5 583) (244) Change in other assets (36 062) (79) (41 862) (343) Change in deposits from banks 8 249 (2 250) 8 397 8 Change in deposits from customers 15 975 (5 860) 33 907 1 070 Change in other provisions and liabilities (1 627) 3 904 8 263 701
7 156 12 301 14 906 951 Income tax paid (4 455) (6 482) (2 829) (76)
Net cash flow from operating activities 2 701 5 819 12 077 875
CASH FLOW FROM INVESTING ACTIVITIES
Net cash on investment securities 75 677 (451) (49) Purchase of property and equipment (3 160) (5 286) (1 180) (154) Proceeds from sale of property and equipment 113 64 29 2 Purchase of intangible assets (109) - (30) -
(3 081) (4 545) (1 632) (201)
ANNUAL REPORT 2006 32 FBC Holdings Limited strength • diversity • service
Consolidated Cash Flow Statement (cont’d) For the year ended 31 December 2006
Inflation adjusted Historical
2006 2005 2006 2005 $'M $'M $'M $'M
NET CASH BEFORE FINANCING
CASH FLOW FROM FINANCING ACTIVITIES
Share issue and minority contribution 1 413 296 225 6 Dividend paid - (2 210) - (44)
Net increase/(decrease) in cash and cash equivalents 1 033 (640) 10 670 636
Cash and cash equivalents at the beginning of the year 10 389 11 029 752 116
Cash and cash equivalents at the end of the year 11 422 10 389 11 422 752
33 ANNUAL REPORT 2006 FBC Holdings Limited strength • diversity • service
Accounting Policies 31 December 2006
BASIS OF PREPARATION
(a) Statement of compliance
The consolidated financial statements have been prepared in accordance with the International Financial Reporting Standards (IFRSs) and interpretations adopted by the International Accounting Standards Board (IASB), and the requirements of the Companies Act (Chapter 24:03) and the Banking Act (Chapter 24:20), Insurance Act (Chapter 24:07), Zimbabwe Stock Exchange Act (Chapter 24:18) and the Building Societies Act (Chapter 24:02).
International Financial Reporting Standards (IFRSs) include standards and Intepretations approved by the IASB as well as International Accounting Standards (IAS) and Standing Interpretations Committee (SIC), Interpretations issued under previous constitutions.
The financial statements were approved by the Board of Directors on 14 February 2007.
(b) Basis of measurement
The consolidated financial statements have been prepared on the historical cost approach and restated to take account of the effects of inflation in accordance with IAS 29 (Financial Reporting in Hyperinflationary Economies) as described below, except that the following financial assets and liabilities are stated at their fair value: financial instruments at fair value through profit and loss; financial instruments classified as available for sale; investment properties, buildings and cash settled share based payment arrangements.
Non current assets held for sale are stated at the lower of carrying amount and fair value less costs to sell.
The economy in Zimbabwe is considered to be a hyperinflationary economy. IAS 29 requires that financial statements prepared in the currency of a hyperinflationary economy be stated in terms of the measuring unit current at the balance sheet date, and that corresponding figures for the previous period also be restated in terms of the same measuring unit. Accordingly the inflation adjusted financial statements represent the principal financial statements of the Group. The historical financial statements have been provided by way of supplementary information.
Although IAS 29 discourages the presentation of historical financial statements when inflation adjusted financial statements are presented, historical financial statements have been included to allow application of the standard by the Group. The Zimbabwe Accounting Practices Board and the Zimbabwe Stock Exchange have permitted companies in Zimbabwe to present historical financial statements for a transitional period.
ANNUAL REPORT 2006 34 FBC Holdings Limited strength • diversity • service
Accounting Policies (cont’d) 31 December 2006
In accordance with IAS 29, the financial statements and the corresponding figures for the previous period have been restated to take account of the changes in the general purchasing power of the Zimbabwe dollar and as a result are stated in terms of the measuring unit current at the balance sheet date. The restatement is based on conversion factors derived from the Zimbabwe Consumer Price Index (CPI) compiled by the Zimbabwe Central Statistical Office. The indices used were as follows:
Dates Indices Conversion factors
December 2006 665 774.1 1.000 December 2005 48 205.6 13.8111 December 2004 7 028.7 94.7222
The main procedures applied in the above-mentioned restatement of transactions and balances are as follows:
• All corresponding figures as of and for the period are restated by applying the change in the index from 31 December 2005 to 31 December 2006;
• Monetary assets and liabilities, are not restated because they are already stated in terms of the measuring unit current at balance sheet date;
• Non-monetary assets and liabilities that are not carried at amounts current at balance sheet date, and components of shareholders equity, are restated by applying the change in the index from the date/month of the transaction.
• Property, plant and equipment are restated by applying the change in the index from the date of transaction, to the balance sheet date. Depreciation amounts are based on the restated amounts.
• Income statement items except the depreciation, are restated by applying the average change in the index during the period to the balance sheet date;
• Gains and losses arising from the net monetary asset or liability positions are included in the income statement; and
• All items in the cash flow statement are expressed in terms of the measuring unit current at the balance sheet date.
(c) Use of estimates and judgements
The preparation of financial statements in conformity with IFRSs requires management to make judgements, estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities, income and expenses. These estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making the judgements about carrying values of assets and liabilities that are not readily apparent from other services. Actual results may differ from these estimates. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimate is revised and in any future periods affected.
In particular, information about significant areas of estimation uncertainty and critical judgements in applying accounting policies that have the most significant effect on the amount recognized in the financial statements are described in the notes.
(d) Functional and presentation currency
These consolidated financial statements are presented in Zimbabwe dollars (Z$), which is the Group's functional currency. Except as indicated, financial information presented in Z$ has been rounded to the nearest million ($’M).
35 ANNUAL REPORT 2006 FBC Holdings Limited strength • diversity • service
Accounting Policies (cont’d) 31 December 2006
(e) Currency revaluation
On 1 August 2006, the Zimbabwean government issued Statutory Instrument 199(S.I.199) of 2006 - Presidential Powers ( Temporary Measures) (Currency Revaluation) Regulations, in terms of which the Zimbabwean dollar was revalued. The effect of the revaluation was to divide the currency in force at that time by a factor of $1000.00 to arrive at the new "currency system" which took effect on, and after 1 August 2006.
These financial statements have been prepared in terms of the 'new currency system' and accordingly with the provisions of S.I. 199. Comparatives have been restated accordingly.
SIGNIFICANT ACCOUNTING POLICIES
The accounting policies set out below have been applied consistently to all periods presented in these consolidated financial statements, and have been applied consistently by Group entities.
(a) Basis of consolidation
(i) Subsidiaries
Subsidiaries are entities controlled by the Group. Control exists when the Group has the power, directly or indirectly to govern the financial and operating policies of an entity so as to obtain benefits from its activities. In assessing control, potential voting rights that presently are exercisable or convertible are taken into account. The financial statements of subsidiaries are included in the consolidated financial statements from the date that control commences until the date control ceases.
(ii) Acquisitions from entities under common control
Business combinations arising from transfers of interests in entities that are under the control of the shareholder that controls the Group are accounted for as if the acquisition had occurred at the beginning of the earliest comparative period presented or, if later, at the date that common control was established; for this purpose comparatives are restated. The assets and liabilities acquired are recognised at the carrying amounts recognised previously in the Group's controlling shareholder's consolidated financial statements. The components of equity of the acquired entities are added to the same components within Group equity except that any share capital of the acquired entities is recognised as part of share premium. Any cash paid for the acquisition is recognised directly in equity.
(iii) Transactions eliminated on consolidation
Intra-group balances, and any unrealised income and expenses arising from intra-group transactions, are eliminated in preparing the consolidated financial statements. Unrealised losses are eliminated in the same way as unrealised gains, but only to the extent that there is no evidence of impairment.
(iv) Investments in associates
Investments in Associates are accounted for by the equity method of accounting. Under this method the company's share of post-acquisition profit or losses of associates is recognized in the income statement and its share of post acquisition movements in reserves is recognized in reserves. The cumulative post- acquisition movements are adjusted against the cost of investment. Associates are entities over which the Group generally has between 20% to 50% of the voting rights, or over which the Group has significant influence, but which it does not control. Unrealized gains on transactions between the Group and its associates are eliminated to the extent of the Group's interest in associates: unrealized losses are eliminated unless the transaction provides evidence of an impairment of the assets transferred. The Group's investment in associates includes goodwill (net of accumulated amortization) on acquisition. When the Group's share of losses in the associate equals or exceeds the interest in associate, the Group does not recognize further losses, unless the Group has incurred obligations or made payments on behalf of the associate. The amount taken for share of profit earned has been taken from the audited financial statements of Eagle Insurance Company.
ANNUAL REPORT 2006 36 FBC Holdings Limited strength • diversity • service
Accounting Policies (cont’d) 31 December 2006
(b) Share capital
Ordinary shares are classified as Equity
Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction, from the proceeds. Incremental costs directly attributable to the issue of new shares or options, or for the acquisition of a business, are included in the cost of acquisition as part of the purchase consideration.
Where any Group company purchases the Company's equity share capital (Treasury shares), the consideration paid, including any directly attributable incremental costs, is deducted from equity attributable to the Company's equity holders until the shares are cancelled or disposed of. Where such shares are subsequently sold or reissued, any consideration received, net of any directly attributable, incremental transaction costs is included in equity attributable to the Company's equity holders.
(c) Foreign currency transactions
Transactions in foreign currencies are translated to the Z$ at exchange rates at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies at the reporting date are retranslated to the functional currency at the exchange rate at that date.
(d) Financial assets and liabilities
(i) Recognition
The Group initially recognises loans and advances, deposits, debt securities issued and subordinated liabilities on the date that they are originated. All other financial assets and liabilities (including assets and liabilities designated at fair value through profit or loss) are initially recognised on the trade date at which the Group becomes a party to the contractual provisions of the instrument.
(ii) Derecognition
The Group derecognises a financial asset when the contractual rights to the cash flows from the asset expire, or it transfers the rights to receive the contractual cash flows on the financial asset in a transaction in which substantially all the risks and rewards of ownership of the financial asset are transferred. Any interest in transferred financial assets that is created or retained by the Group is recognised as a separate asset or liability.
The Group derecognises a financial liability when its contractual obligations are discharged or cancelled or expire.
The Group enters into transactions whereby it transfers assets recognised on its balance sheet, but retains either all risks and rewards of the transferred assets or a portion of them. If all or substantially all risks and rewards are retained, then the transferred assets are not derecognised from the balance sheet. Transfers of assets with retention of all or substantially all risks and rewards include, for example, securities lending and repurchase transactions.
When assets are sold to a third party with a concurrent total rate of return swap on the transferred assets, the transaction is accounted for as a secured financing transaction similar to repurchase transactions. In transactions where the Group neither retains nor transfers substantially all the risks and rewards of ownership of a financial asset, it derecognises the asset if control over the asset is lost.
The rights and obligations retained in the transfer are recognised separately as assets and liabilities as appropriate. In transfers where control over the asset is retained, the Group continues to recognise the asset to the extent of its continuing involvement, determined by the extent to which it is exposed to changes in the value of the transferred asset.
The Group also derecognises certain assets when it charges off balances pertaining to the assets deemed to be uncollectible.
37 ANNUAL REPORT 2006 FBC Holdings Limited strength • diversity • service
Accounting Policies (cont’d) 31 December 2006
(iii) Offsetting
Financial assets and liabilities are set off and the net amount presented in the balance sheet when, and only when, the Group has a legal right to set off the amounts and intends either to settle on a net basis or to realise the asset and settle the liability simultaneously.
Income and expenses are presented on a net basis only when permitted by the accounting standards, or for gains and losses arising from a group of similar transactions such as in the Group's trading activity.
(iv) Amortised cost measurement
The amortised cost of a financial asset or liability is the amount at which the financial asset or liability is measured at initial recognition, minus principal repayments, plus or minus the cumulative amortisation using the effective interest method of any difference between the initial amount recognised and the maturity amount, minus any reduction for impairment.
(v) Fair value measurement
The determination of fair values of financial assets and financial liabilities is based on quoted market prices or dealer price quotations for financial instruments traded in active markets. For all other financial instruments fair value is determined by using valuation techniques. Valuation techniques include net present value techniques, the discounted cash flow method, comparison to similar instruments for which market observable prices exist, and valuation models.
(vi) Identification and measurement of impairment
At each balance sheet date the Group assesses whether there is objective evidence that financial assets not carried at fair value through profit or loss are impaired. Financial assets are impaired when objective evidence demonstrates that a loss event has occurred after the initial recognition of the asset, and that the loss event has an impact on the future cash flows on the asset that can be estimated reliably.
The Group considers evidence of impairment at both a specific asset and collective level. All individually significant financial assets are assessed for specific impairment. All significant assets found not to be specifically impaired are then collectively assessed for any impairment that has been incurred but not yet identified. Assets that are not individually significant are then collectively assessed for impairment by grouping together financial assets (carried at amortised cost) with similar risk characteristics.
Objective evidence that financial assets (including equity securities) are impaired can include default or delinquency by a borrower, restructuring of a loan or advance by the Group on terms that the Group would not otherwise consider, indications that a borrower or issuer will enter bankruptcy, the disappearance of an active market for a security, or other observable data relating to a group of assets such as adverse changes in the payment status of borrowers or issuers in the Group, or economic conditions that correlate with defaults in the Group.
In assessing collective impairment the Group uses historical trends of the probability of default, timing of recoveries and the amount of loss incurred, adjusted for management's judgement as to whether current economic and credit conditions are such that the actual losses are likely to be greater or less than suggested by historical trends. Default rates, loss rates and the expected timing of future recoveries are regularly benchmarked against actual outcomes to ensure that they remain appropriate.
Impairment losses on assets carried at amortised cost are measured as the difference between the carrying amount of the financial assets and the present value of estimated cash flows discounted at the assets' original effective interest rate. Losses are recognised in profit or loss and reflected in an allowance account against loans and advances. Interest on the impaired asset continues to be recognised through the unwinding of the discount.
When a subsequent event causes the amount of impairment loss to decrease, the impairment loss is reversed through profit or loss.
ANNUAL REPORT 2006 38 FBC Holdings Limited strength • diversity • service
Accounting Policies (cont’d) 31 December 2006
Impairment losses on available-for-sale investment securities are recognised by transferring the difference between the amortised acquisition cost and current fair value out of equity to profit or loss. When a subsequent event causes the amount of impairment loss on an available-for-sale debt security to decrease, the impairment loss is reversed through profit or loss.
However, any subsequent recovery in the fair value of an impaired available-for-sale equity security is recognised directly in equity. Changes in impairment provisions attributable to time value are reflected as a component of interest income.
(vii) Designation at fair value through profit or loss
The Group has designated financial assets and liabilities at fair value through profit or loss when either:
• the assets or liabilities are managed, evaluated and reported internally on a fair value basis; • the designation eliminates or significantly reduces an accounting mismatch which would otherwise arise.
(e) Cash and cash equivalents
Cash and cash equivalents include notes and coins on hand, unrestricted balances held with central banks and highly liquid financial assets with original maturities of less than three months, which are subject to insignificant risk of changes in their fair value, and are used by the Group in the management of its short- term commitments.
Cash and cash equivalents are carried at amortised cost in the balance sheet.
(f) Trading assets and liabilities
Trading assets and liabilities are those assets and liabilities that the Group acquires or incurs principally for the purpose of selling or repurchasing in the near term, or holds as part of a portfolio that is managed together for short-term profit or position taking.
Trading assets and liabilities are initially recognised and subsequently measured at fair value in the balance sheet with transaction costs taken directly to profit or loss. All changes in fair value are recognised as part of net trading income in profit or loss. Trading assets and liabilities are not reclassified subsequent to their initial recognition.
(g) Originated loans and provisions for loan impairment
Loans originated by the Group by providing money directly to the borrower other than those that are originated with the intent of being sold immediately or in the short term which are recorded as trading assets, are categorized as loans originated by the Group and are carried at amortised cost, which is defined as the fair value of cash consideration given to originate those loans as is determinable by reference to market prices at origination date. Third party expenses, such as legal fees, incurred in securing a loan are treated as part of the cost of the transaction.
Originated loans include mortgage advances loans and advances to banks and customers, mortgage advances and secured and unsecured loans.
All mortgage advances, secured and unsecured loans are recognized when cash is advanced to borrowers.
An allowance for loan impairment is established if there is objective evidence that the Group will not be able to collect all amounts due according to the original contractual terms of loans. The amount of the provision is the difference between the carrying amount and the recoverable amount, being the present value of expected cash flows, including amounts recoverable from guarantees and collateral, discounted at the original effective interest rate of loans. A prudent valuation of collateral held is performed by the Group's valuers.
39 ANNUAL REPORT 2006 FBC Holdings Limited strength • diversity • service
Accounting Policies (cont’d) 31 December 2006
The loan impairment provision also covers losses where there is objective evidence that probable losses are present in components of the loan portfolio at the balance sheet date. These have been estimated based upon historical patterns of losses in each component, the credit ratings allocated to the borrowers and reflecting the current economic climate in which the borrowers operate. When a loan is uncollectible, it is written off against the related provision for impairments; subsequent recoveries are credited to the provision for loan losses in the income statement.
If the amount of the impairment subsequently decreases due to an event occurring after the write-down, the release of the provision is credited as a reduction of the provision for loan losses.
(h) Investment securities
Investment securities are initially measured at fair value plus incremental direct transaction costs and subsequently accounted for depending on their classification as either held-to-maturity, fair value through profit or loss, or available-for-sale.
(i) Held-to-maturity
Held-to-maturity investments are non-derivative assets with fixed or determinable payments and fixed maturity that the Group has the positive intent and ability to hold to maturity, and which are not designated at fair value through profit or loss or available-for-sale.
Held-to-maturity investments are carried at amortised cost using the effective interest method. Any sale or reclassification of a significant amount of held-to-maturity investments not close to their maturity would result in the reclassification of all held-to-maturity investments as available-for-sale, and prevent the Group from classifying investment securities as held-to-maturity for the current and the following two financial years.
(ii) Fair value through profit or loss
The Group carries some investment securities at fair value, with fair value changes recognised immediately in profit or loss as described in the previous accounting policy.
(iii) Available-for-sale
Available-for-sale investments are non-derivative investments that are not designated as another category of financial assets. Unquoted equity securities whose fair value cannot be reliably measured are carried at cost. All other available-for-sale investments are carried at fair value.
Interest income is recognised in profit or loss using the effective interest method. Dividend income is recognised in profit or loss when the Group becomes entitled to the dividend. Foreign exchange gains or losses on available-for-sale debt security investments are recognised in profit or loss.
Other fair value changes are recognised directly in equity until the investment is sold or impaired and the balance in equity is recognised in profit or loss.
(i) Property and equipment
(i) Recognition and measurement
Items of property and equipment are measured at cost less accumulated depreciation and impairment losses.
ANNUAL REPORT 2006 40 FBC Holdings Limited strength • diversity • service
Accounting Policies (cont’d) 31 December 2006
Cost includes expenditures that are directly attributable to the acquisition of the asset. The cost of self- constructed assets includes the cost of materials and direct labour, any other costs directly attributable to bringing the asset to a working condition for its intended use, and the costs of dismantling and removing the items and restoring the site on which they are located. Purchased software that is integral to the functionality of the related equipment is capitalised as part of that equipment.
When parts of an item of property or equipment have different useful lives, they are accounted for as separate items (major components) of property and equipment.
(ii) Subsequent costs
The cost of replacing part of an item of property or equipment is recognised in the carrying amount of the item if it is probable that the future economic benefits embodied within the part will flow to the Group and its cost can be measured reliably. The costs of the day-to-day servicing of property and equipment are recognised in profit or loss as incurred.
(iii) Depreciation
Depreciation is recognised in profit or loss on a straight-line basis over the estimated useful lives of each part of an item of property and equipment. Leased assets are depreciated over the shorter of the lease term and their useful lives. Land is not depreciated.
The depreciation rates for the current and comparative periods are as follows:
Freehold buildings - 2% Computers - Software - 20% Computers - Hardware - 20% Motor vehicles - 20% Office equipment - 10% Furniture and fittings - 10%
Depreciation methods, useful lives and residual values are reassessed at the reporting date.
Gains and losses on disposals are determined by comparing proceeds with carrying amount. These are included in the income statements.
(j) Investment property
Investment property is property held either to earn rental income or for capital appreciation or for both. Investment property is measured at fair value with any change therein recognised in profit or loss in other operating income.
(k) Intangible assets
(i) Goodwill
Goodwill (negative goodwill) arises on the acquisition of subsidiaries.
Goodwill represents the excess of the cost of the acquisition over the Group's interest in the net fair value of the identifiable assets, liabilities and contingent liabilities of the acquiree. When the excess is negative (negative goodwill), it is recognised immediately in profit or loss.
Acquisitions of minority interests Goodwill arising on the acquisition of a minority interest in a subsidiary represents the excess of the cost of the additional investment over the carrying amount of the net assets acquired at the date of exchange.
Subsequent measurement Goodwill is measured at cost less accumulated impairment losses.
41 ANNUAL REPORT 2006 FBC Holdings Limited strength • diversity • service
Accounting Policies (cont’d) 31 December 2006
(ii) Software
Software acquired by the Group is stated at cost less accumulated amortisation and accumulated impairment losses.
Expenditure on internally developed software is recognised as an asset when the Group is able to demonstrate its intention and ability to complete the development and use the software in a manner that will generate future economic benefits, and can reliably measure the costs to complete the development. The capitalised costs of internally developed software include all costs directly attributable to developing the software, and are amortised over its useful life. Internally developed software is stated at capitalised cost less accumulated amortisation and impairment.
Subsequent expenditure on software assets is capitalised only when it increases the future economic benefits embodied in the specific asset to which it relates. All other expenditure is expensed as incurred.
Amortisation is recognised in profit or loss on a straight-line basis over the estimated useful life of the software, from the date that it is available for use. The estimate useful life of software is five years.
(l) Leased assets - lessee
Leases in terms of which the Group assumes substantially all the risks and rewards of ownership are classified as finance leases. Upon initial recognition the leased asset is measured at an amount equal to the lower of its fair value and the present value of the minimum lease payments. Subsequent to initial recognition, the asset is accounted for in accordance with the accounting policy applicable to that asset.
Other leases are operating leases and, except for investment property, the leased assets are not recognised on the Group's balance sheet. Investment property held under an operating lease is recognised on the Group's balance sheet at its fair value.
(m) Impairment of non-financial assets
The carrying amounts of the Group's non-financial assets, other than investment property and deferred tax assets, are reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication exists then the asset's recoverable amount is estimated. The recoverable amount of goodwill is estimated at each reporting date.
An impairment loss is recognised if the carrying amount of an asset or its cash-generating unit exceeds its recoverable amount. A cash-generating unit is the smallest identifiable asset group that generates cash flows that largely are independent from other assets and groups. Impairment losses are recognised in profit or loss. Impairment losses recognised in respect of cash-generating units are allocated first to reduce the carrying amount of any goodwill allocated to the units and then to reduce the carrying amount of the other assets in the unit (group of units) on a pro rata basis.
The recoverable amount of an asset or cash-generating unit is the greater of its value in use and its fair value less costs to sell. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset.
An impairment loss in respect of goodwill is not reversed. In respect of other assets, impairment losses recognised in prior periods are assessed at each reporting date for any indications that the loss has decreased or no longer exists. An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset's carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised.
ANNUAL REPORT 2006 42 FBC Holdings Limited strength • diversity • service
Accounting Policies (cont’d) 31 December 2006
(n) Deposits, debt securities issued and subordinated liabilities
Deposits, debt securities issued and subordinated liabilities are the Group's sources of debt funding.
When the Group sells a financial asset and simultaneously enters into a "repo" or "stock lending" agreement to repurchase the asset (or a similar asset) at a fixed price on a future date, the arrangement is accounted for as a deposit, and the underlying asset continues to be recognised in the Group's financial statements.
The Group classifies capital instruments as financial liabilities or equity instruments in accordance with the substance of the contractual terms of the instrument.
Deposits, debt securities issued and subordinated liabilities are initially measured at fair value plus transaction costs, and subsequently measured at their amortised cost using the effective interest method, except where the Group chooses to carry the liabilities at fair value through profit or loss.
The Group carries some deposits, debt securities and subordinated liabilities at fair value, with fair value changes recognised immediately in profit or loss.
(o) Provisions
A provision is recognised if, as a result of a past event, the Group has a present legal or constructive obligation that can be estimated reliably, and it is probable that an outflow of economic benefits will be required to settle the obligation. Provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and, where appropriate, the risks specific to the liability.
A provision for restructuring is recognised when the Group has approved a detailed and formal restructuring plan, and the restructuring either has commenced or has been announced publicly. Future operating costs are not provided for.
A provision for onerous contracts is recognised when the expected benefits to be derived by the Group from a contract are lower than the unavoidable cost of meeting its obligations under the contract. The provision is measured at the present value of the lower of the expected cost of terminating the contract and the expected net cost of continuing with the contract. Before a provision is established, the Group recognises any impairment loss on the assets associated with that contract.
(p) Financial guarantees
Financial guarantees are contracts that require the Group to make specified payments to reimburse the holder for a loss it incurs because a specified debtor fails to make payment when due in accordance with the terms of a debt instrument.
Financial guarantee liabilities are initially recognised at their fair value, and the initial fair value is amortised over the life of the financial guarantee. The guarantee liability is subsequently carried at the higher of this amortised amount and the present value of any expected payment (when a payment under the guarantee has become probable). Financial guarantees are included within other liabilities.
(q) Employee benefits
(i) Defined contribution plans
Obligations for contributions to defined contribution pension plans are recognised as an expense in profit or loss when they are due. Prepaid contributions are recognized as an asset to the extent that a cash refund or a reduction in the future payments is available.
43 ANNUAL REPORT 2006 FBC Holdings Limited strength • diversity • service
Accounting Policies (cont’d) 31 December 2006
Pension obligation
The Group provides for retirement benefit obligation in respect of its employees as follows;
i) FBCH Pension Fund - Defined Contribution Fund ii) National Social Security Authority (NSSA) - Defined Benefit Fund. Contributions to NSSA are made in terms of statutory regulations and are charged against income as incurred
A defined contribution plan is a pension plan under which the Group pays fixed contributions into a separate entity. The Group has no legal or constructive obligations to pay further contributions if the funds does not hold sufficient assets to pay all employees the benefits relating to employee service in the current and prior periods.
(ii) Profit sharing and bonus plans
The Group recognizes a liability and an expense for profit sharing and bonuses based on a formula that takes into consideration the profit attributable to the company's shareholders after an external audit. The Group recognizes a provision where contractually obliged or where there is a past practice that has created a constructive obligation.
(iii) Termination benefits
Termination benefits are recognised as an expense when the Group is demonstrably committed, without realistic possibility of withdrawal, to a formal detailed plan to terminate employment before the normal retirement date. Termination benefits for voluntary redundancies are recognised if the Group has made an offer encouraging voluntary redundancy, it is probable that the offer will be accepted, and the number of acceptances can be estimated reliably.
(iv) Short-term benefits
Short-term employee benefit obligations are measured on an undiscounted basis and are expensed as the related service is provided.
(v) Share-based payment transactions
The grant date fair value of options granted to employees is recognised as an employee expense, with a corresponding increase in equity, over the period in which the employees become unconditionally entitled to the options. The amount recognised as an expense is adjusted to reflect the actual number of share options that vest.
The fair value of the amount payable to employees in respect of share appreciation rights, which are settled in cash, is recognised as an expense, with a corresponding increase in liabilities, over the period in which the employees become unconditionally entitled to payment. The liability is re-measured at each reporting date and at settlement date. Any changes in the fair value of the liability are recognised as personnel expense in profit or loss.
The fair value of employee stock options is measured using Black-Scholes model. The fair value of share appreciation rights is measured using the Black-Scholes formula. Measurement inputs include share price on measurement date, exercise price of the instrument, expected volatility (based on weighted average historic volatility adjusted for changes expected due to publicly available information), weighted average expected life of the instruments (based on historical experience and general option holder behaviour), expected dividends, and the risk-free interest rate (based on government bonds). Service and non-market performance conditions attached to the transactions are not taken into account in determining fair value.
ANNUAL REPORT 2006 44 FBC Holdings Limited strength • diversity • service
Accounting Policies (cont’d) 31 December 2006
(r) Earnings per share
The Group presents basic and diluted earnings per share (EPS) data for its ordinary shares. Basic EPS is calculated by dividing the profit or loss attributable to ordinary shareholders of the Group by the weighted average number of ordinary shares outstanding during the period. Diluted EPS is determined by adjusting the profit or loss attributable to ordinary shareholders and the weighted average number of ordinary shares outstanding for the effects of all dilutive potential ordinary shares, which comprise share options granted to employees.
(s) Segment reporting
A segment is a distinguishable component of the Group that is engaged either in providing products or services (business segment), or in providing products or services within a particular economic environment (geographical segment), which is subject to risks and rewards that are different from those of other segments. The Group's primary format for segment reporting is based on business segments.
(t) Interest
Interest income and expense are recognised in the income statement using the effective interest method. The effective interest rate is the rate that exactly discounts the estimated future cash payments and receipts through the expected life of the financial asset or liability (or, where appropriate, a shorter period) to the carrying amount of the financial asset or liability. The effective interest rate is established on initial recognition of the financial asset and liability and is not revised subsequently.
The calculation of the effective interest rate includes all fees and charges paid or received, transaction costs, and discounts or premiums that are an integral part of the effective interest rate. Transaction costs are incremental costs that are directly attributable to the acquisition, issue or disposal of a financial asset or liability.
Interest income and expense presented in the income statement include: • interest on financial assets and liabilities at amortised cost on an effective interest rate basis • interest on available-for-sale investment securities on an effective interest basis
Interest income and expense on all trading assets and liabilities are considered to be incidental to the Group's trading operations and are presented together with all other changes in the fair value of trading assets and liabilities in net trading income.
(u) Net trading and dealing income
Net trading income comprises gains less losses related to trading assets and liabilities, and includes all realised and unrealised fair value changes, interest, dividends and foreign exchange differences.
(v) Fees and commission
Fees and commission income and expenses that are integral to the effective interest rate on a financial asset or liability are included in the measurement of the effective interest rate. Other fees and commission income, including account servicing fees, investment management fees, sales commission, placement fees and syndication fees, are recognised as the related services are performed. When a loan commitment is not expected to result in the draw-down of a loan, loan commitment fees are recognised on a straight- line basis over the commitment period.
Other fees and commission expense relates mainly to transaction and service fees, which are expensed as the services are received.
45 ANNUAL REPORT 2006 FBC Holdings Limited strength • diversity • service
Accounting Policies (cont’d) 31 December 2006
(w) Dividends
Dividend income is recognised when the right to receive income is established. Usually this is the ex- dividend date for equity securities. Dividends are reflected as a component of net trading income, net income on other financial instruments at fair value or other operating income based on the underlying classification of the equity instrument.
(x) Lease payments made
Payments made under operating leases are recognised in profit or loss on a straight-line basis over the term of the lease. Lease incentives received are recognised as an integral part of the total lease expense, over the term of the lease.
Minimum lease payments made under finance leases are apportioned between the finance expense and the reduction of the outstanding liability. The finance expense is allocated to each period during the lease term so as to produce a constant periodic rate of interest on the remaining balance of the liability. Contingent lease payments are accounted for by revising the minimum lease payments over the remaining term of the lease when the lease adjustment is confirmed.
(y) Income tax expense
Income tax expense comprises current and deferred tax. Income tax expense is recognised in the income statement except to the extent that it relates to items recognised directly in equity, in which case it is recognised in equity.
Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at the balance sheet date, and any adjustment to tax payable in respect of previous years.
Deferred tax is provided using the balance sheet method, providing for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax is not recognised for the following temporary differences: the initial recognition of goodwill, the initial recognition of assets or liabilities in a transaction that is not a business combination and that affects neither accounting nor taxable profit, and differences relating to investments in subsidiaries to the extent that they probably will not reverse in the foreseeable future. Deferred tax is measured at the tax rates that are expected to be applied to the temporary differences when they reverse, based on the laws that have been enacted or substantively enacted by the reporting date.
A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which the asset can be utilised. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realised.
Additional income taxes that arise from the distribution of dividends are recognised at the same time as the liability to pay the related dividend is recognised.
(z) Premium income
Premium income is accounted for as and when the premiums are agreed and policy prepared.
(aa) Unearned premium reserve
Unearned premiums are carried forward and are those proportions of the written premium less reinsurance, that relate to risks that have not yet expired at the end of the financial year. The unearned portion is calculated on the actual day outstanding.
ANNUAL REPORT 2006 46 FBC Holdings Limited strength • diversity • service
Accounting Policies (cont’d) 31 December 2006
(ab) Deferred acquisition costs
Acquisition costs, which represent commission, are deferred over the period in which the related premiums are earned. The deferred portion is calculated by applying the average commission rate on the unearned premium reserve balance.
(ac) Outstanding claims
Provision is made for the estimated costs outstanding claims less expected receipts from re-insurance. The estimates are done using the best information available at the end of the financial year. All other contingencies arising in the settlement of claims and cost of claims incurred but not reported after balance sheet date are included.
(ad) Revaluation of land and buildings
Independent valuations are performed at least every three years on an open market for existing use basis.
Revaluation surpluses and deficits are dealt with in capital reserves. Other tangible fixed assets are stated at cost less amount provided for depreciation.
(ae) Comparative information
Comparative information is restated where necessary to comply with new or revised IFRSs, where applicable.
(af) New standard and interpretations not yet adopted
A number of new standards, amendments to standards and interpretations are not yet effective for the year ended 31 December 2006, and have not been applied in preparing these consolidated financial statements:
• IFRIC 7 Applying the Restatement Approach under IAS 29 Financial Reporting in Hyperinflationary Economies addresses the application of IAS 29 when an economy first becomes hyperinflationary and in particular the accounting for deferred tax. IFRIC 7, which becomes mandatory for the Group's 2007 financial statements, is not expected to have any impact on the consolidated financial statements. • IFRIC 8 Scope of IFRS 2 Share-based Payment addresses the accounting for share-based payment transactions in which some or all of goods or services received cannot be specifically identified. IFRIC 8 will become mandatory for the Group's 2007 financial statements, with retrospective application required. The Group has not yet determined the potential effect of the interpretation. • IFRIC 9 Reassessment of Embedded Derivatives requires that a reassessment of whether embedded derivative should be separated from the underlying host contract should be made only when there are changes to the contract. IFRIC 9, which becomes mandatory for the Group's 2007 financial statements, is not expected to have any impact on the consolidated financial statements. • IFRIC 10 Interim Financial Reporting and Impairment prohibits the reversal of an impairment loss recognised in a previous interim period in respect of goodwill, an investment in an equity instrument or a financial asset carried at cost. IFRIC 10 will become mandatory for the Group's 2007 financial statements, and will apply to goodwill, investments in equity instruments, and financial assets carried at cost prospectively from the date that the Group first applied the measurement criteria of IAS 36 and IAS 39 respectively (i.e., 1 January 2004). The adoption of IFRIC 10 is not expected to have a significant impact on the consolidated financial statements.
47 ANNUAL REPORT 2006 FBC Holdings Limited strength • diversity • service
Notes to the Financial Statements 31 December 2006
1. INCORPORATION AND ACTIVITIES
The Company is incorporated in Zimbabwe and is an investment holding company. The Company through three wholly-owned subsidiaries and one 60% controlled subsidiary provide a wide range of commercial banking, mortgage loans, related financial services, stockbroking services and reinsurance services.
2. CURRENCY
These financial statements are expressed in Zimbabwe dollars rounded off to the nearest million.
3. SHARE CAPITAL Inflation adjusted Historical
2006 2005 2006 2005 $'M $'M $'M $'M 3.1 Authorised 800 000 000 ordinary shares of $0.001 each 1 1 1 1
3.2 Issued and fully paid 348 001 777 ordinary shares of $1.00 each - - - -
3.3 Share Capital Movement
Inflation Adjusted
No. of Ordinary Share Total shares shares premium $'M $'M $'M $'M
At 1 January 2005 325 4 6 887 6 891 Proceeds from shares issued 4 - - - Acquisition of subsidiary 12 - 127 127
At 31 December 2005/1 January 2006 341 4 7 014 7 018 Proceeds from shares issued and adjustment 7 - 1 1
At 31 December 2006 348 4 7 015 7 019
ANNUAL REPORT 2006 48 FBC Holdings Limited strength • diversity • service
Notes to the Financial Statements (cont’d) 31 December 2006
3.4 Share Capital Movement (cont'd)
No. of Ordinary Share Total shares shares premium
$'M $'M $'M $'M Historical At 1 January 2005 325 - 20 20 Proceeds from shares issued 4 - - - Acquisition of subsidiary 12 - 1 1
At 31 December 2005/ 1 January 2006 341 - 21 21 Proceeds from shares issued and adjustment 7 - 1 1
At 31 December 2006 348 - 22 22
3.4.1 Share Options
Grant date Number of Vesting Conditions Contractual instruments life of options
Share options in Sept 3,912,416 Maximum of 50% after 2 years and the balance 2003 after 3 years from the option date. 9 years
Savings related shares in 978,104 Exercisable within 30 days after 3 years effective Sept 2003 from date of grant and thereafter lapses if not exercisable. 3 years
Share options in Sept 3,912,416 Maximum of 50% after 2 years of service and the 2004 balance after 3 years from the option date. 8 years
Savings related shares in 978,104 Exercisable within 30 days after 3 years effective Sept 2004 from date of grant and thereafter lapses if not exercisable. 3 years
Share options in Sept 1,956,208 Maximum of 50% after 2 years and the balance 2005 after 3 years from the option date. 7 years
Savings related shares 489,052 Exercisable within 30 days after 3 years effective in 2005 from date of grant and thereafter lapses if not exercised. 3 years
Share options in Sept 1,956,208 Maximum of 50% after 2 years and the balance 2006 after 3 years from option date. 6 years
Savings related shares in 489,052 Exercisable within 30 days after 3 years effective 2006 from date of grant and thereafter lapses if not exercised. 3 years
Total 14,671,560
49 ANNUAL REPORT 2006 FBC Holdings Limited strength • diversity • service
Notes to the Financial Statements (cont’d) 31 December 2006
3.4.1 Share Options (cont’d)
The number and weighted average exercise prices of share options is as follows.
Weighted average Number Weighted average Number Weighted average Number Weighted average Number exercise of exercise of exercise of exercise of price options price options price options price options $ $ $ $ $ $ $ $
2006 2006 2005 2005 2004 2004 2003 2003
Outstanding at the Beginning of the period 0.14 12 119 333 0.12 13 187 337 0.06 10 143 875 0.02 7 335 780 Forfeited during the period - 0.22 (73 371) 0.09 (645 966) 0.02 (2 082 425) Exercised during the period (6 447 198) 0.22 (3 439 893) 0.02 (1 201 091) - - Granted during the period 18.68 2 445 260 038 2 445 260 0.22 4 890 519 0.09 4 890 520
Outstanding at the end of the period 8 117 395 12 119 333 13 187 337 10 143 875
Exercisable at the end of period 3 679 916 4 301 384 1 951 849
The options outstanding at 31 December 2006 have an exercise price in the range of $0.02 to $18.68
Fair value of share options and assumptions:- 2006 2005 2004
Fair value at measurement date ($) 94.99 94.99 94.99 Closing Share price for month of December 2006($) 95.00 95.00 95.00 Exercise price($) 18.68 0.38 0.22 Expected Volatility 1.79 1.79 1.79 Expected Life (Weighted average) 6 years 6 years 6 years Risk free interest rate 300% 300% 300%
There are no market conditions associated with the share option grants
The fair value of options granted during the period were determined using the Black-Scholes model. The significant inputs into the model were share price at the grant date, exercise price shown above, standard deviation of expected share price returns, option life disclosed above, and annual risk-free interest rate. The volatility measured as the standard deviation of expected share price returns is based on statistical analysis of daily share prices over the last three years.
ANNUAL REPORT 2006 50 FBC Holdings Limited strength • diversity • service
Notes to the Financial Statements (cont’d) 31 December 2006
4 OTHER RESERVES Inflation adjusted Historical
2006 2005 2006 2005 $'M $'M $'M $'M
Share option reserve 1 557 38 553 3 Revaluation reserve 8 624 127 8 590 124
10 181 165 9 143 127
5 DEPOSITS AND OTHER ACCOUNTS
5.1 Amounts due to customers by type
Demand deposits 10 460 6 889 10 460 499 Savings deposits 3 664 2 117 3 664 153 Asset linked deposits 20 476 6 600 20 476 478 Other time deposits 639 3 658 639 202
35 239 19 264 35 239 1 332
5.2 Amounts due to other banks 8 409 160 8 409 12
5.3 Creditors and other accounts
Trade and other payables 3 475 1 663 3 475 119 Accrued interest 1 756 6 197 1 756 449 Other liabilities 3 697 2 695 3 795 195
8 928 10 555 9 026 763
5.4 Maturity analysis of deposits and other accounts
Maturing within 1 year 46 373 27 452 46 471 1 987 Maturing after 1 year but within 5 years 6 203 2 527 6 203 120
52 576 29 979 52 674 2 107
51 ANNUAL REPORT 2006 FBC Holdings Limited strength • diversity • service
Notes to the Financial Statements (cont’d) 31 December 2006
6. BALANCES WITH BANKS AND CASH EQUIVALENTS
Balances with Reserve Bank of Zimbabwe
Inflation adjusted Historical
2006 2005 2006 2005 $'M $'M $'M $'M
Statutory reserve deposit 8 559 5 179 8 559 375 Current account (41) 1 215 (41) 88
Total with RBZ 8 518 6 394 8 518 463
The statutory reserve deposit with the Reserve Bank of Zimbabwe is non-interest bearing. The balance is determined by reference to the liabilities to the public.
Balances with other banks and cash Current and nostro accounts, cheques in course of collection, cash, money at call and short notice 2 904 3 995 2 904 289
Total balances with banks and cash 11 422 10 389 11 422 752
7. INVESTMENTS
7.1 Trading assets
Corporate bonds 3 127 1 533 3 127 111 Treasury bills 3 174 13 176 3 174 954 Equities 5 127 - 5 127 - Other 103 - 103 -
11 531 14 709 11 531 1 065
7.2 Pledged assets
Treasury bills 6 234 2 872 6 234 208
7.3 Investment securities
Equities at fair value through profit and loss 493 568 493 42
ANNUAL REPORT 2006 52 FBC Holdings Limited strength • diversity • service
Notes to the Financial Statements (cont’d) 31 December 2006
Inflation adjusted Historical
2006 2005 2006 2005 $'M $'M $'M $'M
7.4 Bonds held to maturity
Government bonds 7 598 - 7 598 -
Total investments 25 856 18 149 25 856 1 315
7.5 Maturities (all investments)
Maturing within 1 year 18 880 17 137 18 880 1 240 Maturing after 1 year but within 5 years 6 976 1 012 6 976 75
25 856 18 149 25 856 1 315
8. ADVANCES AND OTHER ACCOUNTS
8.1 Advances maturities
Maturing within 1 year 4 186 2 679 4 186 194 Maturing after 1 year but within 5 years 1 675 1 077 1 675 78
Gross amount 5 861 3 756 5 861 272
Interest suspended (note 8.10) (9) (59) (9) (4) Impairment allowance (note 8.9) (188) (124) (188) (9)
Carrying amount 5 664 3 573 5 664 259
8.2 Receivables and other assets
Assets held for sale 2 756 786 2 756 57 Investment properties (note 8.6) 1 127 227 1 127 16 Accounts receivables 29 389 4 143 29 178 300 Other 2 524 2 183 1 723 144
35 796 7 339 34 784 517
The maturity analysis of advances is based on the remaining periods to contractual maturity from year-end.
53 ANNUAL REPORT 2006 FBC Holdings Limited strength • diversity • service
Notes to the Financial Statements (cont’d) 31 December 2006
8.3 Irrevocable commitments
There are no irrevocable commitments to extend credit, which can expose the bank to penalties or expense.
8.4 Sectoral analysis of utilisations
Net advances
Inflation adjusted 2006 2005
$'M % $'M % Mining 2 0.0 - 0.0 Manufacturing 819 14.7 69 2.0 Wholesale 597 10.7 151 4.2 Transport 48 0.9 12 0.4 Finance 309 5.6 175 4.9 Individuals 1 312 21.8 884 24.7 Agriculture 2 433 43.7 1 304 36.5 Other services 144 2.6 978 27.3
5 664 100.0 3 573 100.0
Historical
Mining 2 0.0 - 0.0 Manufacturing 819 14.7 5 2.0 Wholesale 597 10.7 11 4.2 Transport 48 0.9 1 0.4 Finance 309 5.6 13 4.9 Individuals 1 312 21.8 64 24.7 Agriculture 2 433 43.7 94 36.5 Other services 144 2.6 71 27.3
5 664 100.0 259 100.0
ANNUAL REPORT 2006 54 FBC Holdings Limited strength • diversity • service
Notes to the Financial Statements (cont’d) 31 December 2006
8.4.1 Risk concentrations
There are material concentrations of loans and advances to agriculture and individuals.
Inflation adjusted Historical
2006 2005 2006 2005 $'M $'M $'M $'M 8.5 Investment associate
At beginning of the year 883 262 21 2 Share of results before tax 1 605 608 582 19 Share of tax (180) (83) (180) (6) Share of revaluation 382 96 382 6
2 690 883 805 21
8.6 Investment properties
Opening carrying amount 227 47 16 - Additions - - - - Acquisition of subsidiary - 107 - 2 Transfer from property 15 - 1 - Fair value adjustments 885 73 1 110 14 Impairment - - - -
1 127 227 1 127 16
The fair value of the investment properties at 31 December 2006 has been arrived at on the basis of a valuation carried out at that date by Knight Frank Real Estate and internal experts based on an open market value method. The valuation was arrived at by reference to market evidence of transaction prices for similar properties.
8.7 Related party transactions
The Group has related party relationship with its shareholders who own directly or indirectly 10% or more of its share capital or those shareholders who control in any manner, the election of the majority of the directors of the Group or have the power to exercise controlling influence over the management or financial and operating policies of the Group. The Group carried out business with various companies related to its shareholders, all of which were undertaken at arm's length terms and in compliance with the relevant Banking Regulations.
The following were the related party balances at the end of the year:
Inflation adjusted Historical
Balance Balance Balance Balance Outstanding Outstanding Outstanding Outstanding 2006 2005 2006 2005 $'M $'M $'M $'M
Advances to related parties 544 42 544 3
55 ANNUAL REPORT 2006 FBC Holdings Limited strength • diversity • service
Notes to the Financial Statements (cont’d) 31 December 2006
8.8 Transactions with key personnel
8.8.1 Loans to directors
Inflation adjusted Historical
2006 2005 2006 2005 $'M $'M $'M $'M
Opening balance 50 298 4 3 Effect of IAS 29 (46) (252) - - Advances during the year 264 33 264 3 Repayments made during the year (2) (29) (2) (2)
Balance at 31 December 266 50 266 4
8.8.2 Loans to officers
Opening balance 69 236 5 2 Effect of IAS 29 (27) (202) - - Advances during the year 21 75 52 6 Repayments (7) (40) (1) (3)
Balance at 31 December 56 69 56 5
The loans are mainly to Executive Directors and officers in respect of the purchase of motor vehicles and housing, under the Bank's Car loan and Housing loan schemes, at concessionary rates as part of their terms of service. Housing loans are secured over property of the respective borrowers. Other loans are not secured and no guarantees have been secured.
No impairment losses have been recorded against balances outstanding during the period with key management personnel, and no specific allowance has been made for impairment losses on balances with key management personnel at the period end.
8.9 Allowances for impairment
Balance at 1 January 124 912 10 66 Effect of IAS 29 (114) - - - Impairment loss for the year 19 509 19 37 Impairment loss through equity 159 - 159 - Applied against impairment provision - (1 297) - (93)
Balance at 31 December 188 124 188 10
ANNUAL REPORT 2006 56 FBC Holdings Limited strength • diversity • service
Notes to the Financial Statements (cont’d) 31 December 2006
8.10 Impaired loans and advances
Inflation adjusted Historical
2006 2005 2006 2005 $'M $'M $'M $'M Total loans and advances on which interest is suspended 14 178 14 13 Specific provisions for impairment of loans (2) (60) (2) (5) Interest in suspense (note 8.1) (9) (59) (9) (4)
3 59 3 4
9. PROPERTY AND EQUIPMENT
9.1 Movements on property and equipment accounts
Inflation adjusted
Freehold Computer Furniture & Motor premises equipment office equip vehicles Total $'M $'M $'M $'M $'M Cost At 1 January 2006 3 640 5 936 3 552 5 635 18 763 Additions 77 718 801 1 564 3 160 Disposals - (141) (155) (522) (818) Transfers to investment property (15) - - - (15) Revaluation 8 676 - - 285 8 961
At 31 December 2006 12 378 6 513 4 198 6 962 30 051
Depreciation and impairment losses At 1 January 2006 613 4 565 1 852 2 265 9 295 Charge for the period 53 613 289 935 1 890 Disposals - (30) (15) (226) (271)
At 31 December 2006 666 5 148 2 126 2 974 10 914
Carrying amount at 31 December 2006 11 712 1 365 2 072 3 988 19 137
Carrying amount at 31 December 2005 3 027 1 376 1 700 3 370 9 473
57 ANNUAL REPORT 2006 FBC Holdings Limited strength • diversity • service
Notes to the Financial Statements (cont’d) 31 December 2006
9.1 Movements on property and equipment accounts (cont'd)
Historical Freehold Computer Furniture & Motor premises equipment office equip vehicles Total $'M $'M $'M $'M $'M Cost At 1 January 2006 219 24 24 63 331 Additions 16 261 280 624 1 180 Disposals - (15) (11) (31) (57) Transfer to investment property (1) - - - (1) Revaluation 11 483 - - 602 12 085
At 31 December 2006 11 717 270 293 1 258 13 538
Depreciation and impairment losses At 1 January 2006 - 3 1 5 9 Charge for the period 3 22 11 14 50 Disposals - (1) - (2) (3)
At 31 December 2006 3 24 12 17 56
Carrying amount at 31 December 2006 11 714 246 281 1 241 13 482
Carrying amount at 31 December 2005 219 21 23 59 322
9.2 Intangible assets
Computer software Inflation adjusted Historical
2006 2005 2006 2005 $'M $'M $'M $'M Cost Opening balance 2 913 2 432 38 19 Acquisition 109 481 30 19
3 022 2 913 68 38
Amortisation Opening balance 1 399 1 026 6 1 Amortisation 436 373 9 5 Impairment loss 7 - - -
1 842 1 399 15 6
Balance at 31 December 1 180 1 514 53 32
ANNUAL REPORT 2006 58 FBC Holdings Limited strength • diversity • service
Notes to the Financial Statements (cont’d) 31 December 2006
The impairment loss arose from the banking subsidiary's information software.
9.3 Operating leases
The Group leases a number of branch and office premises under operating leases. The leases typically run for a period of up to 5 years with an option to renew the lease after that date. The lease rentals are reviewed quarterly in view of the hyperinflationary environment currently prevailing and it is not possible to estimate reasonable future commitments. The current year commitments are disclosed on the face of the income statement.
Inflation adjusted Historical
2006 2005 2006 2005 $'M $'M $'M $'M
10. INTEREST INCOME
Loans and advances to banks and other financial institutions 3 165 712 1 147 22 Loans and advances to customers 10 241 6 609 3 700 203 Bankers acceptances and tradeable bills 111 249 31 396 42 152 1 020
124 655 38 717 46 999 1 245
11. INTEREST EXPENSE
Deposits from banks 14 504 2 663 5 259 80 Deposits from customers 12 700 3 765 4 630 138 Other time deposits 284 269 117 7 Other deposits 11 061 5 638 4 011 171
38 549 12 335 14 017 396
12. OTHER INCOME
Profit on disposal of equities 7 207 566 2 613 17 Fair value adjustment to investment properties 595 159 717 197 Fair value adjustments 776 - 263 - Rent Received 32 30 12 1 Profit on sale of property and equipment Other 379 3 625 168 (90)
8 989 4 380 3 773 125
12.1 Fees and Commission income includes fees and commission levied to customers for services provided in retail, treasury and trade finance, corporate banking and other departments which are not classified as dealing and trading income as these are disclosed separately.
59 ANNUAL REPORT 2006 FBC Holdings Limited strength • diversity • service
Notes to the Financial Statements (cont’d) 31 December 2006
13. OPERATING EXPENDITURE
Inflation adjusted Historical
2006 2005 2006 2005 $'M $'M $'M $'M 13.1 Staff Costs
Salaries and allowances 17 588 9 952 6 415 294 Equity settled transactions 1 519 33 550 3
19 107 9 985 6 965 297
13.2 Other expenses
Administration expenses 9 273 5 637 3 686 168 Audit fees 625 279 212 9
9 898 5 916 3 898 177
14. TAXATION
14.1 Analysis of tax charge
Charge for taxation based on taxable income for the year 5 748 1 602 5 748 117 Aids levy 173 46 173 3 Bank levy 851 434 851 32 Deferred taxation 1 835 3 105 734 154
8 607 5 187 7 506 306
15 DEFERRED TAXATION
15.1 Recognized deferred tax liabilities
Impairment of loans and advances (11) (7) (11) - Property and equipment 750 1 159 (352) 12 Unrealised gains 2 993 1 689 2 993 134 Fair value adjustments 737 365 737 26 Deferred acquisition costs 68 442 68 7 Premium reserve 340 210 340 27 Prepayments (4) (2) (4) -
4 873 3 856 3 771 206
ANNUAL REPORT 2006 60 FBC Holdings Limited strength • diversity • service
Notes to the Financial Statements (cont’d) 31 December 2006
15.2 Movement in deferred taxation
Inflation adjusted Historical
2006 2005 2006 2005 $'M $'M $'M $'M
Opening balance 3 856 3 856 206 11 Recognised in profit and loss 1 835 3 105 734 154 Recognised in equity (818) (3 105) 2 831 41
4 873 3 856 3 771 206
16. EARNINGS PER SHARE
16.1 Basic earnings per share
Inflation adjusted
Basic earnings per share is calculated by dividing the profit attributable to equity holders of the company by the weighted average number of ordinary shares in issue during the year, excluding ordinary shares purchased by the company and held as treasury shares.
Inflation adjusted Historical
2006 2005 2006 2005 $'M $'M $'M $'M
Profit attributable to equity holders of the Company 10 815 2 386 17 838 517
Weighted average number of ordinary Shares in issue (millions)
Weighted average number of ordinary shares 342 337 342 337
Basic earnings per share ($) 31.62 7.08 52.16 1.54
Weighted average number of ordinary shares (in millions)
Issued ordinary shares at 1 January 341 325 341 325 Effect of shares issued - 12 - 12 Share options exercised 1 - 1 -
Weighted average number of ordinary shares at 31 December 342 337 342 337
61 ANNUAL REPORT 2006 FBC Holdings Limited strength • diversity • service
Notes to the Financial Statements (cont’d) 31 December 2006
16.2 Diluted earnings per share
Diluted earnings per share is calculated adjusting the weighted average number of ordinary shares outstanding to assume conversion of all dilutive potential ordinary shares. The company has only share options as dilutive ordinary shares. A calculation is done to determine the number of shares that could have been acquired at fair value (determined as the average annual market share price of the Company's shares based on the monetary value of the subscription rights attached to outstanding share options. The number of shares calculated as above is compared with the number of shares that would have been issued assuming the exercise of the share options.
Inflation adjusted Historical
2006 2005 2006 2005 $'M $'M $'M $'M
Profit attributable to equity holders of the Company 10 815 2 386 17 838 517
Weighted average number of ordinary shares (in millions)
Weighted average number of ordinary shares at 31 December 342 337 342 337 Effect of options issued 19 19 19 19
Weighted average number of ordinary shares at 31 December 361 356 361 356
Diluted earnings per share 29.96 6.70 49.41 1.46
17. DIRECTORS' REMUNERATION
Fees 2 854 3 731 1 317 1 Other emoluments 4 471 26 851 1 871 2
7 325 30 582 3 188 3
18. CAPITAL COMMITMENTS
Capital expenditure authorised but not yet contracted for 26 000 9 778 26 000 708
Capital commitments will be funded from the Group's own resources.
19. CONTINGENT LIABILITIES
Guarantees and Letters of Credit 5 533 7 333 5 533 531
ANNUAL REPORT 2006 62 FBC Holdings Limited strength • diversity • service
Notes to the Financial Statements (cont’d) 31 December 2006
20. BORROWING POWERS
The directors may exercise all the powers of the Group to borrow money and to mortgage or charge its undertaking, property and uncalled capital, or any part thereof, and to issue debentures, debenture stock and other securities whether outright or as security for any debt, liability or obligation of the company or of any third party.
21. RETIREMENT FUNDS
21.1 The group operates a defined contribution pension scheme whose assets are held independently of the group's assets in separate trustee administered funds. All permanent employees are members of this fund.
21.2 National Social Security Authority
The Scheme was promulgated under the National Social Security Authority Act 1989. The company contributions under the scheme are limited to specific contributions as legislated from time to time and are presently 3% of pensionable salary to a maximum of $1 500 per employee.
21.3 Group contributions
Inflation adjusted Historical
2006 2005 2006 2005 $'M $'M $'M $'M
Self administered Pension fund 529 455 236 15 NSSA 34 8 13 -
563 463 249 15
21.4 Employee Statistics 2006 2005 Average number of employees for the period 670 620
63 ANNUAL REPORT 2006 FBC Holdings Limited strength • diversity • service
Notes to the Financial Statements (cont’d) 31 December 2006
22. INTEREST RATE REPRICING AND GAP ANALYSIS
22.1 Total position as at 31 December 2006
Inflation adjusted 1 Month3 Months 1 Year Non Up to to to to interest 1 month 3 months 1 year 5 years bearing Total $'M $'M $'M $'M $'M $'M Assets Balance with banks and cash - - - - 11 422 11 422 Advances 1 544 226 2 339 1 555 - 5 664 Investments 9 172 1 242 8 466 6 594 382 25 856 Property and equipment - - - - 20 317 20 317 Receivables & other assets - - - - 38 486 38 486
Total 10 716 1 468 10 805 8 149 70 607 101 745
Liabilities and shareholders' funds
Liabilities 39 052 1 478 1 758 1 360 17 872 61 520 Shareholders' funds - - - - 40 225 40 225
39 052 1 478 1 758 1 360 58 097 101 745
Interest rate repricing gap (28 336) (10) 9 047 6 789 12 510
Cumulative gap (28 336) (28 346) (19 299) (12 510) - -
Historical
Assets Balance with banks and cash - - - - 11 422 11 422 Advances 1 544 226 2 339 1 555 - 5 664 Investments 9 172 1 242 8 466 6 594 382 25 856 Property and equipment - - - - 13 535 13 535 Receivables & other assets - - - - 35 589 35 589
Total 10 716 1 468 10 805 8 149 60 928 92 066
Liabilities and shareholders' funds
Liabilities 39 052 1 478 1 758 1 360 16 868 60 516 Shareholders' funds - - - - 31 550 31 550
39 052 1 478 1 758 1 360 48 418 92 066
Interest rate repricing gap (28 336) (10) 9 047 6 789 12 510
Cumulative gap (28 336) (28 346) (19 299) (12 510) - -
ANNUAL REPORT 2006 64 FBC Holdings Limited strength • diversity • service
Notes to the Financial Statements (cont’d) 31 December 2006
22.2 Effective yields/costs on major financial assets and cost on liabilities
Inflation adjusted Historical cost
$'M Yield/ Cost $'M Yield/ Cost
Investments 25 856 501% 25 856 182%
Advances and other Accounts 5 664 32% 5 664 11%
Deposit and other accounts 43 648 74% 43 648 27%
22.3 Total position as at 31 December 2005
Inflation adjusted 1 Month 3 Months 1 Year Non Up to to to to interest 1 month 3 months 1 year 5 years bearing Total $'M $'M $'M $'M $'M $'M Assets Balance with banks and cash 7 992 - - - 2 397 10 389 Advances 602 494 1 529 912 36 3 573 Investments 3 197 6 365 7 575 468 544 18 149 Property and equipment - - - - 10 987 10 987 Receivable and other assets - - - - 8 222 8 222
Total 11 791 6 859 9 104 1 380 22 186 51 320
Liabilities and shareholders' funds
Liabilities 14 698 1 660 900 358 17 972 35 588 Shareholders' funds - - - - 15 732 15 732
14 698 1 660 900 358 33 704 51 320
Interest rate repricing gap (2 907) 5 199 8 204 1 022 (11 518) -
Cumulative gap (2 907) 2 292 10 496 11 518 - -
65 ANNUAL REPORT 2006 FBC Holdings Limited strength • diversity • service
Notes to the Financial Statements (cont’d) 31 December 2006
22.3 Total position as at 31 December 2005 (cont'd)
1 Month 3 Months 1 Year Non Up to to to to interest 1 month 3 months 1 year 5 years bearing Total $'M $'M $'M $'M $'M $'M Historical
Assets
Balance with banks and cash 579 - - - 173 752 Advances 44 36 111 66 2 259 Investments 231 461 548 34 41 1 315 Property and equipment - - - - 354 354 Receivable and other assets - - - - 538 538
Total 854 497 659 100 1 108 3 218
Liabilities and shareholders' funds
Liabilities 1 064 120 65 27 1 164 2 440 Shareholders' funds - - - - 778 778
1 064 120 65 27 1 942 3 218
Interest rate repricing gap (210) 377 594 73 (834) -
Cumulative gap (210) 167 761 834 - -
22.4 Effective yields/costs on major financial assets and cost on liabilities at 31 December 2005.
Inflation adjusted Historical cost
$'M Yield/ Cost $'M Yield/ Cost
Investments 18 149 75% 1 315 75%
Loans and advances 3 573 131% 259 131%
Deposit and other accounts 17 616 61% 1 276 61%
ANNUAL REPORT 2006 66 FBC Holdings Limited strength • diversity • service
Notes to the Financial Statements (cont’d) 31 December 2006
23.1 Position at 31 December 2006
Inflation adjusted Non Up to interest 1 month bearing Total Currency ZWD Equivalent ZWD Equivalent ZWD Equivalent $'m $'m $'m Assets US 638 - 638 GBP 54 - 54 EURO 146 - 146 ZAR 111 - 111 OTHER 5 - 5
954 - 954
Liabilities US 332 - 332 GBP 3 - 3 EURO 8 - 8 ZAR 15 - 15 OTHER 2 - 2
360 - 360
Net position 594 - 594
Historical
Assets US 638 - 638 GBP 54 - 54 EURO 146 - 146 ZAR 111 - 111 OTHER 5 - 5
954 - 954
Liabilities US 332 - 332 GBP 3 - 3 EURO 8 - 8 ZAR 15 - 15 OTHER 2 - 2
360 - 360
Net position 594 - 594
67 ANNUAL REPORT 2006 FBC Holdings Limited strength • diversity • service
Notes to the Financial Statements (cont’d) 31 December 2006
23.2 Position at 31 December 2005
Inflation adjusted Non Up to interest 1 month bearing Total Currency ZWD Equivalent ZWD Equivalent ZWD Equivalent $'m $'m $'m
Assets US 1 409 - 1 409 GBP 14 - 14 EURO 746 - 746 ZAR 704 - 704 OTHER 14 - 14
2 887 - 2 887
Liabilities US 262 - 262 GBP 14 - 14 EURO 124 - 124 ZAR 83 - 83
483 - 483
Net position 2 404 - 2 404
Historical
Assets US 102 - 102 GBP 1 - 1 EUR 54 - 54 ZAR 51 - 51 OTHER 1 - 1
209 - 209
Liabilities US 19 - 19 GBP 1 - 1 EURO 9 - 9 ZAR 6 - 6 OTHER - - -
35 - 35
Net position 174 - 174
ANNUAL REPORT 2006 68 FBC Holdings Limited strength • diversity • service
Notes to the Financial Statements (cont’d) 31 December 2006
24. FINANCIAL INSTRUMENTS
Financial assets and liabilities
Accounting classifications and fair values The table below sets out the Group's classification of each class of financial assets and liabilities, and their fair values (excluding accrued interest).
Designated Other Total at fair Held to Loans and Available- amortised carrying Fair Inflation adjusted Note Trading value maturity receivables for-sale cost amount value $'M $'M $'M $'M $'M $'M $'M $'M 31 December 2006 Cash and cash equivalents 6 - - - 11 422 - - 11 422 11 422 Trading assets 7.1 11 531 - - - - - 11 531 11 531 Pledged assets 7.2 6 234 - - - - - 6 234 6 234 Investment securities 7.3 493 - - - - - 493 493 Government bonds 7.4 - - 7 598 - - - 7 598 7 598 Loans and advances to customers 8.1 - - - 5 664 - - 5 664 5 664
18 258 - 7 598 17 086 - - 42 942 42 942
Trading liabilities Deposits from customers 5.1 - - - - - 35 239 35 239 35 239 Deposits from banks 5.3 - - - - - 8 409 8 409 8 409
- - - - - 43 648 43 648 43 648
31 December 2005 Cash and cash equivalents 6 - - - 10 389 - - 10 389 10 389 Trading assets 7.1 14 709 - - - - - 14 709 14 709 Pledged assets 7.2 2 872 - - - - - 2 872 2 872 Investment securities 7.3 568 - - - - - 568 568 Loans and to customers 8.1 - - - 3 573 - - 3 573 3 573
18 149 - - 13 962 - - 32 111 32 111
Trading liabilities Deposits from customers 5.1 - - - - - 19 264 19 264 19 264 Deposits from banks 5.3 - - - - - 160 160 160
- - - - - 19 424 19 424 19 424
69 ANNUAL REPORT 2006 FBC Holdings Limited strength • diversity • service
Notes to the Financial Statements (cont’d) 31 December 2006
24. FINANCIAL INSTRUMENTS (Cont'd)
Financial assets and liabilities (Cont'd)
Designated Other Total at fair Held to Loans and Available- amortised carrying Fair Historical Note Trading value maturity receivables for-sale cost amount value $'M $'M $'M $'M $'M $'M $'M $'M
31 December 2006 Cash and cash equivalents 6 - - - 11 422 - - 11 422 11 422 Trading assets 7.1 11 531 - - - - - 11 531 11 531 Pledged assets 7.2 6 234 - - - - - 6 234 6 234 Investment securities 7.3 493 - - - - - 493 493 Government bonds 7.4 - - 7 598 - - - 7 598 7 598 Loans and advances to customers 8.1 - - - 5 664 - - 5 664 5 664
18 258 - 7 598 17 086 - - 42 942 42 942
Trading liabilities Deposits from customers 5.1 - - - - - 35 239 35 239 35 239 Deposits from banks 5.3 - - - - - 8 409 8 409 8 409
- - - - - 43 648 43 648 43 648
31 December 2005 Cash and cash equivalents 6 - - - 752 - - 752 752 Trading assets 7.1 1 065 - - - - - 1 065 1 065 Pledged assets 7.2 208 - - - - - 208 208 Investment securities 7.3 42 - - - - - 42 42 Loans and advances to customers 8.1 - - - 259 - - 259 259
1 315 - - 1 011 - - 2 326 2 326
Trading liabilities Deposits from customers 5.1 - - - - - 1 332 1 332 1 332 Deposits from banks 5.3 - - - - - 12 12 12
- - - - - 1 344 1 344 1 344
ANNUAL REPORT 2006 70 FBC Holdings Limited strength • diversity • service
Notes to the Financial Statements (cont’d) 31 December 2006
Income from debt and other fixed-income instruments is recognised in interest and similar income.
Income from equity investments and other non-fixed income instruments is recognised in dividend income.
25. REPURCHASE AND RESALE AGREEMENTS
The Group raises funds by selling financial instruments under agreements to repay the funds by repurchasing the instruments at future dates at the same price plus interest at a predetermined rate. Repurchase agreements are commonly used as a tool for short-term financing of interest bearing assets, depending on the prevailing interest rates.
Fair value of Carrying Repurchase Repurchase underlying amounts of by price assets corresponding liabilities $'M $'M $'M Inflation adjusted
31 December 2006
Trading instruments 6 096 6 487 Jan 2007 6 761
31 December 2005
Trading instruments 826 713 Jan 2006 797
Historical
31 December 2006
Trading instruments 6 096 6 487 Jan 2007 6 761
31 December 2005
Trading instruments 60 52 Jan 2006 58
26. FAIR VALUE INFORMATION
It is the view of the directors that the fair value of financial instruments not carried at fair value is not materially different from their carrying value at balance sheet date.
71 ANNUAL REPORT 2006 FBC Holdings Limited strength • diversity • service
Notes to the Financial Statements (cont’d) 31 December 2006
27. ASSETS PLEDGED AS SECURITY (GROUP)
Assets pledged as security as at 31 December 2006 in respect of certain liabilities:
Inflation adjusted Historical
2006 2005 2006 2005 $'M $'M $'M $'M
Liabilities
Deposits from banks 6 835 713 6 835 51 Deposits from other customers 4 460 26 4 460 2
11 295 739 11 295 53
Assets pledged
Investments 6 234 2 872 6 234 208
28. DIVIDENDS
Interim dividends - 927 - 18 Final dividends - 1 283 - 26
- 2 210 - 44
ANNUAL REPORT 2006 72 FBC Holdings Limited strength • diversity • service
Notes to the Financial Statements (cont’d) 31 December 2006
29. SEGMENT REPORTING
Segment information is presented in respect of business segments.
Segment revenue, expenses, results and assets are items that are directly attributable to the business segment or which can be allocated on a reasonable basis to a business segment. All transaction between segments are conducted at arms length.
The group comprises of four business segments i.e. • Commercial Banking; Reinsurance; Building Society and Stockbroking.
Commercial Reinsurance Building Securities Consolidated Bank Society $'M $'M $'M $'M $'M
Inflation adjusted 2006
Total income 73 841 87 301 17 206 260 100 038
Profit after tax 5 307 3 211 3 906 - 12 377
Total assets 71 268 864 20 640 701 101 745
Inflation adjusted 2005
Total income 35 308 3 232 3 942 104 43 698 Profit/(loss) after tax 1 686 (743) 834 20 2 720 Total assets 38 394 5 274 7 422 630 51 320
Historical 2006
Total income 26 794 3 430 8 264 94 38 582 Profit after tax 11 375 2 198 6 711 63 20 522 Total assets 65 301 6 144 19 923 700 92 066
Historical 2005
Total income 1 073 131 176 7 1 371 Profit after tax 411 34 112 3 562 Total assets 2 392 308 503 45 3 218
73 ANNUAL REPORT 2006 FBC Holdings Limited strength • diversity • service
Shareholders’ Information 31 December 2006
Shareholders Shares held Number % Number (M) %
Spread of shareholding 0 - 1 000 5 911 78.0 1.6 0.6 1 001 - 5 000 950 12.5 2.2 0.6 5 001 - 10 000 194 2.6 1.5 0.4 10 001 - 100 000 390 5.2 12.7 3.6 100 001 - 500 000 84 1.1 17.5 5.0 500 001 - 1 000 000 15 0.2 11.4 3.3 1 000 000 and over 30 0.4 301.1 86.5
Total 7 574 100.0 348.0 100.0
Analysis of Shareholding
Type of shareholderShareholding (M) %
Insurance Companies 5 1.7 Banks and Nominees 23 6.7 Resident Individuals 114 32.1 Pension Funds 41 11.9 Investments, Trust Companies 122 35.2 Other Corporates 43 12.4
348 100
Top ten shareholders No. of Share % (M)
1. National Social Security Authority 79 22.7 2. Segmented Investments (Pvt) Ltd 44 12.7 3. Scaiflow Investments (Pvt) Ltd 26 7.4 4. Local Authority Pension Fund 25 7.1 5. FDC Nhema Family Trust 13 3.6 6. Amelia Properties (Pvt) Ltd 11 3.3 7. M & S Investments 10 2.9 8. Smoothnest Investments (Pvt) Ltd 10 2.9 9. Bartolus Investments (Pvt) Ltd 9 2.7 10. Tirent Investments (Pvt) Ltd 9 2.7
236 68.0
ANNUAL REPORT 2006 74 FBC Holdings Limited strength • diversity • service
Shareholders’ Information 31 December 2006
Performance on the Zimbabwe Stock Exchange - 31 December 2006
2006 2005
Number of shares in issue (M) 348 341 Market prices (cents per share) Closing 9 500 220 High 9 500 220 Low 260 14 Closing price/earnings 1.28 0.01 Market capitalization ($'M) 33 060 750
75 ANNUAL REPORT 2006 FBC Holdings Limited strength • diversity • service
Notice of Annual General Meeting 31 December 2006
Notice is hereby given that the third Annual General Meeting of Shareholders of FBC Holdings Limited will be held in the Auditorium Room, Charter House, 70 Samora Machel, Harare on Thursday, 21 June 2007 at 1200 hours.
Agenda
1. To receive, consider and adopt the Financial Statements and Reports of the Directors and Auditors of the Company for the financial year ended 31 December 2006.
2 To sanction the Dividend paid.
3. To elect Directors of the Company.
3.1 To approve the appointment of Mr Stanely Kudenga as Executive Director in terms of article 99 of the Company's Articles of Association.
3.2 In terms of Article 95 of the Company's Articles of Association, Mr Herbert Nkala and Mr.Godfrey Gaviro Nhemachena, retire by rotation and, being eligible, offer themselves for re-election.
4 To approve the remuneration of the Directors for the past financial year.
5 To approve the remuneration of the Auditors for the past audit and to re-appoint Messrs. KPMG, Chartered Accountants (Zimbabwe) of Harare As auditors of the Company.
6 To transact all such other business as may be transacted at an Annual General Meeting.
ANNUAL REPORT 2006 76 FBC Holdings Limited strength • diversity • service
Proxy Form 31 December 2006
I/We (name(s) in block letters) of (address in block letters) being (a) member(s) of the Company and entitled to vote, do hereby appoint
or, failing him/her,
or, failing him/her, the Chairman of the meeting as my/our proxy to attend and speak and vote for me/us and on my/our behalf at the Annual General Meeting of members of the company to be held on Thursday, 21st June 2007 at 1200 hours and at any adjournment thereof, as follows:
In favour of* Against * Abstain* 1. Resolution to adopt the Company Annual Financial Statements 2. Resolution to sanction the Dividend paid 3. (i) Resolution to confirm the appointment of a new Director
(ii) Resolution to re-elect the retiring Directors by single resolution
4. Resolution to approve the remuneration of the Directors 5. Resolution to approve the remuneration of the Auditors and re-appoint them
Please indicate with an 'X' in the appropriate spaces provided how you wish your vote to be cast. If no indication is given, the proxy may vote or abstain as he/she thinks fit.
A member of the company entitled to attend and vote at the above-mentioned meeting is entitled to appoint a proxy or proxies to attend, speak and vote in his/her stead. A proxy need not be a member of the company.
Signed at on 2007
Full name(s) (in block letters)
Signature (s)
Notes:
1) In order to be effective, proxy forms must be delivered or posted to the Transfer Secretaries, First Transfer Secretaries (Pvt) Ltd, 4th Floor, Goldbridge North, Eastgate, P O Box 11, Harare so as to reach this address not later than 1200 hours on Wednesday, 20th June 2007.
2) The delivery of a duly completed proxy form shall not preclude any member or his/her duly authorized representative from attending the meeting and speaking and voting thereat instead of the proxy.
3) If two or more proxies attend the meeting, then that person attending the meeting whose name appears first on the proxy form and whose name is not deleted shall be regarded as the validly appointed proxy.
77 ANNUAL REPORT 2006 FBC Holdings Limited strength • diversity • service
Notes
ANNUAL REPORT 2006 78 FBC Holdings Limited strength • diversity • service
Notes
79 ANNUAL REPORT 2006 FBC Holdings Limited strength • diversity • service
Notes
ANNUAL REPORT 2006 80 DESIGN & LAYOUT: AFRICA AD